** **

**U. S.SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549**

**FORM 10-KSB**
| **x**                                        | **ANNUAL REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.**     |
|----------------------------------------------|----------------------------------------------------------------------------------------------------------|
|                                         |                                                                                                     |
| **OR**                                       |
|                                         |                                                                                                     |
| **o**                                        | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.** |
|                                         |                                                                                                     |
| **For the  fiscal year ended July 31, 2006** |

** **

**CommissionFile No.: 000-29313**

**CRYSTALINTERNATIONAL TRAVEL GROUP, INC.**(Exact name of Registrant as specified in its charter)
| **Delaware**                                                               | **20-0121007**                        |
|----------------------------------------------------------------------------|---------------------------------------|
| (State of  incorporation)                                                  | (I.R.S. Employer  Identification No.) |
|                                                                       |                                  |
| **2160  Headquarters Plaza  10****th Floor  Morristown,  New Jersey** | **07960**                             |
| (Address of  principal executive offices)                                  | (Zip Code)                            |

 

Registrant’stelephone number, including area code:  **(973) 644-0900**

Securitiesregistered pursuant to Section 12(b) of the Act:   **Common Stock, $.0001 parvalue**

Securitiesregistered pursuant to Section 12(g) of the Act:   **None**

Name of eachexchange on which registered:   **OTC Electronic Bulletin Board**

Check whether the issueris not required to file reports pursuant to Section 13 or 15(d) ofthe Securities Exchange Act of 1934. o

Check whether theRegistrant (1) has filed all reports required to be filed by Section 13or 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 suchreports), and (2) has been subject to such filing requirements for thepast 90 days.    Yes** ****x    **No o

Check if there is nodisclosure of delinquent filers in response to Item 405 of Regulation S-Bcontained in this form, and no disclosure will be contained, to the best ofregistrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-KSB orany amendment to this Form 10-KSB. **x**

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).    Yes** **o**    **No **x**

The Registrant’s revenuefor fiscal year ended **July 31, 2006**was **($11,027,335)**

As of October 31,2006, the aggregate market value of the shares of common stock held by non-affiliatesof the Registrant issued and outstanding on such date was $558,700. This figureis based on the closing sales price of $0.085 a share of the Registrant’scommon stock on November 13, 2006.

The number of sharesoutstanding of each of the Registrant’s classes of common equity, as of thelast practicable date.
| **Common Stock, $.0001** | **12,347,946**                          |
|--------------------------|-----------------------------------------|
| (Class)                  | (Outstanding at October 31,  2006) |

 

Transitional Small BusinessDisclosure Format    No** ****x**

Documents Incorporated byReference: None

 

 

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**Statements contained in this Annual Report on Form 10-KSBinclude forward looking statements within the meaning of the Private SecuritiesLitigation Reform Act of 1995 and involve substantial risks and uncertaintiesthat may cause actual results to differ materially from those indicated by theforward looking statements. All forward looking statements in the Annual Reporton Form 10-KSB, including statements about our strategies,expectations about new and existing products, market demand, acceptance of newand existing products, technologies and opportunities, market size and growth,and return on investments in products and market, are based on informationavailable to us on the date of this document and we assume no obligation toupdate such forward looking statements.**

**PART I**

**Item 1.Business.**

**BUSINESS**

**CompanyHistory**

Wewere incorporated in the State of Delaware in July 2003. At the time ofincorporation, we were a wholly-owned subsidiary of Asphalt PavingInternational, Inc. (“API”), a company incorporated in the State of Florida inJanuary 1998. API’s shares were publicly traded. However, API conducted noactive business.

Immediatelyfollowing our incorporation, API merged into us and the shareholders of APIowned all of our stock. As a result of the merger, we were the survivingcorporation in the merger, the state of incorporation of the corporate entityowned by API’s shareholders was changed to Delaware. On August 6, 2003,our shares became publicly traded on the Over-the-Counter Bulletin Board, underthe symbol MBRI.

Immediatelyafter the merger with API, we acquired all outstanding shares of Mobile ReachTechnologies, Inc. (“MRT”), a North Carolina corporation, in a shareexchange with all the shareholders of MRT. As a result of the share exchange,MRT became a wholly owned subsidiary of ours.

OnDecember 17 2003, Mobile Reach International, Inc. entered into anAgreement of Plan of Merger with Waves Consulting Group, Inc. by andbetween MRI Acquisitions Corp. As a result, Waves Consulting Group became awholly owned subsidiary of ours.

Weconduct all our business through our subsidiaries, Crystal HospitalityHoldings, Inc., MRT and Mobile Reach Solutions, Inc., formally WavesConsulting Group, Inc.

OnAugust 23, 2005, we acquired all outstanding shares of Objective Spectrum,Inc. for 375,000 shares of our Common Stock. On April 17, 2006, weacquired all outstanding shares of Crystal Hospitality Holidays, Inc. Shortlythereafter, on May 19, 2006, we changed our name to Crystal InternationalTravel Group, Inc. and began trading under the symbol CINT.

**GeneralDescription of Our Business**

We area hospitality company that provides multiple travel products and services toincluding but not limited to air, car, cruise and hotel reservations, tours andexcursions, travel documentation assistance. Our goal is to merge theknowledge, reliability and human touch of a sales team of travel professionalswith technology available, while striving to offer excellent customer serviceand ease, speed and flexibility of online travel. We have assembled amanagement team of professionals with extensive experience in the travelindustry to grow and manage the business.

Thisteam has on average over 20 years of experience in the industry.Mr. Fabrizzio P. Busso-Campana’s resume includes senior levelpositions for Club Med, Celebrity Cruises, Royal Caribbean Cruise Lines and MGMGrand Corporation. Ms. Teresa Rae Hanneman’s resume includes MGM GrandCorporation, CheapSeats, and senior level positions within Club Med. Mr. PeterWright’s resume includes senior level positions with The CMI Network, and AppleVacations. Mr. Richard Sardiello’s resume includes senior level positions withATA airlines and Club Med.

Ourbusiness plan is two fold. We are assembling three key components of a travelcompany. These include (i) the creation of a nationally recognized hospitalitybrand with customers who are actively buying travel products; (ii) a fullylicensed travel agency to handle negotiations and contracts with industrysuppliers, as well as day to day operations including, but not limited to,issuing tickets, booking hotels and car rental, customer service, and(iii) a diversified product offering of travel products. Second, we intendto grow organically through the expansion of travel products. Through theacquisition of SunTrips’ brand name and other intellectual property, we cameinto possession of a well recognized travel brand with 29 years of history anda potential customer database of 270,000 members. 

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In August, 2006,we purchased for $125,000 in cash all of the outstanding stock of a licensedtravel agency doing business as The Travel House, located in Old Bridge, NewJersey, which now serves as an established call center for the fulfillment ofthe travel sales. We are negotiating with air, car and hotel providers toobtain long term contracts which will enable us to offer attractive rates andpackaged tours. We are in the process of launching a new travel productspecifically designed for recurring travel consumers and has created a divisionthat will serve the Meetings, Incentives and Corporate Travel segments. Ourplan calls for an implementation of aggressive sales and marketing initiatives.We intend to utilize existing travel agents currently active in the market tosell its products. We expect to attract these individuals to the company byoffering attractive commission and benefits programs.

Integralto our plan is a focus on personal interaction with our customers. We placeemphasis on offering a high service level to customers to counter the currentindustry trend of moving towards online sales.

Priorto the purchase of the SunTrips assets by the Crystal HospitalityHoldings, Inc., SunTrips was owned by FS SunTours and was a large touroperator in the United States based in San Jose, California serving theNorthern California market. FS SunTours suspended SunTrips’ tour operation inFebruary of 2006 due to a variety of operational issues. Specifically, themanagement of FS SunTours failed to implement a fuel surcharge in 2005 despiterapidly increasing fuel costs. To avoid the same pitfalls that were experiencedby Suntrips, we intend to closely monitor all costs and expenses associatedwith travel products, as well as monitor the market for changes in customerbuying patterns, and lastly be proactive to changes in the supply chain formvendors. We intend to leverage the SunTrips intellectual property (brand name,database, sales access points) and believes that it will be able to recaptureSunTrips historical business.

**Business Strategy**

Ourbusiness strategy centers around integrating modern marketing and sales toolsand techniques with traditional service elements currently found in the travelsector. We use internet vehicles to capture potential customer attention, thendirecting the prospective clients to our call centers and use travelspecialists to close on sales. This approach is contrary to the industry’sonline booking model prevalent in the market today. Our business philosophyplaces a high value on personal interaction with customers.

Ourbusiness strategy is as follows:

·                  Leverage thecurrent SunTrips brand;

·                  Expand ouroperations to include Meetings & Incentives, Special Event Planningand Corporate Travel Businesses; and

·                  Expand ourproduct and service offerings worldwide through the introduction of new travelproducts and destinations.

**Leverage the Current SunTrips Brand.**  SunTrips was established over 29 yearsago in San Jose, California. Prior to discontinuing operations last year,during the fiscal years 2001 through 2004 it had flown an average of 135,000passengers per year on charter tour packages to The Azores, Costa Rica, Mexicoand Hawaii. During its existence and up to the time of our purchase of theintellectual property, SunTrips has flown over 4,000,000 passengers to date,and SunTrips’ active customer list consists of 270,000 passengers who regularlybuy travel either through the call center or via the web site. Last year, 56%of SunTrips travelers bought two or more vacations per year.

Webelieve that the failure of SunTrips was caused by its prior managements changeto the selling of discounted air fare as a stand alone product rather thanfocusing its efforts on selling complete tour packages to its customers,including air fare, hotel and ground transportation. The selling of air fare

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only productsbecame a significantly higher percentage of SunTrips’ business and caused it tolose margin obtained from the sale of an entire tour package. In addition, thefailure to increase the pricing for air fare only products during a period ofrapidly escalating operating cost, caused by increase fuel surcharges, led tosignificant operating losses for SunTrips. SunTrips has not been operational asa tour operator since March 2006 and only has third party tour packageproducts available. We have had only limited sales of such products but havenot obtained material revenue from any such sales, averaging less than $2,500per month.

TheSuntrips intellectual property includes the following:

**Toll Numbers:** (800) 357-2400,(800) 464-0529, (800) 464-2719, (800) 497-3117,(800) 497-3171, (800) 497-8990, (800) 786-1785,(800) 786-1809, (800) 786-1810, (800) 786-2729,(800) 786-3279, (800) 786-3293, (800) 786-4357,(800) 786-4477, (800) 786-7253, (800) 786-8288,(800) 786-8747, (800) 786-8818, (800) 786-8820,(800) 786-8828, (800) 786-8890, (866) 438-6786,(866) 558-3696, (877) 561-5403, (877) 561-5404,(877) 561-5405, (877) 786-1847 (877) 786-4292,(877) 786-4294, (877) 786-4777, (877) 834-6937,(877) 834-6940, (888) 238-0524, (888) 238-0525,(888) 266-5847 (888) 786-1388, (888) 786-3293,(888) 786-4733, (888) 786-5484 (888) 786-8818,(888) 847-7737, (888) 888-5019, (888) 888-5024(888) 888-5026, (888) 888-5030

**URL / Domain Names: www.suntrips.com, www.snow-trips.com,www.snow-trips.net, www.snowtrips.net, www.oturl.com, www.oturl.net,www.oturl.biz, www.oturl.info, www.suntripsodyssey.com,www.suntripsodysseymagazine.com, www.suntripspass.com, www.suntripspass.net,www.suntripspass.org, Registered Brands / Trademarks: SUNTRIPSTM,NOBODY BEATS SUNTRIPSTM, VAMONOSTM, BOOK ‘EM FARESTM, SLIP INTO SOMETHING A LITTLEMORE COMFORTABLETM, PIPELINE TO PARADISETM, HOT DEALS UNDER THE SUNTM, SNOWTRIPSTM,SUNSATIONALTM, GO MONTM**

Tocapitalize on the SunTrips intellectual property, we are initiating a strategicsales and marketing push into the Northern California market via the itsdatabase of SunTrips customers, as well as supporting the travel agentscommunity through its preferential agreements with industry suppliers. Theinitial focus will be to the following destinations; Mexico and Hawaii as wellas gradually expanding to destinations in the Caribbean, Asia/Pacific andseasonal markets like Costa Rica and Azores to follow. Unlike SunTrips’ prioroperations, the product offering will focus on supplying travel packages usingpreferential and contracted rates on preferred suppliers rather than viacharter aircraft. Other proprietary product offerings such as airline andrental car packages catered to time share transfers will be directed initiallyto this database of customers and will be designed with around there traditionaltravel purchases.

Webelieve that by focusing our efforts on customer services as well as an ongoingseries of promotions geared specifically towards these customers based upontheir travel habits, industry trends and behavior patterns we will be able to overcomeany objections that stem from the failure of Suntrips’ former owners.

**Expand our operations to include Meetings &Incentive, Special Event Planning and Corporate Travel Businesses.**  As sellers of leisure travel, we have theability to offer attractive packages to corporations for meeting, incentive,and special event programs by leveraging its bulk buying power. We have formeda Meeting & Incentive and Corporate Travel Services division and havehired an industry professional to establish and grow this segment of thebusiness. The Meeting & Incentive Groups will be offered via acorporate sales force and will be fulfilled through in-house salesagents.

Webelieve the corporate travel, groups and, meeting and incentive sectors of theindustry represent a large opportunity for organic growth. This growth will beattempted though the offering of services to medium and large size corporation,where we will provide customized packaged solutions designed to fulfill theirspecific needs. The packages could include any combination of travel and hotel

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arrangements, thebooking of conference and catering facilities, and other special interestevents tailored specifically for company specific interests.

Toeffectively expand this segment of our business, we will require theestablishment of a solid corporate clientele ranging from medium and large sizecompanies as well as specific contractual agreements with industry vendors toaddress this type of client’s travel needs. Additionally, there is a great dealof competition from other more established vendors.

