**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**







**FORM
      10-KSB/A**




(Mark
      one)




x
            ANNUAL
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934


For
      the
      fiscal year ended December 31, 2006




OR




o
            TRANSITION
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934


For
      the
      transition period from __________ to __________




Commission
      File No. 333-139034




**SURFECT
      HOLDINGS, INC.**




(Name
      of
      Small Business Issuer in Its Charter)




**Delaware**
              (State
                or Other Jurisdiction of Incorporation or Organization)
            **88-0513176**
              (I.R.S.
                Employer Identification No.)**12000-G
                Candelaria NE,**
              **Albuquerque,
                New Mexico**
              (Address
                of Principal Executive Offices)
            **87112**
              (Zip
                Code)




**(505)
      294-6354**


(Issuer’s
      Telephone Number, Including Area Code)




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


**None**




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


**Common
      Stock,** **par
      value $0.0001 per share**


(Title
      of
      Class)




Check
      whether the issuer is not required to file reports pursuant to Section 13 or
      15(d) of the Exchange Act.  o




Check
      whether the issuer: (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 12 months (or for such shorter period
      that the registrant was required to file such reports); and (2) has been subject
      to such filing requirements for the past 90 days. Yes  x No 
      o




Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will be contained,
      to
      the best of registrant’s knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-KSB/A or any
      amendment to this Form 10-KSB/A.  x




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




The
      registrant’s revenues for the fiscal year ended December 31, 2006 were
      $220,939.




The
      aggregate market value of the common stock held by non-affiliates of the
      registrant as of April 27, 2007 (based upon the last sales price as reported
      on
      the OTC Bulletin Board) was $6,631,361.




As
      of
      April 27, 2007, 14,257,667 shares of common stock of the registrant were
      outstanding.




Transitional
      Small Business Disclosure Format: Yes  o No 
      x







**TABLE
        OF CONTENTS**
 
 
 PagePART
                  I
              
              
              1Item
                  1.
              
              Description
                  of Business
              1Item
                  2.
              
              Description
                  of Property
              21Item
                  3.
              
              Legal
                  Proceedings
              21Item
                  4.
              
              Submission
                  of Matters to a Vote of Securities Holders
              22PART
                  II
              
              
              22Item
                  5.
              
              Market
                  For Common Equity, Related Stockholder Matters and Small Business
                  Issuer
                  Purchases of Equity Securities
              22Item
                  6.
              
              Management’s
                  Discussion and Analysis or Plan of Operation
              23Item
                  7.
              
              Financial
                  Statements
              26Item
                  8.
              
              Changes
                  in and Disagreements with Accountants on Accounting and Financial
                  Disclosure
              27Item
                  8A.
              
              Controls
                  and Procedures
              27Item
                  8B.
              
              Other
                  Information
              27PART
                  III
              
              
              27Item
                  9.
              
              Directors,
                  Executive Officers, Promoters, Control Persons and Corporate Governance;
                  Compliance With Section 16(a) of the Exchange Act
              27Item
                  10.
              
              Executive
                  Compensation
              31Item
                  11.
              
              Security
                  Ownership of Certain Beneficial Owners and Management and Related
                  Stockholder Matters
              33Item
                  12.
              
              Certain
                  Relationships and Related Transactions, and Director Independence
              34Item
                  13.
              
              Exhibits
              35Item
                  14.
              
              Principal
                  Accountant Fees and Services
              36


i


**FORWARD-LOOKING
      STATEMENTS**




This
      annual report contains forward-looking statements. To the extent that any
      statements made in this annual report contain information that is not
      historical, these statements are forward-looking. Forward-looking statements
      can
      be identified by the use of words such as “expects,” “plans”, “will”, “may”,
“anticipates”, “believes”, “should”, “intends”, “estimates”, “projects” and
      other words of similar meaning. These statements are subject to risks and
      uncertainties that cannot be predicted or quantified and consequently, actual
      results may differ materially from historical results or those expressed or
      implied by such forward-looking statements. Such risks and uncertainties
      include, without limitation, our ability to raise capital to finance the
      development of our products, the effectiveness, profitability and the
      marketability of those products, our ability to protect our proprietary
      information, economic conditions affecting the semiconductor industry, general
      economic and business conditions, the impact of technological developments
      and
      competition, our expectations and estimates concerning future financial
      performance and financing plans, adverse results of any legal proceedings,
      our
      dependence on certain customers, our ability to retain and attract customers,
      difficulties associated with integrating acquired businesses and customers
      into
      our operations, **** the
      adverse effect of legislation and other matters affecting the industry,
      government regulation, our ability to develop manufacturing capabilities or
      the
      inability to enter into acceptable relationships with one or more contract
      manufacturers for our products and key components and the ability of such
      contract manufacturers to manufacture products or components of an acceptable
      quality on a cost-effective basis, the volatility of our operating results
      and
      financial condition, our ability to attract or retain qualified personnel,
      and
      other risks detailed from time to time in our filings with the SEC.




Information
      regarding market and industry statistics contained in this annual report is
      included based on information available to us that we believe is accurate.
      It is
      generally based on academic and other publications that are not produced for
      purposes of securities offerings or economic analysis. We have not reviewed
      or
      included data from all sources, and cannot assure investors of the accuracy
      or
      completeness of the data included in this prospectus. Forecasts and other
      forward-looking information obtained from these sources are subject to the
      same
      qualifications and the additional uncertainties accompanying any estimates
      of
      future market size, revenue and market acceptance of products and services.




These
      forward-looking statements speak only as of the date of this annual report.
      We
      undertake no obligation to publicly update or revise any forward-looking
      statements, whether as a result of new information, future events or otherwise.
      As a result, you should not place undue reliance on these forward-looking
      statements.




**PART
      I**




**Item
              1.**
            **Description
                of Business.**




**Our
      history**




We
      were
      originally incorporated on November 8, 2001 as a Nevada corporation under the
      name Windy Creek Developments, Inc. (“Windy Creek”), and subsequently
      reincorporated in Delaware on September 14, 2006. Surfect Technologies, Inc.
      (“Surfect Technologies”) was incorporated on December 26, 2000, as a New Mexico
      corporation, and subsequently reincorporated in Delaware on April 4, 2006.
      On
      September 27, 2006, Surfect Technologies merged with our wholly-owned
      subsidiary, resulting in Surfect Technologies being 100% owned by us (the
“Merger”) and our changing our name to Surfect Holding, Inc. and succeeding to
      Surfect Technologies, line of business as our sole line of business. We did
      not
      have any operations prior to the Merger.




1


The
      information in this annual report is presented as if Surfect Technologies had
      been the registrant for all periods presented. The section “Management’s
      Discussion and Analysis or Plan of Operation” and the audited financial
      statements presented in this annual report are exclusive of any assets or
      results of operations or business attributable to Windy Creek. As used in this
      annual report unless otherwise indicated, the terms “we,” “us,” “our” and “the
      Company” refer to Surfect Holdings, Inc. and its subsidiaries.




**Overview**




We
      are an
      early stage developer of automated electroplating tools for the semiconductor
      assembly industry. Our tools are designed to deposit conductive metals on wafers
      through a proprietary electroplating process.




Surfect
      Technologies was formed in December 26, 2000 to develop and commercialize
      patented automated electroplating deposition tools which apply proprietary
      combinatorial deposits on wafers through a unique process.




Electroplating
      involves the coating of an electrically conductive object with a layer of metal
      using electrical current. Usually, the process is used to deposit an adherent
      surface layer of a metal having a desired property (generally conductivity
      in
      the semiconductor industry) onto a substrate lacking that property.




Wire
      bonding is the most common way to make the electrical interconnections between
      a
      microchip and the component it serves. Its operation resembles that of a sewing
      machine combined with a soldering iron. A capillary (“needle”) feeds a wire
      which is melted at the tip. When the metal solidifies it forms a ball at the
      end
      of the needle. The needle attaches this ball to the microchip. A length of
      wire
      is fed through the needle to create a connection (an “interconnect”) between the
      microchip and the location it needs to be wired to (the “substrate”). A second
      ball is then created which holds the wire in place on the substrate. This
      process repeats several times per second. Wire bonding, although cost effective,
      is limited due to the bond having to occur along the edge of the microchip
      to
      avoid wire overlap and potential electrical shorting.




Electroplating
      technology is one of the primary methods used to apply solder “bumps” to
      semiconductor wafers which are designed to extend interconnection capabilities
      beyond existing wire-bonding technology. In addition to electroplating and
      wire
      bonding, solder bumps may be formed or placed on wafers through evaporation,
      printing, and pre-formed solder sphere placement. In the electroplating process,
      a layer of photoresist, a chemical that hardens when exposed to light (generally
      ultraviolet) is applied to the wafer. A photomask is then applied to selectively
      choose which part of the wafer is exposed to the light. Once “developed” the
      unhardened photoresist can be stripped from the surface of the wafer using
      chemicals. The hardened photoresist leaves patterns (trenches or dips) that
      can
      then be filled with conductive metals. Once the electroplating process is
      complete, the remaining photoresist is chemically stripped so that only the
      metal deposition remains (the “bumps”).




Electroplating
      and evaporation are generally used to form copper and other hard metal bumps
      with low defect levels. As opposed to wire-bonding, electroplating and similar
      methods allow the entire surface of a chip (the “die”) to be populated with
      bumps that are subsequently interconnected to a substrate for the highest
      possible input/output (I/O) counts (conductivity) in order to meet the demand
      for electrical functionality in integrated circuit (IC) technology. Although
      traditional gold and aluminum wire bond continues to dominate IC interconnects
      in terms of absolute numbers, “flip chip” technology (which consists of the
      face-down soldering of IC devices to chip carriers) is gaining wider acceptance
      due primarily to the improvements afforded by such technology in electrical
      performance, functionality and reliability, particularly for consumer
      electronics. For example, in a standard personal computer a processor chip
      constantly feeds data back and forth to a monolithic memory chip located
      somewhere on the motherboard. By connecting the memory chip directly to the
      processor in a “flip chip” arrangement, the distance the data has to travel is
      dramatically reduced increasing performance and reducing degradation of the
      data.




2


We
      have
      focused our product development efforts towards a compact single-cell
      multi-metal plating tool which we believe offers the following advantages over
      large multi-cell systems currently on the market.




·
            our
                compact plating computer enables multi-metal deposition in a continuous
                and repeatable manner;


·
            replaces
                the cell-to-cell and tank-to-tank wafer transfer reducing opportunity
                for
                contamination and damage;


·
            enables
                improved metrology (analysis of the metal deposition process) and
                plating
                operation through real-time monitoring and process control facilitated
                by
                the single process chamber;


·
            reduces
                the need for robotic handling; and


·
            our
                “plating computer” approach allows us to embed our knowledge of chemistry
                and plating process within the software itself, thereby reducing
                the need
                for “plating experts” on the customer’s production line.




By
      integrating process knowledge into the underlying tool software, product
      recipes, and incorporating ‘plug and plate’ sealed chemistry tanks, we reduce
      the potential difficulty of introducing and supporting flip chip bumping
      technology in production.




Utilizing
      a single wafer, closed process cell design, eliminates the need to move the
      wafer through various plating chemistries which reduces the need for robotics
      and thereby lowers machine cost and space required on the production floor.
      This
      single cell approach reduces the likelihood of damage by minimizing wafer
      handling and enables a wide range of various composition of leaded and lead-free
      solders to be applied and/or developed.




We
      believe that our ability to embed metrology and chemistry management as well
      as
      provide upgradeable process recipes will help establish a means of continual
      customer development activity and revenue through both tool sales and process
      upgrades.




**Industry
      overview and background**




We
      believe that current demands in the electronics component fabrication and
      semiconductor assembly industry for alternative materials and application
      processes are driven by major initiatives, including:




·
            European
                Union and Japanese mandates requiring lead-free
                manufacturing;





·
            Industry
                conversion from wire bonding to “flip chip” bumping technology for all
                packaging interconnect.




“Flip
      chip” refers to an electronic component or semiconductor device that can be
      mounted directly onto a substrate, board, or carrier in a “face-down” manner.
      Electrical connection is achieved through conductive bumps built on the surface
      of the chips, which is why the mounting process is “face-down” in nature. During
      mounting, the chip is flipped on the substrate, board, or carrier, (hence the
      name “flip-chip”), with the bumps being precisely positioned on their target
      locations. Because flip chips do not require wirebonds, their size is much
      smaller than their conventional counterparts.




3


·
            Transition
                to wafer-scale manufacturing (packaging an IC directly at wafer level,
                instead of the traditional process of assembling the package of each
                individual unit after wafer dicing), chip-scale packaging (CSP) and
                multi-chip or 3-D packaging strategies (a specialized electronic
                package
                where multiple ICs, semiconductor dies or other modules are stacked
                to
                facilitate their use as a single integrated
                IC).




CSP
      is a
      type of integrated circuit chip carrier that has no pins or wires but uses
      contact pads instead. To be considered a CSP, a package must have an area no
      greater than 1.2 times that of the die packaged. The die may be mounted on
      an
      interposer upon which pads or balls are formed, as in ball grid array (BGA)
      packaging and flip chip BGA packaging, or the pads may be etched or printed
      directly onto the silicon wafer, resulting in a package very close to the size
      of the silicon die. Such a package is called a wafer level chip scale package
      or
      a wafer level package.




We
      believe that the industry adoption of electroplating for placing bumps on wafers
      and wafer level CSP packaging will increase significantly over the next five
      to
      ten years. We believe this expansion is created as a result of semiconductor
      companies facing increasing demands for miniaturization and improved thermal
      and
      electrical performance in semiconductor devices.




Because
      our technology is developed around two key hardware platforms that are highly
      scalable and built using large volume industry outsourcing partners, we believe
      that we can accommodate large-scale volume ramp ups with only modest additional
      capital expenditures and marketing costs. We currently have two hardware
      platforms which will serve three market segments - IC wafer bumping, flip chip
      substrate manufacturing, and solar cell plating.




**Sales
      and Marketing**




Our
      target markets are international and domestic semiconductor manufacturers,
      product development groups, fabless companies, and merchange interconnect and
      packaging suppliers. We intend to use domestic and international-based trade
      groups such as Semi, industry trade publications (semiconductor, equipment,
      packaging), select technology publications, international semiconductor
      associations (ECS, IEEE, IMAPS, ASME, Meptec) and local trade shows to target
      these markets.




We
      believe that top-tier producers and manufacturers of electronics and
      communications devices will be the first to adopt next generation wafer-scale
      packaging and assembly processes, and will ultimately set the standards for
      such
      processes. Our targeted strategy may include:




·
            Attracting
                top-tier producers and manufacturers as initial joint development
                and Beta
                tool partners as first adopters of our technology
                suite;


·
            Partnering
                with well established, multi-national chemical manufacturers and
                suppliers
                to provide primary distribution and immediate market presence and
                global-service credibility;


·
            Partnering
                with a well-established Asian sales representative with high level
                management contacts and reputation for strong support and compatible
                supporting technology;


·
            Partnering
                with national laboratories and universities to tap emerging technology
                and
                expert process evaluation assistance;
                and




4




·
            Partnering
                with well established, multi-national photo-resist suppliers to jointly
                test industry leading flip chip material capability in our
                tools.




Our
      target market for electrodeposition tools and materials is made up of the
      following four segments:




·
            Flip
                Chip wafer bumping


·
            Wafer
                Scale CSP Packaging


·
            High
                Density Laminate Flip Chip
                Substrates


·
            Solar
                Cell plating and thru-wafer via
                interconnections




In
      November 2006, we concluded our first sale of an electro-LESS “Rio” tool to C.
      Uyemura & Co., Ltd in Japan at a price of $220,000, pursuant to a purchase
      order. In connection with the sale, we will provide a warranty for parts and
      labor and telephone support for one year.




**Products
      and Services**




Our
      technology seeks to provide the resolution and lower cost typically associated
      with conventional electroplating while providing a high degree of process
      control and eliminating the barrier to lead-free binary and ternary alloys
      associated with plating. By combining our specialized plating tools,
      combinatorial material compounds and process technologies, we seek to provide
      metal combinations and deposition rates close to solder stencil printing without
      pitch and density limitations.




While
      the
      trend toward miniaturization and advanced packaging continues, we believe our
      tools, materials and wafer-scale processes will enable device engineers to
      breakthrough performance limits set by current packaging techniques. Our
      technologies are compatible with most existing fabrication processes and
      procedures, easing adoption of such technologies.




We
      believe our plating tools will provide an improvement in uptime and utilization
      facilitated by a simpler design and rapid chemistry change for multi-metal
      systems with less opportunity for product handling damage or contamination
      and a
      reduction in chemistry cost as a result of layered alloy creation technology
      rather than the more traditional pre-mixed alloy chemistries.




**The
      Tools, Process, and Materials**




**BETA
                Tool**
            
            ***STRATAPLATE*****PROCESS**
              **Single
                step gold tin eutectic**
            
            **Encapsulated
                Conductive**
              **Powders**




We
      have
      developed two hardware-plating technologies and subsequent tool platforms to
      support specific device and wafer-scale fabrication and assembly in a ‘Back End
      Of Line’ (BEOL) environment. Each tool provides users with a controlled
      production platform.




5


Our
      electrolytic plating tools utilize our proprietary WaveCell technology as
      discussed below:




**Name**
            **Description**
            **Notes**Ascent
            Independent
                Device Manufacturers (IDM)Bump Engine for focused applications and R&D tool that allows IDMs to
                test new chemistries.
            Prospects
                have called the tool the “Desktop Plater”Leapfrog
            300/200mm
                fully automated production tool
            Comparable
                in functionality to traditional 6 cell dipping tools while eliminating
                robotics and aimed at decreasing likelihood of contaminationFuture
                ProductsSunrise
            300/200/150/100mm
                Bump Engine tailored to produce a cost effective solar cell interconnect
                on backside
            New
                product development aimed at rapidly growing solar concentrators
                and
                wafers for alternative power industryPromise
            300/200/150mm
                Bump Engine for silicon fuel cell applications
            New
                product development for silicon fuel cell plating and interconnect
                targeted at Toshiba/others





The **WAVeCELL
      Technology** is a
      patented wafer-level plating technology with a number of unique technical
      features fundamentally distinguishing it from traditional wafer-level plating
      technologies. Unlike other commercial wafer-level plating tools, the **WAVeCELL
      Technology** utilizes
      a single wafer closed cell with a primarily horizontal plating operation. This
      enables progressive multiple metal deposition and allows gases produced at
      the
      wafer surface during plating to be continually swept away rather than be
      retained on the wafer surface as they are with other cup style or flood plater
      cells. Gasses forming at the wafer surface can interfere with the deposition
      of
      metal during the plating process . In the **WAVeCELL
      Technology** ,
      the
      plating electrolyte flows across the wafer surface in a laminar flow improving
      agitation which increases diffusion layer ion exchange and plating rates. The
      combination of continual gas deposit removal, tight electrolyte volume control
      and close wafer-to-anode tolerance control permits a significant degree of
      control over the plating deposit.




The **WAVeCELL
      Technology** enables
      the deposition of finer grained plating layers than can be achieved by
      traditional wafer printing tools. Finer metal grains in the plating deposit
      enable higher plating pattern resolution on wafers and help ensure that the
      proper homogeneous plating alloy stoichiometry is present on even the smallest
      wafer features. The **WAVeCELL
      Technology** is
      capable of depositing layered compositions and alloys with tight composition
      control and consistency as well as increased uniformity over the newer large
      300mm wafers due to improved zones of agitation that are adjustable, in an
      effort to ensure reliable and complete reflow temperature for all wafer solder
      deposit features.




Our
      Electro-LESS Plating Tool utilizes our proprietary PaveCell
      technology:




**Name**
            **Description**
            **Notes**Rio
            Tool
                specialized for electroless nickel immersion gold (ENiG)
                process
            Developed
                for major chemical companies who are seeking new applications for
                ENiG
                process




6


The **PaveCell
      Technology** is a
      dedicated single-substrate processing cell designed for high precision high
      tolerance autocatalytic (electroless) metal plating deposition. Utilization
      of
      electroless processing of wafers in the **PaveCell
      Technology** allows
      the deposition of features without requiring that they be electrically bussed
      together (joined together into an electrical circuit). Utilizing cell
      pressurization and anodic protection to control electroless plating rate in
      the **PaveCell
      Technology** allows
      deposition rate, deposit uniformity and deposit finish to be optimized,
      concurrently.




Because
      electroless plating results from chemical reaction rather than electrical
      bussing, conventional electroless process chemistries are indiscriminate in
      depositing plating, not only onto the desired substrate areas, but also onto
      the
      walls of the plating hoses, plating tank and anywhere else the electroless
      plating solution contacts. Plating chemistry manufacturers presently attempt
      to
      manage this difficulty by incorporating organic inhibitors into the plating
      bath
      which retard the activity of the chemistry sufficiently so that the deposition
      can be largely, but not completely, limited to those areas intended for plating.
      This chemical inhibition may cause the plating bath to be less than optimally
      efficient, and the organic additives to co-deposit alongside the plating metal
      which may impair the quality of the plating deposit. The **PaveCell
      Technology** is
      constructed in such a manner as to allow it to be maintained at any desired
      electrical potential relative to the cell body, thus allowing for highly
      accurate and targeted plating. By pressurizing the plating solution, gas bubble
      formation on the wafer surface is suppressed during the plating cycle, which
      has
      a significant slowing effect on the activity of the plating chemistry, and
      allows the electroless plating rate kinetics to be regulated directly without
      requiring the incorporation of organic rate inhibitors.




**Process
      Technologies**




In
      addition to the enhancement in process efficiencies which may be realized by
      the
      use of the **WAVeCELL** and **PaveCell
      Technology** for
      conventional electrolytic and electroless plating processes, the full value
      of
      the **WAVeCELL** technology may be realized when used as a component of the **StrataPlate** or **AggrePlate** process.




The **StrataPlate** process
      involves layering of various multi-solder alloys by sequential electrochemical
      deposition of the individual alloy constituent elements, including Pb-free
      combinatorial metals in a single oxide-free cell and reduces excess wafer
      handling and the need for multiple deposition tools and steps.. The metals
      comprising the finished plating lamination stack are deposited with a high
      degree of individual mass control. The thickness and sequence of the constituent
      metal plating layers are chosen so as to create the desired solder alloy upon
      thermal cycling of the plating layer lamination stack.




Figure
                1: Au / Sn before reflow
            Figure
                2: Au / Sn after reflow





·
            The
                AggrePlate process is a developmental multi-element co-deposition
                process
                that provides the same composition of the StratoPlate Process in
                a
                single-deposit step using the same WaveCell Electroplating
                technology.




