UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 
 FORM
10-K
 
 ý  ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 
 For the
fiscal year ended September 30, 2008
 
  ̈  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.)
 
 13949
      West Colfax Avenue, Suite 250, Lakewood, Colorado
              80401(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. ̈ Yesý 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                      ý 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.
 ý
Yes                       ̈No
 
 Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of 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.  ý
 
 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 ý
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).   ̈Yes   ýNo
 
 
 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:  $4,016,016.21 as of March 31,
2008
 
 Indicate
the number of shares outstanding of each of the registrant’s classes of common
stock, as of the latest practicable date:  31,467,336 shares of common stock as
of December 16, 2008
 
 
 
 
 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, 2008
 
 INDEX
 
 
 PagePART IItem
      1.
                        Business
                        5Item
      1A.
                        Risk
      Factors
                        13Item
      1B.
                        Unresolved
      Staff Comments
                        16Item
      2.
                        Properties
                        16Item
      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
                        25Item
      9A.
                        Controls
      and Procedures
                        25Item
      9B.
                        Other
      Information
                        26PART IIIItem
      10.
                        Directors,
      Executive Officers and Corporate Governance
                        27Item
      11.
                        Executive
      Compensation
                        29Item
      12.
                        Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                        34Item
      13.
                        Certain
      Relationships and Related Transactions, and Director
      Independence
                        35Item
      14.
                        Principal
      Accounting Fees and Services
                        37PART IVItem
      15
                        Exhibits,
      Financial Statement Schedules
                        38SIGNATURES
 
 
 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., V2K Technology, Inc.,
and V2K Manufacturing, Inc., we sell and support franchises in the residential
and commercial window fashion industry, develop and license proprietary software
that allows users to decorate windows for both residential and commercial
customers, and act as the primary supplier of soft window treatments to our
franchisees by managing strategic alliances with outside
vendors.  Marketing Source International LLC will endeavor to generate
revenues by acting as a product development and sales agent for overseas window
covering manufacturers.  As of the date of this filing, Marketing
Source International LLC has engaged in only preliminary discussions with
overseas window covering manufacturing sources.
 
 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, 2008, we had 170 franchises, operating in thirty-nine 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.  All sales orders made by our franchisees are sent to us
for fulfillment.  Another subsidiary, V2K Manufacturing, Inc. (“V2K
Manufacturing”), manages our strategic alliances with “soft” window fashion
vendors, who manufacture fabric treatments, such as drapes and
curtains.  “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 exclusive, three-dimensional proprietary software technology into the
      industry’s sales channel and supply
chain;
 ·
              growing
      the business aggressively through the franchise business model and
      corporate license agreements;
 ·
              controlling
      the industry’s distribution channel;
and
 ·
              acquiring
      hard product manufacturing capabilities to become vertically
      integrated.
 
 Our
long-term vision is to capture the majority of the home décor arena using our
scalable, three-dimensional, graphic technology, 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 13949 W. Colfax Avenue, Suite 250, Lakewood, Colorado 80401, and our
telephone number is (303) 202-1120.
 
 
 5
 
 Our
Proprietary Software
 
 We have
developed proprietary 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.
 
 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, and a kiosk version of our
technology to be used in big box stores.  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
   6
 
 by a
product specialist, the order is then broken down by vendor and the materials
are ordered.  The vendor then processes the order and ships 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 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, 2008,
we had 170 franchises, operating in 39 states, the Canadian provinces of
Alberta, Nova Scotia, British Columbia and Aruba.  Entrepreneur
magazine rated us 50th in its Top 101 Homebased Franchises 2006 Rankings and
176th in its Franchise 500 2007 Rankings.  Potential investors should
not conclude from this preceding statement that the magazine is actively
endorsing or promoting our company.
 
 7
 
 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.
 
 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
      proprietary software, including an exclusive 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 Fund(1)
                                                                                  2%
      of total gross sales, which percentage may be increased by us to up to 5%
      of gross sales; subject to minimum monthly fees(2)
                                                                                  
                                                                                  Payable
      every 30 days
                                                                                  We
      and/or our contractors administer the Fund for the benefit of our
      system.
 (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);
   8
   Type
      of Fee or Expense
                                                            Amount
                                                            
                                                            Due
      Date
                                                            RemarksShowroom
      participation(1)
                                                            Up
      to $150 per month
                                                            
                                                            Monthly
      as billed
                                                            Note
      (3)Central
      telephone service(1)
                                                            Varies(4)
                                                            
                                                            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.(4)Basic
      training(5)
                                                            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 training(5)
                                                            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
                                                            
                                                            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.(7)
 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.
 (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.
   9
  Type
      of Fee or Expense
                                                                    Amount
                                                                    
                                                                    Due
      Date
                                                                    Remarksmeals
      and lodging selected, and the length of the meetings.Optional
      training(1)(5)
                                                                    Varies(8)
      - We estimate that the cost person for travel, lodging and meals to attend
      a one-day optional training program will be $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.
                                                                    
                                                                    2
      weeks prior to beginning of training
                                                                    We
      may, but are not required to, offer optional training programs that the
      franchisee may attend.Product
      sample updates
                                                                    Varies(9)
                                                                    
                                                                    As
      incurred
                                                                    Note(9)Technology
      fee(1)
                                                                    $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
      fee(1)
                                                                    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.Audit(1)
                                                                    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 fee(1)
                                                                    Varies
      – We charge 3% of the amount of the debit or credit.
                                                                    
                                                                    As
      incurred
                                                                    Note
      (11)
 (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) 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.
  10
  Type
      of Fee or Expense
                                                                                  Amount
                                                                                  
                                                                                  Due
      Date
                                                                                  RemarksInsufficient
      funds fee(1)
                                                                                  Varies
                                                                                  
                                                                                  As
      incurred
                                                                                  Note
      (12)Insurance(5)
                                                                                  Varies
      – Insurance in Denver costs about $50 per month.  The
      franchisee’s cost may be higher or lower, depending upon its location and
      the insurance carrier selected
                                                                                  
                                                                                  Varies
                                                                                  Franchisee
      must obtain our approval of insurance carrier.  We have
      appointed an approved carrier and established 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 all orders for products with us.  We in turn place them with our
vendors.  Finished products are shipped to our franchisees, but billed
to us, generally on terms of net 30 days.  Terms of payment with our
franchisees are net 15 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.  In addition,
franchisees commencing business do not have to identify and establish accounts
with product vendors.
 
 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.
 
 Our
management believes that it takes the average franchisee two years to establish
its franchise business.  At September 30, 2008, approximately 70% of
our franchisees had been in business for two years or longer, as compared to
September 30, 2007, at which approximately 65% of our franchisees had been in
business for two years or longer.  Our franchisee retention rates were
82% and 81% for the years ended September 30, 2008 and 2007,
respectively.
    (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.
 
 11
 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 all 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, 2008 and 2007, approximately 69% and 64%,
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 38% and 35%, respectively of the total for each
year.  The related accounts payable to the largest vendor was
approximately $291,131 as of September 30, 2008 and $311,704 as of September 30,
2007.  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.
 
 Research
and Development
 
 We
incurred research and development expenses of $317,891 and $426,069 for the
years ended September 30, 2008 and 2007, 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 companies are starting to offer custom window treatments.
 
 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.
   12
 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.
 
 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.
 
 In
January 2005, our subsidiary, V2K Window Fashions, filed a patent application
with the U.S. Patent and Trademark Office for its three-dimensional, Décor
Creator software technology, which application was subsequently assigned to
another subsidiary, V2K Technology.  The patent application is
pending, and has been assigned Serial # 11/030445.
 
 Our
subsidiary, V2K Technology, claims a copyright in the Décor Creator
software.
 
 Employees
 
 We had 16
full-time and 1 part-time employees as of September 30, 2008.  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 $986,279 for our most recently
completed fiscal year.  As of September 30, 2008, our accumulated
deficit was $3,291,434.  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.
  
 13
 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.  While we
believe that our cash flow will provide sufficient capital to maintain all
current operations and to implement our short-term plans, which would require
approximately $300,000, we will likely require external financing for our
long-term plans for growth and the development of our business
plan.  We have not yet developed a budget or a timeframe within which
to implement our long-term plans.  Sources of external financing may
include short-term loans, bank borrowings, joint ventures, and future debt and
equity offerings.  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 realize
our long-term plans to expand 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 170 is too small to produce enough royalty revenue and gross
profit margin from sales of materials and supplies to support our
operations.  Under our business plan, we plan to sell 12 franchises in
fiscal 2009 and 79 franchises in fiscal 2010.  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
software, product knowledge and design, business management and sales and
marketing, we provide them with a 90-day “quick start” marketing
program.  We also assign a franchise support person to each new
franchisee to follow-up on a franchisee’s progress.
 
 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
proprietary technology.  Our success depends on our ability to
protect our proprietary 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.  While
we have a pending patent application on the business process associated with our
software, we would still have to enforce our rights against those who might
attempt to infringe on our intellectual property.  Such enforcement
efforts are likely to be expensive and time-consuming.
   14
 
 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, and Mike
Lee, the lead programmer of our technology subsidiary.  However, there
is no contract in place assuring their services for any length of
time.  The loss of either of them 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 69% of materials and supplies for the year ended September 30,
2008.  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 the date of this report, our directors,
officers, and more than 10% shareholders own beneficially 70% 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.  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 4,553,750
shares of common stock at $0.50 through September 30, 2009, outstanding warrants
to purchase 1,000,000 shares of common stock at $0.30 through January 5, 2010,
outstanding warrants to purchase 731,453 shares of common stock at $0.15 through
September 30, 2010 and outstanding warrants to purchase 731,453 shares of common
stock at $0.25 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, 2008, we
had an aggregate of 31,467,336 shares of our common stock issued and
outstanding, with 10,445,561 registered shares, currently owned by existing
shareholders, freely tradable.  In addition, we registered the resale
of 1,000,000 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.
   15
 
 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, 2008, 28,225,660
options that had been granted to officers, directors and employees 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 13949 W. Colfax Avenue, Suite 250, Lakewood,
Colorado 80401.  We lease approximately 10,800 square feet under a
five and half year lease that commenced August 1, 2007.
 
 
 Item
3.             Legal
Proceedings
 
 There are
no legal proceedings pending and, to the best of our knowledge, there are no
legal proceedings contemplated or threatened that are deemed material to us or
our business.
 
 
 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
 
 Our
common stock is currently quoted on the OTC Bulletin Board (“OTCBB”)” under the
symbol “VTOK.”  The trading symbol often appears as “VTOK.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 fiscal
year ended September 30, 2008.  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
                  $0.50
                  $0.19March
      31, 2008
                  $0.42
                  $0.15June
      30, 2008
                  $0.32
                  $0.10September
      30, 2008
                  $0.23
                  $0.03
 
 On
December 19, 2008, the closing bid price for the common stock on the OTCBB was
$0.004 per share.
 
 Holders
and Dividends
 
 As of
December 16, 2008, there were 79 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
 
 During
the quarter ended September 30, 2008, we authorized the issuance
of 731,453 common stock purchase warrants exercisable at $0.15 each through
September 30, 2010, and 731,453 common stock purchase warrants exercisable at
$0.25 each through September 30, 2011.  No underwriters were used in
the above stock transactions.  The registrant relied upon the
exemption from registration contained in Section 4(2) as to the transactions, as
the investors were either deemed to be sophisticated with respect to the
investment in the securities due to their financial condition and involvement in
the registrant’s business or accredited investors.
  
 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.
  
 17
 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, Inc., and Marketing
Source International, LLC, we sell and support franchises in the residential and
commercial window fashion industry, develop and license proprietary software
that allows users to decorate windows for both residential and commercial
customers, manage strategic alliances with third party vendors and act as a
product development and sales agent for overseas window covering
manufacturers.
 
 Details
of the Company’s subsidiaries as of September 30, 2008 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
                                Management
      of soft window covering vendors
                                100%Marketing
      Source International,
                                  LLC
                                Colorado
      limited
                                  liability
      company
                                Product
      development
                                  and
      sales agent for
                                  overseas
      window
                                  covering
                                  manufacturers
                                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.  V2K Manufacturing continues to act as the primary supplier of
soft window treatments to V2K Window Fashions and its franchisees, but does so
by managing strategic alliances with several outside vendors.
 
 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.  This company will endeavor to generate revenues by
acting as a product development and sales agent for overseas window coverings
manufacturers.  Marketing Source International LLC has engaged in only
preliminary discussions as of the date of this filing.
 
 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
   18
 
 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, 2008, in order to fund the development of our
proprietary software and to develop our franchising operations, we have obtained
approximately $3,338,086 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 ($981,453).  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.
 
 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, all materials and goods sold by franchisees are processed, billed and
collected through the Company using approved vendors and suppliers.
 