**Expand our Product and Service Offerings.**  We believe a majority of our revenues willcome from transactions involving the sale of airline tickets and the booking ofhotel reservations, either as stand-alone products or as part of packagetransactions. We are working to expand our packaged product line as these salesresults in higher revenue per transaction, and we also seek to continuediversifying our revenue mix beyond core air and hotel products to car rental,destination services, cruise and other offerings.

Weintend to continue investing in and growing our domestic points of sale. Weanticipate launching an innovative Home Based Agent (HBA) program to supportour strategy of returning to the traditional travel agent model. These HomeBased Agents will operate full service travel agencies from remote locations.Our program will allow for travel agents to work from their home office or asatellite office and have full access to the IT infrastructure that the companyhas established (telecommuting) as well as all administrative support. HBA’swill be provide all travel products to include (but not limited to)transportation, hotel accommodations, packaged tours and cruises that arebranded with either the company’s own “Sun Trips” brand or with other travelvendors, for instance i.e. cruise operators. Our plan combines the strength ofthe traditional store front setting with an extensive sales force of seasonedtravel experts in the field focusing on the grassroots market.

Futurelaunches may occur through internal growth or through acquisition of thirdparty brands and businesses. We currently do not have additional plannedacquisitions, however should attractive candidates arise we we will evaluate anacquisition at that time, including whether we have adequate resources,including cash, to effectively integrate and operate an acquisition.

Toinduce these agents to join the Crystal team, we will need to develop andexecute an innovative compensation plan that encompasses salary, commissionsand other benefits as well as ongoing product education, and infrastructuraladministrative support. Our goal is to have 50 HBAs in place by the end of2007.

**Relationships with Travel Suppliers**

Wewill strive to deliver value to our travel suppliers through a wide range ofinnovative, targeted promotional strategies designed to increase their revenue,while reducing their marketing transaction and customer service costs. We planto implement a group of strategic account managers who work directly withtravel suppliers to increase the marketing of their travel products throughtheir association with us.

As weare a small company, in order to establish and maintain these relationshipseffectively, we will begin with a small number of suppliers with specificbenchmarks which we will need to hit therefore allowing us to becomeestablished and build upon.

**Marketing and Promotions**

Weintend to develop marketing programs to build and maintain the value of ourvarious brands, drive retail and corporate consumer business and increaseconversion (calls to booking) through its brands and businesses, while lowerongoing traveler acquisition costs (associated costs of obtaining newcustomers) and strategically position our brands in relation to one another.Our long-term success

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depends on ourcontinued ability to increase the overall number of traveler transactions in acost-effective manner.

Ourmarketing channels will primarily include direct and/or personalized travelercommunications, search engine marketing and online and offline advertising. Ourmarketing programs and initiatives will also include promotional offers such ascoupons and gift cards, frequent traveler club, early booking discounts, etc.

**Operationsand Technology**

Oursystems infrastructure and web and database servers are hosted by third-partyweb hosting suppliers in various locations, in the United States, which providecommunication links, as well as 24-hour monitoring and engineering support. Theinternet hosting facilities have their own generators and multiple back-upsystems. Significant amounts of our computer hardware for operating thewebsites are also located at these facilities. As we grow and resources becomeavailable, we plan to invest significantly in its website and technologyplatform over the next years and will ultimately host in-house all processes.

Tosuccessfully implement the operational and technological platform, we will needto integrate various third party software packages and systems, as well asdevelop our own legacy processes in order to effectively achieve our goals.

**Competition**

Ourcompetition, which is strong and increasing, includes online and offline travelcompanies that target leisure and corporate travelers including travelagencies, tour operators, travel supplier direct websites and their callcenters, consolidators and wholesalers of travel products and services andother companies offering travel search engines including meta-search engines ineach case, on a local, regional, national and/or international basis.

Webelieve that maintaining and enhancing its brands is a critical component ofour efforts to compete. We will differentiate its brands from competitorsprimarily on the fact that it is moving away from the traditional industrymodels of; the stand alone travel agency, the traditional charter operator, andthe corporate travel, meetings and incentives house towards a horizontallyintegrated group of companies that will sell tour packages, stand alone travelproducts and corporate travel services on a national basis. An overall redirectof the marketing efforts has been implemented to develop a strong corporatebrand identity to communicate a “look and fell” that will effectively be spreadthroughout the family of companies. Our strategy to offer a limited selectionof scheduled air and hotel packages in which only certain hotel chains will beoffered (qualified inventory) reflects the strategic alliances that are both inplace and being sought. The selection criteria of the hotels centers onexperiential data garnished from the travel agent and hospitality community.Primary qualification is to be for a 3-4 star hotels that offer high-qualityamenities and service and have a sterling reputation for consistency. Thetarget customer for this segment is mid-income level consumer looking for avacation that is superior to first-rate but at a value.

**Regulation**

Wemust comply with laws and regulations relating to the travel industry and theprovision of travel services, including registration in various states as“sellers of travel” and compliance with certain disclosure requirements andparticipation in state restitution funds. In addition, our vendors are subjectto regulation by the U.S. Department of Transportation (DOT), Federal AviationAdministration (FAA), and our business is subject to multiple state specificlicensing bodies (such as the California Sellers of Travel licenses) and mustcomply with various rules and regulations governing the provision

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of airtransportation, including those relating to the Federal CommunicationCommission’s advertising and accessibility rules.

As wecontinues to expand the reach of our brands into international markets, we mayincreasingly be subject to laws and regulations applicable to travel agents inthose markets

**Employees**

SinceJuly 31, 2005 to July 31, 2006, we completed the re-alignment of ourcore business and made further changes to our overall employee head count.

As of July 31,2006 we have broken down our employee under the following:

Five work directlywithin CINT.

 

**Item 2.Properties.**

**DESCRIPTION OF PROPERTY**

We donot own any real property. Our corporate offices are located at in temporaryspace at 2100 Headquarters Plaza, 10th Floor, Morristown, NJ 07960, and are comprisedof approximately 1,500 square feet. We currently have fulfilled oursub-lease requirements and now are sub-leasing month by month at $2,850 permonth. We believe that this facility is sufficient to meet our currentrequirements, until completion of new office space within the same building.

Uponcompletion of the build out, we plan to sublease approximately 1,679 squarefeet of space located at 2160 Headquarters Plaza from Crystal CapitalPartners, Inc., which is owned and controlled by Peter Gallic, Peter Duganand Fabrizzio Busso Campana, each of whom are directors of the Company. Thesublease will provide for monthly payments of $3,777.75 and shall continuethrough a term of five years from the date of commencement which is expected tooccur on November 1, 2006, with an option to extend for an additional fiveyear.

Weoccupy approximately 950 square feet of retail space in Old Bridge New Jersey.Our wholly-owned subsidiary, Platinum Hospitality Holdings Inc.which acquired JRM, Inc. d/b/a the Travel House conducts its day to dayoperation from this location. The Travel House occupies the space under a leasewhich provides for monthly payments of $1,400, which continues up and untilAugust 2007. We have an option to renew such lease for an additional three yearperiod.

**Item 3.Legal Proceedings.**

**LEGAL PROCEEDINGS**

Fromtime to time we are subject to litigation which, if successful, could exceedapplicable insurance coverage. With the exception of the below, we are notcurrently a party to any legal proceedings which are not incidental to ourroutine business or that we believe will have a material adverse affect on ourresults of operations.

OnJuly 26, 2006 in the United States District Court for the Middle Districtof Florida, Michael J. Hewitt, a former Chief Executive Officer of ours, fileda Complaint and Demand for Jury Trial against us alleging that on or aboutAugust 4, 2004 he was terminated by us without just cause. Mr. Hewittis seeking approximately $1.1 million in damages. We believe this suit tobe without merit and plan to defend it vigorously.

OnSeptember 20, 2006 in the Circuit Court of the Seventh Judicial Circuit inand for St. Johns County, Florida, Paige Bendixsen, a former executiveofficer of ours, filed a Summons for a demand for jury trial alleging that fromthe period beginning is 2003 to date, we have breached a number of agreementsbetween Mr. Bendixson and us, including an agreement and plan of merger,an employment agreement and a settlement agreement. Mr. Bendixsen isseeking no less than $75,000 in damages. We believe this suit is without meritand plan to defend it vigorously.

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

There were nomatters submitted to a shareholder vote during the fourth quarter of the fiscalyear ended July 31, 2006.

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**PART II**

**PRICE RANGE OF OUR COMMON STOCK**

OurCommon Stock is traded on the OTC Electronic Bulletin Board of the NationalAssociation of Securities Dealers, Inc., Automated Quotation System underthe symbol “CINT”. Prior to May 19, 2006, our Common Stock was quotedunder the symbol “MOBR”. Although trading in our Common Stock has occurred on arelatively consistent basis, the volume of shares traded has been sporadic.There can be no assurance that an established trading market will develop, thatthe current market will be maintained or that a liquid market for our CommonStock will be available in the future. Investors should not rely on historicalstock price performance as an indication of future price performance.

|                                          | ** ** | **HI** | ** ** | **LOW** | ** ** |
|------------------------------------------|------------|--------|------------|---------|------------|
| Fiscal year  ending July 31, 2005   |       |   |       |    |       |
| First quarter                            |       | 7.60   |       | 2.40    |       |
| Second quarter                           |       | 7.20   |       | 2.40    |       |
| Third quarter                            |       | 3.20   |       | 0.68    |       |
| Fourth quarter                           |       | 2.80   |       | 0.72    |       |
|                                     |       |   |       |    |       |
| Fiscal year  ended July 31, 2006(1) |       |   |       |    |       |
| First quarter                            |       | 3.00   |       | 1.20    |       |
| Second quarter                           |       | 1.18   |       | 0.60    |       |
| Third quarter                            |       | 1.20   |       | 0.65    |       |
| Fourth quarter                           |       | 1.30   |       | 0.25    |       |

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(1)                                  OnJuly 29, 2005, we affected an eighty-for-one reverse split of our CommonStock in an attempt by our Board of Directors to encourage greater interest inus from the financial community and investing public.

As ofOctober 31, 2006, there were approximately 600 holders of record of ourCommon Stock. We believe that an insignificant number of shares of our CommonStock are held in either nominee name or street name brokerage accounts, consequently,we are unable to determine the exact number of beneficial owners since theeffective reverse of our common stock.

Wedeclared no dividends for the period ended July 31, 2006 and have noimmediate plans to do so.

**Item 6.****           Management’sDiscussion and Analysis of Financial Condition and Results of Operations.**

You should read the following discussion of theCompany’s business and results of operations in conjunction with theconsolidated financial statements attached herein. The results shown in this 10-KSBare not necessarily indicative of the results it will achieve in any futureperiods.

Financial Discussion

On April 17, 2006 the Company completed a reverse merger with Crystal Hospitality Holding, Inc. (Crystal).  The shareholders of Crystal acquired approximately 50% of the voting shares of the Company.  As discussed in the Liquidity and Capital Resources section above, the new management has arranged for short term financing and is actively working to complete a new equity offering.  No other equity in the Company has been sold.  Management of the Company has been able to stabilize the operations of the Company and no new defaults on existing Mobile Reach debts have occurred.  Significant market risk exists as a result of the previously existing financial issues of the Company and the change in ownership and business focus.

As of July 31, 2006, the Company had not gained complete control over the intangible assets associated with FS Suntours and SunTrips. The customer database had not been delivered and the phone number and websites associated with the trademarks were still in control of FS Suntours. Therefore, the Company recorded an asset impairment charge of $4,896,666 in relation to these assets. Please see Note 6 to the Financial Statements for the period ended July 31, 2006 herein.

Sources of Revenue

Revenues in fiscal year 2006 are from the new operating entity and resulted from travel related services.  In 2005 revenues were derived from the sale of software licenses, services and maintenance as well as equipment (hardware). License and maintenance revenues are normally generated from licensing of our products to end-users and resellers. Service revenues are generated from consulting services sold to end-users and software subscription services provided to customers. As described below:
| Year Ended                                  | ** ** | ** **                  | ** ** | ** **                  | ** ** |
|--------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| **Sources of Revenue**                 | ** ** | **July 31, 2006** | ** ** | **July 31, 2005** | ** ** |
| Software  Licenses, maintenance and support fees |       | $                           | 0          |                        | $          | 405,796 |   |
| Professional  Services                           |       | 0                           |       | 113,913                     |       |
| Product sales  (hardware)                        |       | 0                           |       | 87,665                      |       |
| Travel  commissions                              |       | 6,628                       |       | 0                           |       |
| Totals                                           |       | $                           | 6,628      |                        | $          | 607,374 |   |

 

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CRITICAL ACCOUNTING POLICIES

In preparing the consolidated financial statements in conformity with accounting principles generally accepted in the United States, the Company makes estimates, assumptions and judgments that can have a material impact on its net revenue, operating income and net income (loss), as well as on the value of certain assets on its consolidated balance sheet. The Company believes that the estimates, assumptions and judgments involved in the accounting policies described below have the greatest potential impact on its consolidated financial statements. The Company considers these to be its critical accounting policies.  The policies described below are not intended to be a comprehensive list of all the Company’s accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by generally accepted accounting principles, with no need for management judgment in their application.  There are also areas in which management judgment in selecting any available alternative would not produce a materially different result. The Company’s audited consolidated financial statements and notes thereto contain significant accounting policies and other disclosures required by generally accepted accounting principles. The accounting policies that are considered critical to an understanding of the consolidated financial statements are highlighted below.

Results of Operations

Revenues and expenses presented on the consolidated statement of income for July 31, 2006, represents the results of operations for Crystal International for the period December 8, 2006, (date of inception) through July 31, 2006, and the results of operations for Mobile Reach International, Inc. for July 31, 2006 only. Since Mobile Reach International’s subsidiary Mobile Reach Technologies, Inc. is the only current operating subsidiary, for discussion purposes, Mobile Reach International’s results of operations prior to July 31, 2006 will be included in the following sections.

