UNITED
STATES




SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
DC  20549


___________________________




FORM
10-K






(mark
one)




[X]
            ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the fiscal year ended December 31,
      2009[  
      ]
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For
      the transition period from _______ to
_______




Commission
File No. 000-52363




SAHARA MEDIA HOLDINGS,
INC.


(Exact
Name of registrant as specified in its charter)




Delaware
            74-2820999(State
      or Other Jurisdiction of Incorporation
              or
      Organization)
            (I.R.S.  Employer
      Identification No.)81 Greene Street, 4 th
      Floor, New York, New
    York
            10012(Address
      of Principal Executive Offices)
            (Zip
      Code)(212) 343-9200(Issuer’s
      Telephone Number, Including Area
Code)





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





Title
      of Each Class
              to be so Registered:
            Name of each exchange on which
      registeredNone
            None





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





Common Stock, Par Value
$.003


(Title of
Class)





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.


Yes
[_]     No [X]





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange Act.    Yes
[_]    No [X]





Indicate
by check mark whether the registrant:  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the 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 has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or such shorter period that the registrant was required to submit and
post such files. Yes [ ] No [ ]




Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the registrant’s knowledge, in the definitive proxy or information statement
incorporated by reference in Part III of this Form 10-K or amendment to Form
10-K. Yes [X] No [ ]










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





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
June 30, 2009, the aggregate market value of the issued and outstanding common
stock held by non-affiliates of the registrant, based upon the closing price of
the common stock, under the symbol  “SHHD” as quoted on the OTC Bulletin
Board was approximately $36.5 million.   For purposes of the
statement in the preceding statement, all directors, executive officers and 10%
shareholders are assumed to be affiliates.  This determination of
affiliate status is not necessarily a conclusive determination for any other
purpose.








(ISSUERS
INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)





Check
whether the issuer has filed all documents and reports required to be filed by
Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities
under a plan confirmed by a court. Yes [_] No [_]





State the
number of shares outstanding of each of the issuer’s classes of common equity,
as of the latest practicable date: The Registrant’s common stock outstanding as
of April 6, 2010, was 33,491,709 shares of common stock.


1




SAHARA
MEDIA HOLDINGS, INC.






PART
      IItem
1.
            Business
            4Item
    1A.
            Risk
      Factors
            13Item
    1B.
            Unresolved Staff
      Comments
            19Item
2.
            Properties.
            19Item
3.
            Legal
      Proceedings.
            20Item
4.
            [Removed and Reserved.]
            20PART IIItem
5.
            Market For Registrant’s Common
      Equity, Related Stockholder Matters and Issuer Purchases of Equity
      Securities.
            21Item
6.
            Selected Financial
      Data.
            21Item
7.
            Management’s Discussion and
      Analysis of Financial Condition and Results of
      Operations.
            22Item
    7A.
            Quantitative and Qualitative
      Disclosures About Market Risk.
            27Item
8.
            Financial Statements and
      Supplementary Data.
            27Item
9.
            Changes in and Disagreements With
      Accountants on Accounting and Financial
    Disclosure.
            27Item
    9A.
            Controls and
      Procedures.
            27Item
    9B.
            Other
      Information.
            27PART IIIItem
    10.
            Directors, Executive Officers,
      and Corporate Governance.
            28Item
    11.
            Executive
      Compensation.
            31Item
    12.
            Security Ownership of Certain
      Beneficial Owners and Management and Related Stockholder
      Matters.
            33Item
      13.
            Certain Relationships and Related
      Transactions, and Director Independence.
            34Item
    14.
            Principal Accounting Fees and
      Services.
            35PART IVItem
    15.
            Exhibits and Financial Statement
      Schedules.
            35SIGNATURES
            38Consolidated Financial
      Statements
            40






2




FORWARD-LOOKING
STATEMENTS





Certain
statements made in this report on Form 10-K are "forward-looking statements"
regarding the plans and objectives of management for future operations. Such
statements involve known and unknown risks, uncertainties and other factors that
may cause actual results, performance or achievements of Sahara Media Holdings,
Inc. (the "Company", “we”, “us”, or “our”) to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. The forward-looking statements included herein are
based on current expectations that involve numerous risks and uncertainties. The
Company's plans and objectives are based, in part, on assumptions involving
judgments with respect to, among other things, future economic, competitive and
market conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the control of the
Company. Although the Company believes its assumptions underlying the
forward-looking statements are reasonable, any of the assumptions could prove
inaccurate and, therefore, there can be no assurance the forward-looking
statements included in this report will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking statements included
herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives and plans
of the Company will be achieved.





3




PART
I




Item 1. Business.




Sahara
Media Holdings, Inc. (the “Company”) is a Delaware corporation organized on
September 26, 1997 under the name Keystone Entertainment, Inc. On January 14,
1998, the Company’s corporate name was changed to Mac Filmworks, Inc.
(“MFI”).   On September 26, 2008, the Company’s corporate name
was changed to Sahara Media Holdings, Inc.   References in this
report on Form 10-K to, “we,” “us,” “our” and similar words refer to the Company
and its wholly-owned subsidiary, “Sahara”, unless the context indicates
otherwise, and, prior to the effectiveness of the reverse acquisition discussed
below, these terms refer to Sahara Media, Inc. References to MFI relate to the
Company prior to the reverse acquisition.




From
October 2007 until its acquisition of Sahara Media, Inc. in September 2008, MFI
was not engaged in any active business. Prior to October 2007, MFI had a limited
operating history engaged in the development, marketing and sales of a library
of feature films, television series, and made-for-television movies for sale
through various channels. The Company did not generate any revenues during the
years ended December 31, 2007 and December 31, 2006. In October 2007, MFI
completed an asset sale transaction whereby it issued 276,674 shares of MFI’s
common stock and transferred substantially all of MFI’s assets net of accounts
payable to Jim McCullough, its then Chief Executive Officer, in exchange for
McCullough forgiving $405,673 in debt owed by MFI to Mr. McCullough and his
affiliates. Effective upon the completion of the asset sale, MFI ceased all
active business operations.





On
September 17, 2008, the Company entered into an Agreement and Plan of Merger
(the “Merger Agreement”), with Sahara Media Acquisitions, Inc., a Delaware
corporation and wholly-owned subsidiary of the Company (the “Subsidiary”) and
Sahara Media, Inc., a Delaware corporation.  Pursuant to the Merger
Agreement, which closed on September 17, 2008 (the “Closing Date”), the
Subsidiary merged into Sahara Media, Inc. and Sahara Media, Inc. became a
wholly-owned subsidiary of the Company. Pursuant to the Merger Agreement, the
Company issued 18,150,000 shares of the Company’s Common Stock to the
shareholders of Sahara Media, Inc. (the “Acquisition Shares”) (subject to the
placement of 5,000,000 Acquisition Shares in escrow pursuant to the Securities
Escrow Agreement (defined below), representing approximately 58.9% of the
Company’s aggregate issued and outstanding common stock following the closing of
the Merger Agreement and the Private Placement (defined below) that closed in
September and October of 2008, and the outstanding shares of common stock of
Sahara Media, Inc. were cancelled and converted into the right to receive the
Acquisition Shares. The 18 shareholders of Sahara Media, Inc. who were issued
the 18,150,000 Acquisition Shares were all accredited investors.





In
connection with the recapitalization, on September 17, 2008, October 8, 2008,
and October 20, 2008, the Company entered into a series of identical
subscription agreements (the “Subscription Agreements”) with accredited
investors (the “Investors”), pursuant to which, the Company issued and sold
approximately 79.44 units, with each unit consisting of 100,000 shares of Common
Stock and five-year warrants to purchase 100,000 shares of common stock with an
exercise price of $2.50, for a purchase price of $125,000 per unit (the “Private
Placement”). Pursuant to the Private Placement, the Company issued and sold to
the Investors an aggregate of 7,944,034 shares of common stock (the “Common
Shares”) and five-year warrants to purchase 7,944,034 shares of Common
Stock  with an exercise price of $2.50 (the “Investor Warrants”), for
an aggregate purchase price of approximately $9,930,000. The Investor Warrants
may not be exercised to the extent such exercise would cause the holder of the
warrant, together with its affiliates, to beneficially own a number of shares of
common stock which would exceed 4.99% of the Company’s then outstanding shares
of common stock following such exercise. Pursuant to the Subscription
Agreements, the Company agreed to use its reasonable best efforts to file a
registration statement registering the Common Shares and the shares of common
stock underlying the Investor Warrants, subject to Securities and Exchange
Commission (“SEC”) limitations, within 45 days of the filing by the Company with
the SEC of its report on Form 8K reporting the reverse acquisition (which filing
occurred on September 24, 2008).












4




John
Thomas Financial, Inc. (“JTF”) was retained as the exclusive placement agent for
the Private Placement.  JTF received a commission of approximately
$993,000 (equal to 10% of the gross proceeds) and a non-accountable expense
allowance of approximately $297,900 (equal to 3% of the gross proceeds). JTF
also received a finder’s fee of $200,000 in connection with the reverse
acquisition, and a success fee of $400,000, based on the receipt of gross
proceeds of at least $8,000,000. Upon exercise of the Investor Warrants, JTF
will receive a 10% commission and a 3% non-accountable expense allowance. In
addition, we have retained JTF to assist us with our investment banking
requirements on an exclusive basis for a period of one year, pursuant to which,
on the Closing Date, the placement agent was issued five-year warrants to
purchase 1,000,000 shares of common stock of the Company with an exercise price
of $1.30 (the “Broker Warrants”). The Broker Warrants are exercisable on a
cashless basis, which represents stock settled stock appreciation
rights.





JTF will
also be issued one share of common stock of the Company for every four Investor
Warrants that are exercised within 12 months of the date on which the
registration statement registering the resale of the common stock underlying
such Investor Warrants has been declared effective by the SEC, and we retained
JTF as a consultant for a monthly fee of $10,000. Also, in connection with the
reverse acquisition, on the Closing Date, JTF was issued 3,000,000 shares of the
Company’s common stock. The Company also paid an additional finder’s fee of
$120,000 to Aubry Consulting Group, Inc. in connection with the reverse
acquisition.





In
connection with the foregoing, the Company relied upon the exemption from
securities registration afforded by Rule 506 of Regulation D as promulgated by
the United States Securities and Exchange Commission under the Securities Act of
1933, as amended (the “Securities Act”) and/or Section 4(2) of the Securities
Act. No advertising or general solicitation was employed in offering the
securities. The offerings and sales were made to a limited number of persons,
all of whom were accredited investors, and transfer was restricted by the
Company in accordance with the requirements of the Securities Act of
1933.





In
connection with the reverse acquisition, the following occurred:





(i) MFI
completed a 30-to-1 reverse stock split of its common stock, pursuant to which
MFI’s issued and outstanding shares of common stock, was reduced to 818,000
(prior to the Merger and the Private Placement). All share and per share
information in this report on Form 10-K give retroactive effect to the reverse
split.





(ii) The
Company entered into a securities escrow agreement (the “Securities Escrow
Agreement”) with Sahara Media, Inc., the shareholders of Sahara named therein
(the “Sahara Escrow Shareholders”), and Sichenzia Ross Friedman Ference LLP, as
escrow agent. Pursuant to the Securities Escrow Agreement, the Sahara Escrow
Shareholders agreed to place 5,000,000 Acquisition Shares (the “Escrow Shares”)
into an escrow account. The Escrow Shares will either be released to the Sahara
Escrow Shareholders, or returned to the Company for cancellation, based upon the
achievement of certain performance thresholds as set forth therein





(iii)
Sahara Media, Inc. entered into an indemnification agreement (the
“Indemnification Agreement”) with John Thomas Bridge & Opportunity Fund
(“JTO”), pursuant to which JTO agreed to indemnify Sahara for any breaches of
the representations and warranties made by the Company under the Merger
Agreement, in an amount up to $400,000, for up to two years. Sahara paid JTO a
fee of $400,000 upon the execution of the Indemnification
Agreement.





Pursuant
to the reverse acquisition, Sahara Media Holdings, Inc. became the parent
company of Sahara Media, Inc., a Delaware corporation formed in January 2005.
Sahara is a development-stage company located in New York City. Since its
formation, Sahara has concentrated on the development of its business strategy.
Until March 2004, Vanguarde Media, an entity not affiliated with Sahara,
published Honey Magazine, a publication aimed at the 18-34 urban female
demographic. As a result of financial difficulties of Vanguarde Media, Honey
Magazine ceased publishing in 2004.  Vanguarde Media filed for
bankruptcy in November 2003, and in February 2005 Sahara, through the
bankruptcy proceedings, purchased the “Honey” trademark for the class of paper
goods and printed matter (which relates to printed publications).





Although
Vanguarde Media (which also owned Savoy and Heart & Soul magazines in
addition to Honey) filed for bankruptcy, we believe we can succeed with the
Honey brand. Honey magazine had circulation of 400,000, the largest of
Vanuarde’s three publications (source: “Vanguarde media files for bankruptcy;
Savoy, Heart & Soul, and Honey fold due to lack of capital, flawed business
strategy”, Black Enterprise, February 2004, available at
http://findarticles.com/p/articles/mi_m1365/is_7_34/ai_n6065782). While Honey
under Vanguarde was a print publication, we have launched Honey online. Online
advertising has been growing as a percentage of total advertising, reaching 7.6%
in 2007 from 5.3% in 2004 (source: TNS Media Intelligence, “TNS Media
Intelligence Reports U.S. Advertising Expenditures Grew 0.2 Percent in 2007”,
March 25, 2008, available at http://www.tns-mi.com/news/03252008). Online
advertising is projected to grow to 15.2% of total media advertising by 2013
(source: eMarketer, available at
http://www.iab.net/insights_research/947883/1675/804370).In addition, our online
magazine will leverage user generated content through our social network
Hivespot.com.  Furthermore, by launching as an online rather than
print magazine, we will avoid the printing and labor costs of print
publications.




We expect
that the primary components of our business will be:




·           Our
online magazine Honeymag.com





·           Our
social network Hivespot.com, which will be re-launched under a new
name


with
new capabilities.





·           Our
database of names in the 18-34 urban female demographic (“Honey
Database”)





With the
Honey brand and the Honey Database we will seek to connect with audiences and
secure brand leadership for our target demographic.





The
online magazine Honeymag.com and the social network Hivespot.com are currently
operating websites that were officially launched on March 5, 2009. We believe
this strategy will allow us to exploit the synergies of our online magazine and
social networking site as well as live events.  Through December 31, 2009,
our websites have had an aggregate of approximately 626,076 visits and 1,940,707
page views, by 473,208 unique visitors, with average time on site of 3 minutes
and 13 seconds, and 7,023 registered users.




5


We
anticipate that our primary source of revenue will be the sale of advertising on
our online magazine Honeymag.com and our social network. We plan to sell
advertising through our direct sales ad team. We entered into advertising and
sponsorship agreements for the sale of an aggregate of $60,000 in advertising
and sponsorship in the second half of 2009, which generated $35,000 in 2009
revenues, and are currently in negotiations with additional potential
advertisers which we believe have the potential to generate significantly
greater revenues. We have chosen to not renew our ad aggregator agreements with
BET and GLAM Media since we believe that through our direct sales ad team we
have the ability to sell higher margin ads.




To
increase our web traffic, we are working with web consultants who help us link
our site with other websites, such as Facebook.com and Twitter.com (which does
not require us to enter into agreements with such websites).  Linking
to other websites allows us to attract web traffic from people who do not know
about our site.  Additionally, we continually seek to improve the
content on our site, which we believe will increase our page views because users
of the site will stay on the site longer and visit more parts of the
site.  Furthermore, we are currently in discussion regarding the
sponsorship of a television program aimed at urban females, which we believe
will have the potential to significantly increase traffic to our web site. There
is no assurance such negotiations will lead to a definitive agreement or an
increase in traffic to our web site.





The
following table sets forth our web traffic for each month since the launch of
our website in March 2009.





Month
            Visits
            Page
    views
            Unique
      visitors
            Registered usersMarch
      2009
            14,229
            82,509
            9,367
            668April
      2009
            21,425
            82,374
            15,967
            211May
      2009
            27,011
            95,504
            20,349
            1,256June
      2009
            53,969
            157,286
            41,609
            1,070July
      2009
            83,116
            223,105
            63,292
            818August
      2009
            73,355
            225,214
            54,754
            677September
      2009
            72,804
            215,945
            55,549
            645October
      2009
            77,444
            277,856
            56,472
            904November
      2009
            105,560
            291,352
            87,000
            608December
      2009
            97,163
            289,562
            68,849
            166January
      2010
            97,361
            251,760
            70,932
            899February
      2010
            87,588
            209,594
            65,375
            891




Based on
the industry experience of our management, we believe that, at a level of
approximately 75,000 monthly unique visitors, our website will be considered a
viable advertising venue for companies seeking to target urban women, and thus
further enable us to attract additional direct advertisers. As set forth above,
we are undertaking numerous actions to increase our web traffic levels;
nonetheless, there is no assurance we will be able to achieve or maintain this
level of web traffic or generate significant advertising revenues.





We
anticipate that we will begin efforts to generate revenue from licensing of the
Honey Database commencing in the first half of 2010. There is no assurance we
will succeed in generating revenues from the licensing of the Honey
Database.




The
Market Opportunity




We
believe there is an unmet market need for a marketing product that integrates
online and offline media.  Online advertising as a percentage of
advertising budgets has been increasing over the years, reaching 7.6% in 2007
from 5.3% in 2004 (source: TNS Media Intelligence, “TNS Media Intelligence
Reports U.S. Advertising Expenditures Grew 0.2 Percent in 2007”, March 25, 2008,
available at http://www.tns-mi.com/news/03252008). For the first nine months of
2008, internet advertising spending grew 7% compared to the same period in 2007,
even as total advertising spending declined 1.7% (source: TNS Media
Intelligence, “TNS Media Intelligence Reports U.S. Advertising Expenditures
Declined 1.7 Percent in First Nine Months of 2008”, available at http://www.tns-mi.com/news/12112008.htm)





Market Positioning and the Honey
Database




We plan
to develop and use Honey’s online presence, the Honey Database and other
cost-effective marketing to reconnect with the Honey audience.




Sahara
acquired approximately 3,660,000 of the 4,050,000 names (approximately 3,900,000
names after the database was scrubbed) included in the Honey Database pursuant
to an asset purchase agreement (the “Database Purchase Agreement”), by and
between Sahara Media, Inc. and BPA Associates, LLC (“BPA”). The remaining
portion of the Honey Database, including approximately 384,000 names, was
already owned by Sahara prior to entering into the Database Purchase Agreement.
BPA is an entity owned by Bertha Anderson, who is the mother of Philmore
Anderson IV, our chief executive officer. Under the Database Purchase Agreement,
we paid BPA $825,000 in cash, of which $50,000 was paid upon the closing of a
bridge loan in July 2008, and an additional $775,000 was paid upon the closing
of the Private Placement on September 17, 2008. In addition, pursuant to the
Database Purchase Agreement, upon the closing of the Private Placement, we
issued BPA 1,425,000 shares of common stock. The closing under the Database
Purchase Agreement occurred upon the closing of the Private Placement on
September 17, 2008.




Commencing
with the launch of our online magazine and social network in March 2009, we have
begun to attract unique visitors to our online magazine and develop our
advertising base by enhancing and refining our editorial and production
standards to provide consistently fresh, relevant content.





Commencing
in the first half of 2010, we will seek to expand the reach of the Honey brand
through licensing to radio, television, consumer products, and other platforms
as appropriate to reach our target demographic. We do not have any such
licensing deals in place and cannot assure you that we will be successful in
implementing and generating revenues from these plans.





6


We do not
anticipate incurring additional expenses in connection with these plans, apart
from our ongoing operational expenditures as set forth under “Business Model”
below.




Market
Size and Analysis




African-American
Consumer Profile: Young, Increasingly Affluent and Educated




The
African-American population skews younger than the U.S. population. In 2005, the
median age of the African-American population was 31.3 compared to 40.4 for
non-Hispanic whites (source: U.S. Census Bureau, 2005) In addition, females
represent a greater percentage of the African-American population than of the
general U.S. population (Source: U.S. Census Bureau, 2004).




Snapshot of the African-American
Market




The
following trends provide specific evidence of the size, growth, and viability of
Honey’s target market:




African-American
influence pervades American culture—fashion, music, dance and language are just
a few examples of the power that this market segment has on
America.




From 1990
to 2012, the African-American population is projected to grow by 35.3% compared
to a 26.6% increase for the total U.S. population (source: Jeffrey M. Humphreys,
“The Multicultural economy 2007”, Georgia Business and Economic Conditions,
Volume 67, Number 3, available at
http://www.selig.uga.edu/forecast/GBEC/GBEC0703Q.pdf). Currently, the
African-American population comprises 13% of the total U.S. population. The
percent of African-Americans who are new immigrants continues to grow and
contribute to the vitality of the community. The market research firm Synovate
estimated in 2006 that 8.5% of the African-American population was foreign born.
This represents an increase from the 7.4% of the African-American population who
were immigrants in 1990 (Source: U.S. Census Bureau, 2004).




The
buying power of African-Americans rose 166% in 17 years, from $318 billion in
1990 to $845 billion in 2007 (source: Jeffrey M. Humphreys, “The Multicultural
economy 2007”, Georgia Business and Economic Conditions, Volume 67, Number 3,
Third Quarter 2007, available at
http://www.selig.uga.edu/forecast/GBEC/GBEC0703Q.pdf). By 2012, the buying power
of African-Americans is projected to grow to more than $1 trillion (source:
Jeffrey M. Humphreys, “The Multicultural economy 2007”, Georgia Business and
Economic Conditions, Volume 67, Number 3, Third Quarter 2007, available at
http://www.selig.uga.edu/forecast/GBEC/GBEC0703Q.pdf).




Honey targets a significant
segment within the African-American market





·                 There
are 5.027 million African-American women between the ages of 18 – 34 (source:
U.S. Census Bureau, 2004)





·                 86%
of African-Americans adults are regular magazine readers, compared to 85% of all
U.S. adults, as of the fall of 2007 (source: Magazine Publishers of America,
“African-American/Black Market Profile” (2008), available at
http://www.magazine.org/ASSETS/2457647D5D0A45F7B1735B8ABCFA3C26/market_profile_black.pdf,
and filed as an exhibit to the registration statement of which this prospectus
forms a part (the “MPA Report”)





·                 The
median number of magazine issues read in a month by African-American magazine
readers is 10.7, compared to 7.5 per month for all U.S. adults, as of the fall
of 2007 (source: MPA Report).






Competition




We face
formidable competition in every aspect of our business, and particularly from
other companies that seek to connect people with information and entertainment
on the web. We intend to leverage the Honey brand by integrating our online
magazine and the Honey Database, and working with our operational, PR and
professional partners to effectively compete. Below is a breakdown of the
competition that we face in our three main planned business
segments.




7


Competition
in the Social Networking Space





Online
social networking services are used regularly by millions of people. We believe
that the principal competitive factors in the social networking market are
name recognition, functionality, performance, ease of use, value-added services
and features, and quality of support.





We will
seek to reach our core target demographic of African-American women in the 18-34
age bracket through content that integrates our social networks Hivespot.com and
the full version of our online magazine. We will exploit content and brand
equity from Honey’s six-year run as a print publication.  We also plan
to attract users to our social network through use of our Honey Database of
approximately 3.9 million women in our target demographic.





Competition
in the Online Magazine Space





We
officially launched Honeymag.com as an online magazine on March 5, 2009. We
believe there is not currently any other pure online magazine especially
targeting urban women. Accordingly, we believe the principal competition for the
online magazine will be the websites of print publications targeted at
African-Americans.





We will
attempt to distinguish Honey from its competition through unique and
original content developed for our Honey brand, as well as through content that
integrates our social network Hivespot.com and the full version of our online
magazine. In addition, we plan to exploit content and brand equity acquired from
Honey’s six year run as a print publication. We also plan to attract readers to
our online magazine by use of our Honey Database of approximately 3.9 million
women in our target demographic. In addition, by launching as an online rather
than print magazine, we will avoid the printing and labor costs of print
publications.





Competition
in the Database Management Business




Our main
asset besides our Honey brand is our proprietary Honey Database. We believe the
Honey Database will be integral to our business, by generating revenue through
the licensing of the Honey Database to advertisers, political parties, and
others.





We do not
anticipate that competition in the database management business will materially
affect our operations. We will seek to compete in the database management
business by continually enhancing and growing our database through individual
registration on our online magazine and social network websites.






Honey
Brand Name




The Honey
brand is aimed at the 18-34 year old black female. It aims to address the
lifestyle and interests of this demographic by providing editorial content that
is relevant, entertaining, informative, and inspiring.