 As of
September 30, 2008, we supported 170 independently owned franchises located in
39 states, three Canadian provinces and Aruba.  A summary of franchise
activity is as follows:
 
 September
      30, 2008
                    
                    
                    September
      30, 2007Franchises
      in operation - beginning of period
                    
                    
                    182
                    
                    
                    
                    182Franchises
      sold during the period
                    
                    
                    19
                    
                    
                    
                    34Franchises
      cancelled, terminated or repurchased during the period
                    
                    
                    (31
                    )
                    
                    
                    (34
                    )Franchises
      in operation - end of period
                    
                    
                    170
                    
                    
                    
                    182
 
 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 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, 2008 and 2007 we
reacquired franchise rights from two and three 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 SFAS No. 45, “Accounting for Franchise Fee Revenue,” no
fair value is assigned to these transactions. In the years ended September 30,
2008 and September 30, 2007, we repossessed 29 and 31 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
   19
 
 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.
 
 Franchisees
place all orders for materials and supplies with us.  We review each
proposed purchase order to determine whether the products can be made as
requested, make any necessary changes, and then place the corresponding orders
with our vendors.  Accordingly, we determine all product
specifications.  While the products are shipped directly to the
franchisees by the vendors, we receive title to the shipped items and have the
physical risk of loss upon shipment.  We are liable to the vendors for
payment and collect the amounts due for the goods from the
franchisees.  We negotiate all pricing with the vendors and have the
ability to establish rebate programs with vendors, mark-ups or any other method
of creating margin.  In addition, we are responsible to the
franchisees for goods shipped by the vendors that do not meet
specifications.  We have discretion in supplier
selection.  Thus, we act as a principal as defined in the Emerging
Issues Task Force, Issue 99-19, “Reporting Revenue Gross as a Principal versus
Net as an Agent.”  Revenue from materials and supplies sales is
recorded upon shipment to the franchisee by the vendor and represented
approximately 73% and 65% of total revenue for the years ended September 30,
2008 and 2007, respectively.
 
 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, 2008, no
impairment 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.
 
 Allowance for Bad
Debts.  The allowance for doubtful accounts incorporates
protection against write-offs for bad debt with respect to both notes receivable
and accounts receivable.  This allowance is calculated based on
historical write-offs as a percentage of these accounts and from current
analysis of our existing franchise base.  We believe that the current
allowance is adequate for these potential write-offs based on these
assumptions.  This account is reviewed monthly and adjusted as
needed.  At September 30, 2008 and 2007, allowance for doubtful
accounts receivable was $41,483 and $40,057, respectively.  The
allowance for uncollectible notes receivable was $20,234 and $27,574 as of
September 30, 2008 and September 30, 2007, respectively.
 
 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 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, 2008 and 2007, share-based
compensation was $83,057 and $237,000, 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 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, other than one
wholly-owned franchise which we owned and consolidated until its sale in July
2007 (see Item 6 – History and Overview). 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 73% and 65% of total revenues for the years ended
September 30, 2008 and September 30, 2007, 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, 2008 as Compared to Year Ended September 30,
2007.  Our sales of franchises revenues decreased by
$997,095(49%) primarily due to selling 19 franchises for the year ended
September 30, 2008, as compared to 34 for the year ended September 30,
2007.  Our margin on sales of franchises was 39% for 2008, as compared
to 44% for 2007.  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 decrease in margin on the sale of franchise units in
2008 was primarily the result of additional items we provided to new franchisees
during the 2008 fiscal year.  These items included a business coaching
program provided by a third party, an increased allotment of start-up marketing
materials,  reimbursement of the franchisees’ marketing budget up to a
certain amount and additional broker bonuses for multiple deals in a certain
period of time.  There were also incremental increases in the cost of
the other items we have always provided in conjunction with the purchase of a
franchise.  The additional items were provided on a test basis and may
not be continued through the current fiscal year.
 
 In 2008,
royalty fees and sales of materials and supplies decreased by $216,925 (26%) and
$870,865 (16%), respectively.  We believe that the decrease is 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.  The 31 franchises that we cancelled, repurchased or
who left the system voluntarily, were replaced by newer franchises that will
increase their revenue generation over time.
 
 While our
revenues decreased by $2,084,885 (25%), our operating expenses decreased by
$2,195,436 (23%), resulting in the operating loss of $954,466 in
2008.
 
 Selling,
general and administrative expenses decreased by $650,732 (25%), primarily due
to a reduction of $154,000 in stock compensation expense,  $253,000 in
personnel costs,  $73,000 in advertising, approximately $210,000
reduction in personnel and overhead due to sale of Manufacturing assets, $24,000
in travel and entertainment, $25,000 in training, $15,000 in meals and
entertainment. All of these reductions were partially offset by an increase of
$177,000 in marketing and promotional expenses at V2K
International.   Research and development costs were $317,891 in
2008, compared to $426,069 in 2007.  Bad debt expense decreased by
$25,231 (28%) in 2008.
   21
 Interest
expense increased by $36,011 (178%) in 2008, primarily due to $731,453 in bridge
loans and an additional $150,000 in draws on the line of credit. Interest
accrued or paid on the bridge loans was $30,399 for 2008, compared to $8,167 for
2007.
 
 As a
result of the above, our net loss for the year ended September 30, 2008 was
$986,279, as compared to a net loss of $1,014,351 for the year ended September
30, 2007, a decrease in the net loss of $28,072.
 
 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.
 
 Some of
the key components to our operating cash flows are the changes in accounts
receivable and accounts payable.  As we are essentially a product
distributor, our level of activity is reflected in our accounts receivable and
accounts payable.  We receive invoices from vendors for product and
simultaneously bill our franchisees.  The Days Sales Outstanding
(“DSO”) as of September 30, 2008 and September 30, 2007 was 36 days and 29 days,
respectively.  We believe that the increase is primarily due to the
economic slowdown, and delayed payments on a few large projects requiring
remakes that have since been resolved and collected.
 
 At September 30,
2008.  At September 30, 2008, we had a working capital deficit
of $1,151,926 as compared to a deficiency of $366,059 at September 30,
2007.  While our current assets decreased by $210,695, our current
liabilities increased by $575,172.  The most significant decreases in
current assets were with respect to notes receivable, which decreased by
$79,696, and cash, both non-restricted and restricted, which decreased by a
total of $234,528.  The decrease in cash was due to our operating
loss.
 
 The most
significant increases in current liabilities were as a result of an increase in
bridge loan of $731,453, and an increase of $150,000 on the line of
credit.  These increases were partially offset by a reduction in
accounts payable and accrued expenses of $178,453, $75,206 in note
payable-other, and $81,247 in unearned income.
 
 Unearned
income, which represents franchise fees received for which we are performing our
initial obligations under the franchise agreement, decreased by $81,247 from
September 30, 2007.  Our primary obligation under the franchise
agreement is providing training for two persons for each
franchise.  We reimburse the franchisee for travel (up to $400) 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
proprietary 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.
 
 Note
payable – other decreased by $75,206 from September 30, 2007.  This
note consists of the currently deferred portion of our rent obligation under an
office lease entered into effective September 15, 2002.  Under the
terms of the lease, the landlord deferred a portion of the monthly rent
aggregating $140,000 over the period from September 15, 2002 to August 15,
2007.  The deferred portion is evidenced by a non-interest bearing
promissory note, which is payable in cash or shares of our common stock at the
option of the landlord.  We accrete the deferred portion of the
monthly rent utilizing an imputed interest rate of 5.75%.  The balance
at September 30, 2008 of $34,005 represents the remaining deferral and related
imputed interest.
 
 For the
year ended September 30, 2008, we used cash of $996,205 for operating
activities, as compared to $571,722 for the year ended September 30,
2007.  Financing activities provided cash of $771,816 in 2008,
primarily through proceeds from bridge loans and proceeds from a line of credit
in the amounts of $731,453 and $150,000, respectively.  In comparison,
financing activities in 2007 provided cash of $435,783, $371,608 from the sale
of common stock and $100,000 from line of credit.
   22
 Contractual
Obligations
 
 As of
September 30, 2008, 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 yearsDeferred
      rent
                                              $163,346
                                              $
      28,786
                                              $  73,860
                                              $  60,700
                                              --Capital
      lease obligations
                                              3,796
                                              3,796
                                              --
                                              --
                                              --Office
      lease obligations
                                              783,515
                                              162,837
                                              369,157
                                              251,521
                                              --Equipment
      lease obligations
                                              27,526
                                              7,260
                                              14,520
                                              5,746
                                              --Total
                                              $978,183
                                              $202,679
                                              $457,537
                                              $317,967
                                              --
 
 Plan
of Operations
 
 We have recently completed a
company-wide cost reduction program that we estimate will result in a monthly
reduction of an additional $43,000 in expenses, operating losses and increased
revenues once the full effect of these measures is felt in January of
2009.
 
 In
October 2007, we sold the inventory and fixed assets of V2K Manufacturing to a
third party.  This has resulted in a reduction of approximately
$15,000 in consolidated monthly net operating losses and approximately $13,000
per month in negative cash flow, and we anticipate this reduction for all of
fiscal 2009. V2K Manufacturing continues to act as the primary supplier of soft
window treatments to Windows and its franchisees, but does so by managing
strategic alliances with outside vendors.  We remain committed to the
concept of becoming a vertically integrated company by reacquiring soft product
manufacturing capabilities, and acquiring or merging with a manufacturer of hard
products.
 
 We have
also decreased the monthly operating expenses at V2K Technology by approximately
$3,000 per month, through salary reductions and a reduction in
personnel.  In addition, since the version of the software for custom
window treatments that is licensed to V2K Window Fashions is now complete, the
costs associated with maintaining that system should incrementally
decrease.  We will continue to pursue licensing opportunities with
synergistic manufacturers, distributors and retailers in the commercial and home
décor markets, and will propose that any license agreements we enter into will
include an upfront fee for software customization.  We anticipate that
development of new platforms for our technology, primarily an e-commerce/web
based version of the software and a kiosk application, will not commence until
fiscal 2009.
 
 At V2K
Window Fashions we have further reduced our monthly operating expenses by
approximately $40,000, primarily via reductions in personnel, overhead and
scaling back some of the items we provide in conjunction with the purchase of
V2K franchise.  We do not believe that this will impair our ability to
sell franchises.  Beginning in fiscal 2007, we also commenced a
process of eliminating under-performing franchisees from our system, which will
in turn lead to a reduction in our costs to maintain that
system.  This process will continue in fiscal 2009.
 
 We
believe that our quickest path to profitability is retail sales, and thus our
primary focus in fiscal 2009 will be on improving our lead generation for
franchisees via kiosks in high traffic locations, and additional internet lead
generating sources such as search engine optimization (SEO) and pay per click.
In utilizing these additional techniques and reducing our overhead we believe
that the consolidated entity will break even on a monthly basis beginning in
January 2009.
 
 Based on
the cost reductions outlined above, and assuming we meet our projected results
for both retail and franchise sales and maintain our current DSO on accounts
receivable of 36 or fewer days, we anticipate that the company will have
positive cash flow starting in January 2009.
 
 23
 Recently
Issued Accounting Pronouncements
 
 EITF No. 03-6-1 – In
June 2008, the FASB issued Staff Position No. EITF 03-6-1 (“EITF No.
03-6-1”), Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating
Securities. EITF No. 03-6-1 addresses whether instruments granted in
share-based payment transactions are participating securities prior to vesting,
and therefore, need to be included in the earnings allocation in calculating
earnings per share under the two-class method described in Statement of
Financial Accounting Standards No. 128, Earnings per
Share.  EITF No. 03-6-1 requires companies to treat unvested
share-based payment awards that have non-forfeitable rights to dividend or
dividend equivalents as a separate class of securities in calculating earnings
per share. EITF No. 03-6-1 is effective for fiscal years beginning after
December 15, 2008.  We are currently assessing the potential
effect of EITF No. 03-6-1 on our financial statements
 
 SFAS No. 162 – In
May 2008, the FASB issued Statement of Financial Accounting Standards
No. 162 (“SFAS No. 162”), The Hierarchy of Generally Accepted
Accounting Principles.  SFAS No. 162 identifies the sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles in the
United States.  SFAS No. 162 will become effective 60 days
following Securities and Exchange Commission (“SEC”) approval of the Public
Company Accounting Oversight Board (“PCAOB”) amendments to AU
Section 411, The Meaning
of Present Fairly in Conformity With Generally Accepted Accounting
Principles. We do not anticipate the adoption of SFAS No. 162 to have a
material impact on our financial statements.
  FSP No. 142-3 – In
April 2008, the FASB issued Staff Position No. 142-3 (“FSP No.
142-3”), Determination of the
Useful Life of Intangible Assets.  FSP No. 142-3 amends the
factors that should be considered in developing renewal or extension assumptions
used to determine the useful life of a recognized intangible asset under
Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible
Assets. The FSP is effective for financial statements issued for fiscal
years beginning after December 15, 2008, and interim periods within those fiscal
years.  Early adoption is prohibited.  We are currently
assessing the potential effect of FSP No. 142-3 on our financial
statements.
 