7


The
      AggrePlate process involves co-depositing nano, micro metal or other particles
      along with standard metal plating. This process enables the creation of higher
      conductivity (thermal and electrical) and controlled stand-off compositions.
      Copper bumps and interconnect is rapidly gaining favor for high performance
      applications due to its improved performance over tin/lead bumps. The AggrePlate
      process enables deposition of low stress and high performance copper
      interconnect using coated particles that reduce electro-migration issues and
      increase conductivity.




**Proprietary
      Materials:**




·
            Surflo:
                micro or nano-encapsulated powders that are coated providing enhanced
                characteristics and are targets for use with our deposition tools
                for
                competitive process advantages. We believe this nascent technology
                provides a higher value path to cost reduction and process control
                for
                both electroplating and solder stencil printing of metal features
                at all
                levels of electronic assembly. Surflo-micro-encapsulation allows
                all of
                the combined elements required for solders to be co-deposited on
                the
                surface of a carrier particle for one-step delivery to the substrate
                surface when used in the AggrePlate
                process.




**Research
      and Product Development**




Our
      product development team is located in Albuquerque, New Mexico and consists
      of
      industry veterans and technical experts who work closely with our prospect’s
      representatives and industry research groups to create internal development
      roadmaps. Our team focuses on technology required for initial tool and process
      and technology developments required to be competitive and to ensure that our
      products will meet emerging requirements. Our close proximity to national
      laboratories such as Sandia National and Los Alamos National Laboratories
      enables interaction with some of the leading chemical and nano-material
      technology experts and testing facilities.




Our
      initial research and development efforts are based on modifying or improving
      the
      properties of currently available solder powder metals and positioning our
      materials as drop-in replacements for existing materials or assembly processes.
      We believe this will allow for a rapid development curve based on a solid
      engineering approach. Our technical staff will directly engage with a
      prospective customer’s engineers to determine the most viable and cost-effective
      plan to supplant an existing qualified process. We currently plan to use minimal
      resources for development of micro-composition materials, which is largely
      driven by customer applications. Our initial research efforts will be to develop
      Surflo low temperature solder materials for use in level-one assembly material
      and wafer bumping applications. We also may investigate copper based metal
      features such as microvia and blind via for expedient process technologies.
      We
      believe that our relationship with outsourcing companies provide us the ability
      to rapidly prototype machine and device concepts.




We
      believe this expansion is created as a result of semiconductor companies facing
      increasing demands for miniaturization and improved thermal and electrical
      performance in semiconductor devices.




We
      have
      certain working relationships with national research laboratories as well as
      universities under contracted service arrangements. We are working to include
      novel high conductivity nano-particles in our proprietary materials product
      line
      and are exploring possible licensing arrangements with leading research
      laboratories in this area. To date, no formal licensing agreements have been
      consummated, however, Louisiana Tech is conducting testing for us on a time
      and
      materials basis, and Sandia National Laboratory has provided us limited
      characterization and optical testing services in exchange for plating services.
      Income received by us for such plating services and payments made to such
      institutions for testing services have been minimal. There can be no assurance
      that any of our working relationships will ever develop into formal licensing,
      development or other agreements.




8


**Competition**




Based
      upon our market analysis, we believe that our competitors comprise the following
      categories:




·
            Robotic
                Ball Placement


·
            Paste
                and Stencil Plating


·
            Traditional
                Electroplating Tool Suppliers


·
            Serially
                placed wire bond stud bumping tools


·
            Substitutes
                and new technologies such as jetting
                technology




Competitive
      semiconductor electroplating tool suppliers are shown in the table
      below.




Company
            Tool
                OfferingsSemiTool,
                Inc.
            Wet
                processing tools, Cup Bump plating tools, ECD copper
                toolElectroplating
                Engineers of Japan, Ltd.
            Cup
                electroplaters for alloy bumps and copper damasceneC.
                Uyemura & Co., Ltd.
            Conventional
                rack process and wafer-boat for ElectrolessEBARA
                Corporation
            Cup
                electroplaters for alloy bumps and copper damasceneTechnics,
                Inc.
            Cup
                and bench with rack electroplatersHitachi
                Engineering & Services, Co., Inc.
            Vertical
                paddle electroplaterNEXX
                Systems, Inc.
            Vertical
                batch electroplating cell





Older
      bumping technologies that utilize both robotic ball placement and stenciling
      technologies can compete with typical electroplating technologies more cost
      effectively given the higher cost of competitive electroplating in lower end
      applications.




For
      most
      higher value processors or application specific integrated circuit die and
      analog die, electrochemical deposition (ECD) technologies are an effective
      method to meet the lower defect levels while maintaining cost
      effectiveness.




ECD
      is a
      technique used to deposit thin films of various materials onto various surfaces
      (e.g., semiconductor wafers) by an electromechanical means. Variants of ECD
      include:




·
            ECD
                Damascene


·
            Multi-cell
                (traditional) electroplating;


·
            Single-cell
                electroplating - including Electroless (or chemical reactive)
                plating.




ECD
      technologies (including electroplating) may better address newer devices with
      bump pitches less than 200um. Older processes may not be capable of the quality
      and low defect levels required for high performance devices and may not be
      capable of the repeatability required by newer technologies.




9


**Intellectual
      Property**




We
      have
      sought U.S. and international patent protection of key technologies used in
      our
      business as follows:




Patent
                Description
            
            Issued
            
            Status“Sub-micron
                & Nano Size Particle Encapsulation by Electrochemical Process and
                Apparatus”
            
            2005
            
            Patent
                6,942,765“Electrodeposition
                Apparatus and Method using Magnetic Assistance and Rotary Cathode
                for
                Ferrous and Magnetic Particles”
            
            2005
            
            Patent
                6,890,412“Metal
                Hydride Composite Materials”
            
            2004
            
            Patent
                6,824,667“Coated
                and Magnetic Particles and Applications Thereof”
            
            Filed
                2003
            
            Patent
                Pending“Apparatus
                and Method for Highly Controlled Electrodeposition”
            
            Filed
                2004
            
            Patent
                Pending“Plating
                Apparatus and Method”
            
            Filed
                2005
            
            Patent
                Pending“Method
                and Apparatus for Aligning MEMS and Photonics Devices”
            
            Filed
                2005
            
            Patent
                Pending“Composite
                Magnetic Particles and Foils”
            
            Filed
                2005
            
            Patent
                Pending“Dynamic
                Profile Anode”
            
            Filed
                2005
            
            Patent
                Pending





To
      protect our trade secrets, we plan to provide certain of our controlled process
      intellectual property as part of a tool transaction while continuing to develop
      additional process applications to exploit the tool intellectual
      property.




We
      have
      registered the domain name www.surfect.com, as well as acquired trademark
      registration for Surfect®:




Our
      employees are parties to nondisclosure of proprietary information, innovation,
      confidentiality and non-compete agreements.




We
      may in
      the future pursue the licensing of certain technologies from laboratories,
      such
      as Sandia and Los Alamos National Laboratories, or other
      institution.




**Customer
      Relationship Management**




We
      currently anticipate that each sales region will require its own local technical
      support. We anticipate utilizing local manufacturers and support representatives
      to help sell and support our equipment and processes. Customer support in the
      Albuquerque, New Mexico corporate office will support customers in the United
      States and provide a platform for the management and facilitation of
      international customer support teams. Support will be available primarily
      through our internal sales team during the early product development and
      roll-out phase of our development which will be supplemented with internal
      technical product support as well as local support in Taiwan, Singapore, and
      China through a sales representative network. Our online support includes web
      access, including Frequently Asked Questions (FAQ’s) on a custom portal, on-line
      help in each product, email support requests posted on the customer portal,
      and
      by telephone. We use sales force CM software via web interface to provide high
      quality yet low cost customer development management. Engineers in the United
      States create on-line training materials and tutorials, and work with
      international contacts to translate those materials.




10


Our
      focus
      is to respond to customers’ needs for technology which we believe will enable us
      to implement cost effective rapid flip chip capacity growth and to introduce
      lead-free flip chip bumps as quickly as possible. Our strategy and technology
      approach are focused on providing market penetration with large customers
      experienced in flip chip technology and willing to share reliability data.
      Our
      initial prospects will act as Beta customers providing critical feedback on
      process and tool operation as well as incorporating their specific requirements
      and metrology inputs. Our process team will provide process demonstration wafers
      which are characterized by the customer’s process, and reliability engineers
      followed by additional wafers run on a beta tool installed in the customer’s
      facility. We believe that customer characterizations will result in valuable
      feedback and references. Currently our marketing activities are focused on
      securing orders from Texas Instruments and Freescale (leading US independent
      device manufacturers (IDM)) and ASE and SPIL (merchant outsourcing providers
      supporting key foundries such as TSMC and other IDMs and OEMs.) Bumped wafers
      demonstrating process capability have been provided to these initial prospects
      and beta orders are currently anticipated in the second quarter of
      2007.




**Employees**




As
      of May
      1, 2007, we had eleven full-time employees, three in research and process
      engineering, four in product development and production, one in sales and
      marketing and three in management, finance and administration. Our employees
      are
      not represented by a union or collective bargaining entity and our management
      considers relations with employees to be good.




We
      currently anticipate hiring an additional 3-5 employees in the areas of
      production and process engineering during 2007.




**Regulation**




We
      are
      subject to regulation by numerous federal, state and local regulatory agencies,
      including the United States Department of Transportation, which regulates
      shipments of chemicals and the importation of hazardous materials, and the
      United States Department of Commerce which regulates the import and export
      of
      technological products, and similar state and local agencies. Compliance with
      these laws has not had and is not anticipated to have a material effect on
      our
      business.




**RISK
      FACTORS**




There
      are
      numerous and varied risks, known and unknown, that may prevent us from achieving
      our goals. You should carefully consider the risks described below and the
      other
      information included in this prospectus, including our financial statements
      and
      related notes. Our business, financial condition and results of operations
      could
      be harmed by any of the following risks. If any of the events or circumstances
      described below were to occur, our business, financial condition and results
      of
      operations could be materially adversely affected. As a result, the trading
      price of our common stock could decline, and investors could lose part or all
      of
      their investment.




11


**Risks
      Related to Our Company and Business**




**Our
      products are highly specialized and it is difficult to estimate the size of
      the
      available market for our products.**




Our
      products are highly specialized and primarily have applications in
      high-performance semiconductor wafer bumping and packaging applications. It
      is
      difficult to estimate with certainty the total market size for our products
      and
      there can be no assurances that our products will achieve market acceptance
      or
      generate significant revenues.




**We
      are in an early stage of development and have a limited operating history,
      which
      makes evaluating our business more difficult and therefore investors have
      limited information upon which to rely. We have accumulated deficits in the
      research and development of our technology and there is no guarantee that we
      will generate significant revenue or become profitable.**




We
      are in
      the early stage of development, have had limited revenue related to our core
      operations and have only a limited operating history on which to base an
      evaluation of our business and prospects. From inception through December 31,
      2006, we have generated limited revenue from the provision of miscellaneous
      consulting and plating services which we have recorded in our financial
      statements as other income. On November 28, 2006, we recorded our first revenue
      from tool sales of approximately $221,000. For the fiscal year ended December
      31, 2006, we experienced losses of approximately $3 million on a consolidated
      basis. As of December 31, 2006, our accumulated deficit amounted to
      approximately $7.7 million. In addition, we expect to continue incurring
      operating losses for the foreseeable future. Our ability to generate significant
      revenues and achieve profitability depends on our ability to complete the
      development of and manufacture, market and sell our technology. We may not
      succeed given the technological, marketing, strategic and competitive challenges
      we will face. The likelihood of our success must be considered in light of
      the
      expenses, difficulties, complications, problems, delays and inherent risks
      frequently encountered in connection with the growth of a new business, the
      continuing development of new technology, and the competitive environment in
      which we operate. Such risks include acceptance by users in an evolving and
      unpredictable business environment, the lack of a well developed brand identity
      and the difficulty of bringing our product to market on a timely basis.




**We
      may not be able to continue as a going concern** **.**




Our
      auditors have included an “uncertainty paragraph” in their audit report on our
      financial statements for the period ended December 31, 2006 regarding our
      ability to continue as a going concern. Our ability to continue as a going
      concern is subject to our ability to realize a profit and/or obtain funding
      from
      outside sources. Our plan to address our ability to continue as a going concern,
      include obtaining additional funding from the sale of securities and
      establishing revenues from commercializing one or more products. Although we
      believe that we will be able to obtain the necessary funding to allow us to
      remain a going concern through these methods, there can be no assurances that
      such methods will prove successful.




**Our
      revenue is highly dependent on the semiconductor industry which is subject
      to
      fluctuations.**




We
      anticipate that most of our revenue will be derived from semiconductor companies
      and outsourcing merchant providers and other suppliers in the semiconductor
      industry. We may decide to expand beyond the semiconductor market to high
      density PCB substrate and solar cell markets if and when such markets grow
      but
      we are currently exclusively dependent in the short term on semiconductor
      industry fluctuations. Our revenue, if any, may increase and decrease with
      the
      level of equipment purchases and wafer bump conversion activity and is therefore
      subject to declines in or disruptions to purchasing or qualification buy-offs
      in
      the semiconductor industry. Our revenue may be adversely affected as product
      demand and customer volume requirements vary in the semiconductor industry
      as a
      result of:




·
            Economic
                downturns and recessions;




12




·
            Global
                security issues, political instability, acts of terrorism, hostilities
                and
                war;


·
            Seasonal
                customer assembly fluctuations that may be aimed at building inventory
                to
                supportthe
                increased demand during the Christmas season or for major new product
                launches;


·
            Increased
                customer competitiveness reducing the number of customers and capacity
                requirements;


·
            Inclement
                weather and earthquakes, such as the recent tsunami which devastated
                parts
                of Southeast Asia and could prevent access to customer locations
                and
                factories;


·
            Shifts
                in product design that could disrupt current technology conversion
                paths;


·
            Economic
                and political issues in the Asia, European, Latin America and emerging
                markets; and


·
            The
                financial condition of merchant providers and smaller semiconductor
                customers.




The
      possibility of further supply disruptions, availability of key material sources,
      Integrated Circuit (IC) demand, product design changes, and financial
      instability in emerging markets may continue to adversely affect the
      semiconductor equipment market. Companies may reduce their planned capacity
      requirements, making fewer unit sales available to us. The financial instability
      of smaller semiconductor companies or a prolonged substantial decrease in
      semiconductor booking volumes could have an adverse impact on our business
      and
      operations.




**Initially
      we expect to depend on a relatively small number of
      customers.**




We
      expect
      our sales to be concentrated among relatively few customers. The loss of any
      significant customer or any reduction in orders by a significant customer may
      have a material adverse effect on our revenues.




**We
      encounter risks and difficulties frequently experienced in rapidly evolving
      industries such as the semiconductor industry.**




We
      may
      face risks related to our ability to:




·
            Attract
                and retain customers on a cost-effective basis;


·
            Expand
                and enhance our product offerings;


·
            Operate,
                support, expand and develop our operations, our websites, our software
                and
                our communications and other
                systems;


·
            Diversify
                our sources of revenue, including by entering into agreements that
                may
                reflect changes to our business
                model;


·
            Maintain
                and develop our existing brands and distribution channels, as well
                as to
                make cost-effective expenditures in connection with these
                initiatives;


·
            Manage
                our relationships with important semiconductor manufacturers and
                other
                industry participants; and


·
            Respond
                to competitive market conditions.




If
      we are
      unsuccessful in addressing these risks or in executing our business strategy,
      we
      may not be profitable.




13


**We
      face competition from established and emerging semiconductor capital equipment
      manufacturers, which could divert prospective customers to our
      competitors.**




We
      currently compete in the wafer bumping tools and packaging markets. Some
      equipment companies not traditionally serving our market could enter our market,
      causing reduced revenues and sales opportunities. We
      expect
      existing competitors and new entrants to the wafer bumping business to increase
      and to constantly revise and improve their business models. Many of these
      entities have significantly greater research and development capabilities and
      budgets than we do, as well as substantially more marketing, manufacturing,
      financial and managerial resources. These entities represent significant
      competition for us. Acquisitions of, or investments in, competing companies
      by
      large corporations could increase potential competitors’ resources. Since our
      resources are limited, we may not be able to compete with these larger
      competitors.




**We
      are dependent on the continued operation of qualified manufacturing outsourcing
      capacities.**




We
      currently intend to outsource all of our manufacturing activities to facilities
      located in the United States and Asia. While we have not as yet identified
      such
      manufacturing facilities, we believe there are sufficient manufacturing
      facilities available to us for the foreseeable future. If and when we find
      qualified manufacturers we may not be able to continue to find qualified
      manufacturers on acceptable terms and, if we do there can be no assurance that
      product quality will continue to be acceptable. These facilities may be subject
      to disruption for a variety of reasons, including work stoppages, fire, energy
      shortages, flooding or other natural disasters. We cannot ensure that
      alternative production capacity would be available if a major disruption were
      to
      occur or that, if it were available, it could be obtained on favorable terms.
      Such a disruption could negatively impact our ability to operate our business.




**Consolidation
      in the semiconductor capital equipment industry and increased competition may
      result in increased expenses, lost bookings and reduced revenue.**




We
      compete to attract and retain the largest most advanced flip chip companies
      as
      prospective customers. Consolidation of customers may result in decreased
      equipment demand and increased competition. In order to compete effectively,
      we
      may need to increase incentives, pre-pay incentives, increase spending on
      marketing or product development, or make significant investments to purchase
      strategic assets. In addition, consolidation among process equipment
      manufacturers, such as mergers and alliances, may increase competition from
      their distribution channels or give them additional leverage to negotiate lower
      booking charges.




**Our
      success depends on maintaining the integrity and upgrading the quality of our
      systems and infrastructure.**




If
      our
      operations grow in both size and scope, we will continuously need to improve
      and
      upgrade our systems and infrastructure to offer an increasing number of
      customers enhanced products, services, features and functionality, while
      maintaining the reliability and integrity of our systems and infrastructure.
      The
      expansion of our systems and infrastructure will require us to commit
      substantial financial, operational and technical resources before the volume
      of
      business increases, with no assurance that the volume of business will increase.
      Fabless companies, merchant providers and large IC manufacturers will not
      tolerate a service hampered by slow equipment delivery and lead times,
      unreliable service levels and production outages due to installation delays,
      or
      insufficient technical support and process capability, any of which could
      negatively affect our business.




14


**If
      we do not contin** **ue
      to innovate and provide products and services that are useful to users, we
      may
      not remain competitiv** **e,
      and our revenue and operating results could suffer.**




Our
      future success depends on providing products and services that are accepted
      by
      semiconductor manufacturers. Our competitors are constantly developing
      innovations. If
      wafer
      bumping industry participants introduce changes or developments that we cannot
      meet in a timely or cost-effective manner, our business may be adversely
      affected. As
      a
      result, we must continue to invest significant resources in research and
      development in order to enhance our technology and existing products and
      services. Additionally, we will have to consistently introduce new high-quality
      products and services that semiconductor industry participants can easily and
      effectively use. If we are unable to provide prospective customers with high
      quality and technologically efficient products, then such customers may become
      dissatisfied and move to competitors’ products. Moreover, if we are unable to
      predict user preferences or industry changes, or if we are unable to modify
      our
      products and services on a timely basis, we may lose users.




**Our
      ability to compete effectively will depend, in part, on our ability to maintain
      the proprietary nature of our technology.**




Although
      we seek to protect our technology through, among other avenues, U.S. and foreign
      patent protection, there can be no assurance that the patents which may be
      obtained and the patent applications filed by us are sufficient to protect
      our
      technology or that any patent will not be held invalid, circumvented, or
      infringed by others. In addition, we rely to a significant extent on proprietary
      know-how. We cannot ensure that others will not independently develop superior
      know-how to that which we now consider proprietary.




We
      have
      received three patents and filed six additional patent applications with the
      U.S. Patent and Trademark Office and have filed patent applications in Europe,
      Japan, Taiwan, Malaysia, and the World Intellectual Property Organization.
      In
      addition, we have registered our trademark SURFECT® and will apply to register
      new trademarks as they arise. Litigation may be necessary to enforce patents
      issued to us, to protect trade secrets or know-how owned by us, or to determine
      the enforceability, scope, and validity of the proprietary rights of others.
      Enforcing or defending our rights is expensive, could cause diversion of our
      resources, and may not prove successful. Any failure to enforce or protect
      our
      rights could cause us to lose the ability to exclude others from using our
      technology to develop or sell competing products.




**We
      may face litigation from third parties that claim our products infringe on
      the** **ir
      intellectual property rights.**




We
      may be
      exposed to future litigation by third parties based on claims that our
      technologies, products, or activities infringe the intellectual property rights
      of others or that we have the trade secrets of others. Any litigation or claims
      against us, whether or not valid, could result in substantial costs, could
      place
      a significant strain on our financial and managerial resources, and could harm
      our reputation. Most of our license agreements would likely require that we
      pay
      the costs associated with defending this type of litigation. In addition,
      intellectual property litigation or claims could force us to cease selling,
      incorporating or using any of our technologies and/or products that incorporate
      the challenged intellectual property, which would adversely affect our future
      revenue; obtain a license from the holder of the infringed intellectual property
      right, which license may be costly or may not be available on reasonable terms,
      if at all; or redesign our products, which would be costly and time consuming.
      We have not engaged in discussions, received any communications, nor do we
      currently have any reason to believe that any third party is challenging or
      has
      the proper legal authority to challenge our intellectual property rights.




15


**Doing
      business internationally poses special risks.**




We
      intend
      to conduct a large portion of our business internationally which requires
      management attention and special resources. We currently are focused on initial
      customer penetration in the Taiwan market which represents the largest market
      for our tools and processes outside of the United States. We currently plan
      to
      focus future Asian activities in Singapore, Korea, Japan, and China. We will
      face a number of risks associated with international operations, including:




·
            currency
                fluctuations;


·
            challenges
                caused by distance, language and cultural
                differences;


·
            longer
                payment cycles in some countries;


·
            credit
                risk and higher levels of payment
                fraud;


·
            legal
                and regulatory restrictions;


·
            foreign
                exchange controls that might prevent us from repatriating cash earned
                in
                countries outside the United
                States;


·
            political
                and economic instability and export
                restrictions;


·
            potentially
                adverse tax consequences; and


·
            higher
                costs associated with doing business
                internationally.




In
      addition, agreements may be difficult to enforce and receivables difficult
      to
      collect through a foreign country’s legal system. These and other risks could
      harm our international business efforts, which would adversely affect our
      business prospects and operating results. If we are unable to manage
      successfully the risks inherent in international activities, our international
      business operations could suffer.