Description
of the Brand





We intend
to re-establish the Honey brand with a focus on the issues and lifestyle that
affect the black female--what she wears, what she wants out of her career, how
she connects to others, what she aspires to in life, and how she feels about
herself.





To
re-establish the Honey brand, we intend to create and provide content such as
skin care tips, make-up techniques, club fashion, clothing reviews, shopping
advice, sexual columns, and health news, all from a young, black, female
perspective.





We
believe that at this time, there is no other online publication exclusively
targeting the 18-34 urban female market.





Honey’s
closest competition is Essence magazine. However, Essence’s audience base is
older, married, and has a higher percentage of men.





Other
competition includes magazines targeting African-American readership in general:
Ebony, Vibe, Vixen, Jet, Source, and Black Enterprise. However, these
publications have had a different editorial focus.





8


Business
Model




Bringing
the Online and Offline Models Together




We will
seek to combine online advertising and live events under one roof. To this
end, the Honey Database will be used to maximize Honey’s brand awareness and to
drive traffic to our social network, online magazine and to events.




Commencing
in the second half of 2009, we implemented a plan to hold live events through
partnerships with sponsors seeking to reach Honey’s target demographic, such as,
a record launch sponsored by a liquor company, or a hairstyle-related event
sponsored by a cosmetics company. If we are successful in implementing such
plans, the sponsor of the event would pay us a fee for holding the event, for
the exposure to Honey’s target demographic. In July 2009 we participated in the
Essence Music Festival where we hosted a VIP lounge on behalf of a cosmetics
company client. We are currently in discussions regarding an additional live
event featuring musical performances to be held in the second half of 2010.
There is no assurance such discussions will result in a definitive
agreement.




Through
online advertising, direct marketing, events and social networking, we will seek
to leverage the Honey brand name and the Honey Database.





We will
seek to quickly connect with Honey’s past advertisers while forging new agency
and corporate relationships.





We will
also seek to create advertising impact, such that advertising agencies and
brands will view Honey as the best way to reach our highly targeted audience.
Ads should appear in the relevant editorial context to maximize receptivity.
Online quality and ad layout should exceed sponsor expectations.  We
will seek to integrate Honey’s online content with the social network
Hivespot.com to maximize our target marketing potential.





Finally,
we will seek to make all production and distribution dates in a timely fashion
while exercising cost discipline in all areas of the business.





Content
for the magazine will be driven by the full-time and freelance editorial staff,
re-purposed past content from the Honey print publication, and user generated
content through our proprietary social network Hivespot.com.




Ongoing
operational expenditures related to content development fall under the following
categories:




§                 Editorial
staff salaries (approximately $394,000 annually)


§                 Distribution
& network expense (approximately $162,000 annually)


§                 Editorial
& creative expense (approximately $120,000 annually)


§                 Amortization
expense (approximately $600,000 annually)


§                 Rent
expense (approximately $281,000 annually)


§                 Office
expenses (approximately $14,000 annually)


§                 Insurance
(approximately $41,000 annually)


§                 Utilities
(approximately $46,000 annually)





We intend
to seek additional capital through the sale of equity securities, and together
with anticipated revenues, we believe that such additional capital will be
sufficient to fund our content generation. However, we cannot assure you that
such financing will be secured, our cost estimates are accurate, that
anticipated revenues will materialize, or that unforeseen events will not occur
that would cause us to seek additional funding to meet our need for working
capital. There can be no assurance that additional financing, if and when
needed, will be available in amounts or on terms acceptable to us, or at
all.




Expansion
Plan




We
anticipate that the foundation for our expansion, will
involve:





·      The
utilization of the Honeymag.com website and its integration with the social
network Hivespot.com, which will be re-launched under a new name with new
capabilities in mid-2010, to drive web traffic;




·      
The licensing of our Honey Database for potential revenue generation (we
anticipate commencing efforts to generate revenue from licensing the Honey
Database commencing in the first half of 2010)




·      
The holding of live events in partnership with sponsors (which we commenced in
the second half of 2009), such as, for example, a record launch sponsored by a
liquor company (no such arrangements are currently in place); and





·        Our
use of direct mail and email to contact names on our Honey
Database,




Commencing
in the third quarter of 2009, we launched Honey as a quarterly, limited edition
online magazine.





9


We
anticipate that the cost of re-launching our social network with new
capabilities will be approximately $400,000, of which approximately $162,000 was
incurred through December 31, 2009. We do not anticipate incurring any other
additional expenses in connection with our expansion plans, apart from our
ongoing operational expenditures as set forth under “Business Model”
above.





We intend
to seek additional capital through the sale of equity securities, and together
with anticipated revenues, we believe that such additional capital will be
sufficient to fund our content generation. However, we cannot assure you that
such financing will be secured, our cost estimates are accurate, that
anticipated revenues will materialize, or that unforeseen events will not occur
that would cause us to seek additional funding to meet our need for working
capital. There can be no assurance that additional financing, if and when
needed, will be available in amounts or on terms acceptable to us, or at
all.




Sales
Strategy





We plan
to generate revenues through (i) advertising sales from our online magazine and
social network websites; (ii) licensing our Honey Database; and (iii) direct
marketing and sponsorships.




We
anticipate that our advertising revenues will begin to scale in the second half
of 2010.  We plan to sell advertising through our direct sales ad
team. We entered into advertising and sponsorship agreements for the sale of an
aggregate of $60,000 in advertising and sponsorship in the second half of 2009,
which generated $35,000 in 2009 revenues, and are currently in negotiations with
additional potential advertisers which we believe have the potential to generate
significantly greater revenues. There is no assurance that such negotiations
will result in definitive agreements or the generation of any revenues. We have
chosen to not renew our ad aggregator agreements with BET and GLAM Media since
we believe that through our direct sales ad team we have the ability to sell
higher margin ads. The amount of advertising revenue generated will be directly
related to the amount of web traffic the sites will generate.





To
increase our web traffic, we are working with web consultants who help us link
our site with other websites, such as Facebook.com and Twitter.com (which does
not require us to enter into agreements with such websites).  Linking
to other websites allows us to attract web traffic from people who do not know
about our site.  Additionally, we continually seek to improve the
content on our site, which we believe will increase our page views because users
of the site will stay on the site longer and visit more parts of the
site.  Furthermore, we are currently in discussion regarding the
sponsorship of a television program aimed at urban females, which we believe
will have the potential to significantly increase traffic to our web site. There
is no assurance such negotiations will lead to a definitive agreement or an
increase in traffic to our web site.





Based on
the industry experience of our management, we believe that, at a level of
approximately 75,000 monthly unique visitors, our website will be considered a
viable advertising venue for companies seeking to target urban women, and thus
further enable us to attract additional direct advertisers (see table in “Item
1.Business.” for details of our monthly web traffic). As set forth above, we are
undertaking numerous actions to increase our web traffic levels; nonetheless,
there is no assurance we will be able to achieve or maintain this level of web
traffic or generate significant advertising revenues.





We
anticipate that we will begin efforts to generate revenue from licensing of the
Honey Database commencing in the first half of 2010. There is no assurance we
will succeed in generating revenues from the licensing of the Honey
Database.




We plan
to target both brands, including both past Honey advertisers and new prospects;
and agencies, including African-American focused and other agencies, to secure
advertising sales.





For both
brands and agencies, we will offer a range of sponsorships, including online
ads, special issues, special sections, branded promotions, and other integrated
media as appropriate.





10


The
following are priorities for our sales effort, commencing with the launching of
our online magazine and social network in March 2009:





·Connect with
advertisers who have supported Honey in the past





·Leverage special
issues and promotions for increased ad sales





Honey
will use a range of special issues, sections, and promotions to add value for
advertising partners and attract new sponsors.





Special
issues currently planned include Holiday Gift Guide, Automotive, Travel, and
Health. These issues will be complemented by a range of promotional
opportunities such as travel contests, beauty makeover contests, technology
giveaway contests, and others as appropriate.





·Develop rate
incentive program for new and valued advertising partners





Charter
advertiser incentives will be developed for advertising partners who commit to
long-term insertions. Currently, we plan to offer a rate break for those who
commit to nine or more insertions.





·Provide integrated,
multi-platform solutions to complement online offering





The focus
of our initial media programs will be the online magazine and social network
supplemented by off-line promotion.





We
believe that in the coming years, advertisers will increasingly demand
integrated media solutions that combine print, web, events, and broadcast media.
To meet this demand, we anticipate the development of a number of other media
options, including Honey Radio, Honey TV, Honey Music, and other brand
extensions. Our success does not rely on these extensions. However, we believe
that they will be a highly cost effective way to enhance brand equity while
creating additional sponsorship value for our advertising partners.




As noted
above, we also plan to generate revenue from the Honey Database, which targets a
highly specific demographic group, by licensing it to advertisers as well as
non-profit organizations.  We anticipate that we will begin efforts to
generate revenue from licensing of the Honey Database commencing in the first
half of 2010. There is no assurance we will succeed in generating revenues from
the licensing of the Honey Database.





Project
Development





Pursuant
to a project order agreement with Dogmatic, Inc. (“Dogmatic”), dated July 8,
2008, we retained Dogmatic, a creative production services agency with offices
in New York City and Venice, CA., to develop and launch our online magazine and
social networking site. We paid Dogmatic $550,000 for their services under the
agreement, including an initial deposit of $75,000 upon execution of the
agreement. No further amounts are due to Dogmatic under the
agreement.





In the
fourth quarter of 2009, we retained an IT consultant to begin enhancements to
the design and functionality of our website. We incurred $162,000 in costs
through December 31, 2009 and anticipate additional costs upon completion, which
is estimated to occur in the second quarter of 2010.




Hivespot.com—Social
Networking Functionality





Web
branding and design will allow us to select and coordinate available components
so as to create an efficient layout and structure. Dogmatic will design a web
shell that is simple and flexible to display content according to various user
preferences (both front-end (users who have registered for the site) and
back-end (users who are part of the administrative staff of the magazine)).
Creating an appropriate balance between eye-catching design and
engaging/informative content will reinforce the Honey web brand. This
combination will encourage visitors to become accustomed to and ultimately
return to our website for new content and information posted since the user’s
previous visit.




Government
Regulation




We are
subject to a number of foreign and domestic laws and regulations that affect
companies conducting business on the internet. In addition, laws and regulations
relating to user privacy, freedom of expression, content, advertising,
information security and intellectual property rights are being debated and
considered for adoption by many countries throughout the world. We face risks
from some of the proposed legislation that could be passed in the
future.




In the
U.S., laws relating to the liability of providers of online services for
activities of their users and other third parties are currently being tested by
a number of claims, which include actions for defamation, libel, invasion of
privacy and other data protection claims, tort, unlawful activity, copyright or
trademark infringement and other theories based on the nature and content of the
materials searched, the ads posted or the content generated by users. Certain
foreign jurisdictions are also testing the liability of providers of online
services for activities of their users and other third parties. Any court ruling
that imposes liability on providers of online services for activities of their
users and other third parties could harm our business.




Likewise,
a range of other laws and new interpretations of existing laws could have an
impact on our business. For example, in the U.S. the Digital Millennium
Copyright Act has provisions that limit, but do not necessarily eliminate, our
liability for listing, linking or hosting third-party content that includes
materials that infringe copyrights or other rights. The Child Online Protection
Act and the Children’s Online Privacy Protection Act restrict the distribution
of materials considered harmful to children and impose additional restrictions
on the ability of online services to collect information from children under 13.
In addition, the Protection of Children from Sexual Predators Act of 1998
requires online service providers to report evidence of violations of federal
child pornography laws under certain circumstances. The costs of compliance with
these laws may increase in the future as a result of changes in interpretation.
Furthermore, any failure on our part to comply with these laws may subject us to
significant liabilities.




Similarly,
the application of existing laws prohibiting, regulating or requiring licenses
for certain businesses of our advertisers, including, for example, online
gambling, distribution of pharmaceuticals, adult content, financial services,
alcohol or firearms, can be unclear. Application of these laws in an
unanticipated manner could expose us to substantial liability and restrict our
ability to deliver services to our users. For example, some French courts have
interpreted French trademark laws in ways that would, if upheld, limit the
ability of competitors to advertise in connection with generic
keywords.





11


We are
also subject to federal, state and foreign laws regarding privacy and protection
of user data. Any failure by us to comply with our posted privacy policies or
privacy-related laws and regulations could result in proceedings against us by
governmental authorities or others, which could potentially harm our business.
In addition, the interpretation of data protection laws, and their application
to the internet, in Europe and other foreign jurisdictions is unclear and in a
state of flux. There is a risk that these laws may be interpreted and applied in
conflicting ways from country to country and in a manner that is not consistent
with our current data protection practices. Complying with these varying
international requirements could cause us to incur additional costs and to have
to change our business practices. Further, any failure by us to protect our
users’ privacy and data could result in a loss of user confidence in our
services and ultimately in a loss of users, which could adversely affect our
business.





In
addition, because our services are accessible worldwide, certain foreign
jurisdictions may claim that we are required to comply with their laws, even
where we have no local entity, employees or infrastructure.




Intellectual
Property





Our Honey
Database, trademarks, trade secrets, copyrights and other intellectual property
rights are important assets for us. In particular, we consider the “Honey”
trademark and our related trademarks to be valuable to us and will aggressively
seek to protect them. We have registered the following trademarks in the United
States for the class of paper goods and printed matter (which relates to printed
publications): Honey, and Honey Hair & Beauty. In addition, we have U.S.
trademark applications pending for the class of paper goods and printed matter
for the following trademarks: Honey Bride, and Honey Teen; and have U.S.
trademark applications pending for the class of education and entertainment for
the following trademarks: Honey, Honey Bride, Honey Teen, and Honey Hair &
Beauty.





Employees




As of
March 30, 2010, we have 6 employees (all of whom are full-time). None of
our employees are represented by a labor union. We consider our employees
relations to be good.




Research
and Development





For the
years ended December 31, 2009 and 2008, we incurred $1,438,685 and $296,694,
respectively, on product development.





Subsequent
Events




In
January 2010 and February 2010, the Board of Directors approved, and the Company
issued, 3,344,999 shares and 5,000 shares of common stock, respectively, to
employees (including Board members) and non-employees for services rendered in
2009. The shares were valued at $0.35 per share, $1,170,750 and $1,750,
respectively, the fair value at December 31, 2009. The Company accrued a
liability for the stock-based compensation to employees (and directors) and
non-employees of $1,135,750 (3,244,999 shares) and $36,750 (105,000 shares),
respectively, in the year ended December 31, 2009. In the first quarter of 2010,
the Company will incur additional stock-based compensation to employees (and
directors) of $421,850 and to non-employees of $12,500 based on the fair value
of the shares of common stock at the grant date.




On March
4, 2010, the Company entered into an Investment Banking, Strategic Advisory and
Consulting Agreement (the “IB Agreement”) with JTF, whereby the Company engaged
JTF to render such investment banking, advisory and consulting services as
defined in the IB Agreement. The investment banking services, which among other
possible assisted transactions, will include the offering for sale of a series
of convertible preferred stock up to a maximum of $9,000,000 for which JTF will
be separately compensated as defined in the IB Agreement and , will be in effect
for a two year period commencing March 4, 2010. The consulting services will be
for a two year period, at $10,000 per month, commencing on the closing of the
$1,000,000 minimum amount of the offering, as defined in the IB
Agreement.
 
 On March
24, 2010, the Company entered into a Purchase Agreement (‘Purchase Agreement”)
with JTBO and other potential investors (collectively the “Investor”),
whereby the Company agreed to sell and the Investor agreed to purchase (i)
a debenture in the principal amount of a minimum of $490,000 and a maximum of up
to $980,000, bearing interest at the rate of 16% per annum, and (ii) a minimum
of 1,000,000 shares and a maximum of up to 2,000,000 shares of Company common
stock issued for a minimum of $10,000 and a maximum of up to $20,000 of
consideration, as defined in the debenture (“Debenture”) and stock purchase
agreement (“Stock Purchase Agreement”).
 
 On March
24, 2010, JTBO purchased a Debenture in the principal amount of $490,000,
bearing interest at 16%. The Debenture is due on September 30, 2010. The Company
may extend the Debenture’s maturity date by three month periods if by the
maturity date, the Company notifies JTBO and delivers to JTBO 1,000,000 shares
of the Company’s common stock as consideration for the extension. Upon the
closing by the Company of one or more financings in which the Company receives
gross proceeds of less than $1,500,000 the Company shall pay an amount equal to
50% of the proceeds of such financing to reduce the principal amount of the
Debenture. In addition, pursuant to the Stock Purchase Agreement, JTBO purchased
1,000,000 shares of common stock for consideration of $10,000. The Company also
agreed to issue JTBO 200,000 shares of the Company’s common stock in connection
with the closing of the financing. The Company incurred financing costs of
$417,500 ($290,000 of which is share-based) in connection with the sale of the
debenture and common stock which will be amortized over the term of the
debenture. In connection with this investment the investor has been granted
piggy back registration rights.
 
 On April
14, 2010, pursuant to the Purchase Agreement, another investor purchased a
Debenture in the principal amount of $245,000, bearing interest at 16%. The
Debenture is due on October 14, 2010. The Company may extend the Debenture’s
maturity date by three month periods if by the maturity date, the Company
notifies the investor and delivers to the investor 500,000 shares of the
Company’s common stock as consideration for the extension. Upon the closing by
the Company of one or more financings in which the Company receives gross
proceeds of less than $1,500,000 the Company shall pay an amount equal to 50% of
the proceeds of such financing to reduce the principal amount of the Debenture.
In addition, pursuant to the Stock Purchase Agreement, the investor purchased
500,000 shares of common for consideration of $5,000.
  On April
14, 2010, the Company borrowed $65,000 from its CEO for working capital
purposes. The promissory note bears interest at 9% per annum and is secured by
certain assets of the Company. Principal and all accrued and unpaid interest to
the date of repayment will be paid through the issuance of shares of the
Company’s common stock at a rate of $0.50 per share. The entire unpaid portion
of the note, together with all accrued interest through the date of payment may
be declared immediately due and payable by the CEO upon the attaining of certain
capital funding by the Company, as defined in the agreement.


12




Item 1A.
            Risk
      Factors




We
have a limited operating history upon which an evaluation of our prospects can
be made.




We have
had only limited operations since our inception upon which to evaluate our
business prospects. As a result, an investor does not have access to the same
type of information in assessing his or her proposed investment as would be
available to purchasers in a company with a history of prior operations. We face
all the risks inherent in a new business, including the expenses, difficulties,
complications and delays frequently encountered in connection with conducting
operations, including capital requirements and management’s potential
underestimation of initial and ongoing costs. We also face the risk that we may
not be able to effectively implement our business plan. If we are not effective
in addressing these risks, we may not operate profitably and we may not have
adequate working capital to meet our obligations as they become
due.







We
have a history of losses and a large accumulated deficit and we may not be able
to achieve profitability in the future.





For the
years ended December 31, 2009 and 2008 we incurred net losses of $7,166,818 and
$2,034,056, respectively. From the date of inception (January 18, 2005)
through December 31, 2009, we have accumulated net losses of $11,161,274. There
can be no assurance that we will be profitable in the future. If we are not
profitable and cannot obtain sufficient capital we may have to cease our
operations.




Additional
financing may be necessary for the implementation of our strategy, which we may
be unable to obtain.





Our
capital requirements in connection with our development activities and
transition to commercial operations have been and will continue to be
significant. We believe that our available capital together with anticipated
revenues will be sufficient to continue the development of our business for the
foreseeable future. However, we cannot assure you that our cost estimates are
accurate, that anticipated revenues will materialize, or that unforeseen events
will not occur that would cause us to seek additional funding to meet our
need for working capital. There can be no assurance that financing, if and when
needed, will be available in amounts or on terms acceptable to us, or at
all.





We
may not be able to effectively control and manage our growth, which would
negatively impact our operations.




If our
business and markets grow and develop it will be necessary for us to finance and
manage expansion in an orderly fashion. We may face challenges in managing
expanding service offerings and in integrating any acquired businesses with our
own. Such eventualities will increase demands on our existing management,
workforce and facilities. Failure to satisfy increased demands could interrupt
or adversely affect our operations or cause administrative
inefficiencies.





We
may be unable to successfully execute any of our identified business
opportunities or other business opportunities that we determine to
pursue.




We
currently have a limited corporate infrastructure. In order to pursue business
opportunities, we will need to continue to build our infrastructure and
operational capabilities. Our ability to do any of these successfully could be
affected by any one or more of the following factors:





·
            our
      ability to raise substantial additional capital to fund the implementation
      of our business plan;·
            our
      ability to execute our business strategy;·
            the
      ability of our products and services to achieve market
      acceptance;·
            our
      ability to manage the expansion of our operations and any acquisitions we
      may make, which could result in increased costs, high employee turnover or
      damage to customer relationships;·
            our
      ability to attract and retain qualified personnel;·
            our
      ability to manage our third party relationships effectively;
      and·
            our
      ability to accurately predict and respond to the rapid technological
      changes in our industry and the evolving demands of the markets we
      serve.




Our
failure to adequately address any one or more of the above factors could have a
significant adverse effect on our ability to implement our business plan and our
ability to pursue other opportunities that arise.





Our
business depends on the development of a strong brand, and if we do not develop
and enhance our brand, our ability to attract and retain subscribers may be
impaired and our business and operating results may be harmed.





13


We
believe that our “Honey” brand will be a critical part of our business.
Re-establishing, developing and enhancing the “Honey” brand may require us to
make substantial investments with no assurance that these investments will be
successful. If we fail to re-establish, promote and develop the ‘‘Honey’’ brand,
or if we incur significant expenses in this effort, our business, prospects,
operating results and financial condition may be harmed. We anticipate that
re-establishing, developing, maintaining and enhancing our brand will become
increasingly important, difficult and expensive.





Our
intellectual property rights are valuable, and any inability to protect them
could reduce the value of our services and brand.





Our
trademarks, trade secrets, copyrights and other intellectual property rights are
important assets for us. In particular, we consider the “Honey” trademark and
our related trademarks to be valuable to us and will aggressively seek to
protect them. We have registered the following trademarks in the United States
for the class of paper goods and printed matter (which relates to printed
publications): Honey, and Honey Hair & Beauty. In addition, we have U.S.
trademark applications pending for the class of paper goods and printed matter
for the following trademarks: Honey Bride, and Honey Teen; and have U.S.
trademark applications pending for the class of education and entertainment for
the following trademarks: Honey, Honey Bride, Honey Teen, and Honey Hair &
Beauty. Various events outside of our control pose a threat to our intellectual
property rights as well as to our services. For example, effective intellectual
property protection may not be available in every country in which our services
are made available through the internet. Also, the efforts we have taken to
protect our proprietary rights may not be sufficient or effective. Any
significant impairment of our intellectual property rights could harm our
business or our ability to compete. Also, protecting our intellectual property
rights is costly and time consuming. Any unauthorized use of our intellectual
property could make it more expensive to do business and harm our operating
results.




We
may be unable to protect our intellectual property from infringement by third
parties.




Our
business plan is significantly dependent upon exploiting our intellectual
property. There can be no assurance that we will be able to control all of the
rights for all of our intellectual property. We may not have the resources or
capital necessary to assert infringement claims against third parties who
may infringe upon our intellectual property rights. Litigation can be costly and
time consuming and divert the attention and resources of management and key
personnel.





In
providing our services we could infringe on the intellectual property rights of
others, which may cause us to engage in costly litigation and, if we do not
prevail, could also cause us to pay substantial damages and prohibit us from
selling our services.





Third
parties may assert infringement or other intellectual property claims against
us. We may have to pay substantial damages, if it is ultimately determined that
our services infringe on a third party’s proprietary rights. Even if claims are
without merit, defending a lawsuit takes significant time, may be expensive and
may divert management’s attention from our other business concerns.





Traffic
levels on our Website can fluctuate, which could materially adversely affect our
business.





Traffic
levels to our Website can fluctuate significantly as a result of social,
political and financial news events.  The demand for advertising,
cross promotion and subscriptions on our Website as well as on the Internet in
general can cause changes in rates paid for Internet advertising. This could
impede our ability to obtain or renew marketing or advertising agreements and
raise budgeted marketing and advertising costs.





Our
business may be adversely affected by malicious applications that interfere
with, or exploit security flaws in, our services.