 SFAS No. 161 – In
March 2008, the FASB issued Statement of Financial Accounting Standards
No. 161 (“SFAS No. 161”), Disclosures about Derivative
Instruments and Hedging Activities.SFAS No. 161 amends and
expands the disclosure requirements of SFAS No. 133, Accounting for Derivative
Instruments and Hedging. SFAS No. 161 is effective for fiscal yearsbeginning after
November 15, 2008.  We believe that the adoption of this standard
will not a have a material impact on our financial statements.
 
 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.
 
 
 
 24
 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 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, 2008, being the date of our most recently
completed fiscal year end.  This evaluation was implemented under the
supervision and with the participation of our President and Chief Executive
Officer, Victor J. Yosha, and the Chief Financial Officer, Jerry A.
Kukuchka.  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.
  25
  Our
President and Chief Executive Officer, Victor J. Yosha, and our Chief Financial
Officer, Jerry A. Kukuchka, have 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, 2008, and
therefore, are able to assert that, as of September 30, 2008, our internal
control over financial reporting is 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.
 
 
 26
 
 PART
III
 
 Item
      10.
              Directors,
      Executive Officers and Corporate
Governance
 
 Our
officers, directors and key employees are as follows:
  Name
                  Age
                  PositionVictor
      J. Yosha
                  62
                  President,
      Chief Executive Officer, and DirectorGordon
      E. Beckstead
                  71
                  Chairman
      of the Board of Directors and TreasurerSamuel
      Smith
                  42
                  Vice
      PresidentJerry
      A. Kukuchka
                  41
                  Chief
      Financial OfficerR.
      J. Wittenbrink
                  72
                  Secretary,
      General Counsel and DirectorTom
      Grimm
                  62
                  DirectorCarlyle
      Griffin
                  63
                  DirectorDouglas
      A. Miller
                  58
                  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
February 20, 2008 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.  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.
 
 Jerry A. Kukuchka, CPA,
became our chief financial officer in March 2006.  From August 2004 to
January 2006, he was the director of accounting for LMC Resources, Inc., Denver,
Colorado, a human resources outsourcing company with approximately 4,000
employees in 35 states.  Mr. Kukuchka provided consulting services in
the areas of accounting and internal control documentation as an independent
contractor from March 2004 to August 2004.  From June 1998 to February
2004, he was the VP Finance for PW Eagle (formerly Extrusion Technologies,
Inc.),
   27
 
 Denver,
Colorado, where he was responsible for all financial reporting functions,
budgeting, forecasting, and tax compliance requirements for a PVC pipe
manufacturer with 3 plants and 300 employees.  He was the regional
controller for Pinon Management, Inc., Lakewood, Colorado, from February 1997 to
March 1998.  This company operated four nursing homes in the Denver
area and had over 300 employees.  Mr. Kukuchka worked for a Denver
area public accounting firm from October 1992 to June 1996.  He is a
member of the Colorado Society of Certified Public Accountants and graduated
from Metropolitan State College in 1989 with a bachelor’s degree in
accounting.
 
 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.
 
 Tom Grimm has been a director
since March 2006, and the owner of a V2K Window Fashions franchise since May
2004.  Mr. Grimm currently sits on the Board of Directors of Naartjie
children’s clothing store, and from March 2003 to March 2006 was the Chairman of
the Board of Governors for Operation Smile.  From October 1998 to
September 2002 he was Executive Vice President of Wal-Mart Stores, Inc. and
President and CEO of Sam’s Club.  Prior to that Mr. Grimm served as
President and CEO of the Pace Warehouse Club Division of Kmart Stores, Inc. in
Denver, Colorado, and was the founder, President and CEO of Price Savers
Wholesale Warehouse, Inc. in Salt Lake City, Utah.  Mr. Grimm is a
graduate of Weber State University in Ogden, Utah.
 
 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
 
 Two of
our two non-officer directors, Tom Grimm and Carlyle Griffin, are associated
with other firms involved in a range of business
activities.  Consequently, there are potential inherent conflicts of
interest in their acting as directors of our company.  While these
directors are 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.  Messrs. Grimm and Carlyle devote less than 10% of their
working in their roles as directors.  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,
   28
 
 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.
 
  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
 
 Compensation
Discussion and Analysis
 
 Our board of directors is responsible
for developing the executive compensation principles, policies and programs for
our executive officers and is also responsible for determining the compensation
to be paid to our executive officers.
 
 The
objectives of our compensation programs are to provide fair market value cash
compensation and an incentive scheme related to the growth of the company to our
key employees, including, but not limited to, our executive
officers.  Our compensation program has two
components:  salary and stock options.
 
 We design
our salary component to pay our key employees a base salary as close to the
market rate as possible so that we can be competitive in the labor
market.  With some company functions, we provide a performance bonus,
such as sales commissions, as added motivation for our key people.  We
determine both salaries and performance bonuses based on market
value.
 
 We have
granted stock options to align the interests of our key employees to the growth
of our company.  Stock option grants are determined on an individual
basis with our directors making the decision in each case, based on what they
believe the particular employee will bring to the company.
 
 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, 2008, 2007 and
2006.  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.
 
 
 
 29
 
 Summary
Compensation Table
 Name
      and Principal Position
                              Year
                              Salary
      ($)
                              Bonus
      ($)
                              Stock
      Awards ($)
                              Option
      Awards
                                ($)
                              Non-Equity
      Incentive Plan Compensation ($)
                              Nonquali-fied
      Deferred Compensation Earnings ($)
                              All
      Other Compensation ($)
                              Total
      ($)Victor
      J. Yosha, President and CEO
                              2008
                                2007
                                2006
                              2,500
                                50,000
                                60,000
                              -0-
                                -0-
                                -0-
                              -0-
                                -0-
                                -0-
                              13,777
      (1)
                                58,997
      (1)
                                37,454
      (1)
                              -0-
                                -0-
                                -0-
                              -0-
                                -0-
                                -0-
                              -0-
                                -0-
                                -0-
                              16,277
                                108,887
                                97,454Jerry
      A. Kukuchka, Chief Financial Officer (2)
                              2008
                                2007
                                2006
                              95,897
                                97,507
                                50,104
                              -0-
                                200
                                -0-
                              -0-
                                -0-
                                -0-
                              4,363
      (1)
                                6,876
      (1)
                                1,894
      (1)
                              -0-
                                -0-
                                -0-
                              -0-
                                -0-
                                -0-
                              -0-
                                -0-
                                -0-
                              100,260
                                104,576
                                51,998
 
 (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 became our Chief Financial Officer in March
  2006.
 
 Mr. Yosha
was originally granted options to purchase 6,500,000 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 2,500,000 shares had vested,
options to purchase 2,000,000 shares vested in July 2006, and options to
purchase 2,000,000 shares vested in July 2007.
 
 We
granted Mr. Yosha options to purchase 50,000 shares at $0.20 per share in May
2006for his service as a director.  These options vested in May 2007
and are exercisable until May 2011.  In June 2006, we granted Mr.
Yosha options to purchase 1,000,000 shares at $0.20 per
share.  One-third of these options vested on June 30, 2007, one-third
vested June 30, 2008 and the remaining one-third vest June 30,
2009.  These options are exercisable until June 30,
2011.  On August 9, 2007, we designated options to purchase 83,333
shares at $0.05 per share, that had previously been granted and reserved for
anticipated growth, to Mr. Yosha.  35,715 of these options had already
vested, 11,905 vested on July 9, 2008 and the remaining 35,713 vest one-fourth
each annually beginning July 9, 2009.  These options exercisable until
July 9, 2014.
 
 In June
2006, we granted Mr. Kukuchka options to purchase 250,000 shares at $0.20 per
share.  50,000 of these options vested on June 30, 2007 and are
exercisable until June 30 2012; 50,000 vested on June 30, 2008 and are
exercisable until June 30, 2013; and the remaining 150,000 vest one-third each
annually beginning June 30, 2009, and expire one-third each annually beginning
June 30, 2014..
 
 There were no grants of plan-based
awards to either of the Named Officers during the fiscal year ended September
30, 2008.
 
 
 30
 
 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
                                  6,500,000
                                    50,000
                                    666,666
                                    47,620
                                  -0-
                                    -0-
                                    333,334
      (1)
                                    35,713
      (2)
                                  -0-
                                    -0-
                                    -0-
                                    -0-
                                  0.05
                                    0.20
                                    0.20
                                    0.05
                                  07/09/2014
                                    05/02/2011
                                    06/30/2011
                                    07/09/2014
                                  N/A
                                  N/A
                                  N/A
                                  N/A-Jerry
      A. Kukuchka
                                  50,000
                                    50,000
                                    -0-
                                    -0-
                                    -0-
                                  -0-
                                    -0-
                                    50,000
      (1)
                                    50,000
      (3)
                                    50,000
      (4)
                                  -0-
                                    -0-
                                    -0-
                                    -0-
                                    -0-
                                  0.20
                                    0.20
                                    0.20
                                    0.20
                                    0.20
                                  06/30/2012
                                    06/30/2013
                                    06/30/2014
                                    06/30/2015
                                    06/30/2016
                                  N/A
                                  N/A
                                  N/A
                                  N/A
 
 (1)
              These
      options vest on June 30, 2009.
 (2)
              One
      third of these options vest annually beginning July 9,
    2009.
 (3)
              These
      options vest on June 30, 2010.
 (4)
              These
      options vest on June 30, 2011.
  During
the fiscal year ended September 30, 2008, 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.
 
 Compensation
for our directors for our last completed fiscal year is set forth below, with
the exception of Victor J. Yosha, whose compensation has been disclosed
above.
 
 Director
Compensation
 Name
                                      Fees
      Earned or Paid in Cash ($)
                                      Stock
      Awards ($)
                                      Option
      Awards ($)
                                      Non-Equity
      Incentive Plan Compensation ($)
                                      Change
      in Pension Value and Non-Qualified Deferred Compensation Earnings
      ($)
                                      All
      Other Compensation ($)
                                      Total
      ($)Gordon
      E. Beckstead
                                      -0-
                                      -0-
                                      13,778
      (1)
                                      -0-
                                      -0-
                                      -0-
                                      13,778Carlyle
      Griffin
                                      -0-
                                      -0-
                                      -0-
      (2)
                                      -0-
                                      -0-
                                      -0-
                                      -0-Tom
      Grimm
                                      -0-
                                      -0-
                                      -0-
      (3)
                                      -0-
                                      -0-
                                      -0-
                                      -0-R.J.
      Wittenbrink
                                      -0-
                                      -0-
                                      -0-
      (4)
                                      -0-
                                      -0-
                                      -0-
                                      -0-Douglas
      A. Miller
                                      -0-
                                      -0-
                                      4,513
      (5)
                                      -0-
                                      -0-
                                      -0-
                                      4,513
 
 (1)
              Mr.
      Beckstead was originally granted options to purchase 7,000,000 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.
   31
   At
      the time of the replacement, options to purchase 2,666,670 shares had
      vested, options to purchase 2,166,670 shares vested in July 2006, and
      options to purchase 2,166,660 shares vested in July 2007.  These
      options are exercisable at $0.05 per share until July 9,
      2014.  We granted Mr. Beckstead options to purchase 50,000
      shares at $0.20 per share in May 2006 for his service as a
      director.  These options vested on May 2, 2007 and are
      exercisable until May 2, 2011.  On June 30, 2006, we granted Mr.
      Beckstead options to purchase 1,000,000 shares at $0.20 per
      share.  One-third of these options vested on June 30, 2007,
      one-third vested on June 30, 2008 and the remaining one-third vest June
      30, 2009.  These options are exercisable until June 30,
      2011.  On August 9, 2007, we designated options to purchase
      83,333 shares at $0.05 per share, that had previously been granted and
      reserved for anticipated growth, to Mr. Beckstead.  35,715 of
      these options had already vested, 11,905 vested on July 9, 2008, and the
      remaining 35,713 vest one-third each annually beginning July 9,
      2009.  These options are exercisable until July 9,
    2014.(2)
                Mr.
      Griffin was originally granted options to purchase 1,250,000 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 416,670 shares had vested, options to purchase 416,670 shares
      vested in July 2006, and options to purchase 416,660 shares vested in July
      2007.  These options are exercisable at $0.05 per share until
      July 9, 2014.  On June 30, 2006, we granted Mr. Griffin options
      to purchase 50,000 shares at $0.20 per share.  10,000 of these
      options vested on June 30, 2007 and are exercisable until June 30 2012;
      10,000 vested on June 30, 2008 and are exercisable until June 30, 2013;
      and the remaining 30,000 vest one-third each annually beginning June 30,
      2009, and expire one-third each annually beginning June 30,
      2014.  We granted Mr. Griffin options to purchase 50,000 shares
      at $0.20 per share in October 2006 for his service as a
      director.  These options vested on October 17, 2007 and are
      exercisable until October 17,
2011.
  (3)
              We
      granted Mr. Grimm options to purchase 50,000 shares at $0.20 per share on
      May 2, 2006 for his service as a director.  These options vested
      on May 2, 2007 and are exercisable until May 2,
  2011.
  (4)
              Mr.
      Wittenbrink was originally granted options to purchase 1,500,000 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 500,000 shares had vested, options to purchase 500,000 shares
      vested in July 2006, and options to purchase 500,000 shares vested in July
      2007.  These options are exercisable at $0.05 per share until
      July 9, 2014.  We granted Mr. Wittenbrink options to purchase
      50,000 shares at $0.20 per share in May 2006 for his service as a
      director.  These options vested on May 2, 2007 and are
      exercisable until May 2, 2011.  On August 9, 2007, we designated
      options to purchase 83,333 shares at $0.05 per share, that had previously
      been granted and reserved for anticipated growth, to Mr.
      Wittenbrink.  35,715 of these options had already vested, 11,905
      vested on July 9, 2008, and the remaining 35,713 vest one-third each
      annually beginning July 9, 2009.  These options exercisable
      until July 9, 2014.
 