**We
      depend upon key personnel who may terminate their employment with us at any
      time, and we will need to hire additional qualified personnel who may be
      unavailable due to the necessity of unique skills and
      resources.**




Our
      success will depend to a significant degree upon the continued services of
      key
      management, including Steven Anderson, our Chief Executive Officer. We intend
      to
      purchase “key man” life insurance for Mr. Anderson in the amount of $3,000,000.
      This insurance may not adequately compensate for the loss of Mr. Anderson’s
      services. Management and other employees may voluntarily terminate their
      employment at any time, since we do not have employment agreements with anyone.
      Our success will also depend on the ability to attract and retain highly skilled
      personnel. Competition for qualified personnel is intense, and the process
      of
      hiring and integrating such qualified personnel is often lengthy. We may be
      unable to recruit such personnel on a timely basis, if at all. The loss of
      the
      services of key personnel, or the inability to attract and retain additional
      highly qualified personnel, could adversely affect our business and damage
      our
      business prospects.




**We
      will require significant additional funding which we may have difficulty raising
      because of our limited operating history and business risks associated with
      our
      company.**




We
      currently do not generate significant revenues. We do not know when, or if,
      this
      will change. We have expended substantial funds in research and development
      as
      well as administrative efforts and will continue to expend substantial funds
      in
      manufacturing, research and development and for general operations. We will
      require substantial additional funds to gear up operations if and when our
      products are accepted into the market, and to provide for the marketing and
      distribution of our products. Additional funds may not be available on
      acceptable terms, if at all. If adequate funds are unavailable or are not
      available on terms deemed acceptable by management, we may have to delay, reduce
      the scope of or eliminate one or more of our research or development programs
      or
      product or marketing efforts. Our long term capital requirements are expected
      to
      depend on many factors, including:




·
            the
                number of potential products and technologies in
                development;




16




·
            continued
                progress and cost of our research and development
                programs;


·
            costs
                involved in preparing, filing, prosecuting, maintaining and enforcing
                patent claims;


·
            costs
                of developing sales, marketing and distribution channels and our
                ability
                to sell our products;


·
            competing
                technological and market
                developments;


·
            market
                acceptance of our products; and


·
            costs
                for recruiting and retaining management, employees, and
                consultants.




We
      may
      consume available resources more rapidly than currently anticipated, resulting
      in the need for additional funding. We may seek to raise additional funds
      through the exercise of warrants, equity or debt financings, collaborative
      arrangements with corporate partners, or other sources. Any equity financing
      may
      be dilutive to existing stockholders and debt financing, if available, may
      involve restrictive covenants that would limit how we conduct our business
      or
      finance our operations, or otherwise have a material effect on our current
      or
      future business prospects. In addition, in the event that additional funds
      are
      obtained through arrangements with collaborative partners or other sources,
      we
      may have to relinquish economic and/or proprietary rights to some of our
      technologies or products under development that we would otherwise seek to
      develop or commercialize by ourselves. If adequate funds are not available,
      we
      may be required to significantly reduce, refocus, or delay our development
      efforts with our technology and products.




**Since
      we may be dependent on collaborative arrangements for the development of our
      technologies and business, we may be exposed to the risk of reliance on the
      viability of third parties.**




In
      conducting our research and development activities, we may in the future rely
      upon collaborative arrangements with universities, laboratories and corporate
      partners. The loss of or failure to perform under any of these arrangements,
      by
      any of these entities, may substantially disrupt or delay our research and
      development activities.




**Due
      to our limited marketing, sales, and distribution experience, we may be
      unsuccessful in our efforts to sell our products, enter into relationships
      with
      third parties, or develop sales organization.**




We
      have
      yet to establish any marketing, sales, or distribution capabilities for our
      proposed products. At the appropriate time, we intend to enter into agreements
      with third parties to sell our products or we may develop our own sales and
      marketing force. We may be unable to establish or maintain third party
      relationships on a commercially reasonable basis, if at all. In addition, these
      third parties may have similar or more established relationships with our
      competitors.




If
      we do
      not enter into relationships with third parties for the sales and marketing
      of
      our products, we will need to develop our own sales and marketing capabilities.
      We have limited experience in developing, training, or managing a sales force.
      If we choose to establish a direct sales force, we may incur substantial
      additional expenses in developing, training, and managing such an organization.
      We may be unable to build a sales force on a cost effective basis or at all.
      Any
      such direct marketing and sales efforts may prove to be unsuccessful. In
      addition, we will compete with many other companies that currently have
      extensive marketing and sales operations. Our marketing and sales efforts may
      be
      unable to compete against these other companies. We may be unable to establish
      a
      sufficient sales and marketing organization on a timely basis, if at all, and
      may be unable to engage qualified distributors. Even if engaged, these
      distributors may:




·
            fail
                to satisfy financial or contractual obligations to
                us;


·
            fail
                to adequately market our products;


·
            cease
                operations with little or no notice;
                or


·
            offer,
                design, manufacture, or promote competing
                products.




17


If
      we
      fail to develop sales, marketing, and distribution channels, we would experience
      delays in product sales and incur increased costs, which would harm our
      financial results.




**We
      are exposed to product liability risks, which could place a substantial
      financial burden upon us should we be sued, because we currently have limited
      product liability insurance above and beyond our general insurance
      coverage.**




Our
      business exposes us to potential product liability and other liability risks
      that are inherent in the testing, manufacturing and marketing of our products.
      We cannot assure that such potential claims will not be asserted against us.
      A
      successful liability claim or series of claims brought against us could consume
      our resources and harm our reputation and business.




We
      currently have limited product liability insurance, and do not have other
      liability insurance relating to any products that could cover all of the
      liability or damage that could occur as a result of our activities. We cannot
      assure that we will be able to maintain adequate product liability insurance
      on
      acceptable terms, if at all, or that such insurance will provide adequate
      coverage against our potential liabilities. Furthermore, our current and
      potential partners with whom we may collaborative or our future licensees may
      not be willing to indemnify us against liabilities and may not themselves be
      sufficiently insured or have a net worth sufficient to satisfy any product
      liability claims. Claims or losses in excess of our product liability insurance
      coverage could have a material adverse effect on our business.




**Our
      suppliers may encounter financial hardships unrelated to our demand for
      components, which could inhibit their ability to fulfill our orders and meet** **their
      requirements.**




Any
      interruption or delay in the supply of components or materials, or our inability
      to obtain components or materials from alternate sources at acceptable prices
      in
      a timely manner, could impair our ability to meet the demand of our customers
      and cause them to cancel orders or switch to competitive
      procedures.




To
      mitigate the risk of supply interruptions from a sole-source supplier, we may
      determine to maintain excess inventory of the products or components they
      supply. Managing our inventory levels is important to our cash position and
      results of operations. An excessive amount of inventory reduces our cash
      available for operations and may result in excess or obsolete materials.
      Inadequate inventory levels may make it difficult for us to meet customer
      product demand, resulting in decreased revenues. An inability to forecast future
      revenues or estimated life cycles of products may result in inventory-related
      charges that would negatively affect our gross margins and results of
      operations.




**Our
      business may incur substantial expense to comply with environmental laws and
      regulations.**




We
      may
      incur substantial costs to comply with environmental laws and regulations.
      In
      addition, we may discover currently unknown environmental problems or
      conditions. We are subject to extensive federal, state, provincial and local
      environmental laws and regulations which govern the discharge, emission,
      storage, handling and disposal of a variety of substances that may be used
      in,
      or result from, our operations. Environmental laws or regulations (or their
      interpretation) may become more stringent in the future.




18


**Instability
      in emerging markets may adversely affect the semiconductor equipment
      market.**




Supply
      disruptions, availability of key material sources, IC demand, product design
      changes and financial instability in emerging markets may adversely affect
      the
      semiconductor equipment market. Companies may reduce their planned capacity
      requirements, making fewer unit sales available to us. The financial instability
      of smaller semiconductor companies or a prolonged substantial decrease in
      semiconductor booking volumes could have an adverse impact on our financial
      performance, operations, liquidity and capital resources.




**Risks
      Relating to Our Common Stock**




**Our
      stock price may be volatile** **and a decrease in the market price could result in substantial losses for
      investors.**




The
      market price of our common stock is likely to be highly volatile and could
      fluctuate widely in price in response to various factors, many of which are
      beyond our control, including the following:




·
            technological
                innovations or new products and services by us or our
                competitors;


·
            intellectual
                property disputes;


·
            additions
                or departures of key personnel;


·
            our
                ability to execute our business
                plan;


·
            operating
                results that fall below
                expectations;


·
            loss
                of any strategic relationship;


·
            industry
                developments;


·
            economic
                and other external factors; and


·
            period-to-period
                fluctuations in our financial
                results.




In
      addition, the securities markets have from time to time experienced significant
      price and volume fluctuations that are unrelated to the operating performance
      of
      particular companies. These market fluctuations may also materially and
      adversely affect the market price of our common stock.




**We
      have no current plan to pay dividends on our common stock. Any return on
      investment may be limited to the value of our common
      stock.**




We
      do not
      intend to pay cash dividends on our common stock in the foreseeable future.
      The
      payment of dividends on our common stock will depend on earnings, financial
      condition and other business and economic factors affecting us. If we do not
      pay
      dividends, our common stock may be less valuable because a return on investment
      will only occur if our stock price appreciates.




**Our
      principal stockholder, executive officers and directors together beneficially
      own a substantial number of shares of common stock, which gives them substantial
      control over certain major decisions on which our stockholders may vote and
      which may discourage an acquisition of our company.**




Our
      executive officers, directors and principal stockholders beneficially own,
      in
      the aggregate, 52.2% of our outstanding common stock. Accordingly, such persons
      will have the ability to determine the direction and decisions of our company.
      Additionally, the executive officers and directors may have even greater control
      in the event that they exercise any of the options which have been or may be
      granted to them under our employee incentive plan or if they otherwise acquire
      additional shares of our common stock.




19


The
      interests of our current executive officers and directors may differ from the
      interests of other stockholders. As a result, these current executive officers,
      directors and principal stockholder will have significant influence over all
      corporate actions requiring stockholder approval, irrespective of how our other
      stockholders may vote, including in connection with the following
      actions:




·
            the
                election of directors;


·
            the
                amendment of charter documents;


·
            the
                issuance of blank check preferred or convertible stock, notes or
                instruments of indebtedness, which may have conversion, liquidation
                and
                similar features and other financing arrangements;
                or


·
            the
                approval of certain mergers and other significant corporate transactions,
                including a sale of substantially all of our
                assets.




**There** **may
      be a limited market for our securities and we may fail to qualify for a Nasdaq
      or other listing.**




Our
      common stock is currently approved for quotation on the OTC Bulletin Board.
      We
      anticipate applying for listing of our common stock on either The NASDAQ Capital
      Market or the American Stock Exchange or a national or other securities exchange
      as soon as is practicable, assuming that the Company can satisfy the initial
      listing standards for such exchange. We currently do not satisfy the initial
      listing standards, and cannot ensure that we will be able to satisfy such
      listing standards or that our common stock will be accepted for listing on
      any
      such exchange. Should the Company fail to satisfy the initial listing standards
      of such exchanges, or our common stock be otherwise rejected for listing and
      remain on the OTC Bulletin Board or be suspended from the OTC Bulletin Board,
      the trading price of our common stock could suffer, the trading market for
      our
      common stock may be less liquid and our common stock price may be subject to
      increased volatility.




**Our** **common
      stock may be considered “a penny stock”, which would make it more difficult for
      our investors to sell their shares.**




The
      SEC
      has adopted regulations that generally define “penny stock” to be an equity
      security that has a market price of less than $5.00 per share, subject to
      specific exemptions. The market price of the Company’s common stock is currently
      less than $5.00 per share and therefore may be a “penny stock” according to SEC
      rules. This designation requires any broker or dealer selling these securities
      to disclose certain information concerning the transaction, obtain a written
      agreement from the purchaser and determine that the purchaser is reasonably
      suitable to purchase the securities. These rules may restrict the ability of
      brokers or dealers to sell common stock and may affect the ability of investors
      to sell their shares. In addition, since our common stock is traded on the
      OTC
      Bulletin Board, investors may find it difficult to obtain accurate quotations
      of
      the stock and may experience a lack of buyers to purchase such stock or a lack
      of market makers to support the stock price.




**Our
      certificate of incorporation authorizes our board to create new series of
      preferred stock without further approval by our stockholders, which could
      adversely affect the rights of the holders of our common stock.**




Our
      board
      of directors has the authority to fix and determine the relative rights and
      preferences of preferred stock. Our board of directors also has the authority
      to
      issue preferred stock without further stockholder approval. As a result, our
      board of directors could authorize the issuance of a series of preferred stock
      that, among other things, would grant to holders the preferred right to our
      assets upon liquidation, the right to receive dividend payments before dividends
      are distributed to the holders of common stock and the right to the redemption
      of the shares, together with a premium, prior to the redemption of our common
      stock. In addition our board of directors could authorize the issuance of a
      series of preferred stock that has greater voting power than our common stock
      or
      that is convertible into our common stock, which could decrease the relative
      voting power of our common stock or result in dilution to our existing
      stockholders.




20


**Delaware
      law and our charter contain provisions that could discourage or prevent a
      potential takeover, even if such transaction would be beneficial to our
      stockholders.**




Provisions
      of Delaware law and our certificate of incorporation and bylaws could make
      more
      difficult the acquisition of us or for our stockholders to remove existing
      management, and may discourage a third party from offering to acquire us, even
      if a change in control or in management would be beneficial to our
      stockholders.




**We
      are subject to the reporting requirements of federal securities laws, which
      can
      be expensive and public company compliance may make it more difficult to attract
      and retain officers and directors.**




We
      are a
      public reporting company and, accordingly, subject to the information and
      reporting requirements of the Exchange Act and other federal securities laws,
      including compliance with the Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley
      Act
      and new rules subsequently implemented by the SEC have required changes in
      corporate governance practices of public companies. As a public company, we
      expect these new rules and regulations to increase our compliance costs and
      to
      make certain activities more time consuming and costly. Some members of our
      management have limited or no experience operating a company whose securities
      are traded or listed on an exchange, or with SEC rules, requirements and
      practices applicable to a publicly traded company. We may need to recruit,
      hire,
      train and retain additional financial reporting, internal controls and other
      personnel in order to develop and implement appropriate internal controls and
      reporting procedures. If we are unable to comply with the internal controls
      requirements of the Sarbanes-Oxley Act, when applicable, we may not be able
      to
      obtain the independent accountant certifications required by the Sarbanes-Oxley
      Act. As a public company, we also expect that these new rules and regulations
      may make it more difficult and expensive for us to obtain director and officer
      liability insurance in the future and we may be required to accept reduced
      policy limits and coverage or incur substantially higher costs to obtain the
      same or similar coverage. As a result, it may be more difficult for us to
      attract and retain qualified persons to serve on our board of directors or
      as
      executive officers.




**Item
              2.**
            **Description
                of Property****.**




Our
      executive offices are located in 4,800 square feet of mixed use office and
      clean-room space located in Albuquerque, New Mexico. This lease expired on
      December 31, 2006 and is continuing on a month-to-month basis at a rate of
      $3,300 per month. This facility houses our executive offices as well as certain
      administrative operations. Management believes that comparable space is readily
      available in Albuquerque should our current lease terminate.




Our
      sales
      and production offices are located in 5,250 square feet of mixed use office
      and
      clean-room space located at in Tempe, Arizona. We entered into a two-year lease,
      effective April 1, 2007, which provides for monthly rental payments of $5,250
      for this space. This facility houses engineering as well as certain product
      development operations. Management believes that our present facilities are
      adequate to meet our immediate current needs and that comparable facilities
      are
      readily available in the markets in which we desire to operate.




**Item
                3.**
              **Legal
                  Proceedings.**




There
      are
      no pending, and we are not aware of any threatened, legal proceedings against
      us.




21


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




No
      matters were submitted to a vote of our stockholders during the fourth quarter
      of 2006.




**PART
      II**




**Item
              5.**
            **Market
                For Common Equity, Related Stockholder Matters and Small Business
                Issuer
                Purchases of Equity
                Securities.**




Our
      common stock has been quoted on the OTC Bulletin Board since October 6, 2006
      under the symbol "SUFH.OB”. Prior to that date, there was no active market for
      our common stock. As of April 27, 2007, there were approximately 56 holders
      of
      record of our common stock.




The
      following table sets forth the high and low bid prices for our common stock
      for
      the periods indicated as reported by the OTC Bulletin Board. These quotations
      reflect inter-dealer prices, without retail mark-up, mark-down, or commission
      and may not represent actual transactions.




**High**
            
            **Low**Fiscal
                2006Fourth
                Quarter
            
            $
            2.50
            
            $
            1.81Fiscal
                2007First
                Quarter
            
            $
            2.32
            
            $
            1.00Second
                Quarter (through April 27, 2007)
            
            $
            1.19
            
            $
            1.01





**Dividends**




We
      have
      not declared or paid any cash dividends on our common stock and do not
      anticipate declaring or paying any cash dividends in the foreseeable future.
      We
      currently expect to retain future earnings, if any, for the development of
      our
      business. Dividends may be paid on our common stock only if and when declared
      by
      our board of directors.




**Equity
      Compensation Plan Information**




The
      following table provides information as of December 31, 2006 with respect to
      the
      shares of common stock that may be issued under our existing equity compensation
      plans:




Plan
                Category
            
            Number
                of securities to
              be
                issued upon
              exercise
                of outstanding
              options,
                warrants and
              rights
            
            Weighted-average
              exercise
                price of
              outstanding
                options,
              warrants
                and rights
            
            Number
                of
              securities
              remaining
              available
                for
              future
                issuanceEquity
                compensation
              plans
                approved by
              security
                holders (1)
            
            
            661,730
            
            $
            0.43
            
            
            874,607Equity
                compensation
              plans
                not approved by
              security
                holders(2)
            
            
            1,998,334
            
            $
            0.43
            
            
            -







(1)
            Represents
                the 2006 Stock Plan.


(2)
            Represents
                options held by certain of our management resulting from the conversion
                of
                previously held options to purchase shares of common stock of Surfect
                Technologies in connection with the Merger. (See “Other Options” and Note
                13 to our December 31, 2006 financial
                statements.)




22


**Recent
      Sales of Unregistered Securities**




During
      the period covered by this annual report, we have not issued any unregistered
      securities which have not been previously reported.




**Item
              6.**
            **Management****’****s
                Discussion and Analysis or Plan of Operation****.**




The
      following discussion of our plan of operation should be read in conjunction
      with
      our financial statements and notes thereto appearing elsewhere in this annual
      report on Form 10-KSB/A for our fiscal year ended December 31, 2006.




**Overview**




We
      are an
      early stage developer of automated electroplating tools for the semiconductor
      assembly industry. Our tools are designed to deposit conductive metals on wafers
      through a proprietary electroplating process.




We
      were
      originally incorporated on November 8, 2001 as a Nevada corporation under the
      name Windy Creek Developments, Inc., and subsequently reincorporated in Delaware
      on September 14, 2006. Surfect Technologies was incorporated on December 26,
      2000 in New Mexico and subsequently reincorporated in Delaware on April 4,
      2006.
      As a result of the Merger on September 27, 2006, Surfect Technologies became
      our
      wholly-owned subsidiary. We did not have any operations before the Merger.
      After
      the Merger we changed our name to Surfect Holdings, Inc. and succeeded to the
      business of Surfect Technologies as our sole line of business.




**Critical
      Accounting Policies and Estimates**





In
      accordance with SEC guidance, those material accounting policies that we believe
      are the most critical to an understanding of our financial results and condition
      are discussed below. Certain of these policies require the application of
      significant judgment by our management to determine the appropriate assumptions
      to be used in the determination of certain estimates.





**Basis
      of Presentation –** Our
      financial statements have been prepared in conformity with accounting principles
      generally accepted in the United States (“GAAP”), which contemplate our
      continuation as a going concern. However, we are subject to risks and
      uncertainties associated with a new business, have no established source of
      revenue, and have incurred significant losses from operations. These matters
      raise substantial doubt about our ability to continue as a going concern. There
      can be no assurance that we will ever generate income or positive cash flows
      from our operating activities or that we will achieve and sustain a profit
      during any future period. Failure to achieve significant revenues or
      profitability would materially affect our business, financial condition, and
      results of operations. Our financial statements do not include any adjustments
      relating to the recoverability and classification of recorded assets, or amounts
      and classification of liabilities that may be necessary should we be unable
      to
      continue as a going concern.




**Development
      Stage Reporting** **–**
      Since our inception, our activities have been substantially limited to research
      and development of technologies for commercialization and in November 2006,
      we
      concluded our first tool sale. We remain in the development stage since we
      have
      not yet commenced sales of our products on a commercial scale. We continue
      to be
      dependent on external sources of funding to meet our liquidity needs.
      Accordingly, our financial statements have been presented in development stage
      format.




23




**Recapitalization –** On
      September 27, 2006, we completed a merger transaction with a public shell
      entity, together with an equity infusion and related debt and equity
      transactions. These transactions were accounted for as a recapitalization,
      whereby Surfect Technologies was treated as the acquirer for accounting
      purposes. Therefore, the historic financial statements prior to merger are
      those
      of Surfect Technologies and post merger, the financial statements represent
      the
      consolidated financial position **** and
      operating results of Surfect Holdings, Inc. and its wholly-owned subsidiary,
      Surfect Technologies.




**Concentration
      of Risk**


Credit
      Concentration **–** Financial
      instruments which may potentially subject us to concentrations of credit risk
      consist primarily of deposits in excess of FDIC limits. Our demand deposits
      are
      placed with major financial institutions, and management believes that our
      company is not exposed to undue credit risk for any demand deposits that may,
      from time to time, exceed the federally insured limits.




Financing
      Concentration **–** We
      remain
      in the development (preoperational) stage and the majority of our debt and
      equity financing has come from our principal investor.




Supplier
      Concentration **–** We
      are
      heavily reliant on an outsourcing manufacturer to develop tooling and
      manufacturing processes to bring our products to market. We are attempting
      to
      develop alternate relationships to diversify our risk concentration.




**Loss
      Per Common Share –** we
      report basic and diluted loss per common share. Diluted loss per share excludes
      common shares potentially issuable as a result of possible exercise of warrants
      and stock options, since their impact would be antidilutive.




**Share-based
      Compensation –** For
      2006, we adopted a newly required accounting standard for calculating employee
      stock-based compensation expense. The standard was adopted using the modified
      prospective transition method which does not require restatement of prior
      periods’ results. The standard involves fair value determination of options at
      the grant date using various factors including dividend yield, weighted average
      future expected volatility of the stock, grantee turnover rates, risk-free
      interest rate and expected terms of the options. The calculated employee
      compensation cost is expensed over the requisite service period of the award,
      which is generally the vesting term of the options. As the Company was
      privately-held prior to the Merger, the volatility of its common stock has
      been
      based upon a study of the historical volatility of five similar high tech
      companies in their first five years of public trading. Limited comparable
      entities or indexes were available for comparison.