Our
business may be adversely affected by malicious applications that make changes
to our users’ computers and interfere with the Honeymag.com experience. These
applications may attempt to change our users’ internet experience. The
interference may occur without disclosure to or consent from users, resulting in
a negative experience that users may associate with Honeymag.com. These
applications may be difficult or impossible to uninstall or disable, may
reinstall themselves and may circumvent other applications’ efforts to block or
remove them. In addition, we plan to offer a number of services that our users
will download to their computers or that they will rely on to store information
and transmit information to others over the internet. These services are subject
to attack by viruses, worms and other malicious software programs, which could
jeopardize the security of information stored in a user’s computer or in our
computer systems and networks. The ability to reach users and provide them with
a superior experience is critical to our success. If our efforts to combat these
malicious applications are unsuccessful, or if our services have actual or
perceived vulnerabilities, our reputation may be harmed and our user traffic
could decline, which would damage our business.





We
may face liability for information displayed on or accessible via our website,
and for other content and commerce-related activities, which could reduce our
net worth and working capital and increase our operating losses.





14


Because
materials may be downloaded by the services that we operate or facilitate and
the materials may be subsequently distributed to others, we could face claims
for errors, defamation, negligence or copyright or trademark infringement based
on the nature and content of such materials, which could adversely affect our
financial condition. Even to the extent that claims made against us do not
result in liability, we may incur substantial costs in investigating and
defending such claims.





We may be
subjected to claims for defamation, negligence, copyright or trademark
infringement or based on other theories relating to the information we publish
on our website. These types of claims have been brought, sometimes successfully,
against marketing and media companies in the past. We may be subject to
liability based on statements made and actions taken as a result of
participation in our chat rooms or as a result of materials posted by members on
bulletin boards on our website. Based on links we provide to third-party
websites, we could also be subjected to claims based upon online content we do
not control that is accessible from our website.




Although
we plan to carry general liability insurance, our insurance may not cover all
potential claims to which we are exposed or may not be adequate to indemnify us
for all liabilities to which we are exposed. Any imposition of liability that is
not covered by insurance or is in excess of insurance coverage would reduce our
net worth and working capital and increase our operating losses.





Changing
laws, rules and regulations and legal uncertainties could increase the
regulation of our business and therefore increase our operating
costs.





We are
subject to a number of foreign and domestic laws and regulations that affect
companies conducting business on the internet. In addition, laws and regulations
relating to user privacy, freedom of expression, content, advertising,
information security and intellectual property rights are being debated and
considered for adoption by many countries throughout the world. We face risks
from some of the proposed legislation that could be passed in the
future.







In the
U.S., laws relating to the liability of providers of online services for
activities of their users and other third parties are currently being tested by
a number of claims, which include actions for defamation, libel, invasion of
privacy and other data protection claims, tort, unlawful activity, copyright or
trademark infringement and other theories based on the nature and content of the
materials searched, the ads posted or the content generated by users. Certain
foreign jurisdictions are also testing the liability of providers of online
services for activities of their users and other third parties. Any court ruling
that imposes liability on providers of online services for activities of their
users and other third parties could harm our business.





Likewise,
a range of other laws and new interpretations of existing laws could have an
impact on our business. For example, in the U.S. the Digital Millennium
Copyright Act has provisions that limit, but do not necessarily eliminate, our
liability for listing, linking or hosting third-party content that includes
materials that infringe copyrights or other rights. The Child Online Protection
Act and the Children’s Online Privacy Protection Act restrict the distribution
of materials considered harmful to children and impose additional restrictions
on the ability of online services to collect information from children under 13.
In addition, the Protection of Children from Sexual Predators Act of 1998
requires online service providers to report evidence of violations of federal
child pornography laws under certain circumstances. The costs of compliance with
these laws may increase in the future as a result of changes in interpretation.
Furthermore, any failure on our part to comply with these laws may subject us to
significant liabilities. Similarly, the application of existing laws
prohibiting, regulating or requiring licenses for certain businesses of our
advertisers, including, for example, online gambling, distribution of
pharmaceuticals, adult content, financial services, alcohol or firearms, can be
unclear. Application of these laws in an unanticipated manner could expose us to
substantial liability and restrict our ability to deliver services to our users.
For example, some French courts have interpreted French trademark laws in ways
that would, if upheld, limit the ability of competitors to advertise in
connection with generic keywords.





15


We are
also subject to federal, state and foreign laws regarding privacy and protection
of user data. Any failure by us to comply with our posted privacy policies or
privacy-related laws and regulations could result in proceedings against us by
governmental authorities or others, which could potentially harm our business.
In addition, the interpretation of data protection laws, and their application
to the internet, in Europe and other foreign jurisdictions is unclear and in a
state of flux. There is a risk that these laws may be interpreted and applied in
conflicting ways from country to country and in a manner that is not consistent
with our current data protection practices. Complying with these varying
international requirements could cause us to incur additional costs and to have
to change our business practices. Further, any failure by us to protect our
users’ privacy and data could result in a loss of user confidence in our
services and ultimately in a loss of users, which would adversely affect our
business.





We
could face liability for breaches of security on the Internet.





To the
extent that our activities or the activities of third-party contractors involve
the storage and transmission of information, such as credit card numbers, social
security numbers or other personal information, security breaches could disrupt
our business, damage our reputation and expose us to a risk of loss or
litigation and possible liability. We could be liable for claims based on
unauthorized purchases with credit card information, impersonation or other
similar fraud claims. We could also be liable for claims relating to security
breaches under recently-enacted or future data breach legislation. These claims
could result in substantial costs and a diversion of our management’s attention
and resources.





We
are dependent on third party databases and computer systems.




We depend
on the delivery of information over the Internet, a medium that depends on
information contained primarily in an electronic format, in databases and
computer systems maintained by third parties and us. A disruption of third-party
systems or our systems interacting with these third party systems could prevent
us from delivering services in a timely manner, which could have a material
adverse effect on our business and results of operations.





Our
systems are also heavily reliant on the availability of electricity. If we were
to experience a major power outage, we would have to rely on back-up generators.
These back-up generators may not operate properly and their fuel supply could be
inadequate during a major power outage. This could result in a temporary
disruption of our business.





Our
business depends on continued and unimpeded access to the Internet by us and our
users. Internet access providers may be able to block, degrade or charge for
access to certain of our services, which could lead to additional expenses and
the loss of users and advertisers.





Our
planned services depend on the ability of our users to access the internet, and
certain of our services will require significant bandwidth to work effectively.
Currently, this access is provided by companies that have significant and
increasing market power in the broadband and internet access marketplace,
including existing telephone companies, cable companies and mobile
communications companies. Some of these providers have stated that they may take
measures that could degrade, disrupt or increase the cost of user access to
certain of our anticipated services by restricting or prohibiting the use of
their infrastructure to support or facilitate our offerings, or by charging
increased fees to us or our users to provide our offerings. These activities may
be permitted in the U.S. after recent regulatory changes, including recent
decisions by the U.S. Supreme Court and Federal Communications Commission and
under legislation being considered by the U.S. Congress. While interference with
access to our planned services seems unlikely, such carrier interference could
result in a loss of existing users and advertisers, increased costs, and impair
our ability to attract new users and advertisers, thereby harming our revenue
and growth.







We
face intense competition from social networking sites and other Internet
businesses and may not be able to successfully compete.





We face
formidable competition in every aspect of our planned business, and particularly
from other companies that seek to connect people with information and
entertainment on the web. Such competitors include Blackplanet, YouTube, My
Space, Craig’s List, Evite, and Facebook.





In
addition, we will be competing with other Internet companies, including general
purpose consumer online services, such as America Online and Microsoft Network;
and other web “portal” companies, such as Excite, Yahoo!, Google and
Lycos.





16


We will
also face competition from the online versions of newsstand magazines, such as
EbonyJet.com (the online version of Ebony and Jet magazines), Essence.com, and
Blackenterprise.com.





Our
competitors have longer operating histories and more established relationships
with customers and end users. They can use their experience and resources
against us in a variety of competitive ways, including by making acquisitions,
investing more aggressively in research and development and competing more
aggressively for advertisers and web sites. They may have a greater ability to
attract and retain users than we do because they operate internet portals with a
broader range of content products and services. If our competitors are
successful in providing similar or better web sites, more relevant
advertisements or in leveraging their platforms or products to make their web
services easier to access, our user traffic and the size of our network could be
negatively affected, which could negatively affect our revenues.





We
face competition from traditional media companies, and we may not be included in
the advertising budgets of large advertisers, which could harm our operating
results.





In
addition to Internet companies and online magazines, we face competition from
companies that offer traditional media advertising opportunities, including
television, radio and print. This would include such companies as News Corp.,
Time, Inc. and CBS, among others.  Most large advertisers have set
advertising budgets, a portion of which is allocated to internet advertising. We
expect that large advertisers will continue to focus most of their advertising
efforts on traditional media. If we fail to convince these companies to spend a
portion of their advertising budgets with us, our operating results would be
harmed.





If
we do not innovate and provide services that are useful to users, we may not be
able to effectively compete, and our revenues and operating results could
suffer.





Our
success depends on providing services that make using the internet a more useful
and enjoyable experience for our users. Our competitors are constantly
developing innovations in web based services. As a result, we must invest
significant resources in research and development in order to introduce and
enhance services that people can easily and effectively use. If we are unable to
provide quality services, then we will fail to attract users, or our users may
become dissatisfied and move to a competitor’s services. Our operating results
would also suffer if our anticipated services are not responsive to the needs of
our users and members, are not appropriately timed with market opportunities or
are not effectively brought to market. As internet broadcasting technology and
social networks continue to develop, our competitors may be able to offer
services that are, or that are seen to be, substantially similar to or better
than ours. This may force us to compete in different ways and expend significant
resources in order to remain competitive.




We
need to enter into strategic relationships with other Websites. If we are unable
to do so, our revenues and operating results will suffer.





We will
need to establish and maintain strategic relationships with other Websites to
attract users, advertisers and compelling content.  There is intense
competition for placements and cross promotion on these sites, and we may not be
able to enter into relationships on commercially reasonable terms or not at
all.  In addition, we may have to pay significant fees to establish
and maintain these relationships.





Our
business model is dependent upon continued growth in the use of the Internet by
our target demographic, and acceptance of our services by our target
demographic. If such growth and acceptance do not occur, our business will
suffer.





Our
business model depends on creating and increasing demand for our content and
e-commerce initiatives from our 18-34 urban female target demographic. This in
turn depends on this demographic continuing to increase its use of the Internet
for obtaining information pertaining to social, political, financial and
lifestyle events. There can be no assurance that such growth will continue, or
that our services will be accepted by this demographic. If such growth and
acceptance do not occur, our business will be materially adversely
affected.





Existing
technologies can block our ads, which would harm our business.





We expect
that much of our revenues will be derived from fees paid by advertisers in
connection with the display of ads on web pages. There are existing technologies
that can block display of some of the ads which we anticipate will be displayed
on our website. As a result, ad-blocking technology could adversely affect our
operating results.





We
rely on key personnel and, if we are unable to retain or motivate key personnel
or hire qualified personnel, we may not be able to grow
effectively.





Our
success depends in large part upon the abilities and continued service of our
chief executive officer, Philmore Anderson IV and other key employees. There can
be no assurance that we will be able to retain the services of Mr. Anderson and
other key employees.  Our failure to retain the services of our key
personnel could have a material adverse effect on us.   In order
to support our projected growth, we will be required to effectively recruit,
hire, train and retain additional qualified management personnel.  Our
inability to attract and retain the necessary personnel could have a material
adverse effect on us.







17


If
the downturn in the United States economic conditions continues it could
adversely affect our business and our ability to raise capital, if and when
needed.





The
U.S. economy has recently experienced a significant contraction, and it is
expected that we will see continued weakness in the immediate future. We expect
that much of our revenues will be derived from fees paid by advertisers in
connection with the display of ads on web pages, including from companies whose
success is dependent upon consumers’ willingness to spend money on entertainment
and other discretionary items. Challenging economic conditions or outlook could
reduce the consumption of discretionary products and services and, thus, reduce
advertising for such products and services. This may adversely affect our ad
revenues which would adversely affect our business and financial
results.





Furthermore,
during challenging economic times, we may face greater difficulties gaining
timely access to financings, if and when needed, which could result in an
impairment of our ability to continue our business activities.





Although we have
generated de minimis revenues to date and have a history of losses, we intend to
spend approximately $980,000 in salaries, including approximately $350,000 in
management salaries, over the next year, which will deplete a significant amount
of our available cash.





As of
December 31, 2009, we have generated de minimisrevenues since
inception. For the years ended December 31, 2009 and 2008 we incurred net
losses of $6,743,508 and $2,034,056, respectively.  As of December 31,
2009, we have cash and cash equivalents of $316,317. Nonetheless, we intend to
spend approximately $980,000 in salaries, including approximately $350,000 in
management salaries, over the next year. Such spending on salaries will deplete
a significant amount of our remaining available cash and increases the
possibility that we will need to obtain additional financing in the future,
which may not be available on terms acceptable to the Company, or at
all.







Risks Related to our Common
Stock:





There
is not an active liquid trading market for our common stock.




Our common
stock is registered under the Securities Exchange Act of 1934, as amended, and
is currently listed on the OTC Bulletin Board. However, there is a limited
amount of trading in our common stock, with no reported trading on many
trading days, and we cannot give an assurance that an active trading market will
develop. If an active market for our common stock develops, there is a
significant risk that our stock price may fluctuate dramatically in the
future in response to any of the following factors, some of which are beyond our
control:




·
            variations
      in our quarterly operating results;·
            announcements
      that our revenue or income are below analysts’
    expectations;·
            General
      economic slowdowns;·
            sales
      of large blocks of our common stock;·
            announcements
      by us or our competitors of significant contracts, acquisitions, strategic
      partnerships, joint ventures or capital commitments;
and·
            fluctuations
      in stock market prices and volumes, which are particularly common among
      highly volatile securities of early stage technology
      companies.




The
ownership of our common stock is highly concentrated in our officers and
directors.




Our
current executive officers and directors beneficially own approximately 52.0% of
the Company’s outstanding common stock, including approximately 44.7% of our
outstanding shares which are beneficially owned by our Chief Executive Officer
and Chairman Philmore Anderson IV. As a result, if they act in concert, our
executive officers and directors will control all of the issues submitted to a
vote of the Company’s shareholders.  Such concentration of share
ownership may have the effect of discouraging, delaying or preventing a change
in control of the Company.




Our common
stock is subject to the “penny stock” rules of the SEC, which may make it more
difficult for stockholders to sell our common stock.




18


The
Securities and Exchange Commission has adopted Rule 15g-9 which establishes the
definition of a "penny stock," for the purposes relevant to us, as any equity
security that has a market price of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain exceptions. For
any transaction involving a penny stock, unless exempt, the rules
require:





·
            that
      a broker or dealer approve a person's account for transactions in penny
      stocks; and·
            the
      broker or dealer receive from the investor a written agreement to the
      transaction, setting forth the identity and quantity of the penny stock to
      be purchased.





In order
to approve a person's account for transactions in penny stocks, the broker or
dealer must:





·
            Obtain
      financial information and investment experience objectives of the person;
      and·
            make
      a reasonable determination that the transactions in penny stocks are
      suitable for that person and the person has sufficient knowledge and
      experience in financial matters to be capable of evaluating the risks of
      transactions in penny stocks.







The
broker or dealer must also deliver, prior to any transaction in a penny stock, a
disclosure schedule prescribed by the Commission relating to the penny stock
market, which, in highlight form:





·
            sets
      forth the basis on which the broker or dealer made the suitability
      determination; and·
            that
      the broker or dealer received a signed, written agreement from the
      investor prior to the transaction.





Disclosure
also has to be made about the risks of investing in penny stocks in both public
offerings and in secondary trading and about the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and the rights and remedies available to an investor in cases of
fraud in penny stock transactions. Finally, monthly statements have to be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks.





The
regulations applicable to penny stocks may severely affect the market liquidity
for the Company’s common stock and could limit an investor’s ability to sell the
Company’s common stock in the secondary market.





As
an issuer of “penny stock,” the protection provided by the federal securities
laws relating to forward looking statements does not apply to us.





Although
federal securities laws provide a safe harbor for forward-looking statements
made by a public company that files reports under the federal securities laws,
this safe harbor is not available to issuers of penny stocks. As a result, the
Company will not have the benefit of this safe harbor protection in the event of
any legal action based upon a claim that the material provided by the Company
contained a material misstatement of fact or was misleading in any material
respect because of the Company’s failure to include any statements necessary to
make the statements not misleading. Such an action could hurt our financial
condition.




We
have not paid dividends in the past and do not expect to pay dividends for the
foreseeable future.  Any return on investment may be limited to the
value of our common stock.




No cash
dividends have been paid on the Company’s common stock. We expect that any
income received from operations will be devoted to our future operations and
growth. The Company does not expect to pay cash dividends in the near future.
Payment of dividends would depend upon our profitability at the time, cash
available for those dividends, and other factors as the Company’s board of
directors may consider relevant. If the Company does not pay dividends, the
Company’s common stock may be less valuable because a return on an investor’s
investment will only occur if the Company’s stock price
appreciates.





The
sale of a significant number of shares could depress the price of our common
stock.





Because
there is not an active, liquid public market for our common stock, there may be
significant downward pressure on our stock price caused by the sale or potential
sale of a significant number of shares of our common stock, which could allow
short sellers of our stock an opportunity to take advantage of any decrease in
the value of our stock. The presence of short sellers in our common stock may
further depress the price of our common stock.





If a
significant number of shares of our common stock are sold, the market price of
our common stock may decline.





Our
issuance of common stock upon exercise of outstanding warrants may depress the
price of our common stock.





As of
April 6, 2010, we had 33,691,709 shares of common stock and warrants to purchase
10,394,034 shares of common stock outstanding. The issuance of shares of common
stock upon exercise of outstanding warrants could result in substantial dilution
to our stockholders, which may have a negative effect on the price of our common
stock.




Item 1B.
            Unresolved
      Staff Comments




Not
applicable.




Item 2.
            Properties.




Our
principal executive office is located at 81 Greene Street, 4th Floor, New York,
New York 10012. The offices consist of approximately 2,750 square feet. Our
current monthly rent is $9,300 (which will increase to $9,600 by October
2010) under a three year lease that commenced in October 2008.





19


In
December 2009, we entered into a two year lease agreement with Sahara
Entertainment, LLC (“SELLC”), an entity wholly-owned by the Company’s Chief
Executive Officer (“CEO”) for a property in East Hampton, New York which will be
used for various production and promotional purposes. The lease term is
effective from December 1, 2009 through November 30, 2011, with an option
available to the Company to renew for a third year, at $84,000 per annum ($7,000
per month).





We
believe that our properties are adequate for our current and immediately
foreseeable operating needs.







Item 3.
            Legal
      Proceedings.




We are
not subject to any pending or threatened legal proceedings, nor is our property
the subject of a pending or threatened legal proceeding. None of our directors,
officers or affiliates are involved in a proceeding adverse to our business or
has a material interest adverse to our business.




Item 4.
            [Reserved.]




Not
applicable.


20




PART
II




Item 5.
            Market
      For Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities




The
Company’s Common Stock is quoted on the Over-the-Counter Bulletin Board
(“OTC.BB”) under the symbol “SHHD.”  Trading in the Common Stock is
limited, with no reported trades occurring on many trading days. The following
table sets forth the range of high and low bid prices of our common stock as
reported and summarized on the OTC.BB for the periods
indicated.  These prices are based on inter-dealer bid and asked
prices, without markup, markdown, commissions, or adjustments and may not
represent actual transactions.





Calendar
      Quarter
            
            High
      Bid
            
            
            Low
      Bid2008
      First Quarter
            
            $
            0.90
            
            
            $
            0.602008
      Second Quarter
            
            $
            0.30
            
            
            $
            0.302008
      Third Quarter
            
            $
            4.50
            
            
            $
            0.302008
      Fourth Quarter
            
            $
            4.00
            
            
            $
            2.002009
      First Quarter
            
            $
            3.00
            
            
            $
            3.002009
      Second Quarter
            
            $
            3.00
            
            
            $
            3.002009
      Third Quarter
            
            $
            3.25
            
            
            $
            3.002009
      Fourth Quarter
            
            $
            3.25
            
            
            $
            0.19




As of
April 6, 2010, there were 307 holders of record of the Company’s Common Stock.
On April 6, 2010, our common stock was trading at $0.25.




Dividends.




We have not declared any dividends on our Common
Stock to date and we do not anticipate declaring or paying any cash dividends on
our Common Stock in the foreseeable future.








Securities
Authorized for Issuance Under Equity Compensation Plan





In
January 1998, MFI’s board of directors approved a stock option plan under which
16,667 shares of common stock have been reserved for issuance. The following
table shows information with respect to each equity compensation plan under
which the Company’s common stock is authorized for issuance as of December 31,
2009.






EQUITY
COMPENSATION PLAN INFORMATION





Plan
      category
            
            Number
      of securities
              to
      be issued upon
              exercise
      of
              outstanding
      options,
              warrants
      and rights
            
            
            Weighted
      average
              exercise
      price of
              outstanding
      options,
              warrants
      and rights
            
            
            Number
      of securities
              remaining
      available for future issuance under equity compensation plans (excluding
      securities reflected in column (a))(a)
            
            
            (b)
            
            
            (c)Equity
      compensation plans approved by security holders
            
            
            0
            
            
            
            0
            
            
            
            16,667Equity
      compensation plans not approved by security holders
            
            
            N/A
            
            
            
            N/A
            
            
            
            N/ATotal
            
            
            N/A
            
            
            
            N/A
            
            
            
            16,667






Recent
Sales Of Unregistered Shares.





None.





Issuer
Repurchases of Equity Securities





None.





Item 6.
            Selected
      Financial Data





Not
      Applicable.




21





ITEM
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS




Forward-Looking
Statements and Associated Risks.





Some of
the statements contained in this report on Form 10-K that are not historical
facts are "forward-looking statements" which can be identified by the use of
terminology such as "estimates," "projects," "plans," "believes," "expects,"
"anticipates," "intends," or the negative or other variations, or by discussions
of strategy that involve risks and uncertainties. We urge you to be cautious of
the forward-looking statements, that such statements, which are contained in
this report on Form 10-K, reflect our current beliefs with respect to future
events and involve known and unknown risks, uncertainties and other factors
affecting our operations, market growth, services, products and licenses. No
assurances can be given regarding the achievement of future results, as actual
results may differ materially as a result of the risks we face, and actual
events may differ from the assumptions underlying the statements that have been
made regarding anticipated events. Factors that may cause actual results, our
performance or achievements, or industry results, to differ materially from
those contemplated by such forward-looking statements include without
limitation:




·
            Our
      ability to attract and retain management, and to integrate and maintain
      technical information and management
              information
      systems;





·
            Our
      ability to raise capital when needed and on acceptable terms and
      conditions;





·
            The
      intensity of competition; and





·
            General
      economic conditions.




All
written and oral forward-looking statements made in connection with this report
that are attributable to us or persons acting on our behalf are expressly
qualified in their entirety by these cautionary statements. Given the
uncertainties that surround such statements, you are cautioned not to place
undue reliance on such forward-looking statements.




Plan
of Operation




We are a
development-stage company located in New York. Since our formation, we have
concentrated on developing our business strategy and obtaining financing. We
expect that the primary components of our business will be:





·
            Our
      online magazine Honeymag.com





·
            Our
      social network Hivespot.com, which will be re-launched under a new name
      with new capabilities





·
            Our
      database of names in the 18-34 urban female demographic (the ÒHoney
      DatabaseÓ)




The
online magazine, Honeymag.com, and the social network, Hivespot.com, are
currently operating websites that were officially launched on March 5, 2009.
With the Honey brand and the Honey Database we will seek to connect with
audiences and secure brand leadership for our target demographic.





The
Company has been focused on driving unique visitors (traffic) and impressions
through organic and viral means to our sites.  This methodology of
ramping in these categories will allow our sites to become viable advertising
mediums in the first half of 2010.





We plan
to generate revenues through: (i) advertising sales from our online magazine and
social network web sites; (ii) licensing of our database; and, (iii) direct
marketing and sponsorships.





We
anticipate that we will begin generating advertising revenues during the first
half of 2010. We plan to sell advertising through our direct sales ad
team.  Our direct sales ad team signed our first advertising client,
Alberto Culver, in the second half of 2009 which generated $35,000 in revenues
in 2009. Additionally, we have entered into advertising agreements with two
Fortune 500 clients in the last half of 2009 and are currently negotiating
additional agreements which are expected to be executed in 2010. We have
discontinued our ad aggregator agreements with BET and GLAM Media due to the
fact we have the ability to sell higher margin ads utilizing our in-house ad
team.  We anticipate that the available ad space on our site will be
filled through our internal ad team going forward.  The amount of
revenue that will be generated through these initial ads, as well as future ads,
will depend on the amount of traffic the site will generate.





