<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2008

                                       OR

|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934

FOR THE TRANSITION PERIOD FROM                          TO
                                 --------------------        -------------------

                        COMMISSION FILE NUMBER: 000-31539

                             PHOENIX INTERESTS, INC.
             (Exact name of registrant as specified in its charter)

           NEVADA                                        61-1342734
-------------------------------             ------------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)

           334 RIVERBEND DRIVE
            LUDLOW, KENTUCKY                              41016
----------------------------------------    ------------------------------------
(Address of principal executive offices)                (Zip Code)

                   Registrant's telephone number: 859-261-4213

        Securities registered pursuant to Section 12(b) of the Act: NONE
          Securities registered pursuant to Section 12(g) of the Act:
                    COMMON STOCK, PAR VALUE $0.001 PER SHARE

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

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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained herein, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. |_|

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

         Large accelerated filer |_|         Accelerated filer |_|

         Non-accelerated filer |_|           Smaller reporting company |X|

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

At June 30, 2008, the end of our second fiscal quarter, the aggregate market
value of common stock held by non-affiliates of the registrant was approximately
$165,000 based on the closing price of $0.0001 as reported on the
Over-the-Counter Bulletin Board Market.

Number of shares of common stock outstanding as of April 15, 2009:
2,044,318,203.




<PAGE>

                                TABLE OF CONTENTS
                          TO ANNUAL REPORT ON FORM 10-K
                        FOR YEAR ENDED DECEMBER 31, 2008

                                                                         Page
                                                                      ----------
PART I
Item 1.   Business                                                             1
Item 1A.  Risk Factors
Item 1B.  Unresolved Staff Comments                                            3
Item 2.   Properties                                                           3
Item 3.   Legal Proceedings                                                    4
Item 4.   Submission of Matters to a Vote of Security Holders                  4

PART II
Item 5.   Market for Registrant's Common Equity, Related Stockholder
           Matters and Issuer Purchases of Equity Securities                   4
Item 6.   Selected Financial Data                                              4
Item 7.   Management's Discussion and Analysis of Financial Condition
           and Results of Operations                                           5
Item 7A.  Quantitative and Qualitative Disclosures About Market Risk           7
Item 8.   Financial Statements and Supplementary Data                          7
Item 9.   Disagreements With Accountants on Accounting and
           Financial Disclosure                                                7
Item 9A.  Controls and Procedures                                              7
Item 9B.  Other Information                                                    8

PART III
Item 10.  Directors, Executive Officers and Corporate Governance               8
Item 11.  Executive Compensation                                              10
Item 12.  Security Ownership of Certain Beneficial Owners and
           Management and Related Stockholder Matters                         10
Item 13.  Certain Relationships and Related Transactions, and
           Director Independence                                              10
Item 14.  Principal Accounting Fees and Services                              11

PART IV
Item 15.  Exhibits, Financial Statement Schedules                             11
Signatures                                                                    13



                                        i


<PAGE>

                                     PART I

ITEM 1. BUSINESS


                               GENERAL INFORMATION

     Phoenix Interests, Inc. is a reporting company under the federal securities
laws. Our shares of common stock are publicly traded on the Over-the-Counter
Bulletin Board (OTCBB) under the symbol "PXIT." We were organized under the laws
of Nevada on March 25, 1999.

     Following its incorporation, Phoenix Interests entered into the
"pinhooking" and racing of thoroughbred horses. To date, substantially all of
Phoenix Interests' revenues have been generated from the pinhooking of
thoroughbred horses.

     During 2003, we discontinued all pinhooking activities and liquidated our
remaining horse inventory. Going forward, we expect to generate revenues and
profits when applicable from its investments in online account wagering, gaining
and other various forms of legalized gambling. . On January 20, 2004, the
Company elected to be regulated as a business development company under the
Investment Company Act of 1940. The Company filed Form 1-E under the Securities
and Exchange Act notifying the Securities and Exchange Commission of the intent
to sell, under Regulation E promulgated under the Securities Act of 1933, up to
$5 million of the Company's common stock. In March 2004, we formed a wholly
owned subsidiary "Online Enterprises, Inc." as its initial entry into online
account wagering and ecommerce. Specifically, via our subsidiary Online
Enterprises, Inc. we developed web sites "http://www.Barn66.com" and
"http://www.BetBarn66.com," which allowed users online to conduct live
thoroughbred ecommerce and account wagering. The sites went live during November
2004 and January 2005, respectively. We are able to offer account wagering
because of the affiliation we made in October 2004 with AmericaTab Ltd., an
account wagering firm founded in 1999 and approved by the State of Oregon.
During 2005, Barn66.com produced nominal revenue and we elected to offer its
services for free to increase usage. BetBarn66.com produced revenue and showed
growth during peak usage times.

     In January 2006, the Company was notified by AmericaTab, Ltd. that it was
ending its affiliation by serving a six-month notice. Subsequently, the Company
began exploring alternatives for its account wagering business. Consideration
has focused on obtaining its own license, acquiring and/or affiliating with
another account wagering firm. In June 2006, the Company sold its customer base
back to AmericaTab Ltd. The Company received $10,000 from a note payable issued
to American Tab which is being repaid from revenue generated from the Company's
customer base.