**Significant
      Estimates –** The
      preparation of financial statements in conformity with GAAP requires us to
      make
      estimates and assumptions affecting the reported amounts of assets, liabilities,
      revenues and expenses, and disclosure of contingent assets and liabilities.
      Estimated amounts could differ from actual results. As we are preoperational,
      our most significant estimates and assumptions involve the overall financial
      statement presentation which assumes we will continue as a going concern; the
      cost basis carrying value of 2006 year end inventory, which assumes that our
      carrying value will be fully realized upon its sale; the adequacy of the our
      warranty reserve; and certain subjective factors included in calculating the
      cost of stock- based compensation.




24




**Results
      of Operations**




During
      2005 and most of 2006, our operating activities were primarily limited to
      ongoing research and product development. In November 2006, we realized $220,939
      of revenue from the sale of a pre-production tool. Our 2006 year-end inventory
      included two plating tools. Although early production models, we believe these
      tools are substantially representative of future production tools. We currently
      anticipate sales of these two tools in the second quarter 2007. However, revenue
      may not initially be recognizable in the second quarter of 2007. Because the
      tools are new products, we anticipate customer acceptance of the tools and
      final
      sales to occur once such customers are satisfied with the tools’ performance. We
      believe customer satisfaction with these two initial sales to be critical to
      the
      execution of our business plan and to our moving from development stage to
      operating stage.




Except
      for our final assembly, manufacturing will be outsourced. We do not presently
      foresee the need to make any material commitments for capital expenditures
      during 2007 year and therefore do not anticipate the need for any additional
      funding for such purchases.




Total
      expenses, including $66,545 cost of goods and $44,189 of warranty expense in
      2006 were $3,171,053 compared with $2,497,049 of expenses in 2005.





**Cash
      Flows from Operating Activities**





We
      have
      been in the development stage since our inception on December 26, 2000. As
      such,
      we have had limited operating revenue to date. Operating activities for fiscal
      2006 used cash of $3.0 million, compared to $2.3 million used for fiscal 2005.
      This increase in cash used by operating activities was primarily the result
      of
      increases in payroll and employee, research and development, and general and
      administrative expenditures.





Operating
      activities in fiscal 2005 used cash of $2.3 million, compared to $1 million
      used
      in fiscal 2004. This increase in cash used by operating activities was primarily
      the result of increases in payroll and employee, research and development,
      and
      general and administrative expenditures.





**Cash
      Flows from Investing Activities**





Net
      cash
      used in investing activities through fiscal 2006 was approximately $50 thousand
      compared to net cash used of approximately $235 thousand for fiscal 2005. This
      decrease in net cash used was primarily attributable to a reduction in asset
      purchases and patent filing costs incurred during fiscal 2006.




Net
      cash
      used in investing activities in 2005 was approximately $235 thousand compared
      to
      $137 thousand in 2004. This increase in cash used was primarily attributable
      to
      additional purchases of property, plant and equipment during 2005. Although
      we
      do not currently anticipate significant equipment expenditures during 2007,
      we
      intend to acquire required equipment through capital leasing arrangements when
      needed.




**Cash
      Flows from Financing Activities**




Net
      cash
      provided by financing activities through fiscal 2006 was $5.1 million, compared
      to cash provided of $397 thousand for the fiscal year ended 2005. This increase
      was attributable to the issuance of $2.5 million of preferred stock in exchange
      for approximately $2 million in cash and debt retirement of $500,000 in January
      and May 2006, $2.5 million from the private placements of our common stock
      and
      warrants in September 2006, and $500,000 from the conversion of a $500,000
      promissory note into common stock and warrants in September 2006.




Net
      cash
      provided by financing activities for the year ended December 31, 2005 was $397
      thousand, compared to cash provided of $3.1 million for the year ended December
      31, 2004, due to the issuance of the $2.9 million of preferred stock in July
      and
      December 2004.




25


**Income
      tax expense**




At
      December 31, 2006, we had outstanding net operating loss carry forwards (NOLs)
      for federal and state domestic tax purposes of approximately $6 million, which
      will expire in years 2023-2025. The utilization of any net operating loss may
      have been impaired by the Merger.




**Off-Balance
      Sheet Arrangements**




We
      do not
      have transactions or relationships with “special purpose” entities, and we do
      not have any off-balance sheet financing other than normal operating
      leases.




**Liquidity,
      Capital Resources and Cash Requirements**




We
      have
      funded our operations to date through sales of equity and debt securities.
      Through a series of private placement offerings between July 1, 2004 and
      December 31, 2005, we raised an aggregate of approximately $4.1 million, net
      of
      offering expenses, to continue our research and development efforts, to build
      our initial electroless prototype(s) and to recruit a management team with
      strong semiconductor industry background to run our company.




Between
      January 2006 and May 2006, we received funding of $2,500,000 from ITU Ventures
      West I, L.P., a venture capital firm (“ITU Ventures”) through the issuance of
      series A-1 convertible, cumulative preferred stock, which preferred stock has
      since been fully converted into 6,072,316 shares of our common
      stock.




In
      September 2006, we completed a private placement offering to accredited
      investors of units, each unit consisting of 25,000 shares of common stock and
      a
      four-year warrant to purchase 12,500 shares of common stock at an exercise
      price
      of $2.00 per share, at a purchase price of $25,000 per unit (“Private
      Placement”). We raised $2.8 million in the Private Placement. Concurrently with
      the Private Placement, ITU Ventures converted an outstanding promissory note
      in
      the principal amount of $500,000, for 500,000 shares of common stock and
      warrants to purchase 250,000 shares of common stock at an exercised price of
      $2.00 per share to ITU Ventures. We intend to use the proceeds from these
      offerings for, among other things, the commercialization of our Leapfrog and
      Ascent products.




As
      of
      December 31, 2006, we had working capital of $1.89 million compared to working
      deficit at December 31, 2005 of $902 thousand. As of December 31, 2006, we
      had
      $1.98 million in cash and cash equivalents compared to $150 in cash and cash
      equivalents at December 31, 2005.




We
      currently anticipate beginning delivery of units of our Leapfrog and Ascent
      products during the second quarter of 2007. Our future capital requirements
      may
      differ materially from those currently anticipated and will depend on many
      factors, including, but not limited to, market acceptance of our products,
      volume pricing concessions, capital improvements, demand for our products,
      technological advances and our relationships with suppliers and prospective
      customers. Based on current and projected levels of cash flow from operations,
      we believe that we have sufficient liquidity to meet our short-term cash
      requirements. However, if our products do not gain market acceptance in the
      quantities and/or at the prices anticipated, operating cash flows may be
      insufficient to meet our needs. If existing resources and cash from operations
      are not sufficient to meet our future requirements or if we perceive conditions
      to be favorable, we may seek additional debt or equity financing, additional
      credit facilities, or obtain asset-based financing.




We
      may
      determine it necessary to offer additional securities in the future to secure
      adequate capital to meet our long term cash needs. We cannot offer any assurance
      that any additional equity or debt financing will not be dilutive to holders
      of
      our common stock or that we will be successful at raising capital through
      additional equity or debt financing, if required, or will be able to do so
      on
      favorable terms, if at all.




**Item
                7.**
            **Financial
                Statements.**




See
      our
      financial statements beginning on page F-1.




26




Report
            of
            Independent Registered Public Accounting Firm
 Board
                of
                Directors and Stockholders
 Surfect
                Holdings, Inc.
  We
                have
                audited the accompanying consolidated balance sheets of Surfect Holdings,
                Inc.
                and subsidiary (Surfect) (a development stage company) as of December
                31, 2006
                and 2005 and the related consolidated statements of operations, stockholders’
equity and cash flows for the years ended December 31, 2006, 2005
                and 2004 and
                for the period from inception (December 26, 2000) through December 31,
                2006. These financial statements are the responsibility of Surfect’s management.
                Our responsibility is to express an opinion on these financial statements
                based
                on our audits.
  We
                conducted our audits in accordance with the standards of the Public
                Company
                Accounting Oversight Board (United States). Those standards require
                that we plan
                and perform the audits to obtain reasonable assurance about whether
                the
                financial statements are free of material misstatement. Surfect is
                not required
                to have, nor were we engaged to perform, an audit of its internal
                control over
                financial reporting. Our audits included consideration of internal
                control over
                financial reporting as a basis for designing audit procedures that
                are
                appropriate in the circumstances, but not for the purpose of expressing
                an
                opinion on the effectiveness of Surfect’s internal control over financial
                reporting. Accordingly, we express no such opinion. An audit also
                includes
                examining, on a test basis, evidence supporting the amounts and disclosures
                in
                the financial statements, assessing the accounting principles used
                and
                significant estimates made by management, as well as evaluating the
                overall
                financial statement presentation. We believe our audits provide a
                reasonable
                basis for our opinion.
  In
                our
                opinion, the consolidated financial statements referred to above
                present fairly,
                in all material respects, the financial position of Surfect Holdings,
                Inc. and
                subsidiary as of December 31, 2006 and 2005 and the results of their
                operations and their cash flows for the years ended December 31, 2006, 2005
                and 2004 and for the period from inception through December 31, 2006, in
                conformity with accounting principles generally accepted in the United
                State of
                America.
  The
                accompanying financial statements have been prepared assuming that
                Surfect will
                continue as a going concern. As discussed in Note 11, in the accompanying
                financial statements, Surfect has incurred net losses since its inception
                and
                net losses have continued to the date of these financial statements.
                During
                2006, Surfect received equity funding to meet its short-term working
                capital
                needs; however, Surfect remains in the development stage and its
                ability to
                continue as a going concern is initially dependent on its ability
                to raise adequate capital to fund necessary market entry activities
                and
                subsequently on sufficient inflow of operating revenue derived from
                sale of its
                products at sufficient profit margin to cover operating expenses.
                The financial
                statements do not include any adjustments that might result from
                the outcome of
                this uncertainty.
  /S/
                REDW
                LLC
 Albuquerque,
                New Mexico
 March
                23,
                2007
 F-1
 
 **Surfect
            Holdings, Inc. and Subsidiary**
 **(a
            development stage company)**
 **Consolidated
            Balance Sheets**
 **December 31,**
 
 **2006**
                    
                    **2005****Assets****Current
                        assets:**Cash
                        and cash equivalents
                    
                    $
                    1,983,325
                    
                    $
                    150Inventory
                    
                    
                    359,984
                    
                    
                    -Prepaid
                        expenses and other assets
                    
                    
                    130,296
                    
                    
                    15,435**Total
                        current assets**
                    
                    
                    2,473,605
                    
                    
                    15,585**Fixed
                        Assets:**Furniture
                        and machinery
                    
                    
                    256,479
                    
                    
                    278,213Office
                        and computer equipment
                    
                    
                    111,829
                    
                    
                    102,777Leasehold
                        improvements
                    
                    
                    69,339
                    
                    
                    69,339437,647
                    
                    
                    450,329Less
                        accumulated depreciation and amortization
                    
                    
                    (216,230
                    )
                    
                    (141,613
                    )**Total
                        fixed assets**
                    
                    
                    221,417
                    
                    
                    308,716**Patents:**Pending
                        patents
                    
                    
                    107,721
                    
                    
                    72,059Issued
                        patents, net of accumulated amortization of $3,223 and $989
                        as of December
                        31, 2006 and 2005, respectively
                    
                    
                    42,590
                    
                    
                    42,973**Total
                        patents**
                    
                    
                    150,311
                    
                    
                    115,032**Total
                        assets**
                    
                    $
                    2,845,333
                    
                    $
                    439,333
  **The
                accompanying notes are an integral part of these financial
                statements.**
  F-2
 **Surfect
            Holdings, Inc. and Subsidiary**
 **(a
            development stage company)**
 **Consolidated
            Balance Sheets - continued**
 
 **December 31,**
 **2006**
                    
                    **2005****Liabilities
                        and Stockholders' Equity****Current
                        liabilities:**Accounts
                        payable
                    
                    $
                    305,725
                    
                    $
                    195,281Bank
                        overdraft
                    
                    
                    -
                    
                    
                    114,136Deposits
                        payable
                    
                    
                    -
                    
                    
                    261,750Notes
                        payable
                    
                    
                    45,868
                    
                    
                    300,000Current
                        portion of capital lease
                    
                    
                    2,125
                    
                    
                    2,125Warranty
                        reserve
                    
                    
                    44,189
                    
                    
                    -Other
                        accrued liabilities
                    
                    
                    189,299
                    
                    
                    44,071**Total
                        current liabilities**
                    
                    
                    587,206
                    
                    
                    917,363**Long
                        term liabilities, less current portion:**Capital
                        lease
                    
                    
                    5,095
                    
                    
                    7,066**Total
                        long term liabilities**
                    
                    
                    5,095
                    
                    
                    7,066**Total
                        liabilities**
                    
                    
                    592,301
                    
                    
                    924,429**Stockholders'
                        (deficit) equity:**Series
                        A convertible cumulative preferred shares; no par; cumulative
                        dividends
                        payable at 7%; convertible into 29,216,235 common shares
                    
                    
                    -
                    
                    
                    4,113,879Common
                        stock, $0.0001 par value (2006); no par value (2005)
                    
                    
                    1,420
                    
                    
                    100,400Additional
                        paid-in-capital
                    
                    
                    9,921,019
                    
                    
                    19,918Deficit
                        accumulated during development stage
                    
                    
                    (7,669,407
                    )
                    
                    (4,719,293
                    )**Total
                        stockholders' (deficit) equity**
                    
                    
                    2,253,032
                    
                    
                    (485,096
                    )**Total
                        liabilities and stockholders' equity**
                    
                    $
                    2,845,333
                    
                    $
                    439,333
 **The
              accompanying notes are an integral part of these financial
              statements.**
  F-3
 **Surfect
            Holdings, Inc. and Subsidiary**
 **(a
            development stage company)**
 **Consolidated** **Statements
            of Operations**
 **Inception
            (December 26, 2000) through December 31, 2006**
 
 **Years
                        ended December 31,**
                    
                    **For
                        the Period from**
                      **December
                        26, 2000**
                      **(Inception)
                        to**
                      **December
                        31, 2006****2006**
                    
                    **2005**
                    
                    **2004****Sales
                        revenue**
                    
                    **$**
                    **220,939**
                    ****
                    **$**
                    **-**
                    ****
                    **$**
                    **-**
                    ****
                    **$**
                    **220,939****Cost
                        of sales**
                    
                    
                    **110,734**
                    
                    
                    **-**
                    
                    
                    **-**
                    
                    
                    **110,734****Gross
                        profit**
                    
                    
                    **110,205**
                    
                    
                    -
                    
                    
                    -
                    
                    
                    **110,205****Expenses:**Payroll
                        and employee benefits
                    
                    
                    1,373,254
                    
                    
                    944,415
                    
                    
                    605,046
                    
                    
                    3,253,937Research
                        and development
                    
                    
                    599,547
                    
                    
                    727,321
                    
                    
                    381,994
                    
                    
                    1,761,424General
                        and administrative
                    
                    
                    852,480
                    
                    
                    649,872
                    
                    
                    384,191
                    
                    
                    2,155,598Sales
                        and marketing
                    
                    
                    134,169
                    
                    
                    113,743
                    
                    
                    49,221
                    
                    
                    335,790Depreciation
                        and amortization
                    
                    
                    97,784
                    
                    
                    71,815
                    
                    
                    27,055
                    
                    
                    244,335Interest
                    
                    
                    10,772
                    
                    
                    4,578
                    
                    
                    46,841
                    
                    
                    154,366**Total
                        expenses**
                    
                    
                    3,068,006
                    
                    
                    2,511,744
                    
                    
                    1,494,348
                    
                    
                    7,949,639**Other
                        income**
                    
                    
                    7,687
                    
                    
                    14,725
                    
                    
                    49,790
                    
                    
                    125,838**Net
                        loss**
                    
                    $
                    2,950,114
                    
                    $
                    2,497,019
                    
                    $
                    1,444,558
                    
                    $
                    7,669,407Net
                        loss per share attributable to common stockholders, basic
                        and
                        diluted
                    
                    $
                    0.40
                    
                    $
                    0.50
                    
                    $
                    0.29
                    
                    $
                    1.41Shares
                        used in computing basic and diluted net loss per share attributable
                        to
                        common stockholders
                    
                    
                    7,434,904
                    
                    
                    5,020,000
                    
                    
                    5,020,000
                    
                    
                    5,421,202
 **The
              accompanying notes are an integral part of these financial
              statements.**
  F-4
 **Surfect
            Holdings, Inc. and Subsidiary**
 **(a
            development stage company)**
 **Consolidated** **Statements
            of Stockholders’ (Deficit) Equity**
 **Inception
            (December 26, 2000) through December 31, 2006**
 **Common
                      Stock**
                  
                  **Preferred
                      Stock Series A**
                  
                  **Additional
                      Paid-In**
                  
                  **Deficit
                      Accumulated During Development**
                  
                  **Total
                      Stockholders'****Shares**
                  
                  **Amount**
                  
                  **Shares**
                  
                  **Amount**
                  
                  **Capital**
                  
                  **Stage**
                  
                  **Equity**December
                      26, 2000 - initial issuance of $5,020,000 shares at $0.02 per
                      share
                  
                  
                  5,020,000
                  
                  $
                  100,400
                  
                  $
                  -
                  
                  $
                  -
                  
                  
                  918
                  
                  $
                  -
                  
                  $
                  101,318Net
                      loss from inception to December 31, 2003
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (777,717
                  )
                  
                  (777,717
                  )Balance
                      at December 31, 2003
                  
                  
                  5,020,000
                  
                  
                  100,400
                  
                  
                  -
                  
                  
                  -
                  
                  
                  918
                  
                  
                  (777,717
                  )
                  
                  (676,399
                  )Issuance
                      of Series A preferred stock for $2,954,832 cash consideration,
                      conversion
                      of convertible notes and accrued interest
                  
                  
                  -
                  
                  
                  -
                  
                  
                  12,549,568
                  
                  
                  4,113,879
                  
                  
                  -
                  
                  
                  -
                  
                  
                  4,113,879Net
                      loss for year ended December 31, 2004
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (1,444,557
                  )
                  
                  (1,444,557
                  )Balance
                      at December 31, 2004
                  
                  
                  5,020,000
                  
                  
                  100,400
                  
                  
                  12,549,568
                  
                  
                  4,113,879
                  
                  
                  918
                  
                  
                  (2,222,274
                  )
                  
                  1,992,923Share-based
                      compensation - employee
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  14,000
                  
                  
                  -
                  
                  
                  14,000Share-based
                      compensation - non-employee
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  5,000
                  
                  
                  -
                  
                  
                  5,000Net
                      loss for year ended December 31, 2005
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (2,497,019
                  )
                  
                  (2,497,019
                  )Balance
                      at December 31, 2005
                  
                  
                  5,020,000
                  
                  
                  100,400
                  
                  
                  12,549,568
                  
                  
                  4,113,879
                  
                  
                  19,918
                  
                  
                  (4,719,293
                  )
                  
                  (485,096
                  )Issuance
                      of Series A-1 preferred stock for $1,993,453 cash consideration,
                      conversion of convertible notes and accrued interest in January
                      and May
                      2006
                  
                  
                  -
                  
                  
                  -
                  
                  
                  16,666,667
                  
                  
                  2,500,000
                  
                  
                  -
                  
                  
                  -
                  
                  
                  2,500,000Issuance
                      of Common Stock at $0.02 upon exercise of options
                  
                  
                  302,679
                  
                  
                  6,054
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (248
                  )
                  
                  -
                  
                  
                  5,806Grant
                      date fair value of stock options granted to employees
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  52,267
                  
                  
                  -
                  
                  
                  52,267Grant
                      date fair value of stock options granted to non-employees
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  5,096
                  
                  
                  -
                  
                  
                  5,096Compensation
                      resulting from management exercise of option bonus
                  
                  
                  4,599,626
                  
                  
                  197,785
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (52,267
                  )
                  
                  -
                  
                  
                  145,518Balance
                      prior to September 27, 2006 recapitalization
                  
                  
                  9,922,305
                  
                  
                  304,239
                  
                  
                  29,216,235
                  
                  
                  6,613,879
                  
                  
                  24,766
                  
                  
                  (4,719,293
                  )
                  
                  2,223,591
 **The
              accompanying notes are an integral part of these financial
              statements.**
  F-5
 **Surfect
            Holdings, Inc. and Subsidiary**
 **(a
            development stage company)**
 **Consolidated** **Statements
            of Stockholders’ (Deficit) Equity - continued**
 **Inception
            (December 26, 2000) through December 31, 2006**
  **Common
                        Stock**
                    
                    **Preferred
                        Stock****Shares**
                    
                    **Amount**
                    
                    **Shares**
                    
                    **Amount**
                    
                    **Additional
                        Paid-In Capital**
                    
                    **Deficit
                        Accumulated During
                        Development****Stage**
                    
                    **Total
                        Stockholders' Equity**Balance
                        prior to September 27, 2006 recapitalization
                    
                    
                    9,922,305
                    
                    
                    304,239
                    
                    
                    29,216,235
                    
                    
                    6,613,879
                    
                    
                    24,766
                    
                    
                    (4,719,293
                    )
                    
                    2,223,591Effect
                        of merger and recapitalization:Conversion
                        of preferred shares to common
                    
                    
                    45,948,992
                    
                    
                    6,613,879
                    
                    
                    (29,216,235
                    )
                    
                    (6,613,879
                    )
                    
                    -
                    
                    
                    -
                    
                    
                    -Cancellation
                        of STI Common Stock
                    
                    
                    (55,548,618
                    )
                    
                    (6,904,243
                    )
                    
                    -
                    
                    
                    -
                    
                    
                    6,904,243
                    
                    
                    -
                    
                    
                    -Conversion
                        of Windy Creek Developments Common Stock upon merger with
                        Windy
                        Creek-DE
                    
                    
                    2,500,001
                    
                    
                    250
                    
                    
                    -
                    
                    
                    -
                    
                    
                    41,750
                    
                    
                    -
                    
                    
                    42,000Purchase
                        and cancellation of STI non-qualified investor common
                        shares
                    
                    
                    (322,679
                    )
                    
                    (13,875
                    )
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    (13,875
                    )Issuance
                        of SHI Common Stock to STI Holders
                    
                    
                    8,001,666
                    
                    
                    800
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    800Issuance
                        of 3,700,000 stock for net proceeds of $2,950,630 cash, including
                        conversion of a $500,000 demand note payable to a principal
                        shareholder
                    
                    
                    3,700,000
                    
                    
                    370
                    
                    
                    -
                    
                    
                    -
                    
                    
                    2,950,260
                    
                    
                    -
                    
                    
                    2,950,630Net
                        loss for the year ended December 31, 2006
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    (2,950,114
                    )
                    
                    (2,950,114
                    )Balance
                        at December 31, 2006
                    