To track
this traffic on our integrated web properties we utilize Google Ad
Works.  Google Ad Works calculates the total number of pages
(impressions) that visitors viewed on our web properties.  To date, we
have recorded the following monthly total impressions: April - 650,816; May -
782,648; June - 1,114,206; July - 1,729,823; August - 1,888,048; September -
1,802,203; October - 550,067; November - 693,832; December - 798,142; January
2010 - 714,095; February 2010 - 618,707. These impressions have all been
achieved through organic/viral means, which, at this point allow us to become a
viable advertising medium for brands in the first half of 2010 as
planned.




The U.S.
economy has recently experienced a contraction and it is possible that we may
see further economic deterioration in the immediate future. We expect that much
of our revenues will be derived from fees paid by advertisers in
connection with the display of ads on web pages, including from companies whose
success is dependent upon consumers' willingness to spend money on entertainment
and other discretionary items. Weakening economic conditions or
outlook could reduce the consumption of discretionary products and services and,
thus, reduce advertising for such products and services. This may adversely
affect our ad revenue, which would adversely affect our business and financial
results.




Results
of Operations





Since
inception, we have generated de minimisrevenue from
sponsorships, advertising and the licensing of our database.  In the
same period, we have incurred expenses related to securing the “Honey” Brand
trademarks, funding the development and initial execution of our business plan,
and raising capital.





The
following table sets forth, for the periods indicated, certain items from the
consolidated statements of operations.  Comparative analysis of ratios
of costs and expenses to revenues is not shown in the following narrative
discussion as management believes such ratios to be uninformative due to the
insignificant levels of revenues in each period.





For
      the Years EndedDecember
      31,2009
                
                
                2008Revenue
                
                $
                38,867
                
                
                $
                8,183Costs
      and expensesProduct
    development
                
                
                1,435,035
                
                
                
                296,694Selling and
      marketing
                
                
                339,770
                
                
                
                133,468General and
      administrative
                
                
                5,036,937
                
                
                
                1,528,743Interest
      income
                
                
                (33,372
                )
                
                
                (24,608
                )Interest
      expense – related party
                
                
                --
                
                
                
                17,053Interest
      expense
                
                
                --
                
                
                
                90,889Loss
      on sale of available-for-sale security
                
                
                4,005
                
                
                
                --Net
      loss
                
                $
                (6,743,508
                )
                
                $
                (2,034,056
                )Net
      loss per share – basic and diluted
                
                $
                (0.22
                )
                
                $
                (0.15
                )








Year Ended December 31, 2009 Compared
to the Year Ended December 31, 2008





Revenues
for the year ended December 31, 2009 were $38,867 compared to $8,183 for the
year ended December 31, 2008, an increase of approximately
$31,000.   We generated $35,000 in sponsorship revenues and
$3,867 in on-line advertising and list rental revenue from several clients in
2009 as we continued to implement our business plan. The website Honeymag.com
was not launched as our online magazine until March 5, 2009, however, ads were
sold on a prior version of the Honeymag.com website (which had much less content
than our planned online magazine and did not include a social
network).





Product
development expenses for the year ended December 31, 2009 were $1,435,035
compared to $296,694 for the year ended December 31, 2008, an increase of
approximately $1,138,000. The increase is primarily attributable to increased
payroll costs of $417,000 (of which $37,000 is share-based), additional
amortization expenses of $380,000, increased editing and creative expenses of
$108,000 and licensing and network costs of $225,000 (of which $35,000 is
share-based). In fiscal 2009 we incurred additional production costs as we
continued the process of implementing our strategic plan to generate revenues.
In March 2009, we launched our online magazine and social network. In connection
with the launch, we began amortizing the costs associated with our website and
customer database.


Selling
and marketing expenses for the year ended December 31, 2009 were $339,770
compared to $133,468 for the year ended December 31, 2008, an increase of
approximately $206,000. The increase in selling and marketing expenses is
primarily attributable to increased payroll of $96,000, advertising of $62,000
and marketing of $50,000.





General
and administrative expenses for the year ended December 31, 2009 were $5,036,937
compared to $1,528,743 for the year ended December 31, 2008. We attribute the
increase of approximately $3,509,000 to increases in: payroll and related
expenses of $1,555,000 (of which $1,099,000 is share-based); professional fees
of $1,271,000 (of which $1,429,000 is share-based); business consultant costs of
$356,000 (of which $48,000 is share-based); travel and entertainment costs of
$155,000; public relations expense of $71,000; rent of $34,000.





Interest
expense and interest expense to a related party for the year ended December 31,
2008 was $90,889 and $17,053, respectively. There were no comparative amounts in
the year ended December 31, 2009. The bridge loans and related party
promissory notes and advances which generated the interest were all settled in
2008.





We earned
interest income of $33,372 and $24,608 for the years ended December 31, 2009 and
2008, respectively, from cash and investments.





As a
result of the foregoing, the net loss for the year ended December 31, 2009 was
$6,743,508 compared to $2,034,056 for the year ended December 31,
2008.













22





Year
Ended December 31, 2008 Compared to the Year Ended December 31,
2007





Revenues
for the year ended December 31, 2008 were $8,183 compared to $2,347 for the year
ended December 31, 2007.   We generated on-line revenue from
several clients. Although the website Honeymag.com had not yet been launched as
our online magazine, ads were sold on a prior version of the Honeymag.com
website (which had much less content than our planned online magazine and did
not include a social network).





Product
development expenses for the year ended December 31, 2008 was $296,694 compared
to $246,842 for the year ended December 31, 2007.We attribute the increase of
$49,852 (20%) to website development and licensing expenses.





Selling
and marketing expenses for the year ended December 31, 2008 were $133,468
compared to $74,482 for the year ended December 31, 2007. We attribute the
increase of $58,986 (79%) to consulting fees.





General
and administrative expenses for the year ended December 31, 2008 were $1,528,743
compared to $352,763 for the year ended December 31, 2007. We attribute the
increase of $1,175,980 (333%) to professional fees of approximately $673,000
paid for accounting, legal and financial advisory services related to our
required SEC filings; payroll and management consultant costs of approximately
$369,000; rent of $81,600.





Interest
expense to a related party for the year ended December 31, 2008 was $17,053
compared to $37,663 for the year ended December 31, 2007. The decrease of
$20,610 (55%) is attributed to the settlement of promissory notes and advances
due prior to the Company’s reorganization.





Interest
expense for the year ended December 31, 2008 was $90,889 compared to $19,326 for
the year ended December 31, 2007.  We attribute the increase of
$71,563 (370%) to interest on two bridge loans for working capital purposes as
well as the value of warrants issued as additional compensation for one of the
loans.





We earned
interest income of $24,608 for the year ended December 31, 2008 from cash
received from the sale of our common stock (see below). We had no earned
interest income for the year ended December 31, 2007.





As a
result of the foregoing, the net loss for the year ended December 31, 2008 was
$2,034,056 compared to $728,729 for the year ended December 31,
2007.




23





Liquidity
and Capital Resources


The
accompanying consolidated financial statements have been prepared on a basis
which assumes that the Company will continue as a going concern and which
contemplates the realization of assets and the satisfaction of liabilities and
commitments in the normal course of business.  The Company has had
minimal revenues since inception, incurred losses from operations since its
inception and has a deficit accumulated during the development stage amounting
to $10,737,964 as of December 31, 2009. In addition, the current economic
environment, which is characterized by tight credit markets, investor
uncertainty about how to safely invest their funds and low investor confidence,
has introduced additional risk and difficulty to the Company’s challenge to
secure additional working capital.  There can be no assurance that the
Company will be profitable in the future.  If the Company is not
profitable and cannot obtain sufficient capital to fund operations, the Company
may have to cease operations. These circumstances raise substantial doubt about
the Company’s ability to continue as a going concern.  The
accompanying consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.





Management’s
plan with regards to this condition primarily includes the continuance of
executing upon its business plan.  In accordance with this plan, our
direct sales ad team signed our first advertising client in the second half of
2009 which generated $35,000 in revenues in 2009. Additionally, we have entered
into advertising agreements with two Fortune 500 clients in the last half of
2009 and are currently negotiating additional agreements which are expected to
be executed in 2010. The Company anticipates that with continued increases in
traffic and impressions to its websites, that the Company will experience
revenue growth beginning in 2010.  Additionally, the Company is
presently working to raise capital through debt and equity financings. There can
be no assurance that such revenues will reach anticipated amounts or that the
Company will be able to raise additional capital to execute its
strategy.





As of
December 31, 2009, we have cash and cash equivalents available of $316,317 and
an available-for-sale investment of $295,500. The investment, which is a
corporate debt instrument which matures in August 2024, accrues interest at the
rate of 12% in its initial year. However, beginning in year 2 through the date
of maturity, the rate of interest is variable as defined in the debt agreement,
and as a result the investment is subject to various risks that are difficult to
predict and beyond our control. As of December 31, 2008, we had cash and cash
equivalents of $4,437,465.





During
the year ended December 31, 2009, we utilized $3,476,862 in cash for operating
activities, which was primarily a result of our net loss of $6,743,508 as
adjusted for depreciation and amortization of $474,241 and share based expenses
of $1,219,077. In addition, we invested $500,000 in a corporate debt instrument
(see above), of which $200,000 was sold. We also disbursed $111,403 to acquire a
list database comprised of double opt-in email addresses extracted from names in
our current database and incurred $199,754 in website development costs.
Operations and the cash used for the investment purchase, net of the proceeds
received from its partial sale, and our intangible acquisitions were the primary
components of our reduction in cash and cash equivalents of $4,121,148 from
December 31, 2008 to December 31, 2009.





We expect
that we will need to raise additional capital to execute our business plan. Our
cash and cash equivalents on hand at December 31, 2009 will not be sufficient to
fund our operations at their current level for the next twelve
months.  There can be no assurance that our cost estimates are
accurate, that anticipated revenues will materialize, or that we will be
successful in securing equity or debt financing to meet our need for working
capital. There can be no assurance, in light of the current economic crisis,
that such financing, if and when needed, will be available in amounts or on
terms acceptable to us, or at all.





On March
4, 2010, the Company entered into an Investment Banking, Strategic Advisory and
Consulting Agreement (the “IB Agreement”) with JTF, whereby the Company engaged
JTF to render such investment banking, advisory and consulting services as
defined in the IB Agreement. The investment banking services, which among other
possible assisted transactions, will include the offering for sale of a series
of convertible preferred stock up to a maximum of $9,000,000 for which JTF will
be separately compensated as defined in the IB Agreement and , will be in effect
for a two year period commencing March 4, 2010. The consulting services will be
for a two year period, at $10,000 per month, commencing on the closing of the
$1,000,000 minimum amount of the offering, as defined in the IB
Agreement.





On March
24, 2010, the Company entered into a Purchase Agreement (‘Purchase Agreement”)
with JTBO, whereby the Company agreed to sell and JTBO agreed to purchase (i) a
debenture in the principal amount of a minimum of $490,000 and a maximum of up
to $980,000, bearing interest at the rate of 16% per annum, and (ii) a minimum
of 1,000,000 shares and a maximum of up to 2,000,000 shares of Company common
stock issued for a minimum of $10,000 and a maximum of up to $20,000 of
consideration, as defined in the debenture (“Debenture”) and stock purchase
agreement (“Stock Purchase Agreement”).





On March
24, 2010, JTBO purchased a Debenture in the principal amount of $490,000,
bearing interest at 16%. The Debenture is due on September 30, 2010. The Company
may extend the Debenture’s maturity date by three month periods if by the
maturity date, the Company notifies JTBO and delivers to JTBO 1,000,000 shares
of the Company’s common stock as consideration for the extension. Upon the
closing by the Company of one or more financings in which the Company receives
gross proceeds of less than $1,500,000 the Company shall pay an amount equal to
50% of the proceeds of such financing to reduce the principal amount of the
Debenture. In addition, pursuant to the Stock Purchase Agreement, JTBO purchased
1,000,000 shares of common stock for consideration of $10,000. The Company also
agreed to issue JTBO 200,000 shares of the Company’s common stock in connection
with the closing of the financing. The Company incurred financing costs of
$417,500 ($290,000 of which is share-based) in connection with the sale of the
debenture and common stock which will be amortized over the term of the
debenture.




24





Recent
Accounting Pronouncements





In
January 2010, the Financial Accounting Standards Board ("FASB") issued, and the
Company adopted, Accounting Standards Codification (“ASC”) Update No. 2010-05
“Escrowed Share Arrangements and the Presumption of Compensation” (“ASCU No.
2010-05”). ASCU No. 2010-05 codifies the SEC staff’s views on escrowed share
arrangements which historically has been that the release of such shares to
certain shareholders based on performance criteria is presumed to be
compensatory. When evaluating whether the presumption of compensation has been
overcome, the substance of the arrangement should be considered, including
whether the transaction was entered into for a reason unrelated to employment,
such as to facilitate a financing transaction. In general, in financing
transactions the escrowed shares should be reflected as a discount in the
allocation of proceeds. In debt financings the discounts are to be amortized
using the effective interest method, while discounts on equity financings are
not generally amortized. The Company adopted ASCU No. 2010-05 effective January
1, 2010, although it has been in compliance with the SEC staff’s views on
escrowed share arrangements, as it relates to future financings, the adoption of
this update may have a material effect on the Company’s consolidated financial
statements.





In
January 2010, the FASB issued ASC Update No. 2010-06 “Fair Value Measurements
and Disclosures (Topic 820): Improving Disclosures about Fair Value
Measurements” which updated guidance to amend the disclosure requirements
related to recurring and nonrecurring fair value measurements. This update
requires new disclosures on significant transfers of assets and liabilities
between Level 1 and Level 2 of the fair value hierarchy (including the
reasons for these transfers) and the reasons for any transfers in or out of
Level 3. This update also requires a reconciliation of recurring
Level 3 measurements about purchases, sales, issuances and settlements on a
gross basis. In addition to these new disclosure requirements, this update
clarifies certain existing disclosure requirements. For example, this update
clarifies that reporting entities are required to provide fair value measurement
disclosures for each class of assets and liabilities rather than each major
category of assets and liabilities. This update also clarifies the requirement
for entities to disclose information about both the valuation techniques and
inputs used in estimating Level 2 and Level 3 fair value measurements.
This update will become effective for the Company with the interim and annual
reporting period beginning January 1, 2010, except for the requirement to
provide the Level 3 activity of purchases, sales, issuances, and
settlements on a gross basis, which will become effective for the Company with
the interim and annual reporting period beginning January 1, 2011. The
Company will not be required to provide the amended disclosures for any previous
periods presented for comparative purposes. Other than requiring additional
disclosures, adoption of this update will not have a material effect on the
Company's consolidated financial statements.





The
Company adopted the provisions of ASC Topic No. 855, “Subsequent Events” (“ASC
855”), on a prospective basis.  The provisions of ASC 855 provide
guidance related to the accounting for the disclosure of events that occur after
the balance sheet date but before the consolidated financial statements are
issued or are available to be issued.  Effective February 24, 2010,
the FASB issued ACSU No. 2010-09, “Subsequent Events (Topic 855): Amendments to
Certain Recognition and Disclosure Requirements” which revised certain
disclosure requirements. ASU No. 2010-09 did not have a significant impact on
the Company’s consolidated financial statements. The Company evaluated
subsequent events, which are events or transactions that occurred after December
31, 2009 through the issuance of the accompanying consolidated financial
statements.





Off
Balance Sheet Arrangements





None.




25




Critical
Accounting Policies and Estimates





Our
consolidated financial statements are prepared in accordance with
U.S. GAAP.  The preparation of the consolidated financial
statements requires us to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues, expenses and related
disclosures.  Though we evaluate our estimates and assumptions on an
ongoing basis, our actual results may differ from these estimates.





Certain
of our accounting policies that we believe are the most important to the
portrayal of our consolidated financial condition and the consolidated results
of operations and that require management’s subjective judgments are described
below to facilitate a better understanding of our business
activities.  We base our judgments on our experience and assumptions
that we believe are reasonable and applicable under the
circumstances.





Revenue
Recognition


Revenue
is recognized when all of the following criteria are met:  (1)
persuasive evidence that an arrangement exists; (2) delivery has occurred or
services have been rendered; (3) the seller’s price to the buyer is fixed and
determinable; and, (4) collectibility is reasonably assured.





Equity-Based
Compensation


The
Company accounts for equity-based compensation transactions with employees under
the provisions of ASC Topic No. 718, “Compensation, Stock Compensation” (“Topic
No. 718”). Topic No. 718 requires the recognition of the fair value of
equity-based compensation in net income. The fair value of the Company’s equity
instruments are estimated using a Black-Scholes option valuation model. This
model requires the input of highly subjective assumptions and elections
including expected stock price volatility and the estimated life of each award.
In addition, the calculation of equity-based compensation costs requires that
the Company estimate the number of awards that will be forfeited during the
vesting period. The fair value of equity-based awards granted to employees is
amortized over the vesting period of the award and the Company elected to use
the straight-line method for awards granted after the adoption of Topic No.
718.





The
Company accounts for equity based transactions with non-employees under the
provisions of ASC Topic No. 505-50, “Equity-Based Payments to Non-Employees”
(“Topic No. 505-50”). Topic No. 505-50 establishes that equity-based payment
transactions with non-employees shall be measured at the fair value of the
consideration received or the fair value of the equity instruments issued, which
ever is more reliably measurable. When the equity instrument is utilized for
measurement the fair value of the equity instrument is estimated using the
Black-Scholes option valuation model. In general, the Company recognizes an
asset or expense in the same manner as if it was to receive cash for the goods
or services instead of paying with or using the equity instrument.





Intangible
Assets


The
intangible assets, initially recorded at cost, are considered to approximate
fair value at the time of purchase. Amortization is provided for on a
straight-line basis over the estimated useful lives of the assets. The Company
evaluates the recoverability of its intangible assets periodically and takes
into account events or circumstances that warrant revised estimates of their
useful lives or indicate that impairments exist. Management believes that based
on an independent valuation as of December 31, 2009 that there is no impairment
of the Company’s intangible assets. In December 2009, the Company acquired
a database of double opt-in email addresses extracted from names in its current
database.  In addition, in the fourth quarter of 2009, the Company
began significant updates to its website which are expected to be completed in
the second quarter of 2010.  The magazine trademark, list database and
website development costs are amortized on the straight-line method over seven
years, which approximates their estimated useful lives. Amortization of the
email database and website costs incurred in the fourth quarter of 2009 will
begin when they have been placed into service, the first quarter of 2010 and
second quarter of 2010, respectively.


26




Item 7A. Quantitative
and Qualitative Disclosures About Market Risk.




Item
8.           Financial
Statements and Supplementary Information




Our
financial statements, together with the independent registered public accounting
firm's report of Weiser LLP begin on page F-1, immediately after the signature
page.




Item 9A(T).
            Controls
      and Procedures.





Evaluation
of Disclosure Controls and Procedures.




Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting.  Internal control over financial
reporting is a process designed by, or under the supervision of the Chief
Executive Officer and effected by our board of directors, management and other
personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles.
  Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
  Management’s
evaluation of internal control over financial reporting includes using the
Committee of Sponsoring Organizations of the Treadway Commission, or COSO,
framework, an integrated framework  for the evaluation of internal
controls issued by COSO, to identify the risks and control objectives related to
the evaluation of our control environment. Based on their evaluation under the
frameworks described above, our chief executive officer have concluded that our
internal control over financial reporting was ineffective as of December 31,
2009 because of the following material weaknesses in internal controls over
financial reporting:
  ·
                  A lack
      of sufficient resources and an insufficient level of monitoring and
      oversight, which may restrict our ability to gather, analyze and report
      information relative to the financial statement and income tax assertions
      in a timely manner.·
                  The
      limited size of the accounting department makes it impracticable to
      achieve an optimum separation of duties.·
                  The
      Company has not yet established an audit
committee.
  Remediation
Plan
 
 We are
seeking ways to remediate these weaknesses, which stem from our small workforce,
that will not require us to hire additional personnel. The
Company is in the process of seeking financing through the sale of equity
securities, upon the acquisition of adequate capital the Company intends to
remediate the deficiencies through the deployment of additional personnel and
implementation of an audit committee.
 
 Management’s
Report on Internal Control over Financial Reporting
 
 We are
responsible for establishing and maintaining adequate internal control over
financial reporting in accordance with Exchange Act Rule 13a-15. With the
participation of our chief executive officer and principal financial officer,
our management conducted an evaluation of the effectiveness of our internal
control over financial reporting as of December 31, 2009 based on the criteria
established in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on this evaluation,
management concluded that our internal control over financial reporting was
ineffective as of December 31, 2009, based on those criteria. 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. 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 the Company have been detected.
  This
annual report does not include an attestation report of the Company’s registered
accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by the Company’s registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission
  Changes
in internal controls
  Our
management, with the participation of Philmore Anderson IV, our chief executive
officer and principal financial officer (“CEO”), performed an evaluation as to
whether any change in our internal controls over financial
reporting occurred during the three months ended December 31, 2009. 
Based on that evaluation, our CEO concluded that no change occurred in the
Company's internal controls over financial reporting during the three months
ended December 31, 2009 that has materially affected, or is reasonably likely to
materially affect, the Company's internal controls over financial reporting




Item 9B.
            Other
      Information




None.


27





PART
III




Item 10.
            Directors,
      Executive Officers, And Corporate
Governance.




The
Company’s executive officers and directors are as follows:




Directors
      and Executive Officers
            
            Age
            
            PositionPhilmore
      Anderson IV
            
            45
            
            Chief
      Executive Officer and Chairman of the BoardPhilmore
      Anderson III
            
            67
            
            DirectorDavid
      Walker
            
            46
            
            DirectorTamera
      Reynolds*
            
            41
            
            Director




*
Tamera Reynolds resigned as a director of the Company on December 24,
2009.







Family
Relationships.




Philmore
Anderson IV is the son of Philmore Anderson III.




Background
of Executive Officers and Directors





Philmore
Anderson IV, Chief Executive Officer and Chairman of the Board





Philmore
Anderson IV has been Chief Executive Officer of the Company since September
2008, and Chairman of the Company since October 2008. Mr. Anderson has been
Chief Executive Officer, Chairman, and Director of Sahara Media, Inc. since its
inception in January 2005.





From 2003
to 2004, Mr. Anderson was a partner at Gotham Entertainment, a music management
company.





Mr.
Anderson holds a BA in economics from Lake Forest College.





Philmore
Anderson IV is the son of Philmore Anderson III, a director of the
Company.







28


Philmore
Anderson III, Director





Philmore
Anderson III has been a director of the Company since October 2008. Mr. Anderson
has been a director of Sahara Media, Inc. since July 2005.





Mr.
Anderson has been semi-retired since 2005, during which time he has assisted in
the management of BPA Associates, LLC (“BPA”), a company owned by Mr. Anderson’s
wife that provides consulting services to minority-owned and small businesses
who have or are interested in securing federal and state supplier contracts.
Prior to the inception of BPA in 2005, Mr. Anderson served for 13 years as the
State Purchasing Agent for the Commonwealth of Massachusetts.





Mr.
Anderson holds a BS in accounting from Central State University in
Wilberforce, Ohio, and attended the
Harvard Business School.





Philmore
Anderson III is the father of Philmore Anderson IV, the chief executive officer
and chairman of the Company.









David
Walker, Director





David
Walker has been a director of the Company since December 2009. Mr. Walker,
Executive Director and Senior Portfolio Manager, is Co-Lead of the Van Kampen
Technology Fund, the Morgan Stanley Information Fund and Sun America Technology
Portfolio.   Mr. Walker is also the co-portfolio manager
responsible for Developing Technologies UIT.  He joined Van Kampen as
a Quantitative Analyst in 1990.





Mr.
Walker has nineteen years experience in the investment
industry.  Prior to joining Van Kampen, Mr. Walker was a Banking
Officer for the Bank of New England.





Mr.
Walker received his B.S. from Duke University and his M.B.A. from Vanderbilt
University.  He is a CFA charter holder and a Chartered Market
Technician.





Tamera
Reynolds, Director





Tamara
Reynolds served as a director of the Company from October 2008 to December 2009.
Mrs. Reynolds was a director of Sahara Media, Inc. from its inception in January
2005 until December 2009. Mrs. Reynolds also served as Sahara’s chief operating
officer from 2005 to 2007.





