UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-K





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





For the
fiscal year ended September 30, 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. 333-141201





V2K
International, Inc.


(Exact
name of registrant as specified in its charter)





Colorado
            20-5614030(State
      or other jurisdiction of incorporation or organization)
            (I.R.S.
      Employer Identification No.)





7853
      E. Arapahoe Court, Suite 3100, Centennial, Colorado
            80112(Address
      of principal executive offices)
            (Zip
      Code)





Registrant’s
telephone number, including area code: (303) 202-1120





Securities
      registered pursuant to Section 12(b) of the Act:
            NoneSecurities
      registered pursuant to  Section 12(g) of the
Act:
            None





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.     [  ] Yes[X] No





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act.


[ 
] Yes                      [X]
No





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.


[X] Yes                      [ 
]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 for such shorter period that the registrant was required to submit
and post such files).


[ 
] Yes                      [ 
]No (not
required)





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 registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  [X]





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










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 Act).  [  ]Yes   [X]No





State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold, or the average bid and asked price of such common equity, as of the
last business day of the registrant’s most recently completed second fiscal
quarter: $79,773.75 as of March
31, 2009





Indicate
the number of shares outstanding of each of the registrant’s classes of common
stock, as of the latest practicable date:  298,379 shares of common stock as of
December 29, 2009








SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS





This
annual report includes “forward-looking statements.”  All statements
other than statements of historical facts included or incorporated by reference
in this report, including, without limitation, statements regarding our future
financial position, business strategy, budgets, projected costs and plans and
objectives of management for future operations, are forward-looking
statements.  In addition, forward-looking statements generally can be
identified by the use of forward-looking terminology such as “may,” “will,”
“expect,” “intend,” “project,” “estimate,” “anticipate,” “believe,” or
“continue” or the negative thereof or variations thereon or similar
terminology.  Although we believe that the expectations reflected in
such forward-looking statements are reasonable, we cannot give any assurance
that such expectations will prove to have been correct.  Important
factors that could cause actual results to differ materially from our
expectations (“Cautionary Statements”) include, but are not limited
to:





·
            our
      ability to generate sufficient capital to complete planned
      acquisitions;


·
            the
      lack of liquidity of our common
stock;


·
            the
      availability of capital;


·
            the
      strength and financial resources of our
  competitors;


·
            general
      economic conditions; and


·
            the
      securities or capital markets and other factors disclosed under
      “Management’s Discussion and Analysis of Financial Condition and Results
      of Operations,” “Business” and elsewhere in this annual
      report.





All
subsequent written and oral forward-looking statements attributable to us, or
persons acting on our behalf, are expressly qualified in their entirety by the
cautionary statements.  We assume no duty to update or revise our
forward-looking statements based on changes in internal estimates or
expectations or otherwise.


3


V2K
INTERNATIONAL, INC.





FORM
10-K


FOR
THE FISCAL YEAR ENDED


SEPTEMBER
30, 2009





INDEX








PagePART IItem
      1.
            Business
            5Item
      1A.
            Risk
      Factors
            13Item
      1B.
            Unresolved
      Staff Comments
            15Item
      2.
            Properties
            15Item
      3.
            Legal
      Proceedings
            16Item
      4.
            Submission
      of Matters to a Vote of Security Holders
            16PART IIItem
      5.
            Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
            17Item
      6.
            Selected
      Financial Data
            17Item
      7.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
            17Item
      7A.
            Quantitative
      and Qualitative Disclosures About Market Risk
            24Item
      8.
            Financial
      Statements and Supplementary Data
            24Item
      9.
            Changes
      in and Disagreements With Accountants on Accounting and Financial
      Disclosure
            24Item
      9A.
            Controls
      and Procedures
            24Item
      9B.
            Other
      Information
            25PART IIIItem
      10.
            Directors,
      Executive Officers and Corporate Governance
            26Item
      11.
            Executive
      Compensation
            28Item
      12.
            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
            31Item
      13.
            Certain
      Relationships and Related Transactions, and Director
      Independence
            32Item
      14.
            Principal
      Accounting Fees and Services
            33PART IVItem
      15
            Exhibits,
      Financial Statement Schedules
            34SIGNATURES
            35





4


PART
I





Item
1.         Business





Overview





We were
incorporated on March 13, 2006 in the State of Colorado.  On April 1,
2006, in a share for share exchange, we acquired all of the issued and
outstanding shares of V2K Window Fashions, Inc., a company incorporated in
Colorado on July 24, 1996, and V2K Manufacturing, Inc., a company incorporated
in Colorado on September 21, 1994.  On July 1, 2006, we transferred
the software and our software development team into a separate entity named V2K
Technology, Inc., a wholly-owned subsidiary and a Colorado
corporation.  On April 6, 2007, we organized Marketing Source
International LLC, a Colorado limited liability company.





Through
our wholly-owned subsidiaries, V2K Window Fashions, Inc. and V2K Technology,
Inc., we sell and support franchises in the residential and commercial window
fashion industry, and develop and license proprietary software that allows users
to decorate windows for both residential and commercial customers.  As
of the date of this filing, V2K Manufacturing, Inc. and Marketing Source
International LLC have no operations.





Our
current emphasis is in window fashions and accessories.  Our
subsidiary, V2K Window Fashions, Inc. (“V2K Window Fashions”) sells and supports
franchises in the window fashion industry.  We began selling
franchises in March 1997.  Our first franchisee started operations in
August 1997.  After selling several franchises, we halted our
franchise sales activity while we refined our business plan and secured outside
financing.  We began aggressively developing the franchise business
model in November 2001, at which point we had 9 franchises.  As of
September 30, 2009, we had 134 franchises, operating in thirty-five states,
three Canadian provinces and Aruba.





Using our
proprietary software developed at V2K Technology, Inc. (“V2K Technology”), our
franchisees sell window fashions of all kinds to both commercial and residential
customers.  “Soft” window fashions, such as drapes and curtains,
and  “hard” goods, such as blinds, cellular shades, and shutters, are
sourced to third party vendors.  All items are shipped directly from
the manufacturer or vendor to the franchisee.





We intend
to become the dominant company in the window décor and accessory
market.  We plan to accomplish this goal by:





·
            introducing
      our three-dimensional software technology into the industry’s sales
      channel and supply chain;


·
            growing
      the business aggressively through the franchise business model and
      corporate license agreements; and


·
            controlling
      the industry’s distribution
channel.





Our
long-term vision is to capture the majority of the home décor arena using our
scalable, three-dimensional, graphic technology, by allowing our sources of
distribution to bring unique general economies of scale to flooring, wall
coverings, art, and accessory furnishings, among others.  In addition,
we have license opportunities in related fields, such as the casement window
industry, paint industry, and other industries in the building and design
trade.





Our
corporate offices, which include V2K International and all our subsidiaries, are
located at 7853 E. Arapahoe Court, Suite 3100, Centennial, Colorado 80112, and
our telephone number is (303) 202-1120.




Our
Software





We have
developed software that enables the user to decorate interiors of homes and
other buildings on a computer screen.  By using the same type of
graphics engine utilized by computer games, the user “sees” a three-dimensional
image of a room, drawn to scale, on the computer screen.  Window
coverings and accessories can be placed in the room, allowing the user to see
the end result of the decorating effort.  Moreover, our software
prices the items and prints the necessary purchase orders.





5


As our
current emphasis is in window fashions, the software has been customized to
enable the user to:





·
            design
      virtually any window covering style to scale on a computer or digital TV
      screen;


·
            adjust
      or redraw the window covering;


·
            calculate
      the price of the window covering immediately;
  and


·
            print
      a customer sales order for the window covering, as well as purchase orders
      for the vendors, production orders for the workroom, and installation
      instructions for the installer.





We
believe that our software is unique and provides users with two distinct
advantages:





·
            Customers
      can see what the window coverings will look like on their windows before
      they buy.  A sales agent can stay with the customer, showing the
      customer exactly what the window treatment will look like, to scale, and
      how much it will cost, until the customer finds a satisfactory style and a
      price.


·
            The
      time-consuming calculation and paperwork commonly associated with the
      window covering business has been eliminated.  With one
      keystroke and no additional data entry, the sales agent can create the
      purchase orders for the vendors and the production order for the
      workroom.





We plan
to develop a web-based version of the software that will allow customers to
design their own window coverings on the Internet.  We also plan to
expand the existing software to provide a variety of interior and exterior
design functions.  We have not established any timetables for these
plans.





Current
Application of Software





Franchisees
go into the homes or businesses of prospective customers equipped with a laptop
computer.  In their vehicles are samples of fabrics that we
offer.  After measuring the windows and entering the data into the
computer, the franchisee can then put the whole room, including the ceiling,
floor, windows, and walls to scale in the computer.  A window library
resides in the software containing almost any shape or style of window that
exists.  The franchisee may then enter the colors and texture of the
walls, floor and ceiling, as well as show the room under a variety of lighting
conditions.





The
franchisee then begins to decorate the window electronically on the screen in
the desired style specified by the customer.  The software contains a
fabric library that the franchisee can retrieve to show on the window
treatment.  While the windows are being decorated on the screen, the
software computes the sales price of the treatment, gross margin, and percent of
profit to the franchisee.  The customer can know immediately the sales
price of each window treatment and the order as a whole.  The
franchisee can see the margins and percent of profit and adjust the sales price
down if necessary in order to get the sale.





Once the
customer sees a design and price that is acceptable, the franchisee can bring in
an actual sample of the fabric for the customer to see and touch.  The
software generates a sales order for the customer to sign.  The
franchisee generally collects 50% of the total purchase price as a
deposit.  V2K offers 3-, 6- and 12-month, no-payment, deferred
interest consumer financing plans through a national financial
institution.  We do not guarantee any financing of the
franchisees.





With an
order in hand, the franchisee can send the order to us
electronically.  One of our product specialists then reviews the order
to make sure it conforms to the product being sold, and verifies the
pricing.  Upon approval by a product specialist, the order is then
broken down by vendor and the materials are ordered.  Alternatively,
the franchisee can place the order with vendors directly.  The vendors
then process the order and ship the finished products directly to the
franchisee.  Upon receipt of the finished goods, the franchisee
arranges for third party installation at the customer’s home or
office.





The
Interior Decorating Market





The U.S.
market for interior décor, including window fashions, is fragmented in terms of
competition and established distribution channels.  For example,
according to a market research report, Window Treatments and








6
 
  Wallcoverings,
by Catalina Research, published January 1, 2004, soft product window fashion
sales were distributed as follows:


·
            discount
      or mass merchandising department stores –
27%


·
            conventional
      and national chain department stores –
10.8%


·
            window
      treatment stores – 15.3%


·
            warehouse
      clubs – 9.5%


·
            electronic,
      mail order and direct selling retailers –
6.4%


·
            other
      home furnishing stores – 6.3%


·
            home
      centers, other building material dealers –
6.2%


·
            specialty
      floor covering retailers – 4.5%


·
            family
      clothing stores – 4.3%


·
            general
      merchandisers – 2.6%


·
            paint
      and wallpaper stores – 2.1%


·
            furniture
      stores – 1.5%


·
            hardware
      stores – 0.9%


·
            piece
      goods stores – 0.8%


·
            other
      retailers – 1.8%





This
fragmentation has limited the implementation of technology as a competitive
component in the window fashion industry.  The industry is not
automated at the point of sale and industry participants have, up to now, relied
on antiquated manual systems for selling and administrating window fashions,
resulting in quality control errors and higher operating margins.





Typically,
a sales agent, decorator, or designer goes to a potential customer’s home and
attempts to sketch or draw a treatment in which the customer is
interested.  In the case of “hard” treatments involving non-fabric
items, the agent uses a yellow pad and calculator to provide the customer an
approximate price.  This is a long and tedious process.  If
the customer objects to the price or wants to explore other alternatives, a
different treatment is selected and the pricing process begins
anew.  In the case of “soft” treatments involving the use of fabric,
the agent will most likely have to meet with the manager of a workroom in order
to calculate yardage, width cuts, repeats, and a variety of other variables,
before he or she can get back to the customer with a price.  This
process may take as many as 3 to 5 days.  If the customer objects to
the price, the agent must either discount the price or start the entire process
over again.  Once the customer decides on a treatment, the agent will
literally spend hours writing purchase orders for the vendors, and in the case
of soft treatments, production orders for the workroom.  It is
inevitable that mistakes are made along the way.





Franchise
and Licensing Operations





We do not
sell window fashions directly to the customer.  Instead, we have
chosen to grow our business by selling franchise and license
agreements.





We
started selling franchises in March 1997.  As of September 30, 2009,
we had 134 franchises, operating in 35 states, the Canadian provinces of
Alberta, British Columbia and Nova Scotia, and Aruba.





We sell
franchise units based on a minimum territory size of 30,000
households.  Franchisees may purchase one or more additional areas of
primary responsibility if they are not in default under their franchise
agreements, if the additional areas are available, and if we
approve.  Additional areas may have more or less than 30,000
households.  We will determine the fee for each additional area at the
time of purchase, but it will be less than the initial franchise
fee.  As of the date of this report, the current fee for each
additional area is $1.05 per household, but we may change this fee at any
time.





We also
make available a Small Market Franchise, based on a territory size of up to
15,000 households, in sparsely populated areas where a territory of 30,000
households would be difficult to cover because of the distances
involved.




7





We
currently charge a franchise fee of $59,900 ($39,900 for a Small Market
Franchise) for which the franchisee receives the following:


·
            a
      laptop computer, portable printer, and carrying
  case


·
            V2K’s
      software, including a price management
program


·
            non-proprietary
      software


·
            samples
      of fabric, hard products and decorative
hardware


·
            starter
      set of printed materials, including business cards, stationery, and
      promotional materials


·
            training
      manual, policy and procedure manual and marketing kit
  and


·
            the
      exclusive right to advertise in a designated
  area.





We also
provide basic training for up to two persons for each franchise.  We
reimburse the franchisee for travel expenses for one person (up to $300) and pay
lodging expenses for one person to attend the training as part of the franchise
fee.  The franchisee is liable for meals, travel, and lodging expenses
for any additional person(s).





In
addition to the franchise fee, we require franchisees to pay a non-refundable
continuing royalty based on a percentage of the franchise’s annual gross sales
in each franchise year, according to the following schedule:


·
            first
      $200,000 of gross sales – 8%


·
            next
      $100,000 of gross sales – 7%


·
            amount
      over $300,000 of gross sales – 4%





The first
franchise year commences on the first day of the first full month following the
franchisee’s satisfactory completion of basic training or on any other date we
may designate.  Each subsequent one-year period is another franchise
year.





The
monthly minimum royalty fee in the first franchise year is $250/month,
$500/month in the second franchise year, and $1,000/month in each franchise year
thereafter.  In the case of a Small Market Franchise, the monthly
minimum royalty fee is $125/month in the first year, $250/month in the second
year, and $500/month in each year thereafter.





In
addition, we require franchisees to pay us the following:





Type
      of Fee or Expense
            Amount
            Due
      Date
            RemarksNational/Regional/Local
      Advertising Fund1
            2%
      of total gross sales, which percentage may be increased by us to up to 5%
      of gross sales; subject to minimum monthly fees2
            Payable
      every 30 days
            We
      and/or our contractors administer the Fund for the benefit of our
      system.Showroom
      participation1
            Up
      to $150 per month
            Monthly
      as billed
            Note
      3  
 1 These
fees are imposed by and payable to us.  These fees are
non-refundable.  Late payment interest of 18% may begin after the due
date.  We may impose a late fee of $25.00 if the franchisee does not
submit reports to us within 3 days of the due date.
 2 The
Minimum National/Regional/Local Advertising Fund Fees are $62.50 per month in
the first year, $125 per month in the second year, and $250 per month thereafter
(including all months in any renewal terms); except if the franchisee qualifies
for, and pays, the Small Market Franchise fee, the Minimum
National/Regional/Local Advertising Fund Fees are $31.25 per month in the first
year, $62.50 per month in the second year, and $125 per month thereafter
(including all months in any renewal terms).  We may require
franchises to participate in a regional advertising cooperative, in which case
all or part of this fee will be paid to the cooperative.  To date,
participation has not been required.  If a cooperative were to be
established, the cooperative would determine the amount of the
fee.
 3 Upon
30 days written notice, we may provide a showroom in the franchises’
metropolitan or regional area for the franchisee to show the products and
services provided by the franchise.  In that case, the franchisees
will be billed for its pro-rata rental fee, not to exceed $150 per
month.
  8
   Type
      of Fee or Expense
              Amount
              Due
      Date
              Remarks
 Central
      telephone service1
            Varies4
            Monthly
      as billed
            If
      the franchise is located in a central telephone service area, as
      designated by us, the franchise must pay its proportionate share of the
      costs of maintaining the service.4Basic
      training5
            Varies
      – We estimate that the cost of travel, lodging and meals for each person
      attending Basic Training will range from $200 to $1,200.  The
      actual cost for each person may be higher or lower depending upon the
      distance traveled, and the meals and lodging selected.
            As
      incurred
            No
      training fee is charged for up to two persons.6  The
      training fee for additional persons will be determined by
      us.  We reimburse the franchisee for travel for one person (up
      to $300), and for lodging expenses for one attendee.  The
      franchisee pays the cost of meals for one attendee and pays all travel,
      lodging and meals expenses for any other attendees.Mandatory
      meetings and additional mandatory training5
            Varies
      – We estimate that the cost per person for travel, lodging and meals to
      attend a one-day meeting will be $20 to $600.  The actual cost
      for each person may be higher or lower depending upon the distance
      traveled, the meals and lodging selected, and the length of the
      meetings.
            As
      incurred
            No
      more than 1 mandatory meeting/training program will be scheduled each
      year.  No attendance fee is charged by us, but the franchisee
      pays the cost of travel, lodging and meals.7Optional
      training1,
      5
            Varies8 - We estimate
      that the cost person for travel, lodging and meals to attend a one-day
      optional training program will be
            2
      weeks prior to beginning of training
            We
      may, but are not required to, offer optional training programs that the
      franchisee may attend.  4
Central telephone service is available in some areas in some
states.  With central telephone service, one telephone number is used
for all franchises in the service area.  The provider’s software
routes each call to the appropriate franchise based on the caller’s
location.  The fee imposed by the provider of this service is split
among the franchises in the service area.
 5
Payable to third parties that provide goods or services to the
franchise.
 6 The
training fee for each additional person the franchisee sends to basic training
at any time is $250.
 7 If a
franchisee fails to attend a mandatory meeting that is designated by us as an
annual meeting, we may, at our sole determination, require the franchisee to pay
a $500 missed annual meeting fee, which fee will be due within 30 days of notice
by us to the franchise.
 8 We
will charge a fee for this training, which fee will depend on the training
provided.  The franchisee will also be responsible for paying for
his/her travel, lodging, and meals.
   9
  Type
      of Fee or Expense
              Amount
              Due
      Date
              Remarks
 $20
      to $600 (plus the program fee).  The actual cost for each person
      may be higher or lower depending upon the distance traveled, the meals and
      lodging selected, and the length of the training program.Product
      sample updates
            Varies9
            As
      incurred
            Note
      9Technology
      fee1
            $75
      per month; subject to an annual increase at our sole determination, but
      not more than 10% per year.
            Monthly,
      as billed.  As of the date of this filing, we do not charge this
      fee, but may do so upon at least 30 days prior written notice to the
      franchisee.
            This
      fee may be assessed by us for website and e-mail hosting by us, for future
      web-based system integration, and for other technology related
      services.Transfer/training
      fee1
            The
      transfer fee is $7,000 plus any brokerage commissions, finder’s fees or
      similar charges that we are required to pay to any third party that is not
      an affiliate of ours.  The training fee is $1,000.10
            Prior
      to completing the transfer
            Payable
      upon transfer of the franchise.  No charge if the franchisee
      transfers to a business entity that it controls.Audit1
            Cost
      of audit and underpayment amount, plus interest.
            Immediately
      upon billing
            Payable
      only if audit shows an understatement of at least 2% of gross sales for
      any month.Credit/debit
      card authorization and administrative fee1
            Varies
      – We charge 3% of the amount of the debit or credit.
            As
      incurred
            Note
      11Insufficient
      funds fee1
            Varies
            As
      incurred
            Note
      12Insurance5
            Varies
      – Insurance in Denver costs about $50 per month.  The
      franchisee’s cost may be higher or lower, depending
            Varies
            Franchisee
      must obtain our approval of insurance carrier.  We have
      appointed an approved carrier and established   9 The
amount can vary widely from one year to the next, but currently the amount is
estimated to be from $600 to $1,000 per year.  As of the date of this
filing, all updates are optional, but we may in the future mandate that the
franchisee purchase certain updates.
 10 The
transferee pays all travel, food, and lodging expenses to attend
training.  However, if the transferee is an existing V2K franchisee
who has successfully completed basic training, we may waive the requirement that
the transferee pay this fee and attend basic training.
 11 If
the franchisee is more than 10 days late for payment of any fees, we may, upon
48 hours notice to the franchisee by facsimile, activate a direct charge to the
franchisee’s credit or debit card for the fee, and bill the franchisee for any
costs incurred by us in administering this program.
 12 If
any check the franchisee sends to us is returned to us by a financial
institution (or other entity), or if we cannot charge the franchisee’s credit or
debit card for the full amount owed to us (in accordance with Note 11 above),
because of insufficient funds, the account being closed or otherwise, we may
charge the franchise a fee of the lesser of $20, or the highest rate permitted
by applicable law.
  10
  Type
      of Fee or Expense
              Amount
              Due
      Date
              Remarks
 upon
      its location and the insurance carrier selected
            