     In January 2006, the SEC notified us that they considered that we were not
in compliance with various requirements of the Investment Company Act, including
requirements regarding a BDC's capital structure and financial statements. In
this regard, specific concern was also raised by the staff regarding whether a
BDC could have or issue convertible securities, whether a BDC could have voting
provisions as set forth in the Company's Series C Preferred and whether the
Company, with its limited capitalization, was an appropriate candidate to be a
BDC.

     In March 2006, shareholders voted to un-elect the Company as a "Business
Development Company," or "BDC." The shareholder election became effective at the
end of the month. This action was predicated on the Company determining that it
was no longer a benefit or advisable to remain a "BDC." Consistent comments and
feedback from the SEC led the Company to this opinion. The Company felt the SEC
had conveyed on more than one occasion that it did not think Phoenix Interests,
Inc. was best suited or qualified to remain as a "BDC." On March 14, 2006, the
Company filed a Definitive Information Statement with the Securities and
Exchange Commission to withdraw as a business development company under the
Investment Company Act of 1940. The financial statements for the year ended
December 31, 2007 and 2006 have not been presented in a business development
company format.

     Our ceasing to be a BDC will not absolve us for any actions taken by us
while a BDC and we could still become liable for such prior actions.


                                        1


<PAGE>

     The Company believes it has been harmed with the affiliation termination by
AmericaTab, Ltd. The Company further believes it was caused by its launch of its
"Betty" Kiosks. The launch and placement of 2 kiosks in a Kenton County Kentucky
bar/restaurant so upset local track operator Turfway Park and its President Bob
Ellison that they induced the "Alcohol and Beverage Commissions" or "ABC," to
confiscate the machines just weeks after their launch. Mr. Ellison also
threatened to pull the Turfway Park signal to AmericaTab and all of its
affiliates. This confiscation later led to a false gambling/bookmaking
indictment of the Company's consultant Patrick L. Brown which was dismissed in
Kenton County during May 2006.

     The ending affiliation with AmericaTab, Ltd., the incident with Patrick L.
Brown and somewhat forced transition from being a "BDC" has had a material and
harmful effect on the Company, its operations and future. Consequently, this is
why the Company is open to other ideas and directions for the business. Since
the fourth quarter 2006, the Company focused on potential merger and acquisition
candidates.

     During 2009, the Company began to focus on developing a global mobile
computing technology business. On April 2, 2009, the Company announced a
definitive purchase agreement to acquire Stonewall Networks. Stonewall Networks
has developed a proprietary software solution for mobile network security,
including an innovative security policy management product for enterprise
customers.

     Our business address is 334 Riverbend Drive, Ludlow, Kentucky 41016, and
our telephone number is (859) 261-4213.


                                  RISK FACTORS

     We are subject to various risks that may materially harm our business,
financial condition and results of operations. If any of these risks or
uncertainties actually occurs, the trading price of our common stock could
decline and you could lose all or part of your investment.

     WE HAVE HISTORICALLY LOST MONEY, AND OUR LOSSES MAY CONTINUE IN THE FUTURE

     We have historically lost money. As of December 31, 2007, we had had an
accumulated deficit of $(7,122,265). Further such losses are likely to occur in
the future, and we may experience significant liquidity and cash flow problems
if we are not able to raise additional capital as needed and on acceptable
terms. We can give no assurances that we will be successful in reaching or
maintaining profitable operations.

     WE WILL NEED TO RAISE ADDITIONAL CAPITAL TO FINANCE OPERATIONS

     We have relied almost entirely on external financing to fund our
operations. This financing has historically come from a combination of
borrowings and from the sale of common stock and assets to third parties. We
will need to raise additional capital to fund our anticipated operating expenses
and future expansion. Among other things, external financing will be required to
cover our operating costs. We cannot assure you that financing, whether from
external sources or related parties, will be available if needed or on favorable
terms. The sale of our common stock to raise capital may cause dilution to our
existing shareholders. Our inability to obtain adequate financing will result in
the need to curtail business operations. Any of these events would be materially
harmful to our business and may result in a lower stock price.

     THERE IS SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN
DUE TO RECURRING LOSSES AND WORKING CAPITAL SHORTAGES

     The report of our independent accountants on our December 31, 2007,
financial statements includes an explanatory paragraph indicating that there is
substantial doubt about our ability to continue as a going concern due to
recurring losses and working capital shortages. Our ability to continue as a
going concern will be determined by our ability to obtain additional funding.


                                        2


<PAGE>

     OUR COMMON STOCK MAY BE AFFECTED BY LIMITED TRADING VOLUME AND MAY
FLUCTUATE SIGNIFICANTLY

     There has been a limited public market for our common stock, and we can
give no assurances that an active trading market for our common stock will
develop. The lack of an active trading market could adversely affect our
shareholders' ability to sell our common stock without delay, or possibly at
all. Our common stock has experienced, and is likely to experience in the
future, significant price and volume fluctuations that could adversely affect
the market price of our common stock regardless of our operating performance. In
addition, we believe that factors such as quarterly fluctuations in our
financial results and changes in the overall economy or the condition of the
financial markets could cause the price of our common stock to fluctuate
substantially. Substantial fluctuations in our stock price could significantly
reduce the price of our stock.