Since
2007, Mrs. Reynolds has been director of development and operations of Glam
Media’s new African American women’s channel within glam.com. Mrs. Reynolds is
responsible for all aspects of development and the ongoing operations of the
channel, including design, content, network expansion, staffing, business
development and strategic partnerships.





In
addition, since 2003, Mrs. Reynolds has owned and operated headed TMR
Entertainment, LLC, a consulting firm Mrs. Reynolds founded that provides
general business and management services to individuals and businesses primarily
in the entertainment and related industries.





Mrs.
Reynolds received her Bachelors Degree from Pennsylvania State University and
her JD from the University of Colorado Law School.





29


Legal
Proceedings.




None.




Committees;
Audit Committee Financial Expert.




Currently,
the Company does not have an executive, audit or any standing committee of the
Board.  The Company does not have an audit committee, or an audit
committee financial expert.





Compliance with
Section 16(a) of the Exchange Act




Section
16(a) of the Securities Exchange Act of 1934 requires that our officers and
directors, and persons who own more that ten percent of a registered class of
our equity securities, file reports of ownership and changes in ownership with
the Securities and Exchange Commission and with any exchange on which the
Company's securities are traded. Officers, directors and persons owning more
than ten percent of such securities are required by Commission regulation to
file with the Commission and furnish the Company with copies of all reports
required under Section 16(a) of the Exchange Act. To our knowledge, based solely
upon our review of the copies of such reports furnished to us, during the fiscal
year ended December 31, 2009, all Section 16(a) filing requirements applicable
to our officers, directors and greater than 10% beneficial owners were complied
with.




Code
of Ethics




The
Company has not adopted a Code of Ethics but expects to do so in the near
future.




Changes
in Nominating Procedures




None.





Board
Leadership Structure and Role in Risk Oversight





Although we have not adopted a formal
policy on whether the Chairman and Chief Executive Officer positions should be
separate or combined, we have traditionally determined that it is in the best
interests of the Company and its shareholders to combine these roles. Philmore
Anderson IV has served as Chairman of the Company since October 2008 and
Chairman of Sahara Media, Inc. since its inception in January 2005. Due to the
small size and early stage of the Company, we believe it is currently most
effective to have the Chairman and Chief Executive Officer positions
combined.





Our board
of directors is primarily responsible for overseeing our risk management
processes, and we do not have an audit committee.  The board of directors
receives and reviews periodic reports from management, legal counsel, and
others, as considered appropriate regarding our Company’s assessment of risks.
The board of directors focuses on the most significant risks facing our Company
and our Company’s general risk management strategy, and also ensure that risks
undertaken by our Company are consistent with the board’s appetite for risk.
While the board oversees our Company’s risk management, management is
responsible for day-to-day risk management processes. We believe this division
of responsibilities is the most effective approach for addressing the risks
facing our Company and that our board leadership structure supports this
approach.





30




Item 11.
            Executive
      Compensation.









Summary
Compensation Table





The
following table sets forth all compensation paid to our Chief Executive Officer
for our last two completed fiscal years. No other officer of ours received
compensation in excess of $100,000 for either of our last two completed fiscal
years (see Note 15 in the consolidated financial statements for details of 2009
stock compensation).




Name
      & Principal
              Position
            
            Year
            
            Salary
      ($)
            
            Bonus
      ($)
            
            Stock
              Awards
      ($)
            
            
            Option
              Awards
      ($)
            
            
            Non-Equity
              Incentive
      Plan
              Compensation
      ($)
            
            
            Change
      in Pension
              Value
      and Non-
              Qualified
              Deferred
              Compensation
              Earnings
            
            All
              Other
              Compensation
      ($)
            
            Total
      ($)Philmore
      Anderson IV
            
            2009
            
            
            300,000
            
            155,000
            
            1,000,000
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            0
            
            $
            1,455,000Chief
      Executive Officer and Chairman
            
            2008
            
            
            200,000
            
            0
            
            525,000
      (1)
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            0
            
            $
            725,000




(1)
Represents 100,000 shares of common stock of Sahara Media, Inc. issued on June
10, 2008 in exchange for Mr. Anderson’s foregoing of $525,000 in
salary.








Director
Compensation for Year Ended December 31, 2009





The
following table summarizes the compensation for our non-employee board of
directors for the fiscal year ended December 31, 2009:




Name
            
            Fees
      Earned or Paid in Cash ($)
            
            
            Stock
      Awards ($)
            
            
            Option
      Awards ($)
            
            
            All
      Other Compensation ($)
            
            
            Total
              ($)Philmore
      Anderson III
            
            
            --
            
            
            
            160,000
            
            
            
            --
            
            
            
            --
            
            
            
            160,000Tamera
      Reynolds
            
            
            --
            *
            
            
            160,000
            
            
            
            --
            
            
            
            --
            
            
            
            160,000David
      Walker
            
            
            --
            
            
            
            120,000
            
            
            
            --
            
            
            
            --
            
            
            
            120,000


--


* Does
not include $20,000 in fees for legal services provided by Ms.
Reynolds.








31




Employment
Agreements





On
February 18, 2009, the Company entered into an employment agreement (the
“Employment Agreement”) with Philmore Anderson IV, the Company’s chief executive
officer and chairman.





Pursuant
to the Employment Agreement, Mr. Anderson will serve as the Company’s chief
executive officer for a term of three years, commencing on the Commencement
Date, subject to earlier termination as provided therein (the
“Term”).







Mr.
Anderson will receive a base salary of $300,000 during the first year of the
Term, $325,000 during the second year of the Term, and $350,000 during the third
year of the Term. Mr. Anderson will be eligible to receive bonus payments during
the Term in the sole discretion of the Company’s Board of Directors. Pursuant to
the Employment Agreement, Mr. Anderson also received a signing bonus of
$155,000.





Pursuant
to the Employment Agreement, the Company agreed to grant Mr. Anderson an option
to purchase 3,000,000 shares of the Company’s common stock at an exercise price
of $2.00 per share, as soon as practicable following the Commencement
Date.





The
Employment Agreement may be terminated prior to the expiration of the Term upon
thirty days’ written notice by Mr. Anderson. In addition, the Employment
Agreement may be terminated prior to the expiration of the Term by the Company.
If the Company terminates the Employment Agreement for any reason other than a
Termination for Cause (as defined therein), or if Mr. Anderson terminates the
Employment Agreement due to a change of control of the Company, Mr. Anderson
will be entitled to a severance payment equal to the greater of (a) the balance
of Mr. Anderson’s salary payable, and benefits to which Mr. Anderson is
entitled, for the balance of the Term, and (b) an amount equal to two and
one-half (2.5) times the highest cash compensation paid to Mr. Anderson during
any 12 month period prior to termination.




We are
not party to any other employment agreements.




Outstanding
Equity Awards at December 31, 2009





The
Company did not have any equity awards outstanding as of December 31,
2009.






32


Item 12.
            Security
      Ownership of Certain Beneficial Owners and
  Management.




SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT







The
following table sets forth certain information, as of April 6, 2010 with respect
to the beneficial ownership of the Company’s outstanding Common Stock by (i) any
holder of more than five (5%) percent; (ii) each of the Company’s executive
officers and directors; and (iii) the Company’s directors and executive officers
as a group. Except as otherwise indicated, each of the stockholders listed below
has sole voting and investment power over the shares beneficially
owned.





Name
      of Beneficial Owner (1)
            
            Common
      Stock
              Beneficially
      Owned
            
            
            Percentage
      of
              Common
      Stock (2)Directors
      and Officers:Philmore
      Anderson IV
            
            
            15,066,333
            (3)
            
            
            44.72
            %David
      Walker
            
            
            250,000
            
            
            
            *Philmore
      Anderson III
              208
      Common Street
              Watertown,
      MA 02742
            
            
            2,210,333
            (4)
            
            
            6.56
            %All
      officers and directors as a group
            
            
            17,526,666
            
            
            
            52.02
            %Beneficial
      owners of more than 5%:Sahara
      Entertainment, LLC (5)
            
            
            12,763,390
            
            
            
            37.88
            %John
      Thomas Financial Inc.
              14
      Wall Street, 5th Floor
              New
      York, NY 10005
            
            
            4,000,000
            (6)
            
            
            11.87
            %Steven
      Benkovsky
              80
      Rayner Avenue
              Ronkonkoma,
      NY 11779
            
            
            3,200,000
            (7)
            
            
            9.50
            %Timothy
      Marks
              Amber
      Barnes Poole Keynes
              Cirencester
      Gloucesterchire UK GL76EG
            
            
            3,200,000
            (7)
            
            
            9.50
            %


* Less
than 1%












(1)
            Except
      as otherwise indicated, the address of each beneficial owner is c/o Sahara
      Media Holdings, Inc., 81 Greene Street, 4th Floor, New York, NY
      10012.


(2)
            Applicable
      percentage ownership is based on 33,691,709 shares of Common Stock
      outstanding as of April 6, 2010, together with securities exercisable or
      convertible into shares of Common Stock within 60 days of April 6, 2010
      for each stockholder.  Beneficial ownership is determined in
      accordance with the rules of the Securities and Exchange Commission and
      generally includes voting or investment power with respect to
      securities.  Shares of Common Stock that are currently
      exercisable or exercisable within 60 days of April 6, 2010 are deemed to
      be beneficially owned by the person holding such securities for the
      purpose of computing the percentage of ownership of such person, but are
      not treated as outstanding for the purpose of computing the percentage
      ownership of any other person.


(3)
            Includes
      12,763,390 shares held by Sahara Entertainment, LLC, an entity owned by
      Philmore Anderson IV. Also includes 119,610 shares held by Alicia
      Anderson, Philmore Anderson IV’s wife.(4)
            Includes
      1,425,000 shares held by BPA Associates, LLC, an entity owned by Bertha
      Anderson, Philmore Anderson III’s wife.(5)
            Sahara
      Entertainment, LLC is owned by Philmore Anderson IV, our chief executive
      officer and chairman.(6)
            Includes
      1,000,000 shares underlying warrants with an exercise price of
      $1.30. Thomas Belesis has investment and voting power over the
      securities of the Company owned by John Thomas Financial, Inc. Mr. Belesis
      disclaims beneficial ownership of the securities.(7)
            Includes
      1,600,000 shares of Common Stock issuable upon exercise of warrants issued
      in the Private Placement.




33




Item
      13.
            Certain
      Relationships And Related Transactions, and Director
      Independence.


Certain
Relationships and Related Transactions





Lease
Agreement


Effective
December 1, 2009, the Company entered into a two year lease agreement with
Sahara Entertainment, LLC (“SELLC”), an entity wholly-owned by the Company’s
Chief Executive Officer (“CEO”). The lease term is effective from December 1,
2009 through November 30, 2011, with an option available to the Company to renew
for a third year, at $84,000 per annum ($7,000 per month) (See Note 13). The
agreement provides for a $15,000 security deposit, which was paid in March 2010.
Among other terms, the lease calls for the Company to pay for certain expenses,
such as utilities and maintenance.  As of December 31, 2009, $7,000 in
accrued rent expense is owed to SELLC.





Services
Arrangements


The
Company has an arrangement with AG Unlimited International LLC ("AG"), whereby
AG manages all licensing agreements on behalf of Sahara. The principal of AG
became the spouse of the Company's CEO, during the quarter ended September 30,
2009. The terms of the contract, which was signed November 2009 but effectively
began October 2008, provide a monthly fee of $10,000 until such time the
contract is cancelled by either party, as well as the issuance of 100,000 shares
of the Company’s common stock. The shares of common stock issuable under the
agreement are non-forfeitable and were approved for issue by the Company’s Board
of Directors and issued in February 2010. The shares, valued at $0.25 per share,
are accounted for as issued effective December 31, 2009 and a charge to
operations of $25,000 is recorded in 2009 as share-based consulting (See Note
10). Expenses (non share-based) incurred in connection with services provided by
AG amounted to $120,000, $30,000, and $150,000 for the years ended December
31, 2009 and 2008 and for the period from inception (January 18, 2005)
through December 31, 2009, respectively.





The
Company had an arrangement with Tamera Reynolds, a member of its Board of
Directors, to provide legal services on an as needed basis which was cancelled
in 2009. The member was paid a total of $20,000, $-0-, and $20,000 in the years
ended December 31, 2009 and 2008 and for the period from inception (January 18,
2005) through December 31, 2009, respectively.





34




Director
Independence





One of
our directors, Mr. David Walker, is independent as that term is defined under
the Nasdaq Marketplace Rules.




Item 14.
            Principal
      Accounting Fees And Services




Audit
Fees





Audit
Fees represent the aggregate fees for professional services for the audit of our
annual financial statements and review of financial statements included in our
quarterly reports on Form 10-Q or services that are normally provided in
connection with statutory and regulatory filings or engagements for those fiscal
years.   For the years ended December 31, 2009 and 2008, we paid
Weiser LLP $85,705 and $127,575, respectively.





Tax Fees





For the
years ended December 31, 2009 and 2008, we did not pay Weiser LLP any fees for
tax related services.





All Other
Fees.




For the
year ended December 31, 2009 we paid Weiser LLP $49,697 in other fees and for
the year ended December 31, 2008, we did not pay Weiser LLP any fee other than
audit fees.





The Board
of Directors serves as the audit committee of the Company. The Board of
Directors on an annual basis reviews audit and non-audit services performed by
the independent registered public accounting firm. All audit and non-audit
services are pre-approved by the Board of Directors, which considers, among
other things, the possible effect of the performance of such services on the
auditors' independence. The Board of Directors has considered the role of Weiser
LLP in providing services to us for the fiscal year ended December 31, 2009 and
has concluded that such services are compatible with Weiser LLP’s independence
as the Company's  independent registered public accounting
firm.




PART
IV




Item 15.
            Exhibits
      and Financial Statement Schedules.





The
      following documents are filed as a part of this report or incorporated
      herein by reference:




(1)
            Our
      Consolidated Financial Statements are listed on page F-1 of this Annual
      Report.(2)
            Financial
      Statement Schedules:




None


35




(3)
            Exhibits:




The
following documents are included as exhibits to this Annual Report:





Exhibit
      Number
            
            Description3.1
            
            Articles
      of Incorporation (1)3.2
            
            Certificate
      of Amendment to Certificate of Incorporation, filed with the Delaware
      Secretary of State on January 7, 1998 (1)3.3
            
            Certificate
      of Amendment to Certificate of Incorporation, filed with the Delaware
      Secretary of State on August 27, 2008 (2)3.4
            
            Certificate
      of Ownership and Merger, filed with the Delaware Secretary of State on
      September 26, 2008 (3)3.5
            
            Amended
      and Restated Bylaws (1)10.1
            
            Agreement
      and Plan of Merger, dated September 17, 2008, among the Company, Sahara
      Media, Inc., and Sahara Media Acquisitions, Inc. (4)10.2
            
            Indemnification
      Agreement, dated September 17, 2008, between Sahara Media, Inc. and John
      Thomas Bridge & Opportunity Fund (4)10.3
            
            Securities
      Escrow Agreement, dated September 17, 2008, among the Company, Sahara
      Media, Inc., the shareholders of Sahara Media, Inc. named therein, and
      Sichenzia Ross Friedman Ference LLP, as escrow agent
(4)10.4
            
            Form
      of Subscription Agreement (4)10.5
            
            Form
      of Investor Warrant (4)10.6
            
            Purchase
      Agreement, dated July 1, 2008, between Sahara Media, Inc. and John Thomas
      Bridge & Opportunity Fund (4)10.7
            
            Debenture,
      dated July 1, 2008, in favor of John Thomas Bridge & Opportunity Fund
      (4)10.8
            
            Security
      Agreement, dated July 1, 2008, between Sahara Media, Inc. and John Thomas
      Bridge & Opportunity Fund (4)10.9
            
            Security
      Agreement, dated July 1, 2008, between BPA, LLC and John Thomas Bridge
      & Opportunity Fund (4)10.10
            
            Purchase
      Agreement, dated September 3, 2008, between Sahara Media, Inc. and Cheryl
      Keeling (4)10.11
            
            Debenture,
      dated September 3, 2008, in favor of Cheryl Keeling (4)10.12
            
            Asset
      Purchase Agreement, dated May 15, 2008, between Sahara Media, Inc. and
      BPA, LLC (4)10.13
            
            Amendment
      to Asset Purchase Agreement, dated August 1, 2008, between Sahara Media,
      Inc. and BPA, LLC (4)10.14
            
            Letter
      agreement, dated May 21, 2008, between Sahara Media, Inc. and John Thomas
      Financial, Inc. (4)10.15
            
            Amendment
      to letter agreement, dated August 1, 2008, between Sahara Media, Inc. and
      John Thomas Financial, Inc. (4)10.16
            
            Finder’s
      Fee Agreement, dated July 21, 2008, between Sahara Media, Inc. and Aubry
      Consulting Group, Inc. (4)10.17
            
            Engagement
      Agreement, dated July 1, 2008, between Sahara Media, Inc. and Marathon
      Advisors (4)10.18
            
            Consulting
      Agreement, dated August 13, 2008, between Sahara Media, Inc. and Aurelian
      Investments, LLC (4)10.19
            
            Surrender
      Agreement, dated June 10, 2008, between Sahara Media, Inc. and Philmore
      Anderson IV (4)10.20
            
            Surrender
      Agreement, dated June 17, 2008, between Sahara Media, Inc. and Sahara
      Entertainment, LLC (4)10.21
            
            Master
      Services Agreement, dated July 11, 2008, between Sahara Media, Inc. and
      Ripple6, Inc. (2)10.22
            
            Purchase
      Agreement, dated June 9, 2008, between Sahara and Kevan Walker
      (5)10.23
            
            Amendment
      No. 2 to letter agreement, dated August 11, 2008, between Sahara Media,
      Inc. and John Thomas Financial, Inc. (2)10.24
            
            Agreement
      with Dogmatic, Inc, dated July 8, 2008 (6)10.25
            
            Agreement
      of Termination and Release, dated December 31, 2008, among Sahara Media,
      Inc., Sahara Media Holdings, Inc., Marathon Advisors, and Brian Rodriguez
      (7)10.26
            
            Employment
      Agreement, dated February 18, 2009, between Sahara Media Holdings, Inc.
      and Philmore Anderson IV(9)10.27
            
            16%
      Debenture due September 30, 2012 (10)10.28
            
            Purchase
      Agreement between the Company and John Thomas Bridge & Opportunity
      Fund, L.P. (10)10.29
            
            Common
      Stock Purchase Agreement between the Company and John Thomas Bridge &
      Opportunity Fund, L.P. (10)10.30
            
            Registration
      Rights Agreement between the Company and John Thomas Bridge &
      Opportunity Fund, L.P.21
            
            Subsidiaries
      of Sahara Media Holdings, Inc. (5)31.1
            
            Certificate of the Chief
      Executive Officer and principal financial officer pursuant to Rule 13a-14
      of the Securities Exchange Act of 193432.1
            
            Certification of Chief Executive
      Officer and principal financial officer pursuant to Section 1350
      (8)










36









(1)
            Filed
      as an exhibit to the Company’s registration statement on Form SB-2 (No.
      333-70526), filed with the SEC on September 28, 2001, and incorporated
      herein by reference.(2)
            Filed
      as an exhibit to the Company’s 8-K (No. 000-52363) filed with the SEC
      on August 29, 2008, and incorporated herein by
  reference.(3)
            Filed
      as an exhibit to the Company’s 8-K (No. 000-52363) filed with the SEC
      on September 30, 2008, and incorporated herein by
    reference.(4)
            Filed
      as an exhibit to the Company’s 8-K (No. 000-52363) filed with the SEC
      on September 24, 2008, and incorporated herein by
    reference.(5)
            Filed
      as an exhibit to the Company’ registration statement on Form S-1 (No.
      333-155205) filed with the SEC on November 7, 2008.(6)
            Filed
      as an exhibit to the Company’s amendment no.1 to registration statement on
      Form S-1 (No. 333-155205), filed with the SEC on December 31, 2008, and
      incorporated herein by reference.




(7)
            Filed
      as an exhibit to the Company’s 8-K (No. 000-52363) filed with the SEC
      on January 6, 2009, and incorporated herein by
  reference.(8)
            Filed
      herewith.(9)
            Filed
      as an exhibit to the Company’s 8-K (No. 000-52363) filed with the SEC on
      February 19, 2009, and incorporated herein by
reference.(10)
            Filed
      as an exhibit to the Company’s 8-K (No. 000-52363) filed with the SEC on
      March 31, 2010, and incorporated herein by
  reference.




37




SIGNATURES
 
 Pursuant
to the requirements of Section 13 or 15(d) 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 on this 15th day of April,
2010.
 
 SAHARA
      MEDIA HOLDINGS, INC.By:
              /s/
      Philmore
      Anderson IVPhilmore
      Anderson IVChief
      Executive Officer
                (Principal
      Executive Officer, Principal Financial Officer, and Principal Accounting
      Officer)
  Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
  /s/
      Philmore
      Anderson IVPhilmore
      Anderson IV
              
              
              April
      15, 2010CEO
      and Chairman (Principal Executive Officer, Principal Financial Officer and
      Principal Accounting Officer)/s/
      Philmore
      Anderson IVPhilmore
      Anderson III
              
              
              April
      15, 2010Director/s/
      David
      WalkerDavid
      Walker
              
              
              April
      15, 2010Director


38




REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 To the
Board of Directors and
 Stockholders
of Sahara Media Holdings, Inc. (a development stage company)
 
 We have
audited the accompanying consolidated balance sheets of Sahara Media Holdings,
Inc. and subsidiary (a development stage company) (the “Company”) as of December
31, 2009 and 2008 and the related consolidated statements of operations, changes
in stockholders' equity (deficiency) and cash flows for each of the years in the
two year period ended December 31, 2009 and the period January 18, 2005 (date of
inception) through December 31, 2009. The Company’s management is responsible
for these consolidated financial statements. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement.  The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting.  Our audit includes
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting.  Accordingly, we express no
such opinion.  An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.  We believe that our audits provide a reasonable basis
for our opinion.
 
 In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Sahara Media
Holdings, Inc. and subsidiary as of December 31, 2009 and 2008, and the
consolidated results of their operations and their cash flows for each of the
years in the two year period ended December 31, 2009 and the period January 18,
2005 (date of inception) through December 31, 2009 in conformity with accounting
principles generally accepted in the United States of America.
 