                    
                    14,201,667
                    
                    $
                    1,420
                    
                    
                    -
                    
                    $
                    -
                    
                    $
                    9,921,019
                    
                    $
                    (7,669,407
                    )
                    $
                    2,253,032
 
 **The
              accompanying notes are an integral part of these financial
              statements.**
  F-6
 **Surfect
            Holdings, Inc. and Subsidiary**
 **(a
            development stage company)**
 **Consolidated** **Statements
            of Cash Flows**
 **Inception
            (December 26, 2000) through December 31, 2006**
 
 **Years
                        ended December 31,****2006**
                    
                    **2005**
                    
                    **2004**
                    
                    **For
                        the Period from December 26, 2000 (Inception) to December
                        31,
                        2006****Operating
                        activities**Net
                        loss
                    
                    $
                    (2,950,114
                    )
                    $
                    (2,497,019
                    )
                    $
                    (1,444,558
                    )
                    $
                    (7,669,407
                    )Adjustments
                          to reconcile net loss to net cashused
                          in operating activities:Depreciation
                        and amortization
                    
                    
                    97,784
                    
                    
                    71,814
                    
                    
                    27,055
                    
                    
                    244,335Loss
                        on disposal of assets
                    
                    
                    8,010
                    
                    
                    10,006
                    
                    
                    -
                    
                    
                    26,873Stock
                        based compensation
                    
                    
                    237,612
                    
                    
                    19,000
                    
                    
                    -
                    
                    
                    256,612Interest
                        accrued converted to preferred stock
                    
                    
                    6,547
                    
                    
                    -
                    
                    
                    113,879
                    
                    
                    120,426Expenses
                        payable converted to preferred stock
                    
                    
                    -
                    
                    
                    -
                    
                    
                    45,168
                    
                    
                    45,168Changes
                        in operating assets and liabilities:Inventory
                    
                    
                    (359,984
                    )
                    
                    -
                    
                    
                    -
                    
                    
                    (359,984
                    )Prepaid
                        expenses and other current assets
                    
                    
                    (114,861
                    )
                    
                    16,399
                    
                    
                    (7,880
                    )
                    
                    (130,296
                    )Accounts
                        payable
                    
                    
                    110,444
                    
                    
                    158,762
                    
                    
                    22,784
                    
                    
                    305,725Deposits
                        payable
                    
                    
                    (261,750
                    )
                    
                    (25,000
                    )
                    
                    286,750
                    
                    
                    -Accrued
                        liabilities
                    
                    
                    189,417
                    
                    
                    (36,136
                    )
                    
                    (21,928
                    )
                    
                    233,488Net
                        cash used in operating activities
                    
                    
                    (3,036,895
                    )
                    
                    (2,282,174
                    )
                    
                    (978,730
                    )
                    
                    (6,927,060
                    )**Investing
                        activities**Patent
                        investment
                    
                    
                    (37,513
                    )
                    
                    (46,592
                    )
                    
                    (24,984
                    )
                    
                    (153,534
                    )Investment
                        in fixed assets
                    
                    
                    (16,261
                    )
                    
                    (188,615
                    )
                    
                    (111,758
                    )
                    
                    (431,550
                    )Net
                        cash used in investing activities
                    
                    
                    (53,774
                    )
                    
                    (235,207
                    )
                    
                    (136,742
                    )
                    
                    (585,084
                    )**Financing
                        activities**Bank
                        Overdraft
                    
                    
                    (114,136
                    )
                    
                    114,136
                    
                    
                    -
                    
                    
                    -Proceeds
                        from notes payable
                    
                    
                    1,135,338
                    
                    
                    300,000
                    
                    
                    250,000
                    
                    
                    2,435,338Repayments
                        on notes payable
                    
                    
                    (389,469
                    )
                    
                    -
                    
                    
                    -
                    
                    
                    (389,469
                    )Proceeds
                        from loans from officers
                    
                    
                    -
                    
                    
                    -
                    
                    
                    23,012
                    
                    
                    86,769Repayments
                        on loans from officers
                    
                    
                    -
                    
                    
                    (457
                    )
                    
                    (83,212
                    )
                    
                    (86,769
                    )Net
                        proceeds from issuance of common stock
                    
                    
                    2,450,630
                    
                    
                    -
                    
                    
                    -
                    
                    
                    2,551,948Proceeds
                        from issuance of preferred stock
                    
                    
                    1,993,453
                    
                    
                    
                    
                    
                    2,954,832
                    
                    
                    4,948,285Net
                        payments against capital lease
                    
                    
                    (1,971
                    )
                    
                    (2,057
                    )
                    
                    (443
                    )
                    
                    (4,471
                    )Repayments
                        on leasehold improvement notes
                    
                    
                    -
                    
                    
                    (14,428
                    )
                    
                    (9,759
                    )
                    
                    (46,161
                    )Net
                        cash provided by financing activities
                    
                    
                    5,073,844
                    
                    
                    397,194
                    
                    
                    3,134,430
                    
                    
                    9,495,469Net
                        increase (decrease) in cash and cash equivalents
                    
                    
                    1,983,175
                    
                    
                    (2,120,187
                    )
                    
                    2,018,958
                    
                    
                    1,983,325Cash
                        and cash equivalents at beginning of period
                    
                    
                    150
                    
                    
                    2,120,337
                    
                    
                    101,379
                    
                    
                    -Cash
                        and cash equivalents at end of period
                    
                    $
                    1,983,325
                    
                    $
                    150
                    
                    $
                    2,120,337
                    
                    $
                    1,983,325
 **The
              accompanying notes are an integral part of these financial
              statements.**
  F-7
 **Surfect
            Holdings, Inc. and Subsidiary**
 **(a
            development stage company)**
 **Consolidated** **Statements
            of Cash Flows - continued**
 **Inception
            (December 26, 2000) through December 31, 2006**
 
 **Years
                        ended December 31,****2006**
                    
                    **2005**
                    
                    **2004**
                    
                    **For
                        the Period from December 26, 2000 (Inception) to December
                        31,
                        2006**Interest
                        paid
                    
                    $
                    13,509
                    
                    $
                    1,841
                    
                    $
                    2,049
                    
                    $
                    29,198**Supplemental
                        Schedule of Noncash Investing and Financing
                        Activities**Copier
                        acquired under capital lease
                    
                    $
                    -
                    
                    $
                    -
                    
                    $
                    11,691
                    
                    $
                    11,691Leasehold
                        improvements acquired via notes payable
                    
                    $
                    -
                    
                    $
                    -
                    
                    $
                    -
                    
                    $
                    46,161Series
                        A preferred stock issued for $1,000,000 in demand notes payable,
                        $113,879
                        of accrued interest and $45,168 related accounts payable
                    
                    $
                    -
                    
                    $
                    -
                    
                    $
                    1,159,047
                    
                    $
                    1,159,047Series
                        A-1 preferred stock issued for $1,993,453 in cash consideration,
                        convertible demand notes payable of $500,000 and accrued
                        interest.
                    
                    $
                    500,000
                    
                    $
                    -
                    
                    $
                    -
                    
                    $
                    500,000Conversion
                        of $500,000 demand note for 500,000 shares of common stock
                        and warrants to
                        purchase 250,000 shares (See Note 12 below)$
                    500,000
                    
                    $
                    -
                    
                    $
                    -
                    
                    $
                    500,000Issuance
                        of 400,000 shares of Common Stock to investor relations consultants
                        as
                        part of recapitalization
                    
                    $
                    400,000
                    
                    $
                    -
                    
                    $
                    -
                    
                    $
                    400,000
 
 **The
              accompanying notes are an integral part of these financial
              statements.**
  F-8
 **Surfect
            Holdings, Inc. and Subsidiary**
 **(a
            development stage company)**
 **Notes
            to Financial Statements**
 **Inception
            (December 26, 2000) through December 31, 2006**
  **1)**
                  **Description
                      of Operations and Development Stage
                      Status**
 
 Surfect
            Holdings, Inc. together with its subsidiary Surfect
            Technologies, Inc. (“Surfect” or the “Company”) is a development stage company
            based in Albuquerque, New Mexico, Surfect Technologies, Inc. was incorporated
            on
            December 26, 2000 (See Recapitalization at Note 12). The Company was
            formed to
            take develop and commercialize certain intellectual property and research
            in
            connection with the use of electro deposition technologies to enable
            3-D stacked
            die packaging innovations to increase semiconductor performance. Since
            inception
            through 2006, the Company’s activities have been substantially limited to
            research and development of technologies for commercialization. In November,
            2006, the Company concluded its first tool sale, however as the majority
            of the
            Company’s efforts remained dedicated to establishment of vendor relationships,
            supply chain and market entry, these financials are prepared as a development
            stage company as defined by SFAS 7.
 
 The
            consolidated statement of operations for the year ended December 31,
            2006
            includes the historical financial statements of Surfect Technologies,
            Inc. and
            gives effect to the September 27, 2006 recapitalization transaction
            described in Note 12 below. Since the date of recapitalization, all material
            intercompany transactions and balances have been eliminated in
            consolidation.
  **2)**
                  **Summary
                      of Significant Accounting
                      Policies**
  Concentration
            of Risk
 Credit
            Concentration - Financial instruments potentially subjecting the Company
            to
            concentrations of credit risk consist primarily of deposits of cash and
            cash
            equivalents in excess of FDIC limits. The Company’s deposits are placed with
            major financial institutions, and management believes that it is not
            exposed to
            undue credit risk for any deposits that may, from time to time, exceed
            the
            federally insured limits.
  Financing
            Concentration - The Company remains in the development (preoperational)
            stage
            and the majority of its debt and equity financing has come from its principal
            investor.
  Supplier
            Concentration - The Company is heavily reliant on outsourcing firms to
            manufacture its products. The Company is attempting to develop a broader
            base of
            relationships to diversify its risk concentration.
  Cash
            and Cash Equivalents
 For
            purposes of the statement of cash flows, the Company considers all short-term
            debt securities purchased with a maturity of three months or less to
            be cash
            equivalents.
 
 F-9
 **Surfect
            Holdings, Inc. and Subsidiary**
 **(a
            development stage company)**
 **Notes
            to Financial Statements**
 **Inception
            (December 26, 2000) through December 31, 2006**
  2)
                  Summary
                      of Significant Accounting Policies —
continued
  Inventories
 Inventories
            are carried at the lower of first-in, first-out (FIFO) cost or market.
            The
            Company periodically reviews its inventories to identify excess and obsolete
            inventories and to record such inventories at net realizable values.
            It is
            reasonably possible that the Company’s estimates of net realizable values could
            be revised in the near term due to technological and other changes.
  Fixed
            Assets,Depreciation
            and Amortization
 Fixed
            assets are carried at cost. Costs are reviewed regularly for idle and
            obsolete
            items. No assets are considered impaired in value at any balance sheet
            date
            reported herein.
 
 Depreciation
            and amortization has been provided by the Company in order to reduce
            the net
            value of fixed assets over estimated useful lives. The Company uses the
            straight-line method for financial reporting purposes for all classes
            of assets.
            Office and computer equipment, including computer software, are depreciated
            and
            amortized over five and three year lives, respectively. Furniture and
            machinery
            are depreciated over seven year lives. Leasehold improvements are amortized
            over
            the original life of the lease, plus known options to extend the lease,
            or the
            remaining life of the lease whichever is shorter.
 
 Research
            and Development Costs
 Research
            and Development (R&D) expense consists of project materials, laboratory
            costs, consulting fees and other costs associated with product development
            efforts. Research and development costs are expensed as incurred. Research
            and
            development expense amounts reported include nonpayroll amounts. Payroll
            costs
            of research and development are reported as payroll.
  Estimates
 The
            preparation of financial statements in conformity with generally accepted
            accounting principles requires the Company to make estimates and assumptions
            affecting the reported amounts of assets, liabilities, revenues and expenses,
            and the disclosure of contingent assets and liabilities. Estimated amounts
            could
            differ from actual results.
  Loss
            per Common Share
 Loss
            per
            share has been calculated in accordance with Statement of Financial Accounting
            Standards (SFAS) No. 128 “Earnings Per Share,” which provides for the
            calculation of “Basic” and “Diluted” earnings per share. Basic loss per share
            includes no dilution and is computed by dividing (loss) to common shareholders
            by the weighted average number of common shares outstanding during the
            period.
            Diluted loss per share excludes from the diluted loss per share calculation,
            common shares potentially issuable as a result of possible preferred
            share
            conversions, cumulative dividends on preferred shares, and the possible
            exercise
            of warrants and stock options, since their impact would be antidilutive.
            (See
            further discussion at Note 16).
 
  F-10
 
 **Surfect
            Holdings, Inc. and Subsidiary**
 **(a
            development stage company)**
 **Notes
            to Financial Statements**
 **Inception
            (December 26, 2000) through December 31, 2006**
  2)
                  Summary
                      of Significant Accounting Policies —
continued
  Income
            Taxes
 Income
            taxes are recognized using enacted tax rates, and are composed of taxes
            on
            financial accounting income that is adjusted for the requirement of current
            tax
            law and deferred taxes. Deferred taxes are the expected future tax consequences
            of temporary differences between the financial statement carrying amounts
            and
            tax bases of existing assets and liabilities. The Company does not expect
            to
            have current income taxes payable or deferred tax balances not offset
            by
            valuation allowances for the foreseeable future. Accordingly, no income
            tax
            provisions have been reported.
  Other
            Comprehensive Income
 From
            inception through December 31, 2006, the Company had no changes in equity
            which constitute components of other comprehensive income.
  Stock
            Option Plan
 
 *Option
            grants to employees*
 Prior
            to
            January 1, 2006, the Company accounted for employee options under the
            recognition and measurement provisions of Accounting Principles Board
            Opinion
            No. 25 ("APB 25"). Accordingly, the Company recognized compensation expense
            only
            to the extent that it granted options with a discounted exercise price.
            Any
            resulting compensation expense was recognized ratably over the associated
            service period.
 
 Effective
            January 1, 2006, the Company adopted the fair value recognition provisions
            of
            SFAS No. 123(R), Share-Based Compensation, using the modified prospective
            transition method and therefore has not restated prior periods' results.
            Under
            this transition method, employee stock-based compensation expense for
            the year
            ended December 31, 2006 included compensation expense for all stock-based
            compensation awards granted, but not yet fully exercisable, prior to
            January 1,
            2006.  The fair value of the options granted was determined at the original
            grant dates in accordance with the provisions of SFAS 123(R).
 
 Stock-based
            compensation expense for all employee share-based payment awards granted
            after
            December 31, 2005 are based on the grant-date fair value estimated in
            accordance
            with the provisions of SFAS 123(R). The Company recognizes these compensation
            costs over the requisite service period of the award, which is generally
            the
            vesting term of the options associated with the underlying employment
            agreement,
            where applicable. (See further discussion at Note 13 below.)
  F-11
 
 **Surfect
            Holdings, Inc. and Subsidiary**
 **(a
            development stage company)**
 **Notes
            to Financial Statements**
 **Inception
            (December 26, 2000) through December 31, 2006**
  2)
                  Summary
                      of Significant Accounting Policies —
continued
  Stock
            Option Plan -
            continued
 
 *Option
            grants to non-employees*
 The
            Company accounts for equity instruments issued to non-employees in accordance
            with the provisions of SFAS 123 and the Emerging Issues Task Force (“EITF”)
            Issue No.  96-18,  “Accounting  for  Equity 
Instruments  That Are Issued to Other Than  Employees  for 
Acquiring,  or In  Conjunction  with Selling,  Goods or
            Services” (EITF 96-18) which require that such equity instruments are recorded
            at their fair value on the measurement date, which date is typically upon
            the inception of the services that will be performed (see further discussion
            at
            Note 13).
  Fair
            Value of Financial Instruments
 The
            fair
            value of the Company’s financial instruments, principally cash, payables and
            debt, approximates their carrying value.
 
 Revenue
            Recognition
 In
            December 1999, the staff of the Securities and Exchange Commission (SEC)
            issued
            Staff Accounting Bulletin No. 101 (SAB 101), “Revenue Recognition in Financial
            Statements,” which has been subsequently updated by Staff Accounting Bulletin
            No. 104 (SAB 104), “Revenue Recognition.” Under this method, revenue is
            recognized only when the following persuasive evidence of an arrangement
            exists:
 ·
                  delivery
                      has occurred or services have been rendered;
 ·
                  the
                      seller’s price is fixed or determinable
                      and;
 ·
                  collectibility
                      is reasonably assured.
 
 As
            of
            December 31, 2006, the Company has not entered into any ongoing material
            revenue
            arrangements.
 
 The
            Company anticipates that:
 ·
                  any
                      spare parts sales will be recognized upon shipment when title
                      and risk of
                      loss pass to the customer;
 ·
                  the
                      Company’s product sales will generally contain formal customer acceptance
                      provisions. Sales of products are not and will not be recognized
                      until
                      customer acceptance. Any deposit(s) received at the time of
                      acceptance of
                      order or upon delivery are and will be carried as a liability
                      until formal
                      customer acceptance and sign off has occurred;
 ·
                  once
                      a formal customer acceptance has occurred, no further rights
                      of return
                      will exist except as provided for defective components under
                      warranty (see
                      Warranty Obligations below);
 ·
                  revenue
                      related to services are recognized upon completion of performance
                      of the
                      service or ratably as the work is performed over the life of
                      the related
                      service contract;
  F-12
 
 **Surfect
            Holdings, Inc. and Subsidiary**
 **(a
            development stage company)**
 **Notes
            to Financial Statements**
 **Inception
            (December 26, 2000) through December 31, 2006**
  2)
                  Summary
                      of Significant Accounting Policies —
continued
 
 Revenue
            Recognition - continued
  Due
            to
            the nature of the Company’s products and services, the Company does not at this
            time anticipate any sales that will involve multiple elements or multiple
            deliverables as defined in EITF No. 00-21.
  During
            November, 2006, the Company sold and delivered one Rio Electroless development
            tool to C. Uyemura & Co., Ltd. (“Uyemura”), Japan. This tool was delivered,
            installed, and tested prior to acceptance in 2006 by Uyemura, which now
            holds
            title. This sale for $220,939 represents a “one of a kind” order and the
            transaction between the Company and Uyemura was non-refundable. However,
            the
            Company will continue ongoing warranty support for which a warranty reserve
            of
            $44,189 was included in 2006 cost of sales.
 
 Warranty
            Obligations
 The
            Company anticipates that obligations for warranty expense will be accrued
            concurrently with the revenue recognized on the related equipment. As
            the
            Company has limited sales history, the Company will make provisions for
            its
            warranty obligations based upon management’s judgment. Due to the significant
            uncertainties and judgments involved in estimating the Company’s warranty
            obligations, including changing product designs and specifications, the
            ultimate
            amount incurred for warranty costs could change in the near term from
            the
            Company’s current estimate.
  The
            Company’s warranty provision provides for general operational support and
            replacement of components which may fail for a period of one year from
            the date
            of acceptance of the product.
  Recently
            Issued Accounting Pronouncements
 Management
            has considered the impact of recently issued accounting pronouncements
            and is
            aware of no matters that will have a material prospective affect on these
            financial statements when they become effective.
  **3)**
                  **Inventories**
 
 The
            Company outsources all of its manufacturing services and as such generally
            carries finished goods inventory. At December 31, 2006, the Company’s inventory
            consisted of two tools and certain associated replacement parts. These
            tools and
            replacement parts have both hardware and/or programming considered by
            the
            Company to be readily marketable to end customers in their present form.
            The
            Company currently anticipates that these tools will be sold and delivered
            during
            the second q uarter
            of
            2007.
  F-13
 
 **Surfect
            Holdings, Inc. and Subsidiary**
 **(a
            development stage company)**
 **Notes
            to Financial Statements**
 **Inception
            (December 26, 2000) through December 31, 2006**
  **4)**
                  **Patents**
 
 Patents
            at December 31, 2006 and 2005 include capitalized costs of $42,590 and
            $42,973, net of accumulated amortization of $3,223 and $989, respectively.
            These
            balances consist of filing fees and executory costs related to acquiring
            U.S.
            and international patents. Costs incurred to acquire pending patents
            with
            related costs of $107,721 and $72,059, respectively have not commenced
            amortization pending receipt of the related patents. None of these costs
            are
            considered impaired at any balance sheet date reported herein.
  Filing
            fees and executory costs associated with patent applications are capitalized
            at
            the time incurred. Upon acceptance of a patent filing, the Company amortizes
            the
            costs over the associated life of the patent. In the event of denial
            or in the
            event a capitalized patent is deemed to be without worth, the unamortized
            balance is expensed.
  **5)**
                  **Deposits
                      Payable**
  The
            Company received customer deposits totaling $261,750 in 2004 toward purchases
            of
            equipment from the Company. $85,000 was refunded during 2006. The remaining
            balance was earned during 2006 and was recognized as revenue.
  **6)**
                  **Income
                      Taxes**
  The
            Company has no taxable income and no income tax liability during the
            periods
            reported.
  Through
            June 30, 2004, the Company was an S corporation and its taxable income and
            losses flowed through to its shareholders. Effective July 1, 2004, as a
            result of venture capital investment, the Company was required to file
            its tax
            returns as a C corporation whereby the Company became responsible for
            paying its
            income tax liabilities. For the period from July 1, 2004 through
            December 31, 2006, the Company incurred taxable losses totaling
            approximately $6,055,000 which are available to offset future taxable
            income
            through 2025, subject to ownership change limitations.
  **7)**
                  **Related
                      Party Transactions and
                      Contingencies**
  During
            the period from inception through December 31, 2005, the Company had
            substantial
            transactions with Griego Electrochemical Technologies, Inc. (GET), a company
            majority owned and operated by the founder and former president of Surfect.
            Transactions by reporting period are summarized as follows (in
            thousands):
  F-14
 
 **Surfect
            Holdings, Inc. and Subsidiary**
 **(a
            development stage company)**
 **Notes
            to Financial Statements**
 **Inception
            (December 26, 2000) through December 31, 2006**
  7)
                  Related
                      Party Transactions and Contingencies —
continued
  
 2005
                  
                  2004
                  
                  2003
                  
                  Since
                    InceptionLoan
                      advances from GET
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  (17
                  )
                  $
                  (91
                  )Loan
                      repayments to GET
                  
                  
                  -
                  
                  
                  -
                  
                  
                  32
                  
                  
                  91Loan
                      advances to GET
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  230Loan
                      repayments from GET
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (230
                  )Fixed
                      asset purchases from GET
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  45Receivable
                      (payable) balance at
                    end
                      of each period
                  
                  
                  -
                  
                  
                  (51
                  )
                  
                  3
                  
                  
                  -Cash
                      disbursed by Surfect to GET related to operational
                      reimbursements:Charged
                      to:General
                      and administrative expenses:Rent
                  
                  
                  -
                  
                  
                  12
                  
                  
                  36
                  
                  
                  85Utilities,
                      insurance, etc.
                  