     OUR COMMON STOCK IS TRADED ON THE OVER-THE-COUNTER BULLETIN BOARD, WHICH
MAY MAKE IT MORE DIFFICULT FOR INVESTORS TO RESELL THEIR SHARES DUE TO
SUITABILITY REQUIREMENTS

     Our common stock is currently traded on the Over-the-Counter Bulletin Board
(OTCBB), where we expect it to remain for the foreseeable future. Broker-dealers
often decline to trade in OTCBB stocks because the market for such securities is
often limited, the stocks are more volatile, and the risks to investors are
greater. These factors may reduce the potential market for our common stock by
reducing the number of potential investors. This may make it more difficult for
investors in our common stock to find buyers for their shares. This could cause
our stock price to decline.

     WE COULD LOSE THE SERVICES OF OUR CHIEF EXECUTIVE OFFICER

     Our future success depends, in significant part, on the continued services
of James D. Tilton, Jr., our chief executive officer. Our loss of his services
could adversely affect our ability to develop our business plan. We do not have
an employment agreement with Mr. Tilton, nor do we currently maintain key-man
life insurance policies on him. We have been unable to pay Mr. Tilton since
August 2006.

     NEVADA LAW AND OUR ARTICLES OF INCORPORATION MAY INHIBIT A TAKEOVER OF OUR
COMPANY THAT STOCKHOLDERS MAY CONSIDER FAVORABLE.

     Provisions of Nevada law, such as its business combination statute, may
have the effect of delaying, deferring, or preventing a change in control of our
company. As a result, these provisions could limit the price some investors
might be willing to pay in the future for shares of our common stock.

     OUR OFFICERS AND DIRECTORS HAVE THE ABILITY TO EXERCISE SIGNIFICANT
INFLUENCE OVER MATTERS SUBMITTED FOR STOCKHOLDER APPROVAL AND THEIR INTERESTS
MAY DIFFER FROM OTHER STOCKHOLDERS

     Our executive officers and directors, in the aggregate, have the ability to
nominate two members to our board of directors. Accordingly, our directors and
executive officers, whether acting alone or together, may have significant
influence in determining the outcome of any corporate transaction or other
matter submitted to our board of directors for approval, including issuances of
common and preferred stock and the appointment of officers. This influence could
make it more difficult for someone to acquire us.


ITEM 1B. UNRESOLVED STAFF COMMENTS

     Not applicable.


ITEM 2. PROPERTIES

     Our executive and administrative office is located at 334 Riverbend Drive,
Ludlow, Kentucky 41016. These premises are owned by James D. Tilton, Jr., our
chief executive officer. Through June 30, 2003, he did not charge the company
any rent for our use of these premises. Starting July 1, 2003, he has charged
the company $1,250 per month for its use of these premises, and during 2005
increased it to $1,500 per month. Since August 2006, the Company has not been
able to pay any rent.



                                        3


<PAGE>

ITEM 3. LEGAL PROCEEDINGS

     As of December 31, 2008, and as of the date of this filing, the Company is
not a party to any pending or threatened litigation, claim or assessment.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matters were submitted for shareholder approval during the fiscal year
covered by this Report.


                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES

MARKET INFORMATION

     A limited public market for our common stock exists on the NASDAQ Bulletin
Board under the symbol "PXIT."

     The following table sets forth the range of high and low closing prices for
our common stock for each quarterly period indicated, as reported by brokers and
dealers making a market in the capital stock. Such quotations reflect
inter-dealer prices without retail markup, markdown or commission, and may not
necessarily represent actual transactions. Our common stock commenced trading on
November 30, 2001.

                                                     HIGH             LOW
                                                  -----------     -----------
For the year ended December 31, 2008:
    Fourth quarter                                $   0.0001      $   0.0001
    Third quarter                                 $   0.0001      $   0.0001
    Second Quarter                                $   0.0002      $   0.0001
    First quarter                                 $   0.0002      $   0.0001
For the year ended December 31, 2007:
    Fourth quarter                                $   0.0002      $   0.0001
    Third quarter                                 $   0.0002      $   0.0001
    Second Quarter                                $   0.0002      $   0.0001
    First quarter                                 $   0.0002      $   0.0001


     As of April 15, 2009, there were approximately 1,000 record holders of our
common stock.

DIVIDENDS

     We have not paid any cash or other dividends on our common stock since our
company was formed and we do not anticipate paying any such dividends in the
foreseeable future. We intend to retain any earnings to use in our operations
and to finance the expansion of our business.


RECENT ISSUANCES OF UNREGISTERED SECURITIES

     During the year ended December 31, 2008, the Company issued 118,000,000
shares of common stock for the conversion of Series D preferred stock and
preferred stock dividend in the amount of $8,260. These shares were issued
pursuant to Section 4(2) of the Securities Act of 1933, as amended. .

ISSUER REPURCHASES OF EQUITY SECURITIES

     None.


ITEM 6. SELECTED FINANCIAL DATA

     Intentionally Omitted.



                                        4


<PAGE>

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

     This Annual Report on Form 10-K and the information incorporated by
reference may include "forward-looking statements" within the meaning of Section
27(a) of the Securities Act and section 21(e) of the Exchange Act. We intend the
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements. All statements regarding our expected financial
position and operating results, our business strategy, our financing plans and
the outcome of any contingencies are forward-looking statements. The
forward-looking statements are subject to risks and uncertainties that could
cause actual results to differ materially from those set forth or implied by any
forward-looking statements.

     The following discussion should be read in conjunction with Phoenix
Interests' financial statements and the related notes included in this Form 10-K
included elsewhere in this Annual Report.