 The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern.  As discussed in Note 2
to the consolidated financial statements, the Company has incurred significant
recurring operating losses, decreasing liquidity, and negative cash flows from
operations. These factors raise substantial doubt about the Company’s ability to
continue as a going concern. Management’s plans in regard to these matters are
also described in Note 2.  The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
 
 /s/   Weiser
LLP
 
 New York,
NY
 April 15,
2010




F-1





Sahara
      Media Holdings, Inc.(a
      development stage enterprise)Consolidated
      Balance SheetsDecember
      31, 2009
                
                
                December
      31, 2008AssetsCurrent
      assets:Cash
      and cash equivalents
                
                $
                316,317
                
                
                $
                4,437,465Available-for-sale
      security
                
                
                295,500
                
                
                
                -Prepaid
      expenses and other
                
                
                49,539
                
                
                
                44,988Total
      current assets
                
                
                661,356
                
                
                
                4,482,453Property
      and equipment, net
                
                
                24,601
                
                
                
                26,481Intangible
      assets, net
                
                
                3,267,345
                
                
                
                3,424,425Security
      deposits
                
                
                46,200
                
                
                
                37,200Investment
      at cost
                
                
                45,000
                
                
                
                -Deposits
      on contracts
                
                
                20,000
                
                
                
                -Cash
      in escrow
                
                
                -
                
                
                
                40,000Total
      assets
                
                $
                4,064,502
                
                
                $
                8,010,559Liabilities
      and stockholders' equityCurrent
      liabilities:Accounts
      payable and accrued expenses
                
                $
                1,400,852
                
                
                $
                134,228Share
      liability
                
                
                1,376,250
                
                
                
                87,500Total
      current liabilities
                
                
                2,777,102
                
                
                
                221,728Commitments
      and contingencies
                
                
                -
                
                
                
                -Stockholders'
      equityPreferred
      stock, $0.0001 par value; 10,000,000shares
      authorized; no shares issued or outstanding
                
                
                -
                
                
                
                -Common
      stock, $0.003 par value; 50,000,000 shares authorized;31,066,710
      shares issued and 30,066,710 shares outstandingat
      December 31, 2009; 30,812,042 shares issued andoutstanding
      at December 31, 2008
                
                
                93,200
                
                
                
                92,436Additional
      paid-in capital
                
                
                11,939,664
                
                
                
                11,690,851Accumulated
      other comprehensive loss
                
                
                (4,500
                )
                
                
                -Deficit
      accumulated during the development stage
                
                
                (10,737,964
                )
                
                
                (3,994,456
                )1,290,400
                
                
                
                7,788,831Less:
      Treasury stock - (1,000,0000 common shares atDecember
      31, 2009) at cost
                
                
                (3,000
                )
                
                
                -Total
      stockholders' equity
                
                
                1,287,400
                
                
                
                7,788,831Total
      liabilities and stockholders' equity
                
                $
                4,064,502
                
                
                $
                8,010,559




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


F-2




Sahara
      Media Holdings, Inc.(a
      development stage enterprise)Consolidated
      Statements of Operations




Years
      Ended
            
            
            Period from inception (January
      18, 2005)December
      31,
            
            
            through2009
            
            
            2008
            
            
            December
      31, 2009Revenue
            
            $
            38,867
            
            
            $
            8,183
            
            
            $
            74,397Costs
      and expenses:Product
      development
            
            
            1,435,035
            
            
            
            296,694
            
            
            
            2,247,700Selling
      and marketing
            
            
            339,770
            
            
            
            133,468
            
            
            
            589,720General
      and administrative
            
            
            5,036,937
            
            
            
            1,528,743
            
            
            
            7,818,300Loss
      from operations
            
            
            (6,772,875
            )
            
            
            (1,950,722
            )
            
            
            (10,581,323
            )Interest
      income
            
            
            33,372
            
            
            
            24,608
            
            
            
            57,980Loss
      on sale of available-for-sale security
            
            
            (4,005
            )
            
            
            -
            
            
            
            (4,005
            )Interest
      expense- related party
            
            
            -
            
            
            
            (17,053
            )
            
            
            (96,735
            )Interest
      expense
            
            
            -
            
            
            
            (90,889
            )
            
            
            (113,881
            )Net
      loss
            
            $
            (6,743,508
            )
            
            $
            (2,034,056
            )
            
            $
            (10,737,964
            )Basic
      and diluted loss per share
            
            $
            (0.22
            )
            
            $
            (0.15
            )Weighted
      average common shares-
      basicand
      diluted
            
            
            31,002,156
            
            
            
            13,389,404








F-3







Sahara
      Media Holdings, Inc.(a
      development stage company)Consolidated
      Statements of Changes in Stockholders' Equity
  (Deficiency)For
      the Period from Date of Inception (January 18, 2005)through
      December 31, 2009




Accumulated
            
            
            DeficitOther
            
            
            Accumulated
            
            
            
            
            
            
            
            
            TotalAdditional
            
            
            Comprehensive
            
            
            During
      the
            
            
            
            
            
            
            
            
            StockholdersCommon
      Stock
            
            
            Paid-in
            
            
            Income
            
            
            Development
            
            
            Treasury
      Stock
            
            
            EquityShares
            
            
            Amount
            
            
            Capital
            
            
            (Loss)
            
            
            Stage
            
            
            Shares
            
            
            Amount
            
            
            (Deficiency)Balance
      at January 18, 2005
            
            
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            
            -
            
            
            $
            -
            
            
            $
            -Issuance
      of common stock to founder net of cancellation
            
            
            1,147,500
            
            
            
            12
            
            
            
            194,368
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            194,380Issuance
      of common stock to director
            
            
            120,000
            
            
            
            1
            
            
            
            119
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            120Issuance
      of common stock to investors
            
            
            499,800
            
            
            
            5
            
            
            
            495
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            500Issuance
      of common stock to investor
            
            
            15,000
            
            
            
            -
            
            
            
            -
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            -Net
      loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (405,269
            )
            
            
            
            
            
            
            
            
            
            
            (405,269
            )Balance
      at December 31, 2005
            
            
            1,782,300
            
            
            
            18
            
            
            
            194,982
            
            
            
            -
            
            
            
            (405,269
            )
            
            
            -
            
            
            
            -
            
            
            
            (210,269
            )Issuance
      of common stock to consultant
            
            
            30,000
            
            
            
            -
            
            
            
            -
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            -Net
      loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (826,402
            )
            
            
            
            
            
            
            
            
            
            
            (826,402
            )Balance
      at December 31, 2006
            
            
            1,812,300
            
            
            
            18
            
            
            
            194,982
            
            
            
            -
            
            
            
            (1,231,671
            )
            
            
            -
            
            
            
            -
            
            
            
            (1,036,671
            )Issuance
      of common stock on exercise of warrant
            
            
            164,800
            
            
            
            2
            
            
            
            -
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            2Net
      loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (728,729
            )
            
            
            
            
            
            
            
            
            
            
            (728,729
            )Balance
      at December 31, 2007
            
            
            1,977,100
            
            
            
            20
            
            
            
            194,982
            
            
            
            
            
            
            
            (1,960,400
            )
            
            
            -
            
            
            
            -
            
            
            
            (1,765,398
            )-Issuance
      of common stock to founder to settle notepayable
      and advances to related parties
            
            
            13,363,390
            
            
            
            134
            
            
            
            1,303,709
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,303,843Cancellation
      of common stock on settlement
            
            
            (1,147,500
            )
            
            
            (11
            )
            
            
            -
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (11
            )Issuance
      of common stock to founder
            
            
            100,000
            
            
            
            1
            
            
            
            524,999
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            525,000Issuance
      of common stock to a director to settle notepayable
      to a related party and accrued interest
            
            
            452,000
            
            
            
            5
            
            
            
            139,237
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            139,242Issuance
      of common stock to a consultant to settleaccrued
      consulting fees to a related party
            
            
            210,000
            
            
            
            2
            
            
            
            142,418
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            142,420Cancellation
      of common stock on settlement
            
            
            (30,000
            )
            
            
            -
            
            
            
            -
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            -Cancellation
      of common stock
            
            
            (312,300
            )
            
            
            (3
            )
            
            
            -
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (3
            )Issuance
      of common stock to a consultant to settleaccrued
      consulting fees to a related party
            
            
            5,500
            
            
            
            -
            
            
            
            8,197
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            8,197Issuance
      of common stock to settle accrued charges on note payable
            
            
            724,000
            
            
            
            7
            
            
            
            11,993
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            12,000Cancellation
      of common stock on settlement of accrued charges
            
            
            (164,800
            )
            
            
            (2
            )
            
            
            -
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (2
            )Issuance
      of common stock to settle note payable and accrued
interest
            
            
            140,000
            
            
            
            1
            
            
            
            111,392
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            111,393Issuance
      of common stock to settle accrued consulting fees
            
            
            480,000
            
            
            
            5
            
            
            
            25,782
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            25,787Issuance
      of common stock to settle note payable and accrued
interest
            
            
            19,610
            
            
            
            -
            
            
            
            19,610
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            19,610Issuance
      of common stock to an investor
            
            
            100,000
            
            
            
            1
            
            
            
            49,999
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            50,000Issuance
      of common stock to consultant
            
            
            200,000
            
            
            
            2
            
            
            
            3,998
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            4,000Issuance
      of common stock to settle note payable and accrued
interest
            
            
            31,000
            
            
            
            -
            
            
            
            -
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            -Issuance
      of common stock
            
            
            27,000
            
            
            
            -
            
            
            
            25,000
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            25,000Issuance
      of common stock to an investor
            
            
            100,000
            
            
            
            1
            
            
            
            49,999
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            50,000Issuance
      of common stock to founder's company as considerationfor
      consulting services
            
            
            400,000
            
            
            
            4
            
            
            
            (4
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            -Issuance
      of common stock to a related party as additionalconsideration
      for purchase of database
            
            
            1,425,000
            
            
            
            14
            
            
            
            1,781,236
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,781,250Issuance
      of common stock to a stockholder asconsideration
      for a bridge loan
            
            
            50,000
            
            
            
            150
            
            
            
            62,350
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            62,500Par
      value of common shares under plan of merger
            
            
            818,000
            
            
            
            2,454
            
            
            
            (2,454
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            -Cancellation
      of common shares under plan of merger
            
            
            (18,150,000
            )
            
            
            (181
            )
            
            
            181
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            -Issuance
      of common shares and recapitalization under plan of merger
            
            
            18,150,000
            
            
            
            54,450
            
            
            
            (54,450
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            -




F-4




Sahara
      Media Holdings, Inc.(a
      development stage company)Consolidated
      Statements of Changes in Stockholders' Equity (Deficiency)For
      the Period from Date of Inception (January 18, 2005)through
      December 31, 2009
  Accumulated
              
              
              DeficitOther
              
              
              Accumulated
              
              
              
              
              
              
              
              
              TotalAdditional
              
              
              Comprehensive
              
              
              During
      the
              
              
              
              
              
              
              
              
              Stockholders'Common
      Stock
              
              
              Paid-in
              
              
              Income
              
              
              Development
              
              
              Treasury
      Stock
              
              
              EquityShares
              
              
              Amount
              
              
              Capital
              
              
              (Loss)
              
              
              Stage
              
              
              Shares
              
              
              Amount
              
              
              (Deficiency)Issuance
      of common stock to investors net of issuance costsof
      $2,370,478 for private placement
              
              
              6,526,159
              
              
              
              19,578
              
              
              
              5,768,310
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              5,787,888Issuance
      of common stock as additional consideration for bridge
loan
              
              
              500,000
              
              
              
              1,350
              
              
              
              (1,350
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              -Issuance
      of common stock as additional consideration forfor
      private placement brokerage
              
              
              3,000,000
              
              
              
              9,000
              
              
              
              (9,000
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              -Issuance
      of common stock to consultant for services
              
              
              100,000
              
              
              
              300
              
              
              
              (300
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              -Issuance
      of common stock to consultant for servicesrelated
      to private placement
              
              
              50,000
              
              
              
              150
              
              
              
              (150
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              -Issuance
      of common stock as additional considerationfor
      legal services related to private placement
              
              
              250,000
              
              
              
              750
              
              
              
              (750
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              -Issuance
      of common stock to investors net of issuance costsof
      $242,897 for private placement
              
              
              1,417,883
              
              
              
              4,254
              
              
              
              1,525,102
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,529,356Stock
      based compensation for warrants issued to consultant
              
              
              -
              
              
              
              -
              
              
              
              10,815
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              10,815Net
      loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              -
              
              
              
              (2,034,056
              )
              
              
              
              
              
              
              
              (2,034,056
              )Balance
      at December 31, 2008
              
              
              30,812,042
              
              
              
              92,436
              
              
              
              11,690,851
              
              
              
              -
              
              
              
              (3,994,456
              )
              
              
              -
              
              
              
              -
              
              
              
              7,788,831Components
      of comprehensive loss, net of tax:Net
      Loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (6,743,508
              )
              
              
              
              
              
              
              
              
              
              
              (6,743,508
              )Unrealized
      holding loss on available-for-sale security
              
              
              
              
              
              
              
              
              
              
              
              (4,500
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (4,500
              )Total
      comprehensive loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (6,748,008
              )Issuance
      of common stock to consultants forservices
      accrued in share liability
              
              
              66,668
              
              
              
              200
              
              
              
              199,800
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              200,000Issuance
      of common stock to consultant for services
              
              
              100,000
              
              
              
              300
              
              
              
              (300
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              -Common
      stock issuable to consultant for services
              
              
              50,000
              
              
              
              150
              
              
              
              (150
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              -Stock
      based compensation for warrants issued to consultants
              
              
              -
              
              
              
              -
              
              
              
              30,547
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              30,547Common
      stock issuable to related party for services
              
              
              25,000
              
              
              
              75
              
              
              
              8,675
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              8,750Common
      stock issuable per settlement agreement
              
              
              13,000
              
              
              
              39
              
              
              
              7,241
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              7,280Receipt
      of common stock for settlement
                under
      escrow share agreement
              
              
              
              3,000
              
              
              
              
              
              
              
              
              
              
              
              1,000,000
              
              
              
              (3,000
              )
              
              
              -Balance
      at December 31, 2009
              
              
              31,066,710
              
              
              $
              93,200
              
              
              $
              11,939,664
              
              
              $
              (4,500
              )
              
              $
              (10,737,964
              )
              
              
              1,000,000
              
              
              $
              (3,000
              )
              
              $
              1,287,400




F-5




Sahara
      Media Holdings, Inc.(a
      development stage company)Consolidated
      Statements of Cash Flows




Period
      frominception(January
      18, 2005)Years
      Ended
            
            
            throughDecember
      31.
            
            
            December
      31,2009
            
            
            2008
            
            
            2009Cash
      flows from operating activities:Net
      loss
            
            $
            (6,743,508
            )
            
            $
            (2,034,056
            )
            
            $
            (10,737,964
            )Adjustments
      to reconcile net loss to net cash used inoperating
      activities:Depreciation
      and amortization expense
            
            
            474,241
            
            
            
            89,709
            
            
            
            826,067Stock-based
      compensation
            
            
            1,135,750
            
            
            
            -
            
            
            
            1,135,750Stock-based
      consulting expense
            
            
            83,327
            
            
            
            10,815
            
            
            
            94,142Share
      liability
            
            
            1,488,750
            
            
            
            87,500
            
            
            
            1,576,250Loss
      on sale of available-for-sale security
            
            
            4,005
            
            
            
            -
            
            
            
            4,005Amortization
      of debt discount
            
            
            -
            
            
            
            3,500
            
            
            
            21,000Issuance
      of stock as additional consideration for bridge loan
            
            
            -
            
            
            
            62,500
            
            
            
            62,500Changes
      in assets and liabilities:Accounts
      receivable
            
            
            -
            
            
            
            2,347
            
            
            
            -Prepaid
      expenses and other
            
            
            (4,551
            )
            
            
            (44,988
            )
            
            
            (49,539
            )Security
      deposits
            
            
            (9,000
            )
            
            
            (37,200
            )
            
            
            (46,200
            )Accounts
      payable and accrued expenses
            
            
            94,124
            
            
            
            73,036
            
            
            
            364,930Accrued
      expenses, related parties
            
            
            -
            
            
            
            50,804
            
            
            
            235,193Accrued
      salary, related parties
            
            
            -
            
            
            
            75,000
            
            
            
            525,000Subscription
      liability
            
            
            -
            
            
            
            -
            
            
            
            406,000Net
      cash used in operating activities
            
            
            (3,476,862
            )
            
            
            (1,661,033
            )
            
            
            (5,582,866
            )Cash
      flows from investing activities:Acquisition
      of intangible asset
            
            
            (111,403
            )
            
            
            -
            
            
            
            (111,403
            )Capitalization
      of website development costs
            
            
            (199,754
            )
            
            
            (550,000
            )
            
            
            (749,754
            )Acquisition
      of intangible assets - related party
            
            
            -
            
            
            
            (825,000
            )
            
            
            (825,000
            )Acquisition
      of property and equipment
            
            
            (4,124
            )
            
            
            (27,809
            )
            
            
            (31,933
            )Purchase
      of available-for-sale security
            
            
            (500,000
            )
            
            
            -
            
            
            
            (500,000
            )Proceeds
      from sale of available-for-sale security
            
            
            195,995
            
            
            
            -
            
            
            
            195,995Purchase
      of non-marketable security
            
            
            (45,000
            )
            
            
            -
            
            
            
            (45,000
            )Deposits
      on acquisition agreements
            
            
            (20,000
            )
            
            
            -
            
            
            
            (20,000
            )Cash
      in escrow
            
            
            40,000
            
            
            
            (40,000
            )
            
            
            -Acquisition
      of trademark intangibles
            
            
            -
            
            
            
            -
            
            
            
            (618,673
            )Net
      cash used in investing activities
            
            
            (644,286
            )
            
            
            (1,442,809
            )
            
            
            (2,705,768
            )Cash
      flows from financing activities:Payment
      made to restricted cash
            
            
            (500,311
            )
            
            
            -
            
            
            
            (500,311
            )Proceeds
      from restricted cash
            
            
            500,311
            
            
            
            -
            
            
            
            500,311Issuance
      of common stock, net of issuance costs
            
            
            -
            
            
            
            7,491,886
            
            
            
            7,686,886Notes
      payable, related parties
            
            
            -
            
            
            
            13,553
            
            
            
            601,734Notes
      payable
            
            
            -
            
            
            
            34,338
            
            
            
            316,331Net
      cash provided by financing activities
            
            
            -
            
            
            
            7,539,777
            
            
            
            8,604,951Net
      (decrease) increase in cash and cash equivalents
            
            
            (4,121,148
            )
            
            
            4,435,935
            
            
            
            316,317Cash
      and cash equivalents, beginning of periods
            
            
            4,437,465
            
            
            
            1,530
            
            
            
            -Cash
      and cash equivalents, end of periods
            
            $
            316,317
            
            
            $
            4,437,465
            
            
            $
            316,317




F-6


Sahara
      Media Holdings, Inc.(a
      development stage company)Consolidated
      Statements of Cash Flows
  Period
      frominception(January
      18, 2005)Years
      Ended
              
              
              throughDecember
      31.
              
              
              December
      31,2009
              
              
              2008
              
              
              2009Supplementary
      information:Cash
      paid for:Interest
              
              $
              -
              
              
              $
              -
              
              
              $
              -Income
      Taxes
              
              $
              -
              
              
              $
              -
              
              
              $
              -Supplemental
      disclosures of cash flow information:Noncash
      Investing ActivitiesIssuance
      of common shares to acquire intangible asset
              
              $
              -
              
              
              $
              1,781,250
              
              
              $
              1,781,250Noncash
      Financing ActivitiesIssuance
      (receipt) of common shares to settle:Share
      liability
              
              $
              200,000
              
              
              $
              -
              
              
              $
              200,000Unrealized
      loss on available-for-sale security
              
              
              (4,500
              )
              
              
              -
              
              
              
              (4,500
              )Escrow
      agreement - in treasury
              
              
              (3,000
              )
              
              
              -
              
              
              
              (3,000
              )Notes
      payable and accrued interest, related parties
              
              
              -
              
              
              
              601,734
              
              
              
              601,734Note
      payable and accrued interest
              
              
              -
              
              
              
              337,331
              
              
              
              337,331Advances,
      accrued expenses and other, related party
              
              
              -
              
              
              
              1,156,660
              
              
              
              1,156,660Accounts
      payable and accrued expenses
              
              
              -
              
              
              
              181,323
              
              
              
              181,323$
              192,500
              
              
              $
              2,277,048
              
              
              $
              2,469,548
    F-7




Sahara
Media Holdings, Inc.


(A Development Stage
Company)


Notes to Consolidated Financial
Statements


For
the Years ended December 31, 2009 and 2008

















1.
            Nature
      of Business





Sahara
Media Holdings, Inc. (the “Company”) is a Delaware corporation organized on
September 26, 1997 under the name Keystone Entertainment, Inc. On January 14,
1998, the corporate name was changed to Mac Filmworks, Inc. (“MFI”). On
September 26, 2008, the corporate name was changed to Sahara Media Holdings,
Inc.





Sahara
Media Holdings, Inc. is the parent company of Sahara Media, Inc., a Delaware
corporation formed in January 2005 (“Sahara”), which is a development-stage
company located in New York City. Since its formation, Sahara has concentrated
on the development of its business strategy. Until March 2004, Vanguarde Media,
an entity not affiliated with Sahara, published Honey Magazine, a publication
aimed at the 18-34 urban female demographic. As a result of financial
difficulties of Vanguarde Media, Honey Magazine ceased
publishing.  Vanguarde Media filed for bankruptcy and in February 2005
Sahara through the bankruptcy proceedings purchased the “Honey” trademark for
the class of paper goods and printed matter. Sahara launched Honey as an online
magazine and social network targeting the 18-34 urban female demographic in
March 2009.  The Company expects that the primary components of the
business will be:




●
            The
      online magazine Honeymag.com●
            The
      social network Hivespot.com, which will be re-launched under a new name
      with new capabilities●
            A
      database of names in the 18-34 urban female demographic (the “Honey
      Database")





On
September 17, 2008, the Company entered into an Agreement and Plan of Merger
(the “Merger Agreement”), with Sahara Media Acquisitions, Inc., a Delaware
corporation and wholly-owned subsidiary of the Company (the “Subsidiary”) and
Sahara, a Delaware corporation.  Pursuant to the Merger Agreement,
which closed on September 17, 2008 (the “Closing Date”), the Subsidiary merged
into Sahara and Sahara became a wholly-owned subsidiary of the Company. Pursuant
to the Merger Agreement, the Company issued 18,150,000 shares of the Company’s
Common Stock to the shareholders of Sahara (the “Acquisition Shares”) (subject
to the placement of 5,000,000 Acquisition Shares in escrow pursuant to the
Escrow Agreement (defined below)), representing approximately 58.9% of the
Company’s aggregate issued and outstanding common stock following the closing of
the Merger Agreement and the Private Placement (defined below), and the
outstanding shares of common stock of Sahara were cancelled and converted into
the right to receive the Acquisition Shares.




The
acquisition of Sahara was treated as a recapitalization, and the business of
Sahara became the business of the Company. At the time of the recapitalization,
the Company was not engaged in any active business.





The
accounting rules for reverse acquisitions require that beginning September 17,
2008, the date of the reverse acquisition, the balance sheet reflects the assets
and liabilities of Sahara and the equity accounts were recapitalized to reflect
the newly capitalized company. The results of operations reflect the operation
of Sahara for the periods presented.


F-8




2.
            Basis
      of Presentation




The
accompanying consolidated financial statements have been prepared on a basis
which assumes that the Company will continue as a going concern and which
contemplates the realization of assets and the satisfaction of liabilities and
commitments in the normal course of business.  The Company has had
minimal revenues since inception, incurred losses from operations since its
inception and has a deficit accumulated during the development stage amounting
to approximately $10,738,000 as of December 31, 2009. In addition, the
current economic environment, which is characterized by tight credit markets,
investor uncertainty about how to safely invest funds and low investor
confidence, has introduced additional risk and difficulty to the Company’s
challenge to secure additional working capital.  There can be no
assurance that the Company will be profitable in the future or will be able to
secure sufficient funding.  If the Company is not profitable and
cannot obtain sufficient capital to fund operations, the Company may have to
cease operations.   These circumstances raise substantial doubt
about the Company’s ability to continue as a going concern.  The
accompanying consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.


Management’s
plan with regards to this condition primarily includes the continuance of
executing upon its business plan.  In accordance with this plan, the
Company’sdirect
sales ad team signed its first advertising client in the second half of 2009
which generated $35,000 in revenues in 2009. Additionally, the Company has
entered into advertising agreements with two Fortune 500 clients in the last
half of 2009 and is currently negotiating additional agreements which are
expected to be executed in 2010.The Company anticipates that with
continued increases in traffic and impressions to its websites, that the Company
will experience revenue growth beginning in 2010.  Additionally, the
Company is presently working to raise capital through debt and equity
financings. There can be no assurance that such revenues will reach anticipated
amounts or that the Company will be able to raise additional capital to execute
its strategy.





3.
            Summary
      of Significant Accounting Policies




Codification


Effective
July 1, 2009, the Accounting Standards Codification (“ASC”) became the
FASB’s officially recognized source of authoritative U.S. generally accepted
accounting principles (“GAAP”) applicable to all public and non-public
non-governmental entities, superseding existing FASB, AICPA, EITF and related
literature. Rules and interpretive releases of the SEC under the authority of
federal securities laws are also sources of authoritative GAAP for SEC
registrants. All other accounting literature is considered non-authoritative.
The switch to the ASC affects the way companies refer to U.S. GAAP in financial
statements and accounting policies. Citing particular content in the ASC
involves specifying the unique numeric path to the content through the Topic,
Subtopic, Section and Paragraph structure.





Principlesof Consolidation


The
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiary, Sahara Media, Inc.  All significant
intercompany accounts and transactions have been eliminated.





Use
of Estimates


The
preparation of the consolidated financial statements in accordance with U. S.
generally accepted accounting principles (“GAAP”), requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the consolidated financial statements and the reported amounts of revenues
and expenses during the reporting period.  Actual results may differ
from these estimates. The significant estimates and assumptions made by the
Company include valuation allowances for deferred tax assets, valuation of
share-based payments and the carrying value of its intangible
assets.





Cash
and Cash Equivalents


The
Company considers all highly liquid investments, with a maturity of three months
or less when purchased, to be cash equivalents.





Property
and Equipment


Property
and equipment are carried at cost less accumulated
depreciation.  Depreciation and amortization is recorded on the
straight-line method over five to ten years, which approximates the estimated
useful lives of the assets.  Routine maintenance and repair costs are
charged to expense as incurred and renewals and improvements that extend the
useful lives of the assets are capitalized.  Upon sale or retirement,
the cost and related accumulated depreciation and amortization are eliminated
from the respective accounts and any resulting gain or loss is reported in the
consolidated statement of operations.