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Year ending July 31, 2006 Compared to July 31, 2005

REVENUES:

Our revenues in fiscal year 2006 was generated from the travel related services provided as compared to fiscal year 2005 when revenues were primarily comprise of licensing and services fees, which we recognize as revenue when the product or services are provided to the client.  The unaudited consolidated financial data; is provided for comparative purpose only and does not claim to be indicative of the actual financial position or results of the Company’s carry forward operations.

GENERAL AND ADMINISTRATIVE EXPENSES:

Combined general and administrative expenses of Crystal and Mobile Reach International for the year ended July 31, 2006 was $2,155,769 representing an increase of 44.8% over Mobile Reach International’s $1,488,735 for the nine-month period ended April 30, 2005.  General and administrative consisting primarily of compensation, Professional fees including both legal and accounting, costs associated with Securities agreements and compliance reporting. The increase in general and administration reflects the increase in professional fees associated with the merger with Crystal Hospitality Holdings, Inc. (Crystal), Crystal’s acquisition of certain assets of FS SunTours, Inc., and the license agreement with Spectrum Mobile(described above).

LIQUIDITY AND CAPITAL RESOURCES

As of July 31, 2006, the Company had an accumulated deficit of $11,027,335 and a working capital deficit of $2,550,640. Our independent auditors, who audited our financial statements for the period ended July 31, 2006, have expressed substantial doubt about the Company’s ability to continue as a going concern given our recurring losses from operations, negative working capital and net stockholders’ deficit. In addition, the Company must deal with the litigation and claims described in Part II Item I of this Form 10-KSB under the heading “Legal Proceedings.”

During the fourth quarter of the fiscal year ending July 31, 2006 management has arranged for a short-term interim credit facility totaling $500,000.  In addition to this facility, management is

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actively working on completing a new convertible debt offering totaling $3,000,000 to 4,000,000, including conversion of various pre-existing obligations, for which a term sheet has been signed, and for which the company has received a portion of the funding.  A portion of the funding received was used to repay the short-term credit facility.  The Company has filed a registration statement covering the securities to be issued upon conversion of the debt.  Once the registration statement is declared effective, the Company expects to receive the balance of the interests sold in the offering of $735,000.  Once this balance is received management believes the Company will have adequate cash flow to fund operations for at least the next 12 months.

OTHER SIGNIFICANT MATTERS

The membership of the board of directors has changed as a result of the Crystal merger.  A former employee member of the board resigned and terminated his employment with the Company.  Another former employee terminated his employment but remained on the board.  The Company filled the openings on the board with 3 new employee members and 1 new independent director.

On July 3, 2006 the Company executed a financing agreement whereby the company issued notes convertible into Company’s common shares and warrants for additional common shares of the Company.  The agreement provided for a total investment of Two Million ($2,000,000) Dollars, of which Seven Hundred Thousand ($700,000) Dollars was received by the Company on July 3, 2006, and an additional Six Hundred Thousand ($600,000) Dollars was received by the Company on August 3, 2006.  The Company has filed a registration statement which includes the shares issue able by the Company upon conversion of the outstanding notes.  The Company expects to receive the remaining balance of Seven Hundred Thousand ($700,000) Dollars upon the registration statement being declared effective, which the Company anticipates will occur within the next 30 days.

On August 3, 2006, the Company executed an additional financing agreement for a total of One Hundred Thousand ($100,000) Dollars, on the same terms and conditions as the above and received an additional Sixty Five Thousand ($65,000) Dollars.  The Company expects to receive the remaining balance of Thirty Five Thousand ($35,000) Dollars upon the registration statement being declared effective.

11

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**RiskFactors**:

You should carefully consider the risk factors described below. If anyof the following risk factors actually occur, our business, prospects,financial condition or results of operations would likely suffer. In such case,the trading price of our common stock could fall resulting in the loss of allor part of your investment. You should look at all these risk factors in total.Some risk factors may stand on their own. Some risk factors may affect (or beaffected by) other risk factors. You should not assume we have identified theseconnections. You should not assume that we will always update these and futurerisk factors in a timely manner. We are not undertaking any obligation toupdate these risk factors to reflect events or circumstances after the date ofthis report or to reflect the occurrence of unanticipated events.

**Our financial results for the twelve-month fiscal yearending July 31, 2006 show substantial losses and there is substantialdoubt as to our ability to continue as a going concern.**

Thefinancial statements for the twelve month period ended July 31, 2006reflect substantial losses. Specifically, we have sustained substantial operatinglosses in the twelve months ended July 31, 2006 and the twelve monthsended July 31, 2005 of $11,027,335 and $970,881, respectively. As ofJuly 31, 2005 we are in default on certain notes payable, payroll taxesand other payables. In addition, we have used substantial amounts of workingcapital in our operations. Further, at July 31, 2006, our current assetswere $183,128 and current liabilities were $2,717,772 our accumulated deficitas of July 31, 2006 was $11,027,335.

ScharfPera & Co., PLLC, our independent auditors, have expressed substantialdoubt about our ability to continue as a going concern given our recurringlosses from operations, negative working capital and net stockholder’s deficit.This opinion could materially limit our ability to raise additional funds byissuing new debt or equity securities or otherwise. You should consider ourauditor’s comments when determining if an investment in we are suitable.

**We have a limited operating history and are not yetprofitable.**

We area relatively new company that is not yet profitable. We expect to continue tohave substantial expenses before we earn significant income in excess of ourexpenses. The establishment of any new business involves problems, expenses,difficulties, complications and delays. It is not possible for anyone,including us, to predict with certainty what all of these expenses,complications and delays will be. We cannot guarantee to you that we will beable to overcome these obstacles, and we cannot guarantee to you that we willever be profitable.

**We operate in a very competitive environment and facesincreasing competition from a variety of companies with respect to its productsand services offerings(s).**

Themarket for the services we offer is intensely competitive. We will compete withboth established and emerging online and traditional sellers of travel serviceswith respect to each of the services it offers. Many competitors, includingtravel suppliers such as airlines and hotels, may offer services and productson more favorable terms such as no transaction fees and with unique access toloyalty programs, such as points and miles. These competitors, such asairlines, hotel and rental car companies, are also focusing on driving onlinedemand to their own websites in lieu of third-party distributors like us.For instance, many low cost airlines, which are having increasing success inthe marketplace, distribute their inventory exclusively through their ownwebsites. Suppliers who sell on their own websites typically do not charge aprocessing fee, and, in some instances, offer advantages such as bonus miles orloyalty points, which could make their offerings more attractive to consumersthan models like ours. Increased competition may result in reduced operatingmargins, as well as loss of travelers, transactions and brand recognition. Wecannot assure you that it will be able to compete successfully against current,emerging and future competitors or provide differentiated products and servicesto its traveler base. Increased competition could result in reduced operatingmargins, loss of segment share and damage to the brand. There can be noassurance that we will be able to compete successfully against current andfuture competitors or that competition will not have a material adverse effecton the core business, results of operations and financial condition.

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**Our revenues are highly dependent on the travel andtransportation industries, and particularly on airlines, and a prolongedsubstantial decrease in travel volume could adversely affect it as well asdeclines or disruptions in the travel industry, such as those caused byterrorism, war, inclement weather, health concerns, and/or general economicdownturns**

Travelexpenditures are sensitive to business and personal discretionary spendinglevels and tend to decline during general economic downturns. Our revenuesincrease and decrease with the level of travel and transportation activity andis therefore highly subject to declines in or disruptions to travel andtransportation due to factors entirely out of its control. Factors that mayadversely affect travel and transportation activity, which are beyond ourcontrol, include: global security issues, political instability, acts orthreats of terrorism, hostilities or war,

·                  increasedairport security that could reduce the convenience of air travel,

·                  naturaldisasters, such as the hurricanes that occurred in the Gulf Coast andCancun/Mayan Riviera in the Fall of 2005,

·                  travelers’perception of the occurrence of travel-related accidents,

·                  travelers’concerns about exposure to contagious diseases and pandemics, such as SARS orthe Avian Influenza (commonly referred to as bird flu),

·                  increases infuel prices,

·                  general economicconditions in the United States and worldwide,

·                  political issuesin the Middle East, Asia, Latin America and elsewhere,

·                  the financialcondition of travel suppliers

·                  the possibilityof further terrorist attacks, hostilities and war, the resulting heightenedsecurity measures at airports, and

·                  the financialinstability of many of the air carriers may continue to adversely affect thetravel industry.

Withrespect to our product distribution business, vendors may reduce the number ofcomponents they offer, making fewer offerings available to our package distributionbusinesses and resulting in a decline in the volume of overall transactions.

Ourproduct distribution business depends on a relatively small number of “key”vendors for a significant portion of our revenues. Several major airlines haveexperienced liquidity problems, some (including U.S. Airways, Inc., ATAHoldings Corporation, Delta Air Lines, Inc. and Northwest AirlinesCorporation) and have sought bankruptcy protection and still others mayconsider bankruptcy relief.

Travelers’perceptions of passenger security or airlines’ financial stability that arenegative may have an adverse effect on demand. The financial instability ofairlines or a prolonged substantial decrease in travel volumes could have anadverse impact on our financial performance, operations, liquidity, or capitalresources and could impair our ability to recover the carrying value of certainof our assets, including capitalized software, other intangible assets andgoodwill.

**We depend on its relationships with travel suppliers andvendors and any adverse changes in these relationships could adversely affectour business, financial condition and results of operations.**

Animportant component of our business success depends on the ability to maintainit’s existing, as well as build new, relationships with travel suppliers andvendors. Adverse changes in existing relationships, or our inability to enterinto new arrangements with these parties on favorable terms, if at all, couldreduce the amount, quality and breadth of attractively priced travel productsand services

13

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that we are ableto offer, which could adversely affect the business, financial condition andresults of operations.

Travelsuppliers are increasingly seeking to lower their travel distribution costs bypromoting direct online bookings through their own websites. In some cases,supplier direct channels offer advantages to consumers, such as loyaltyprograms or lower transaction fees. In addition, travel suppliers may choosenot to make their travel products and services available through ourdistribution channels. To the extent that consumers continue to increase thepercentage of their travel purchases through supplier direct websites and/or iftravel suppliers choose not to make their products and services available tous, our business may suffer.

**Our failure to recapture and retain travelers in acost-effective manner could adversely affect our business, financial conditionand results of operations.**

Ourlong-term success will depend on our ability to increase the overall number oftraveler transactions in a cost-effective manner. In order to increase thenumber of traveler transactions, we must capture repeat business from existingtravelers and also attract new visitors to our websites and other distributionchannels and convert these visitors into paying travelers. Due to problemsassociated with the SunTrips brand in the past, this may not be possible. Priorto our purchase, the SunTrips business failed and on or about March 2006and closed operations at that time. We are not currently offering packaged tourproducts under the SunTrips name to its prior customers. Our meetings,incentives and corporate travel business is dependent on enlisting newcorporate travelers and in attracting their travel booking activity to ourcorporate travel websites, and planning services specialists as well asretaining existing corporate travelers.

**We will rely on the performance of highly skilled personneland, if we are unable to retain or motivate key personnel or hire, retain andmotivate qualified personnel, our business would be harmed.**

Ourperformance will be largely dependent on the talents and efforts of highlyskilled individuals. Our future success depends on our continuing ability toidentify, hire, develop, motivate and retain highly skilled personnel for allareas of our organization. In particular the contributions of Fabrizzio Busso-Campana,our Chief Executive Officer and President, will be necessary as he bringsexpertise in the areas of strategic and market planing and management.

Personnelincludes; Fabrizzio P. Busso-Campana who has extensive budgeting,strategic and market planning experience from Club Med, Celebrity Cruises,Royal Caribbean Cruise Lines and MGM Grand Corporation, Teresa Rae Hanneman hasextensive tour and travel operations experience from MGM Grand Corporation,CheapSeats, and Club Med, Peter Wright has extensive management experience fromThe CMI Network, and Apple Vacations, Peter Gallic has extensive productdevelopment and financial management experience and Richard Sardiello hasextensive transportation operations and sales experience with ATA airlines andClub Med.

Inaddition, our future success will depend on the performance of our seniormanagement and key employees, many of whom joined us recently. If we do notsucceed in attracting well-qualified employees or retaining or motivatingexisting employees, our business would be adversely affected.

**Our proposed expansion will place a significant strain on ourmanagement, technical, operational and financial resources.**

Throughboth internal growth and acquisitions, we hope to rapidly and significantlyexpand our operations and anticipate expanding further to pursue growth of ourproduct and service offerings and customer base. Such expansion increases thecomplexity of our business and places a significant strain on our management,operations, technical performance, financial resources, and internal financialcontrol and reporting functions.

14

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Therecan be no assurance that we will be able to manage its expansion effectively.Our current and planned personnel, systems, procedures and controls may not beadequate to support and effectively manage our future operations, especially aswe employ personnel in multiple geographic locations. We may not be able tohire, train, retain, motivate and manage required personnel, which may limitour growth. If any of this were to occur, it could damage our reputation, limitour growth, negatively affect our operating results, and hurt our business.

**We may experience operational and financial risks inconnection with any acquisitions. We cannot assure you that we will be able tosuccessfully integrate recent and any future acquisitions or that suchacquisitions will have the anticipated impact on our earnings and results ofoperations. In addition, some of the businesses we acquire may incursignificant losses from operations or experience impairment of carrying value.**

Ourfuture growth may depend, in part, on acquisitions. To the extent that wecontinue to grow through acquisitions, we may face the operational andfinancial risks that commonly accompany that strategy. We would also faceoperational risks, such as failing to assimilate the operations and personnelof the acquired businesses, disrupting their ongoing businesses, impairingmanagement resources and their relationships with employees and travelers as aresult of changes in their ownership and management Further, the evaluation andnegotiation of potential acquisitions, as well as the integration of an acquiredbusiness, will divert management time and other resources. Some acquisitionsmay not be successful and their performances may result in the impairment oftheir carrying value.