 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 30,000,000 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.
  
 32
 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.
 
 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, 2008, 28,225,660 options were outstanding under the
Plan.
 
 
 
 33
  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, 2008.
 
 Name
      and Address of Beneficial Owner
                                                Amount
      and Nature of Beneficial Ownership
                                                Percent
      of Class (1)Gordon
      E. Beckstead
                                                  13949
      W. Colfax Avenue, Suite 250
                                                  Lakewood,
      Colorado 80401
                                                13,242,732
      (2)
                                                32.9%Victor
      J. Yosha
                                                  13949
      W. Colfax Avenue, Suite 250
                                                  Lakewood,
      Colorado 80401
                                                13,052,128
      (3)
                                                32.9%R.J.
      Wittenbrink
                                                  13949
      W. Colfax Avenue, Suite 250
                                                  Lakewood,
      Colorado 80401
                                                4,217,378
      (4)
                                                12.6%Robert
      & Lynda Leo
                                                  3445
      W. 45th
      Avenue
                                                  Denver,
      CO 80211
                                                3,383,013
      (5)
                                                10.1%Carlyle
      Griffin
                                                  16163
      Canyon Wren Way
                                                  Morrison,
      Colorado 80465
                                                2,154,720
      (6)
                                                6.6%Lea
      Blohm
                                                  P.O.
      Box 3740
                                                  Parker,
      Colorado 80134
                                                2,060,535
      (7)
                                                6.5%Ed
      Williams
                                                  1506
      Thornebrooke Circle
                                                  Dalton,
      GA 30720
                                                2,050,000
      (8)
                                                6.5%Michael
      J Lee
                                                  2805
      Norris Avenue
                                                  Winter
      Park, FL 32789
                                                1,789,790
      (9)
                                                5.4%Samuel
      Smith
                                                  13949
      W. Colfax Avenue, Suite 250
                                                  Lakewood,
      Colorado 80401
                                                1,320,292
      (10)
                                                4.0%Tom
      Grimm
                                                  1895
      Stone Hollow Drive
                                                  Bountiful,
      Utah 84010
                                                550,000
      (11)
                                                1.7%Douglas
      A. Miller
                                                  6435
      Umber Circle
                                                  Arvada,
      CO 80007
                                                524,370
      (12)
                                                1.7%Jerry
      A. Kukuchka
                                                  13949
      W. Colfax Avenue, Suite 250
                                                  Lakewood,
      Colorado 80401
                                                200,000
      (13)
                                                0.6%All
      officers and directors as a group  (8 persons)
                                                35,261,620
      (14)
                                                66.1%
 
 (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,
      2008, 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 31,467,336 shares
      outstanding.
 (2)
              Includes
      7,764,286 shares issuable upon the exercise of vested stock options and
      970,826 shares issuable upon the exercise of warrants.  Does not
      include shares issuable upon the conversion of a promissory
      note.
 (3)
              Includes
      7,264,286 shares issuable upon exercise of vested stock options and
      887,362 shares issuable upon exercise of warrants.  Does not
      include shares issuable upon the conversion of a promissory
      note.
   34
  (4)
              Includes
      1,597,620 shares issuable upon exercise of vested stock options and
      354,718 shares issuable upon exercise of
  warrants.
 (5)
                Includes
      2,033,333 shares issuable upon the exercise of vested stock
      options.(6)
                Includes
      1,320,000 shares issuable upon exercise of vested stock
      options.(7)
                Includes
      250,000 shares issuable upon exercise of
  warrants.
 (8)
              Includes
      50,000 shares issuable upon exercise vested stock
  options.
 (9)
              Includes
      1,769,790 shares issuable upon exercise of vested stock
      options.
 (10)
              Includes
      1,250,292 shares issuable upon exercise of vested stock options and 25,000
      shares issuable upon exercise of
warrants.
 (11)
              Includes
      50,000 shares issuable upon exercise of vested stock options and 250,000
      shares upon the exercise of
warrants.
 (12)
              Includes
      25,000 shares issuable upon the exercise of
  warrants.
 (13)
              Includes
      100,000 shares issuable upon exercise of vested stock options and 50,000
      shares upon the exercise of
warrants.
 (14)
              Includes
      19,346,484 shares issuable upon exercise of vested stock options and
      2,562,906 shares 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, 2008:
 
 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
                              11,225,660
                              $0.10
                              18,774,340Equity
      compensation plans not approved by security holders
                              17,000,000
                              $0.05
                              -0-Total
                              28,225,660
                              $0.07
                              18,774,340
 
 
 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.
 
 Promoters and
Organizers.Gordon Beckstead and Victor J. Yosha may be deemed to be the
organizers of V2K International, Inc. due to their role in organizing the
business of the company and control persons due to their ownership of a
significant percentage of voting securities.  Messrs. Beckstead and
Yosha, together with all of the other shareholders of V2K Window Fashions, Inc.,
received 35 shares of V2K International common stock for every share of V2K
Window Fashions preferred stock and 10 shares of V2K International common stock
for every share of V2K Window Fashions common stock owned by them in April 2006
when V2K International acquired V2K Window Fashions.  In addition,
they, together with all of the other holders of stock options in V2K Window
Fashions, received replacement stock options from V2K International in this
acquisition transaction.  Other transactions between us and Messrs.
Beckstead and/or Yosha are described below.
 
 35
 Convertible
Debentures.In February 2005, Gordon Beckstead, an officer,
director and principal shareholder, and one of our shareholders each loaned us
$50,000 pursuant to the terms of a three-year convertible promissory
note.  Interest accrues at the rate of one percent plus the prime rate
as announced in the Wall
Street Journal and is paid quarterly.  We paid Mr. Beckstead
interest of $1,156 and $4,438 for the years ended September 30, 2007 and 2006,
respectively.  The holders had the right to convert the notes at any
time into shares of common stock at a price of $0.20 per share.  We
agreed to register the shares issuable upon conversion.  On January
31, 2007, Mr. Beckstead and the other lender each converted their debentures
into 250,000 shares of common stock.
 
 Bridge
Loans.In January 2006, Gordon Beckstead, Victor J. Yosha, and
R.J. Wittenbrink each loaned us $25,000 as part of a bridge loan we obtained in
the aggregate amount of $200,000.  Messrs. Beckstead, Yosha and
Wittenbrink are officer, directors, and principal shareholders of the
company.  Their loans were made on the same terms as those received
from non-affiliated third party lenders.  The associated loan
agreement and promissory note called for quarterly interest payments in arrears
at the rate of four percent plus the prime rate as published in the Money Rate
Table of the Western Edition of the Wall Street Journal.  Repayment of
the promissory note was to commence upon the earlier of (a) the completion of
our private placement or (b) July 5, 2006.  At the option of the
lenders, at any time prior to consummation of the private placement, the lenders
could convert all or any of the principal amounts into the securities on the
same terms as those offered in the private placement.  Upon the
minimum portion of the private placement having been sold, the lenders were
required to convert at least 50% of the note principal.  In August
2006, all of the lenders entered into an amendment to the loan agreement and
promissory note, whereby they agreed to convert the entire amount of the note
immediately prior to the closing of the private placement, so long as the
minimum offering was sold.  We further agreed that if we had failed to
close the private placement by January 5, 2007, we would repay half of the
principal amount of the notes by January 31, 2007 and the remainder by applying
$3,000 from the sale of each franchise until the notes were paid in
full.  Messrs. Beckstead, Yosha and Wittenbrink agreed to defer
repayment of their loans until the non-affiliated lenders had been
paid.  In January 2007, all of the lenders extended the deadline for
closing the private placement to January 31, 2007.
 
 Effective
January 31, 2007, all of the lenders, including Messrs. Beckstead, Yosha, and
Wittenbrink, converted their loans into securities on the same terms as those
offered in our private placement.  Each of Messrs. Beckstead, Yosha
and Wittenbrink received 125,000 shares of common stock and warrants to purchase
125,000 shares of common stock.  The warrants are exercisable at $0.50
per share until September 30, 2009.  We granted registration rights
with respect to all of the shares purchased in the private
placement.  Accordingly, the 125,000 shares issued to each of Messrs.
Beckstead, Yosha and Wittenbrink were registered for resale.
 
 For the
years ended September 30, 2008 and 2007, we paid interest of $0 and $1,021,
respectively to each of Messrs. Beckstead, Yosha and Wittenbrink,
respectively.
 
 We issued
warrants to purchase an aggregate of 1,000,000 shares of common stock to all of
the lenders when the loans were made.  The warrants are exercisable at
$0.30 per share and expire January 5, 2010.  We granted piggyback
registration rights (on a “best efforts” basis) with respect to the shares
issuable upon exercise of these warrants.
 
 The table
below summarizes the shares and warrants that were issued:
 
 Lender
                                    Amount
      of Loan
                                    Warrants
      @ $0.30 Issued When Loans were Made
                                    Shares
      Issued Upon Conversion of Loan
                                    Warrants
      @ $0.50 Issued Upon Conversion of LoanGordon
      E. Beckstead
                                    $25,000
                                    125,000
                                    125,000
                                    125,000Victor
      J. Yosha
                                    $25,000
                                    125,000
                                    125,000
                                    125,000Robert
      J. Wittenbrink
                                    $25,000
                                    125,000
                                    125,000
                                    125,000George
      A. Johnson
                                    $50,000
                                    250,000
                                    250,000
                                    250,000John
      D. Kucera
                                    $25,000
                                    125,000
                                    125,000
                                    125,000Robert
      M. Nieder
                                    $50,000
                                    250,000
                                    250,000
                                    250,000
 
 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.
 
 36
 The new
notes are secured by the assets of V2K Technology and mature nine months from
date of issuance, 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 $0.15.
 
 For each
dollar that has been loaned, we issued two redeemable common stock purchase
warrants, one of which is exercisable at $0.15 per share for two years and one
of which is exercisable at $0.25 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 $0.15 warrants
                        Number
      of $0.25 warrantsGordon
      E. Beckstead
                        $360,413
                        360,413
                        360,413R.J.
      Wittenbrink
                        $52,359
                        52,359
                        52,359Victor
      J. Yosha
                        $318,681
                        318,681
                        318,681
 
 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, Tom Grimm 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 FEES2007
                $94,675
                -0-
                $8,795
                -0-2008
                $81,797
                -0-
                $12,725
                -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.
 
 
 
 37
 
 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 Officer14.2
                                                              Code
      of Ethics for Chief Financial Officer14.3
                                                              Code
      of Ethics for Principal Accounting Officer14.4
                                                              Code
      of Ethics for Director of Operations16.1
                                                              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.
 
 38
 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:  December
      24, 2008
              /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
              December
      24, 2008Victor
      J. Yosha
              (Principal
      Executive Officer)/s/ Jerry A. Kukuchka
              Chief
      Financial Officer
              December
      24, 2008Jerry
      A. Kukuchka
              (Principal
      Financial Officer)/s/ Gordon E. Beckstead
              Director
              December
      29, 2008Gordon
      E. BecksteadDirectorCarlyle
      Griffin/s/ R. J. Wittenbrink
              Director
              December
      24, 2008R.J.
      WittenbrinkDirectorTom
      GrimmDirectorDouglas
      A. Miller
 
 
 39
  
 
 
 
 
 REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
 To the
Board of Director and Shareholders
 V2K
International, Inc.
 Lakewood,
Colorado
 
 
 We have
audited the accompanying balance sheet of V2K International, Inc. as of
September 30, 2008, and the related statements of operations, changes in
stockholders’ deficit and cash flows for the year ended September 30,
2008.  These financial statements are the responsibility of the
Company’s management.  Our responsibility is to express an opinion on
these financial statements based on our audit.
 