            minimum
      required covered amounts.Indemnification
            Varies
      – The franchisee will pay the amount of the liability assessed against us
      plus the expenses incurred in defending us.
            Varies
            The
      franchisee must reimburse us for any liability and costs incurred by us by
      reason of the franchise or our operation of the business on the
      franchisee’s behalf.




Franchisees
place most orders for products with us.  We in turn place them with
our vendors.  Finished products are shipped  and billed to
our franchisees.  Royalty payment terms with our franchisees are net
20 days.  We believe that this arrangement results in quality control
of the products being sold to the customer and provides us with a way to monitor
our franchisees’ operations.





We
believe the advantages to our franchisees are the following:


·
            Start-up
      costs are $40,170 - $82,300.


·
            The
      franchisee does not have to have any industry-specific knowledge or prior
      experience.


·
            We
      provide the franchisee with extensive training and
  support.


·
            The
      franchisee has no inventory to purchase or maintain, nominal receivables,
      and minimal general and administrative
expenses.


·
            The
      franchisee receives a complete business start up
  package.


·
            Our
      software product allows franchisees to set themselves apart from the way
      others in the industry do business.  To the best of our
      knowledge and information there is no software product currently on the
      market that is comparable with that of
V2K.


·
            Our
      software product provides franchisees with a marketing
      advantage.  Customers can determine what a treatment will look
      like on their windows before they
purchase.


·
            Our
      software product provides franchisees with a sales and closing
      advantage.  Our franchisees can stay with a customer until that
      customer is satisfied.  Our franchisees do not have to check
      back with a workroom to calculate
pricing.


·
            Our
      software product enables franchisees to administrate the sale of window
      treatments more efficiently and accurately than others in the
      industry.





We also
propose to sell domestic and international license agreements for the use of our
software to a limited number of major retailers who have shown interest in our
system.  It is envisioned that our license agreements will include a
one-time license fee and a monthly royalty or user fee.





Manufacturing
and Sourcing





Franchisees
submit most purchase orders to us.  We place the orders for the
products with a number of third party vendors, including soft product
manufacturers with whom we have development strategic alliances.





For the
years ended September 30, 2009 and 2008, approximately 77% and 69%,
respectively, of materials and supplies were acquired from three major vendors
(Lafayette Venetian Blind, Inc., Krohn’s Coverings, Inc., and DSC Window
Fashions, Inc.), with the largest vendor, Lafayette Venetian Blind, Inc.,
representing 46% and 38%, respectively of the total for each
year.  The related accounts payable to the largest vendor was
approximately $208,078 as of September 30, 2009 and $291,131 as of September 30,
2008.  We believe that if we were to lose any of these vendors, we
could replace the vendor(s) with others who provide the same materials and
supplies.  However, we could incur disruption of processing orders
from franchisees while transitioning from one vendor to another and this could
negatively impact our business.





11


Research
and Development





We
incurred research and development expenses of $158,538 and $317,891 for the
years ended September 30, 2009 and 2008, respectively.





Competition





We assess
our competitive conditions as follows:


·
            We
      compete against other companies that offer franchise
      opportunities.  There are numerous franchise and business
      opportunities offered by others in all
  industries.


·
            We
      compete against other companies in the window fashion industry and others
      offering window fashions.  As described above, the market for
      window fashions is fragmented.  We compete with many different
      types of retailers that sell many or most of the items sold by us,
      including department stores, mass merchandisers, mail order, specialty
      retail stores, and other retailers.  In some cases these
      competitors have substantially greater financial and other resources than
      us, including, in some cases, more profitable retail economics or better
      name recognition.





Budget
Blinds appears to be our closest competitor, in the sense that it is engaged in
the window covering industry, and offers franchises.  Also, a few
other smaller companies offer custom window treatment franchise
systems.





We are
aware of three other companies that offer a software product having some of the
functions of our proprietary software:


·
            DreamDraper®
      by Evan Marsh Designs, Inc. is an application that a designer can use to
      create a visual two-dimensional representation.  DreamDraper®
      comes with hundreds of static two-dimensional line drawing graphics of
      windows and window treatments.  The designer can go to the
      catalog of two-dimensional line drawing pieces and manually create a
      representation of the window and window treatments utilizing the Microsoft
      PowerPoint application.  DreamDraper® has no integrated pricing
      component.  However, it did come out with a quick quote system
      recently, but the two systems are independent of each
    other.


·
            Minutes
      Matter is very similar to DreamDraper® in that it is used by designers to
      create a representation of windows and window
      treatments.  Minutes Matter does not rely on Microsoft
      PowerPoint, but has its own design environment.  It has a
      catalog of hundreds of static two-dimensional line drawing pieces that the
      user chooses from and then manually assembles the window and window
      treatments.  Minute Matters does not have a pricing
      component.


·
            Solatech,
      Inc. has introduced a software product similar in some ways to
      V2K’s.  Solatech is a two-dimensional photo rendering software
      that has very limited soft goods capability, with no scaling or visuals
      that represent what the product selection will look like in the customer’s
      home.





We cannot
assure you that additional competitors will not enter our line of
business.  Increased competition by existing or future competitors,
resulting in our having to reduce prices in an effort to gain or retain market
share, could result in reductions in our sales and profitability, which could
have a material adverse effect on our business and financial
condition.





Government
Regulation





To offer
and sell franchises, we must comply with the rules and regulations of the
Federal Trade Commission, as well as the laws of the states in which offers and
sales are made.  The Federal Trade Commission franchise rule requires
that we furnish potential franchisees with written disclosures containing
information about the franchised business, the franchise relationship, and
us.  We have made these disclosures by following the Uniform Franchise
Offering Circular Guidelines prepared by state franchise law
officials.  We must provide a potential franchisee with the written
disclosures upon the earlier of (1) the first personal meeting with the
prospective purchaser; (2) ten business days before signing any binding
agreement; or (3) ten business days before any payment to us.





12


The
Federal Trade Commission does not review or approve any disclosures,
advertising, or agreements.  However, 15 states have franchise
investment laws that require us to provide pre-sale disclosures.  Of
the 15 states, 13 treat the sale of a franchise like the sale of a security and
generally prohibit the offer or sale of a franchise within their state until a
franchise offering circular has been filed with, and registered by, the
designated state agency.  We estimate that the registration renewal
fees to maintain compliance with such state laws costs us approximately $7,500
per year.





Trademarks
and Copyrights





In
November 2005, our subsidiary, V2K Window Fashions, filed an “actual use”
application for the new principal trademark/service mark “V2K WINDOW DÉCOR &
MORE and Design” (Ser. No. 76/649642). The trademark application process has
been completed, and according to the United States Patent and Trademark Office,
the registration will be issued in “due course.”





Our
subsidiary, V2K Window Fashions, has registered our “V2K” logo with the United
States Patent and Trademark office.  The registration date is April 9,
2002, and our registration number is 2,559,601, for Computer Software and
Business Services.  We also registered the logo for Retail Store
Services and Design for Others of Window Coverings and Treatments on March 29,
2005, registration number 2,935,943.





Our
subsidiary, V2K Technology, claims a copyright in the Décor Creator
software.





Employees





We had 12
full-time and 1 part-time employees as of September 30, 2009.  None of
our employees is covered by a collective bargaining agreement.








Item
1A.         Risk
Factors





We have incurred
losses and cannot assure you of profitability.  With the
exception of net income of $69,195 for the year ended December 31, 2003, we have
incurred net losses, including a loss of $868,687 for our most recently
completed fiscal year.  As of September 30, 2009, our accumulated
deficit was $4,160,121.  To date, we have not generated revenues
sufficient to fund our business and pay our ongoing expenses.  There
can be no assurance that we will be profitable in the future.





We are dependent
upon outside financing.  We rely upon external sources of
financing to fund future growth and the implementation of our business
plan.  Since our inception in July 1996, we have financed our
operations through internally generated revenues, the sale of our stock and by
borrowing from third parties and affiliates of our Company.  We will
likely need to borrow from third parties and affiliates to provide sufficient
capital to maintain current operations.  We do not know whether future
financing will be available on acceptable terms, or at all.  Any
additional financing may result in dilution to our shareholders.  Our
failure to obtain external financing may have a material adverse effect on our
ability to operate the business.





Our current
business plan is dependent upon our ability to sell franchises and to have
successful franchisees.  Our growth is dependent upon our
continued ability to sell franchises.  Our existing franchise base of
approximately 134 is too small to produce enough royalty revenue to support our
operations.  To be successful, we need to be able to identify suitable
franchise candidates, provide them with adequate training, and manage
competently the infrastructure to support the franchises.  In
addition, our franchisees must be successful in their business
operations.  If they are not successful, it will adversely impact our
sales of franchises and we will not generate sufficient royalty income needed to
operate.





We use
franchise broker networks and Internet advertising to generate leads to identify
suitable franchise candidates.  If prospective candidates indicate a
sufficient amount of interest, we encourage them to travel to our offices for a
“discovery day” and reimburse them for $300 of airfare and one night of
lodging.  After our franchisees attend a two-week basic training
program, which includes instruction pertaining to operating our proprietary








13
 
  software,
product knowledge and design, business management and sales and marketing, we
provide them with a 90-day “quick start” marketing program.  We also
follow-up on the progress each new franchisee.





We are affected
by economic conditions and consumer trends.  Our success will
depend upon a number of factors relating to consumer spending, including future
economic conditions affecting disposable consumer income, such as employment,
business conditions, interest rates, and taxation.  If existing
economic conditions deteriorate, consumer spending may decline, thereby
adversely affecting our business and results of operations.





We must
be able to anticipate and respond to changing merchandise trends and consumer
demands in a timely manner.  If we should miscalculate consumers’
purchasing habits and tastes, we will not be able to compete against other
window covering businesses.





We face
competition from existing and potential competitors.  We face
substantial competition in the overall window covering industry, as well as
competition from others offering franchises and business
opportunities.  Due to our small size, it can be assumed that most if
not all of our competitors have significantly greater financial, technical,
marketing and other competitive resources.  Many of our competitors
and potential competitors have greater name recognition and more extensive
customer bases that could be leveraged, for example, to position themselves as
being more experienced, having better products, and being more knowledgeable
than us.  To compete, we may be forced to offer lower prices and
narrow our marketing focus, resulting in reduced revenues.





Our success and
ability to compete depends upon our ability to secure and protect our
technology.  Our success depends on our ability to protect our
technology.  In the event that a third party misappropriates or
infringes on our intellectual property, our business would be seriously
harmed.  Third parties may independently discover or invent competing
technologies or reverse engineer our software.  We expect that if we
should successfully market franchises and licenses to use our software,
competitors may attempt to duplicate our technology.





The loss of our
officers and directors or our failure to attract and retain additional personnel
could adversely affect our business.  Our success depends
largely upon the efforts, abilities, and decision-making of our executive
officers and directors.  Although we believe that we maintain a core
group sufficient for us to effectively conduct our operations, the loss of any
of our key personnel could, to varying degrees, have an adverse effect on our
operations and system development.  We currently maintain “key-man”
life insurance on Victor Yosha, our president/chief executive officer, however,
there is no contract in place assuring his services for any length of
time.  The loss of Mr. Yosha would have a material adverse affect on
us.  We do not have assurance that the services of any member of our
management will remain available to us for any period of time, or that we will
be able to enter into employment contracts with any of our management, or that
any of our plans to reduce dependency upon key personnel will be successfully
implemented.





The
knowledge and expertise of our officers and directors are critical to our
operations.  There is no guarantee that we will be able to retain our
current officers and directors, or be able to hire suitable replacements in the
event that some or all of our current management leave our
company.  In the event that we should lose key members of our staff,
or if we are unable to find suitable replacements, we may not be able to
maintain our business and might have to cease operations, in which case you
might lose all of your investment.





We use outside
suppliers to fulfill the orders placed with us by our
franchisees.  Orders placed with us by our franchisees are
filled by outside suppliers, with our three largest vendors constituting
approximately 77% of materials and supplies for the year ended September 30,
2009.  We have chosen to limit the number of suppliers that we use in
order to obtain better pricing terms from them and to insure the quality of the
products delivered to our franchisees’ customers.  We believe that if
we were to lose any of these vendors, we could replace the vendor(s) with others
who provide the same materials and supplies.  However, we could incur
disruption of processing orders from franchisees while transitioning from one
vendor to another and this could negatively impact our business.





A limited number
of shareholders collectively own a majority of our common stock and may act, or
prevent certain types of corporate actions, to the detriment of other
shareholders.  As of September 30, 2009, our directors,
officers, and more than 10% shareholders owned beneficially 60% of our common
stock.  Accordingly, these shareholders may, if they act together,
exercise significant influence over all matters requiring shareholder approval,
including the election of a majority of the directors and the determination of
significant corporate actions.








14
 
  This
concentration could also have the effect of delaying or preventing a change in
control that could otherwise be beneficial to our
shareholders.





Outstanding
warrants may negatively impact our ability to obtain future
financing.  We have outstanding warrants to purchase 8,000
shares of common stock at $37.50 through January 5, 2010, outstanding warrants
to purchase 5,852 shares of common stock at $18.75 through September 30, 2010
and outstanding warrants to purchase 5,852 shares of common stock at $31.25
through September 30, 2011.  As long as these warrants remain
unexercised and outstanding, the terms under which we may be able to obtain
additional capital financing may be adversely affected.





We have a
substantial number of shares that may become freely tradable and could therefore
result in a reduced market price.  As of November 30, 2009, we
had an aggregate of 298,379 shares of our common stock issued and outstanding,
with 33,565 registered shares, currently owned by existing shareholders, freely
tradable.  In addition, we registered the resale of 8,000 shares
issuable upon the exercise of warrants.  The sale of a significant
number of these shares in the public market may adversely affect prevailing
market prices of our shares.





Our common stock
is subject to penny stock regulation that may affect the liquidity for our
common stock.  Our common stock is subject to regulations of
the Securities and Exchange Commission (“SEC”) relating to the market for penny
stocks.  These regulations generally require that a disclosure
schedule explaining the penny stock market and the risks associated therewith be
delivered to purchasers of penny stocks and impose various sales practice
requirements on broker-dealers who sell penny stocks to persons other than
established customers and accredited investors.  The regulations
applicable to penny stocks may severely affect the market liquidity for our
common stock, as some brokers refrain from trades involving penny stocks to
avoid the additional work to comply with these requirements.  As a
result, your ability to sell your securities in the secondary market could be
limited.





Future equity
transactions, including exercise of options or warrants, could result in
dilution.  From time to time, we intend to sell restricted
stock, warrants, and convertible debt to investors in private
placements.  Because the stock will be restricted, the stock will
likely be sold at a greater discount to market prices compared to a public stock
offering, and the exercise price of the warrants is likely to be at or even
lower than market prices.  These transactions will cause dilution to
existing shareholders.  Also, from time to time, options will be
issued to officers, directors, or employees, with exercise prices equal to the
then prevailing market price.  As of September 30, 2009, 226,160
options that had been granted to officers, directors, employees and
consultants were outstanding.  Exercise of in-the-money options
and warrants will result in dilution to existing shareholders.  The
amount of dilution will depend on the spread between the market and exercise
price, and the number of shares involved.





Trading in our
common stock may be limited thereby making it more difficult for investors to
resell their shares of our common stock.  Our common stock is
quoted on the OTC Bulletin Board.  The OTC Bulletin Board is not an
exchange and, because trading of securities on the OTC Bulletin Board is often
more sporadic than the trading of securities listed on an exchange or NASDAQ,
you may have difficulty reselling any of the shares that you purchase from the
selling shareholders.





Item
1B.        Unresolved Staff
Comments





Not applicable.





Item
2.           Properties





Facilities





Our
principal offices are located at 7853 E. Arapahoe Court, Suite 3100, Centennial,
Colorado 80112.  We sub-lease approximately 1,200 square feet on a
month to month basis.