**Changing laws, rules and regulations and legal uncertaintiesmay adversely affect our business, financial condition and results ofoperations.**

Ourbusiness, financial condition and results of operations could be adverselyaffected by unfavorable changes in or interpretations of existing, or thepromulgation of new laws, rules and regulations applicable to us and ourbusinesses, including those relating to the internet and online commerce,consumer protection and privacy, escheat and sales, use, occupancy, value-addedand other taxes, could decrease demand for products and services, increasecosts and/or subject us to additional liabilities. For example, there is, andwill likely continue to be, an increasing number of laws and regulationspertaining to the internet and online commerce, which may relate to liabilityfor information retrieved from or transmitted over the internet, user privacy,taxation and the quality of products and services. Furthermore, the growth anddevelopment of online commerce may prompt calls for more stringent consumerprotection laws that may impose additional burdens on online businessesgenerally.

**Unless an active trading market develops for our commonstock, you may not be able to sell your shares.**

Althoughwe are a reporting company and our common stock is listed on theOver-the-Counter Bulletin Board, there is no active trading market for ourcommon stock. An active trading market may never develop or, if developed, itmay not be maintained even after we register the shares you purchase. Failureto develop or maintain an active trading market will negatively affect theprice of our securities. You may be unable to sell your shares or such salesmay lower the market price, and therefore your investment would be a partial orcomplete loss.

**We are subject to the penny stock rules, and therefore youmay find it more difficult to sell your securities.**

Broker-dealerpractices in connection with transactions in “penny stocks” are regulated bycertain rules adopted by the Securities and Exchange Commission. Penny stocksgenerally are equity securities with a price of less than $5.00 (other thansecurities registered on certain national securities exchanges or quoted on theNASDAQ Stock Market provided that current price and volume information with

15

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respect totransactions in such securities is provided by the exchange or system). Therules require that a broker-dealer, prior to a transaction in a pennystock not otherwise exempt from the rules, deliver to the buyer a standardizedrisk disclosure document that provides information about penny stocks and therisks in the penny stock market. The broker-dealer also must provide thecustomer with current bid and offer quotations for the penny stock, thecompensation of the broker-dealer and our salesperson in connection withthe transaction and monthly account statements showing the market value of eachpenny stock held in the customer’s account. In addition, the rules generallyrequire that prior to a transaction in a penny stock; the broker-dealermust make a special written determination that the penny stock is a suitableinvestment for the purchaser and receive the purchaser’s written agreement tothe transaction. These disclosure requirements may have the effect of reducingthe liquidity of penny stocks. Our securities are subject to the penny stockrules, and thus investors in the offering may find it difficult to sell theirsecurities.

**Our founders, officers and directors beneficially ownapproximately 50% of our stock on a fully diluted basis; their interests couldconflict with yours; significant sales of stock held by any or all of themcould have a negative effect on our stock price; stockholders may be unable toexercise control.**

As ofOctober 31, 2006, our founders, officers and directors beneficially ownedapproximately 50% of our common stock on a fully diluted basis. In addition,employees own additional shares and rights to acquire shares. As a result, thefounders, officers and directors will have significant ability to:

·                  elect or defeatthe election of our directors;

·                  amend or preventamendment of our articles of incorporation or bylaws;

·                  effect orprevent a merger, sale of assets or other corporate transaction; and

·                  control theoutcome of any other matter submitted to the stockholders for vote.

As aresult of this ownership and position, our founders, officers and directors areable to significantly influence all matters requiring stockholder approval,including the election of directors and approval of significant corporatetransactions. In addition, sales of significant amounts of shares held by anyor all of our founders, officers and directors, or the prospect of these sales,could adversely affect the market price of our common stock. Stock ownership byour founders and management may discourage a potential acquirer from making atender offer or otherwise attempting to obtain control of us, which in turncould reduce our stock price or prevent our stockholders from realizing apremium over our stock price.

**We do not expect to pay dividends. Therefore, you may notrely on your ownership of our stock as a source of income.**

We do not anticipate paying cash dividends in theforeseeable future. Therefore, you may not rely on ownership of our stock as asource of income.

 

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**CRYSTAL INTERNATIONAL TRAVEL GROUP, INC. ANDSUBSIDIARIES(FORMERLY MOBILE REACH INTERNATIONAL, INC.)INDEX TO FINANCIAL STATEMENTSJULY 31, 2006**
| INDEX                                                            |   |
|------------------------------------------------------------------|--------|
|                                                             |   |
| INDEPENDENT  AUDITORS’ REPORT                               |   |
|                                                             |   |
| FINANCIAL STATEMENTS:                                            |   |
|                                                             |   |
| Consolidated Balance  Sheet                                      |   |
|                                                             |   |
| Consolidated Statement of Income                                 |   |
|                                                             |   |
| Consolidated Statement of Changes in Stockholders’  Deficit |   |
|                                                             |   |
| Consolidated Statement of Cash Flows                             |   |
|                                                             |   |
| Notes to Consolidated Financial Statements                       |   |

 

F-1

----

 

 
|                                     | Scharf Pera & Co., PLLC     |
|------------------------------------------|---------------------------------|
|                                     | Certified Public Accountants    |
|                                     | 4600 Park Road                  |
|                                     | Suite 112                       |
|                                     | Charlotte, North Carolina 28209 |
|                                     | 704-372-1167                    |
|                                     | Fax: 704-377-3259               |
| To the Stockholders’                |
| Crystal International Travel Group, Inc. |
| Chatham, New Jersey                      |

 

**INDEPENDENT AUDITORS’ REPORT**

Wehave audited the accompanying consolidated balance sheet of CrystalInternational Travel Group, Inc. and Subsidiaries as of July 31, 2006, and the related consolidated statements of income,stockholders’ deficit, and cash flows for the period December 8, 2005 (date ofinception) to July 31, 2006.  These financial statements are theresponsibility of the Company’s management. Our responsibility is to express an opinion on these financialstatements based on our audit.

Weconducted our audit in accordance with the Public Company Accounting OversightBoard (United States).  Those standardsrequire that we plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement.  An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financialstatements.  An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statementpresentation.  We believe that our auditprovides a reasonable basis for our opinion.

Inour opinion, the financial statements referred to above present fairly, in allmaterial respects, the financial position of Crystal International TravelGroup, Inc. and Subsidiaries as of  July 31, 2006, and the results of itsoperations and its cash flows for December 8, 2005 (date of inception) to July 31, 2006, in conformity withaccounting principles generally accepted in the United States of America.

Theaccompanying financial statements have been prepared assuming that the Companywill continue as a going concern.  Asdiscussed in Note 1 to the financial statements, the Company has sufferedrecurring losses from operations and has net stockholders’ deficit, which raisesubstantial doubt about its ability to continue as a going concern.  Management’s plans regarding these mattersare also included in Note 2.  Thefinancial statements do not include any adjustments that might result from theoutcome of this uncertainty.

ScharfPera & Co., PLLC

Charlotte, North Carolina

November 10, 2006

 

 

F-2

 

 

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**CRYSTALINTERNATIONAL TRAVEL GROUP, INC. AND SUBSIDIARIES(FORMERLY MOBILE REACH INTERNATIONAL, INC.)CONSOLIDATED BALANCE SHEET**JULY 31, 2006
| **ASSETS**                                                                                                                    |   |        |   |       |    |
|-------------------------------------------------------------------------------------------------------------------------------|--------|-------------|--------|------------|---------|
|                                                                                                                          |   |        |   |       |    |
| **CURRENT ASSETS:**                                                                                                           |   |        |   |       |    |
| Cash                                                                                                                          |   | $           | 35,489 |       |    |   |
| Accounts  receivable                                                                                                          |   | —      |   |       |    |
| Prepaid  insurance                                                                                                            |   | 106,643     |   |       |    |
| Deposits                                                                                                                      |   | 25,000      |   |       |    |
|                                                                                                                          |   |        |   |       |    |
| Total current  assets                                                                                                         |   |        |   | 167,132    |    |
|                                                                                                                          |   |        |   |       |    |
| **PROPERTY & EQUIPMENT –**net  of accumulated depreciation                                                           |   |        |   | 15,996     |    |
|                                                                                                                          |   |        |   |       |    |
| **INTANGIBLE ASSETS –**net  of accumulated amortization                                                                  |   |        |   | —     |    |
|                                                                                                                          |   |        |   |       |    |
|                                                                                                                          |   |        |   | $          | 183,128 |   |
|                                                                                                                          |   |        |   |       |    |
| **LIBILITIES  & STOCKHOLDERS’ EQUITY**                                                                               |   |        |   |       |    |
| ** **                                                                                                                    |   |        |   |       |    |
| **CURRENT LIABILITIES:**                                                                                                      |   |        |   |       |    |
| Current portion  long-term debt                                                                                               |   | $           | 30,000 |       |    |   |
| Short-term notes  payable                                                                                                     |   | 264,169     |   |       |    |
| Accounts payable                                                                                                              |   | 816,261     |   |       |    |
| Notes payable –  related parties                                                                                         |   | 286,038     |   |       |    |
| Accrued  liabilities                                                                                                          |   | 1,321,304   |   |       |    |
|                                                                                                                          |   |        |   |       |    |
|                                                                                                                          |   |        |   | 2,717,772  |    |
|                                                                                                                          |   |        |   |       |    |
| **LONG TERM LIABILITIES:**                                                                                                    |   |        |   |       |    |
| Long-term debt                                                                                                                |   | 5,021,307   |   |       |    |
| Convertible  debentures                                                                                                       |   | 1,389,661   |   |       |    |
|                                                                                                                          |   |        |   |       |    |
|                                                                                                                          |   |        |   | 6,410,968  |    |
|                                                                                                                          |   |        |   |       |    |
| **STOCKHOLDERS’ EQUITY:**                                                                                                |   |        |   |       |    |
| Preferred stock;  $.0001 par value; 100,000,000 shares authorized                                                             |   | —      |   |       |    |
| Common stock;  par value $.001; 500,000,000 shares authorized, 11,784,813 issued and  outstanding, 58,463 shares to be issued |   | 23,012      |   |       |    |
| Paid-in capital                                                                                                               |   | 2,058,711   |   |       |    |
| Accumulated  deficit                                                                                                          |   | (11,027,335 | )      |       |    |
|                                                                                                                          |   |        |   |       |    |
|                                                                                                                          |   |        |   | (8,945,612 | )       |
|                                                                                                                          |   |        |   |       |    |
|                                                                                                                          |   |        |   | $          | 183,128 |   |

 

**See Notes to Consolidated FinancialStatements**

F-3

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**CRYSTALINTERNATIONAL TRAVEL GROUP, INC. AND SUBSIDIARIES(FORMERLY MOBILE REACH INTERNATIONAL, INC.)CONSOLIDATED STATEMENT OF INCOMEPERIOD FROM DECEMBER 8, 2005 (DATE OF INCEPTION)TO JULY 31, 2006**
| **REVENUE:**                                 |   |       |   |        |        |
|----------------------------------------------|--------|------------|--------|-------------|-------------|
| License and fees                             |   |       |   | $           | 6,628       |   |
|                                         |   |       |   |        |        |
|                                         |   |       |   | 6,628       |        |
|                                         |   |       |   |        |        |
| **COST  AND EXPENSES:**                      |   |       |   |        |        |
| Cost of goods sold                           |   | —     |   |        |        |
| General and administrative expenses          |   | 2,155,769  |   |        |        |
|                                         |   |       |   | 2,155,769   |        |
|                                         |   |       |   |        |        |
| **OPERATING  INCOME**                        |   |       |   | (2,149,141  | )           |
|                                         |   |       |   |        |        |
| **OTHER  INCOME (EXPENSES):**                |   |       |   |        |        |
| Depreciation and amortization                |   | (126,235   | )      |        |        |
| Interest expense                             |   | (1,377,982 | )      |        |        |
| Loss on impairment of intangibles            |   | (4,896,666 | )      |        |        |
| Liabilities in excess of assets acquired     |   | (2,477,311 | )      |        |        |
|                                         |   |       |   | (8,878,194  | )           |
|                                         |   |       |   |        |        |
| **NET  LOSS BEFORE INCOME TAXES**            |   |       |   | (11,027,335 | )           |
|                                         |   |       |   |        |        |
| **INCOME  TAX (EXPENSE) BENEFIT**            |   |       |   | —      |        |
|                                         |   |       |   |        |        |
| **NET  LOSS**                                |   |       |   | $           | (11,027,335 | ) |
|                                         |   |       |   |        |        |
| **WEIGHTED  AVERAGE NUMBER OF SHARES**       |   |       |   | 8,918,989   |        |
|                                         |   |       |   |        |        |
| **LOSS PER SHARE – BASIC AND  DILUTED** |   |       |   | $           | (1.24       | ) |

 

**See Notes to Consolidated FinancialStatements**

F-4

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**CRYSTALINTERNATIONAL TRAVEL GROUP, INC. AND SUBSIDIARIES(FORMERLY MOBILE REACH INTERNATIONAL, INC.)CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICITPERIOD FROM DECEMBER 8, 2005 (DATE OF INCEPTION)TO JULY 31, 2006**
| ** **                                                                     | ** ** | **Shares** | ** ** | **Amount** | ** ** | **Paid-in  Capital** | ** ** | **Accumulated  Deficit** | ** ** | **Total**   | ** **  |
|--------------------------------------------------------------------------------|------------|------------|------------|------------|------------|----------------------|------------|--------------------------|------------|-------------|-------------|
| Balance at  December 8, 2005                                                   |       | —     |       | $          | —     |                 | $          | —                   |       | $           | —      |   | $ | — |   |
| Common shares  issued in formation of Crystal Hospitality Holdings, Inc.       |       | 200        |       | 23,012     |       | —               |       | —                   |       | 23,012      |        |
| Shares exchanged  for common shares of Mobile Reach International, Inc.        |       | (200       | )          | —     |       | —               |       | —                   |       | —      |        |
| Common shares  issued to Crystal Hospitality Holdings, Inc stockholders        |       | 7,100,000  |       | —     |       | —               |       | —                   |       | —      |        |
| Common shares  owned by Mobile Reach International, Inc. stockholders          |       | 4,743,276  |       | —     |       | —               |       | —                   |       | —      |        |
| Fair market  value of warrants attached to short-term debt issued              |       | —     |       | —     |       | 68,000               |       | —                   |       | 68,000      |        |
| Fair market  valued of beneficial conversion feature of convertible debentures |       | —     |       | —     |       | 1,990,711            |       | —                   |       | 1,990,711   |        |
| Net loss                                                                       |       | —     |       | —     |       | —               |       | (11,027,335              | )          | (11,027,335 | )           |
|                                                                           |       | 11,843,276 |       | $          | 23,012     |                 | $          | 2,058,711                |       | $           | (11,027,335 | ) | $ | (8,945,612 | ) |