OVERVIEW

     Phoenix Interests, Inc. is a reporting company under the federal securities
laws. Our shares of common stock are publicly traded on the Over-the-Counter
Bulletin Board (OTCBB) under the symbol "PXIT." We were organized under the laws
of Nevada on March 25, 1999.

     Following its incorporation, Phoenix Interests entered into the
"pinhooking" and racing of thoroughbred horses. To date, substantially all of
Phoenix Interests' revenues have been generated from the pinhooking of
thoroughbred horses.

     During 2003, we discontinued all pinhooking activities and liquidated our
remaining horse inventory. Going forward, we expect to generate revenues and
profits when applicable from its investments in online account wagering, gaining
and other various forms of legalized gambling. On January 20, 2004, the Company
elected to be regulated as a business development company under the Investment
Company Act of 1940. The Company filed Form 1-E under the Securities and
Exchange Act notifying the Securities and Exchange Commission of the intent to
sell, under Regulation E promulgated under the Securities Act of 1933, up to $5
million of the Company's common stock. In March 2004, we formed a wholly owned
subsidiary "Online Enterprises, Inc." as its initial entry into online account
wagering and ecommerce. Specifically, via our subsidiary Online Enterprises,
Inc. we developed web sites "http://www.Barn66.com" and
"http://www.BetBarn66.com," which allowed users online to conduct live
thoroughbred ecommerce and account wagering. The sites went live during November
2004 and January 2005, respectively. We are able to offer account wagering
because of the affiliation we made in October 2004 with AmericaTab Ltd., an
account wagering firm founded in 1999 and approved by the State of Oregon.
During 2005, Barn66.com produced nominal revenue and we elected to offer its
services for free to increase usage. BetBarn66.com produced revenue and showed
growth during peak usage times. In January of 2006, AmericaTab notified us that
it was ending its affiliation by serving a six-month notice. We are exploring
entering into an agreement to sell our customer base to either AmericaTab or
others. We are also considering partnering with other wagering firms.

     In January 2006, the Company was notified by AmericaTab, Ltd. that it was
ending its affiliation by serving a six-month notice. Subsequently, the Company
began exploring alternatives for its account wagering business. Consideration
has focused on obtaining its own license, acquiring and/or affiliating with
another account wagering firm. In June 2006, the Company sold its customer base
back to AmericaTab Ltd. The Company received $10,000 from a note payable issued
to American Tab which is being repaid from revenue generated from the Company's
customer base.

     In January 2006, the SEC notified us that they considered that we were not
in compliance with various requirements of the Investment Company Act, including
requirements regarding a BDC's capital structure and financial statements. In
this regard, specific concern was also raised by the staff regarding whether a
BDC could have or issue convertible securities, whether a BDC could have voting
provisions as set forth in the Company's Series C Preferred and whether the
Company, with its limited capitalization, was an appropriate candidate to be a
BDC.


                                        5


<PAGE>

     In March 2006, shareholders voted to un-elect the Company as a "Business
Development Company," or "BDC." The shareholder election became effective at the
end of the month. This action was predicated on the Company determining that it
was no longer a benefit or advisable to remain a "BDC." Consistent comments and
feedback from the SEC led the Company to this opinion. The Company felt the SEC
had conveyed on more than one occasion that it did not think Phoenix Interests,
Inc. was best suited or qualified to remain as a "BDC." On March 14, 2006, the
Company filed a Definitive Information Statement with the Securities and
Exchange Commission to withdraw as a business development company under the
Investment Company Act of 1940. The financial statements for the year ended
December 31, 2007 and 2006 have not been presented in a business development
company format.

     Our ceasing to be a BDC will not absolve us for any actions taken by us
while a BDC and we could still become liable for such prior actions.

     The Company believes it has been harmed with the affiliation termination by
AmericaTab, Ltd. The Company further believes it was caused by its launch of its
"Betty" Kiosks. The launch and placement of 2 kiosks in a Kenton County Kentucky
bar/restaurant so upset local track operator Turfway Park and its President Bob
Ellison that they induced the "Alcohol and Beverage Commissions" or "ABC," to
confiscate the machines just weeks after their launch. Mr. Ellison also
threatened to pull the Turfway Park signal to AmericaTab and all of its
affiliates. This confiscation later led to a false gambling/bookmaking
indictment of the Company's consultant Patrick L. Brown which was dismissed in
Kenton County during May 2006.

     The ending affiliation with AmericaTab, Ltd., the incident with Patrick L.
Brown and somewhat forced transition from being a "BDC" has had a material and
harmful effect on the Company, its operations and future. Consequently, this is
why the Company is open to other ideas and directions for the business. Since
the fourth quarter 2006, the Company focused on potential merger and acquisition
candidates.

     During 2009, the Company began to focus on developing a global mobile
computing technology business. On April 2, 2009, the Company announced a
definitive purchase agreement to acquire Stonewall Networks. Stonewall Networks
has developed a proprietary software solution for mobile network security,
including an innovative security policy management product for enterprise
customers.

     CRITICAL ACCOUNTING POLICIES

     ACCRUED DERIVATIVE LIABILITY - The convertible debenture and the Series A,
D and E preferred stock can be converted into common stock at a conversions
price that is a percentage of the market price; therefore the number of shares
that could be required to be delivered upon "net-share settlement" is
essentially indeterminate. In accordance with SFAS No. 133, we have bifurcated
the beneficial conversion features embedded in our convertible debentures and
preferred stock and have recorded the fair value of these beneficial conversion
features as a current liability.