                  
                  1
                  
                  
                  28
                  
                  
                  -
                  
                  
                  38Payroll
                      and related expenses
                  
                  
                  -
                  
                  
                  -
                  
                  
                  121
                  
                  
                  210Research
                      and development expenses
                  
                  
                  49
                  
                  
                  19
                  
                  
                  -
                  
                  
                  142Total
                      expenses per period
                  
                  $
                  50
                  
                  $
                  59
                  
                  $
                  157
                  
                  $
                  386
  During
            2006, the Company had no further dealings with GET. Management is not
            aware of
            any claims or contingent liabilities that apply to the Company related
            to
            GET.
  **8)**
                  **Debt**
  The
            Company has the following short-term debt at December 31,
 2006
                    
                    20059%
                        demand note payable to principal stockholder. Interest is
                        accrued using
                        simple interest.
                    
                    $
                    -
                    
                    $
                    300,000Note
                        to insurance carrier, 8.5% interest
                    
                    
                    45,868
                    
                    
                    -$
                    45,868
                    
                    $
                    300,000
 F-15
 
 **Surfect
            Holdings, Inc. and Subsidiary**
 **(a
            development stage company)**
 **Notes
            to Financial Statements**
 **Inception
            (December 26, 2000) through December 31, 2006**
  **9)**
                    **Leases**
  At
            December 31, 2006, the Company had the following capital lease obligation.
 
 Year
                      Ending December 31,2007
                  
                  $
                  3,0622008
                  
                  
                  3,0622009
                  
                  
                  2,139Net
                      minimum lease payments
                  
                  
                  8,263Less
                      amount representing interest
                  
                  
                  (1,043
                  )Present
                      value of minimum lease payments
                  
                  
                  7,220Less
                      current maturities
                  
                  
                  (2,125
                  )$
                  5,095
  The
            cost
            of equipment under capital lease is $11,691 with accumulated amortization
            of
            $5,066 and $2,728 at December 31, 2006 and 2005, respectively.
  The
            Company has an operating lease for its facilities that expired in December
            2006.
            The lease is being continued on a month-to-month basis. The monthly rental
            payment is $3,300. Rent expense for the operating lease for the facility
            for
            2006, 2005 and 2004 was approximately $39,600, $24,000 and $26,000,
            respectively.
  **10)**
                  **Employee
                      Benefit Plan**
  During
            2004, the Company adopted a qualified voluntary Safe Harbor 401(k) Plan
            that
            covers all employees meeting certain age and length of service requirements.
            The
            Plan provides for voluntary employee contributions as well as providing
            a
            matching contribution from the Company. The Company matches participant
            contributions at 100% of the first 3% and 50% of the next 2% of each
            participant’s compensation.
  Employer
            contributions vest on a stepped basis over six years of service. The
            Company
            made matching contributions totaling $14,007, $13,160, and $7,615 during
            the
            years ended December 31, 2006, 2005 and 2004, respectively.
  F-16
 
 **Surfect
            Holdings, Inc. and Subsidiary**
 **(a
            development stage company)**
 **Notes
            to Financial Statements**
 **Inception
            (December 26, 2000) through December 31, 2006**
  **11)**
                  **Going
                      Concern Uncertainty**
  The
            accompanying financial statements have been prepared assuming that Surfect
            will
            continue as a going concern. As shown in the accompanying financial statements,
            Surfect has incurred net losses since its inception and net losses have
            continued to the date of these financial statements. As described in
            Note 12,
            during 2006, Surfect received equity funding to meet its short-term working
            capital needs, however, Surfect remains in the development stage and
            its ability
            to continue as a going concern is initially dependent on its ability
            to raise
            adequate capital to fund necessary market entry activities and subsequently
            on
            sufficient inflow of operating revenue derived from sale of its products
            at
            sufficient profit margin to cover operating expenses. The financial statements
            do not include any adjustments that might result from the outcome of
            this
            uncertainty.
  Endeavoring
            to secure the Company’s ability to continue as a going concern, management is
            taking action on several fronts. The Company is pursuing other means
            of securing
            additional working capital to fund operations until the Company has reached
            a
            point where its cash requirements can be met by the continued operations
            of the
            Company. No assurances can be made that the Company will be successful
            in
            obtaining such additional working capital.
  **12)**
                  **Recapitalization**
 
 **(a)**  **Recapitalization**
  On
            September 27, 2006, Surfect Technologies merged with Surfect Holdings,
            Inc.’s,
            wholly owned subsidiary, Surfect Acquisition Corp., resulting in Surfect
            Technologies being 100% owned by Surfect Holdings. This transaction was
            accounted for as a recapitalization.
  Surfect
            Technologies has been treated as the acquirer for accounting purposes.
            Accordingly, the historical assets, liabilities and operations of Surfect
            Holdings before the recapitalization are those of Surfect Technologies,
            Inc.
            Subsequent to the recapitalization, the consolidated financial statements
            include the assets and liabilities of Surfect Technologies and Surfect
            Holdings,
            Inc., formerly Windy Creek Developments, Inc., and the historical operations
            of
            Surfect Technologies, Inc. and the operations of Surfect Holdings,
            Inc.
 
 Immediately
            prior to the recapitalization, Surfect Technologies had a total of 55,871,297
            shares of common stock issued and outstanding.   In connection with
            the recapitalization, Surfect Holdings issued 8,001,666 shares of
            its common stock to Surfect Technologies’ stockholders who qualified as
            accredited investors in exchange for 55,548,618 shares of Surfect Technologies’
common stock.   The remaining 322,679 shares of Surfect Technologies’
common stock held by non-accredited investors were redeemed for a purchase
            price
            of $0.043 per share.
  F-17
  **Surfect
            Holdings, Inc. and Subsidiary**
 **(a
            development stage company)**
 **Notes
            to Financial Statements**
 **Inception
            (December 26, 2000) through December 31, 2006**
  12)
                  Recapitalization
                      — continued
  Also
            in
            connection with the recapitalization, (i) options to purchase a total
            of
            13,872,696 shares of Surfect Technologies’ common stock held by certain members
            of Surfect Technologies’  management team were converted into options to
            purchase 1,998,334 shares of Surfect Holdings’ common stock at the same exercise
            price and on the terms set forth in the original option grants and (ii)
            options
            to purchase a total of  4,069,000 shares of Surfect Technologies common
            stock were converted into options to purchase 586,131 shares of Surfect
            Holdings
            common stock under the 2006 Stock Option Plan at the same exercise price
            and on
            the terms set forth in the original grants.
 
 Such
            issuances of common stock and options in connection with the recapitalization
            were made pursuant to an exemption from registration under Section 4(2)
            of the
            Securities Act of 1933.
  **(b)**  **Issuance
            of new securities**
  In
            connection with the recapitalization, the Company completed the closing
            of a
            private placement of its common stock on September 27, 2006, in which
            the
            Company sold an aggregate of 112 units to 37
            accredited investors. Each unit consisted of 25,000 shares of Common
            Stock and a
            four-year warrant to purchase 12,500 shares of
            Common
            Stock at $2.00 per share, at a purchase price of $25,000 per unit. In
            addition, on September 27, 2006, concurrently with the private placement,
            the
            Company issued (i) 500,000
            shares of Common Stock upon conversion of a 9% promissory note in the
            principal
            amount of $500,000, dated August 10, 2006, and (ii) a four-year warrant
            to
            purchase 250,000 shares of Common Stock at an exercise price of $2.00
            to ITU
            Ventures, our principal stockholder. The
            Company also issued 400,000 shares of Common Stock to investor relations
            consultants as part of the transaction.
 
 The
            common stock issued and the warrants issuable in the private placement
            are
            subject to registration rights whereby liquidated damages may accrue
            and are
            payable in common stock at the rate of 1% (up to a maximum of 10%) of
            the
            aggregate amount of common shares received by the investors in the private
            placement per
            one-week period if (i) a registration statement is not filed within 60
            days of October
            21, **** 2006;
            (ii) such registration statement is not declared effective within 180
            days of
            October 21, 2006; and (iii) such registration statement is not kept effective
            for the earlier of (a) 24 months or (b) the date when all registerable
            securities have been sold. Notwithstanding
            the foregoing, upon notification by the Company of the occurrence of
            a potential
            material event (as such term is defined in the subscription agreements
            for the
            private placement) an investor’s right to offer, sell or otherwise engage in a
            transaction involving shares covered by the registration statement may
            be
            suspended for up to 60 days.
 
 F-18
 
 **Surfect
            Holdings, Inc. and Subsidiary**
 **(a
            development stage company)**
 **Notes
            to Financial Statements**
 **Inception
            (December 26, 2000) through December 31, 2006**
  12)
                  Recapitalization
                      — continued
  The
            table
            below shows the effect on equity of the recapitalization
            transaction:
  **Recapitalization:**
                    
                    
                    
                    **Common
                        Shares**
                    
                    **Preferred
                        Shares****Date**
                    
                    **Shares**
                    
                    **$**
                    
                    **Shares**
                    
                    **$**
                    
                    **Additional
                        Paid in Capital**Equity
                        balances of Surfect Technologies, Inc. (STI) immediately
                        prior to
                        recapitalization
                    
                    
                    9/1/2006
                    
                    
                    9,922,305
                    
                    $
                    304,239
                    
                    
                    29,216,235
                    
                    $
                    6,613,879
                    
                    $
                    24,766Conversion
                        of preferred shares to common stock
                    
                    
                    9/26/2006
                    
                    
                    45,948,992
                    
                    
                    6,613,879
                    
                    
                    (29,216,235
                    )
                    
                    (6,613,879
                    )
                    
                    -(1)
                        Cancellation of STI common stock
                    
                    
                    9/27/2006
                    
                    
                    (55,548,618
                    )
                    
                    (6,904,243
                    )
                    
                    -
                    
                    
                    -
                    
                    
                    6,904,243(2)
                        Purchase and cancellation of STI non-qualified investor common
                        shares
                    
                    
                    9/27/2006
                    
                    
                    (322,679
                    )
                    
                    (13,875
                    )
                    
                    -
                    
                    
                    -
                    
                    
                    -Conversion
                        of Windy Creek Developments Common Stock upon merger with
                        Windy
                        Creek-DE
                    
                    
                    9/27/2006
                    
                    
                    2,500,001
                    
                    
                    250
                    
                    
                    -
                    
                    
                    -
                    
                    
                    41,750Issuance
                        of common shares to STI Holders
                    
                    
                    9/27/2006
                    
                    
                    8,001,666
                    
                    
                    800
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -Issuance
                        of Common Stock for net proceeds of $2,950,630 cash, including
                        conversion
                        of a $500,000 demand note payable to a principal
                        shareholder
                    
                    
                    9/27/2006
                    
                    
                    3,300,000
                    
                    
                    330
                    
                    
                    -
                    
                    
                    -
                    
                    
                    2,550,300Issuance
                        of common shares to investor relation consultants
                    
                    
                    9/27/2006
                    
                    
                    400,000
                    
                    
                    40
                    
                    
                    -
                    
                    
                    -
                    
                    
                    399,96014,201,667
                    
                    $
                    1,420
                    
                    
                    -
                    
                    $
                    -
                    
                    $
                    9,921,019
  An
            aggregate of 400,000
            shares of common stock were issued under non-refundable agreements with
            certain
            consultants for investor relations services provided in connection with
            the
            recapitalization and private placement offering by the Company. These
            agreements
            provide that each of two consulting firms would receive 200,000 post
            recapitalization shares as a “Commencement Bonus”. The “Commencement Bonus”
being defined as a nonrefundable, nonapportionable, and nonratable retainer
            and
            not a prepayment for future services. Such “Commencement Bonus” is considered a
            specific incremental cost directly attributable to and within 90 days
            of the
            September private placement in accordance with SAB Topic 5A. The value
            of the
            shares issued were determined to be $1.00 per share to be consistent
            with the
            amount being paid for units in the private placement (no value was associated
            with the warrants (see warrant discussion below). The resulting financial
            transaction is recorded as $400,000 of additional proceeds offset by
            an equal
            $400,000 associated cost of closing.
 
 The
            agreements further provide for cash compensation for ongoing consulting
            services
            at an aggregate rate of $8,000 per month through August 2007, subject
            to
            termination at any time without refund or further financial obligation.
            The
            continuing consulting service is recorded as period expenses as
            incurred.
 
 F-19
  **Surfect
            Holdings, Inc. and Subsidiary**
 **(a
            development stage company)**
 **Notes
            to Financial Statements**
 **Inception
            (December 26, 2000) through December 31, 2006**
  12)
                  Recapitalization
                      — continued
  The
            Company additionally issued 108,250 freestanding warrants (in addition
            to the
            warrants included in the units sold as described above) to its placement
            agents
            in the private placement. In accordance with EITF 00-19 ‘Accounting for
            Derivitive Financial Instruments Indexed to, and Potentially Settled
            in, a
            Company’s Own Stock, these issuances have been treated as permanent equity
            transactions. As the exercise price of the warrants significantly exceeded
            the
            fair value of the stock on the date of issuance, the fair value of the
            warrant
            is immaterial.
  **13)**
                  **Stock
                      Options**
  On
            December 31, 2006, the Company had two share-based compensation plans
            which are
            described below. The compensation cost that has been charged to operations
            for
            those plans was approximately $57,000 for the fiscal year ended December
            31,
            2006, $19,000 for the fiscal year ended December 31, 2005 and $76,000
            for the
            period since inception (December 26, 2000). Except as discussed in Note
            14
‘Management Exercise’, no tax or other benefit has been recognized within the
            statement of operations of any period presented.
 
 **2006
            Stock Plan and Other Options**
 
 The
            Company’s 2006 Stock Plan was adopted by the directors and stockholders on
            September 25, **** 2006.
            An
            aggregate of 1,500,000 shares of Common Stock have been reserved for
            issuance
            under the Plan. The purpose of the Plan is to provide an incentive to
            retain
            directors, officers, consultants and employees of the Company and its
            affiliates
            whose services are considered valuable. Under the Plan, the Company is
            authorized to issue incentive stock options intended to qualify under
            Section
            422 of the Internal Revenue Code, non-qualified stock options and restricted
            stock. The Plan is administered by the Company’s board of directors. Option
            awards are granted at an exercise price equal to the average closing
            price of
            the Company’s Common Stock for the ten trading days immediately prior to the
            grant; those options generally vest based upon a 1 to 3 year period of
            continuous service and have a 10 year term. As of December 31, 2006, no
            shares of Common Stock had been issued under the Plan, options to purchase
            661,730 shares of Common Stock were outstanding and 838,270 shares of
            Common
            Stock remain available for issuance under the Plan.
 
 In
            September 2006, options to purchase an aggregate of 13,872,696 shares
            of Surfect
            Technologies’ common stock held by certain of its management were converted into
            options to purchase an aggregate of 1,998,334 shares of the Company’s Common
            Stock in accordance with their terms in connection with the recapitalization.
            These options have terms consistent with the 2006 Stock Plan discussed
            above but
            are accounted for separately from the 2006 Stock Plan as a reserve against
            authorized but unissued Common Stock.
 
 F-20
 
 **Surfect
            Holdings, Inc. and Subsidiary**
 **(a
            development stage company)**
 **Notes
            to Financial Statements**
 **Inception
            (December 26, 2000) through December 31, 2006**
  13)
                  Stock
                      Options — continued
 
 A
            summary
            of the Company’s stock options outstanding and exercisable at December 31, 2006
            is presented in the table below:
 
 Option
                      exercise price$
                      0.14
                  
                  $
                      0.30
                  
                  $1.58
                  
                  $2.27
                  
                  Total
                  
                  Intrinsic
                      ValueOutstanding
                  
                  
                  393,825
                  
                  
                  2,046,592
                  
                  
                  50,000
                  
                  
                  169,647
                  
                  
                  2,660,064
                  
                  $
                  0Weighted
                      average remaining contractual life of options outstanding (in
                      years)
                  
                  
                  8.62
                  
                  
                  9.49
                  
                  
                  9.81
                  
                  
                  9.92
                  
                  
                  9.40Exercisable
                  
                  
                  247,113
                  
                  
                  174,406
                  
                  
                  -
                  
                  
                  -
                  
                  
                  421,519
                  
                  $
                  0
 
  Accounting
            for option grants to employees
  Prior
            to
            January 1, 2006, the Company accounted for employee options under the
            recognition and measurement provisions of Accounting Principles Board
            Opinion
            No. 25 ("APB 25"). Accordingly, the Company recognized compensation expense
            only
            to the extent that it granted options with a discounted exercise price.
            Any
            resulting compensation expense was recognized ratably over the associated
            service period. The Company’s management determined, based upon information
            provided to the Board which included an analysis of (1) the market prices
            of
            stock of corporations engaged in the same or similar line of business
            having
            their stock actively traded in a free and open market, (2) the nature
            of the
            business and the history of the enterprise from its inception, (3) the
            economic
            outlook in general and the condition of the specific industry in particular,
            (4)
            the book value of the stock and the financial condition of the business,
            (5) and
            the Company’s earning and dividend-paying capacities, the fair value of the
            options in excess of exercise prices granted to employees that vested
            and
            remained unforfeited during 2005 and 2004 to be approximately $14,000,
            which was
            recorded as compensation expense in 2005.
  Prior
            to
            July 1, 2004, the Company was unfunded, except for modest founder funding.
            For
            stock options granted from inception through June 30, 2004, management
            determined the fair market value to be the cash value being contributed
            by
            founders for their stock holdings. Options granted during this period
            resulted
            in no compensation expense upon vesting.
 
 Effective
            January 1, 2006, the Company adopted the fair value recognition provisions
            of
            SFAS 123(R), using the modified prospective transition method and therefore
            has
            not restated prior periods' results. Under this transition method, employee
            stock-based compensation expense for the year ended December 31, 2006
            included
            compensation expense for all stock-based compensation awards granted,
            but not
            yet vested, prior to January 1, 2006.  The fair value of the options
            granted was determined at the original grant dates in accordance with
            the
            provisions of SFAS 123(R).  Stock-based compensation expense for all
            share-based payment awards granted after December 31, 2005 is based on
            the
            grant-date fair value estimated in
  F-21
 
 **Surfect
            Holdings, Inc. and Subsidiary**
 **(a
            development stage company)**
 **Notes
            to Financial Statements**
 **Inception
            (December 26, 2000) through December 31, 2006**
  13)
                  Stock
                      Options — continued
  accordance
            with the provisions of SFAS 123(R). The Company recognizes these compensation
            costs over the requisite service period of the award, which is generally
            the
            vesting term of the options associated with the underlying employment
            agreement,
            where applicable.
 
 As
            a
            result of adopting SFAS 123(R), 2006 compensation expense of $52,000
            was
            recorded which was approximately $11,000 less than if the Company had
            continued
            to account for stock-based compensation under APB 25. The impact of the
            adoption
            of SFAS 123(R) on both basic and diluted loss per share for the year
            ended
            December 31, 2006 was immaterial and as such no adjustment to the records
            of the
            Company was made. At December 31, 2006, the unamortized value of employee
            stock
            options under SFAS 123(R) was approximately $280,000. The unamortized
            portion
            will be expensed over a weighted average period of approximately three
            years.
  Accounting
            for option grants to employees
 
 The
            fair
            value of each option award is estimated on the date of grant using the
            Black-Sholes option valuation model that uses the assumptions noted in
            the
            following table. Because option valuation models incorporate ranges of
            assumptions for inputs, those ranges are disclosed. As the Company was
            privately
            held prior to its recent recapitalization, its volatility has been based
            upon a
            study of the historical volatility of five similar high tech companies
            in their
            first five years of public trading. Limited comparable entities or indexes
            were
            available for comparison. The selected companies were semiconductor and
            healthcare equipment manufacturers who have become public entities during
            the
            last ten years and progressed through a startup process similar to the
            Company’s. Weighted average volatility for these companies for their first five
            years varied from 78.72% to 136.91%. Weighted average volatility was
            calculated
            using the first five years of trading history for the mean company within
            this
            representative group.
 
 The
            Company uses historical data to estimate option exercise and employee
            forfeiture
            within the valuation model; separate groups of employees that have similar
            exercise and/or termination behavior (such as management vs. non-management
            labor) are treated independently for valuation purposes. Considering
            the startup
            mode under which the Company has functioned to date, it is believed that
            the
            forfeiture rate of management and employees will decrease from historic
            rates.
            As a result, historic forfeiture rates have been reduced by one half
            to estimate
            future behavior. The risk free rate for the periods within the contractual
            life
            of the option are based upon the US Treasury yield curve at the time
            of the
            grant.
 
 The
            fair
            value of each option grant during the year ended December 31, 2006 was
            estimated
            on the date of grant using the Black-Scholes option pricing model with
            the
            following weighted average assumptions used:
 
 F-22
 
 **Surfect
            Holdings, Inc. and Subsidiary**
 **(a
            development stage company)**
 **Notes
            to Financial Statements**
 **Inception
            (December 26, 2000) through December 31, 2006**
  13)
                  Stock
                      Options — continued
 
 For
                      the year ended
                    December
                      31, 2006Dividend
                      yield
                  
                  
                  0%Weighted
                      Average volatility
                  
                  
                  100.83%Risk-free
                      interest rate (average)
                  
                  
                  4.61%Expected
                      lives
                  
                  
                  5
                      years
  The
            weighted average fair value of the options on the respective dates of
            grant,
            using the fair value based methodology for the year ended December 31,
            2006, was
            $0.43.
 