 

**See Notes to Consolidated FinancialStatements**

F-5

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**CRYSTALINTERNATIONAL TRAVEL GROUP, INC. AND SUBSIDIARIES(FORMERLY MOBILE REACH INTERNATIONAL, INC.)CONSOLIDATED STATEMENT OF CASH FLOWSPERIOD FROM DECEMBER 8, 2005 (DATE OF INCEPTION)TO JULY 31, 2006**
| **Net loss**                                                                       |   |      |   | $          | (11,027,335 | )      |
|------------------------------------------------------------------------------------|--------|-----------|--------|------------|-------------|--------|
|                                                                               |   |      |   |       |        |
| **Adjustments  to reconcile net income to net cash used in operating activities:** |   |      |   |       |        |
| Fair value of warrants issued as interest expense                                  |   | 68,000    |   |       |        |
| Beneficial conversion feature of debentures issued                                 |   | 1,039,661 |   |       |        |
| Liabilities in excess of assets purchased                                          |   | 2,477,311 |   |       |        |
| Loss on impairment of intangibles                                                  |   | 4,896,666 |   |       |        |
| Debentures issued for services                                                     |   | 250,000   |   |       |        |
| Depreciation and amortization                                                      |   | 126,235   |   |       |        |
| Changes in operating assets and liabilities:                                       |   |      |   |       |        |
| Increase in other current assets                                                   |   | (132,002  | )      |       |        |
| Increase in accounts payable                                                       |   | 407,996   |   |       |        |
| Increase in accrued expenses                                                       |   | 813,445   |   |       |        |
|                                                                               |   |      |   |       |        |
| Total adjustments                                                                  |   |      |   | 9,947,312  |        |
|                                                                               |   |      |   |       |        |
| **Net cash used in operating activities**                                          |   |      |   | (1,080,023 | )           |
|                                                                               |   |      |   |       |        |
| **Cash  flows used in investing activities:**                                      |   |      |   |       |        |
| Cash paid for purchase of property and equipment                                   |   | (17,231   | )      |       |        |
|                                                                               |   |      |   |       |        |
| **Net cash used in investing activities**                                          |   |      |   | (17,231    | )           |
|                                                                               |   |      |   |       |        |
| **Cash  flows provided by financing activities:**                                  |   |      |   |       |        |
| Proceeds from short-term notes                                                     |   | 500,000   |   |       |        |
| Payments on short-term notes                                                       |   | (400,000  | )      |       |        |
| Proceeds from convertible debentures                                               |   | 723,097   |   |       |        |
| Proceeds from related party advances                                               |   | 377,513   |   |       |        |
| Payments on related party advances                                                 |   | (90,879   | )      |       |        |
| Proceeds from sale of stock                                                        |   | 23,012    |   |       |        |
|                                                                               |   |      |   |       |        |
| **Net cash provided by financing activities**                                      |   |      |   | 1,132,743  |        |
|                                                                               |   |      |   |       |        |
| **Net  increase in cash**                                                          |   |      |   | 35,489     |        |
| ** **                                                                         |   |      |   |       |        |
| **Cash –  Beginning of period**                                               |   |      |   | —     |        |
| ** **                                                                         |   |      |   |       |        |
| **Cash – End of period**                                                      |   |      |   | $          | 35,489      |   |

 

**See Notes to Consolidated FinancialStatements**

F-6

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**CRYSTALINTERNATIONAL TRAVEL GROUP, INC. AND SUBSIDIARIES(FORMERLY MOBILE REACH INTERNATIONAL, INC.)SUPPLEMENTAL DISCLOSURES OF CASH FLOWSPERIOD FROM DECEMBER 8, 2005 (DATE OF INCEPTION)TO JULY 31, 2006**
| **Non-cash  activities:**                                        |   |      |      |
|------------------------------------------------------------------|--------|-----------|-----------|
| Exchange of debt for intangible assets                           |   | $         | 5,021,307 |   |
|                                                             |   |      |      |
| Refinancing of short-term debt to convertible debt               |   | 100,000   |      |
| ** **                                                       |   |      |      |
| **Acquisition  of Mobile Reach International and Subsidiaries:** |   |      |      |
| Assets assumed:                                                  |   |      |      |
| Cash                                                             |   | $         | 262       |   |
|                                                             |   |      |      |
| Liabilities assumed:                                             |   |      |      |
| Accounts payable                                                 |   | 408,527   |      |
| Accrued expenses                                                 |   | 507,859   |      |
| Short-term debt                                                  |   | 294,169   |      |
| Long-term and convertible debt                                   |   | 1,267,018 |      |
|                                                             |   |      |      |
|                                                             |   | 2,477,573 |      |
|                                                             |   |      |      |
| Net liabilities  exceeding net assets                            |   | $         | 2,477,311 |   |

 

**See Notes to Consolidated FinancialStatements**

 

F-7

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**CRYSTALINTERNATIONAL TRAVEL GROUP, INC. AND SUBSIDIARIES(FORMERLY MOBILE REACH INTERNATIONAL, INC.)NOTES TO CONSOLIDATED FINANCIAL STATEMENTSPERIOD FROM DECEMBER 8, 2005 (DATE OF INCEPTION)TO JULY 31, 2006**

**Note 1 – Business Combinations:**

On April 17, 2006,effective April 29, 2006, Crystal International Travel Group, Inc. andSubsidiaries (formerly Mobile Reach International, Inc.) (the “Company”)completed a share exchange with the stockholders of Crystal HospitalityHoldings, Inc., a Delaware corporation (“CHH”), pursuant to a Share ExchangeAgreement (the “Exchange Agreement”), by and among the Company, CHH and theholders of the outstanding capital stock of CHH (the “CHH Stockholders”). As aresult, CHH is now a wholly owned subsidiary of the Company. The Company hasaccounted for this share exchange using the purchase method of accounting asprescribed by Statement of Financial Accounting Standards (“SFAS”) No. 141, “BusinessCombinations”. The share exchange has been treated as a reverse acquisition ofthe Company by CHH, due to the stockholders of CHH receiving 60.4 percent ofthe voting rights of the combined entity. The Company did not record any amountfor goodwill on this share exchange; the Company did record $2,477,311 ofexpense representing the amount that Mobile Reach International, Inc.’s (“MRI”)liabilities exceeded assets on April 29, 2006. The consolidated financialstatements include the results from operations for CHH from December 8, 2005(date of inception) through July 31, 2006, and the results from operations forMobile Reach International, Inc. for April 30, 2006 through July 31, 2006.

Subsequent to the shareexchange, Mobile Reach International, Inc. changed its name to CrystalInternational Travel Group, Inc.

**Note 2 – Going Concern:**

The accompanyingfinancial statements have been prepared in conformity with accountingprinciples generally accepted in the United States of America, whichcontemplates continuation of Crystal International Travel Group, Inc. andsubsidiaries as a going concern. However, as a result of the merger discussedin Note 1, the Company has acquired debt on certain notes payable that are indefault, payroll taxes and other payables owed by the acquired company. Additionally,the Company has used substantial amounts of working capital in start-upoperations and has generated an operating loss leading to an accumulatedstockholders’ deficit of $11,027,335 for the period from December 8, 2005 (dateof inception) through July 31, 2006. Further, at July 31, 2006, the Company’scurrent liabilities exceeded current assets by $2,550,640. Based on thesefactors, the Company may not be able to continue as a going concern.

With the merger discussedin Note 1, the Company’s management has taken over management of the acquiredcompany and is changing the acquired company’s focus of operations. Plansinclude licensing out all software development and concentrating on the Company’score business of

F-8

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providing travelpackages to individuals. Management also plans on additional financing throughthe issuance of convertible debentures. However, no assurance can be given thatthe Company will continue as a going concern without the successful completionof additional financing and the commencement of management’s planned changes inoperations. The accompanying financial statements do not include anyadjustments that might be necessary if the Company is unable to continue as agoing concern.

As a result ofdelinquencies and defaults, the Company may be subject to collection actions wheneveragreements cannot be reached, including, but not limited to, litigation,foreclosure and/or seizure of assets and bank accounts.

**Note 3 – Summary of Significant AccountingPolicies:**

**Organizationand principles of consolidation:**

The Company was originallyorganized to develop and sell mobility software products and services in theUnited States and Europe. Its offices were located in Cary, North Carolinauntil the Exchange Agreement discussed in Note 1.  Since the effective date of the ExchangeAgreement, the Company moved its operations to Chatham, New Jersey. The principalfocus of operations has been the development of travel products and servicesfor sale to the general public in the United States through the utilization ofregistered agents and internet website booking services.

**Cashand cash equivalents:**

The Company considersall highly liquid investments having an original maturity of three months orless to be cash equivalents. Amounts invested may exceed federally insuredlimits at any given time.

**Propertyand equipment:**

Property and equipmentare recorded at cost and depreciated using the straight-line method over theestimated useful lives of the assets ranging from two to five years.  Maintenance and repairs are charged tooperations and betterments are capitalized. The cost of property sold orotherwise disposed of and the accumulated depreciation are removed from theaccounts and any resulting gain or loss is included in the statement ofoperations.

**Intangibleassets:**

Intangible assets are recordedat cost. Intangible assets subject to amortization include a purchased customerdatabase which is being amortized on a straight-line basis over the estimateduseful life of the asset. Intangible assets with an indefinite life are notsubject to amortization and include trademark names. These costs are evaluatedannually for impairment. At July 31,2006, these intangibles were fully impaired.

F-9

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**Incometaxes:**

The Company accounts forincome taxes utilizing the asset and liability approach which requires therecognition of deferred tax assets and deferred tax liabilities for theexpected future consequences of temporary differences between the carryingamounts and the tax bases of assets and liabilities. These temporarydifferences will result in taxable or deductible amounts in future years whenthe reported amounts of the assets or liabilities are recovered orsettled.  The deferred tax assets arereviewed periodically for recoverability and valuation allowances are providedas necessary.

**Revenue recognition:**

The Company follows theguidance of the Securities and Exchange Commission’s (“SEC”) Staff AccountingBulletin (“SAB”) No. 104 for revenue recognition. In general, the Companyrecords revenue when persuasive evidence of any agreement exists, services havebeen rendered, and collectibility is reasonably assured, therefore, revenue isrecognized when the Company invoices customers for services at contracted ratesand terms.

**Advertising,research and development expenses:**

Advertising, researchand development expenses are charged to expense when incurred.

**Loss per share:**

The Company calculatesloss per share in accordance with Statement of Financial Accounting Standards (“SFAS”)No. 128, “Earnings per Share”, which requires the presentation of basic and dilutedearnings per share.  Basic loss per shareexcludes dilution and is computed by dividing loss by the weighted-averagenumber of common shares outstanding for the period.  Diluted loss per share reflects the potentialdilution that could occur if securities or other contracts to issue commonstock were exercised or converted into common stock or resulted in the issuanceof common stock that then shared in the earnings of the entity.  Potential common shares are excluded from thecomputation of diluted earnings per share when a loss exists because the effectwould be antidilutive.

**Useof accounting estimates:**

The preparation offinancial statements in conformity with generally accepted accountingprinciples requires management to make estimates and assumptions that affectthe reported amounts of certain assets and liabilities and disclosures.  Accordingly, the actual amounts could differfrom those estimates.  Any adjustments appliedto estimated amounts are recognized in the year in which such adjustments aredetermined.

**Fairvalue of financial instruments:**

The Company’s financialinstruments include cash, accounts receivable, accounts payable, accruedliabilities, credit facilities and long-term debt.  The carrying amounts of these financialinstruments approximate fair value due to their short maturities and variablerates of interest.  The carrying amountsof long-term debt approximate their fair values based upon current ratesavailable for similar types of instruments.

The Company did not haveany outstanding financial derivative instruments.

F-10

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**Segmentreporting:**

The Company follows SFASNo. 131 “Disclosure about Segments of an Enterprise and Related Information”.Due to size and lack of operations, the Company is reporting on a consolidatedbasis as a single segment and will evaluate additional segment disclosurerequirements if it expands its operations.

**Concentrationsof credit risk:**

The Company has nosignificant off-balance sheet concentration of credit risk such as foreignexchange contracts, option contracts or other foreign hedging arrangements. TheCompany maintains its cash balances with a reputable financial institution inthe form of demand deposits.

**Recent pronouncements:**

In December 2004, theFinancial Accounting Standards Board (“FASB”) issued a revision of SFAS 123 (“SFAS123(R)”) that requires compensation costs related to share-based paymenttransactions to be recognized in the statement of operations. With limitedexceptions, the amount of compensation cost will be measured based on thegrant-date fair value of the equity or liability instruments issued. Inaddition, liability awards will be remeasured each reporting period.Compensation cost will be recognized over the period that an employee providesservice in exchange for the award. SFAS 123(R) replaces SFAS 123 and iseffective as of January 1, 2006. Compensation cost for stock options issued byMRI on March 16, 2006 was recognized prior to the merger with Crystal. Theadoption of SFAS 123(R) is not expected to have a material impact on theCompany’s current financial condition or results of operations.