15





Item
3.           Legal
Proceedings





Several
of our trade creditors have initiated legal proceedings to collect amounts owed
to them by us.  As of the date of this report, no judgments have been
entered against us. We are negotiating with these creditors to reach a settlement.  The
aggregate amount in question is approximately $16,500 and is reflected in our
financial statements as current liabilities.





Item
4.           Submission
of Matters to a Vote of Security Holders





None.





16


PART
II





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





Effective
December 17, 2009 our common stock symbol as currently quoted on the OTC
Bulletin Board (“OTCBB”)” was changed to “VTOKD” to reflect a reverse stock
split of 1:125.  The trading symbol often appears as “VTOKD.OB” in
quotation requests on the Internet.  Priced quotations for our stock
were not entered until November 2007.  The following table sets forth
the range of high and low bid quotations for each fiscal quarter for the last
two fiscal years ended September 30, 2009.  These quotations reflect
inter-dealer prices without retail mark-up, markdown, or commissions and may not
necessarily represent actual transactions.





Bid
      Prices ($)High
            Low2008
      Fiscal Year:December
      31, 2007
            $62.50
            $23.75March
      31, 2008
            $52.50
            $18.75June
      30, 2008
            $40,00
            $12.50September
      30, 2008
            $28.75
            $  3.752009
      Fiscal Year:December
      31, 2008
            $3.750
            $0.125March
      31, 2009
            $0.625
            $0.000June
      30, 2009
            $0.000
            $0.000September
      30, 2009
            $0.875
            $0.000





On
December 29, 2009, the closing bid price for the common stock on the OTCBB was
$0.05 per share.





Holders
and Dividends





As of
December 29, 2009, there were 83 record holders of our common
stock.  To date, we have not declared or paid any dividends on our
common stock.  We do not intend to declare or pay any dividends on our
common stock in the foreseeable future, but rather to retain any earnings to
finance the growth of our business.  Any future determination to pay
dividends will be at the discretion of our board of directors and will depend on
our results of operations, financial condition, contractual and legal
restrictions and other factors the board of directors deems
relevant





Recent
Sales of Unregistered Securities





Not
applicable.





Item
6.           Selected
Financial Data





Not required.





Item
7.           Management’s
Discussion and Analysis of Financial Condition and Results of
Operations





The
following discussion should be read in conjunction with the financial statements
and the related notes included in this annual report.  This discussion
contains forward-looking statements that involve risks and
uncertainties.  Our actual results could differ significantly from
those projected in the forward-looking statements as a result of many factors,
including those discussed in “Risk Factors,”  “Business” and elsewhere
in this report.





History
and Overview





V2K
International, Inc. (“International”) was incorporated as a Colorado corporation
on March 13, 2006.  Through our wholly owned subsidiaries, V2K Window
Fashions, Inc., V2K Technology, Inc., V2K Manufacturing,





17
 
  Inc., and
Marketing Source International, LLC, we sell and support franchises in the
residential and commercial window fashion industry, and develop and license
proprietary software that allows users to decorate windows for both residential
and commercial customers.





Details
of the Company’s subsidiaries as of September 30, 2009 are described
below:





Entity
      name
            Place
      of incorporation
              and
      legal entity
            Principal
      activities
            Effective
      interest heldV2K
      Window Fashions, Inc.
            Colorado
      corporation
            Franchise
      sales and support
            100%V2K
      Technology, Inc.
            Colorado
      corporation
            Development
      and licensing of software
            100%V2K
      Manufacturing, Inc.
            Colorado
      corporation
            No
      operations at this time
            100%Marketing
      Source International,
              LLC
            Colorado
      limited
              liability
      company
            No
      operations at this time
            100%





In April
2006, in a share for share exchange, we acquired all issued and outstanding
shares of V2K Window Fashion’s preferred and common stock in exchange for shares
of common stock in V2K International on a 1 for 35 basis and 1 for 10 basis,
respectively.





In August
2006, V2K Window Fashions opened its first company-owned franchise location,
incorporated as Window Fashions Franchise LLC. In July 2007, V2K Window Fashions
sold 100% of its ownership interest in Window Fashions Franchise LLC to a third
party.  Window Fashions Franchise LLC had been a wholly owned
subsidiary of V2K Window Fashions.





In April
2006, V2K Window Fashions transferred legal ownership of V2K Manufacturing and
the related equity interest to V2K International.  V2K Window Fashions
had acquired V2K Manufacturing in January 2004.  In October 2007, we
sold the inventory and fixed assets of V2K Manufacturing to a third
party.





In July
2006, in order to further protect the intellectual property associated with the
software and to facilitate future licensing agreements, the software and
software development team formerly held by V2K Window Fashions were spun-off to
form V2K Technology.  V2K Technology became a wholly owned subsidiary
of V2K International and licenses a customized window fashions franchise
software to V2K Window Fashions.





In April
2007, we organized Marketing Source International LLC, a Colorado limited
liability company.





As of the
date of this filing, V2K Window Fashions is our primary operating subsidiary,
making franchising our primary operations. V2K Window Fashions was incorporated
in July 1996 to offer licenses to use the “Pictures and Prices” software, which
had been developed by an affiliated company, Pictures and Prices
Corporation.  The assets of Pictures and Prices Corporation were later
transferred to us in 1999.  We packaged the software license with our
training manuals, policies, procedures, and knowledge and began selling
franchises in March 1997.  After obtaining a core group of franchises
in 1998, we focused our efforts on building our infrastructure to provide
support to our franchises, refining our business model, and developing our
business plan.




Since our
inception through September 30, 2009, in order to fund the development of our
software and to develop our franchising operations, we have obtained
approximately $4,304,990 from: debt subsequently converted to equity ($842,000),
including amounts contributed by our officers and directors ($667,000); the sale
of stock ($1,514,633); and current outstanding loans ($1,281,357).  We
believe that our real value lies in our software.  However, that value
is not reflected in our financial statements due to accounting policies
(discussed below) pertaining to research and development costs.  We
believe that our software has now been developed to the point where it can be
used for a variety of niches within the home décor industry.





18


Critical
Accounting Policies





Franchise
Operations - Overview.  Franchisees are required to pay the
Company an initial franchise fee, royalty fees aggregating between 4% and 8% of
gross sales and an advertising contribution fee of 2% of gross sales. In
addition, most materials and goods sold by franchisees are processed through the
Company using approved vendors and suppliers.





As of
September 30, 2009, we supported 134 independently owned franchises located in
35 states, three Canadian provinces and Aruba.  A summary of franchise
activity is as follows:





September
      30, 2009
            
            
            September
      30, 2008Franchises
      in operation - beginning of period
            
            
            170
            
            
            
            182Franchises
      sold during the period
            
            
            2
            
            
            
            19Franchises
      cancelled, terminated or repurchased during the period
            
            
            (38
            )
            
            
            (31
            )Franchises
      in operation - end of period
            
            
            134
            
            
            
            170





Franchise
Operations - Reacquired Franchise Rights.We occasionally
reacquire the rights to a franchise territory. When this occurs we contract with
the franchisee to reacquire the territory for a specified amount that can
consist of cash, a note payable, and/or forgiveness of debt. While these
territories provide benefits to the Company, they lack physical substance, thus,
under Accounting Standards Codification (ASC) Topic 350 (Statement of Financial
Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets”), we
record reacquired franchise rights as intangible assets at fair value. Fair
value is established as the total amount of consideration that changed hands,
not to exceed the estimated resale amount of the territory less all related
costs of sales. We have concluded that reacquired territories have indeterminate
lives, so the resulting intangible assets are not amortized.  When
reacquired territories are resold, the intangible assets are offset against the
cost of the sale, and the related carrying value is reduced.  We
assess impairment of intangible assets on an annual basis. If any impairment is
found, the carrying amount of the asset is written down to the fair value. In
the years ended September 30, 2009 and 2008, we reacquired franchise rights from
zero and two franchisees, respectively.





Franchise
Operations - Repossessed Franchises.  We have the right to
repossess (cancel) franchises. When this occurs we cancel a franchise agreement
and take the franchise territory back from the franchisee. We cancel franchises
for failure to abide by the terms and conditions of franchise agreements, and
for failure to meet minimum performance standards pursuant to franchise
agreements. Occasionally, franchises voluntarily surrender their territories. No
consideration is exchanged in these situations, and none of the franchise fee is
refunded, thus under ASC Topic 952 (SFAS No. 45, “Accounting for Franchise Fee
Revenue”), no fair value is assigned to these transactions. In the years ended
September 30, 2009 and September 30, 2008, we repossessed 38 and 29 franchises,
respectively.





Revenue
Recognition.  Initial franchise fees are recognized as revenue
upon the commencement of operations by the franchisee, which is when we have
performed substantially all initial services required by the franchise
agreement.  Unearned income represents franchise fees received for
which we have not yet performed all of our initial obligations under the
franchise agreement.  Such obligations, consisting mostly of training,
are generally fulfilled within 60 days of receipt of the initial franchise
fee.  Royalties and advertising fees are recognized as
earned.





Effective
June 15, 2009, we amended the terms of our vendor agreements, which resulted in
a change in  our revenue recognition policy with regard to sales of
materials and supplies.  The following is a discussion of our revenue
recognition policy before and after June 15, 2009.





Prior to
June 15, 2009 our franchisees placed all orders for materials and supplies with
us.  We reviewed each proposed purchase order to determine whether the
products could be made as requested, made any necessary changes, and then placed
the corresponding orders with its vendors. Accordingly, we determined all
product specifications. While the products were shipped directly to the
franchisees by the vendors, we received title to the








19
 
  shipped
items and had the physical risk of loss upon shipment.  We were liable
to the vendors for payment and collected the amounts due for the goods from the
franchisees.  We negotiated all pricing with the vendors and had the
ability to establish rebate programs with vendors, mark-ups or any other method
of creating margin.  In addition, we were responsible to the
franchisees for goods shipped by the vendors that did not meet
specifications.  We had discretion in supplier
selection.  Thus, we acted as a principal as defined in the ASC Topic
605 (Emerging Issues Task Force, Issue 99-19, “Reporting Revenue Gross as a
Principal versus Net as an Agent”).  Revenue from materials and
supplies sales was recorded upon shipment to the franchisee by the vendor and
represented approximately 77% of total revenue for the year ended September 30,
2009, and 73% of total revenue for the year ended September 30,
2008.





As of
June 15, 2009, our franchisees no longer place all orders for materials and
supplies with us, and are billed directly by our vendors.  We only
review orders submitted to us for our supported vendors, to determine whether
the products can be made as requested, make any necessary changes, and then
places the corresponding orders with the supported vendors. Accordingly, we
determine product specifications for supported vendors only.  The
products are shipped directly to the franchisees by the vendors, and the
franchisee receives title to the shipped items and has the physical risk of loss
upon shipment.  The franchisee is billed directly by the vendor and is
now liable to the vendor for payment. We still negotiate all pricing with our
supported vendors, and have the ability to establish rebate programs with these
vendors.  We are no longer responsible to our franchisees for goods
shipped by the supported vendors that did not meet specifications, but do
maintain discretion in supplier selection.  Thus, we no longer act as
a principal as defined in the ASC Topic 605 (Emerging Issues Task Force, Issue
99-19), and therefore no longer report revenues from sales of materials and
supplies.  This change has no material impact our net income, but does
reduce the sales of materials and supplies and cost of those materials and
supplies by the same amount. The amount of reduced gross sales and cost of these
sales from June 15 to September 30, 2009 was approximately
$756,000.




Intangible Asset
Impairment.Intangible assets consist of reacquired franchise
rights from the repurchase of franchise territories. We have determined that
reacquired franchise rights have indefinite lives and are not subject to
amortization.  Intangible assets with indefinite lives are reviewed
for impairment annually or more frequently if events or circumstances indicate
the carrying amount of the assets may be impaired. As of September 30, 2009,
impairment of $73,409 has been recorded.





Use of
Estimates.  The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and reported amounts of revenues and expenses during
the reporting period.  At this time, our operations are such that
there are two primary areas of estimates and assumptions that could potentially
have a material impact to the financial statements if significantly
miscalculated.  These areas are the allowance for doubtful accounts
and share-based compensation.





The
potential risk of these estimates can be material to the financial statements,
because the receivables are the largest assets on the balance
sheet.  If we were to incur adjustments for write-offs that were not
covered under the allowance it would be posted through operating expenses, and
the offset would reduce the related receivables balance on the balance
sheet.  Based on the average receivable balances for the last 24
months, if the estimate was significantly miscalculated it could have a negative
impact of $50,000 to $100,000 to the financial statements.  We believe
based on our knowledge and ongoing review that the risk of miscalculating to
this level is low, barring any unforeseen economic downturn.





Share-based
Compensation.  Share-based compensation involves calculating
the value of stock options granted under our stock option plan, following
calculation methods prescribed by ASC Topics 505 and 718 (SFAS
123R).  We use the Black-Scholes stock option pricing model, which
requires assumptions for expected option life, a risk-free interest rate,
dividend yield, and volatility.  Expected option life represents the
period of time that options granted are expected to be outstanding, the
risk-free interest rate is based on the U.S. Treasury market, and volatility is
derived from trading prices of the stock of a peer company.  For the
years ended September 30, 2009 and 2008, share-based compensation was $37,833
and $83,057, respectively.  Share-based compensation is included in
selling, general and administrative expenses as an operating expense and
therefore has a significant impact on results of operations.







20


Variable Interest
Entities.  The Financial Accounting Standards Board (“FASB”)
issued ASC Topic 810 (Interpretation 46 (revised 2003), “Consolidation of
Variable Interest Entities”) and requires the primary beneficiary of a variable
interest entity to consolidate that entity.  The primary beneficiary
of a variable interest entity is the party that absorbs a majority of the
variable interest entity’s expected losses, receives a majority of the entity’s
expected residual returns, or both, because of ownership, contractual or other
financial interests in the entity.





The
primary entities in which we possess a variable interest are franchise entities,
which operate our franchised window fashions retail operations.  We do
not possess any ownership interests in franchise entities. We do not generally
provide financial support to the franchisees.  Management has reviewed
the franchise entities and determined that, other than the former 100% owned
franchise, we are not the primary beneficiary of the entities, and therefore,
these entities have not been consolidated





Results
of Operations





At this
point in our development, our results of operations are impacted primarily by
the sales of franchises, as our existing franchise base is too small to generate
enough royalty revenue and gross profit margin from sales of materials and
supplies to support our operations.  While revenues from sales of
material and supplies comprise 77% and 73% of total revenues for the years ended
September 30, 2009 and September 30, 2008, respectively, the margin on these
sales averages approximately 4-6%.  We limit our mark-up to our
franchisees so that they can be competitive in quoting prices to customers and
also operate profitably.





Year Ended
September 30, 2009 as Compared to Year Ended September 30,
2008.  Our sales of franchises revenues decreased by
$947,927(90%) primarily due to selling only 2 franchises for the year ended
September 30, 2009, as compared to 19 for the year ended September 30,
2008.  Our margin on sales of franchises was 41% for 2009, as compared
to 39% for 2008.  The most significant component of cost of franchise
sales is the selling commission.  If we obtain the sale of a franchise
through the assistance of a broker, we pay a commission equal to 40% of the
franchise purchase price, with an additional 7.2% commission paid to our
in-house sales personnel.  If we obtain the sale of a franchise
without the assistance of a broker, we pay a 12% commission to our in-house
sales personnel.  Approximately 85% of our sales of franchises are
generated through brokers.  Other components of cost of franchise
sales are the costs of training that we provide (such as lodging and travel
expenses), equipment provided to the franchisee (laptop computer, printer and
carrying case), books of fabric samples, and starter sets of marketing
materials.  The increase in margin on the sale of franchise units in
2009 was primarily the result of a reduction in cost of the items we provided to
new franchisees during the 2009 fiscal year.





In 2008,
royalty fees and sales of materials and supplies decreased by $119,998 (19%) and
$2,618,775 (57%), respectively.  We believe that the decrease was due
to the general slowdown in the economy, especially with respect to the downturn
in the housing market, and our efforts to eliminate under-performing franchises
from the system.  In addition, our change in policy with respect to
revenue recognition from the sales of materials and supplies played a
significant part in the 57% decrease from the prior year.  (See
Critical Accounting Policies – Revenue Recognition above.)





While our
revenues decreased by $3,686,700 (59%), our operating expenses decreased by
$3,772,635 (52%), resulting in the operating loss of $868,531 in fiscal 2009, as
compared to $954,466 in 2008.





Selling,
general and administrative expenses decreased by $583,934 (30%) in fiscal 2009,
primarily due to a reduction in stock compensation expense and
personnel.  Research and development costs were $158,538 in 2009,
compared to $317,891 in 2008.





Interest
expense increased by $69,743 (124%) in 2009, primarily due to an increase in the
amounts borrowed from related parties.





During
2009, we recognized a gain on liability extinguishment of $104,684 as a result
of entering into a mutual termination and release agreement with our landlord,
which released us from all of our lease obligations.





As a
result of the above, our net loss for the year ended September 30, 2009 was
$868,687, as compared to a net loss of $986,279 for the year ended September 30,
2008, a decrease in the net loss of $117,592.





21


Liquidity
and Financial Condition





We have
incurred negative operating cash flows, operating losses, and negative working
capital.  We have relied upon sales of our common stock and borrowing
in the form of bridge loans and convertible debentures to address our liquidity
needs.  To a lesser extent, we have also used bank
financing.





At September 30,
2009.  At September 30, 2009, we had a working capital deficit
of $1,911,271 as compared to a deficiency of $1,151,926 at September 30,
2008.  While our current assets decreased by $724,015, our current
liabilities increased by $35,330.  The most significant decrease in
current assets was with respect to accounts receivable, which decreased by
$505,913.  The decrease in accounts receivable was due in large part
to the change in our revenue recognition policy with respect to sales of
materials and supplies.





The most
significant increase in current liabilities was the result of borrowing from
related parties.  Note payable – related parties increased by $309,904
in 2009.  This was partially offset by decreases in accounts payable
and accrued expenses ($256,356), note payable other ($1,259), capital lease
obligations ($3,481), line of credit ($10,000) and deferred rent
($28,786).





Unearned
income, which represents franchise fees received for which we are performing our
initial obligations under the franchise agreement, increased by $25,308 from
September 30, 2008.  Our primary obligation under the franchise
agreement is providing training for two persons for each
franchise.  We reimburse the franchisee for travel (up to $300) and
pay lodging expenses for one person to attend the training as part of the
franchise fee.  At the training, the franchisee receives equipment (a
laptop computer, portable printer and carrying case), software (both V2K’s
software and non-proprietary software such as Microsoft Office and QuickBooks),
manuals (training, as well as policy and procedure), and an electronic marketing
kit.  Samples of fabric and hard products and a starter set of printed
materials (business cards, stationery and promotional materials) are shipped to
the franchisee when training occurs.  Accordingly, since we perform
substantially all initial obligations required by the franchise agreement once
training is completed, we recognize initial franchise fees as revenues at that
time.