 We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting.  Our audit 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 audit provides a reasonable basis for our opinion.
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of V2K International, Inc. as of
September 30, 2008, and the results of its operations and its cash flows for the
year ended September 30, 2008 in conformity with accounting principles generally
accepted in the United States of America.
 
 The
accompanying financial statements have been prepared assuming that the company
will continue as a going concern.  As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses, has a working
capital deficit at September 30, 2008, and has an accumulated deficit of
$3,291,434 as of September 30, 2008.  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
10, 2008
 
 
 
 
 
  F-1
  
 
 
 
 
 Report
of Independent Registered Public Accounting Firm
 
 
 
 To the
Board of Directors and Stockholders
 V2K
International, Inc.
 Lakewood,
Colorado
 
 We have
audited the consolidated balance sheet of V2K International, Inc. and
subsidiaries (the “Company”) as of September 30, 2007 and the related
consolidated statements of operations, stockholders’ equity (deficit), and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
 
 We
conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit 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 also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
 
 In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of V2K
International, Inc. and subsidiaries as of September 30, 2007, and the
consolidated results of their operations and cash flows for the year then ended
in conformity with accounting principles generally accepted in the United States
of America.
 
   Gordon, Hughes & Banks,
LLP
 
 Greenwood
Village, Colorado
 December
11, 2007
  F-2
 V2K
INTERNATIONAL, INC.
 CONSOLIDATED
BALANCE SHEETS
 SEPTEMBER
30, 2008 AND SEPTEMBER 30, 2007
  ASSETSCURRENT
      ASSETS
                            
                            2008
                            
                            
                            2007Cash
      and cash equivalents
                            
                            $
                            23,059
                            
                            
                            $
                            270,389Cash
      - restricted
                            
                            
                            55,091
                            
                            
                            
                            42,289Accounts
      receivable, net of allowance fordoubtful
      accounts of $41,483 (2008) and $40,057 (2007)
                            
                            
                            582,068
                            
                            
                            
                            581,808Current
      portion of notes receivable
                            
                            
                            38,303
                            
                            
                            
                            117,999Inventory
                            
                            
                            -
                            
                            
                            
                            8,343Prepaid
      expenses and other
                            
                            
                            202,763
                            
                            
                            
                            91,151Total
      Current Assets
                            
                            
                            901,284
                            
                            
                            
                            1,111,979PROPERTY AND EQUIPMENT,at cost, net of accumulateddepreciation
      of $238,133 (2008) and $264,433 (2007)
                            
                            
                            107,485
                            
                            
                            
                            150,052REACQUIRED
      FRANCHISE RIGHTS
                            
                            
                            73,409
                            
                            
                            
                            43,459NOTES RECEIVABLE -net
      of current portion
                            
                            
                            10,763
                            
                            
                            
                            30,323Total
      Assets
                            
                            $
                            1,092,941
                            
                            
                            $
                            1,335,813LIABILITIES  AND
      STOCKHOLDERS’ EQUITY (DEFICIT)CURRENT
      LIABILITIESAccounts
      payable and accrued expenses
                            
                            $
                            943,903
                            
                            
                            $
                            1,122,356Current
      portion of note payable - other
                            
                            
                            34,005
                            
                            
                            
                            109,211Current
      portion of capital lease obligations
                            
                            
                            3,481
                            
                            
                            
                            3,642Line
      of credit
                            
                            
                            250,000
                            
                            
                            
                            100,000Notes
      payable - related parties
                            
                            
                            731,453
                            
                            
                            
                            -Current
      portion of deferred rent
                            
                            
                            28,786
                            
                            
                            
                            -Unearned
      income
                            
                            
                            61,582
                            
                            
                            
                            142,829Total
      Current Liabilities
                            
                            
                            2,053,210
                            
                            
                            
                            1,478,038LONG
      TERM LIABILITIESCapital
      lease obligations, net of current portion
                            
                            
                            -
                            
                            
                            
                            3,481Note
      payable - other, net of current portion
                            
                            
                            -
                            
                            
                            
                            30,789Deferred
      rent, net of current portion
                            
                            
                            134,560
                            
                            
                            
                            115,058Total
      Long Term Liabilities
                            
                            
                            134,560
                            
                            
                            
                            149,328Total
      Liabilities
                            
                            
                            2,187,770
                            
                            
                            
                            1,627,366STOCKHOLDERS’
      EQUITYCommon
      stock - $.001 par value, authorized 100,000,000 sharesIssued
      and outstanding - 31,467,336 shares (2008) and31,147,336
      shares (2007)
                            
                            
                            31,467
                            
                            
                            
                            31,147Additional
      paid-in capital
                            
                            
                            2,165,138
                            
                            
                            
                            1,982,455Accumulated
      (deficit)
                            
                            
                            (3,291,434
                            )
                            
                            
                            (2,305,155
                            )Total
      Stockholders' Equity (Deficit)
                            
                            
                            (1,094,829
                            )
                            
                            
                            (291,553
                            )Total
      Liabilities and Stockholders' Equity (Deficit)
                            
                            $
                            1,092,941
                            
                            
                            $
                            1,335,813
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  F-3
 V2K
INTERNATIONAL, INC.
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2008 AND SEPTEMBER 30, 2007
   2008
                      
                      
                      2007REVENUESSales
      of franchises
                      
                      $
                      1,047,727
                      
                      
                      $
                      2,044,822Royalty
      and advertising fees
                      
                      
                      618,899
                      
                      
                      
                      835,824Sales
      of materials and supplies
                      
                      
                      4,584,072
                      
                      
                      
                      5,454,937Total
      Revenues
                      
                      
                      6,250,698
                      
                      
                      
                      8,335,583OPERATING
      EXPENSESCost
      of  franchise sales
                      
                      
                      636,799
                      
                      
                      
                      1,144,283Cost
      of  materials and supplies
                      
                      
                      4,310,822
                      
                      
                      
                      5,239,864Research
      and development expenses
                      
                      
                      317,891
                      
                      
                      
                      426,069Selling,
      general and administrative expenses
                      
                      
                      1,939,652
                      
                      
                      
                      2,590,384Total
      Operating Expenses
                      
                      
                      7,205,164
                      
                      
                      
                      9,400,600(LOSS)
      FROM OPERATIONS
                      
                      
                      (954,466
                      )
                      
                      
                      (1,065,017
                      )OTHER
      INCOME (EXPENSES)Interest
      (expense)
                      
                      
                      (56,241
                      )
                      
                      
                      (20,230
                      )Other
      income
                      
                      
                      32,303
                      
                      
                      
                      62,564(Loss)
      on disposition of assets
                      
                      
                      (7,875
                      )
                      
                      
                      (690
                      )Gain
      on sale of LLC
                      
                      
                      -
                      
                      
                      
                      19,179Total
      Other Income (Expense)
                      
                      
                      (31,813
                      )
                      
                      
                      60,823NET
      (LOSS) BEFORE INCOME TAXES
                      
                      
                      (986,279
                      )
                      
                      
                      (1,004,194
                      )PROVISION
      FOR INCOME TAX
                      
                      
                      -
                      
                      
                      
                      -NET
      (LOSS) FROM CONTINUING OPERATIONS
                      
                      $
                      (986,279
                      )
                      
                      $
                      (1,004,194
                      )(LOSS)
      FROM DISCONTINUED OPERATIONS,NET
      OF INCOME TAX
                      
                      $
                      -
                      
                      
                      $
                      (10,157
                      )NET
      (LOSS)
                      
                      $
                      (986,279
                      )
                      
                      $
                      (1,014,351
                      )NET
      (LOSS) PER SHARE -Basic
      and diluted
                      
                      $
                      (0.0315
                      )
                      
                      $
                      (0.0338
                      )NET(LOSS)
      PER SHARE FROM CONTINUEDOPERATIONSBasic
      and diluted
                      
                      $
                      (0.0315
                      )
                      
                      $
                      (0.0335
                      )NET(LOSS)
      PER SHARE FROM DISCONTINUEDOPERATIONS
                      
                      $
                      -
                      
                      
                      $
                      (0.0003
                      )Basic
      and dilutedWEIGHTED
      AVERAGE NUMBER OFCOMMON
      SHARES OUTSTANDING -Basic
      and diluted
                      
                      
                      31,360,003
                      
                      
                      
                      30,000,774
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  F-4
 V2K
INTERNATIONAL, INC.
 CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
 FOR
THE YEARS ENDED SEPTEMBER 30, 2008 AND SEPTEMBER 30, 2007
  Additional
                          
                          
                          SubsciptionsCommon
      Stock
                          
                          
                          
                          
                          
                          Paid-In
                          
                          
                          Receivable
                          
                          
                          
                          
                          
                          AccumulatedShares
                          
                          
                          Par
      Value
                          
                          
                          Capital
                          
                          
                          Shares
                          
                          
                          Amount
                          
                          
                          (Deficit)
                          
                          
                          TotalBalances,
      October 1, 2006
                          
                          
                          27,378,586
                          
                          
                          $
                          27,379
                          
                          
                          $
                          1,077,617
                          
                          
                          
                          150,000
                          
                          
                          $
                          30,000
                          
                          
                          $
                          (1,290,804
                          )
                          
                          $
                          (155,808
                          )Sale
      of common stock forcash
      at $0.20 per share, netof
      offering costs of $82,413
                          
                          
                          2,268,750
                          
                          
                          
                          2,268
                          
                          
                          
                          369,338
                          
                          
                          
                          (150,000
                          )
                          
                          
                          (30,000
                          )
                          
                          
                          -
                          
                          
                          
                          341,606Stock
      compensation expense
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          237,000
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          237,000Conversion
      of bridge loaninto
      common stock at $0.20per
      share
                          
                          
                          1,000,000
                          
                          
                          
                          1,000
                          
                          
                          
                          199,000
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          200,000Conversion
      of debenturesinto
      common stock at $0.20per
      share
                          
                          
                          500,000
                          
                          
                          
                          500
                          
                          
                          
                          99,500
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          100,000Net
      (loss)
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (1,014,351
                          )
                          
                          
                          (1,014,351
                          )Balances,
      September 30, 2007
                          
                          
                          31,147,336
                          
                          
                          $
                          31,147
                          
                          
                          $
                          1,982,455
                          
                          
                          
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          (2,305,155
                          )
                          
                          $
                          (291,553
                          )Stock
      Issued for franchise rights
                          
                          
                          20,000
                          
                          
                          
                          20
                          
                          
                          
                          3,980
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          4,000@
      .20 per shareStock
      Compensation Expense
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          83,057
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          83,057Stock
      Issued for services@
      .29 per share
                          
                          
                          300,000
                          
                          
                          
                          300
                          
                          
                          
                          86,700
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          87,000Warrants
      issued on Bridge Loan
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          8,946
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          8,946Net
      Loss FY2008
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (986,279
                          )
                          
                          
                          (986,279
                          )Balances,
      September 30, 2008
                          
                          
                          31,467,336
                          
                          
                          $
                          31,467
                          
                          
                          $
                          2,165,138
                          
                          
                          
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          (3,291,434
                          )
                          
                          $
                          (1,094,829
                          )
 
 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, 2008 AND SEPTEMBER 30, 2007
  2008
                      
                      
                      2007CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      (loss)
                      
                      $
                      (986,279
                      )
                      
                      $
                      (1,014,351
                      )Adjustments
      to reconcile net (loss) to net cash (used)by
      operating activitiesDepreciation
      and amortization
                      
                      
                      44,832
                      
                      
                      
                      61,871Bad
      debt provision
                      
                      
                      65,351
                      
                      
                      
                      90,582Rent
      expense satisfied with debt
                      
                      
                      -
                      
                      
                      
                      15,833Stock
      issued for franchise rights
                      
                      
                      4,000
                      
                      
                      
                      -Warrants
      issued on Brideg Loan
                      
                      
                      8,946
                      
                      
                      
                      -Stock
      issued for services
                      
                      
                      87,000
                      
                      
                      
                      -Stock
      compensation expense
                      
                      
                      83,057
                      
                      
                      
                      237,000Loss
      on disposition of assets
                      
                      
                      7,874
                      
                      
                      
                      690(Gain)
      on sale of LLC
                      
                      
                      -
                      
                      
                      
                      (19,179
                      )Changes
      in assets and liabilitiesDecrease
      (increase) in accounts receivable
                      
                      
                      (65,611
                      )
                      
                      
                      88,328Decrease
      (increase) in prepaid expenses and other
                      
                      
                      (111,612
                      )
                      
                      
                      10,053Decrease
      (increase) in notes receivable
                      
                      
                      99,256
                      
                      
                      
                      (51,165
                      )Decrease
      in inventory
                      
                      
                      8,343
                      
                      
                      
                      482Decrease
      (increase) in accounts payable and accrued expenses
                      
                      
                      (178,453
                      )
                      
                      
                      28,323Proceeds
      from deferred rent
                      
                      
                      48,288
                      
                      
                      