In December 2004, theFASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets—An Amendment ofAccounting Principles Board (“APB”) Opinion No. 29, Accounting for NonmonetaryTransactions”. SFAS No. 153 eliminates the exception from fair measurement fornonmonetary exchanges of similar productive assets in paragraph 21(b) of APBOpinion No. 29, “Accounting for Nonmonetary Transactions,” and replaces it withan exception for exchanges that do not have commercial substance. SFAS No. 153specifies that a nonmonetary exchange has commercial substance if the futurecash flows of the entity expected to change significantly as a result of theexchange. SFAS No. 153 is effective for fiscal periods beginning after June 15,2005. The adoption of SFAS No. 153 is not expected to have a material impact onthe Company’s current financial condition or results of operations.

In March 2005, the FASBissued FASB Interpretation (“FIN”) No. 47 - “Accounting for Conditional AssetRetirement Obligations - an Interpretation of SFAS 143 (FIN No. 47). FIN No. 47clarifies the timing of liability recognition for legal obligations associatedwith the retirement of a tangible long-lived asset when the timing and/or methodof settlement are conditional on a future event. FIN No. 47 is effective nolater than December 31, 2005. The adoption of FIN 47 is not expected to have amaterial impact on the Company’s current financial condition or results ofoperations.

F-11

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In March 2005, the SECreleased SAB No. 107, “Share-Based Payments”. The interpretations in SAB 107express views of the SEC staff regarding the interaction between SFAS 123R andcertain SEC rules and regulations, and provide the staff’s views regarding thevaluation of share-based payment arrangements for public companies. Inparticular, SAB 107 provides guidance related to share-based paymenttransactions with non-employees, the transition from nonpublic to public entitystatus, valuation methods (including assumptions such as expected volatilityand expected term), the accounting for certain redeemable financial instrumentsissued under share-based payment arrangements, the classification ofcompensation expense, non-GAAP financial measures, first-time adoption of SFAS123R in an interim period, capitalization of compensation to cost related toshare-based payment arrangements, the accounting for income tax effects ofshare-based payment arrangements upon adoption of SFAS 123R, the modificationof employee share options prior to adoption of SFAS 123R and disclosures inManagement’s Discussion and Analysis subsequent to adoption of SFAS 123R. SAB107 requires stock-based compensation be classified in the same expense linesas cash compensation for the same employees. The adoption of SAB 107 is notexpected to have a material impact on the Company’s current financial conditionor results of operations.

In May 2005, the FASBissued SFAS No. 154, “Accounting Changes and Error Corrections, a Replacementof APB No. 20 and FASB 3 (SFAS No.154). SFAS No. 154 requires retrospectiveapplication to prior periods’ financial statements of a voluntary change inaccounting principle unless it is impracticable. APB Opinion No. 20 “AccountingChanges,” previously required that most voluntary changes in accountingprinciple be recognized by including in net income of the period of the changethe cumulative effect of changing to the new accounting principle. The adoptionof SFAS 154 is not expected to have a material impact on the Company’s currentfinancial condition or results of operations.

In September 2006, theFASB issued SFAS No. 158, “Employers’Accounting for Defined Benefit Pension and Other Postretirement Plans, anamendment of SFAS No. 87, 88, 106 and 132(r)”, which requires theCompany to: (1) recognize in its statement of financial position theover-funded or under-funded status of its defined benefit postretirement planmeasured as the difference between the fair value of plan assets and thebenefit obligation, (2) recognize as a component of other comprehensive income,net of tax, the actuarial gains and losses and the prior service costs andcredits that arise during the period but pursuant to FAS 87 and 106 are notrecognized as components of net periodic benefit cost, (3) measure definedbenefit plan assets and defined benefit plan obligations as of the date of itsstatement of financial position, (4) disclose additional information in thenotes to financial statements about certain effects on net periodic benefit costin the upcoming fiscal year that arise from delayed recognition of theactuarial gains and losses and the prior service costs and credits. Thisstandard is effective for fiscal years ending after December 15, 2006. Theadoption of SFAS 158 is not expected to have a material impact on the Company’scurrent financial condition or results of current operations.

On July 2006, the FASBissued FIN No. 48, “Accounting forUncertainty in Income Taxes – an Interpretation of FASB Statement 109”,which fundamentally changes the way that the Company will be required to treatits uncertain tax positions for financial accounting purposes. FIN No. 48prescribes rules regarding how the Company should recognize, measure anddisclose in its financial statements, tax positions that were taken or will betaken on the Company’s tax return that are

F-12

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reflected in measuringcurrent or deferred income tax assets and liabilities for interim or annualperiods. Differences between tax positions taken in a tax return and amountsrecognized in the financial statements will generally result in an increase ina liability for income taxes payable, or a reduction in a deferred tax asset oran increase in a deferred tax liability. This interpretation is effective forfiscal years beginning after December 15, 2006. Adoption of FIN 48 is notexpected to have a material impact on the Company’s current financial conditionor results of operations.

**Note 4 – Prepaid Expenses and Other CurrentAssets:**

Prepaid expenses consistof prepaid insurance of $106,643and deposit of $25,000.

During July 2006, theCompany entered into an agreement for the outright purchase of a full servicetravel agency for $123,500. The deposit of $25,000 represents earnest money on the purchase transactioncompleted subsequent to July 31, 2006.

**Note 5 – Property and Equipment:**

The principal categoriesand estimated useful lives of property and equipment are as follows:
|                                 | ** ** | **July 31, 2006** | ** ** | **Estimated  Useful Lives** | ** **   |
|---------------------------------|------------|-----------------------------|------------|----------------------------------|--------------|
|                            |       |                        |       |                             |         |
| Office and  computer equipment  |       | $                           | 17,231     |                             | 3 to 7 years |   |
| Less:  accumulated depreciation |       | (1,235                      | )          |                             |         |
|                            |       | 15,996                      |       |                             |         |
|                                 |            |                             |            |                                  |              |  |

 

**Note 6 – Intangible Assets:**

In March 2006, theCompany purchased intangible assets for debt discussed in Note 9 from another companyvalued at $5,021,666. Assets with a definite estimated useful included acustomer database valued at $1,375,000 net of accumulated amortization of$125,000. Assets with an indefinite estimated useful life included registeredtrademarks valued at $3,521,666. Management capitalized these assets in accordancewith FASB No. 142 “Goodwill and Other Intangibles”.

In July 2006, managementcompleted impairment testing under FASB No. 144 “Accounting for the Impairmentor Disposal of Long-Lived Assets” as required under FASB No. 142. As of July2006, the Company has not gained complete control over the intangible assets.The customer database had not been delivered and the phone number and websitesassociated with the trademarks purchased were still in control of the party whosold the assets. Therefore, the Company recorded an asset impairment charge of $4,896,666 in relation to the writedown of these intangibles.

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**Note 7 – Accrued Liabilities:**

At July 31, 2006,accrued expenses consisted of the following items:
| Salary and wages payable    |   | $       | 183,653   |   |
|-----------------------------|--------|---------|-----------|--------|
| Accrued and  withheld taxes |   | 499,171 |      |
| Accrued interest            |   | 181,813 |      |
| Accrued service  expense    |   | 445,692 |      |
| Other accrued  expenses     |   | 10,975  |      |
|                        |   |    |      |
| Total accrued  expenses     |   | $       | 1,321,304 |   |

 

Accrued and withheldtaxes primarily consist of delinquent payroll taxes withheld and accrued onemployees of MRI. Penalties and interest calculated through July 31, 2006 areincluded.

**Note 8 – Short-Term Notes Payable:**

With the ExchangeAgreement discussed in Note 1, the Company assumed several short term notes indefault. The balances on these notes at July 31, 2006 are as follows:
| Note payable due to a vendor  dated February 2005; due in eighteen monthly installments of $1,007 including  interest at ten percent; note is in default                                                                                                                                                                      |   | $      | 9,524   |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|
| Note payable for  accrued wages dated August 2002; bearing interest at six percent; due and  payable with interest at the earliest of (a) Company obtaining debt or equity  funding greater than $1,000,000 in a quarter or (b) Company earns revenues of  $1,000,000 in a quarter; note is in default.                       |   | 49,908 |    |
| Note payable to  a vendor dated December 2004; due in six monthly installments of $2,836  including interest at eighteen percent; note is in default.                                                                                                                                                                         |   | 17,027 |    |
| Note payable to  former employees for accrued wages and expenses dated February and March  2005; bearing no interest and due and payable at the earliest of (a) Company  obtaining debt or equity funding greater than $1,000,000 in a quarter or (b)  Company earns revenues of $1,000,000 in a quarter; note is in default. |   | 24,000 |    |
| Note payable to  a vendor dated March 2005; bearing no interest due in four equal monthly  payments of $14,000; note is in default.                                                                                                                                                                                           |   | 56,000 |    |
| Note payable to  former employee dated April 2005; bearing no interest and due in six monthly  installments of $5,000; note is in default.                                                                                                                                                                                    |   | 30,000 |    |
| Note payable to  a vendor dated July 2005; due in eighteen monthly installments of $390  including interest at eight percent; note is in default.                                                                                                                                                                             |   | 6,244  |    |
| Note payable to  former employee dated December 2004; bearing no interest and no specified  repayment terms.                                                                                                                                                                                                                  |   | 12,740 |    |
| Note payable to  vendor dated July 2005; due in eleven monthly installments of $1,500; note is  in default.                                                                                                                                                                                                                   |   | 15,888 |    |
| Notes payable to  former employees dated March 2006; due in a single payment on June 30, 2006;  notes are in default.                                                                                                                                                                                                         |   | 42,838 |    |
| Total short-term  notes payable                                                                                                                                                                                                                                                                                               |   | $      | 264,169 |   |

 

F-14

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**Note 9 – Long-Term Debt:**

In March 2006, theCompany entered into an agreement to purchase intangible assets (Note 6) fromanother entity for seven annual installments of $1,200,000, or $8,400,000 intotal payments. In lieu of cash payments directly to the seller, the Companycan assume, pay or otherwise cause discharge, waiver, forgiveness or release ofcertain debt of the seller’s to other third parties. The result of obtainingthese releases is to be a cumulative credit as payment on the existing debtagreement between the Company and the intangible assets seller. 

In March 2006, theCompany obtained its first debt release agreement. As stated in the agreement,the debt release was credited directly against the intangible asset price. Theremaining balance of the debt, as well as the intangible discussed in Note 6,was discounted at five and a half percent to calculate the present value of thedebt and asset. At July 31, 2006, long-term debt consisted of this singleliability. Future principal payments required under the agreement are asfollows:
| 2007       |   | $         | —    |   |
|------------|--------|-----------|-----------|--------|
| 2008       |   | 177,479   |      |
| 2009       |   | 918,161   |      |
| 2010       |   | 968,660   |      |
| 2011       |   | 1,021,936 |      |
| Thereafter |   | 1,935,071 |      |
| Total      |   | $         | 5,021,307 |   |

 

**Note 10 – Convertible Debentures:**

With the ExchangeAgreement discussed in Note 1, the Company assumed liability of  $475,000 of five percent convertibledebentures that mature on March 15, 2007. The debentures were convertible into theCompany’s common stock at a conversion price of $0.16 per share. In an effortto entice the debenture holders from this series of debentures to invest in thesecond series offered by MRI in March 2005, the conversion price and attachedwarrants were re-priced to $0.01 per share in March 2005. This was done througha settlement agreement signed by all parties. All interest and penaltiesaccrued through March 2005 on the five percent debentures was treated as additionalpaid-in capital on warrants issued with the March 2006 series debenture discussedbelow. Interest accrued on debentures that are converted into common stock maybe paid in cash or with common stock (conversion price $0.01 per share). Inconnection with these debentures, MRI issued 604,298 common stock purchasewarrants at the original exercise price of $0.32 per share. However, as part

F-15

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of the settlementagreement, these warrants were also re-priced to $0.01 per share. The warrantsexpired March 31, 2006.

Also with the ExchangeAgreement discussed in Note 1, the Company received approximately $792,000 of8% convertible debt from a March 2005 series. All holders of this issuesubsequently entered into a securities purchase agreement whereby they cancelledall aspects of this debenture issue, converted their investment into the June2006 issue discussed later and cancelled all attached warrants. 

In June 2006, theCompany began offering a new series of convertible debentures. This seriesrequired investors from the March 2005 series to invest a minimum of twenty-fivepercent over and above the value of their holdings. This series of convertibledebentures matures in 2009 or three years from the date of the actual issuanceand has an interest rate of five percent. This series has a variable conversionprice that is fifty to sixty-five percent of the average of the three lowestdaily trading prices for twenty trading days prior to the trading day beforethe day of conversion. Interest accrues from the date of issuance and may bepaid in cash or in the Company’s common stock. In connection with thisissuance, 5,028,553 warrants expiring in June and July 2013, with an exerciseprice of $0.50, were issued. Investors advancing new funds were issued10,500,000 warrants expiring in June and July 2013 with an exercise price of$0.50.

As a result of the June2006 debenture issuance, the Company recorded $1,990,711 in five percentconvertible debentures. As required by Emerging Issues Task Force Issue (“EITF”)No. 98-5 “Accounting for Securities with Beneficial Conversion Features orContingently Adjustable Conversion Ratios”, the Company recognized $1,039,660in interest expense and recorded $951,051 as a discount on the debenturesissued. As required by EITF 98-5, the intrinsic value of the conversion featureembedded in the debentures was calculated as the difference between the fairvalue of the debenture if converted on the commitment date and the conversionprice as stated in the agreement. Accounting for this feature using EITF 98-5 resultedin the total value of the June 2006 debenture issue of $1,990,711 being recordedas paid-in capital.

Under the Security Agreementattached to the debentures issued in June 2006, all of the Company’s assets arepledged as collateral. 