 A
            summary
            of the status of the outstanding options and the changes during the year
            ended
            December 31, 2006 is presented in the table below:
 
 Number
                      of OptionsEmployee
                  
                  Non-Employee**
                  
                  Total
                  
                  Weighted
                      Average Exercise PriceBalance,
                      January 1, 2006
                  
                  
                  3,350,000
                  
                  
                  364,000
                  
                  
                  3,714,000
                  *
                  $
                  0.02
                  *Granted
                  
                  
                  20,236,970
                  
                  
                  830,000
                  
                  
                  21,066,970
                  *
                  
                  0.45
                  *Exercised
                  
                  
                  (4,902,305
                  )
                  
                  **-**
                  
                  
                  (4,902,305
                  )*
                  
                  0.04
                  *Forfeited
                  
                  
                  (1,861,370
                  )
                  
                  **-**
                  
                  
                  (1,861,370
                  )*
                  
                  0.02
                  *Recapitalization
                      adjustment
                  
                  
                  (14,356,623
                  )
                  
                  (1,000,608
                  )
                  
                  (15,357,231
                  )*
                  
                  n/a
                  *Balance,
                      December 31, 2006
                  
                  
                  2,466,672
                  
                  
                  193,392
                  
                  
                  2,660,064
                  
                  $
                  0.43
  **Number
                        of Options Vested**Employee
                    
                    Non-Employee**
                    
                    TotalVested
                        at January 1, 2006
                    
                    
                    1,488,333
                    
                    
                    268,167
                    
                    
                    1,756,500Vested
                        during period
                    
                    
                    7,030,837
                    
                    
                    263,224
                    
                    
                    7,294,061Exercised
                        during period
                    
                    
                    (4,902,305
                    )
                    
                    **-**
                    
                    
                    (4,902,305
                    )Forfeited
                        during period
                    
                    
                    (1,668,310
                    )
                    
                    **-**
                    
                    
                    (1,668,310
                    )Recapitalization
                        adjustment
                    
                    
                    (1,607,292
                    )
                    
                    (451,135
                    )
                    
                    (2,058,427
                    )Vested
                        at December 31, 2006
                    
                    
                    341,263
                    
                    
                    80,256
                    
                    
                    421,519
  *
                  Reflects
                      options held in Surfect Technologies, Inc. prior to the recapitalization
                      on September 27, 2006 which were converted at a rate of approximately
                      1 to
                      0.144048
 **
                  See
                      ‘Option grants to non-employees’
below
 
 Compensation
            expense of approximately $52,267 was recognized in relation to share
            based
            compensation earned under the provisions of SFAS 123(R) in relation to
            options
            granted to management employees during the year ended December 31, 2006
            (See
            Management Exercise of Vested Stock Options at Note 14).
  F-23
 
 **Surfect
            Holdings, Inc. and Subsidiary**
 **(a
            development stage company)**
 **Notes
            to Financial Statements**
 **Inception
            (December 26, 2000) through December 31, 2006**
  13)
                  Stock
                      Options — continued
  The
            Company has determined that shares of Common Stock for future exercises
            shall be
            from authorized but unissued shares of stock.
 
 For
            the
            year ended December 31, 2005, under APB 25, approximately $14,000 of
            stock-based
            employee compensation expense relating to the Company’s stock options was
            reflected in net loss, for options granted under its plan that had an
            exercise
            price less than the market value of the underlying Common Stock on their
            respective dates of grant.
  For
            the
            Company’s pro forma information for the year ended December 31, 2005, the
            fair value of each option grant was estimated on the respective date
            of grant
            using the Black-Scholes option pricing model described above with the
            following
            assumptions used:
 
 For
                      the
                    Year
                      Ended
                    December
                      31, 2005Dividend
                      yield
                  
                  
                  0%Expected
                      volatility
                  
                  
                  100.83%Risk-free
                      interest rate
                  
                  
                  4.05%Expected
                      lives
                  
                  
                  5
                      years
 
 The
            weighted average fair value of the options on the respective dates of
            grant,
            using the fair value based method, for the year ended December 31, 2005 was
            $0.02.
 
 The
            following table illustrates the effect on net loss and net loss per
            share if the Company had applied the fair value recognition method under
            the
            provisions of SFAS 123.
 
 (All
                      numbers in 000’s except per share data)
                  
                  For
                      theyear ended
                    December
                      31, 2005Net
                      loss applicable to common stockholders, as reported
                  
                  $
                  (2,497
                  )Net
                      effect of difference between total stock-based employee compensation
                      expense determined under APB 25 method for all awards, net
                      of related tax
                      effects
                  
                  
                  (3
                  )Pro-forma
                      net loss
                  
                  $
                  (2,500
                  )Net
                      loss per share applicable to common stockholders - basic and
                      diluted:As
                      reported
                  
                  $
                  (0.50
                  )Pro
                      forma
                  
                  $
                  (0.50
                  )
 
  F-24
 
 **Surfect
            Holdings, Inc. and Subsidiary**
 **(a
            development stage company)**
 **Notes
            to Financial Statements**
 **Inception
            (December 26, 2000) through December 31, 2006**
  13)
                  Stock
                      Options — continued
  Option
            grants to non-employees
 
 The
            Company accounts for equity instruments issued to non-employees in accordance
            with the provisions of SFAS 123(R) and the Emerging Issues Task Force
            (“EITF”)
            Issue No.  96-18,  “Accounting  for  Equity 
Instruments  That Are Issued to Other Than  Employees  for 
Acquiring,  or In  Conjunction  with Selling,  Goods or
            Services” (EITF 96-18) which require that such equity instruments are recorded
            at their fair value on the measurement date, which date is typically upon
            the inception of the services that will be performed.
 
 For
            the
            year ended December 31, 2006, the stock based compensation expense of
            $5,096 was
            recorded for non-employees related to the grant of non-transferable stock
            options to purchase 140,959 shares of the Common Stock issued in connection
            with
            ongoing consulting service arrangements begun at various dates during
            2006. All
            of these consulting arrangements involve a combination of cash compensation
            plus
            stock options that have exercise prices ranging from $.14 (granted prior
            to
            recapitalization) to $2.27 (granted after recapitalization). These options
            vest
            over a three year service term; expire ten years from date of grant,
            and contain
            no performance-related or market condition provisions. Because the consulting
            arrangements include cash compensation, the options are not valued based
            on the
            value of consulting services received, but rather valued based on the
            value of
            the option consideration itself. The option compensation has been accounted
            for
            in accordance with SFAS 123(R) and EITF 96-18. Specifically, the options
            are
            valued at their grant date fair value as determined using the Black-Scholes
            model and applying appropriate dividend yield, expected volatility, interest
            rate and expected life assumptions comparable to the assumptions the
            Company
            applied to the calculation for employee stock options. The calculated
            fair value
            is recorded as compensation expense ratably over the expected service
            term.
 
 For
            the
            year ended December 31, 2005, stock based compensation expense of approximately
            $5,000 (approximately $1,500 of which was earned during 2004) was recorded
            for
            non-employees related to the grant of stock options to purchase 364,000
            shares
            of the Common Stock issued in connection with ongoing consulting services
            begun
            at various dates between July 1, 2004 and July 10, 2005. Such compensation
            was
            accounted for under the provisions of EITF 96-18.
  F-25
 
 **Surfect
            Holdings, Inc. and Subsidiary**
 **(a
            development stage company)**
 **Notes
            to Financial Statements**
 **Inception
            (December 26, 2000) through December 31, 2006**
  **14)**
                  **Management
                      Exercise of Vested Stock
                      Options**
 
 Between
            November 15, 2004 and September 21, 2006, the Company issued options
            to purchase
            an aggregate of 11,403,322 shares of Common Stock of Surfect Technologies,
            Inc..
            to its executive management The options were granted in the periods and
            at the
            amounts shown below. On September 26, 2007, the Company allowed its Executive
            Management to exercise their vested options and provided them a bonus
            to offset
            the exercise cash requirement. This transaction resulted in direct compensation
            as reflected in the table below. Additionally, the Company made associated
            federal and state tax deposits on behalf of its executive management
            of
            approximately $90,000.
 
 Date
                  
                  Number
                      of Options Granted
                  
                  Number
                      of Options Vested and Exercised
                  
                  Grant
                      Date FMV and Original Exercise Price
                  
                  Exercise
                      Price
                  
                  Stock
                      Option Compensation at Grant Date
                  
                  Compensation
                      at Exercise/Bonus Date
                  
                  Total
                    CompensationNov-04
                  
                  
                  1,600,000
                  
                  
                  586,667
                  
                  $
                  0.02
                  
                  $
                  0.043*
                  
                  $
                  -
                  
                  $
                  25,227
                  
                  $
                  25,227Mar-06
                  
                  
                  3,550,000
                  
                  
                  1,733,333
                  
                  $
                  0.02
                  
                  
                  0.043*
                  
                  
                  2,661
                  
                  
                  71,872
                  
                  $
                  74,533Jun-06
                  
                  
                  2,480,000
                  
                  
                  998,889
                  
                  $
                  0.02
                  
                  
                  0.043*
                  
                  
                  3,814
                  
                  
                  39,138
                  
                  $
                  42,952Jul-06
                  
                  
                  620,000
                  
                  
                  229,630
                  
                  $
                  0.02
                  
                  
                  0.043*
                  
                  
                  593
                  
                  
                  9,281
                  
                  $
                  9,874Sep-06
                  
                  
                  3,153,322
                  
                  
                  1,051,107
                  
                  $
                  0.04
                  
                  
                  0.043
                  
                  
                  45,199
                  
                  
                  -
                  
                  $
                  45,199Total
                  
                  
                  11,403,322
                  
                  
                  4,599,626
                  
                  
                  
                  
                  $
                  0.043
                  
                  $
                  52,267
                  
                  $
                  145,518
                  
                  $
                  197,785
  *
            The
            exercise price of options granted prior to September 22, 2006 was
            amended ,
            by
            mutual agreement between the Company and the employee, to the September
            22, 2006
            fair market value prior to management’s exercise. In accordance with the
            provisions of SFAS 123(R), the modifications were treated as an exchange
            for a
            new reward as of September 26, 2006 and the full amount of the fair value
            of all
            vested shares were recorded as compensation expense commensurate with
            the
            exercise of 4,599,626 options to purchase common shares of Surfect Technologies,
            Inc. Compensation expense related to the unvested options remaining will
            be
            recognized over their requisite service periods.
  **15)**
                  **Warrants**
  As
            of
            December 31, 2006, there were warrants to purchase an aggregate of
            1,758,250 shares of Common Stock, at an exercise price of $2.00 per share,
            outstanding. The warrants expire in September, 2010.
  F-26
 
 **Surfect
            Holdings, Inc. and Subsidiary**
 **(a
            development stage company)**
 **Notes
            to Financial Statements**
 **Inception
            (December 26, 2000) through December 31, 2006**
  **16)**
                  **Loss
                      per share**
  The
            Company has incurred losses in all periods since inception.
  The
            effect of additional common stock issuable as a result of potential preferred
            share conversions, cumulative dividends on preferred shares, and exercise
            of
            warrants or stock options, net of treasury share repurchases from warrant
            and
            stock option proceeds, has not been included in the diluted loss per
            share
            calculation since their impact would be antidilutive. Such additional
            potentially issuable shares totaled 4,418,313, 3,714,000, and 6,474,000
            at
            December 31, 2006, 2005 and 2004, respectively.
 
 F-27




**Item
              8.**
            **Changes
                in and Disagreements with Accountants on Accounting and Financial
                Disclosure.**




Information
      for this Item was previously filed with the SEC on October 3, 2006 in our
      Current Report on Form 8-K, dated September 27, 2006.




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




We
      carried out an evaluation, under the supervision and with the participation
      of
      our management, including our Chief Executive Officer and Chief Financial
      Officer, of the effectiveness of the design and operation of our disclosure
      controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under
      the
      Exchange Act. Disclosure controls and procedures include, without limitation,
      controls and procedures designed to ensure that information required to be
      disclosed by an issuer in the reports that it files or submits under the
      Exchange Act is accumulated and communicated to the issuer’s management,
      including its principal executive and principal financial officers, or persons
      performing similar functions, as appropriate to allow timely decisions regarding
      required disclosure. Based upon our evaluation, our Chief Executive Officer
      and
      Chief Financial Officer concluded that our disclosure controls and procedures
      are effective, as of the end of the period covered by this report (December
      31,
      2006), in ensuring that material information that we are required to disclose
      in
      reports that we file or submit under the Exchange Act is recorded, processed,
      summarized and reported within the time periods specified in the SEC rules
      and
      forms. Based upon our evaluation our officers concluded that our disclosure
      controls and procedures are also effective to ensure that information required
      to be disclosed in the reports that we file or submit under the Exchange Act
      is
      accumulated and communicated to our management, including our Chief Executive
      Officer and Chief Financial Officer, to allow timely decisions regarding
      required disclosure. There were no changes in our internal control over
      financial reporting during our most recent fiscal quarter that have materially
      affected, or are reasonably likely to materially affect, our internal control
      over financial reporting.




**Item
              8B.**
            **Other
                Information******




None.




**PART
      III**




**Item
              9.**
            **Directors,
                Executive Officers, Promoters, Control Persons and Corporate Governance;
                Compliance With Section 16(a) of the Exchange
                Act.**




**Directors
      And Executive Officers**




The
      following sets forth the names, ages and positions of our current directors
      and
      executive officers. All directors hold office for one-year terms until the
      election and qualification of their successors. All of our officers and
      directors were appointed in September 2006. Officers are elected annually by
      the
      board of directors and serve at the discretion of the board.




27




Name
            
            Age
            
            PositionSteven
                Anderson
            
            
            52
            
            
            President,
                Chief Executive Officer, Secretary, Treasurer and DirectorAnthony
                M. Maffia, Jr.
            
            
            59
            
            
            Chief
                Financial OfficerYixiang
                Xie
            
            
            48
            
            
            Chief
                Technology OfficerMiles
                A. Prim
            
            
            49
            
            
            Chief
                Operating OfficerMark
                W. Eichhorn
            
            
            49
            
            
            Vice
                President Sales and MarketingLaurence
                P. Wagner
            
            
            46
            
            
            DirectorChad
                Brownstein
            
            
            33
            
            
            DirectorJonah
                Schnel
            
            
            33
            
            
            Director





*Steven
      Anderson* has
      served as our President, Chief Executive Officer, Secretary and Treasurer and
      a
      director since September 2006. Mr. Anderson has also served as president, chief
      executive officer and as a director of our subsidiary, Surfect Technologies
      since July 2005 and as its Vice President of Business Development from December
      2004 to July 2005. Mr. Anderson has 28 years packaging industry experience
      including marketing and technical development activities focused on electronics
      manufacturing and bringing new innovative interconnect technology to the
      semiconductor industry. Prior to joining Surfect Technologies, from 2002 through
      2004, Mr. Anderson founded and served as president of Altgen, LLC, a solar
      fuel
      cell development company. From 2000 until 2002, Mr. Anderson served as the
      chief
      executive officer of Silicon Bandwidth, an optical interconnect development
      company, and from 1988 to 2000, as senior vice president of corporate marketing
      and business development at Amkor Technologies, a semiconductor industry
      assembly outsourcing company. Mr. Anderson holds a BSEE degree in Engineering
      from the University of North Dakota.




*Anthony
      M. Maffia, Jr.* has
      served as our Chief Financial Officer since April 5, 2007 and as Vice
      President-Finance of Surfect Technologies since January 2007. Mr. Maffia has
      29
      years of experience in the accounting and finance area, with over 14 years
      at
      Amkor Technology, Inc., a semiconductor manufacturing services company. While
      with Amkor, Mr. Maffia held positions as vice president of financial systems
      from 2006 to 2007, vice president of finance from 2003 to 2006 and senior
      director of operations finance from 1993 to 2003. In such capacities, Mr. Maffia
      provided financial and systems support to Amkor’s manufacturing operations
      throughout the Asia Pacific Rim. Prior thereto, from 1992 to 1993, Mr. Maffia
      was chief financial and administrative officer for the Cittone Institute, a
      New
      Jersey based trade school, and has held division or regional controller
      positions with Macmillan Publishing Company, CooperBiomedical, Inc. and Corning
      Inc. Mr. Maffia holds a BS in Computer Science from New Jersey Institute of
      Technology and an MBA from Rensselaer Polytechnic Institute.




*Yixiang
      Xie* , *PhD* has
      served as our Chief Technology Officer since September of 2006. Dr. Xie has
      also
      served as chief technology officer of Surfect Technologies since March 2006
      and
      as senior engineering manager from August 2005 through February 2006. Prior
      to
      joining Surfect Technologies, Dr. Xie served as senior technical staff and
      program manager at Intel Corporation from 2001 to 2005. Dr. Xie has over 12
      years experience in semiconductor development, 12 years prior science experience
      and hands-on C-4 wafer bumping development and production ramp-up at Intel.
      Dr.
      Xie holds a PhD in chemistry from the University of Missouri-Rolla.




*Miles
      A. Prim* has
      served as our Chief Operating Officer since March 22, 2007 and as Vice President
      of Product Development since September 2006. Mr. Prim has also served a vice
      president of product development of Surfect Technologies since September 2006.
      Prior thereto, from 2005 through 2006, Mr. Prim served as vice president and
      general manager of Kulicke & Soffa Industries, Inc., a supplier of
      semiconductor assembly equipment, tools and materials (“K&S”), where he was
      responsible for its vertical test business’ multinational operations, marketing,
      research and development and product strategy. From 2004 to 2005, Mr. Prim
      worked as an independent consultant for companies in the technology industry.
      From 2001 through 2004, Mr. Prim was the founding senior executive and served
      as
      president and chief executive officer of ITEST, Ltd. (“ITEST”) in Seoul, Korea,
      a semiconductor test company. During his tenure at ITEST, Mr. Prim qualified
      17
      fabless or IDM customers, including the top three Korean high tech companies,
      and ITEST achieved ISO9001 and QS900 quality certifications.




28


*Mark
      W. Eichhorn* has
      served as Vice President of Sales and Marketing since September 2006. Mr.
      Eichorn has also served as vice president of sales and marketing of Surfect
      Technologies since August 2006. Mr. Eichhorn has 28 years of equipment
      experience at K&S where from January 2003 through March 2006 Mr. Eichorn
      served as vice president of test products customer operations and, from 1996
      though January 2003, as director of its business development division. During
      his tenure at K&S, Mr. Eichhorn was responsible for developing its wire
      bonder equipment market and helping make K&S an industry leader. Mr.
      Eichhorn also served an instrumental role in business development at IDM and
      OEM
      accounts. Mr. Eichhorn holds a BSBA in Economics from SUNY-Empire State
      College.




*Laurence
      P. Wagner* has
      served as a director since September 2006. Mr. Wagner has also served as a
      director of Surfect Technologies since 2004. Mr. Wagner has 22 years experience
      in the semiconductor industry and has since August 2004, served as vice
      president of strategic business development at KLA-Tencor Corp. From 2001
      through 2004, Mr. Wagner was a principal with the Excellerate Group, a
      management consulting firm. Mr. Wagner worked at FSI International, Inc., a
      tooling manufacturer (“FSI”), from May 2001 through June 2003, where he served
      as both senior vice president of FSI and president of its microlithography
      division and was involved with, among other things, business development,
      Asia-Pacific and European customer relationships, process re-engineering and
      product development. Mr. Wagner’s prior experience also included positions as
      group president and corporate senior vice president at K&S with
      responsibility for their core wire bond business, and at Rohm and Haas Company,
      a leading producer of specialty materials. Mr. Wagner holds a Masters degree
      in
      Chemical Engineering Practice and a Bachelors Degree in Chemical Engineering,
      both from the Massachusetts Institute of Technology.




*Chad
      Brownstein* has
      served as a director since September 2006. Mr. Wagner has also served as a
      director of Surfect Technologies since March 2006. Mr. Brownstein co-founded
      ITU
      Ventures in 2000, and, as managing partner, shares responsibility for directing
      overall investment strategy and oversees day-to-day activities. Prior to
      founding ITU Ventures, Mr. Brownstein was a member of Merchant Banking Division
      of Donaldson, Lufkin and Jenrette, Inc. (“DLJ”). Previously, he was employed in
      the DLJ’s investment banking division, where he participated in public and
      private investment banking activities including equity, debt and merger/advisory
      transactions. Mr. Brownstein received a B.A. from Tulane and attended Columbia
      Business School.




*Jonah
      Schnel* has
      served as a director since September 2006. Mr. Schnel has also served as a
      director of Surfect Technologies since June 2006. Mr. Schnel co-founded ITU
      Ventures in 2000, and, as managing partner, shares responsibility for directing
      overall investment strategy and oversees day-to-day activities. Prior to
      founding ITU Ventures, Mr. Schnel was a manager at SunAmerica, Inc., where
      he
      participated in the origination and management of $1.5 billion in corporate
      and
      real estate portfolio assets. Mr. Schnel received a B.A. summa cum laude from
      Tulane University, is a member of the steering committee for Caltech's
      Partnership for Innovation Entrepreneurial Fellows Program sponsored by the
      National Science Foundation and is a member of the Technology Transfer Advisory
      Board at the Colorado School of Mines. Mr. Schnel is a UCLA Anderson School
      of
      Management Certified Public Company Director.




29


There
      are
      no family relationships between any of our directors and executive
      officers.




**Committees
      of the board of directors**




*Audit
      Committee*




The
      audit
      committee’s duties are to recommend to our board of directors the engagement of
      independent auditors to audit our financial statements and to review our
      accounting and auditing principles. The audit committee reviews the scope,
      timing and fees for the annual audit and the results of audit examinations
      performed by us and our independent registered public accounting firm, including
      their recommendations to improve the system of accounting and internal controls.
      The audit committee will at all times be composed exclusively of directors
      who
      are, in the opinion of our board of directors, free from any relationship which
      would interfere with the exercise of independent judgment as a committee member
      and who possess an understanding of financial statements and generally accepted
      accounting principles. The audit committee currently consists of one director,
      Jonah Schnel.




*Compensation
      Committee*




The
      compensation committee reviews and approves our salary and benefits policies,
      including compensation of executive officers. The compensation committee also
      administers our stock option plan and recommends and approves grants of stock
      and options under such plan. The compensation committee currently consists
      of
      one director, Chad Brownstein.




**Director
      compensation**




The
      following table sets forth director compensation as of December 31,
      2006.




Name
            
            Option
                Awards(1)
            
            All
                Other Compensation
            
            TotalLawrence
                Wagner
            
            $
            1,269(2
            )
            
            -
            
            $
            1,269$
            14,336(3
            )
            
            -
            
            $
            14,336Thomas
                P. Griego (4)
            
            $
            2,161(5
            )
            $
            6,260(6
            )
            $
            8,421





(1)
            Based
                upon the aggregate grant date fair value calculated in accordance
                with FAS
                123(R),*Share
                Based Payments*.
                Our policy and assumptions made in the valuation of share based payments
                are contained in Note 13 to our December 31, 2006 financial
                statements.


(2)
            On
                September 24, 2004, Mr. Wagner was granted a ten-year option to purchase
                an aggregate of 150,000 shares of common stock at an exercise price
                of
                $0.02 per share, which option vests as to one-third of such shares
                on the
                date of grant and in equal monthly installments as to the balance
                of such
                shares, commencing on December 1, 2004. On September 27, 2006, in
                connection with the Merger, each share of common stock subject to
                the
                option was converted into 0.144048 shares of common stock resulting
                in an
                outstanding option to purchase 21,607 shares of common stock as of
                December 31, 2006.


(3)
            On
                June 19, 2006, Mr. Wagner was granted a ten-year option to purchase
                an
                aggregate of 470,000 shares of common stock at an exercise price
                of $0.02
                per share, which option vests as to one-third of such shares on the
                date
                of grant and in equal monthly installments as to the balance of such
                shares, commencing on July 1, 2006. On September 27, 2006, in connection
                with the Merger, each share of common stock subject to the option
                was
                converted into 0.144048 shares of common stock resulting in an outstanding
                option to purchase 67,703 shares of common stock as of December 31,
                2006.