Intangible
Assets


The
intangible assets, initially recorded at cost, are considered to approximate
fair value at the time of purchase. Amortization is provided for on a
straight-line basis over the estimated useful lives of the assets. The Company
evaluates the recoverability of its intangible assets periodically and takes
into account events or circumstances that warrant revised estimates of their
useful lives or indicate that impairments exist. Management believes that based
on an independent valuation as of December 31, 2009 that there is no impairment
of the Company’s intangible assets. In December 2009, the Company acquired
a database of double opt-in email addresses extracted from names in its current
database.  In addition, in the fourth quarter of 2009, the Company
began significant updates to its website which are expected to be completed in
the second quarter of 2010.  The magazine trademark, list database and
website development costs are amortized on the straight-line method over seven
years, which approximates their estimated useful lives. Amortization of the
email database and website costs incurred in the fourth quarter of 2009 begin
when they have been placed into service, during the first quarter of 2010 and
second quarter of 2010, respectively.





Revenue
Recognition


Revenue
is recognized when all of the following criteria are met:  (1)
persuasive evidence that an arrangement exists; (2) delivery has occurred or
services have been rendered; (3) the seller’s price to the buyer is fixed and
determinable; and, (4) collectibility is reasonably assured.




Income
Taxes


The
Company accounts for income taxes using the asset and liability
method.  Deferred taxes are determined based on the difference between
the financial statement and tax bases of assets and liabilities using enacted
tax rates in effect in the years in which the differences are expected to
reverse.  Valuation allowances are provided, based upon the weight of
available evidence, if it is more likely than not that some or all of the
deferred tax assets will not be realized.





Concentration
of Credit Risk


Financial
instruments that potentially subject the Company to significant concentrations
of credit risk consist principally of cash, cash equivalents and trade accounts
receivable.





The
Company maintains its cash and cash equivalents in accounts with major financial
institutions in the United States in the form of demand deposits and liquid
money market funds.  Deposits in these institutions may exceed the
amounts of insurance provided on such deposits There were no deposits subject to
risk as of December 31, 2009. The Company has not experienced any losses on
deposits of cash and cash equivalents.





Loss
Per Share


Basic
loss per share is computed by dividing net loss by the weighted average number
of common shares outstanding during the year. The dilutive effect of the
outstanding stock warrants is computed using the treasury stock method. For the
years ended December 31, 2009 and 2008, diluted loss per share does not include
the effect of 10,394,034 and 10,294,034 stock warrants outstanding,
respectively, as their effect would be anti-dilutive.




F-9





Equity-based
Compensation


The
Company accounts for equity based compensation transactions with employees under
the provisions of ASC Topic No. 718, “Compensation, Stock Compensation” (“Topic
No. 718”). Topic No. 718 requires the recognition of the fair value of
equity-based compensation in net income. The fair value of the Company’s equity
instruments are estimated using a Black-Scholes option valuation model. This
model requires the input of highly subjective assumptions and elections
including expected stock price volatility and the estimated life of each award.
In addition, the calculation of equity-based compensation costs requires that
the Company estimate the number of awards that will be forfeited during the
vesting period. The fair value of equity-based awards granted to employees is
amortized over the vesting period of the award and the Company elected to use
the straight-line method for awards granted after the adoption of Topic No.
718.





The
Company accounts for equity based transactions with non-employees under the
provisions of ASC Topic No. 505-50, “Equity-Based Payments to Non-Employees”
(“Topic No. 505-50”). Topic No. 505-50 establishes that equity-based payment
transactions with non-employees shall be measured at the fair value of the
consideration received or the fair value of the equity instruments issued, which
ever is more reliably measurable. When the equity instrument is utilized for
measurement the fair value of the equity instrument is estimated using the
Black-Scholes option valuation model. In general, the Company recognizes an
asset or expense in the same manner as if it was to receive cash for the goods
or services instead of paying with or using the equity instrument.





Advertising
Expense


The
Company expenses advertising costs as incurred. Advertising costs incurred in
the years ended December 31, 2009 and 2008, and for the period from inception
(January 18, 2005) through December 31, 2009 approximated $62,000, $-0- and
$62,000, respectively.





Product
Development


The
Company expenses product development costs as incurred.  Product
development costs for the years ended December 31, 2009 and 2008, and for the
period from inception (January 18, 2005) through December 31, 2009 approximated
$1,435,000, $297,000 and $2,248,000, respectively.





Fair
Value of Financial Instruments


The
Company measures certain financial and nonfinancial assets and liabilities in
accordance with ASC Topic No. 820 “Fair Value Measurements and Disclosures” [see
Note 14].





Investments


The
Company accounts for its investment in fixed income security, as an
available-for-sale security. The difference between cost and fair value,
representing unrealized holding gains or losses, net of the related tax effect,
if any, is recorded, until realized, as a separate component of stockholders’
equity.





The
Company determined that since a quoted market price is not available and it
has not yet obtained or developed the valuation model necessary to estimate fair
value, and the cost of obtaining an independent valuation would be excessive
considering the materiality of the instrument to the Company’s consolidated
financial statements in accordance with paragraphs 50-16 through 50-19 of ASC
Topic No. 825-10 “Financial Instruments” it is not practicable to estimate fair
value of its investment in convertible debenture at this time and accounts for
it at cost.





Reclassifications


Certain
general and administrative expenses totaling approximately $54,000 and $157,000
in the year ended December 31, 2008 and the period from inception (January 18,
2005) through December 31, 2008, respectively, have been reclassified to product
development to conform to the December 31, 2009 presentation.




F-10




4.
            Recent
      Accounting Pronouncements





In
January 2010, the Financial Accounting Standards Board ("FASB") issued, and the
Company adopted, Accounting Standards Codification (“ASC”) Update No. 2010-05
“Escrowed Share Arrangements and the Presumption of Compensation” (“ASCU No.
2010-05”). ASCU No. 2010-05 codifies the SEC staff’s views on escrowed share
arrangements which historically has been that the release of such shares to
certain shareholders based on performance criteria is presumed to be
compensatory. When evaluating whether the presumption of compensation has been
overcome, the substance of the arrangement should be considered, including
whether the transaction was entered into for a reason unrelated to employment,
such as to facilitate a financing transaction. In general, in financing
transactions the escrowed shares should be reflected as a discount in the
allocation of proceeds. In debt financings the discounts are to be amortized
using the effective interest method, while discounts on equity financings are
not generally amortized. The Company adopted ASCU No. 2010-05 effective January
1, 2010, although it has been in compliance with the SEC staff’s views on
escrowed share arrangements, as it relates to future financings, the adoption of
this update may have a material effect on the Company’s consolidated financial
statements.





In
January 2010, the FASB issued ASC Update No. 2010-06 “Fair Value Measurements
and Disclosures (Topic 820): Improving Disclosures about Fair Value
Measurements” which updated guidance to amend the disclosure requirements
related to recurring and nonrecurring fair value measurements. This update
requires new disclosures on significant transfers of assets and liabilities
between Level 1 and Level 2 of the fair value hierarchy (including the
reasons for these transfers) and the reasons for any transfers in or out of
Level 3. This update also requires a reconciliation of recurring
Level 3 measurements about purchases, sales, issuances and settlements on a
gross basis. In addition to these new disclosure requirements, this update
clarifies certain existing disclosure requirements. For example, this update
clarifies that reporting entities are required to provide fair value measurement
disclosures for each class of assets and liabilities rather than each major
category of assets and liabilities. This update also clarifies the requirement
for entities to disclose information about both the valuation techniques and
inputs used in estimating Level 2 and Level 3 fair value measurements.
This update will become effective for the Company with the interim and annual
reporting period beginning January 1, 2010, except for the requirement to
provide the Level 3 activity of purchases, sales, issuances, and
settlements on a gross basis, which will become effective for the Company with
the interim and annual reporting period beginning January 1, 2011. The
Company will not be required to provide the amended disclosures for any previous
periods presented for comparative purposes. Other than requiring additional
disclosures, adoption of this update will not have a material effect on the
Company's consolidated financial statements.




The
Company adopted the provisions of ASC Topic No. 855, “Subsequent Events” (“ASC
855”), on a prospective basis.  The provisions of ASC 855 provide
guidance related to the accounting for the disclosure of events that occur after
the balance sheet date but before the consolidated financial statements are
issued or are available to be issued.  Effective February 24, 2010,
the FASB issued Accounting Standards Update (“ASU”) No. 2010-09, “Subsequent
Events (Topic 855): Amendments to Certain Recognition and Disclosure
Requirements” which revised certain disclosure requirements. ASU No. 2010-09 did
not have a significant impact on the Company’s consolidated financial
statements. The Company evaluated subsequent events, which are events or
transactions that occurred after December 31, 2009 through the issuance of the
accompanying consolidated financial statements.


F-11





5.
            Prepaid
      Expenses





In August
2009, the Company made an advance to an unrelated party of $35,000. The advance
was non-interest bearing until the maturity date, which is November 15, 2009.
This advance was made in connection with the Company’s receipt of free
services for the use of the unrelated party's facilities. The
Company accounted for the substance of this transaction as a cash for
services event. As of December 31, 2009, $21,250 has been recorded as a
prepaid expense which will be offset against future services, rendered to the
Company.








6.
            Intangible
      Assets




December
      31,
            
            
            December
      31,2009
            
            
            2008Magazine
      trademark
            
            $
            618,673
            
            
            $
            618,673List
      database
            
            
            2,717,653
            
            
            
            2,606,250Website
      development costs
            
            
            749,754
            
            
            
            550,000Total
      intangibles
            
            
            4,086,080
            
            
            
            3,774,923Less:
      accumulated amortization
            
            
            818,735
            
            
            
            350,498Intangibles,
      net
            
            $
            3,267,345
            
            
            $
            3,424,425




In
December 2009, the Company incurred $111,403 to acquire a list database
comprised of double opt-in email addresses extracted from names in its current
database.  Additionally in 2009, the Company incurred $199,754 in
website development costs, of which $162,534 is in progress as of year end.
Amortization of the newly acquired list database will begin in the first quarter
of 2010. Amortization of the capitalized website costs, which will be over seven
years, will begin when the projects have been completed and placed into service,
which is expected to be in the second quarter of 2010. Such amortization is not
included in the estimated future amortization table below. Amortization expense
for the years ended December 31, 2009 and 2008, and for the period from
inception (January 18, 2005) through December 31, 2009 amounted to $468,237,
$88,382 and $818,735, respectively.





Estimated
amortization expense for the next five years is as follows:





Years
      endedDecember
      31,2010
            
            $
            561,0002011
            
            
            561,0002012
            
            
            475,0002013
            
            
            472,0002014
            
            
            472,000Thereafter
            
            
            564,000$
            3,105,000





7.
            Property
      and Equipment




December
      31,
            
            
            December
      31,2009
            
            
            2008Office
      furniture and equipment
            
            $
            31,933
            
            
            $
            27,809Less
      accumulated depreciation
            
            
            7,332
            
            
            
            1,328Property
      and equipment, net
            
            $
            24,601
            
            
            $
            26,481





Depreciation
expense for the years ended December 31, 2009 and 2008, and for the period from
inception (January 18, 2005) through December 31, 2009 amounted to $6,004,
$1,328 and $7,332, respectively.




8.
            Investments





Available-for-sale
security





In August
2009, the Company purchased a corporate bond with a face amount of $500,000, at
par, and has classified this investment as an available-for–sale
security, which matures in August 2024.  Interest will accrue on
the bond in the first year at a rate of 12% per annum and in years two to
maturity, subject to the financial institution’s redemption right, at
a  variable rate per annum equal to six times the difference, if any,
between the 30-Year Constant Maturity Swap (“30CMS”) and the 2-Year Constant
Maturity Swap Rate (“2CMS”) for the related quarterly interest payment period;
subject to the maximum interest rate of 25% per annum and a minimum interest
rate of 0% per annum.  As of December 31, 2009, this variable rate
approximated 20.94% per annum.





The bond
provides the opportunity to receive an above-market interest rate in the first
year; however, the bond will not accrue any interest in any interest payment
period from the second year to maturity if the CMS reference index level is
equal to or less than 0%.  The financial institution has the right to
redeem the bond beginning on August 6, 2010 and quarterly
thereafter.  All payments on this security, including the repayment of
principal, are subject to the credit risk of the financial
institution.





This
security is subject to various risks not typically found with ordinary floating
rate notes, including fluctuations in the 30CMS and 2CMS, fluctuations in the
index, and other events that are difficult to predict and beyond the issuer’s
control.





In
December 2009, bonds with a face amount of $200,000 were sold for $199,128,
which included accrued interest of $3,133. The Company realized a loss on the
sale of $4,005.  As of December 31, 2009, the estimated market value
of the remaining bond, with a face value of $300,000, was $295,500 and an
unrealized loss of $4,500 has been recorded as accumulated comprehensive loss in
stockholders’ equity at December 31, 2009.





Investment
at cost





In
October 2009, the Company purchased a convertible debenture from a software
development company with a face amount of $45,000. The debenture is non-interest
bearing and is redeemable by the issuer two years and one day after closing, on
or around October 5, 2011 (the “Maturity Date”). If the debenture is not
redeemed by the issuer on or before the maturity date, the Company has the right
to convert the debenture into an approximate 1% equity interest in the
issuer.




F-12




9.
            Line
      of Credit




In
February 2009, the Company secured a $500,000 line of credit with a financial
institution which was due in February 2010.  The Company did not
utilize this facility.  In connection with this line of credit, the
Company was required to deposit $500,000 with the lending institution which
served as collateral against the line.   In April 2009, this facility
was terminated and the deposit was released.




10.
            Stockholders’
      Equity




The
Company’s Certificate of Incorporation originally authorized the issuance of
1,500,000 shares of common stock, no par value. On January 12, 2007, the
authorized shares of common stock were increased to 10,000,000. On June 18,
2008, the total number of authorized shares was increased to 50,000,000 shares
of common stock having a par value of $0.003 per share.





On June
1, 2008, the Board of Directors approved a thousand-for-one stock split of the
Corporation’s common stock in the form of a stock dividend. Stockholders’ equity
and common stock activity for all periods presented have been restated to give
retroactive recognition to the stock split. In addition, all references in the
consolidated financial statements and notes to the consolidated financial
statements about the Company’s common stock have been restated to give
retroactive recognition to the stock split.




On
September 17, 2008, Mac Filmworks, Inc. (formerly “MFI”, now known as Sahara
Media Holdings, Inc.) (the “Company”), entered into an Agreement and Plan of
Merger (the “Merger Agreement”) with Sahara Media Acquisitions, Inc. a Delaware
corporation.  Pursuant to the Merger Agreement, Sahara Media
Acquisitions, Inc. merged into Sahara Media, Inc.  ("Sahara") such
that Sahara Media Inc., became a wholly-owned subsidiary of the Company.
Pursuant to the Merger Agreement, the Company  issued 18,150,000
shares of their common stock to the shareholders of Sahara (the “Acquisition
Shares”) (subject to the placement of 5,000,000 Acquisition Shares in escrow
pursuant to the Escrow Agreement (defined below)) representing approximately
58.9% of the Company’s aggregate issued and outstanding common stock following
the closing of the Merger and the Private Placement (defined below), and the
outstanding shares of common stock of Sahara were transferred to the Company and
cancelled.




In
connection with the Merger, the Company entered into a series of identical
subscription agreements (the “Subscription Agreements”) with accredited
investors (the “Investors”), pursuant to which, concurrent with the closing of
the Merger on the Closing Date, the Company issued and sold units, with each
unit consisting of 100,000 shares of common stock and five-year warrants to
purchase 100,000 shares of common stock with an exercise price of $2.50 per
share, for a purchase price of $125,000 per unit (the “Private Placement”).
Pursuant to the Private Placement, the Company issued and sold to the Investors
an aggregate of 6,526,159 shares of common stock (the “Common Shares”) and
five-year warrants to purchase 6,526,159 shares of common stock (the
“Investor Warrants”), for an aggregate purchase price of $8,158,366. The
Investor Warrants may not be exercised to the extent such exercise would cause
the holder of the warrant, together with its affiliates, to beneficially own a
number of shares of common stock which would exceed 4.99% of the Company's then
outstanding shares of common stock following such exercise. Pursuant to the
Subscription Agreements, the Company filed a registration statement registering
the Common Shares and the shares of common stock underlying the Investor
Warrants, subject to the SEC’s declaration of effectiveness. The SEC declared
the registration statement effective on September 22, 2009.





Additionally,
in September 2008, the Company issued 2,550,000 warrants with exercise prices
ranging from $1.10 to $1.50 per share with a value of $2,068,205, a cost of
raising capital that has been recorded as an offset to additional paid-in
capital (see Marathon Advisors below).




F-13





Common
stock issuances





In 2005,
Sahara issued 634,800 shares of common stock as founder
shares.  Additionally Sahara issued 1,147,500 shares to one of the
founders in settlement of $194,380 of advances made.





On
January 7, 2006, Sahara issued to a consultant, 30,000 shares in settlement for
services rendered.





On June
10, 2008, Sahara issued common shares, as follows:





·
            19,610
      shares, valued at $1.00 per share, to settle $19,610 note payable,
      including accrued interest of
$1,610.


·
            724,000
      shares, valued at $0.02 per share, to settle accrued interest payable of
      $12,000.  In connection with this transaction, 164,800
      previously issued shares were
cancelled.


·
            480,000
      shares, valued at $0.05 per share, to settle $25,787 of accrued consulting
      fees.  In addition, warrants for a 5% per-money interest in the
      Company were cancelled.


·
            27,000
      shares, valued at $0.93 per share, to settle note payable of
      $25,000.


·
            452,000
      shares, valued at $0.31 per share, to a director, a related party, to
      settle a note payable of $139,242 including accrued interest of
      $14,242.


·
            100,000
      shares, valued at $5.25 per share, to the founder and chief executive
      officer, a related party, in exchange for $525,000 of accrued
      salary.


·
            210,000
      shares, valued at $0.44 per share, to a consultant, a related party, in
      exchange for accrued consulting fees of $142,420.  In connection
      with this transaction, 30,000 previously issued shares were
      cancelled.


·
            5,500
      shares valued at $1.49 per share to a consultant in settlement of accrued
      consulting fees of $8,197.





On June
12, 2008, Sahara issued 140,000 common shares, valued at $0.80 per share, to
settle a note payable of $111,393 including accrued interest of
$11,393.





On
June 15, 2008, Sahara issued 100,000 common shares to an investor at $.50 per
share for $50,000.





On June
16, 2008, Sahara issued 200,000 common shares, valued at $.02 per share, to
settle $4,000 of accrued consulting fees.  In addition, warrants for a
5% pre-money interest in the Company were cancelled.





On June
17, 2008, Sahara issued 13,363,390 common shares, of which 5,000,000 shares were
placed in escrow (see Escrow Shares), valued at $0.10 per share, to Sahara
Entertainment, LLC, a related party, to settle a note payable and advances
aggregating $1,303,843 in the amount of $462,074 including accrued interest of
$61,074 and assumption of liabilities on behalf of the Company amounting to
$841,769.  In connection with this transaction 1,147,500 previously
issued shares were cancelled.





Additionally,
on June 17, 2008, Sahara issued 31,000 common shares in exchange for
fees.





On July
31, 2008, Sahara issued 100,000 common shares to an investor at $0.50 per share
for $50,000.





On July
31, 2008, Sahara issued 400,000 common shares, valued at $0.50 per share, to
Sahara Entertainment, LLC, a related party, as payment for consulting relating
to the Company’s financing.  The Company recorded $200,000 as an
offset to additional paid-in capital as this issuance related to costs of
raising capital.





Cheryl
Keeling





On
September 3, 2008, Sahara issued 50,000 common shares, valued at $1.25 per
share, to Cheryl Keeling, as additional consideration for a $100,000 bridge loan
made on the same date.  The loan was repaid upon the closing of the
Merger and Private Placement on September 17, 2008.





The
Company recorded $-0-, $107,942 and $210,616 of interest expense for the years
ended December 31, 2009 and 2008, and the period from inception (January 18,
2005) through December 31, 2009, respectively.




F-14


BPA Associates,
LLC





On
September 17, 2008, pursuant to a Purchase Agreement dated July 1, 2008, between
Sahara and BPA Associates LLC (“BPA”) a related party, the Company issued
1,425,000 common shares, valued at $1.25 per share, to BPA, as additional
consideration for the purchase of their database. The Company’s
consideration for this purchase is as follows: $50,000 in cash which was paid on
July 1, 2008 in consideration of BPA pledging the database in connection with
the sale by the Company of a $500,000 debenture to an Investor, $775,000 in cash
and 1,425,000 common shares on consummation of the reorganization.





The
Company recorded $2,606,250 as an intangible asset which is comprised of the
$1,781,250 value of the common shares plus $825,000 of cash
paid.





Reverse
Split





The
Company completed a 1 for 30 reverse stock split of its common shares, pursuant
to which MFI’s issued and outstanding shares of common shares, was reduced to
818,000 (prior to the Merger and the Private Placement).




Shares
issued to investors in the private placement




On
September 17, 2008, the Company issued 6,526,159 shares of common stock and
five-year warrants to purchase 6,526,159 shares of common stock with an exercise
price of $2.50 per share in a private placement for an aggregate amount of
$8,158,366.  The Company recorded $19,578 to the par value of the
common shares and $5,768,310, net of $2,370,478 in placement costs, to
additional paid-in capital.  The raise costs were allocated as
follows: John Thomas Financial (“JTF”) $65,000, MFI $25,000, Aubrey Consultants
for a finders fee $20,000, JTF for legal fees of $13,000, placement legal fees
of $187,000, JTF 10%  fee of $992,996, JTF non-accountable expenses of
$67,482, JTF success fee of $400,000, JTF finders fee of $200,000 and JTF for
indemnification fee of  $400,000.




The
warrants were valued using the Black-Scholes pricing model with the following
weighted average assumptions: 0% dividend yield; risk free interest of
2.52%:  volatility of 94.80%; and an expected life of 5 years. The
warrants vest immediately and are exercisable on a cashless basis , which
represents stock settled stock appreciation rights.


.





On
October 8, 2008, the Company issued an aggregate of 1,413,883 shares of
common stock and five-year warrants to purchase 1,413,883 shares of common
stock with an exercise price of $2.50 per share to accredited investors,
for an aggregate amount of $1,767,253. JTF acted as the exclusive placement
agent for the private placement.





On
October 20, 2008, the Company issued 4,000 shares of common stock and five-year
warrants to purchase 4,000 shares of common stock with an exercise price of
$2.50 per share to an accredited investor for a purchase price of $5,000. JTF
acted as the exclusive placement agent for the private placement.




The
Company received $1,529,356 from the October 2008 transactions net of raise
costs of approximately $243,000.





The stock
warrants issued in October 2008 were valued using the Black-Scholes pricing
model using the following weighted average assumptions: dividend yield of 0%;
risk free interest rate of 2.70%; volatility of 94.80%; and an expected life of
5 years. The warrants vest immediately and are exercisable on a cashless basis,
which represents stock settled stock appreciation rights.





F-15





Shares
held in Escrow





The
Company entered into a securities escrow agreement (the “Securities Escrow
Agreement”) with Sahara, the shareholders of Sahara named in the escrow
agreement (the “Sahara Escrow Shareholder”), and the Company’s corporate
counsel, as escrow agent.  Pursuant to the Securities Escrow
Agreement, the Sahara Escrow Shareholder agreed to place 5,000,000 of the
Acquisition Shares (the “Escrow Shares”) into an escrow account. The Escrow
Shares will be released to the Sahara Escrow Shareholder, or returned to the
Company for cancellation if not released, based upon the achievement of certain
performance thresholds as set forth below:




(a)
            If
      the Company launches the online magazine Honeymag.com six months after the
      Closing Date (the “First Performance Threshold”), 20% of the Escrow Shares
      will be released to the Escrow Shareholder.  Honemag.com was
      launched March 5, 2009. Therefore the First Performance Threshold was met
      and 20% of the Escrow Shares were released to the Escrow
      Shareholder.





(b)
            If
      the Company launches the social network Hivespot.com seven months after
      the closing date (the “Second Performance Threshold”), 20% of the Escrow
      Shares will be released to the Sahara Escrow
      Shareholder.  Hivespot.com was launched March 5, 2009. Therefore
      the Second Performance Threshold was met and 20% of the Escrow Shares were
      released to the Escrow Shareholder.