**Note 11 – Stockholders’ Equity:**

The Company wasorganized in December 2005 with 10,000 shares of zero par value common stockbeing authorized. As discussed in Note 1, all shares were exchanged for 7,100,000shares of the common stock of MRI. At the date of the Exchange Agreement,stockholders of MRI held 4,743,276 shares of common stock. Since the date ofthe Exchange agreement, no additional shares have been issued. Total sharesoutstanding at July 31, 2006 were 11,843,276 shares. Of this amount,approximately 58,463 shares are still to be issued. 

The Company isauthorized to issue 100,000,000 shares of preferred stock. As of July 31, 2006,no shares were issued or outstanding.

F-16

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**Note 12 – StockOptions and Warrants:**

Prior to the ExchangeAgreement discussed in Note 1, all remaining MRI employees eligible to exerciseoptions had signed settlement agreements waiving rights to any outstandingoptions. As a result, the Company no longer has any options outstanding.

In May 2006, the Companyissued 250,000 warrants at an exercise price of $0.75 per share and 250,500warrants at an exercise price of $1.00 per share. These warrants were issued inconnection with the issuance of short-term notes payable bearing an interestrate of nine percent. Using the Black-Scholes pricing model and thirty percentvolatility factor, the Company valued the warrants and recorded interestexpense of $68,000 for the grant of these warrants. 

As part of the agreementfor the June 2006 convertible debenture offering, the Company issued 15,528,553detachable warrants with an exercise price of $0.50 per share. Using theBlack-Scholes pricing model and thirty percent volatility factor, the Company valuedthe warrants at $1,664,661. However, due to the beneficial conversion feature (Note10) being equal to the total amount of the debentures issued, no expense hasbeen recognized for the warrants.

As of July 31, 2006, nowarrants have been exercised.

**Note 13 – Loss PerShare:**

Areconciliation of basic loss per share to diluted earnings per share ispresented below:
| ** **                                                               | ** ** | **Net Loss** | ** **  | **Shares** | ** ** | **Per Share  Amount** | ** ** |
|--------------------------------------------------------------------------|------------|-------------------|-------------|------------|------------|----------------------------|------------|
| Period from  December 8, 2005 (date of inception) through July 31, 2006: |       |              |        |       |       |                       |       |
| Basic EPS                                                                |       |              |        |       |       |                       |       |
| Loss available to common shareholders                                    |       | (11,027,335       | )           | 8,918,989  |       | (1.24                      | )          |
| Effect of  dilutive securities stock options and warrants                |       | —            |        | —     |       | —                     |       |
| Total basic and  diluted                                                 |       | $                 | (11,027,335 | )          | 8,918,989  |                       | $          | (1.24 | ) |
|                                                                          |            |                   |             |            |            |                            |            |  |  |

 

**Note 14 – Income Taxes:**

Deferred income taxes are provided inrecognition of temporary differences in reporting certain revenues and expensesfor financial statement and income tax purposes.

F-17

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Netdeferred tax assets (liabilities) consisted of the following components as of July31, 2006:
|                              | ** ** | **Current** | ** ** | **Long-Term** | ** ** | **Total**  | ** ** |
|------------------------------|------------|-------------|------------|---------------|------------|------------|------------|
| Period ended  July 31, 2006: |       |        |       |          |       |       |       |
| Deferred tax assets:         |       |        |       |          |       |       |       |
| Net operating loss carryover |       | $           | 1,683,260  |          | $          | —     |       | $ | 1,683,260 |   |
| Intangible asset impairment  |       | —      |       | 1,780,045     |       | 1,780,045  |       |
|                         |       | 1,683,260   |       | 1,780,045     |       | 3,463,305  |       |
| Valuation  allowance         |       | (1,683,260  | )          | (1,780,045    | )          | (3,463,305 | )          |
| Net deferred tax asset       |       | $           | —     |          | $          | —     |       | $ | — |   |

 

Theultimate realization of these assets is dependent upon the generation of futuretaxable income sufficient to offset the related deductions and loss carryoverwithin the applicable carryover period. The valuation allowance is based on the uncertainty of the Company’sability to generate sufficient taxable income in future years to fully utilizethe net operating loss carryover.  

Theincome tax provision differs from the amount of income tax determined byapplying the U.S. Federal and state income tax rate to pretax income for theperiod from December 8, 2005 (date of inception) through July 31, 2006 due tothe following:
| Computed “expected” tax  benefit                 |   | $         | (3,463,305 | )      |
|------------------------------------------------------------|--------|-----------|------------|--------|
| Increase (decrease) in income tax benefit resulting  from: |   |      |       |
| Temporary differences                                      |   | 3,463,305 |       |
| Permanent differences                                      |   | —    |       |
|                                                       |   | $         | —     |   |

 

The Company files its tax returns as aconsolidated entity. However, all of its subsidiaries are currentlynon-operating entities. As of July 31, 2006, the Company had not filed anincome tax return. Estimated operating loss carry forwards of approximately $4,358,000will begin to expire in 2026.

TheTax Reform Act of 1986 contains provisions which limit the ability to utilizenet operating loss, capital loss, and various tax credit carryovers in the caseof certain events including significant changes in ownership interest.  If the Company’s tax carryovers are limited,and the Company has taxable income which exceeds the permissible yearly netoperating loss carryover, the Company would incur a federal income taxliability even though these loss carryovers would be available in future years.

F-18

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**Note 15 – Related Party Transactions:**

During the period ended July31, 2006, a limited liability company related through common ownership andanother corporation that is a stockholder in the Company had made advances tothe Company. Principal and interest of five percent is due on each note oneyear from the date of the note. The balance of these notes at July 31, 2006 is $286,038. Interest accrued on thesenotes through July 31, 2006 is $5,671 and is included in accrued expenses.

In July, the Companyissued $250,000 of the June 2006 debentures to a stockholder for investmentbanking services received. 

**Note 16 – Pro-Forma Financial Information:**

The following pro-formadata summarized the results of operations for the year ended July 31, 2006, asif the merger with Crystal Hospitality Holdings, Inc. had been completed August1, 2004:
|                                          | ** ** | **July 31, 2005** | ** ** | **July 31, 2006** | ** ** |
|------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| Net revenues                             |       | $                           | 607,374    |                        | $          | 6,628 |   |
| Operating loss                           |       | (970,881                    | )          | (9,261,243                  | )          |
| Loss per share – basic  and diluted |       | (0.08                       | )          | (0.78                       | )          |
|                                          |            |                             |            |                             |            |  |  |

 

**Note 17 – Other Matters:**

**Commitmentsand contingencies:**

During the period endedJuly 31, 2006, the Company signed contracts with service companies. Onecontract is a seven year contract with minimum base payments due in monthlyinstallments for the service and an annual per passenger charge due in Novemberof each year. Another contract is a non-cancelable website hosting agreementfor five years consisting of a flat monthly fee. Subsequent to July 31, 2006,management and the website hosting company agreed to new terms that are basedon services performed without any minimum charges.

The future minimumpayments under these contracts as of July 31, 2006, are as follows:
| 2007                    |   | $         | 1,052,667 |   |
|-------------------------|--------|-----------|-----------|--------|
| 2008                    |   | 3,674,000 |      |
| 2009                    |   | 1,500,000 |      |
| 2010                    |   | 1,250,000 |      |
| 2011                    |   | 1,200,000 |      |
| Thereafter              |   | 1,000,000 |      |
|                    |   |      |      |
| Total minimum  payments |   | $         | 9,676,667 |   |

 

Prior to the Exchangeagreement discussed in Note 1, several vehicles owned by MRI were repossessedand sold at auction in order to settle MRI’s outstanding debt on those vehicles.The

F-19

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Company has recorded$30,000 in current note payables as a contingency for any balance remaining onthe debt owed.

**Legalproceedings:**

During the period fromDecember 8, 2005 (date of inception) through July 31, 2006, Crystal HospitalityHoldings, Inc., a wholly-owned subsidiary of the Company and Crystal Finance,LLC an entity affiliated with the Company were named as defendants in threelegal proceedings stemming from its purchase of the intangible assets discussedin Note 6. Management and counsel are in the process of reviewing these claimsand intend to defend their position vigorously.

In July 2006, a formerofficer of MRI filed suit against the Company alleging breach of contract.Management and counsel are in the process of reviewing the claim and intend todefend their position vigorously.

Subsequent to July 31,2006, another former officer of a former subsidiary of MRI filed suit againstthe Company alleging breach of contract. Management and counsel are currently innegotiations to settle this dispute. All amounts related to the originalagreement signed by the Company and the former officer have been included innotes payable and accrued expenses.

**Unsecuredcreditors of the company:**

The Company isdelinquent with a number of unsecured creditors for which no paymentarrangements exist or for which no agreement to forestall collection action hasbeen agreed upon. Whenever feasible the Company negotiates with these creditorsto reach settlement agreements that are acceptable to the Company.

As a result of thedelinquencies and defaults, the Company may be subject to collection actionswhenever agreements cannot be reached, including, but not limited to,litigation, foreclosure and/or seizure of assets and bank accounts.

F-20

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**Item 8 A**.**Controls and Procedures**

(a) We carried out an evaluation under thesupervision and with the participation of our management, including our ChiefExecutive Officer and Principal Accounting Officer, of the effectiveness of ourdisclosure controls and procedures (as defined in Rules 13a-14(c) and15d-14c of the Securities Exchange Act of 1934 (the “Exchange Act”)) asof the end of the period covered by this report. Based upon that evaluation,the Chief Executive Officer and the Principal Accounting Officer concluded thatour disclosure controls and procedures are effective in ensuring thatinformation required to be disclosed by us under the Exchange Act is recorded,processed, summarized and reported within the time periods specified under theExchange Act rules and forms.

(b) There were no significant changes in ourinternal control over financial reporting or in other factors that couldsignificantly affect our internal control over financial reporting subsequentto the evaluation date, nor any significant deficiencies or material weaknessesin such disclosure controls, internal controls and procedures requiringcorrective actions. As a result, no corrective actions were taken.

**PART III**

**Item 9**.  **Directors, ExecutiveOfficers, Promoters and Control Persons; Compliance withSection 16(a) of the Exchange Act**

**DIRECTORS,EXECUTIVE OFFICERS AND CONTROL PERSONS**

Themembers of the board of directors and executive officers of the Company,together with their respective ages are set forth below. Officers are electedby, and serve at the designation and appointment of, the Board of Directors.

 

| **Name**                | ** ** | **Age** | ** ** | **Position**                                   |
|-------------------------|------------|---------|------------|------------------------------------------------|
| Fabrizzio Busso Campana |       | 40      |       | Director, Chief Executive Office and President |
| Peter Gallic            |       | 39      |       | Director, Vice President                       |
| Peter Dugan             |       | 52      |       | Director                                       |
| Hank Cohn               |       | 36      |       | Director                                       |
| Frank Salerno           |       | 46      |       | Director                                       |
| Anthony Soich           |       | 46      |       | Director                                       |

 

**FabrizzioBusso Campana**

**Director,Chief Executive Officer and President**

Mr. Busso-Campanahas served as a director and our Chief Executive Officer since April 2006.From January 2004 until now, he has been a principal at Crystal CapitalPartners, Inc. which focuses on investments in the telecommunications,real estate, transportation and hospitality sectors. From 2002 untilJuly 2003, he was the general manager of the MGM Grand in Las Vegas andNew York, New York hotel and casino. From 2001 and 2002, he acted as a privateconsultant to various businesses. He attended University of Miami’s ExecutiveMBA program, as well as Florida International University for his undergraduatework in Political Sciences/International Studies and Developmental Economics,Nova University for Hospitality and Management.

**PeterGallic**

**Director,Vice President**

Mr. Gallichas served as a director and our Vice President since April 2006. FromJanuary 2004 until now, he has been a principal at Crystal CapitalPartners, Inc. which focuses on investments in the telecommunications,real estate, transportation and hospitality sectors. From 2001 to 2004, he wasthe President and Chief Executive Officer of Global LinkTechnologies, Inc., which is a consumer electronics distributor.Mr. Gallic holds a BS in Economics from the Ateneo de Manila in the Philippines.

**PeterDugan**

**Director**

Mr. Duganhas served as a director since April 2006. From January 2004 untilnow, he has been a principal at Crystal Capital Partners, Inc. whichfocuses on investments in the telecommunications, real estate, transportationand hospitality sectors. He is also Executive Vice President and Secretary ofCrystal Capital Partners Corporation, a New Jersey investment banking andbusiness advisory services company. Mr. Dugan was Director of GlobalBusiness Development of DVC Worldwide from 2000 to 2003, a 1,400 personintegrated marketing communications company which did branding and promotionalmarketing programming for Fortune 100 companies. He is also on the advisoryboard of Cornell Dubilier Electronics of Liberty, SC, and a Trustee of theMorristown Memorial Hospital Foundation.

F-21

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**HankCohn**

**Director**

Mr. Cohnhas served as a director since February 2006. Mr. Cohn is ExecutiveVP at Galaxy Ventures, LLC. Galaxy is closely held family fund with a multi-prongedinvestment strategy concentrating in two areas, bond trading and early stagetechnology investments. Mr. Cohn acts as Portfolio Manager forinvestments. Prior to joining Galaxy Ventures full time in 2003, Mr. Cohnworked at Atlas Capital, an investment banking boutique in New York. At AtlasMr. Cohn in the capacity of Vice President worked on sourcing andstructuring PIPE (Private Investment in Public Equities) for Atlas’sproprietary fund and a few select clients including Galaxy Ventures.Mr. Cohn graduated with an MBA in finance and investments from BaruchCollege in 1999.

**FrankSalerno**

**Director**

Mr. Salernohas served as a director since April 2006. From October 2005 untilnow, he has been engaged in private investing. In February 2004,Mr. Salerno retired from Merrill Lynch Financial Services, where he hadbeen a Managing Director and its Chief Operating Officer since 1999.Mr. Salerno sits on the board of directors of K-Sea TransportationPartners, L.P., a public company. Mr. Salerno received a B.A. fromSyracuse University in 1981 and an MBA from New York University in 1986.