     CONVERTIBLE PREFERRED STOCK - Our Series A, D and E preferred stock are
presented as a current liability since we have financial instruments that are
convertible into common stock at a conversions price that is a percentage of the
market price; therefore the number of shares that could be required to be
delivered upon "net-share settlement" is essentially indeterminate and we do not
have enough authorized shares to satisfy the conversion of our convertible
preferred stock.

     REVENUE RECOGNITION - Revenue is recognized at the time a bet is placed on
our online website.

OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

     REVENUES. Our revenues for the years ended December 31, 2008 and 2007 were
$7,282 and $11,124, respectively.

     OPERATIONAL EXPENSES. Our operational expenses for the years ended December
31, 2008 and 2007, were $235,177 and $284,710, respectively.

     INTEREST EXPENSE AND FINANCING COSTS. Our interest expense and financing
costs for the year ended December 31, 2008 and 2007 were $23,550 and $15,477,
respectively. The increase in the interest expense and financing costs is the
result of increased borrowings and the additional financing costs associated
with the issuance of a convertible note.

                                        6


<PAGE>

     CHANGE IN ACCRUED DERIVATIVE LIABILITY. Change in accrued derivative
liability for the years ended December 31, 2008 and 2007 was $108,708 and
$375,401, respectively. The change in derivative liability is directly related
to the change in the accrued derivative liability balance which fluctuates based
fair value.

       NET(LOSS). Our net loss for the year ended December 31, 2008 and 2007 was
$360,153 and $664,464, respectively. The difference is principally due to the
change in the accrued derivative liability.

     CHANGES IN BALANCE SHEET. We had current assets of $17,620 at December 31,
2008. We had total assets of $17,620 at December 31, 2008, total liabilities of
$5,517,828 at December 31, 2008 and stockholders' (deficit) of ($5,500,208) at
December 31, 2008.

     LIQUIDITY, CAPITAL RESOURCES AND CASH REQUIREMENTS. During the year ended
December 31, 2008 net cash used in operating activities was $89,011 as compared
to $36,080 for the year ended December 31, 2007. Net cash provided by financing
activities during the year ended December 31, 2008 was $106,631 primarily as a
result of the proceeds from notes payable.

     As a result of the above, as of December 31, 2008, we had a cash position
of $17,620.

     We have historically financed our operations via convertible-debt and
preferred-stock financing obtained from various private equity firms. These
funds intend, over time, to convert their positions into shares of our common
stock. This will cause significant dilution to existing shareholders.

     In the immediate future, we have no commitments or plans to finance our
business. We intend to seek a merger with a larger operational enterprise.

CHANGE IN NUMBER OF EMPLOYEES

     The Company in 2009 has no plan to hire additional employees depending upon
the direction and nature of its ongoing business operations.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Intentionally Omitted


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The financial statements are listed in the Index to Financial Statements on
page F-1.


ITEM 9. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

     None.


ITEM 9A(T). CONTROLS AND PROCEDURES

DISCLOSURE CONTROLS AND PROCEDURES

     Our principal executive officer, based on his evaluation of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated
under the Securities Exchange Act of 1934, as amended) as of the end of the
period covered by this Annual Report on Form 10-K, has concluded that our
disclosure controls and procedures are effective for ensuring that information
required to be disclosed by us in the reports that we file or submit under the
Securities Exchange Act of 1934, as amended, is recorded, processed, summarized
and reported within the time periods specified in the Securities and Exchange
Commission's rules and forms.


                                        7


<PAGE>

INTERNAL CONTROL OVER FINANCIAL REPORTING

MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

     Management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in Rules
13a-15(f) promulgated under the Securities Exchange Act of 1934, as amended. Our
management conducted an evaluation of the effectiveness of our internal control
over financial reporting based on the framework in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on this evaluation under the framework in Internal Control -
Integrated Framework, our management concluded that our internal control over
financial reporting was effective as of December 31, 2008.

     This Annual Report on Form 10-K does not include an attestation report of
the company's registered public accounting firm regarding internal control over
financial reporting. Management's report was not subject to attestation by the
company's registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the company to provide only
management's report in this annual report.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

     There were no changes in internal control over financial reporting (as
defined in Rule 13a-15f under the Exchange Act) that occurred during the fourth
quarter of 2008 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.


ITEM 9B. OTHER INFORMATION

     None.


     PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

     The following table sets forth the name, age and position with the Company
of each officer and director of the Company as of the date of this report.

      NAME                  AGE        POSITION
-----------------------  ---------     -----------------------------------
James D. Tilton, Jr.        48         Chairman of the Board,
                                       Chief Executive Officer,
                                       President, and Secretary


BACKGROUND OF EXECUTIVE OFFICERS AND DIRECTORS

     James D. Tilton, Jr., has served as chairman of our board of directors,
chief executive officer, president, secretary, treasurer and sole director since
we were formed. Mr. Tilton has more than 11 years' experience in the securities
industry. From 1995 to 1996, he was stockbroker at Morgan Keegan. From 1997 to
1999, he worked independently in the securities industry, specializing in
corporate finance and investment banking. Mr. Tilton has been involved in the
financing of private and public small-growth companies. Since January 1999, Mr.
Tilton has also been TuneIn Media, Inc.'s chief executive officer and president.
TuneIn Media, Inc. was an interactive media content provider and currently is a
dormant company. Mr. Tilton formally resigned this position in October of 2005.
Mr. Tilton is currently a director of Girasolar (OTCBB: GRSR). Mr. Tilton has a
B.A. in Political Science with an emphasis in Accounting/Business from the
University of Louisville.