(c)
            In
      the event that, from the period from the launch of the online magazine
      Honeymag.com, until nine months after the Closing Date, the average number
      of monthly viewed impressions of the Company’s online magazine
      Honeymag.com is at least 300,000 (the “Third Performance Threshold”), 20%
      of the Escrow Shares will be released to the Sahara Escrow Shareholder.
      The Third Performance Threshold has been met and 20% of the Escrow Shares
      were released to the Escrow
Shareholder.





(d)
            In
      the event that the Company’s social networking site Hivespot.com has at
      least 200,000 pre-registered users on September 30, 2009 (the “Fourth
      Performance Threshold”), 20% of the Escrow Shares will be released to
      Sahara Escrow Shareholder. The Fourth Performance Threshold has been met
      and 20% of the Escrow Shares were released to the Escrow
      Shareholder.(e)
            In
      the event that the Company either has revenue of at least $1,000,000 for
      the year ending December 31, 2009, or accounts receivable of at least
      $1,000,000 as of December 31, 2009, as disclosed in the Company’s audited
      financial statements included in the Company’s Form 10-K for the year
      ending December 31, 2009 filed with the SEC (the “Fifth Performance
      Threshold”), 20% of the Escrow Shares will be released to the Sahara
      Escrow Shareholder. The Fifth Performance Threshold has not been met
      and 20% of the Escrow Shares were effectively returned to the Company as
      treasury stock on December 29,
2009.




John
Thomas Bridge and Opportunity Fund





On
September 17, 2008, the Company issued 500,000 common shares, valued at $1.25
per share, and five year warrants, with a fair value of $439,128 to purchase
500,000 shares of common stock at an exercise price of $1.50 per share to the
John Thomas Bridge and Opportunity Fund (“JTBO”), as additional consideration to
complete the equity financing. The warrants vest immediately and are exercisable
on a cashless basis, which represents  stock settled stock
appreciation rights.





The
Company entered into a Securities Purchase Agreement, also dated July 1, 2008,
pursuant to which the Company issued a 12% Senior Secured Debenture
(“Debenture”) in the principal amount of $500,000, bearing interest at the rate
of 12% per annum, $80,000, of which, such proceeds were subsequently released to
third parties to pay fees with the balance of $420,000 remitted to the Company.
The Debenture was subsequently paid with proceeds received in the private
placement.





The
Securities Purchase Agreement secured certain U.S. trademark registrations for
all of the Company’s publications, and all of the Company’s databases as
collateral security for the prompt payment in full when due.  In
addition, for consideration of a $50,000 payment, a Security Agreement with BPA
Associates, under common ownership, was executed whereby BPA agreed to secure
the payment on the Debenture with certain assets of the Company, including the
database which contains information vital to the business of the
Company.




F-16


John
Thomas Financial, Inc.





On
September 17, 2008, the Company issued 3,000,000 common shares, valued at $1.25
per share, and five year warrants to purchase 1,000,000 common shares with a
fair value of $904,018 at an exercise price of $1.30 per share to John Thomas
Financial, Inc. as additional consideration for private placement
services.  The warrants vested immediately and are exercisable on a
cashless basis, which represents stock settled stock appreciation
rights.





Marathon
Advisors





On
September 17, 2008, the Company issued 100,000 common shares, valued at $1.25
per share, and five-year warrants, to purchase 300,000 common shares with a fair
value of $263,054 at an exercise price of $1.10, to Marathon Advisors
(“Marathon”), to complete the equity financing.  The warrants are
exercisable on a cashless basis which represents  stock settled
stock appreciation rights.


. The
warrants vest over a three year period on the anniversary of the issuance date
and are recognized pro-rata over the vesting period, as required for
non-employees.





The
Company recorded $128,017 as a capital raising cost as an offset to additional
paid-in capital.





Effective
December 31, 2008, the contract with Marathon was terminated.  Per the
termination agreement, 200,000 of the original warrants were
cancelled.  The Company recorded approximately $31,000 of equity based
compensation for the year ended December 31, 2009, relating to the remaining
100,000 warrants.





Aurelian
Investments, LLC





In
connection with a consulting agreement (the “Agreement”) entered into with
Aurelian Investments, LLC (“Aurelian”) on August 13, 2008, the Company was
required to issue a total of 200,000 common shares and five-year warrants to
purchase 200,000 common shares with an exercise price of $1.50 per share for
services rendered by Aurelian in connection with the Recapitalization that was
consummated on September 17, 2008 (the “Recapitalization”).  Fifty
thousand of the 200,000 common shares were issued on September 17, 2008 (date of
Recapitalization) and such shares were properly reflected in the financial
statements since that time at $1.25 per share.  An additional 100,000
shares and warrants to purchase 100,000 shares of common stock were issued
through the year ended December 31, 2009.





The value
ascribed to the 100,000 common shares issued through the year ended December 31,
2009 and the remaining 50,000 common shares still due the consultant is based on
the stock price as of the date of the Recapitalization ($1.25). The total value
of such shares amounts to $187,500.  The value ascribed to the
warrants is based upon the Black-Scholes Option Pricing Model.  The
weighted average assumptions were based upon data as of September 17, 2008:
volatility 94.8%, dividend yield 0%, risk free interest rate 2.52%, and an
expected life of 5 years.  The fair value of the warrants at the date
of the Recapitalization was $174,000.  The balance of the shares
(50,000) and warrants to purchase shares (100,000) are scheduled to be issued in
2010, and have been recorded as a component of stockholders’
equity.





F-17


Sichenzia
Ross





On
September 17, 2008, the Company issued 250,000 common shares (see “common
share issuance"), valued at $1.25 per share, and five-year warrants with a fair
value of $219,564 to purchase 250,000 shares of common stock, with an exercise
price of $1.50, to its corporate counsel Sichenzia Ross for legal
services.  The warrants vest immediately and are exercisable on a
cashless basis, which represents stock settled stock appreciation rights. The
Company recorded $532,064 as capital raise costs as an offset to additional
paid-in capital.





Additional  Issuances





Common
stock issuances





In April
2009, the Board of Directors approved, and on May 6, 2009, the Company issued,
50,000 shares of common stock, valued at $150,000, to two individuals on behalf
of Investor Relations Group (“IRG”) for consulting services rendered (see Note
13).





In April
2009, the Board of Directors approved, and on May 6, 2009, the Company issued
16,668 shares of common stock, valued at $50,000, to third parties for financial
consulting services rendered to the Company.





Effective
December 15, 2009, the Company issued 13,000 shares of common stock, valued at
$7,280 ($0.56 per share), to an individual per a settlement and release
agreement between the Company and the individual regarding asserted shares owed
to such individual. The amount was recorded as share-based expense in the year
ended December 31, 2009.





See
“Services Arrangement” in Note 12 for additional common stock issuance
information.





Warrant
issuances





Warrants
issued to promissory note holders





In 2006,
the Company issued warrants to certain holders of promissory notes at various
dates that entitle them to purchase common shares of the Company.  All
warrants granted vested immediately. The fair value of the warrants was
estimated using the intrinsic value method. The fair value of the common stock
related to these warrant issuances approximated $0.02 as determined based on
services rendered by a consultant in the amount of $4,000 in exchange for
200,000 warrants in 2006.  The Company has ascribed a value of
approximately $9,000 to these warrants.  These warrants were cancelled
in 2008.





Aubrey
Consulting – Warrants dated September 17, 2008





On
September 17, 2008, the Company issued five-year warrants to purchase 500,000
common shares with an exercise price of $1.50 to Aubrey Consulting as additional
consideration for a finder’s fee relating to the private
placement.  The Company recorded $439,000 as a capital raise cost as
an offset to additional paid-in capital. The warrants vest immediately and are
exercisable on a cashless basis, which represents stock settled stock
appreciation rights.











The above
warrants were valued using the Black-Scholes pricing model with the following
weighted average assumptions: 0 % Dividend yield; risk free interest rate 2.52%;
volatility of 94.8%; and an expected life of 5 years.





Warrant
activity for non-employees during the period of inception (January 18, 2005)
through December 31, 2009 is as follows:





WeightedWeighted-
            
            
            AverageNumber
      of
            
            
            Average
            
            
            Remaining
            
            
            AggregateWarrant
            
            
            Exercise
            
            
            Contractual
            
            
            IntrinsicWarrants
            
            Shares
            
            
            Price
            
            
            Term
      (Years)
            
            
            ValueGranted
      during 2006
            
            
            200,000
            
            
            $
            0.01Balance
      at December 31, 2006
            
            
            200,000
            
            
            $
            0.01Granted
      during 2007
            
            
            --
            
            
            
            --Balance
      at December 31, 2007
            
            
            200,000
            
            
            $
            0.01Granted
      during 2008
            
            
            10,494,034
            
            
            $
            2.23Exercised
      during 2008
            
            
            --
            
            
            $
            --Forfeited/cancelled
      during 2008
            
            
            (400,000
            )
            
            $
            0.75Outstanding,
      December 31, 2008
            
            
            10,294,034
            
            
            $
            2.25Granted
      during 2009
            
            
            100,000
            
            
            $
            1.50Exercised
      during 2009
            
            
            --
            
            
            $
            --Outstanding,
      December 31, 2009
            
            
            10,394,034
            
            
            $
            2.24
            
            
            
            3.76
            
            
            
            -0-Exercisable
      shares, December 31, 2009
            
            
            10,327,367
            
            
            $
            2.25
            
            
            
            3.72
            
            
            
            -0-





WeightedAverageGrant-DateNon-vested
      Shares
            
            Shares
            
            
            Fair
      ValueGranted
      during 2006 (none granted during 2007)
            
            
            200,000
            
            
            $
            0.02Non-vested
      December 31, 2007 and 2006
            
            
            200,000
            
            
            $
            0.02Granted
      during 2008
            
            
            10,494,034
            
            
            $
            0.79Vested
      during 2008
            
            
            (10,194,034
            )
            
            $
            0.79Forfeited
      during 2008
            
            
            (400,000
            )
            
            $
            0.12Non-vested,
      December 31, 2008
            
            
            100,000
            
            
            $
            0.22Granted
      during 2009
            
            
            100,000
            
            
            $
            0.87Vested
      during 2009
            
            
            (133,333
            )
            
            $
            0.80Non-vested,
      December 31, 2009
            
            
            66,667
            
            
            $
            0.57






F-18





Equity
Compensation Plan





In
January 1998, the Company’s board of directors approved a stock option plan
under which 16,667 shares of common stock have been reserved for issuance. No
options have been granted under this plan





Share Liability





In
February 2009, the Company entered into a four-month agreement for consulting
services. The agreement, in addition to cash compensation of $31,950, provides
for the Company issuing 20,000 shares of its common stock valued at $60,000 to
the consultant. The Company recorded an amount of $60,000 as share liability,
which represents the value of the pro rata shares earned per the
contract.  There had been no shares issued under the agreement. During
the fourth quarter of 2009, through mutual agreement between the consultant and
the Company, it was decided the shares would no longer be required to be issued.
As a result, in the quarter ended December 31, 2009, the Company reversed
the $60,000 of stock-based expense and related share liability.





In
February 2009, the Company entered into a one year consulting agreement with
Hanover Capital Corporation (“Hanover”). Per the agreement, the Company will
issue Hanover a total of 450,000 restricted common shares valued at $3.00 per
share ($1,350,000) on a pro rata basis over a period of six months during the
term of the agreement. As of December 31, 2009, the shares have not been issued
and the Company has recorded a liability of $1,350,000 relating to the common
stock required to be issued under this agreement and has recognized $1,350,000
of expense for the year ended December 31, 2009. The shares of stock are
expected to be granted during 2010 (See Note 13).





See
“Services Arrangement” in Note 12 for additional Share Liability
information.





Treasury Stock





Effective
December 29, 2009, 1,000,000 shares of common stock valued at $3,000 ($0.003 per
share), which were issued pursuant to the Merger Agreement, were returned to the
Company as treasury stock by the Sahara Escrow Shareholders (see “Shares held in
Escrow” above).




11.
            Income
      Taxes





The
Company has provided a valuation allowance for the full amount of its net
deferred tax assets because the Company has determined that it is more likely
than not that they will not be realized.





As of
December 31, 2009, the Company has federal and state net operating loss
carryforwards of approximately $6,460,000 and $6,447,000, respectively,
available to reduce future taxable income and which expire at various dates
through 2029.








Net
deferred tax assets consist of the following:




December
      31,
              2009
            
            
            December
      31,
              2008Net
      operating loss carryforwards
            
            $
            2,907,000
            
            
            $
            1,184,000Amortization
      of intangible assets
            
            
            196,000
            
            
            
            62,000Share-based
      payments
            
            
            1,263,000
            
            
            
            --Net
      deferred tax assets
            
            
            4,366,000
            
            
            
            1,246,000Valuation
      allowance
            
            
            (4,366,000
            )
            
            
            (1,246,000
            )Net
      deferred tax assets
            
            $
            --
            
            
            $
            --





The
valuation allowance increased by approximately $3,120,000, $903,000 and
$4,366,000 during the years ended December 31, 2009 and 2008, and the period
from inception (January 18, 2005) through December 31, 2009,
respectively.


Under the
provisions of Section 382 of the Internal Revenue Code, certain substantial
changes in the Company’s ownership result in a limitation on the amount of net
operating loss carry forwards which can be used in future years.







12.
            Related
      Party Transactions





Notes payable, Related Party – Interest
Expense


There
were no related party notes payable as of December 31, 2009 or 2008. The Company
recorded related party interest expense of $-0-, $17,053 and $96,735 for the
years ended December 31, 2009 and 2008, and the period from inception (January
18, 2005) through December 31, 2009, respectively.





Lease
Agreement


Effective
December 1, 2009, the Company entered into a two year lease agreement with
Sahara Entertainment, LLC (“SELLC”), an entity wholly-owned by the Company’s
Chief Executive Officer (“CEO”). The lease term is effective from December 1,
2009 through November 30, 2011, with an option available to the Company to renew
for a third year, at $84,000 per annum ($7,000 per month) (See Note 13). The
agreement provides for a $15,000 security deposit, which was paid in March 2010.
Among other terms, the lease calls for the Company to pay for certain expenses,
such as utilities and maintenance.  As of December 31, 2009, $7,000 in
accrued rent expense is owed to SELLC.





F-19


Services
Arrangement


The
Company has an arrangement with AG Unlimited International LLC ("AG"), whereby
AG manages all licensing agreements on behalf of Sahara. The principal of AG
became the spouse of the Company's CEO, during the quarter ended September 30,
2009. The terms of the contract, which was signed November 2009 but effectively
began October 2008, provide a monthly fee of $10,000 until such time the
contract is cancelled by either party, as well as the issuance of 100,000 shares
of the Company’s common stock. The shares of common stock issuable under the
agreement are non-forfeitable and were approved for issue by the Company’s Board
of Directors and issued in February 2010. The value of the shares, $35,000
($0.35 per share), is included in production cost for the year ended December
31, 2009. The Company accounted for 25,000 shares (25%),valued at $8,750, as
issued effective December 31, 2009 and recorded 75,000 shares (75%), valued at
$26,250,as share liability. Expenses (non share-based) incurred in connection
with services provided by AG amounted to $120,000, $30,000, and $150,000
for the years ended December 31, 2009 and 2008 and for the period from inception
(January 18, 2005) through December 31, 2009, respectively.


The
Company had an arrangement with a member of its Board of Directors to provide
legal services on an as needed basis which was cancelled in 2009. The member was
paid a total of $20,000, $-0-, and $20,000 in the years ended December 31, 2009
and 2008 and for the period from inception (January 18, 2005) through December
31, 2009, respectively.





13.
            Commitments
      and Contingencies





Rent
expense


In
October 2008, the Company entered into a new three year lease for office space,
expiring in September 2011. Monthly payments under the lease commence at $9,000
per month and increase to $9,600 per month. The lease commitment is guaranteed
by an officer of the Company. In conjunction with this lease the Company has
recorded a security deposit of $37,200 which was increased to $46,200 in
2009.  Prior to the inception of this lease agreement, the Company
leased office space on a month-to-month basis at an amount of approximately
$4,000 per month.





In
December 2009, the Company entered into a two year lease with a related party
(See Note 12), expiring in November 2011. Payments under the lease are $7,000
per month.





Rent
expense was approximately $116,000, $82,000 and $348,000 for the years ended
December 31, 2009 and 2008 and the period from inception (January 18, 2005)
through December 31, 2009, respectively.







Approximate
future minimum annual lease payments are as follows:




Years
      EndedDecember
      31,2010
            
            $
            197,0002011
            
            
            163,000$
            360,000




The
Investor Relations Group


In late
September 2008, the Company entered into a one year agreement with IRG for
consulting services. The agreement provides for the Company issuing the
equivalent of $300,000 of their common stock, which will be earned pro rata over
the twelve month contract period.  Additionally, the Company is
obligated to pay a maintenance fee of $10,000 per month.  In April
2009, the Company and IRG mutually agreed to defer the remaining term of the
agreement to a later date. In April 2009, the Board of Directors approved the
issuance of 50,000 shares of common stock to IRG valued at $150,000 which
approximates the pro rata number of shares earned through the date of the
deferral and in May 2009, the Company issued the 50,000 shares of common stock
to two individuals on behalf of IRG. The Company currently does not have plans
to reinstitute the remaining term of the agreement.




Employment
Agreement


Effective
February 18, 2009, the Company entered into an employment agreement with its
CEO.  Terms of the agreement include: an annual salary of $300,000,
$325,000 and $350,000 over its three year period; a signing bonus of $155,000;
and as soon as practicable after the effective date, the Company shall grant to
the CEO an option to purchase 3,000,000 shares of Company common stock at an
exercise price of $2.00 per share or in another form as acceptable to the
Company’s Board of Directors.





Approximate
future commitments under the agreement are as follows:




Years
      EndedDecember
      31,2010
            
            $
            322,0002011
            
            
            347,0002012
            
            
            44,000$
            713,000




Consulting
Agreements





Effective
January 1, 2009, the Company entered into a business development and advisory
services agreement with a consultant. The agreement is for an annual period
through December 2009. In addition to a monthly retainer of $5,000 per month for
the first quarter of 2009 and $7,500 per month for the remainder of the year,
the agreement provides for a commission based on a percentage of gross revenues
as defined in the agreement.





In
February 2009, the Company entered into a consulting agreement with Hanover
Capital Corporation (“Hanover”). Terms of the agreement include an initial
payment of $5,000 and $4,000 per month during the one year term of the
agreement.  Per the agreement, the Company will issue Hanover a total
of 450,000 restricted common shares. Effective November 2009, the Company
cancelled the remaining term of the agreement, but has agreed to issue the total
450,000 restricted common shares provided in the agreement (See Note
10).





Significant
Concentration





In 2009,
one customer generated 90% of revenues.




F-20




14.
            Fair
      Value Measurements





The
Company measures certain financial and non-financial assets and liabilities at
fair value using inputs that are observable or unobservable.  Fair
value is defined as the exchange price that would be received for an asset or
paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between
market participants on the measurement date.  Observable inputs
reflect market data obtained from independent sources, while unobservable inputs
reflect the Company’s market assumptions.  These two types of inputs
create the following fair value hierarchy:





Level 1 –
Quoted prices for identical instruments in active markets.





Level 2 –
Inputs other than Level 1 that are observable, either directly or indirectly,
such as quoted prices for similar instruments in active markets; quoted prices
for identical or similar instruments in markets that are not active; and
model-derived valuations in which all significant inputs and significant value
drivers are observable in active markets.





Level 3 –
Valuations derived from valuation techniques in which one or more significant
inputs or significant value drivers are unobservable.





Pursuant
to this hierarchy, the Company uses observable market data, when available, and
minimizes the use of unobservable inputs when determining fair
value.





(a) Fair
Value Measurements on a Recurring Basis




The
following table presents fair value measurements for major categories of the
Company’s financial assets measured at fair value on a recurring
basis:




December
      31, 2009
            
            December
      31, 2008Fair
      Value Measurements Using
            
            Fair
      Value Measurements UsingLevel
      1
            
            
            Level
      2
            
            
            Level
      3
            
            
            Total
            
            
            Level
      1
            
            
            Level
      2
            
            
            Level
      3
            
            
            TotalAvailable-for-sale-security
            
            $
            295,500
            
            
            $
            --
            
            
            $
            --
            
            
            $
            295,500
            
            
            $
            --
            
            
            $
            --
            
            
            $
            --
            
            
            $
            --




(b) Fair
Value Measurements of Other Financial Instruments




With
regard to the Company’s financial instruments that are not required to be
carried at fair value, carrying amounts for note receivable and other
receivables approximate fair value due to their short maturities.




15.
            Subsequent
      Events





In
January 2010 and February 2010, the Board of Directors approved, and the Company
issued, 3,344,999 shares and 5,000 shares of common stock, respectively, to
employees (including Board members) and non-employees for services rendered in
2009. The shares were valued at $0.35 per share, $1,170,750 and $1,750,
respectively, the fair value at December 31, 2009. The Company accrued a
liability for the stock-based compensation to employees (and directors) and
non-employees of $1,135,750 (3,244,999 shares) and $36,750 (105,000 shares),
respectively, in the year ended December 31, 2009. In the first quarter of 2010,
the Company will incur additional stock-based compensation to employees (and
directors) of $421,850 and to non-employees of $12,500 based on the fair value
of the shares of common stock at the grant date.





On March
4, 2010, the Company entered into an Investment Banking, Strategic Advisory and
Consulting Agreement (the “IB Agreement”) with JTF, whereby the Company engaged
JTF to render such investment banking, advisory and consulting services as
defined in the IB Agreement. The investment banking services, which among other
possible assisted transactions, will include the offering for sale of a series
of convertible preferred stock up to a maximum of $9,000,000 for which JTF will
be separately compensated as defined in the IB Agreement and , will be in effect
for a two year period commencing March 4, 2010. The consulting services will be
for a two year period, at $10,000 per month, commencing on the closing of the
$1,000,000 minimum amount of the offering, as defined in the IB
Agreement.





On March
24, 2010, the Company entered into a Purchase Agreement (‘Purchase Agreement”)
with JTBO and other potential investors (collectively the “Investor”),
whereby the Company agreed to sell and the Investor agreed to purchase (i)
a debenture in the principal amount of a minimum of $490,000 and a maximum of up
to $980,000, bearing interest at the rate of 16% per annum, and (ii) a minimum
of 1,000,000 shares and a maximum of up to 2,000,000 shares of Company common
stock issued for a minimum of $10,000 and a maximum of up to $20,000 of
consideration, as defined in the debenture (“Debenture”) and stock purchase
agreement (“Stock Purchase Agreement”).





On March
24, 2010, JTBO purchased a Debenture in the principal amount of $490,000,
bearing interest at 16%. The Debenture is due on September 30, 2010. The Company
may extend the Debenture’s maturity date by three month periods if by the
maturity date, the Company notifies JTBO and delivers to JTBO 1,000,000 shares
of the Company’s common stock as consideration for the extension. Upon the
closing by the Company of one or more financings in which the Company receives
gross proceeds of less than $1,500,000 the Company shall pay an amount equal to
50% of the proceeds of such financing to reduce the principal amount of the
Debenture. In addition, pursuant to the Stock Purchase Agreement, JTBO purchased
1,000,000 shares of common stock for consideration of $10,000. The Company also
agreed to issue JTBO 200,000 shares of the Company’s common stock in connection
with the closing of the financing. The Company incurred financing costs of
$417,500 ($290,000 of which is share-based) in connection with the sale of the
debenture and common stock which will be amortized over the term of the
debenture. In
connection with this investment the investor has been granted piggy back
registration rights.


On April
14, 2010, pursuant to the Purchase Agreement, another investor purchased a
Debenture in the principal amount of $245,000, bearing interest at 16%. The
Debenture is due on October 14, 2010. The Company may extend the Debenture’s
maturity date by three month periods if by the maturity date, the Company
notifies the investor and delivers to the investor 500,000 shares of the
Company’s common stock as consideration for the extension. Upon the closing by
the Company of one or more financings in which the Company receives gross
proceeds of less than $1,500,000 the Company shall pay an amount equal to 50% of
the proceeds of such financing to reduce the principal amount of the Debenture.
In addition, pursuant to the Stock Purchase Agreement, the investor purchased
500,000 shares of common for consideration of $5,000.




On April
14, 2010, the Company borrowed $65,000 from its CEO for working capital
purposes. The promissory note bears interest at 9% per annum and is secured by
certain assets of the Company. Principal and all accrued and unpaid interest to
the date of repayment will be paid through the issuance of shares of the
Company’s common stock at a rate of $0.50 per share. The entire unpaid portion
of the note, together with all accrued interest through the date of payment may
be declared immediately due and payable by the CEO upon the attaining of certain
capital funding by the Company, as defined in the agreement.





F-21