                      26,616Acquisition
      of franchises and interests therein
                      
                      
                      (29,950
                      )
                      
                      
                      (43,459
                      )(Decrease)
      in unearned income
                      
                      
                      (81,247
                      )
                      
                      
                      (3,346
                      )Net
      cash (used) by operating activities
                      
                      
                      (996,205
                      )
                      
                      
                      (571,722
                      )CASH
      FLOWS FROM INVESTING ACTIVITIESProceeds
      from sale of equipment
                      
                      
                      13,827
                      
                      
                      
                      -Proceeds
      from sale of LLC
                      
                      
                      -
                      
                      
                      
                      29,950Purchase
      of property and equipment
                      
                      
                      (23,966
                      )
                      
                      
                      (29,863
                      )Net
      cash provided (used) by investing activities
                      
                      
                      (10,139
                      )
                      
                      
                      87CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      from sale of common stock
                      
                      
                      -
                      
                      
                      
                      371,608(Decrease)
      in subscriptions receivable
                      
                      
                      -
                      
                      
                      
                      (30,000
                      )Proceeds
      from capital lease
                      
                      
                      -
                      
                      
                      
                      8,961Proceeds
      from notes payable - related parties
                      
                      
                      731,453
                      
                      
                      
                      -(Payments)
      on note payable
                      
                      
                      (105,995
                      )
                      
                      
                      -(Payments)
      on capital lease obligation
                      
                      
                      (3,642
                      )
                      
                      
                      (1,838
                      )Proceeds
      from line of credit
                      
                      
                      150,000
                      
                      
                      
                      100,000(Payments)
      on bank loan
                      
                      
                      -
                      
                      
                      
                      (12,948
                      )Net
      cash provided by financing activities
                      
                      
                      771,816
                      
                      
                      
                      435,783NET
      INCREASE (DECREASE) IN CASH
                      
                      
                      (234,528
                      )
                      
                      
                      (135,852
                      )CASH,
      BEGINNING OF PERIOD
                      
                      
                      312,678
                      
                      
                      
                      448,530CASH,
      END OF PERIOD
                      
                      $
                      78,150
                      
                      
                      $
                      312,678
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  F-6
 V2K
INTERNATIONAL, INC.
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2008 AND SEPTEMBER 30, 2007
 (CONTINUED)
  SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION
 
 During
the years ended September 30, 2008 and September 30, 2007, the Company paid cash
of $25,842 and $29,763, respectively, for interest on debt.
 
 SUPPLEMENTAL
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
 
 During
the year ended September 30, 2008, the Company incurred $83,057 of stock
compensation expense, issued 300,000 shares at $.29 for services, 20,000 shares
at $.20 to reacquire franchise rights, issued 731,453 warrants at $0.15 and
731,453 warrants at $0.25 attached to the bridge loan (see Note 8).
 
 During
the year ended September 30, 2007, the Company: incurred $237,000 of stock
compensation expense; converted $200,000 in bridge loans to 1,000,000 Units of a
private placement, each Unit consisting of one share of common stock at $0.20
and one warrant to purchase one share of common stock at $0.50 (see Note 1 –
Private Offering Memorandum and Note 8); converted $100,000 in debentures into
500,000 shares of common stock ($0.20 per share, see Note 10); entered into
leaseholds for debt of $91,855; and acquired $8,961 of equipment on a
capitalized lease.
 
 CASH
AND CASH EQUIVALENTS
 
 Cash and
cash equivalents at September 30, 2008 and September 30, 2007 consist
of:
 
 2008
                      
                      
                      2007Cash
                      
                      $
                      23,059
                      
                      
                      $
                      270,389Restricted
      cash (Note 1)
                      
                      
                      55,091
                      
                      
                      
                      42,289$
                      78,150
                      
                      
                      $
                      312,678
 
 
 
 
 
 
 
 
 
 
 
 
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  F-7
 V2K
INTERNATIONAL, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (CONTINUED)
 
 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, develops and licenses proprietary software
that allows users to decorate windows for both residential and commercial
customers, manufactures and sells the resulting soft window treatment products
and provides product development resources and acts as a sales agent for
overseas window covering manufacturers.
  International
and subsidiaries are hereinafter collectively referred to as the
“Company”.
  Details
of the Company’s subsidiaries as of September 30, 2008 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
                Manufacture
      of soft window covering products
                100%Marketing
      Source International,
                  LLC
      (“MSI”)
                Colorado
      limited
                  liability
      company
                Product
      development
                  and
      sales agent for
                  overseas
      window
                  covering
      manufacturers
                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 two Canadian provinces and in
Aruba.
  In August
2006, Windows opened its first company-owned franchise location, incorporated as
Window Fashions Franchise LLC (“Franchise LLC”). In July 2007, the Windows sold
100% of its ownership interest in Franchise LLC to a third party. The Company
has accounted for Franchise LLC as a discontinued operation (see Note
16).
  
 F-8
 V2K
INTERNATIONAL, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (CONTINUED)
 NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 ORGANIZATION
(CONTINUED)
  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.
 
 PRIVATE
OFFERING MEMORANDUM
  Using a
Private Offering Memorandum dated September 6, 2006, the Company offered for
sale 3,750,000 Units, each Unit consisting of one share of common stock and one
common stock purchase warrant, which were immediately detachable, at $0.20 per
Unit pursuant to exemptions from registration contained in Section 3(b) and Rule
506 of Regulation D of the Securities Act of 1933 and the securities laws of
certain states, for a total of $750,000. Each warrant initially entitled the
holder to purchase one share of common stock at an exercise price of $0.50 per
share through September 30, 2008. The exercise period was extended to September
30, 2009. All warrants are automatically redeemable by the Company at $0.001 if
the common stock is then listed on a recognized stock exchange or trading at
$1.00 per share for 20 consecutive trading days.
  At
September 30, 2006, the Company had received subscriptions totaling $287,000,
including $15,000 from officers of the Company (see Note 15) and $30,000 for
which the corresponding shares of common stock (150,000 shares) had not been
issued.
  On
January 31, 2007, the Company closed the private placement, having sold
3,553,750 Units for $710,750 ($0.20 per unit), including $15,000 to officers of
the Company (see Note 15).  On  July 11, 2007, the SEC
declared the Company’s Form SB-2 registration statement effective, registering
the shares underlying the private placement for resale.
  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.
  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, 2008,
had an accumulated deficit of $3,291,434.  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.
 
  F-9
 V2K
INTERNATIONAL, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (CONTINUED)
  NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
  BASIS OF
PRESENTATION (CONTINUED)
  Management
recognizes that the Company must generate additional resources to enable it to
continue operations.  Management intends to raise additional financing
through debt financing and equity financing or through other means that it deems
necessary, with a view to moving forward and sustaining a prolonged growth in
its strategy phases. However, no assurance can be given that the Company will be
successful in raising additional capital.  Further, even if the
Company raises additional capital, there can be no assurance that the Company
will achieve profitability or positive cash flow. If management is unable to
raise additional capital and expected significant revenues do not result in
positive cash flow, the Company will not be able to meet its obligations and may
have to cease operations.
 
  FRANCHISE
OPERATIONS
  Franchise
Overview
  The
Company currently supports independently owned franchises located in thirty-nine
states, three  provinces in Canada and Aruba. A summary of franchise
activity is as follows:
  September
      30, 2008
                  
                  September
      30, 2007Franchises
      in operation - beginning of period
                  182
                  
                  182Franchises
      sold during the period
                  19
                  
                  34Franchises
      cancelled, terminated or repurchased during the period
                  (31)
                  
                  (34)Franchises
      in operation - end of period
                  170
                  
                  182
  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, all materials and goods sold by franchisees
are processed, billed and collected through the Company using approved vendors
and suppliers.
 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 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, 2008 and 2007 the Company reacquired
franchise rights from two and three franchisees, respectively.
 
 
 F-10
 V2K
INTERNATIONAL, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (CONTINUED)
 
 NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
  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 SFAS No. 45, “Accounting for Franchise Fee Revenue”, no fair value is
assigned to these transactions.  In the twelve months ended September
30, 2008 and September 30, 2007, the Company repossessed 29 and 31 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.
  Franchisees
place all orders for materials and supplies with the Company. The Company
reviews each proposed purchase order to determine whether the products can be
made as requested, makes any necessary changes, and then places the
corresponding orders with its vendors. Accordingly, the Company determines all
product specifications. While the products are shipped directly to the
franchisees by the vendors, the Company receives title to the shipped items and
has the physical risk of loss upon shipment.  The Company is liable to
the vendors for payment and collects the amounts due for the goods from the
franchisees. The Company negotiates all pricing with the vendors and has the
ability to establish rebate programs with vendors, mark-ups or any other method
of creating margin. In addition, the Company is responsible to the franchisees
for goods shipped by the vendors that do not meet specifications. The Company
has discretion in supplier selection. Thus, the Company acts as a principal as
defined in the Emerging Issues Task Force, Issue 99-19, “Reporting Revenue Gross
as a Principal versus Net as an Agent.” Revenue from materials and supplies
sales is recorded upon shipment to the franchisee by the vendor and represents
approximately 73% and 65% of total revenue for the years ended September 30,
2008 and September 30, 2007, respectively.
  INVENTORY
  Inventory
is valued at the lower of cost, using the first in first out method, or market
and consists of manufacturing materials and supplies.
  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.
  
 F-11
 V2K
INTERNATIONAL, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (CONTINUED)
  NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
  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, 2008, no impairment has been
recorded.
  IMPAIRMENT
OF LONG-LIVED ASSETS
  The
Company has adopted Statement of Financial Accounting Standards (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, 2008, no impairment has
been recorded.
 
 ADVERTISING
COSTS
  The
Company expenses all costs of advertising as incurred. Total advertising expense
for the years ended September 30, 2008 and September 30, 2007 was $123,282 and
$196,603, respectively. Advertising expense does not include expenditures on
behalf of franchisees from the National/Regional/Local Advertising Fund (see
Note 1 – Cash Equivalents).
  INCOME
TAXES
  The
Company has adopted the provisions of SFAS 109, “Accounting for Income Taxes.”
SFAS 109 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.
 
 
 
 F-12
 V2K
INTERNATIONAL, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (CONTINUED)
  NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
  RESEARCH AND DEVELOPMENT
COSTS
 
 The
Company has adopted the provisions of 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, 2008 and September 30, 2007 were
$317,891 and $426,069, respectively.
 
 VARIABLE
INTEREST ENTITIES
 
 The
Financial Accounting Standards Board (“FASB”) issued 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 the Company possesses a variable interest are
franchise entities, which operate our franchised window fashions.  The
Company does not possess any ownership interests in franchise entities, other
than one wholly-owned franchise which we owned and consolidated until its sale
in July 2007 (see Note 1 – Organization and Note 17). The Company does not
generally provide financial support to the franchises.  Management has
reviewed the franchise entities and determined that, other than the former 100%
owned franchise, 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, 2008 and September 30, 2007 all outstanding options
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
SFAS 123(R), using the modified-prospective transition method.  Under
that transition method, employee compensation cost of $83,057 and $237,000 was
recognized in the years ended September 30, 2008 and 2007, 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.
  
 F-13
 
 V2K
INTERNATIONAL, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (CONTINUED)
 NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 SHARE
BASED COMPENSATION (CONTINUED)
 
 The
calculated value of stock options granted under these plans, following
calculation methods prescribed by SFAS 123, uses the Black-Scholes stock option
pricing model with the following assumptions used:
 
 2008
                  
                  2007Expected
      option life-years
                  2.5
      – 7.00
                  
                  3.00Risk-free
      interest rate
                  2.31%
      -3.83%
                  
                  5.25%Dividend
      yield
                  -
                  
                  -Volatility
                  58%
      - 121%
                  
                  68%
 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, 2008 and September 30, 2007, there were no cash
equivalents.
 
 Cash at
September 30, 2008 and September 30, 2007 includes $55,091 and $42,289,
respectively, of cash restricted for advertising and marketing. Such funds were
contributed by franchisees to a National/Regional/Local Advertising Fund
pursuant to franchise agreements, and may not be used for the general operations
of the Company.
 
 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, 2008 and 2007, the Company had $0 and $57,758, respectively on deposit 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.
   F-14
 
 V2K
INTERNATIONAL, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (CONTINUED)
  NOTE
1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
  CONCENTRATIONS
OF CREDIT RISK (CONTINUED)
 
 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, 2008 and September 30, 2007, approximately 69% and
64%, respectively, of materials and supplies were acquired from three major
vendors, the largest vendor’s activity representing 38% and 35%, respectively,
of the total. The related accounts payable to the largest vendor was
approximately $291,131 as of September 30, 2008, and $311,704 as of September
30, 2007.
 
 SEGMENT
REPORTING
  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 footnote 13.
 