BOARD OF DIRECTORS

     Our Directors are elected by the vote of a plurality in interest of the
holders of our voting stock and hold office for a term of one year and until a
successor has been elected and qualified.

     A majority of the authorized number of directors constitutes a quorum of
the Board for the transaction of business. The directors must be present at the
meeting to constitute a quorum. However, any action required or permitted to be
taken by the Board may be taken without a meeting if all members of the Board
individually or collectively consent in writing to the action.


                                        8


<PAGE>

COMMITTEES

     Our board of directors acts as our audit committee. No member of our board
of directors is an "audit committee financial expert," as that term is defined
in Item 401(e) of Regulation S-B promulgated under the Securities Act. To date,
we have conducted limited operations and generated only minimal revenue since
inception. In light of the foregoing, and on evaluating our internal controls,
our board of directors determined that our internal controls are adequate to
insure that financial information is recorded, processed, summarized, and
reported in a timely and accurate manner in accordance with applicable rules and
regulations of the Securities and Exchange Commission. Accordingly, our board of
directors concluded that the benefits of retaining an individual who qualifies
as an "audit committee financial expert" would be outweighed by the costs of
retaining such a person.

BOARD COMPENSATION

     Directors may receive compensation for their services and reimbursement for
their expenses as shall be determined from time to time by resolution of the
Board.

EMPLOYMENT AGREEMENTS

     Our employment agreement with James D. Tilton, Jr., ended on December 31,
2002. This agreement provided for payment of an annual base salary of $90,000
for calendar year 2000, $120,000 for calendar year 2001, and $180,000 for
calendar year 2002. During those years, we did not pay him a salary. We agreed
to pay Mr. Tilton a salary of $180,000 during 2003, but did not actually pay him
a salary.

     The shortfall between the salary we undertook to pay Mr. Tilton between
January 1, 2000 and December 31, 2003, and the compensation payments actual made
to him equaled $350,000. In recognition of that fact, in December 2003 we agreed
to pay to Mr. Tilton, as and when the board of directors determines that funds
are available to do so and in one or more payments of $200,000. In 2004, we paid
Mr. Tilton $169,478 of this $200,000.

     Mr. Tilton's employment agreement also provided for the one-time grant
under our Millennium Stock Option Plan of 3,000,000 incentive stock options
(reduced to 300,000 by the ten-for-one reverse stock split effected in January
2004) to Mr. Tilton at 110% of the fair market value of our common stock on the
date of the grant. These options vested but were cancelled upon our electing to
be regulated as a business development company.

     As of yet we have not entered into a new employment agreement with Mr.
Tilton.

FAMILY RELATIONSHIPS

     None

BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Under section 16 of the Exchange Act, our directors and executive officers
and beneficial owners of more than 10% of the our common stock are required to
file certain reports, within specified time periods, indicating their holdings
of and transactions in our common stock and derivative securities. Based solely
on a review of those reports provided to us and written representations from
those persons regarding the necessity to file any such reports, we are not aware
of any failures to file reports or report transactions in a timely manner during
our fiscal year ended December 31, 2008.

CODE OF ETHICS

     Our board of directors had adopted a code of ethics applicable to persons
at our company who are responsible for financial management. A copy of the code
of ethics is attached to this Annual Report as Exhibit 14.1.

NOMINATING PROCEDURES

     During 2008 there were no material changes to the procedures by which
security holders may recommend nominees to our Board of Directors.


                                        9


<PAGE>

ITEM 11. EXECUTIVE COMPENSATION

EXECUTIVE COMPENSATION

     The following table sets forth the compensation awarded to, earned by or
paid to Mr. Tilton. We had no other officers during this period.

<TABLE>

       <c>
                                                                                  LONG-TERM COMPENSATION AWARDS
                                                                                 -------------------------------
                                                                                  RESTRICTED        SECURITIES
     NAME AND PRINCIPAL           YEAR          SALARY         OTHER ANNUAL          STOCK          UNDERLYING
          POSITION                                             COMPENSATION          AWARDS           OPTIONS
-----------------------------    -------     -------------    ----------------   --------------    -------------
James D. Tilton, Jr               2008    $   96,000(1)    $                -    $            -                -
Chairman of the Board,
Chief Executive Officer
and President
____________
      (1) Accrued and unpaid
</TABLE>


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

     The following table shows, as of March 21, 2009, the beneficial ownership
of our common stock and preferred stock (1) by any person or group that we know
beneficially owns more than 5% of the outstanding common stock or any class of
preferred stock, (2) by each director and executive officer, and (3) by all
directors and executive officers as a group. Unless otherwise indicated, the
holders of the shares shown in this table have sole voting and investment power
with respect to those shares. The address of all individuals for whom an address
is not otherwise indicated is 334 Riverbend Drive, Ludlow, Kentucky 47131.