For the
year ended September 30, 2009, we used cash of $85,978 for operating activities,
as compared to $1,009,007 for the year ended September 30,
2008.  Financing activities provided cash of $103,103 in 2009,
exclusively through proceeds from notes payable to related
parties.  In comparison, financing activities in 2008 provided cash of
$771,816, primarily through proceeds from notes payable to related parties and
proceeds from a line of credit in the amounts of $731,453 and $150,000,
respectively.





Going
Concern





Our financial statements have been
prepared assuming that we will continue as a going concern.  As
described above, we have suffered recurring losses, have a working capital
deficit of $1,911,271 as of September 30, 2009, and an accumulated deficit of
$4,160,121 at September 30, 2009, thereby raising substantial doubt as to our
ability to continue as a going concern.





Contractual
Obligations





As of
September 30, 2009, we had the following contractual obligations:





Contractual
      obligations
            Payments
      due by periodTotal
            Less
      than 1 year
            2-3
      years
            3-5
      years
            More
      than 5 yearsEquipment
      lease obligations
            $20,266
            $7,260
            $13,006
            --
            --Total
            $20,266
            $7,260
            $13,006
            --
            --





Plan
of Operations




Although
we reduced our operating expenses by approximately $3,700,000 in fiscal 2009 and
by approximately $2,200,000 in fiscal 2008, comparable declines in revenues over
the last two years have resulted in





22
 
  the
continued need to borrow from third parties and affiliates to provide sufficient
capital to maintain current operations.





Recently
Issued Accounting Pronouncements





In
October 2009, the FASB issued authoritative guidance for revenue recognition
with multiple deliverables. This authoritative guidance impacts the
determination of when the individual deliverables included in a multiple-element
arrangement may be treated as separate units of accounting. Additionally, this
guidance modifies the manner in which the transaction consideration is allocated
across the separately identified deliverables by no longer permitting the
residual method of allocating arrangement consideration. We will adopt this
authoritative guidance prospectively commencing in its first quarter of fiscal
2010. The implementation is not expected to have a material impact on our
financial position or results of operations.





In
October 2009, the FASB issued authoritative guidance for the accounting for
certain revenue arrangements that include software elements. This authoritative
guidance amends the scope of pre-existing software revenue guidance by removing
from the guidance non-software components of tangible products and certain
software components of tangible products. We will adopt this authoritative
guidance prospectively commencing in its first quarter of fiscal 2010. The
implementation is not expected to have a material impact on our financial
position or results of operations.





In June
2009, the FASB issued authoritative guidance on variable interest entities,
which becomes effective the first annual reporting period after
November 15, 2009 and will be effective for us in fiscal 2011. This
authoritative guidance requires revised evaluations of whether entities
represent variable interest entities, ongoing assessments of control over such
entities, and additional disclosures for variable interests. We are evaluating
the potential impact of the implementation of this authoritative guidance on our
consolidated financial statements.





In April
2009, the FASB issued authoritative guidance on accounting for assets acquired
and liabilities assumed in a business combination that arise from contingencies,
which amends the provisions related to the initial recognition and measurement,
subsequent measurement and disclosure of assets and liabilities arising from
contingencies in a business combination under previously issued guidance. The
authoritative guidance requires that such contingencies be recognized at fair
value on the acquisition date if fair value can be reasonably estimated during
the allocation period. This authoritative guidance will be effective for us in
fiscal 2010. We expect that this authoritative guidance will have minimal impact
on our consolidated financial statements, but the nature and magnitude of the
specific effects will depend upon the nature, term and size of the acquired
contingencies.





In
December 2008, the FASB issued authoritative guidance on employer’s disclosures
about plan assets of a defined benefit pension or other postretirement plan. We
will comply with this authoritative guidance in fiscal 2010.





In
December 2007, the FASB revised the authoritative guidance on business
combinations, including the measurement of acquirer shares issued in
consideration for a business combination, the recognition of contingent
consideration, the accounting for preacquisition gain and loss contingencies,
the recognition of capitalized in-process research and development, the
accounting for acquisition-related restructuring cost accruals, the treatment of
acquisition-related transaction costs, and the recognition of changes in the
acquirer’s income tax valuation allowance. This authoritative guidance will be
effective for us in fiscal 2010, with early adoption prohibited. We expect that
this authoritative guidance will have an impact on our consolidated financial
statements, but the nature and magnitude of the specific effects will depend
upon the nature, terms and size of any acquisitions we may consummate after the
effective date.





In
December 2007, the FASB issued authoritative guidance on noncontrolling
interests, which changes the accounting for noncontrolling (minority) interests
in consolidated financial statements, including the requirements to classify
noncontrolling interests as a component of consolidated stockholders’ equity,
and the elimination of “minority interest” accounting in results of operations
with earnings attributable to noncontrolling interests reported as part of
consolidated earnings. Additionally, this authoritative guidance revises the
accounting for both increases and decreases in a parent’s controlling ownership
interest. This authoritative guidance will be effective for us in





23
 
  fiscal
2010, with early adoption prohibited. We are evaluating the potential impact of
the implementation of this authoritative guidance on our financial position or
results of operations.





Off-Balance
Sheet Arrangements





We do not have any off-balance sheet
arrangements.





Item
7A.       Quantitative and Qualitative
Disclosures About Market Risk





Not required.





Item
8.          Financial
Statements and Supplementary Data





See the pages beginning with
F-1.





Item
9.          Changes in and
Disagreements With Accountants on Accounting and Financial
Disclosure





On
October 28, 2008, we appointed Cordovano and Honeck, LLP (“Cordovano”) as our
registered independent public accountant for the fiscal year ended September 30,
2008.  On October 28, 2008, we dismissed Gordon, Hughes & Banks,
LLP (“GH&B”) as our registered independent public accountant.  The
decisions to appoint Cordovano and dismiss GH&B were approved by our Board
of Directors on October 28, 2008.





During
the fiscal years ended September 30, 2007 and 2006 and through the subsequent
interim period up through the date of dismissal (October 28, 2008), there were
no disagreements with GH&B on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of GH&B, would have
caused GH&B to make reference thereto in its report on our financial
statements for such years.  Further, there were no reportable events
as described in Item 304(a)(1)(v) of Regulation S-K occurring within our two
most recent fiscal years and the subsequent interim period up through the date
of dismissal (October 28, 2008).





During
our two most recent fiscal years and the subsequent interim period up through
the date of engagement of Cordovano (October 28, 2008), neither we nor anyone on
our behalf consulted Cordovano regarding the application of accounting
principles to a specific completed or contemplated transaction, the type of
audit opinion that might be rendered on our financial statements, or any matter
that was either the subject of a disagreement (as defined in Item 304(a)(1)(iv)
of Regulation S-K) or a reportable event as described in Item 304(a)(1)(v) of
Regulation S-K.  Further, Cordovano did not provide us with written or
oral advice that was an important factor that we considered in reaching a
decision as to any accounting, auditing or financial reporting
issues.





We
provided a copy of the foregoing disclosures to GH&B prior to the date of
the filing of our report on Form 8-K and requested that GH&B furnish us with
a letter addressed to the Securities and Exchange Commission stating whether or
not it agreed with the statements in this disclosure.  A copy of the
letter furnished in response to that request was filed as Exhibit 16.1 to the
Form 8-K filed November 3, 2008.





Item
9A.       Controls and
Procedures





Disclosure
Controls and Procedures





Disclosure controls and procedures, as
defined in Rule 15d-15(e) under the Securities Exchange Act of 1934 (the
“Exchange Act”), are our controls and other procedures that are designed to
ensure that information required to be disclosed by us in the reports that we
file or submit under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the SEC’s rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed by us in
the reports that we file or submit under the Act is accumulated and communicated
to our management, including our Chief Executive Officer and Chief
Financial Officer, or persons performing similar functions, as appropriate to
allow timely decisions regarding required disclosure.  Rule 15d-15
under the Exchange








24





Act,
requires us to carry out an evaluation of the effectiveness of the design and
operation of our disclosure controls and procedures as of September 30, 2009,
being the date of our most recently completed fiscal year end.  This
evaluation was implemented under the supervision and with the participation of
our Chief Executive Officer and Chief Financial Officer.  Based
on this evaluation, these officers have concluded that the design and operation
of our disclosure controls and procedures are effective.





Management’s Annual Report on
Internal Control Over Financial Reporting





Our board
of directors and audit committee are responsible for establishing and
maintaining adequate internal control over financial reporting.  Our
internal control system was designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation and fair presentation
of our consolidated financial statements for external purposes in accordance
with generally accepted accounting principles.





Our Chief
Executive Officer and Chief Financial Officer completed their assessments of the
effectiveness of our internal control over financial reporting (as defined in
Rule 15d-(f) promulgated under the Exchange Act) as of September 30, 2009, and
therefore, are able to assert that, as of September 30, 2009, our internal
control over financial reporting was effective based on the criteria
established in Internal Control - Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (“COSO”).  It
should be noted that a control system, no matter how well conceived or operated,
can only provide reasonable assurance, not absolute assurance, that the
objectives of the control system are met.





This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the SEC that permit us to provide
only management’s report in this annual report.





Changes in Internal Control over
Financial Reporting





During
the period covered by this annual report, there were no changes in our internal
control over financial reporting that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.





Item
9B.          Other
Information





None.





25


PART
III





Item
      10.
            Directors,
      Executive Officers and Corporate
Governance





Our
officers, directors and key employees are as follows:


Name
            Age
            PositionVictor
      J. Yosha
            63
            President,
      Chief Executive Officer, and DirectorGordon
      E. Beckstead
            72
            Chairman
      of the Board of Directors, Treasurer and Interim Chief Financial
      OfficerSamuel
      Smith
            43
            Executive
      Vice President and Chief Operating OfficerR.
      J. Wittenbrink
            73
            Secretary,
      General Counsel and DirectorCarlyle
      Griffin
            64
            DirectorDouglas
      A. Miller
            59
            Director





The term
of office of each director ends at the next annual meeting of our shareholders
or when such director’s successor is elected and qualifies.  The term
of office of each officer ends at the next annual meeting of our board of
directors, expected to take place immediately after the next annual meeting of
shareholders, or when such officer’s successor is elected and
qualifies.  Our last annual meeting of shareholders was held on March
18, 2009 in Lakewood, Colorado.  We have not made any changes to the
procedures by which shareholders may recommend nominees to our board of
directors.





Victor J. Yoshahas been our
president and chief executive officer and a director since the inception of V2K
Window Fashions in July 1996.  From 1994 to 1999, Mr. Yosha served
initially as a consultant to, and later as the chief executive officer of,
Pictures and Prices Corporation, a private corporation owned and controlled by
Robert and Lynda Leo.  Pictures and Prices Corporation developed and
distributed proprietary software technology for the window fashion
industry.  From 1988 to 1994, Mr. Yosha and was president and chairman
of Seattle Office Systems, Inc., a company which he co-founded to sell and
service office equipment.  Seattle Office Systems eventually grew to
80 employees with revenues in excess of $6,000,000 annually and was sold to a
company now known as Danka Business Systems PLC.  In 1970, Mr. Yosha
co-founded American Office Equipment Company, Denver, Colorado, which sold and
serviced office equipment.  He was president of that company until
1987.  That company eventually grew to 300 employees with annual
revenues in excess of $25,000,000 and was one of the largest distributors of
Minolta Copier products in the world.





Gordon E. Beckstead has been
our chairman of the board of directors since May 2001, and our interim chief
financial officer since December 2009.  He has been a business
consultant since December 1984, providing financing and management
advice.  From June 1984 to December 1986, Mr. Beckstead was the
chairman of ATE, Inc., a long distance reseller based in Las Vegas, Nevada, with
operations in Nevada, Idaho, Washington, and California.  In addition,
he was a director of Citizens National Bank of Boise, Idaho, from April 1981 to
December 1986.  From 1977 to 1984, Mr. Beckstead was a partner in an
accounting firm which he founded.  Prior to 1977 he was a partner in
the international accounting firm then known as Deloitte Haskins &
Sells.  He received a bachelor’s degree from Utah State University in
1959.





Samuel Smith has been our
executive vice president and chief operating officer since February
2008.  From March 2006 to February 2008 he was our vice
president.  From November 2001 to March 2006, he was our chief
financial officer.  Mr. Smith came to us in November 2001 from the
Horizons Real Estate Group, where he concentrated on brokering commercial loans,
strategic planning, and website development.  From 1997 to 2000, Mr.
Smith owned and operated a small business consulting firm that specialized in
writing business plans and financing proposals for start-up
entities.  Mr. Smith received his bachelor’s degrees in economics and
political science from Middlebury College in 1988, and an MBA from the Johnson
Graduate School of Management at Cornell University in 1996.





R. J. Wittenbrinkhas been
our secretary and general counsel since our inception and a director since April
1997.  Mr. Wittenbrink has been practicing law in the Denver, Colorado
area since 1963.  During the last 25 years, he has concentrated both
as an attorney and principal in the formation and operation of small business
and real estate development.  Mr. Wittenbrink received a bachelor’s
degree from St. Louis University in 1959 and a juris doctor law degree from the
University of Denver in 1963.





26


Carlyle Griffin has been a
director since October 2006.  Since his “retirement” in 1999, Mr.
Griffin has started his own consulting firm and remains active in the business
community.  During a thirty-one year career at IBM he held numerous
marketing and marketing management positions, and managed a multi-state area for
IBM Credit Corporation.  Mr. Griffin received his Bachelor of Science
degree in Business Management from Penn State University in 1966, and an MBA
from Penn Sate University in 1968.





Douglas A. Miller, C.P.A.,
has been a director since January 2008.  He graduated from the
University of Colorado at Denver with a degree in Accounting in
1974.  After working several years in private industry as an
accountant and controller in the areas of manufacturing and real estate, he
joined the firm of Swanson,Miller, and Associates, PC of Lakewood, Colorado, and has been a partner
there since 1981.  He practices in the areas of tax return
preparation, tax planning and compliance, estate planning, advisory services for
business and individual owners, litigation support, retirement plan
administration and financial statement review and analysis.  Mr.
Miller is a member of the American Institute of Certified Public Accountants and
the Colorado Society of Certified Public Accountants.





No other
directorships are held by each director in any company with a class of
securities registered pursuant to Section 12 of the Securities Exchange Act of
1934 or any company registered as an investment company, under the Investment
Company Act of 1940.





Audit
Committee





Douglas A. Miller and Carlyle Griffin
serve on the Audit Committee of our board of directors.  Douglas A.
Miller is considered our audit committee financial expert and is
independent.





Conflicts
of Interest





One of
our two non-officer directors, Carlyle Griffin, is associated with other firms
involved in a range of business activities.  Consequently, there are
potential inherent conflicts of interest in his acting as a director of our
company.  While this director is engaged in other business activities,
we anticipate that such activities will not interfere in any significant fashion
with the affairs of our business, in terms of having adequate time to devote to
the business of the company.  Mr. Griffin devotes less than 10% of his
working time in his role as a director.  All of our officers devote
100% of their working time to V2K.





Our
officers and directors are now and may in the future become shareholders,
officers or directors of other companies, which may be formed for the purpose of
engaging in business activities similar to us.  Accordingly,
additional direct conflicts of interest may arise in the future with respect to
such individuals acting on behalf of us or other entities.  Moreover,
additional conflicts of interest may arise with respect to opportunities which
come to the attention of such individuals in the performance of their duties or
otherwise.  Currently, we do not have a right of first refusal
pertaining to opportunities that come to their attention and may relate to our
business operations.





Our
officers and directors are, so long as they are our officers or directors,
subject to the restriction that all opportunities contemplated by our plan of
operation which come to their attention, either in the performance of their
duties or in any other manner, will be considered opportunities of, and be made
available to us and the companies that they are affiliated with on an equal
basis.  A breach of this requirement will be a breach of the fiduciary
duties of the officer or director.  If we or the companies with which
the officers and directors are affiliated both desire to take advantage of an
opportunity, then said officers and directors would abstain from negotiating and
voting upon the opportunity.  However, all directors may still
individually take advantage of opportunities if we should decline to do
so.  Except as set forth above, we have not adopted any other conflict
of interest policy with respect to such transactions.





Code
of Ethics





We have adopted a code of ethics that
applies to our chief executive officer, chief financial officer, principal
accounting officer or controller, or persons performing similar
functions.





27




Section
16(a) Beneficial Ownership Reporting Compliance







Since we do not have a class of equity
securities registered under Section 12 of the Exchange Act, we are not subject
to the requirements of Section 16 of that Act.





Item
11.           Executive
Compensation





The
following table sets forth information about the remuneration of our principal
executive officer and principal financial officer (“Named Officers”) for
services rendered during the years ended September 30, 2009, 2008 and
2007.  None of our other executive officers had total compensation of
$100,000 or more.  Certain columns as required by the regulations of
the Securities and Exchange Commission have been omitted as no information was
required to be disclosed under those columns.





Summary
Compensation Table


Name
      and Principal Position
            Year
            Salary
      ($)
            Bonus
      ($)
            Stock
      Awards ($)
            Option
      Awards
              ($)
            Non-Equity
      Incentive Plan Compensa-
              tion
      ($)
            Nonquali-
              fied
      Deferred Compensa-
              tion
      Earnings ($)
            All
      Other Compensation ($)
            Total
      ($)Victor
      J. Yosha, President and CEO
            2009
              2008
              2007
            -0-
              2,500
              50,000
            -0-
              -0-
              -0-
            -0-
              -0-
              -0-
            -0-
              -0-
              58,997
      (1)
            -0-
              -0-
              -0-
            -0-
              -0-
              -0-
            -0-
              -0-
              -0-
            15,520
              16,277
              108,887Jerry
      A. Kukuchka, Chief Financial Officer (2)
            2009
              2008
              2007
            84,353
              95,897
              97,507
            -0-
              -0-
              200
            -0-
              -0-
              -0-
            -0-
              -0-
              -0-
            -0-
              -0-
              -0-
            -0-
              -0-
              -0-
            -0-
              -0-
              -0-
            87,171
              100,260
              104,576







(1)
            The
      options were valued using the Black-Scholes stock option pricing model
      with the following assumptions: Expected option
      life-years:  3.00 – 7.50; Risk-free interest
      rate:  5.125%; Dividend yield:  0;
      Volatility:  0.28.


(2)
            Mr.
      Kukuchka resigned as our Chief Financial Officer in December
      2009.





Mr. Yosha
was originally granted options to purchase 52,000 shares by V2K Window Fashions
in July 2004.  Upon the reorganization of V2K Window Fashions into V2K
International in April 2006, these options were replaced with options to
purchase common stock of V2K International on comparable terms.  At
the time of the replacement, options to purchase 20,000 shares had vested,
options to purchase 16,000 shares vested in July 2006, and options to purchase
16,000 shares vested in July 2007.