**AnthonySoich**

**Director**

Mr. Soichhas served as a director since February 2006. Mr. Soich is anindependent consultant for a number of leading investment banks and private andpublicly held companies. From June 2002 to April 2005, Mr. Soichacted as a Managing Director in the Investment Banking Division of LadenburgThalmann & Co. Inc. Prior to joining Ladenburg, Mr. Soichwas an independent consultant from November 2001 to June 2002.Mr. Soich has been a member of the Board of Directors of RAMP Corporation,a public company, since July 2004 and the Chairman of the Board sinceMay 2005. Mr. Soich holds a BSBA, MBA, and JD, with honors, fromDrake University and an LLM, in Taxation, from New York University. Mr. Soichis a Certified Public Accountant in Iowa and attorney in New York and Iowa.

**BOARDCOMMITTEES**

Our Board of Directors recently established an auditcommittee and a compensation committee. The audit committee reviews the resultsand scope of the audit and other services provided by our independent publicaccountant. The compensation committee establishes the compensation policiesapplicable to our executives.

F-22

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**Item 10.Executive Compensation.**

|                                                                         | ** ** | ** **       | ** ** | ** ** | ** **              | **Long Term**   | ** **             | **Compensation**                    | ** **             |
|-------------------------------------------------------------------------|------------|------------------|------------|------------|-------------------------|----------------------|------------------------|-------------------------------------|------------------------|
| **Name and Principal Position**                          | ** ** | **Fiscal  Year** | ** ** | **Salary** | ** **              | **Stock  Awards(1)** | ** **             | **Securities  Underlying  Options** | ** **             |
| Fabrizzio Busso-Campana  Chairman and Chief Executive Officer           |       | 2006  2005  2004 |       | $          | 120,000  —  — |                 | —  —  — |                                | —  —  — |   |
|                                                                    |       |             |       |       |                    |                 |                   |                                |                   |
| Peter Gallic  President                                                 |       | 2006  2005  2004 |       | $          | 120,000  —  — |                 | —  —  — |                                | —  —  — |   |
|                                                                    |       |             |       |       |                    |                 |                   |                                |                   |
| A. Christopher  Johnson(1)  Former Chief Executive Officer and Director |       | 2006  2005  2004 |       | $          | 120,000 —     |                 | —  —  — |                                | —  —  — |   |

 

----

(1)                                  Mr.Johnson resigned his position as Chief Executive Officer on April 17, 2006and his position as a Director on July 14, 2006. From the execution of hisemployment agreement on April 28, 2005 to his resignation,Mr. Johnson deferred all salary payments due.

**OPTION GRANTS IN LAST FISCAL YEAR**

Duringthe fiscal year ending July 31, 2005 we did not issue any new optiongrants.

**Aggregated Option Exercises in Last Fiscal Year and FiscalYear-End Option Values**

There are no outstanding options to purchase shares ofCommon Stock with respect to the Named Executive Officers as of July 14,2006.

F-23

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**Item 11.Security Ownership of Certain Beneficial Owners and Management.**

Thefollowing table sets forth the beneficial ownership of Common Stock by eachperson (including any “group” as that term is used in Section 13(a)(3) ofthe Exchange Act of 1934) known to the Company to beneficially own 5% or moreof the outstanding Common Stock, each of the Company’s directors and nominees,each of the Company’s executive officers and each of the Company’s directorsand executive officers as a group. The calculation of the percentage of theCompany’s Common Stock beneficially owned as of July 14, 2006 is based on11,582,928 shares of Common Stock issued and outstanding as of that date postreverse effectiveness.

Inaccordance with the rules promulgated by the Securities and Exchange Commission(the “Commission”), the ownership includes shares currently owned as well asshares that the named person has the right to acquire beneficial ownership ofwithin 60 days, including through the exercise of options, warrants orother rights, or through the conversion of a security. Accordingly, more thanone person may be deemed to be beneficial owner of the same securities. Exceptas otherwise indicated, each stockholder listed below has sole voting andinvestment power of the shares beneficially owned by that person.

 

| Name of  Beneficial Owner         | ** ** | **Number of Shares  Beneficially Owned** | ** ** | **Percentage of  Outstanding** | ** ** |
|---------------------------------------------|------------|---------------------------------------------------------|------------|-------------------------------------|------------|
| David Appell                                |       | 1,050,000                                               |       | 9.50                                | %          |
| Fabrizzio Busso  Campana(1)                 |       | 1,808,333                                               |       | 15.61                               | %          |
| Peter Gallic(2)                             |       | 1,808,333                                               |       | 15.61                               | %          |
| Peter Dugan(3)                              |       | 1,808,333                                               |       | 15.61                               | %          |
| Crystal Capital  Partners Corporation       |       | 1,960,000                                               |       | 17.73                               | %          |
| Hank Cohn                                   |       | 0                                                       |       | 0                                   | %          |
| Harborview  Capital Management              |       | 880,000                                                 |       | 7.97                                | %          |
| A. Christopher  Johnson                     |       | 675,628                                                 |       | 6.11                                | %          |
| Frank Salerno(4)                            |       | 350,000                                                 |       | 3.17                                | %          |
| Anthony Soich                               |       | 0                                                       |       | 0                                   | %          |
| Officers and Directors  as a group (5) |       | 5,775,000                                               |       | 50.00                               | %          |

 

----

(1)                     The numbershares beneficially owned by Crystal Capital Partners Corporation arecontrolled equally by Peter Gallic, Fabrizzio Busso Campana and Peter Dugan.Total shares include one third of shares owned by Crystal Capital PartnersCorporation.

(2)                     The numbershares beneficially owned by Crystal Capital Partners Corporation arecontrolled equally by Peter Gallic, Fabrizzio Busso Campana and Peter Dugan.Total shares include one third of shares owned by Crystal Capital PartnersCorporation.

(3)                     The numbershares beneficially owned by Crystal Capital Partners Corporation arecontrolled equally by Peter Gallic, Fabrizzio Busso Campana and Peter Dugan.Total shares include one third of shares owned by Crystal Capital PartnersCorporation.

(4)                     The number ofshares beneficially owned by Mr. Salerno are held by Hillcrest FinancialLLC of which Mr. Salerno has voting control.

(5)                     Thenumber of shares beneficially owned by all officers and directors as a groupincludes 1,960,000 shares of common stock owned by Crystal CapitalPartners Corporation.

F-24

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**Item 12**.**Certain Relationships and Related Transactions**.

We recently accepted the resignation fromMr. Peter Dugan from his management position as Vice President, BusinessDevelopment, however, Mr. Dugan remains on the Board of Directors. Weexpect to execute a Consulting Agreement with Mr. Dugan by the end of oursecond fiscal quarter whereby he will continue to provide service and supportfor the Company’s ongoing marketing efforts.

Duringthe period ended July 31, 2006, Crystal Capital Partners, LLC, which iscontrolled by Peter Dugan, one of our directors, Peter Gallic, our ChiefFinancial Officer and one of our directors, and Fabrizzio Busso-Compana, ourChief Executive Officer and one of our directors, made advances to Crystal HospitalityHoldings, Inc., a wholly-owned subsidiary of ours. As of July 31, 2006 thebalance of the advances, including all principal and interest, is $291,709. Theadvances bear interest at 5% and each advance is due one year from issuance.

**Item 13.Exhibits and Reports on Form 8-K.**

(a)  Exhibits- The following exhibits are attached to this report on Form 10KSB or areincorporated by reference:

|                | ** ** | ** **                                                                                                                                                                                                  | ** ** | **Incorporated by Reference To** |
|----------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|
| **ExhibitNo.** | ** ** | **Description**                                                                                                                                                                                             | ** ** | **Company’sForm**           | ** ** | **Filed** | ** ** | **ExhibitNumber** | ** ** | **FiledHerewith** |
| 2.1            |       | Agreement and Plan of Merger dated August 23,  2005 by and among the Company, Objective Spectrum, Inc., and the  shareholders of Objective Spectrum, Inc.                                    |       | 8-K                              |   | 08/25/05 |   | 2.1 |   |   |
| 2.2            |       | Agreement and Plan of Merger dated April 17,  2005 by and among the Company, Crystal Hospitality Holdings, Inc., MRI  Acquisition Corp II, and the shareholders of Crystal Hospitality, Inc. |       | 8-K                              |   | 04/21/06 |   | 2.2 |   |   |
| 3.1            |       | Certificate of Incorporation of Company.                                                                                                                                                                    |       | 8-K                              |   | 08/14/03 |   | 3.1 |   |   |
| 3.2            |       | Bylaws of Company.                                                                                                                                                                                          |       | 8-K                              |   | 08/14/03 |   | 3.2 |   |   |
| 4.1            |       | Form of Securities Purchase Agreement dated  June 30, 2006 among the Company and certain investors                                                                                                |       | 8-K                              |   | 07/07/06 |   | 4.1 |   |   |
| 4.2            |       | Form of Stock Purchase Warrant dated  June 30, 2006 issued by the Company to certain investors                                                                                                    |       | 8-K                              |   | 07/07/06 |   | 4.2 |   |   |
| 4.3            |       | Form of Registration Rights Agreement dated  June 30, 2006 among the Company and certain investors                                                                                                |       | 8-K                              |   | 07/07/06 |   | 4.3 |   |   |
| 4.4            |       | Form of Callable Secured Convertible  Note dated June 30, 2006 issued by the Company to certain investors                                                                                    |       | 8-K                              |   | 07/07/06 |   | 4.4 |   |   |
| 4.5            |       | Form of Common Stock Purchase Warrant dated  May 2, 2006 issued by the Company to certain investors                                                                                                    |       | 8-K                              |   | 05/09/06 |   | 4.5 |   |   |
| 4.6            |       | Form of Common Stock Purchase Warrant dated  May 2, 2006 issued by the Company to certain investors                                                                                                    |       | 8-K                              |   | 05/09/06 |   | 4.6 |   |   |
| 10.1           |       | 2003 Equity Compensation Plan of Company.                                                                                                                                                                   |       | 8-K                              |   | 08/14/03 |   | 10.1 |   |   |
| 10.2           |       | Form of Security Agreement dated June 30,  2006 among the Company and certain investors                                                                                                           |       | 8-K                              |   | 07/07/06 |   | 10.2 |   |   |
| 10.3           |       | Form of Intellectual Property Security  Agreement dated June 30, 2006 among the Company and certain investors                                                                                     |       | 8-K                              |   | 07/07/06 |   | 10.3 |   |   |
| 23.1           |       | Consent of Scharf Pera & Co., PLLC                                                                                                                                                                 |       |                             |   |   |   | 23.1 |   | X |
| 31.1           |       | Section 302 Certification of Principal  Executive Officer                                                                                                                                              |       |                             |   |   |   |   |   | X |
| 31.2           |       | Section 302 Certification of Principal  Financial and Accounting Officer                                                                                                                               |       |                             |   |   |   |   |   | X |
| 32.1           |       | Section 906 Certifications                                                                                                                                                                             |       |                             |   |   |   |   |   | X |

 

(b) Reportson Form 8-K. No reports on Form 8-K were filed during thelast quarter of the period covered by this report except.

**Item 14.****PrincipalAccounting Fees and Services.**

***Audit Fees***

Weincurred fees of $25,000 from Scharf Pera & Co., PLLC for the audit of ourannual financial statements for the fiscal year ending July 31, 2006.

***Audit Related Fees***

There were no fees billedby our auditors in our last two fiscal years for professional services renderedin connection with assurance and related services that are reasonably relatedto the performance of an audit or review of our financial statements.

***TaxFees***

There were no fees billedby our auditors in our last two fiscal years for tax compliance, tax advice, orany tax planning.

***AllOther Fees***

There were no fees billed by our auditors in our last two fiscal yearsfor products and services other than those reported above.

F-25

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**SIGNATURES**

In accordance withSection 13 or 15(d) of the Exchange Act, the registrant caused thisReport to be signed on its behalf by the undersigned, thereunto dulyauthorized.
| Dated: November 14, 2006 | **CRYSTAL INTERNATIONAL  TRAVEL GROUP, INC.** |
|--------------------------|----------------------------------------------------|
|                     |                                               |   |
|                     | By:                                                | /s/ Fabrizzio Busso-Campana |
|                     |                                               | Fabrizzio Busso-Campana |
|                     |                                               | Chief Executive Officer and President |

 

Pursuant to therequirements of the Securities Exchange Act of 1934, this report has beensigned below by the following persons on behalf of the registrant and in thecapacities and on the dates indicated.
| Signature                       | ** ** | **Title**                                       | ** ** | **Date**          |
|---------------------------------|------------|-------------------------------------------------|------------|-------------------|
|                            |       |                                            |       |              |
| /s/ Fabrizzio P.  Busso-Campana |       | Chief Executive Officer and Director (Principal |       | November 14, 2006 |
| Fabrizzio P.  Busso-Campana     |       | Executive Officer)                              |       |              |
|                            |       |                                            |       |              |
| /s/ Hank Cohn                   |       | Director                                        |       | November 14, 2006 |
| Hank Cohn                       |       |                                            |       |              |
|                            |       |                                            |       |              |
| /s/ Peter Dugan                 |       | Director                                        |       | November 14, 2006 |
| Peter Dugan                     |       |                                            |       |              |
|                            |       |                                            |       |              |
| /s/ Peter Gallic                |       | Director and Vice President                     |       | November 14, 2006 |
| Peter Gallic                    |       |                                            |       |              |
|                            |       |                                            |       |              |
| /s/ Frank  Salerno              |       | Director                                        |       | November 14, 2006 |
| Frank Salerno                   |       |                                            |       |              |
|                            |       |                                            |       |              |
| /s/ Anthony  Soich              |       | Director                                        |       | November 14, 2006 |
| Anthony Soich                   |       |                                            |       |              |

 

F-26

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