<TABLE>

       <c>

   NAME AND ADDRESS OF           NUMBER OF SHARES OF                                     PERCENTAGE OF
     BENEFICIAL OWNER             BENEFICIALLY OWNED            CLASS OF STOCK             CLASS (1)
---------------------------     -----------------------      ---------------------     -------------------
James D. Tilton, Jr.                   218,798                      Common                        *  %
                                        5,000                 Class C Preferred               100.0  %
                                      2,130 (1)               Class D Preferred                18.4  %
All directors and
   officers as a group                 218,798                      Common                        *  %
                                        5,000                 Class C Preferred               100.0  %
                                        2,130                  Class D Prefered                18.4  %
____________
     * less than 1%

   (1)   Figures based on 11,575 shares of Class D Preferred Stock outstanding as of April 15, 2009.
</TABLE>


EQUITY COMPENSATION PLAN INFORMATION We currently have no equity compensation
     plan.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE

RELATED PARTY TRANSACTIONS

     The premises housing our executive and administrative office are owned by
James D. Tilton, Jr., our chief executive officer. See "Description of
Property." Starting July 1, 2003, he has charged the company $1,250 per month
for our use of these premises, and during 2005 was increased to $1,500 per
month. Since August 2006, the Company, due to lack of funds has been unable to
pay rent.


                                        10


<PAGE>

ITEM 14.   PRINCIPAL ACCOUNTING FEES AND SERVICES

     Aggregate fees billed to us for the fiscal years ended December 31, 2008
and 2007 by our principal accountants, Gruber and Company, LLC, are as follows:

                                               FOR THE YEARS ENDED
                                                  DECEMBER 31,
                                       ------------------------------------
                                            2008                2007
                                       ---------------     ----------------
Audit Fees                             $       15,000      $        13,000
Audit-Related Fees                     $       12,000      $        12,500
Tax Fees                               $            -      $             -
Other Fees                             $            -      $             -

     The audit-related fees relate to review services performed by our
accountant; the tax fees relate to preparation of our tax returns by our
accountant.

     Under the Sarbanes-Oxley Act of 2002, all audit and non-audit services
performed by our independent accountants must now be approved in advance by the
audit committee to assure that those services do not impair the accountants'
independence. We do not have an audit committee, so our board of directors
reviews and approves audit and permissible non-audit services performed by
Gruber and Company LLC as well as the fees they charge for performing those
services.


                                     PART IV

ITEM 15.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES

FINANCIAL STATEMENTS

     A list of the financial statements of the Company filed as part of this
Report can be found in the Index to Financial Statements on page F-1.

     The following Exhibits are filed herewith and made part hereof.

     3.1       Articles of incorporation of the registrant (incorporated by
               reference to the registrant's registration statement on Form
               10-SB, as amended, filed with the Commission on July 5, 2000).

     3.2       Certificate of designations of Series A preferred stock of the
               registrant filed with the Nevada Secretary of State on April 18,
               2002 (incorporated by reference to the registrant's quarterly
               report on form 10-QSB filed with the Commission on June 6, 2004).

     3.3       Certificate of designations of Series B preferred stock of the
               registrant filed with the Nevada Secretary of State on December
               17, 2003 (incorporated by reference to the registrant's quarterly
               report on form 10-QSB filed with the Commission on June 6, 2004).

     3.4       Certificate of amendment of the registrant filed with the Nevada
               Secretary of State on December 31, 2003 (incorporated by
               reference to the registrant's quarterly report on form 10-QSB
               filed with the Commission on June 6, 2004).

     3.5       Certificate of designations of Series C preferred stock of the
               registrant filed with the Nevada Secretary of State on January
               13, 2004 (incorporated by reference to the registrant's quarterly
               report on form 10-QSB filed with the Commission on June 6, 2004).

     3.6       Corrected certificate of designation of Series D preferred stock
               of the registrant (filed herewith).

     3.7       Bylaws of the registrant (incorporated by reference to the
               registrant's registration statement on Form 10-SB, as amended,
               filed with the Commission on July 5, 2000).

     10.1      Debenture issued by the registrant to Patrick L. Brown due April
               30, 2004 (incorporated by reference to the registrant's quarterly
               report on form 10-QSB filed with the Commission on June 6, 2004).

     10.2      Debenture issued by the registrant to Pinnacle Investment
               Partners, L.P. due February 7, 2005 (incorporated by reference to
               the registrant's quarterly report on form 10-QSB filed with the
               Commission on June 6, 2004).


                                        11


<PAGE>

     10.3      Securities purchase agreement dated February 7, 2004, between the
               registrant and Pinnacle Investment Partners, L.P. (incorporated
               by reference to the registrant's quarterly report on form 10-QSB
               filed with the Commission on June 6, 2004).

     10.4      Form of securities purchase agreement providing for purchase of
               shares of Series D preferred stock and shares of common stock
               (incorporated by reference to current report on Form 8-K of the
               registrant filed with the Commission on January 4, 2005).

     14.1      Code of Ethics (filed herewith).

     21.1      Subsidiaries of Registrant (filed herewith).

     31.1      Certification of the Chief Executive Officer under 18 U.S.C.
               section 1350, as adopted in accordance with section 302 of the
               Sarbanes-Oxley Act of 2002 (filed herewith).

     32.2      Certification of the Chief Executive Officer under 18 U.S.C.
               section 1350, as adopted in accordance with section 906 of the
               Sarbanes-Oxley Act of 2002 (filed herewith).



                                        12



<PAGE>

                                   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.