On August
9, 2007, we designated options to purchase 667 shares at $6.25 per share, that
had previously been granted and reserved for anticipated growth, to Mr.
Yosha.  286 of these options had already vested, 95 vested on July 9,
2008, 96 vested on July 9, 2009, and the remaining 190 vest one-half each
annually beginning July 9, 2010.  These options are exercisable until
July 9, 2014.




There were no grants of plan-based
awards to either of the Named Officers during the fiscal year ended September
30, 2009.





28


Outstanding
Equity Awards At Fiscal Year-End


Option
      Awards
            Stock
      AwardsName
            Number
      of Securities Underlying Unexercised Options (#)
    Exercisable
            Number
      of Securities Underlying Unexercised Options (#)
    Unexercisable
            Equity
      Incentive Plan Awards: Number of Securities Underlying Unexercised
      Unearned Options (#)
            Option
      Exercise Price ($)
            Option
      Expiration Date
            Number
      of Shares or Units of Stock That Have Not Vested (#)
            Marked
      Value of Shares or Units of Stock That Have Not Vested ($)
            Equity
      Incentive Plan Awards: Number 0f Unearned Shares, Units or Other Rights
      That Have Not Vested (#)
            Equity
      Incentive Plan Awards:Market
      or Payout Value of Unearned Shares, Units or Other Rights That Have Not
      Vested
              (#)Victor
      J. Yosha
            52,000
              400
              8,000
              477
            -0-
              -0-
              -0-
              190
      (1)
            -0-
              -0-
              -0-
              -0-
            6.25
              25.00
              25.00
              6.25
            07/09/2014
              05/02/2011
              06/30/2011
              07/09/2014
            N/A
            N/A
            N/A
            N/A-Jerry
      A. Kukuchka (4)
            400
              400
              400
              -0-
              -0-
            -0-
              -0-
              -0-
              400
      (2)
              400
      (3)
            -0-
              -0-
              -0-
              -0-
              -0-
            25.00
              25.00
              25.00
              25.00
              25.00
            06/30/2012
              06/30/2013
              06/30/2014
              06/30/2015
              06/30/2016
            N/A
            N/A
            N/A
            N/A




(1)
            One
      half of these options vest annually beginning July 9,
  2010.


(2)
            These
      options vest on June 30, 2010.


(3)
            These
      options vest on June 30, 2011.


(4)
            Mr.
      Kukuchka resigned as our Chief Financial Officer in December
      2009.




During
the fiscal year ended September 30, 2009, there were no exercises of stock
options by the Named Officers.




Compensation
of Directors





Each of
our non-employee directors receives reimbursement for expenses of attendance for
each scheduled meeting that requires physical attendance.  We did not
compensate any of our directors during the last completed fiscal
year.





Employment
Agreements





We do not
have employment agreements with any of our executive officers.  We do
not have any contract, agreement, plan or arrangement, whether written or
unwritten, that provides for payment(s) to a named executive officer at,
following, or in connection with any termination, including without limitation
resignation, severance, retirement or a constructive termination of a named
executive officer, or a change in control of our company or a change in the
named executive officer's responsibilities.




Stock
Option Plan





Our
shareholders adopted the 2006 Stock Option Plan on March 31, 2006 that permits
the granting of options to purchase up to 240,000 shares.  Options may
be granted to officers, directors, employees, and consultants on a case-by-case
basis.  This Plan will remain in effect until it is terminated by the
board of directors or, if so appointed by the board, a committee of two or more
disinterested directors administering the Plan, except that no incentive stock
option will be granted after March 31, 2016.





The 2006
Stock Option Plan is intended to (i) encourage ownership of shares by our
employees and directors of and certain consultants to the company; (ii) induce
them to work for the benefit of the company; and (iii) provide additional
incentive for such persons to promote the success of the company.




29


The board
of directors or committee may amend, suspend or discontinue the Plan at any time
or from time to time; provided that no action of the board will cause incentive
stock options granted under this Plan not to comply with Section 422 of the
Internal Revenue Code unless the board specifically declares such action to be
made for that purpose and provided further that without the approval of our
shareholders, no such action may: (i) materially increase the maximum aggregate
number of shares that may be issued under options granted pursuant to the Plan,
(ii) materially increase the benefits accruing to Plan participants, or (iii)
materially modify eligibility requirements for the
participants.  Moreover, no such action may alter or impair any option
previously granted under the Plan without the consent of the holder of such
option.





The Plan
contains provisions for proportionate adjustment of the number of shares for
outstanding options and the option price per share in the event of stock
dividends, recapitalizations, stock splits or combinations.





Each
option granted under the Plan will be evidenced by a written option agreement
between us and the optionee.  The option price of any incentive stock
option or non-qualified option may be not less than 100% of the fair market
value per share on the date of grant of the option; provided, however, that any
incentive stock option granted to a person owning more than ten percent of the
total combined voting power of the common stock will have an option price of not
less than 110% of the fair market value per share on the date of
grant.  “Fair Market Value” per share as of a particular date is
defined in the Plan as the closing price of our common stock as reported on a
national securities exchange or the last transaction price on the reporting
system or, if none, the average of the closing bid and asked prices of our
common stock in the over-the-counter market or, if such quotations are
unavailable, the value determined by the board in its discretion in good
faith.





The
exercise period of incentive stock options or non-qualified options granted
under the Plan may not exceed ten years from the date of grant
thereof.  Incentive stock options granted to a person owning more than
ten percent of the total combined voting power of our common stock will be for
no more than five years.





To
exercise an option, the optionee must pay the full exercise price in cash, by
check or such other legal consideration as may be approved by the
Committee.  Such other consideration may consist of shares of common
stock having a fair market value equal to the option price, cashless exercise, a
personal recourse note, or in a combination of cash, shares, cashless exercise
and a note, subject to approval of the Committee.





An option
may not be exercised unless the optionee then is an employee, consultant,
officer, or director of our company or its subsidiaries, and unless the optionee
has remained continuously as an employee, consultant, officer, or director of
our company since the date of grant of the option.  If the optionee
ceases to be an employee, consultant, officer, or director of our company or its
subsidiaries other than by reason of death, disability, or for cause, all
options granted to such optionee, fully vested to such optionee but not yet
exercised, will terminate three months after the date the optionee ceases to be
an employee, consultant, officer or director of our company.





If the
employee is terminated “for cause” (as that term is defined in the Plan), such
employee’s options will terminate immediately on the date the optionee ceases
employment or association.





If an
optionee dies while an employee, consultant, officer or director of our company,
or if the optionee’s employment, consultant, officer, or director status
terminates by reason of disability, all options theretofore granted to such
optionee, whether or not otherwise exercisable, unless earlier terminated in
accordance with their terms, may be exercised at any time within one year after
the date of death or disability of said optionee, by the optionee or by the
optionee’s estate or by a person who acquired the right to exercise such options
by bequest or inheritance or otherwise by reason of the death or disability of
the optionee.





As of
September 30, 2009, 226,160 options were outstanding under the
Plan.








30


Item
      12.
            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters





The
following table provides certain information as to our officers and directors
individually and as a group, and the holders of more than 5% of our common
stock, as of September 30, 2009.





Name
      and Address of Beneficial Owner
            Amount
      and Nature of Beneficial Ownership
            Percent
      of Class (1)Gordon
      E. Beckstead
              7853
      E. Arapahoe Court
              Centennial,
      Colorado 80112
            108,703
      (2)
            29.30%Victor
      J. Yosha
              7853
      E. Arapahoe Court
              Centennial,
      Colorado 80112
            107,179
      (3)
            29.26%R.J.
      Wittenbrink
              7853
      E. Arapahoe Court
              Centennial,
      Colorado 80112
            33,835
      (4)
            10.77%Robert
      & Lynda Leo
              3445
      W. 45th
      Avenue
              Denver,
      CO 80211
            27,198
      (5)
            8.64%Michael
      J Lee
              2805
      Norris Avenue
              Winter
      Park, FL 32789
            18,058
      (6)
            5.71%Carlyle
      Griffin
              16163
      Canyon Wren Way
              Morrison,
      Colorado 80465
            17,318
      (7)
            5.60%Lea
      Blohm
              P.O.
      Box 3740
              Parker,
      Colorado 80134
            16,485
      (8)
            5.49%Ed
      Williams
              3461C
      Sunset Way Circle
              Punta
      Gorda, Florida 33955
            16,400
      (9)
            5.49%Samuel
      Smith
              7853
      E. Arapahoe Court
              Centennial,
      Colorado 80112
            13,304
      (10)
            4.27%Douglas
      A. Miller
              6435
      Umber Circle
              Arvada,
      CO 80007
            4,595
      (11)
            1.54%Jerry
      A. Kukuchka
              7853
      E. Arapahoe Court
              Centennial,
      Colorado 80112
            2,000
      (12)
            0.67%All
      officers and directors as a group  (7 persons)
            286,934
      (13)
            59.72%







(1)
            Where
      persons listed on this table have the right to obtain additional shares of
      common stock through the exercise of outstanding options or warrants or
      the conversion of convertible securities within 60 days from September 30,
      2009, these additional shares are deemed to be outstanding for the purpose
      of computing the percentage of class owned by such person, but are not
      deemed to be outstanding for the purpose of computing the percentage of
      any other person.  Percentages are based on 298,379 shares
      outstanding.


(2)
            Includes
      64,876 shares issuable upon the exercise of vested stock options and 7,767
      shares issuable upon the exercise of warrants.  Does not include
      shares issuable upon the conversion of a promissory
  note.


(3)
            Includes
      60,876 shares issuable upon exercise of vested stock options and 7,099
      shares issuable upon exercise of warrants.  Does not include
      shares issuable upon the conversion of a promissory
  note.


(4)
            Includes
      12,876 shares issuable upon exercise of vested stock options and 2,838
      shares issuable upon exercise of warrants.  Does not include
      shares issuable upon the conversion of a promissory
  note.


(5)
            Includes
      16,400 shares issuable upon the exercise of vested stock
      options.




31




(6)
                  Includes
      17,898 shares issuable upon exercise of vested stock
    options.
 (7)
                Includes
      10,640 shares issuable upon exercise of vested stock
    options.
 (8)
              Includes
      2,000 shares issuable upon exercise of
warrants.


(9)
            Includes
      400 shares issuable upon exercise vested stock
  options.


(10)
            Includes
      12,744 shares issuable upon exercise of vested stock options and 200
      shares issuable upon exercise of
warrants.


(11)
            Includes
      400 shares issuable upon exercise of vested stock options and 200 shares
      issuable upon the exercise of
warrants.


(12)
            Includes
      1,200 shares issuable upon exercise of vested stock options and 400 shares
      issuable upon the exercise of warrants.  Mr. Kukuchka resigned
      as an officer of the Company in December of
  2009.


(13)
            Includes
      163,612 shares issuable upon exercise of vested stock options and 18,504
      shares issuable upon the exercise of
warrants.





Changes
in Control





There are
no agreements known to management that may result in a change of control of our
company.





Equity
Compensation Plan Information





The
following table sets forth information as of the end of the most recently
completed fiscal year, September 30, 2009:





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 issuanceEquity
      compensation plans approved by security holders
            90,160
            $12.208
            13,840Equity
      compensation plans not approved by security holders
            136,000
            $6.250
            -0-Total
            226,160
            $8.625
            13,840





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





None of
our present directors, officers or principal shareholders, nor any family member
of the foregoing, nor, to the best of our information and belief, any of our
former directors, officers or principal shareholders, nor any family member of
such former directors, officers or principal shareholders, has or had any
material interest, direct or indirect, in any transaction, or in any proposed
transaction which has materially affected or will materially affect
us.





Bridge
Loans.At September 30, 2008 and 2007, we owed Messrs.
Beckstead, Yosha and Wittenbrink $453,413, $408,681 and $77,360, respectively,
for loans made to us.  For the years ended September 30, 2009 and
2008, we did not pay interest to Messrs. Beckstead, Yosha and
Wittenbrink..





On
September 30, 2008, we consolidated and restructured amounts loaned to us by
Messrs. Beckstead, Wittenbrink, and Yosha from January 2008 through September
2008.  The amounts had been loaned primarily as demand notes with
interest at 12% per annum.





The new
notes are secured by the assets of V2K Technology and mature June 30, 2009,
subject to a three-month extension at our option. Interest is paid
semi-annually and accrues at the rate of 12% per annum.  The notes are
convertible into shares of our common stock at any time at the option of the
holder at 90% of the volume-weighted average price for the 20 trading days
immediately preceding the date of conversion, subject to a floor price of
$18.75.





32


For each
dollar that has been loaned, we issued two redeemable common stock purchase
warrants, one of which is exercisable at $18.75 per share for two years and one
of which is exercisable at $31.25 for three years.  Each warrant is
exercisable to purchase one share of common stock.





Accordingly,
we issued new notes and warrants as follows:





Lender
            Amount
      of new note
            Number
      of $18.75 warrants
            Number
      of $31.25 warrantsGordon
      E. Beckstead
            $360,413
            2,883
            2,883R.J.
      Wittenbrink
            $52,359
            419
            419Victor
      J. Yosha
            $318,681
            2,550
            2,550





Bank
Guarantees.  In August 2007, we established a line of credit
with a commercial bank in the amount of $250,000.  The line of credit
is collateralized with a security interest in the personal property of V2K
Window Fashions.  In addition, Messrs. Beckstead, Wittenbrink and
Yosha have personally guaranteed 125% of the amount.  At September 30,
2009 and 2008, we had drawn $240,000 and $250,000, respectively, against the
line of credit.





Future
Transactions.  All future affiliated transactions will be made
or entered into on terms that are no less favorable to us than those that can be
obtained from any unaffiliated third party.  A majority of the
independent, disinterested members of our board of directors will approve future
affiliated transactions.





Director
Independence





As of the
date of this report, our common stock is not listed on an exchange. As such, we
are not


currently
subject to corporate governance standards of listed companies, which require,
among other things, that the majority of the board of directors be
independent.  Since we are not currently subject to corporate
governance standards relating to the independence of our directors, we choose to
define an “independent” director in accordance with the NASDAQ Global Market’s
requirements for independent directors (NASDAQ Marketplace Rule 4200). The
NASDAQ independence definition includes a series of objective tests, such as
that the director is not an employee of the company and has not engaged in
various types of business dealings with the company.





Douglas
A. Miller and Carlyle Griffin are considered independent directors under the
above definition.  We do not list that definition on our Internet
website.





Item
14.         Principal Accountant
Fees and Services





The fees
billed for professional services rendered by our principal accountant are as
follows:





FISCAL
            
            AUDIT-RELATEDYEAR
            AUDIT
      FEES
            FEES
            TAX
      FEES
            ALL
      OTHER FEES2008
            $81,797
            -0-
            $12,725
            -0-2009
            $53,750
            -0-
            -0-
            -0-





Pre-Approval
Policies and Procedures





The board
of directors must pre-approve any use of our independent accountants for any
non-audit services.  All services of our auditors are approved by our
whole board and are subject to review by our whole board.








33


PART
IV





Item
15.         Exhibits, Financial
Statement Schedules





Regulation
      S-K Number
            Exhibit3.1
            Articles
      of Incorporation (1)3.2
            Bylaws
      (1)3.3
            Articles
      of Amendment filed June 6, 2008 (2)10.1
            2006
      Stock Option Plan (1)10.2
            Form
      of Franchise Agreement (3)10.3
            Software
      License Agreement from V2K Technology, Inc. to V2K Window Fashions, Inc.
      (1)10.4
            Office
      Lease and Note (3)10.5
            Convertible
      Note in Favor of Gordon E. Beckstead dated September 30, 2008
      (4)10.6
            Convertible
      Note in Favor of R. J. Wittenbrink dated September 30, 2008
      (4)10.7
            Convertible
      Note in Favor of Victor J. Yosha dated September 30, 2008
    (4)10.8
            Security
      Agreement with Gordon E. Beckstead, R. J. Wittenbrink and Victor J. Yosha
      dated September 30, 2008 (4)14.1
            Code
      of Ethics for Chief Executive Officer (6)14.2
            Code
      of Ethics for Chief Financial Officer (6)14.3
            Code
      of Ethics for Principal Accounting Officer (6)14.4
            Code
      of Ethics for Director of Operations (6)16.1
            Letter
      from Gordon, Hughes & Banks, LLP (5)31.1
            Rule
      15d-14(a) Certification of Chief Executive Officer31.2
            Rule
      15d-14(a) Certification of Chief Financial Officer32.1
            Certification
      Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002 of Chief Executive
  Officer32.2
            Certification
      Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002 of Chief Financial
  Officer




(1)
            Filed
      as an exhibit to the registrant’s registration statement on Form SB-2,
      file number 333-141201, filed March 9,
2007


(2)
            Filed
      as an exhibit to the registrant’s current report on Form 8-K dated June 6,
      2008, file number 333-141201, filed June 12,
  2008.


(3)
            Filed
      as an exhibit to Amendment No. 1 to the registrant’s registration
      statement on Form SB-2, file number 333-141201, filed May 1,
      2007.


(4)
            Filed
      as an exhibit to the registrant’s current report on Form 8-K dated
      September 30, 2008, file number 333-141201, filed October 6,
      2008.


(5)
            Filed
      as an exhibit to the registrant’s current report on Form 8-K dated October
      28, 2008, file number 333-141201, filed November 3,
  2008.






34






(6)
            Filed
      as an exhibit to the registrant’s report on Form 10-K dated September 30,
      2008, file number 333-141201, filed December 29,
  2008.





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.





V2K
      INTERNATIONAL, INC.Date:  January
      6, 2010
            /s/
      Victor J. YoshaVictor
      J. Yosha, President





Pursuant
to the requirements 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.





Signature
            Title
            Date/s/
      Victor J. Yosha
            President,
      Chief Executive Officer and Director
            January
      6, 2010Victor
      J. Yosha
            (Principal
      Executive Officer)/s/
      Gordon E. Beckstead
            Interim
      Chief Financial Officer
              and
      Director
            January
      6, 2010Gordon
      E. Beckstead
            (Principal
      Financial Officer)DirectorCarlyle
      Griffin/s/
      R.J. Wittenbrink
            Director
            January
      6, 2010R.J.
      WittenbrinkDirectorDouglas
      A. Miller



















REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
 To the
Board of Director and Shareholders
 V2K
International, Inc.
 Lakewood,
Colorado
 
 
 We have
audited the accompanying consolidated balance sheets of V2K International, Inc.
as of September 30, 2009 and 2008, and the related consolidated statements of
operations, changes in stockholders’ deficit and cash flows for the years ended
September 30, 2009 and 2008.  These consolidated financial statements
are the responsibility of the Company’s management.  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 consolidated 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 audits included 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 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 financial position of V2K International, Inc. as
of September 30, 2009 and 2008, and the results of their operations and their
cash flows for the years ended September 30, 2009 and 2008 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 1
to the consolidated financial statements, the Company has suffered recurring
losses, has a working capital deficit at September 30, 2009, and has an
accumulated deficit of $4,160,121 as of September 30, 2009.  These
conditions raise substantial doubt about its ability to continue as a going
concern.  Management’s plans in regard to these matters are also
described in Note 1.  The financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might result should
the Company be unable to continue as a going concern.
 