 RECENT
PRONOUNCEMENTS
 
 EITF No. 03-6-1 – In
June 2008, the FASB issued Staff Position No. EITF 03-6-1 (“EITF No.
03-6-1”), Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating
Securities. EITF No. 03-6-1 addresses whether instruments granted in
share-based payment transactions are participating securities prior to vesting,
and therefore, need to be included in the earnings allocation in calculating
earnings per share under the two-class method described in Statement of
Financial Accounting Standards No. 128, Earnings per
Share.  EITF No. 03-6-1 requires companies to treat unvested
share-based payment awards that have non-forfeitable rights to dividend or
dividend equivalents as a separate class of securities in calculating earnings
per share. EITF No. 03-6-1 is effective for fiscal years beginning after
December 15, 2008.  The Company is currently assessing the
potential effect of EITF No. 03-6-1 on its financial statements
 
 SFAS No. 162 – In
May 2008, the FASB issued Statement of Financial Accounting Standards
No. 162 (“SFAS No. 162”), The Hierarchy of Generally Accepted
Accounting Principles.  SFAS No. 162 identifies the sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles in the
United States.  SFAS No. 162 will become effective 60 days
following Securities and Exchange Commission (“SEC”) approval of the Public
Company Accounting Oversight Board (“PCAOB”) amendments to AU
Section 411, The Meaning
of Present Fairly in Conformity With Generally Accepted Accounting
Principles. The Company does not anticipate the adoption of SFAS No. 162
to have a material impact on its financial statements.
  
 F-15
 V2K
INTERNATIONAL, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (CONTINUED)
 
  NOTE
1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
  RECENT
PRONOUNCEMENTS (CONTINUED)
 
 FSP No. 142-3 – In
April 2008, the FASB issued Staff Position No. 142-3 (“FSP No.
142-3”), Determination of the
Useful Life of Intangible Assets.  FSP No. 142-3 amends the
factors that should be considered in developing renewal or extension assumptions
used to determine the useful life of a recognized intangible asset under
Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible
Assets. The FSP is effective for financial statements issued for fiscal
years beginning after December 15, 2008, and interim periods within those fiscal
years.  Early adoption is prohibited.  The Company is
currently assessing the potential effect of FSP No. 142-3 on its financial
statements.
 
 SFAS No. 161 – In
March 2008, the FASB issued Statement of Financial Accounting Standards
No. 161 (“SFAS No. 161”), Disclosures about Derivative
Instruments and Hedging Activities.SFAS No. 161 amends and
expands the disclosure requirements of SFAS No. 133, Accounting for Derivative
Instruments and Hedging. SFAS No. 161 is effective for fiscal years
beginning after November 15, 2008.  The Company believes that the
adoption of this standard will not a have a material impact on its financial
statements.
 
 NOTE
2 – ACCOUNTS AND NOTES RECEIVABLE
 
 Accounts
receivable consists of amounts due from franchisees for sale of merchandise at
September 30, 2008 and September 30, 2007, as follows:
 
 2008
                    
                    
                    2007Accounts
      receivable – trade
                    
                    $
                    623,551
                    
                    
                    $
                    621,865Less
      allowance for doubtful accounts
                    
                    
                    (41,483
                    )
                    
                    
                    (40,057
                    )$
                    582,068
                    
                    
                    $
                    581,808
 
 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 $1,426 from September 30, 2007 to September 30, 2008, and
the Company charged directly to operations $65,351 and $90,582 of uncollectible
accounts in the years ended September 30, 2008 and September 30, 2007,
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 $33,317,
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, 2008 and September 30, 2007, notes receivable
are comprised of:
 
 2008
                        
                        
                        2007Notes
      receivable, fair value
                        
                        $
                        69,300
                        
                        
                        $
                        175,896Less
      allowance
                        
                        
                        (20,234
                        )
                        
                        
                        (27,574
                        )49,066
                        
                        
                        
                        148,322Less
      current portion
                        
                        
                        (38,303
                        )
                        
                        
                        (117,999
                        )Long
      term portion
                        
                        $
                        10,763
                        
                        
                        $
                        30,323
 
 
 F-16
 V2K
INTERNATIONAL, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (CONTINUED)
 
 NOTE
2 – ACCOUNTS AND NOTES RECEIVABLE (CONTINUED)
 
 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 decreased by $7,340 from September 30, 2007 to September 30,
2008.
 
 NOTE
3 - PROPERTY AND EQUIPMENT
 
 Property
and equipment at September 30, 2008 and September 30, 2007 consists of the
following:
 
 2008
                    
                    
                    2007Furniture
      and equipment
                    
                    $
                    68,243
                    
                    
                    $
                    99,162Computer
      equipment
                    
                    
                    89,624
                    
                    
                    
                    88,060Software
                    
                    
                    86,800
                    
                    
                    
                    86,490Leasehold
      improvements
                    
                    
                    91,990
                    
                    
                    
                    131,812Assets
      under capital lease
                    
                    
                    8,961
                    
                    
                    
                    8,961345,618
                    
                    
                    
                    414,485Less
      accumulated depreciation and amortization
                    
                    
                    (238,133
                    )
                    
                    
                    (264,433
                    )$
                    107,485
                    
                    
                    $
                    150,052
 
 Depreciation
and amortization expense (includes assets under capital lease) for the years
ended September 30, 2008 and September 30, 2007 was $44,832 and $61,871,
respectively.
 
 NOTE
4 – NOTE PAYABLE - OTHER
 
 Note
payable – other at September 30, 2008 and September 30, 2007 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 note decreased by $105,995 during the year ended September
30, 2008. The note increased $15,833 during the year ended September 30,
2007.  The balance at September 30, 2008 and September 30, 2007 of
$34,005 and $140,000, respectively, represents the accretion of the
note.
  Future
minimum payments under the terms of the note are as follows:
  Year
      ending September 30, 2009
                      $       34,005
 
  
 F-17
 V2K
INTERNATIONAL, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (CONTINUED)
  NOTE
5 – CAPITAL LEASE OBLIGATIONS
  Capitalized
lease obligations at September 30, 2008 consist of a lease for office equipment,
repayable in monthly installments of $316, and bearing an interest rate of
16.3%.
  Future
      minimum payments on capitalized leases are as follows:Year
      ending September 30, 2009
                            
                            $
                            3,7963,796Less
      amount representing interest
                            
                            
                            (315
                            )Present
      value of net minimum lease payments
                            
                            
                            3,481Less
      current maturity
                            
                            
                            (3,481
                            )Long-term
      portion
                            
                            $
                            0
 
  NOTE
6 – 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, 2008), and up to 125% of the amount is personally
guaranteed by officers of the Company (see Note 15). Interest on the outstanding
principal balance accrues at the Prime Rate, as set by the bank, and is payable
monthly. The line of credit is available until February 26, 2009, at which time
any outstanding principal balance and accrued interest are due. There is no
prepayment penalty on the principal balance.
  At
September 30, 2008 and 2007, the Company had drawn $250,000 and 100,000,
respectively against the line of credit.
  NOTE
7 – NOTE PAYABLE – BANK
  In May
2004, the Company entered into a loan agreement with a commercial bank for
equipment in the amount of $54,103. The loan was satisfied during the year ended
September 30, 2007.
  NOTE
8 – NOTES PAYABLE – RELATED PARTIES
  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 $0.15.
  Also, for
each dollar that was loaned, the Company issued two redeemable common stock
purchase warrants, one exercisable at $0.15 per share for two years the other
exercisable at $0.25 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, 2008.
   F-18
 V2K
INTERNATIONAL, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (CONTINUED)
  NOTE
8 – NOTES PAYABLE – RELATED PARTIES (CONTINUED)
  In
January 2006, the Company issued $200,000 of convertible promissory notes for
cash, including $75,000 to officers of the Company (see Note 15).  The
notes required quarterly interest payments in arrears at the rate of four
percent plus the prime rate as published in the Money Rate Table of the Western
Edition of the Wall Street Journal. Repayment of the notes was to commence upon
the earlier of (a) the completion of a private placement or (b) July 5,
2006.  If repayment were to commence pursuant to the completion of the
private placement, the entire amount of the notes, except for any amounts that
had been converted (see below) would be repaid from the proceeds of the private
placement.  At the option of the lenders, at any time prior to the
consummation of the private placement, the lenders could convert all or any of
the principal amounts into the securities in the private
placement.  Upon the minimum portion of the private placement having
been sold, the lenders were required to convert at least fifty percent of the
note into the private placement.
  On
January 31, 2007, the Company closed the private placement (see Note 1 – Private
Offering Memorandum) and all of the bridge loan lenders converted the entire
amount of the note into 1,000,000 units ($0.20 per unit), consisting of
1,000,000 shares of common stock and 1,000,000 warrants to purchase shares of
common stock at $0.50 per share.
  Interest
accrued and paid on the bridge loan for the year ended September 30, 2007 was
$8,167.
  The
lenders were issued warrants to purchase a total of 1,000,000 shares of common
stock in International at $0.30 per share. The warrants expire January 5, 2009.
The Company granted piggyback registration rights (on a “best efforts” basis)
with respect to the shares issuable upon exercise of these warrants. The fair
value of the warrants was estimated as of the issue date under the Black-Scholes
pricing model, with the following assumptions: common stock based on a market
price of $0.20 per share, zero dividends, expected volatility of 28% (as derived
from an analysis of trading prices of the stock of a peer company), risk free
interest rate of 6.00% and expected life of 1.5 years. The fair value of the
warrants of $7,655 was included as other expense during the fiscal year ended
September 30, 2006.  Included in the shares registered with the SEC on
the Company’s Form SB-2 registration statement were the shares underlying these
warrants.
  NOTE
9 – DEFERRED RENT
  In July
2007 the Company entered into a non-cancelable lease for office facilities (see
Note 16 – Leasehold Commitments). The lease agreement contains a tenant
improvement allowance of $108,570, of which the Company has capitalized $91,206
as leasehold improvements. The unused amount of $17,364 was used as rent
reduction for February and March 2008, in the amounts of $14,024 and $3,340,
respectively. As of September 30, 2008, $71,859 of the capitalized leasehold
improvements remains unamortized.  The Company recognizes a deferred
rent liability for the utilized tenant improvement allowances within other
long-term liabilities and amortizes these amounts over the term of the lease as
a reduction of rent expense. The lease also contains a rent escalation clause.
The Company records rental expense on a straight-line basis over the term of the
lease, with $91,487 deferred as of September 30, 2008.  Total deferred
rent at September 30, 2008 was $163,346. Remaining amortization as
follows:
  Year
      ending September 30, 2009
                    
                    $
                    28,786Year
      ending September 30, 2010
                    
                    
                    34,216Year
      ending September 30, 2011
                    
                    
                    39,644Year
      ending September 30, 2012
                    
                    
                    45,073Thereafter
                    
                    
                    15,627$
                    163,346
 
  
 F-19
 V2K
INTERNATIONAL, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (CONTINUED)
  NOTE
10 – CONVERTIBLE DEBENTURES
  In 2005,
the Company issued $100,000 of convertible debentures for cash, including
$50,000 to an officer of the Company (see Note 15). The debentures had a
three-year term, and matured in February 2008. These debentures required
quarterly interest only payments at the Wall Street Journal prime rate plus
1%.  On January 31, 2007, the debenture holders converted all $100,000
in debentures into 500,000 shares of common stock ($0.20 per
share).
 
 Interest
accrued and paid on the debentures for the year ended September 30, 2007 was
$2,313.
 
  NOTE
11– STOCKHOLDERS’ EQUITY
  COMMON
STOCK
  During
the year ended September 30, 2008 the Company issued 300,000 shares at $.29 per
share for services rendered and 20,000 shares at $.20 per share to reacquire
franchise rights.
  During
the year ended September 30, 2007 the Company: sold 2,268,750 shares of common
stock for cash of $453,750 ($0.20 per share); accepted the conversion of a
$200,000 bridge loan (see Note 8) into 1,000,000 shares of common stock ($0.20
per share); and accepted the conversion of $100,000 of convertible debentures
(see Note 10) into 500,000 shares of common stock ($0.20 per
share).
  Prior to
the share for share exchange with Windows (see Note 1 – Organization), the
Company issued 5,391,811 shares of common stock in conjunction with the
recapitalization of V2K International, Inc.
  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 30,000,000 shares of its common stock for
options granted under the Plan.
  