30


(4)
            Mr.
                Griego resigned as a director in December
                2006.


(5)
            On
                July 1, 2004, Mr. Griego was granted a five-year option to purchase
                an
                aggregate of 750,000 shares of common stock at an exercise price
                of $0.02
                per share, which option vests monthly over thirty six months commencing
                on
                August 1, 2006. On September 27, 2006, in connection with the Merger,
                each
                share of common stock subject to the option was converted into 0.144048
                shares of common stock resulting in an outstanding option to purchase
                108,036 shares of common stock as of December 31,
                2006.


(6)
            Represents
                COBRA payments made on behalf of Mr. Griego in
                2006.




Other
      than as set forth above, we have not paid, and currently do not intend to pay
      our directors fees for their services. We reimburse the members of our board
      of
      directors for reasonable expenses incurred in connection with their attendance
      at board and committee meetings.




**Section
      16(a) Beneficial Ownership Reporting Compliance**




None
      of
      our directors, officers or 10% stockholders were subject to the filing
      requirements of Section 16(a) of the Exchange Act during our most recent
      fiscal year or prior fiscal years.




**Code
      of Conduct**




We
      intend
      to adopt a code of ethics that applies to our officers, directors and employees,
      including our Chief Executive Officer and Chief Financial Officer, but have
      not
      done so to date due to our relatively small size.




**Item
              10.**
            **Executive
                Compensation.**




The
      following table sets forth certain information about compensation paid, earned
      or accrued for services by (i) our Chief Executive Officer and (ii) all other
      executive officers who earned in excess of $100,000 in the fiscal year ended
      December 31, 2006 (“Named Executive Officers”).




Summary
      Compensation Table




Name
                and Principal Position
            
            Years
            
            Salary
            
            Option
              Awards
                (1)
            
            All
                Other
              Compensation
            
            TotalSteven
                Anderson
              Chief
                Executive Officer,
              President
                and director
            
            
            2006
            
            $
            173,654
            
            $
            9,156
            
            $
            137,783(2
            )
            $
            320,593Yixiang
                Xie
              Chief
                Technology Officer
            
            
            2006
            
            $
            98,654
            
            $
            2,005
            
            $
            27,337(2
            )
            $
            127,996





(1)
            Based
                upon the aggregate grant date fair value calculated in accordance
                with the
                Financial Accounting Standards Board (“FASB”) Statement of Financial
                Accounting Standard (“FAS”) No. 123(R),*Share
                Based Payment.*Our
                policy and assumptions made in valuation of share based payments
                are
                contained in Note 13 to our December 31, 2006 financial statements.


(2)
            Represents
                (i) the exercise of 2,503,333 shares and 496,667 shares of common
                stock
                held by Mr. Anderson and Dr. Xie, respectively, paid by us and (ii)
                a
                “gross up” amount of $49,042 and $9,730 reimbursed by us for the payment
                of taxes incurred in connection with such exercises for Mr. Anderson
                and
                Dr. Xie, respectively.




31


On
      each
      of March 31, 2006, June 19, 2006 and September 22, 2006, we granted Mr. Anderson
      a ten-year option to purchase 2,800,000, 1,240,000 and 3,496,276 shares of
      common stock at $0.02 per share, which options vest as to one-third of such
      shares on the date of grant and in equal monthly installments as to the balance
      of the shares subject to the option commencing with the first day of the month
      immediately following the date of grant. Based upon a third party appraisal,
      the
      exercise price of these options was adjusted to $0.043 per share on September
      22, 2006 to more accurately reflect the fair market value of such shares on
      the
      grant dates.




On
      each
      of March 29, 2006, September 21, 2006 and September 22, 2006, we granted Dr.
      Xie
      a ten-year option to purchase 750,000, 490,000 and 768,685 shares of common
      stock at $0.02 per share, which options vest as to one-third of such shares
      on
      the date of grant and in equal monthly installments as to the balance of the
      shares subject to the option commencing with the first day of the month
      immediately following the date of grant. Based upon a third party appraisal,
      the
      exercise price of these options was adjusted to $0.043 per share on September
      22, 2006 to more accurately reflect the fair market value of such shares on
      the
      grant dates.




Outstanding
      Equity Awards at Fiscal Year-End




The
      following table sets forth certain information concerning outstanding stock
      options held by the Named Executive Officers as of December 31,
      2006.




Option
                AwardsName
            
            Number
                of
              Securities
              Underlying
              Options
              Exercisable
            
            Number
                of
              Securities
              Underlying
              Options
              Unexercisable
            
            Option
              Exercise
              Price
            
            Option
              Expiration
              DateSteven
                Anderson
            
            
            11,524
            
            
            134,445
            
            $
            0.30
            
            
            9/15/1420,167
            
            
            181,500
            
            $
            0.30
            
            
            3/31/1614,885
            
            
            89,310
            
            $
            0.30
            
            
            6/19/16-
            
            
            503,631
            
            $
            0.30
            
            
            9/22/16Yixiang
                Xie
            
            
            6,002
            
            
            54,018
            
            $
            0.30
            
            
            3/29/16-
            
            
            47,056
            
            $
            0.30
            
            
            9/21/16-
            
            
            110,727
            
            $
            0.30
            
            
            9/22/16




(1)
            On
                each of November 15, 2004, March 31, 2006, June 19, 2006 and September
                22,
                2006, we granted Mr. Anderson a ten-year option to purchase 1,600,000
                2,800,000, 1,240,000 and 3,496,276 shares of common stock at $0.02
                per
                share, which options vest as to one-third of such shares on the date
                of
                grant and in equal monthly installments as to the balance of the
                shares
                subject to the option commencing with the first day of the month
                immediately following the date of grant. The exercise price of these
                options were adjusted to $0.043 per share on September 22, 2006 to
                reflect
                the fair market value of the common stock on the grant dates.
                Concurrently, Mr. Anderson exercised his options to purchase 586,667,
                1,400,000, 516,667 and 0 shares of common stock, respectively, and
                each
                share of common stock subject to the options which had not vested
                on such
                date (6,632,942 shares in the aggregate) was converted into 0.144048
                shares of common stock, in connection with the
                Merger.


(2)
            On
                each of March 29, 2006, September 21, 2006 and September 22, 2006,
                we
                granted Dr. Xie a ten-year option to purchase 750,000, 490,000 and
                768,685
                shares of common stock at $0.02 per share, which options vest as
                to
                one-third of such shares on the date of grant and in equal monthly
                installments as to the balance of the shares subject to the option
                commencing with the first day of the month immediately following
                the date
                of grant. The exercise price of these options were adjusted to $0.043
                per
                share on September 22, 2006 to reflect the fair market value of the
                common
                stock on the grant dates. Concurrently, Dr. Xie exercised his options
                to
                purchase 333,333, 163,333 and 0 shares of common stock, respectively,
                and
                each share of common stock subject to the options which had not vested
                on
                such date (1,512,018 shares in the aggregate) was converted into
                0.144048
                shares of common stock, in connection with the
                Merger.




32


**2006
      Stock Plan**




Our
      2006
      Stock Plan was adopted by our directors and stockholders on September 25, 2006.
      An aggregate of 1,500,000 shares of common stock have been reserved for issuance
      under the Plan. The purpose of the Plan is to provide an incentive to retain
      directors, officers, consultants and employees of our company and our affiliates
      whose services are considered valuable. Under the Plan, we are authorized to
      issue incentive stock options intended to qualify under Section 422 of the
      Internal Revenue Code, non-qualified stock options and restricted stock. The
      Plan is administered by our board of directors or the Compensation Committee,
      which Compensation Committee presently consists of Chad Brownstein. As of May
      1,
      2007, no shares of common stock have been issued under the Plan, options to
      purchase 625,393 shares of common stock were outstanding and 874,607 shares
      of
      common stock remain available for issuance under the Plan.




**Other
      Options**




In
      September 2006, options to purchase an aggregate of 13,872,696 shares of Surfect
      Technologies’ common stock held by certain of its management were converted into
      options to purchase an aggregate of 1,998,334 shares of our common stock in
      accordance with their terms in connection with the Merger. As of May 1, 2007,
      options to purchase an aggregate of 1,785,407 shares remain outstanding as
      a
      result of the expiration of options to purchase 212,927 shares without having
      been exercised.




**Employment
      Agreements**




We
      currently do not have employment agreements with any of our executive
      officers.




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




The
      following table sets forth information as of May 1, 2007 regarding the number
      of
      shares of common stock beneficially owned by: (i) each person or entity known
      to
      us to be the beneficial owner of more than 5% of our common stock, (ii) each
      Named Executive Officer, (iii) each director, and (iv) all of our directors
      and
      executive officers as a group. Except as otherwise indicated, each of the
      stockholders named below has sole voting and disposition power with respect
      to
      such shares of common stock.




Except
      as
      otherwise indicated, the address of each of the stockholders listed below is:
      c/o Surfect Holdings, Inc., 12000-G Candelaria NE, Albuquerque, New Mexico
      87112.




33


Beneficial
      ownership is determined in accordance with the rules of the SEC. In computing
      the number of shares beneficially owned by a stockholder and the percentage
      ownership of that stockholder, shares of common stock issuable upon the exercise
      of stock options or warrants or the conversion of other securities held by
      that
      stockholder that are currently exercisable or convertible, or are exercisable
      or
      convertible within 60 days, are deemed to be issued and outstanding. These
      shares, however, are not deemed outstanding for the purposes of computing
      percentage ownership of each other stockholder.




Name
                and Address of Beneficial Owner
            
            Number
                of Shares
              Beneficially
                Owned
            
            Percentage
                Beneficially Owned(8)ITU
                Ventures
              1900
                Avenue of the Stars
              Suite
                2701
              Los
                Angeles, California 90067
            
            6,822,316(1)
            
            47.0%Thomas
                P. Griego
              P.O.
                Box 69147
              Los
                Angeles, California 90069
            
            825,275(2)
            
            5.7%Steven
                Anderson
            
            623,101(3)
            
            4.3%Yixiang
                Xie
            
            125,994(4)
            
            *Laurence
                Wagner
            
            59,927(5)
            
            *Chad
                Brownstein
            
            6,822,316(6)
            
            47.0%Jonah
                Schnel
            
            6,822,316(6)
            
            47.0%All
                directors and executive officers as a group (eight
                persons)
            
            7,810,548(3)(4)(5)(6)(7)
            
            52.2%





*
      Less
      than 1%




(1)
            Includes
                250,000 shares issuable upon exercise of currently exercisable warrants.


(2)
            Includes
                105,035 shares issuable upon exercise of currently exercisable stock
                options.


(3)
            Includes
                262,501 shares issuable upon exercise of currently exercisable stock
                options.


(4)
            Includes
                54,451 shares issuable upon exercise of currently exercisable stock
                options.


(5)
            Includes
                59,927 shares issuable upon exercise of currently exercisable stock
                options.


(6)
            Includes
                (i) 6,572,316 shares owned by ITU Ventures, which is managed by ITU
                Ventures West Capital Management, L.P., of which Messrs. Brownstein
                and
                Schnel are managing partners and (ii) 250,000 shares issuable pursuant
                to
                currently exercisable warrants held by ITU Ventures.


(7)
            Includes
                94,272 shares and 84,938 shares issuable upon exercise of currently
                exercisable stock options held by other executive
                officers.


(8)
            Based
                on 14,257,667 shares of common stock
                outstanding.




**Item
              12.**
            **Certain
                Relationships and Related Transactions, and Director
                Independence.**




Chad
      Brownstein and Jonah Schnel, directors of our company and of Surfect
      Technologies, are each managing partners of ITU Ventures, our principal
      stockholder.




All
      of
      our officers, directors and 5% stockholders at the time of the Merger received
      0.144048 shares of common stock in the Merger for each share of common stock
      held by them prior to the Merger, which represented the same conversion ratio
      as
      our other stockholders received, except for ITU Ventures which paid additional
      compensation of $500,000 for its shares. We issued a total of 7,455,123 shares
      of common stock in the Merger to such officers and directors.




On
      September 27, 2006, concurrently with the Private Placement, we issued (i)
      500,000 shares of common stock upon conversion of a 9% promissory note in the
      principal amount of $500,000, dated August 10, 2006, and (ii) a four-year
      warrant to purchase 250,000 shares of common stock at an exercise price of
      $2.00
      to ITU Ventures.




34


None
      of
      the persons who serve as directors of our company, or who served as a director
      during 2006 are independent under the independence standards of the Nasdaq,
      except for Lawrence Wagner.




**Item
                13.**
              **Exhibits.**




Exhibit
              Number
            
            Description2.1
            
            Agreement
                of Merger and Plan of Reorganization among Windy Creek Developments,
                Inc.,
                Surfect Acquisition Corp. and Surfect Technologies, Inc., dated September
                27, 2006 (incorporated herein by reference to Exhibit 2.1 to our
                Current
                Report on Form 8-K, filed on October 3, 2006 (“October 3, 2006
                8-K”))3.1
            
            Certificate
                of Incorporation, dated September 11, 2006 (incorporated by reference
                to
                Exhibit 3.1 to our Current Report on Form 8-K filed on September
                18, 2006
                (“September 18, 2006 8-K”))3.2
            
            Certificate
                of Amendment, dated September 28, 2006 (incorporated herein by reference
                to Exhibit 3.1 to the October 3, 2006 8-K)3.3
            
            Bylaws
                (incorporated by reference to Exhibit 3.2 to the September 18, 2006
                8-K)4.1
            
            Form
                of Warrant issued under Common Stock Subscription Agreement (incorporated
                herein by reference to Exhibit 4.1 to the October 3, 2006
                8-K)4.2
            
            Form
                of Placement Agent and Finders Warrant (incorporated herein by reference
                to Exhibit 4.2 to our Registration Statement on Form SB-2, dated
                November
                30, 2006 (“Form SB-2”))4.3
            
            Placement
                Agent Letter Agreement between Granite Financial Group, LLC and Surfect
                Technologies, Inc. (incorporated herein by reference to Exhibit 4.2
                to the
                October 3, 2006 8-K)4.4
            
            Placement
                Agent Letter Agreement between WFG Investments, Inc. and Surfect
                Technologies, Inc. (incorporated herein by reference to Exhibit 4.3
                to the
                October 3, 2006 8-K)4.5
            
            Letter
                Agreement between Westminster Securities Corporation and Surfect
                Technologies, Inc. (incorporated herein by reference to Exhibit 4.4
                to the
                October 3, 2006 8-K)10.1
            
            Form
                of Unit Subscription Agreement among Surfect Holdings, Inc.and
                the investors listed on the Schedule of Buyers attached thereto(incorporated
                herein by reference to Exhibit 10.1 to the October 3, 2006
                8-K)10.2
            
            Surfect
                Holdings 2006 Option Plan (incorporated herein by reference to Exhibit
                10.2 to the October 3, 2006 8-K)10.3
            
            Surfect
                Holdings Form of Option Agreement (incorporated herein by reference
                to
                Exhibit 10.3 to the October 3, 2006 8-K)10.4
            
            Consulting
                Agreement between Vision Advisors, Inc. and Surfect Technologies,
                Inc.,
                dated August 1, 2006, (incorporated herein by reference to Exhibit
                10.4 to
                the October 3, 2006 8-K)




35




10.5
            
            Consulting
                Agreement, dated August 1, 2006, between The Smyth Consulting Group
                and
                Surfect Technologies, Inc. (incorporated herein by reference to Exhibit
                10.4 to the Form SB-2)10.6
            
            Separation
                Agreement between Surfect Technologies and Thomas Griego (incorporated
                herein by reference to Exhibit 10.6 to the October 3, 2006
                8-K)16.1
            
            Letter
                fromMoore
                & Associates, Chartered(incorporated
                herein by reference to Exhibit 16.1 to the October 3, 2006
                8-K)21
            
            List
                of subsidiaries of Surfect Holdings, Inc.(incorporated herein by
                reference
                to Exhibit 21.1 to the Form SB-2)31.1*
            
            Section
                302 Certification of Principal Executive Officer31.2*
            
            Section
                302 Certification of Principal Financial Officer32.1*
            
            Section
                906 Certification of Principal Executive Officer32.2*
            
            Section
                906 Certification of Principal Financial
                Officer





*filed
      herewith





**Item
              14.**
            **Principal
                Accountant Fees and
                Services.**




REDW,
      LLC
      (“REDW”) has served as our independent registered public accounting firm since
      October 23, 2006 and as Surfect Technologies’ independent registered public
      accounting firm since July 18, 2006. The following table sets forth the
      aggregate fees billed to us for the fiscal years ended December 31, 2006 and
      December 31, 2005 by REDW.




2006
            
            2005(4)Audit
                Fees(1)
            
            $
            42,126
            
            $
            85,560Audit-Related
                Fees(2)
            
            $
            15,846
            
            $
            0Tax
                Fees(3)
            
            $
            3,059
            
            $
            3,230All
                Other Fees
            
            $
            0
            
            $
            0





(1)
            Comprised
                of fees for the audit of our annual financial statements and review
                of our
                quarterly report on Form 10-QSB.


(2)
            Includes
                fees related to the review of our Current Reports on Form 8-K and
                Registration Statements on Form SB-2 and amendments thereto.


(3)
            Comprised
                of services for tax compliance and tax
                research.


(4)
            Fees
                for 2005 include fees for the audit of the period from Surfect
                Technologies’ inception (December 26, 2000) through December 31,
                2005.




On
      September 27, 2006, we dismissed Moore & Associates, Chartered (“Moore”) as
      our independent registered public accounting firm as disclosed in our Current
      Report on Form 8-K, dated September 27, 2006. The following table sets forth
      the
      aggregate fees billed to us for the fiscal year ended December 31, 2006 by
      Moore.




2006Audit
                Fees(1)
            
            $
            2,750Audit-Related
                Fees
            
            $
            0Tax
                Fees
            
            $
            0All
                Other Fees
            
            $
            0





(1)
            Comprised
                of the audit of our annual financial statements and reviews of our
                quarterly reports on Form 10-QSB.





36


**SIGNATURES**




In
      accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
      this report to be signed on its behalf by the undersigned, thereunto duly
      authorized.


SURFECT
              HOLDINGS,
              INC.By:
            /s/ Steven AndersonSteven
              AndersonChief
                Executive Officer,
              President
                and
                Director






Pursuant
      to the requirements of the Exchange Act, this report has been signed by the
      following persons on behalf of the registrant and in the capacities
      indicated.




/s/
              Steven AndersonMay
                1, 2007
            Steven
                Anderson
              Chief
                Executive Officer, President and Director
              (Principal
                Executive Officer)/s/
              Anthony M. Maffia, Jr.May
                1, 2007
            Anthony
                M. Maffia, Jr.
              Chief
                Financial Officer
              (Principal
                Financial Officer and Principal Accounting Officer)/s/
              Chad BrownsteinMay
                1, 2007
            Chad
                Brownstein
              Director/s/
              Jonah SchnelMay
                1, 2007
            Jonah
                Schnel
              Director








37


Exhibit
      Index





Exhibit
              Number
            
            Description2.1
            
            Agreement
                of Merger and Plan of Reorganization among Windy Creek Developments,
                Inc.,
                Surfect Acquisition Corp. and Surfect Technologies, Inc., dated September
                27, 2006 (incorporated herein by reference to Exhibit 2.1 to our
                Current
                Report on Form 8-K, filed on October 3, 2006 (“October 3, 2006
                8-K”))3.1
            
            Certificate
                of Incorporation, dated September 11, 2006 (incorporated by reference
                to
                Exhibit 3.1 to our Current Report on Form 8-K filed on September
                18, 2006
                (“September 18, 2006 8-K”))3.2
            
            Certificate
                of Amendment, dated September 28, 2006 (incorporated herein by reference
                to Exhibit 3.1 to the October 3, 2006 8-K)3.3
            
            Bylaws
                (incorporated by reference to Exhibit 3.2 to the September 18, 2006
                8-K)4.1
            
            Form
                of Warrant issued under Common Stock Subscription Agreement (incorporated
                herein by reference to Exhibit 4.1 to the October 3, 2006
                8-K)4.2
            
            Form
                of Placement Agent and Finders Warrant (incorporated herein by reference
                to Exhibit 4.2 to our Registration Statement on Form SB-2, dated
                November
                30, 2006 (“Form SB-2”))4.3
            
            Placement
                Agent Letter Agreement between Granite Financial Group, LLC and Surfect
                Technologies, Inc. (incorporated herein by reference to Exhibit 4.2
                to the
                October 3, 2006 8-K)4.4
            
            Placement
                Agent Letter Agreement between WFG Investments, Inc. and Surfect
                Technologies, Inc. (incorporated herein by reference to Exhibit 4.3
                to the
                October 3, 2006 8-K)4.5
            
            Letter
                Agreement between Westminster Securities Corporation and Surfect
                Technologies, Inc. (incorporated herein by reference to Exhibit 4.4
                to the
                October 3, 2006 8-K)10.1
            
            Form
                of Unit Subscription Agreement among Surfect Holdings, Inc.and
                the investors listed on the Schedule of Buyers attached thereto(incorporated
                herein by reference to Exhibit 10.1 to the October 3, 2006
                8-K)10.2
            
            Surfect
                Holdings 2006 Option Plan (incorporated herein by reference to Exhibit
                10.2 to the October 3, 2006 8-K)10.3
            
            Surfect
                Holdings Form of Option Agreement (incorporated herein by reference
                to
                Exhibit 10.3 to the October 3, 2006 8-K)10.4
            
            Consulting
                Agreement between Vision Advisors, Inc. and Surfect Technologies,
                Inc.,
                dated August 1, 2006, (incorporated herein by reference to Exhibit
                10.4 to
                the October 3, 2006 8-K)10.5
            
            Consulting
                Agreement, dated August 1, 2006, between The Smyth Consulting Group
                and
                Surfect Technologies, Inc. (incorporated herein by reference to Exhibit
                10.4 to the Form SB-2)10.6
            
            Separation
                Agreement between Surfect Technologies and Thomas Griego (incorporated
                herein by reference to Exhibit 10.6 to the October 3, 2006
                8-K)16.1
            
            Letter
                fromMoore
                & Associates, Chartered(incorporated
                herein by reference to Exhibit 16.1 to the October 3, 2006
                8-K)









21
            
            List
                of subsidiaries of Surfect Holdings, Inc.(incorporated herein by
                reference
                to Exhibit 21.1 to the Form SB-2)31.1*
            
            Section
                302 Certification of Principal Executive Officer31.2*
            
            Section
                302 Certification of Principal Financial Officer32.1*
            
            Section
                906 Certification of Principal Executive Officer32.2*
            
            Section
                906 Certification of Principal Financial
                Officer





*filed
      herewith