 
 
 
 Cordovano
and Honeck LLP
 Englewood,
Colorado
 December
29, 2009





F-1
 
 V2K
INTERNATIONAL, INC.
 CONSOLIDATED
BALANCE SHEETS
 SEPTEMBER
30, 2009 AND SEPTEMBER 30, 2008


ASSETSCURRENT
      ASSETS
              
              2009
              
              
              2008Cash
      and cash equivalents
              
              $
              38,989
              
              
              $
              23,059Cash
      - restricted
              
              
              31,936
              
              
              
              55,091Accounts
      receivable, net of allowance for doubtful accountsof
      $75,286 (2009) and $41,483 (2008)
              
              
              76,155
              
              
              
              582,068Current
      portion of notes receivable
              
              
              17,182
              
              
              
              38,303Prepaid
      expenses and other
              
              
              13,007
              
              
              
              202,763Total
      Current Assets
              
              
              177,269
              
              
              
              901,284PROPERTY AND EQUIPMENT,at cost, net of accumulateddepreciation
      of $236,544 (2009) and $238,133 (2008)
              
              
              17,454
              
              
              
              107,485REACQUIRED
      FRANCHISE RIGHTS
              
              
              -
              
              
              
              73,409NOTES RECEIVABLE -net
      of current portion
              
              
              -
              
              
              
              10,763Total
      Assets
              
              $
              194,723
              
              
              $
              1,092,941LIABILITIES  AND
      STOCKHOLDERS’ DEFICITCURRENT
      LIABILITIESAccounts
      payable
              
              $
              557,415
              
              
              $
              834,825Accrued
      expenses
              
              
              130,132
              
              
              
              109,078Current
      portion of note payable - other
              
              
              32,746
              
              
              
              34,005Current
      portion of capital lease obligations
              
              
              -
              
              
              
              3,481Line
      of credit
              
              
              240,000
              
              
              
              250,000Notes
      payable - related parties
              
              
              1,041,357
              
              
              
              731,453Current
      portion of deferred rent
              
              
              -
              
              
              
              28,786Unearned
      income
              
              
              86,890
              
              
              
              61,582Total
      Current Liabilities
              
              
              2,088,540
              
              
              
              2,053,210LONG
      TERM LIABILITIESDeferred
      rent, net of current portion
              
              
              -
              
              
              
              134,560Total
      Liabilities
              
              
              2,088,540
              
              
              
              2,187,770STOCKHOLDERS’
      DEFICITCommon
      stock - $.001 par value, authorized 100,000,000 sharesIssued
      and outstanding - 298,379 shares (2009) and251,739
      shares (2008)
              
              
              298
              
              
              
              252Additional
      paid-in capital
              
              
              2,266,006
              
              
              
              2,196,353Accumulated
      deficit
              
              
              (4,160,121
              )
              
              
              (3,291,434
              )Total
      Stockholders' Deficit
              
              
              (1,893,817
              )
              
              
              (1,094,829
              )Total
      Liabilities and Stockholders' Deficit
              
              $
              194,723
              
              
              $
              1,092,941


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





F-2
 
 V2K
INTERNATIONAL, INC.
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND SEPTEMBER 30, 2008





2009
              
              
              2008REVENUESSales
      of franchises
              
              $
              99,800
              
              
              $
              1,047,727Royalty
      and advertising fees
              
              
              498,901
              
              
              
              618,899Sales
      of materials and supplies
              
              
              1,965,297
              
              
              
              4,584,072Total
      Revenues
              
              
              2,563,998
              
              
              
              6,250,698OPERATING
      EXPENSESCost
      of  franchise sales
              
              
              59,129
              
              
              
              636,799Cost
      of  materials and supplies
              
              
              1,859,144
              
              
              
              4,310,822Research
      and development expenses
              
              
              158,538
              
              
              
              317,891Selling,
      general and administrative expenses
              
              
              1,355,718
              
              
              
              1,939,652Total
      Operating Expenses
              
              
              3,432,529
              
              
              
              7,205,164LOSS
      FROM OPERATIONS
              
              
              (868,531
              )
              
              
              (954,466
              )OTHER
      INCOME (EXPENSE)Interest
      expense
              
              
              (125,984
              )
              
              
              (56,241
              )Other
      income
              
              
              21,144
              
              
              
              32,303Loss
      on disposition of assets
              
              
              -
              
              
              
              (7,875
              )Gain
      on liability extinguishment
              
              
              104,684
              
              
              
              -Total
      Other Income (Expense)
              
              
              (156
              )
              
              
              (31,813
              )NET
      LOSS BEFORE INCOME TAXES
              
              
              (868,687
              )
              
              
              (986,279
              )PROVISION
      FOR INCOME TAX
              
              
              -
              
              
              
              -NET
      LOSS
              
              $
              (868,687
              )
              
              $
              (986,279
              )NET
      LOSS PER SHARE -Basic
      and diluted
              
              $
              (3.13
              )
              
              $
              (3.93
              )WEIGHTED
      AVERAGE NUMBER OFCOMMON
      SHARES OUTSTANDING -Basic
      and diluted
              
              
              277,519
              
              
              
              250,884








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





F-3
 
 V2K
INTERNATIONAL, INC.
 CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ DEFICIT
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND SEPTEMBER 30, 2008











AdditionalCommon
      Stock
              
              
              Paid-In
              
              
              AccumulatedShares
              
              
              Par
      Value
              
              
              Capital
              
              
              Deficit
              
              
              TotalBalances,
      October 1, 2007  *
              
              
              249,179
              
              
              $
              249
              
              
              $
              2,013,353
              
              
              $
              (2,305,155
              )
              
              $
              (291,553
              )Stock
      issued for franchise rights  *
              
              
              160
              
              
              
              1
              
              
              
              3,999
              
              
              
              -
              
              
              
              4,000@
      $25.0000 per shareStock
      compensation expense
              
              
              -
              
              
              
              -
              
              
              
              83,057
              
              
              
              -
              
              
              
              83,057Stock
      issued for services@
      $36.2500 per share  *
              
              
              2,400
              
              
              
              2
              
              
              
              86,998
              
              
              
              -
              
              
              
              87,000Warrants
      issued on bridge loan
              
              
              -
              
              
              
              -
              
              
              
              8,946
              
              
              
              -
              
              
              
              8,946Net
      loss fiscal 2008
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (986,279
              )
              
              
              (986,279
              )Balances,
      September 30, 2008  *
              
              
              251,739
              
              
              
              252
              
              
              
              2,196,353
              
              
              
              (3,291,434
              )
              
              
              (1,094,829
              )Stock
      issued for services  *
              
              
              24,000
              
              
              
              24
              
              
              
              12,052
              
              
              
              -
              
              
              
              12,076@
      $0.5032 per shareStock
      compensation expense
              
              
              -
              
              
              
              -
              
              
              
              37,833
              
              
              
              -
              
              
              
              37,833Stock
      issued for rent abatement@
      $0.8741 per share  *
              
              
              10,280
              
              
              
              10
              
              
              
              8,976
              
              
              
              -
              
              
              
              8,986Stock
      issued to affiliate@
      $0.8741 per share  *
              
              
              12,360
              
              
              
              12
              
              
              
              10,792
              
              
              
              -
              
              
              
              10,804Net
      loss fiscal 2009
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (868,687
              )
              
              
              (868,687
              )Balances,
      September 30, 2009  *
              
              
              298,379
              
              
              $
              298
              
              
              $
              2,266,006
              
              
              $
              (4,160,121
              )
              
              $
              (1,893,817
              )
  *Restated
to reflect 1:125 reverse split of common stock (see Notes 1 and
14).





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





F-4
 
 V2K
INTERNATIONAL, INC.
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND SEPTEMBER 30, 2008




2009
              
              
              2008CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss
              
              $
              (868,687
              )
              
              $
              (986,279
              )Adjustments
      to reconcile net loss to net cash usedby
      operating activitiesDepreciation
      and amortization
              
              
              122,730
              
              
              
              44,832Bad
      debt provision
              
              
              99,389
              
              
              
              65,351Rent
      expense satisfied with stock
              
              
              8,986
              
              
              
              -Stock
      issued for franchise rights
              
              
              -
              
              
              
              4,000Warrants
      issued on bridge loan
              
              
              -
              
              
              
              8,946Stock
      issued for services
              
              
              22,880
              
              
              
              87,000Stock
      compensation expense
              
              
              37,833
              
              
              
              83,057Loss
      on disposition of assets
              
              
              -
              
              
              
              7,874(Gain)
      on liability extinguishment
              
              
              (104,684
              )
              
              
              -Changes
      in assets and liabilitiesDecrease
      (increase) in restricted cash
              
              
              23,155
              
              
              
              (12,802
              )Decrease
      (increase) in accounts receivable
              
              
              505,913
              
              
              
              (65,611
              )Decrease
      (increase) in prepaid expenses and other
              
              
              192,262
              
              
              
              (111,612
              )Decrease
      in notes receivable
              
              
              31,884
              
              
              
              99,256Decrease
      in inventory
              
              
              -
              
              
              
              8,343(Decrease)
      in accounts payable
              
              
              (277,410
              )
              
              
              (140,698
              )Increase
      (decrease) in accrued expenses
              
              
              21,054
              
              
              
              (37,755
              )Proceeds
      from deferred rent
              
              
              -
              
              
              
              48,288(Disposition)
      acquisition of franchises and interests therein
              
              
              73,409
              
              
              
              (29,950
              )Increase
      (decrease) in unearned income
              
              
              25,308
              
              
              
              (81,247
              )Net
      cash used in operating activities
              
              
              (85,978
              )
              
              
              (1,009,007
              )CASH
      FLOWS FROM INVESTING ACTIVITIESProceeds
      from sale of equipment
              
              
              -
              
              
              
              13,827Purchase
      of property and equipment
              
              
              (1,195
              )
              
              
              (23,966
              )Net
      cash used in investing activities
              
              
              (1,195
              )
              
              
              (10,139
              )CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      from notes payable - related parties
              
              
              236,904
              
              
              
              731,453(Payments)
      on note payable
              
              
              (120,009
              )
              
              
              (105,995
              )(Payments)
      on capital lease obligation
              
              
              (3,792
              )
              
              
              (3,642
              )(Payments)
      proceeds from line of credit
              
              
              (10,000
              )
              
              
              150,000Net
      cash provided by financing activities
              
              
              103,103
              
              
              
              771,816NET
      INCREASE (DECREASE) IN CASH
              
              
              15,930
              
              
              
              (247,330
              )CASH,
      BEGINNING OF YEAR
              
              
              23,059
              
              
              
              270,389CASH,
      END OF YEAR
              
              $
              38,989
              
              
              $
              23,059





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





F-5
 
 V2K
INTERNATIONAL, INC.
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND SEPTEMBER 30, 2008
 (CONTINUED)





SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION





During
the years ended September 30, 2009 and 2008, the Company paid cash of $24,081
and $25,842, respectively, for interest on debt.





SUPPLEMENTAL
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES





During
the year ended September 30, 2009, the Company incurred $37,833 of stock
compensation expense; issued 24,000 shares of common stock at $0.5032 per share
for services; issued 10,280 shares of common stock at $0.8741 per share for rent
abatement; and issued 12,360 shares of common stock at $0.8741 per share to an
affiliate (see Note 8).





During
the year ended September 30, 2008, the Company incurred $83,057 of stock
compensation expense; issued 2,400 shares of common stock at $36.25 per share
for services; issued 160 shares of common stock at $25.00 per share to reacquire
franchise rights; and issued 5,852 warrants at $18.75 each and 5,852 warrants at
$31.25 each (see Notes 8 and 12).
























































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





F-6
 
 V2K
INTERNATIONAL, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





ORGANIZATION




V2K
International, Inc. (“International”) was incorporated as a Colorado corporation
on March 13, 2006. The Company, through its subsidiary companies, V2K Window
Fashions, Inc., V2K Technology, Inc., V2K Manufacturing, Inc. and Marketing
Source International, LLC, sells and supports franchises in the residential and
commercial window fashion industry, and develops and licenses software that
allows users to decorate windows for both residential and commercial
customers.




International
and subsidiaries are hereinafter collectively referred to as the
“Company”.




Details
of the Company’s subsidiaries as of September 30, 2009 are described
below:




Entity name
            Place
      of incorporation
              and legal entity
            Principal activities
            Effective
      interest
              heldV2K
      Window Fashions, Inc.
              (“Windows”)
            Colorado
      corporation
            Franchise
      sales and support
            100%V2K
      Technology, Inc.
              (“Technology”)
            Colorado
      corporation
            Development
      and licensing of software
            100%V2K
      Manufacturing, Inc. (“Manufacturing”)
            Colorado
      corporation
            No
      operations at this time
            100%Marketing
      Source International,
              LLC
      (“MSI”)
            Colorado
      limited
              liability
      company
            No
      operations at this time
            100%







In April
2006, International, in a share for share exchange, acquired all issued and
outstanding shares of Window’s preferred and common stock.  Shares of
Window’s preferred and common stocks were exchanged for shares of common stock
in International on a 1 for 35 basis and 1 for 10 basis, respectively. Windows
sells and supports franchises in the residential and commercial window fashion
industry.  Franchisees sell and install window treatments for retail
and commercial clients using software licensed from Technology, training
manuals, policies, procedures and knowledge.  Franchisees are located
throughout the United States, in three Canadian provinces and in
Aruba.




In April
2006, Windows transferred legal ownership of Manufacturing and the related
equity interest to International.  Windows had acquired Manufacturing
in January 2004.




In July
2006, in order to further protect the intellectual property associated with the
software and to facilitate future licensing agreements, the software and
software development team formerly held by Windows were spun-off to form V2K
Technology, Inc. Technology is a wholly owned subsidiary of International, and
licenses a customized window fashions franchise software to
Windows.





In April
2007, the Company formed MSI to generate revenues by acting as a product
development resource and sales agent for overseas window covering manufacturers.
MSI is a wholly owned subsidiary of International.





F-7
 
 V2K
INTERNATIONAL, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (CONTINUED)


NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)




BASIS OF
PRESENTATION




The
accompanying consolidated financial statements include the Company and its
wholly owned subsidiaries. All significant inter-company transactions have been
eliminated in consolidation.




In
December of 2009, the Company reverse split its common stock 1:125, without
amending its articles of incorporation to reduce the number of authorized shares
(see Note 14). The number of shares of common stock, warrants and stock options,
and their respective prices, have been retroactively adjusted in these financial
statements to reflect the reverse stock split.




The
accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America, which
contemplate continuation of the Company as a going concern.  The
Company has incurred net losses since inception, and as of September 30, 2009,
had an accumulated deficit of $4,160,121.  These conditions raise
substantial doubt as to the Company's ability to continue as a going
concern.  These financial statements do not include any adjustments
that might result from the outcome of this uncertainty.  These
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts, or amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.





FRANCHISE
OPERATIONS




Franchise
Overview




The
      Company currently supports independently owned franchises located in
      thirty-five states, three provinces in Canada and Aruba. A summary of
      franchise activity is as follows:




September
      30, 2009
            
            September
      30, 2008Franchises
      in operation - beginning of period
            170
            
            182Franchises
      sold during the period
            2
            
            19Franchises
      cancelled, terminated or repurchased during the period
            (38)
            
            (31)Franchises
      in operation - end of period
            134
            
            170







Franchisees
      are required to pay the Company an initial franchise fee, royalty fees
      aggregating between 4% and 8% of gross sales and an advertising
      contribution fee of 2% of gross
sales.








F-8
 
 V2K
INTERNATIONAL, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (CONTINUED)




NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





FRANCHISE
OPERATIONS (CONTINUED)




Reacquired Franchise
Rights





The
Company occasionally reacquires the rights to a franchise territory. When this
occurs the Company contracts with the franchisee to reacquire the territory for
a specified amount that can consist of cash, a note payable, and/or forgiveness
of debt. While these territories provide benefits to the Company, they lack
physical substance, thus, under Accounting Standards Codification (“ASC”) Topic
350 (Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and
Other Intangible Assets”), the Company records reacquired franchise rights as
intangible assets at fair value. Fair value is established as the total amount
of consideration that changed hands, not to exceed the estimated resale amount
of the territory less all related costs of sales. The Company has concluded that
reacquired territories have indeterminate lives, so the resulting intangible
assets are not amortized. When reacquired territories are resold, the intangible
assets are offset against the cost of the sale, and the related carrying value
is reduced. The Company assesses impairment of intangible assets on an annual
basis. If any impairment is found, the carrying amount of the asset is written
down to the fair value.  In the twelve months ended September 30, 2009
and 2008 the Company reacquired franchise rights from zero and two franchisees,
respectively.





Repossessed
Franchises





The
Company has the right to repossess (cancel) franchises. When this occurs the
Company cancels a franchise agreement and takes the franchise territory back
from the franchisee. The Company cancels franchises for failure to abide by the
terms and conditions of franchise agreements, and for failure to meet minimum
performance standards pursuant to franchise agreements. Occasionally,
franchisees voluntarily surrender their territories. No consideration is
exchanged in these situations, and none of the franchise fee is refunded, thus
under ASC Topic 952 (SFAS No. 45, “Accounting for Franchise Fee Revenue”), no
fair value is assigned to these transactions.  In the twelve months
ended September 30, 2009 and 2008, the Company repossessed 38 and 29 franchises,
respectively.





REVENUE
RECOGNITION




Initial
      franchise fees are recognized upon the commencement of operations by the
      franchisee, which is when the Company has performed substantially all
      initial services required by the franchise agreement. Unearned
      income represents franchise fees received for which the Company has
      not completed its initial obligations under the franchise agreement. Such
      obligations, consisting mostly of training, are generally fulfilled within
      60 days of receipt of the initial franchise fee. Royalties and advertising
      fees are recognized as earned.




Effective
June 15, 2009, the Company amended the terms of its vendor agreements, which
resulted in the company changing its revenue recognition policy with regard to
sales of materials and supplies. The following is a discussion of the Company’s
revenue recognition policy before and after June 15, 2009.