  
  F-20
 V2K
INTERNATIONAL, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (CONTINUED)
  NOTE
11– STOCKHOLDERS’ EQUITY (CONTINUED)
  STOCK
OPTION PLAN (CONTINUED)
  A summary
of the status of the Company’s stock option plans as of September 30, 2008 and
September 30, 2007, and changes during the years then ended is presented
below:
  2008
                                    
                                    
                                    2007Weighted
                                    
                                    
                                    
                                    
                                    
                                    WeightedAverage
                                    
                                    
                                    
                                    
                                    
                                    AverageExercise
                                    
                                    
                                    
                                    
                                    
                                    ExerciseShares
                                    
                                    
                                    Price
                                    
                                    
                                    Shares
                                    
                                    
                                    PriceOutstanding
      at beginningof
      period
                                    
                                    
                                    29,180,660
                                    
                                    
                                    $
                                    0.070
                                    
                                    
                                    
                                    29,180,660
                                    
                                    
                                    $
                                    0.069Granted
                                    
                                    
                                    110,000
                                    
                                    
                                    
                                    0.249
                                    
                                    
                                    
                                    50,000
                                    
                                    
                                    
                                    0.200Cancelled
                                    
                                    
                                    (865,000
                                    )
                                    
                                    
                                    0.143
                                    
                                    
                                    
                                    (50,000
                                    )
                                    
                                    
                                    0.140Expired
                                    
                                    
                                    (200,000
                                    )
                                    
                                    
                                    0.057
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Outstanding
      at endof
      period
                                    
                                    
                                    28,225,660
                                    
                                    
                                    
                                    0.069
                                    
                                    
                                    
                                    29,180,660
                                    
                                    
                                    
                                    0.070Options
      exercisable atperiod
      end, option pricerange
      $0.05 - $0.29
                                    
                                    
                                    24,597,205
                                    
                                    
                                    
                                    0.058
                                    
                                    
                                    
                                    23,476,785
                                    
                                    
                                    
                                    0.058Weighted
      average remainingcontractual
      life of optionsexercisable
      at period end
                                    
                                    
                                    5.41
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    6.32Weighted
      average of fairvalue
      of options grantedduring
      the period
                                    
                                    $
                                    0.249
                                    
                                    
                                    
                                    
                                    
                                    
                                    $
                                    0.097
  Effective
October 1, 2006, the Company adopted the fair value recognition provisions to
SFAS 123(R), using the modified-prospective transition method.  Under
that transition method, the employee compensation cost of $83,057 and $237,000
was recognized in the years ended September 30, 2008 and 2007 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 estimated in
accordance with the original provisions of SFAS 123; and (ii) compensation cost
for all share-based payments granted subsequent to October 1, 2006 based on the
grant date fair value estimated in accordance with the provision of SFAS 123(R).
Results from prior periods have not been restated.
  As
September 30, 2008, there was $56,091 of total unrecognized compensation cost
related to nonvested options granted under the plans. That cost is expected to
be recognized over the next 21 months.
 
 In the
year ended September 30, 2008, 110,000 new options were issued under the
Plan.
  F-21
 
 V2K
INTERNATIONAL, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (CONTINUED)
 NOTE
11– STOCKHOLDERS’ EQUITY (CONTINUED)
  STOCK
OPTION PLAN (CONTINUED)
  The
calculated value of stock options granted under the Plan, following calculation
methods prescribed by SFAS 123, uses the Black-Scholes stock option pricing
model with the following assumptions:
 
 2008Expected
      option life-years
                  2.5
      – 7.0Risk-free
      interest rate
                  2.31%
      - 3.83%Dividend
      yield
                  -Volatility
                  58%
      - 121%
 
  NOTE
12 - INCOME TAXES
  The
Company accounts for income taxes under SFAS 109, which requires use of the
liability method. 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, 2008 and
September 30, 2007 is as follows:
 
 2008
                  
                  2007Federal
                  34%
                  
                  34%State
                  4%
                  
                  4%Net
      operating loss carryforward
                  -
                  
                  -Increase
      in valuation allowance
                  (38%)
                  
                  (38%)-
                  
                  -
 
  At
September 30, 2008, the Company had a net operating loss carry forward of
approximately $2,725,000 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.
  Deferred
tax assets are as follows:
 
 2008
                    
                    
                    2007Deferred
      tax asset due to net operating loss
                    
                    $
                    1,036,000
                    
                    
                    $
                    691,000Valuation
      allowance
                    
                    
                    (1,036,000
                    )
                    
                    
                    (691,000
                    )-
                    
                    
                    
                    -
 
 
 F-22
 V2K
INTERNATIONAL, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (CONTINUED)
 
 NOTE
12 - INCOME TAXES (CONTINUED)
  The
deferred tax asset relates principally to the net operating loss carryforward. A
valuation allowance was established at September 30, 2008 and September 30, 2007
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 $337,000 and $270,000 for the years
ended September 30, 2008 and September 30, 2007, respectively.
  Effective
October 1, 2007 the Company must adopt the provisions of Financial
Interpretation 48 (FIN 48), “Accounting for Uncertainty in Income
Taxes.”  Management does not believe the adoption will have a material
impact on future results of operations.
   NOTE
13 – SEGMENT INFORMATION
  The
Company and its subsidiaries (see Note 1 – 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 manufactures soft product
window treatments exclusively for Windows franchisees; and MSI acts as product
development resource and sales agent for overseas window covering
manufacturers.
  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 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 receives its income from
the sale of labor on soft product window treatments to Window’s franchisees. MSI
derives its revenues by acting as a product development resource and sales agent
for overseas window covering manufacturers.
 
 During
the years ended September 30, 2008 and September 30, 2007, inter-segment
revenues were $407,771 and $558,088, 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-23
 V2K
INTERNATIONAL, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (CONTINUED)
  NOTE
13 – SEGMENT INFORMATION (CONTINUED)
 
 
 Segment
information for the years ended September 30, 2008 and September 30, 2007
consists of the following:
  Parent
                      
                      
                      
                      
                      
                      
                      
                      
                      Manu-Holding
                      
                      
                      Windows
                      
                      
                      Technology
                      
                      
                      facturing
                      
                      
                      MSI
                      
                      
                      TotalRevenues2008
                      
                      
                      -
                      
                      
                      
                      6,250,699
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      6,250,6992007
                      
                      
                      -
                      
                      
                      
                      8,334,983
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      600
                      
                      
                      
                      8,335,583Inter-segment
      revenues2008
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      407,771
                      
                      
                      
                      -
                      
                      
                      
                      407,7712007
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      558,088
                      
                      
                      
                      -
                      
                      
                      
                      558,088Net
      (loss)2008
                      
                      
                      (266,635
                      )
                      
                      
                      (341,930
                      )
                      
                      
                      (317,891
                      )
                      
                      
                      (53,917
                      )
                      
                      
                      (5,906
                      )
                      
                      
                      (986,279
                      )2007
                      
                      
                      (237,450
                      )
                      
                      
                      (104,461
                      )
                      
                      
                      (426,069
                      )
                      
                      
                      (174,762
                      )
                      
                      
                      (71,609
                      )
                      
                      
                      (1,014,351
                      )Identifiable
      assets (net)2008
                      
                      
                      2,290,874
                      
                      
                      
                      949,755
                      
                      
                      
                      -
                      
                      
                      
                      5,133
                      
                      
                      
                      600
                      
                      
                      
                      3,246,3622007
                      
                      
                      1,680,554
                      
                      
                      
                      1,280,045
                      
                      
                      
                      -
                      
                      
                      
                      42,396
                      
                      
                      
                      600
                      
                      
                      
                      3,003,595Depreciation
      and amortizationcharged
      to identifiable assets2008
                      
                      
                      -
                      
                      
                      
                      44,247
                      
                      
                      
                      -
                      
                      
                      
                      585
                      
                      
                      
                      -
                      
                      
                      
                      44,8322007
                      
                      
                      -
                      
                      
                      
                      39,759
                      
                      
                      
                      -
                      
                      
                      
                      22,112
                      
                      
                      
                      -
                      
                      
                      
                      61,871Interest
      revenue2008
                      
                      
                      -
                      
                      
                      
                      19,914
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      19,9142007
                      
                      
                      -
                      
                      
                      
                      22,837
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      22,837Interest
      expense2008
                      
                      
                      -
                      
                      
                      
                      25,661
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      25,6612007
                      
                      
                      -
                      
                      
                      
                      19,988
                      
                      
                      
                      -
                      
                      
                      
                      242
                      
                      
                      
                      -
                      
                      
                      
                      20,230
  
 Reconciliation
of segment totals to consolidated amounts:
 
 2008
                      
                      
                      2007Total
      revenues for reportable segments
                      
                      $
                      6,658,470
                      
                      
                      $
                      8,893,670Elimination
      of inter-segment revenues
                      
                      
                      (407,771
                      )
                      
                      
                      (558,088
                      )Total
      Consolidated Revenues
                      
                      $
                      6,250,699
                      
                      
                      $
                      8,335,583
 
 
 Reconciliation
of segment totals to consolidated amounts (continued):
 
 2008
                      
                      
                      2007Identifiable
      assets (net)
                      
                      $
                      3,246,362
                      
                      
                      $
                      3,003,595Elimination
      of intercompany assets
                      
                      
                      (2,153,421
                      )
                      
                      
                      (1,667,782
                      )Total
      Consolidated Assets
                      
                      $
                      1,092,941
                      
                      
                      $
                      1,335,813
 
 
 
 F-24
 V2K
INTERNATIONAL, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (CONTINUED)
 
 NOTE
14- SALE OF ASSETS OF V2K MANUFACTURING
 
 In
October 2007, the Company sold the inventory and fixed assets of Manufacturing
(see Note 1-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, 2008 and
September 30, 2007 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 13).
Manufacturing now acts as a broker for the manufacturing of soft window
treatments supplied to Windows and its franchisees by managing strategic
alliances with outside vendors.
 
 NOTE
15 - RELATED PARTY TRANSACTIONS
 
 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. Also, 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
8).
  During
the year ended September 30, 2007: officers of the Company personally guaranteed
up to 125% of a line of credit with a commercial bank (see Note 6); $75,000 in
bridge loans held by officers of the Company were converted into 375,000 shares
of common stock ($0.20 per share) and 375,000 warrants to purchase shares of
common stock at $0.50 per share (see Note 8); $50,000 in debentures held by an
officer of the Company were converted into 250,000 shares of common stock ($0.20
per share) (see Note 10); and $65,000 in commissions related to sales of the
Company’s private placement (see Note 1 – Private Offering Memorandum) were paid
to an existing shareholder.
 
 NOTE
16 – COMMITMENTS AND CONTINGENCIES
 
 LEASEHOLD COMMITMENTS
 
 In July
2007 the Company entered into a non-cancelable lease for office facilities in
Lakewood, Colorado.  The lease began August 1, 2007 and ends January
31, 2013.  The lease terms call for six months of free rent, followed
by escalating rents over the life of the lease.  Minimum payments due
under the lease are as follows:
  Year
      ending September 30, 2009
                      
                      $
                      162,837Year
      ending September 30, 2010
                      
                      
                      186,397Year
      ending September 30, 2011
                      
                      
                      182,760Year
      ending September 30, 2012
                      
                      
                      188,188Thereafter
                      
                      
                      63,333$
                      783,515
 
 
 
 F-25
 V2K
INTERNATIONAL, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (CONTINUED)
 
 NOTE
16 – COMMITMENTS AND CONTINGENCIES (CONTINUED)
  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, 2009
                          
                          $
                          7,260Year
      ending September 30, 2010
                          
                          
                          7,260Year
      ending September 30, 2011
                          
                          
                          7,260Year
      ending September 30, 2012
                          
                          
                          5,746$
                          27,526
 
 CONTINGENCIES
  Under the
terms of the member purchase agreement of Franchise LLC (see Note 1 –
Organization and Note 16), the Company may be liable for an amount of any
unsatisfied debt obligation that was incurred on behalf of Franchise LLC through
July 31, 2007.  These potential contingent liabilities have been
estimated to be approximately $22,500.
 
 NOTE
17 – DISCONTINUED OPERATIONS
 
 In July
2007, the Company divested its entire interest in Franchise LLC (see Note 1 –
Organization). The Company has accounted for Franchise LLC as a discontinued
operation. The Company accepted a promissory note in the amount of $29,950,
bearing interest at 8%, with twenty-four monthly payments of $1,355 commencing
in November 2007. The divestment resulted in a gain on the sale of
$19,179.
  The
Company recorded a net loss from discontinued operations, net of tax, of $10,157
for the year ended September 30, 2007.
  
 NOTE
18 – SUBSEQUENT EVENTS
 
 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 abates the October, November and December
2008 payments for 90 days, with the next payment being due January 1st, 2009.
The interest continues to accrue during the abatement period and is due and
payable in addition to the monthly payment on January 1st, 2009.
All other terms and conditions of the note shall remain in full force and effect
(see Note 4).
  In
October 2008, the Company entered into an agreement amending the payment
schedule of the Leasehold commitment (see Note 16). The agreement calls for a
temporary rent credit for the period of October 1, 2008 through December 31,
2008, during which period the Company shall pay monthly to the landlord only the
common area shared expenses of $563. Also, commencing January 1, 2009 through
December 31, 2009 the Company shall pay rent to the landlord of $18,093 plus
rent increases and other operating cost reconciliations pursuant to the original
lease. Following December 31, 2009 the Company shall revert back to payments
outlined in the original lease of May 2007.