F-9
 
 V2K
INTERNATIONAL, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (CONTINUED)





NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)




REVENUE
RECOGNITION (CONTINUED)




Prior to
June 15, 2009 the Company’s franchisees placed all orders for materials and
supplies with the Company. The Company reviewed each proposed purchase order to
determine whether the products could be made as requested, made any necessary
changes, and then placed the corresponding orders with its vendors. Accordingly,
the Company determined all product specifications. While the products were
shipped directly to the franchisees by the vendors, the Company received title
to the shipped items and had the physical risk of loss upon
shipment.  The Company was liable to the vendors for payment and
collected the amounts due for the goods from the franchisees. The Company
negotiated all pricing with the vendors and had the ability to establish rebate
programs with vendors, mark-ups or any other method of creating margin. In
addition, the Company was responsible to the franchisees for goods shipped by
the vendors that did not meet specifications. The Company had discretion in
supplier selection. Thus, the Company acted as a principal as defined in ASC
Topic 605 (Emerging Issues Task Force (“EITF”), Issue 99-19, “Reporting Revenue
Gross as a Principal versus Net as an Agent”). Revenue from materials and
supplies sales was recorded upon shipment to the franchisee by the vendor and
represented approximately 77% of total revenue for the year ended September 30,
2009, and 73% of total revenue for the year ended September 30,
2008.




As of
June 15, 2009, the Company’s franchisees no longer place all orders for
materials and supplies with the Company, and are billed directly by the
Company’s vendors. The Company only reviews orders submitted to it for its
supported vendors, to determine whether the products can be made as requested,
make any necessary changes, and then places the corresponding orders with the
supported vendors. Accordingly, the Company determines product specifications
for supported vendors only.  The products are shipped directly to the
franchisees by the vendors, and the franchisee receives title to the shipped
items and has the physical risk of loss upon shipment.  The franchisee
is billed directly by the vendor and is now liable to the vendor for payment.
The Company still negotiates all pricing with its supported vendors, and has the
ability to establish rebate programs with these vendors. The Company is no
longer responsible to its franchisees for goods shipped by the supported vendors
that did not meet specifications, but does maintain discretion in supplier
selection. Thus, the Company no longer acts as a principal as defined in ASC
Topic 605 (EITF, Issue 99-19), and therefore no longer reports revenues from
sales of materials and supplies. This change has no material impact on the net
income of the Company, but does reduce the sales of materials and supplies and
cost of those materials and supplies by the same amount. The amount of reduced
gross sales and cost of these sales from June 15 – September 30, 2009 was
approximately $756,000.




PROPERTY
AND EQUIPMENT




Property
      and equipment is recorded at cost. Depreciation of equipment is provided
      by use of the straight-line method over the estimated useful lives of the
      related assets of three to five years. Leasehold improvements are
      amortized using the straight-line method over the life of the lease.
      Expenditures for replacements, renewals and betterments are capitalized.
      Maintenance and repairs are charged to operations as
    incurred.




INTANGIBLE
ASSET IMPAIRMENT




Intangible
assets consist of reacquired franchise rights from the repurchase of franchise
territories. The Company has determined that reacquired franchise rights have
indefinite lives and are not subject to amortization.  Intangible
assets with indefinite lives are reviewed for impairment annually or more
frequently if events or circumstances indicate the carrying amount of the assets
may be impaired. As of September 30, 2009,  impairment of $73,409 has
been recorded.




F-10
 
 V2K
INTERNATIONAL, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (CONTINUED)






NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)




IMPAIRMENT
OF LONG-LIVED ASSETS




The
Company has adopted ASC Topic 360 (SFAS 144, “Accounting for the Impairment and
Disposal of Long-Lived Assets”), which requires that long-lived assets to be
held and used be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company will assess the recoverability of the carrying cost of
long-lived assets based on a review of projected undiscounted cash flows related
to the asset held for use.  If assets are determined to be impaired,
then the asset will be written down to its fair value based on the present value
of the discounted cash flows of the related asset or other relevant measures. As
of September 30, 2009, impairment of $73,409 has been recorded.





ADVERTISING
COSTS




The
      Company expenses all costs of advertising as incurred. Total advertising
      expense for the years ended September 30, 2009 and 2008 was $74,058 and
      $123,282, respectively. Advertising expense does not include expenditures
      on behalf of franchisees from the National/Regional/Local Advertising Fund
      (see Note 1 – Summary of Significant Accounting Policies - Cash
      Equivalents).




INCOME
TAXES




The
      Company has adopted the provisions of ASC Topic 740 (SFAS 109, “Accounting
      for Income Taxes”), which requires recognition of deferred tax liabilities
      and assets for the expected future tax consequences of events that have
      been included in the financial statements or tax returns. Under this
      method, deferred tax liabilities and assets are determined based on the
      difference between the financial statement and tax basis of assets and
      liabilities using enacted tax rates in effect for the year in which the
      differences are expected to
reverse.




Temporary
differences between the time of reporting certain items for financial and tax
reporting purposes consist primarily of depreciation of equipment and allowance
for uncollectible receivables.




USE OF ESTIMATES





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





RESEARCH AND DEVELOPMENT
COSTS





The
Company has adopted the provisions of ASC Topic 985 (SFAS 86, “Accounting for
the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed”),
which requires capitalization of certain software development costs subsequent
to the establishment of technological feasibility. Based on the Company’s
product development process, technological feasibility is established upon
completion of a working model. Since the Company does not incur any costs
between the completion of the working model and the point at which the product
is ready for general release, all research and development costs are charged to
expense as incurred. Research and development expenses for the years ended
September 30, 2009 and 2008 were $158,538 and $317,891,
respectively.





F-11
 
 V2K
INTERNATIONAL, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (CONTINUED)





NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





VARIABLE
INTEREST ENTITIES





ASC Topic
810 (Financial Accounting Standards Board (“FASB”) Interpretation 46 (revised
2003), “Consolidation of Variable Interest Entities”) requires the primary
beneficiary of a variable interest entity to consolidate that
entity.  The primary beneficiary of a variable interest entity is the
party that absorbs a majority of the variable interest entity’s expected losses,
receives a majority of the entity’s expected residual returns, or both, because
of ownership, contractual or other financial interests in the
entity.





The
primary entities which the Company evaluates for variable interest are franchise
entities, which operate the franchised window fashion businesses.  The
Company does not possess any ownership interests in franchise entities. The
Company does not generally provide financial support to the
franchises.  Management has reviewed the franchise entities and
determined that the Company is not the primary beneficiary of the entities, and
therefore, these entities have not been consolidated.





INCOME
(LOSS) PER SHARE





Basic
income (loss) per share is computed based on the weighted average number of
common shares outstanding during each period. The computation of diluted
earnings per share assumes the conversion, exercise or contingent issuance of
securities only when such conversion, exercise or issuance would have a dilutive
effect on income per share. The dilutive effect of convertible securities is
reflected in diluted earnings per share by application of the “as if converted
method.” The dilutive effect of outstanding options and warrants and their
equivalents is reflected in diluted earnings per share by application of the
treasury stock method.





For the
years ended September 30, 2009 and 2008, 282,294 and 281,939 outstanding options
and warrants, respectively, were excluded from the computation of diluted loss
per share as the effect of the assumed exercise and conversions would be
anti-dilutive.





SHARE BASED
COMPENSATION





Effective
October 1, 2006, the Company adopted the fair value recognition provisions to
ASC Topics 505 and 718 (SFAS 123(R)), using the modified-prospective transition
method.  Under that transition method, employee compensation cost of
$37,833 and $83,057 was recognized in the years ended September 30, 2009 and
2008, respectively. Results from prior periods have not been restated.The Company has elected to
use the simplified method of calculating the expected term of the stock options
to compute fair value under the Black-Scholes option-pricing model.





CASH
      EQUIVALENTS




For
purposes of reporting cash flows, the Company considers as cash equivalents all
highly liquid investments with a maturity of three months or less at the time of
purchase. At September 30, 2009 and 2008, there were no cash
equivalents.





F-12
 
 V2K
INTERNATIONAL, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (CONTINUED)


NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





ACCOUNTS
RECEIVABLE





The
Company maintains an allowance for potential losses based on its estimate of
uncollectible accounts. The Company performs ongoing credit evaluations of its
franchisees and has not required collateral or other forms of security for
product sales or franchisee fees. The Company’s allowance for doubtful accounts
increased by $33,803 from September 30, 2008 to September 30, 2009.





SHIPPING
AND HANDLING FEES AND COSTS





All
amounts billed to a customer in a sales transaction related to shipping and
handling represent revenues earned and are reported as revenue, and the costs
incurred by the Company for shipping and handling are reported as an expense in
cost of materials and supplies.





FAIR
VALUE





The
carrying amount reported on the balance sheet for cash, accounts receivable,
inventory, accounts payable and accrued liabilities approximates fair value
because of the immediate or short-term maturity of these financial
instruments.





The
carrying amounts of notes receivable approximate fair value as the effective
rates for those instruments are comparable to market rates at year
end.





Based
upon the borrowing rates currently available to the Company for loans with
similar terms and average maturities, the fair value of long-term debt
approximates its carrying value.





CONCENTRATIONS
OF CREDIT RISK





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





The
Company maintains cash accounts at a single financial institution. At September
30, 2009 and 2008, the Company had no deposits in excess of the federally
insured amount. The Company periodically evaluates the credit worthiness of
financial institutions, and maintains cash accounts only in large high quality
financial institutions, thereby minimizing exposure for deposits in excess of
federally insured amounts. The Company believes that credit risk associated with
cash is minimal.





The
Company has recorded trade accounts receivable from business operations. The
Company periodically evaluates the collectibility of trade receivables and has
provided an allowance for potentially uncollectible accounts.





The
Company has recorded notes receivable from business operations.  The
Company periodically evaluates the collectibility of its notes receivable and
has provided an allowance for potentially uncollectible notes.





For the
years ended September 30, 2009 and 2008, approximately 77% and 69%,
respectively, of materials and supplies were acquired from three major vendors,
the largest vendor’s activity representing 46% and 38%, respectively, of the
total. The related accounts payable to the largest vendor was approximately
$208,078 as of September 30, 2009, and $291,131 as of September 30,
2008.





F-13
 
 V2K
INTERNATIONAL, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (CONTINUED)




NOTE
1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)




SEGMENT
REPORTING




ASC Topic
280 (SFAS 131, “Disclosures about Segment Reporting of an Enterprise and
Related Information”), establishes standards for the way public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports issued to stockholders. It also
establishes standards for related disclosure about products and services,
geographic areas and major customers. The Company and its subsidiaries operate
in five industry segments, as disclosed in Note 10.





RECENT
PRONOUNCEMENTS





In
October 2009, the FASB issued authoritative guidance for revenue recognition
with multiple deliverables. This authoritative guidance impacts the
determination of when the individual deliverables included in a multiple-element
arrangement may be treated as separate units of accounting. Additionally, this
guidance modifies the manner in which the transaction consideration is allocated
across the separately identified deliverables by no longer permitting the
residual method of allocating arrangement consideration. The Company will adopt
this authoritative guidance prospectively commencing in its first quarter of
fiscal 2010. The implementation is not expected to have a material impact on the
Company’s financial position or results of operations.





In
October 2009, the FASB issued authoritative guidance for the accounting for
certain revenue arrangements that include software elements. This authoritative
guidance amends the scope of pre-existing software revenue guidance by removing
from the guidance non-software components of tangible products and certain
software components of tangible products. The Company will adopt this
authoritative guidance prospectively commencing in its first quarter of fiscal
2010. The implementation is not expected to have a material impact on the
Company’s financial position or results of operations.





In June
2009, the FASB issued authoritative guidance on variable interest entities,
which becomes effective the first annual reporting period after
November 15, 2009 and will be effective for the Company in fiscal 2011.
This authoritative guidance requires revised evaluations of whether entities
represent variable interest entities, ongoing assessments of control over such
entities, and additional disclosures for variable interests. The Company is
evaluating the potential impact of the implementation of this authoritative
guidance on its consolidated financial statements.





In June
2009, the FASB established the FASB Accounting Standards Codification
(“Codification”), which officially commenced July 1, 2009, to become the source
of authoritative GAAP recognized by the FASB to be applied by nongovernmental
entities.  Rules and interpretive releases of the United States
Securities and Exchange Commission (“SEC”) under authority of federal securities
laws are also sources of GAAP for SEC registrants. All other accounting
literature excluded from the Codification will be considered
non-authoritative.  The Codification is effective for financial
statements issued for interim and annual periods ending after September 15,
2009. The Company has adopted this new standard.








F-14
 
 V2K
INTERNATIONAL, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (CONTINUED)


NOTE 1 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)




RECENT
PRONOUNCEMENTS (CONTINUED)





In April
2009, the FASB issued authoritative guidance on accounting for assets acquired
and liabilities assumed in a business combination that arise from contingencies,
which amends the provisions related to the initial recognition and measurement,
subsequent measurement and disclosure of assets and liabilities arising from
contingencies in a business combination under previously issued guidance. The
authoritative guidance requires that such contingencies be recognized at fair
value on the acquisition date if fair value can be reasonably estimated during
the allocation period. This authoritative guidance will be effective for the
Company in fiscal 2010. The Company expects that this authoritative guidance
will have minimal impact on its consolidated financial statements, but the
nature and magnitude of the specific effects will depend upon the nature, term
and size of the acquired contingencies.





In
December 2008, the FASB issued authoritative guidance on employer’s disclosures
about plan assets of a defined benefit pension or other postretirement plan. The
Company will comply with this authoritative guidance in fiscal
2010.





In
December 2007, the FASB revised the authoritative guidance on business
combinations, including the measurement of acquirer shares issued in
consideration for a business combination, the recognition of contingent
consideration, the accounting for preacquisition gain and loss contingencies,
the recognition of capitalized in-process research and development, the
accounting for acquisition-related restructuring cost accruals, the treatment of
acquisition-related transaction costs, and the recognition of changes in the
acquirer’s income tax valuation allowance. This authoritative guidance will be
effective for the Company in fiscal 2010, with early adoption prohibited. The
Company expects that this authoritative guidance will have an impact on its
consolidated financial statements, but the nature and magnitude of the specific
effects will depend upon the nature, terms and size of the acquisitions it
consummates after the effective date.





In
December 2007, the FASB issued authoritative guidance on noncontrolling
interests, which changes the accounting for noncontrolling (minority) interests
in consolidated financial statements, including the requirements to classify
noncontrolling interests as a component of consolidated stockholders’ equity,
and the elimination of “minority interest” accounting in results of operations
with earnings attributable to noncontrolling interests reported as part of
consolidated earnings. Additionally, this authoritative guidance revises the
accounting for both increases and decreases in a parent’s controlling ownership
interest. This authoritative guidance will be effective for the Company in
fiscal 2010, with early adoption prohibited. The Company is evaluating the
potential impact of the implementation of this authoritative guidance on its
financial position or results of operations.





NOTE
2 – ACCOUNTS AND NOTES RECEIVABLE





Accounts
receivable consists of amounts due from franchisees for sale of merchandise at
September 30, 2009 and 2008, as follows:





2009
            
            
            2008Accounts
      receivable – trade
            
            $
            151,441
            
            
            $
            623,551Less
      allowance for doubtful accounts
            
            
            (75,286
            )
            
            
            (41,483
            )$
            76,155
            
            
            $
            582,068





F-15
 
 V2K
INTERNATIONAL, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (CONTINUED)




NOTE
2 – ACCOUNTS AND NOTES RECEIVABLE (CONTINUED)





The
Company performs ongoing credit evaluations of its franchisees and has not
required collateral or other forms of security for product sales or franchisee
fees. The Company maintains an allowance for potential losses based on its
estimate of uncollectible accounts. The Company’s allowance for doubtful
accounts increased by $33,803 from September 30, 2008 to September 30, 2009, and
the Company charged directly to operations $99,389 and $65,351 of uncollectible
accounts in the years ended September 30, 2009 and 2008,
respectively.





Notes
receivable consists of balances due from franchisees. The notes are interest and
non-interest bearing and are payable in monthly installments of $414 to $867,
maturing at various dates through October 2009. The Company has recorded
interest on the non-interest bearing notes, discounted at an imputed interest
rate of 5.75%. At September 30, 2009 and 2008, notes receivable are comprised
of:





2009
            
            
            2008Notes
      receivable, fair value
            
            $
            47,237
            
            
            $
            69,300Less
      allowance
            
            
            (30,055
            )
            
            
            (20,234
            )17,182
            
            
            
            49,066Less
      current portion
            
            
            (17,182
            )
            
            
            (38,303
            )Long
      term portion
            
            $
            -
            
            
            $
            10,763





The
Company performs ongoing credit evaluations of its creditors and has not
required collateral or other forms of security for promissory notes. The Company
maintains an allowance for potential losses based on its estimate of
uncollectible amounts. The Company’s allowance for uncollectible notes
receivable increasedby $9,821 from
September 30, 2008 to September 30, 2009.





NOTE
3 – PROPERTY AND EQUIPMENT





Property
and equipment at September 30, 2009 and 2008 consists of the
following:





2009
            
            
            2008Furniture
      and equipment
            
            $
            68,243
            
            
            $
            68,243Computer
      equipment
            
            
            90,819
            
            
            
            89,624Software
            
            
            85,975
            
            
            
            86,800Leasehold
      improvements
            
            
            -
            
            
            
            91,990Assets
      under capital lease
            
            
            8,961
            
            
            
            8,961253,998
            
            
            
            345,618Less
      accumulated depreciation and amortization
            
            
            (236,544
            )
            
            
            (238,133
            )$
            17,454
            
            
            $
            107,485





Depreciation
and amortization expense (includes assets under capital lease) for the years
ended September 30, 2009 and 2008 was $122,730 and $44,832,
respectively.








F-16
 
 V2K
INTERNATIONAL, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (CONTINUED)





NOTE
4 – NOTE PAYABLE – OTHER





In
October 2008, the Company entered into an agreement amending the payment
schedule of the promissory note carried on the consolidated financial statements
as “note payable-other.” The amendment abated the October, November and December
2008 payments for 90 days, with the next payment being due January 1, 2009. The
interest continued to accrue during the abatement period and was due and payable
in addition to the monthly payment on January 1, 2009. All other terms and
conditions of the note remained in full force and effect.




Note
payable – other at September 30, 2009 and 2008 consists of the currently
deferred portion of the Company’s monthly rent obligation under an office lease
entered into effective September 15, 2002. Under the terms of the lease, the
landlord has deferred a portion of the monthly rent aggregating $140,000 over
the period September 15, 2002 to August 15, 2007. The deferred portion is
evidenced by a non-interest bearing promissory note. The Company accretes the
deferred portion of the monthly rent utilizing an imputed interest rate of
5.75%. The balance at September 30, 2009 and 2008 of $32,746 and $34,005,
respectively, represents the accretion of the note. The note decreased $1,259
during the year ended September 30, 2009.  The note decreased by
$105,995 during the year ended September 30, 2008.




Future
minimum payments under the terms of the note are as follows:




Year
      ending September 30, 2009
            $       32,746




NOTE
5 – LINE OF CREDIT




In August
2007, the Company opened a line of credit with a commercial bank in the amount
of $250,000. The line of credit is collateralized with a first priority security
interest in the personal property of Windows ($715,957 carrying value of
collateral at September 30, 2009), and up to 125% of the amount is personally
guaranteed by officers of the Company (see Note 14). Interest on the outstanding
principal balance accrues at the Prime Rate, as set by the bank, and is payable
monthly.




At
September 30, 2009 and 2008, the Company had drawn $240,000 and $250,000,
respectively against the line of credit.






NOTE
6 – NOTES PAYABLE – RELATED PARTIES




In June
of 2009, three officers and directors of the Company loaned it $208,001 in the
form of demand promissory notes. The demand notes carry interest at 12% per
annum.




On
September 30, 2008 the Company consolidated and restructured $731,453 in amounts
previously loaned to the Company by three officers and directors.  The
amounts had been loaned to the Company primarily as demand notes with interest
at 12% per annum. The new notes are secured by the assets of V2K Technology, a
wholly owned subsidiary of the Company, and mature nine months from date of
issuance, subject to a three-month extension at the option of the
Company.  Interest is paid semi-annually and accrues at the rate of
12% per annum.  The notes are convertible into shares of the Company’s
common stock at any time at the option of the holder at 90% of the volume
weighted average price for the 20 trading days immediately preceding the date of
conversion, subject to a floor price of $18.75.







F-17
 
 V2K
INTERNATIONAL, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (CONTINUED)





NOTE
6 – NOTES PAYABLE – RELATED PARTIES (CONTINUED)




Also, for
each dollar that was loaned, the Company issued two redeemable common stock
purchase warrants, one exercisable at $18.75 per share for two years the other
exercisable at $31.25 per share for three years. Each warrant is exercisable to
purchase one share of common stock. The calculated value of these warrants
issued was $8,946 which was recorded as interest expense in these consolidated
financial statements. The calculation was determined using methods prescribed by
SFAS 123, and using the Black-Scholes warrant pricing model with the following
assumptions: expected option life of 1.0 and 1.5 years, risk-free interest rate
of 2.0% and 2.28%, and volatility of 85% and 93%. No beneficial conversion on
these warrants exists because the quoted market rate of the stock was below the
“floor” conversion rate on September 30, 2009.




Notes
payable to related parties increased by $309,904 during the year ended September
30, 2009.






NOTE
7 – DEFERRED RENT




In July
2007, the Company entered into a non-cancelable lease for office facilities. The
lease agreement contained a tenant improvement allowance of $108,570, of which
the Company had capitalized $91,990 as leasehold improvements. The unused amount
of $16,580 was used as rent reduction for February and March 2008, in the
amounts of $14,024 and $2,556, respectively. The Company recognized a deferred
rent liability for the utilized tenant improvement allowances within other
long-term liabilities and amortized these amounts over the term of the lease as
a reduction of rent expense. The lease also contained a rent escalation clause.
The Company recorded rental expense on a straight-line basis over the term of
the lease.  Total deferred rent at September 30, 2009 and 2008 was $0
and $163,346, respectively.




In
November 2009, the Company entered into a mutual termination and release with
its landlord, and was released entirely from its lease obligations, which
resulted in a gain on liability extinguishment of $104,684. The termination and
release is reflected in the accompanying financial statements.




Rent
expense for the years ended September 30, 2009 and 2008 was $130,501 and
$147,948, respectively.






NOTE
8 – STOCKHOLDERS’ EQUITY




COMMON
STOCK




During
the year ended September 30, 2009, the Company issued: 24,000 shares of common
stock at $0.5032 per share for services; 10,280 shares of common stock at
$0.8741 per share for rent abatement; and 12,360 shares of common stock at
$0.8741 per share to an affiliate.





During
the year ended September 30, 2008 the Company issued 160 shares common stock at
$25.00 per share to reacquire franchise rights, and issued 2,400 shares of
common stock at $36.25 per share for services.




Prior to
the share for share exchange with Windows (see Note 1 – Summary of Significant
Accounting Policies - Organization), the Company issued 43,135 shares of common
stock in conjunction with the recapitalization of V2K International,
Inc.







F-18
 
 V2K
INTERNATIONAL, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (CONTINUED)





NOTE
8 – STOCKHOLDERS’ EQUITY (CONTINUED)




STOCK
OPTION PLAN




The
Company has adopted the V2K International, Inc. 2006 Stock Option Plan (the
Plan). Under the Plan, the Board of Directors, in its discretion, may issue
options to officers, directors, employees, and consultants on a case-by-case
basis. In general, options may be exercised by payment of the option price by
either (i) cash, (ii) tender of shares of its common stock which have a fair
market value equal to the option price, or (iii) by such other consideration as
the Board of Directors may approve at the time the option is granted. The
Company has reserved an aggregate 240,000 shares of its common stock for options
granted under the Plan.




A summary
of the status of the Company’s stock option plans as of September 30, 2009 and
2008, and changes during the years then ended is presented below:




2009
              
              2008Weighted
              
              
              
              
              
              
              
              
              Weighted
              
              
              WeightedAverage
              
              
              Weighted
              
              
              
              
              
              Average
              
              
              AverageRemaining
              
              
              Average
              
              
              
              
              
              Remaining
              
              
              ExerciseContractual
              
              
              Exercise
              
              
              
              
              
              ContractualShares
              
              
              Life
              
              
              Price
              
              
              Shares
              
              
              Life
              
              
              PriceOutstanding
      at beginningof
      period
              
              
              225,805
              
              
              
              5.54
              
              
              $
              8.625
              
              
              
              233,445
              
              
              
              6.42
              
              
              $
              8.750Granted
              
              
              800
              
              
              
              4.67
              
              
              
              0.625
              
              
              
              880
              
              
              
              1.53
              
              
              
              31.125Cancelled
              
              
              (80
              )
              
              
              
              
              
              
              25.000
              
              
              
              (6,920
              )
              
              
              
              
              
              
              17.875Expired
              
              
              (365
              )
              
              
              
              
              
              
              7.125
              
              
              
              (1,600
              )
              
              
              
              
              
              
              7.125Outstanding
      at endof
      period
              
              
              226,160
              
              
              
              4.47
              
              
              
              8.588
              
              
              
              225,805
              
              
              
              5.54
              
              
              
              8.625Options
      exercisable atperiod
      end, option pricerange
      $6.250 - $36.250
              
              
              203,435
              
              
              
              
              
              
              
              8.563
              
              
              
              196,778
              
              
              
              
              
              
              
              7.250Weighted
      average remainingcontractual
      life of optionsexercisable
      at period end
              
              
              4.43
              
              
              
              
              
              
              
              
              
              
              
              5.41Weighted
      average of fairvalue
      of options grantedduring
      the period
              
              $
              0.625
              
              
              
              
              
              
              
              
              
              
              $
              31.125Aggregate
      instrinsic valueof
      options outstanding atperiod
      end
              
              $
              -
              
              
              
              
              
              
              
              
              
              
              $
              -




Effective
October 1, 2006, the Company adopted the fair value recognition provisions to
ASC Topics 505 and 718 (SFAS 123(R)), using the modified-prospective transition
method.  Under that transition method, employee compensation cost of
$38,223 and $83,057 was recognized in the years ended September 30, 2009 and
2008 which includes: (i) compensation cost for all share-based payments granted
prior to, but not yet vested as of October 1, 2006, based on the grant date fair
value; and (ii) compensation cost for all share-based payments granted
subsequent to October 1, 2006 based on the grant date fair value. Results from
prior periods have not been restated.







F-19
 
 V2K
INTERNATIONAL, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (CONTINUED)





NOTE
8 – STOCKHOLDERS’ EQUITY (CONTINUED)




STOCK
OPTION PLAN (CONTINUED)




As
September 30, 2009, there was $17,216 of total unrecognized compensation cost
related to nonvested options granted under the plans. That cost is expected to
be recognized over the next 9 months.





In the
year ended September 30, 2009, 800 new options were issued under the
Plan.




The
calculated value of stock options granted under the Plan, following calculation
methods prescribed by ASC Topics 505 and 718 (SFAS 123), uses the Black-Scholes
stock option pricing model with the following assumptions:





2009
            2008Expected
      option life-years
            2.5
            2.5
      – 7.0Risk-free
      interest rate
            3.50%
            2.31%
      - 3.83%Dividend
      yield
            -
            -Volatility
            95%
            58%
      - 121%







NOTE
9 - INCOME TAXES




The
      Company accounts for income taxes under ASC Topic 740 (SFAS 109), which
      requires use of the liability method. ASC Topic 740 (SFAS 109), provides
      that deferred tax assets and liabilities are recorded based on the
      differences between the tax bases of assets and liabilities and their
      carrying amounts for financial reporting purposes, referred to as
      temporary differences.





Deferred
tax assets and liabilities at the end of each period are determined using the
currently effective tax rates applied to taxable income in the periods in which
the deferred tax assets and liabilities are expected to be settled or realized.
The reconciliation of enacted rates the years ended September 30, 2009 and 2008
is as follows:





2009
            
            
            2008Federal
            
            
            34%
            
            
            
            34%State
            
            
            4%
            
            
            
            4%Net
      operating loss carryforward
            
            
            -
            
            
            
            -Increase
      in valuation allowance
            
            
            (38%
            )
            
            
            (38%
            )-
            
            
            
            -







At
September 30, 2009, the Company had a net operating loss carry forward of
approximately $3,535,000 that may be offset against future taxable income
subject to limitations imposed by the Internal Revenue Service. This
carryforward is subject to review by the Internal Revenue Service and, if
allowed, may be offset against taxable income through 2028.  A portion
of the net operating loss carryovers begin expiring in 2019.




F-20
 
 V2K
INTERNATIONAL, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (CONTINUED)




NOTE 9 - INCOME TAXES (CONTINUED)




Deferred
      tax assets are as follows:





2009
            
            
            2008Deferred
      tax asset due to net operating loss
            
            $
            1,343,000
            
            
            $
            1,036,000Valuation
      allowance
            
            
            (1,343,000
            )
            
            
            (1,036,000
            )-
            
            
            
            -




The
      deferred tax asset relates principally to the net operating loss
      carryforward. A valuation allowance was established at September 30, 2009
      and 2008 to eliminate the deferred tax benefit that existed at that time
      since it is uncertain if the tax benefit will be realized. The deferred
      tax asset (and the related valuation allowance) increased by $307,000 and
      $337,000 for the years ended September 30, 2009 and 2008,
      respectively.





The
      Company has adopted the provisions of ASC Topic 740 (FASB Interpretation
      No. 48 ("FIN 48"), “Accounting for Uncertainty in Income Taxes”, an
      interpretation of SFAS No. 109). As a result of the implementation of ASC
      Topic 740 (FIN 48), the Company had no changes in the carrying value of
      its tax assets or liabilities for any unrecognized tax
      benefits.





NOTE
10 – SEGMENT INFORMATION





The
      Company and its subsidiaries (see Note 1 – Summary of Significant
      Accounting Policies - Organization), operate in five industry segments.
      Parent Holding (International) provides the corporate vehicle for raising
      capital for the subsidiaries and fulfills the Company’s existence as a
      public reporting company; Windows sells and supports franchises in the
      residential and commercial window fashion industry; Technology develops
      and licenses proprietary software that allows users to decorate windows
      for both residential and commercial customers; Manufacturing and MSI do
      not have operations as of September 30,
2009.





Identified
      assets by industry are those assets that are used in our operations in
      each industry.  The Company’s assets are principally cash,
      accounts receivable and equipment.





The
      Company has adopted ASC Topic 280 (SFAS No. 131, “Disclosures about
      Segments of an Enterprise and Related Information”), which requires the
      presentation of descriptive information about reportable segments which is
      consistent with that made available to the management of the Company to
      assess performance.





Windows
      derives its revenues from sales of franchises, royalty and sales of
      materials and supplies to franchisees.  Manufacturing received
      its income from the sale of labor on soft product window treatments to
      Window’s franchisees, but has no operations as of September 30, 2009. MSI
      received its revenues by acting as a product development resource and
      sales agent for overseas window covering manufacturers, but has no
      operations as of September 30,
2009.





During
the years ended September 30, 2009 and 2008, inter-segment revenues were
$124,792 and $407,771, respectively.  The accounting policies applied
by each segment are the same as those used by the Company in general.
Inter-segment revenues are appropriately eliminated in
consolidation.





There
      have been no material changes in the amount of assets of any operating
      segment since the last annual
report.




F-21
 
 V2K
INTERNATIONAL, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (CONTINUED)


NOTE
10 – SEGMENT INFORMATION (CONTINUED)





Segment
information for the years ended September 30, 2009 and 2008 consists of the
following:




Parent
              
              
              
              
              
              
              
              
              Manu-Holding
              
              
              Windows
              
              
              Technology
              
              
              facturing
              
              
              MSI
              
              
              TotalRevenues2009
              
              
              -
              
              
              
              2,563,998
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              2,563,9982008
              
              
              -
              
              
              
              6,250,698
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              6,250,698Inter-segment
      revenues2009
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              124,792
              
              
              
              -
              
              
              
              124,7922008
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              407,771
              
              
              
              -
              
              
              
              407,771Net
      (loss)2009
              
              
              (344,484
              )
              
              
              (362,432
              )
              
              
              (158,538
              )
              
              
              (2,633
              )
              
              
              (600
              )
              
              
              (868,687
              )2008
              
              
              (266,635
              )
              
              
              (341,930
              )
              
              
              (317,891
              )
              
              
              (53,917
              )
              
              
              (5,906
              )
              
              
              (986,279
              )Identifiable
      assets (net)2009
              
              
              2,329,188
              
              
              
              187,551
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              2,516,7392008
              
              
              2,290,874
              
              
              
              949,755
              
              
              
              -
              
              
              
              5,133
              
              
              
              600
              
              
              
              3,246,362Depreciation
      and amortizationcharged
      to identifiable assets2009
              
              
              87,933
              
              
              
              34,110
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              122,0432008
              
              
              -
              
              
              
              44,247
              
              
              
              -
              
              
              
              585
              
              
              
              -
              
              
              
              44,832Interest
      revenue2009
              
              
              -
              
              
              
              19,735
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              19,7352008
              
              
              -
              
              
              
              19,914
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              19,914Interest
      expense2009
              
              
              101,903
              
              
              
              24,081
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              125,9842008
              
              
              -
              
              
              
              25,661
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              25,661




Reconciliation
of segment totals to consolidated amounts:





2009
            
            
            2008Total
      revenues for reportable segments
            
            $
            2,688,790
            
            
            $
            6,658,470Elimination
      of inter-segment revenues
            
            
            (124,792
            )
            
            
            (407,771
            )Total
      Consolidated Revenues
            
            $
            2,563,998
            
            
            $
            6,250,699








2009
            
            
            2008Identifiable
      assets (net)
            
            $
            2,516,739
            
            
            $
            3,246,362Elimination
      of intercompany assets
            
            
            (2,322,016
            )
            
            
            (2,153,421
            )Total
      Consolidated Assets
            
            $
            194,723
            
            
            $
            1,092,941





F-22
 
 V2K
INTERNATIONAL, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (CONTINUED)







NOTE
11 - SALE OF ASSETS OF V2K MANUFACTURING





In
October 2007, the Company sold the inventory and fixed assets of Manufacturing
(see Note 1-Summary of Significant Accounting Policies - Organization) to a
third party. The company accepted a promissory note in the amount of $13,827,
bearing interest at 8%, with twenty-four monthly payments of $625 commencing in
February 2008. All financial statement reporting for Manufacturing for the 12
month periods ended September 30, 2009 and 2008 is included in these
consolidated financial statements. The sale of the assets resulted in a net loss
of $7,874. Manufacturing has not been classified as a discontinued operation in
these consolidated financial statements as it continues as a legal entity and
wholly owned subsidiary of the company, and has been included in the segment
reporting footnote (see Note 10). Manufacturing has no operations as of
September 30, 2009.





NOTE
12 - RELATED PARTY TRANSACTIONS





During
the year ended September 30, 2009 three officers and directors of the Company
loaned it $208,001 in the form of demand promissory notes. The demand notes
carry interest at 12% per annum (see Note 6).




During
the year ended September 30, 2008 the Company consolidated and restructured
$731,453 in amounts previously loaned to the Company by three officers and
directors.  The amounts had been loaned to the Company primarily as
demand notes. The notes are convertible into shares of the Company’s common
stock at any time at the option of the holder. For each dollar that was loaned,
the Company issued two redeemable common stock purchase warrants. Each warrant
is exercisable to purchase one share of common stock (see Note 6).




NOTE
13 – COMMITMENTS AND CONTINGENCIES




LEASEHOLD COMMITMENTS





In
November 2009, the Company entered into a mutual termination and release with
its landlord of that lease, and was released from the leasehold commitment. The
termination and release is reflected in the accompanying financial statements
(see Notes 7 and 14).







OPERATING
      LEASE COMMITMENTS





The
      Company leases equipment under operating leases. The future minimum lease
      payments due under non-cancelable operating leases is as
      follows:




Year
      ending September 30, 2010
            
            
            7,260Year
      ending September 30, 2011
            
            
            7,260Year
      ending September 30, 2012
            
            
            5,746$
            20,266





F-23
 
 V2K
INTERNATIONAL, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (CONTINUED)


NOTE
14 – SUBSEQUENT EVENTS





In
October 2009, a commercial bank called the Company’s line of credit (see Note
5), and the $240,000 balance was converted to a promissory note.  The
promissory note calls for payments of $1,250 per month plus interest at the
Prime Rate, as set by the bank, commencing October 31, 2009.  The note
matures on March 15, 2009, at which point any unpaid principal and accrued
interest is due.  The note is collateralized with a first priority
security interest in the assets of Windows, and up to $105,000 each, is
personally guaranteed by three officers of the Company.




In
November 2009, the Company entered into a mutual termination and release with
its landlord, and was released entirely from its lease obligations. The
termination and release is reflected in the accompanying financial statements
(see Notes 7 and 13).




In November 2009, the Company entered
into a month to month sub-lease agreement at a new location.




In
December 2009, Windows (see Note 1 – Summary of Significant Accounting Policies
- Organization) sent settlement offer letters to its trade account
creditors.




In
December 2009, the Company reverse split its common stock 1:125, without
amending its articles of incorporation to reduce the number of authorized
shares. The number of shares of common stock, warrants and stock options, and
their respective prices, have been retroactively adjusted in these financial
statements to reflect the reverse stock split (see Note 1 – Summary of
Significant Accounting Policies - Basis of Presentation).