                                        PHOENIX INTERESTS, INC.
                                        -----------------------
                                              Registrant

Date: May 6, 2009                      By: /s/ James D. Tilton
                                            ------------------------------------
                                            James D. Tilton
                              Chairman, President, Secretary and Chief Executive
                              Officer (Principal Executive Officer and Principal
                                      Financial and Accounting Officer)

     In accordance with the requirements of the Exchange Act, this report is
signed below by the following persons on behalf of the Registrant in the
capacities and on the dates indicated.


        SIGNATURE                       TITLE                    DATE
        ---------                       -----                    ----

/s/ James D. Tilton, Jr.                Chairman                 May 6, 2009
-----------------------------           President and
James D. Tilton, Jr.                    Chief Executive
(Principal Executive Officer and        Officer
Principal Accounting Officer)




                                        13



<PAGE>


                             PHOENIX INTERESTS, INC.
                        CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 2008 AND 2007

Report of Independent Registered Public Accounting Firm                      F-2

Consolidated Financial Statements:

     Consolidated Balance Sheets as of December 31, 2008 and 2007            F-3

     Consolidated Statements of Operations for the years ended
       December 31, 2008 and 2007F-4 Consolidated Statements of
       Stockholders' Deficit for the years ended December 31, 2008 and 2007  F-5

     Consolidated Statements of Cash Flows for the years ended
       December 31, 2008 and 2007                                            F-6

     Notes to Consolidated Financial Statements                              F-7



                                      F-1


<PAGE>


             Report of Independent Registered Public Accounting Firm



To The Board of Directors and Stockholders of
Phoenix Interests, Inc.
Ludlow, Kentucky

We have audited the accompanying consolidated balance sheets of Phoenix
Interests, Inc. and subsidiary as of December 31, 2008 and 2007, and the related
consolidated statements of operations, stockholders' deficit and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit. We
conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall finan cial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Phoenix Interests,
Inc. and subsidiary as of December 31, 2008 and 2007, and the consolidated
results of their operations and cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United States of
America. The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
1, the Company has incurred a net loss of $360,153, used cash for operations of
$89,011 for the year ended December 31, 2008, has an accumulated deficit of
$7,769,233 as of December 31, 2008 and has a working capital deficit of
$5,500,208 as of December 31, 2008. These conditions raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
in regard to these matters are also described in Note 1. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.



/s/ Gruber and Company, LLC
Certified Public Accountants

Lake St. Louis, Missouri
May 5, 2009




                                      F-2


<PAGE>
<TABLE>
<S>       <C>
                                         Phoenix Interests, Inc. and Subsidiary
                                               Consolidated Balance Sheets
                                            As of December 31, 2008 and 2007


                                                                                              2008             2007
                                                                                           -----------      -----------

                                                         ASSETS
CURRENT ASSETS
    Cash and cash equivalents                                                              $    17,620      $        --
                                                                                           -----------      -----------
TOTAL CURRENT ASSETS                                                                       $    17,620      $        --
                                                                                           ===========      ===========

                                          LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES
    Cash overdraft                                                                         $    22,249      $    20,618
    Convertible debt - related party                                                           264,022          229,022
    Convertible debt                                                                            37,480           37,480
    Notes payable                                                                              145,000           40,000
    Accounts payable and accrued expenses                                                      243,873          236,439
    Dividends payable                                                                          966,679          681,124
    Accrued derivative liability                                                             1,844,625        1,715,917
    Preferred stock; Series A; $0.001 par value; 5,000 shares authorized;
      2,656 and 2,656 shares issued and outstanding                                            265,600          265,600
    Preferred stock; Series D convertible; $0.001 par value; 25,000 shares authorized;
      11,575 and 8,415 shares issued and outstanding                                         1,157,500          841,500
    Preferred stock; Series E convertible; $0.001 par value; 25,000 shares authorized;
      5,708 and 5,708 shares issued and outstanding                                            570,800          570,800
                                                                                           -----------      -----------
TOTAL CURRENT LIABILITIES                                                                    5,517,828        4,638,500
                                                                                           ===========      ===========


COMMITMENTS AND CONTINGENCIES                                                                       --               --

STOCKHOLDERS' DEFICIT
    Preferred stock; Series B; $0.001 par value; 100,000 shares authorized;
      0 and 0 shares issued and outstanding                                                         --               --
    Preferred stock; Series C; $0.001 par value; 12,000,000 shares authorized;
      5,000 and 228,000 shares issued and outstanding                                                5              228
    Common stock; $0.001 par value; 5,000,000,000 shares authorized;
      1,607,061,087 and 1,489,061,087 shares issued and outstanding                          1,607,061        1,489,061
    Additional paid-in capital                                                                 661,959          994,476
    Accumulated deficit                                                                     (7,769,233)      (7,122,265)
                                                                                           -----------      -----------
TOTAL STOCKHOLDERS' DEFICIT                                                                 (5,500,208)      (4,638,500)
                                                                                           -----------      -----------

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT                                                $    17,620      $        --
                                                                                           ===========      ===========


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

                                                           F-3



<PAGE>

                        Phoenix Interests, Inc. and Subsidiary
                        Consolidated Statements of Operations
                    For The Years Ended December 31, 2008 and 2007


                                                     2008                  2007
                                                ---------------      ---------------


REVENUES                                        $         7,282      $        11,124

OPERATING EXPENSES
     Compensation                                        96,000              180,000
     Professional fees                                  114,511               72,693
     Office expenses                                      1,872               10,382
     Travel                                               4,265                  718
     Depreciation and amortization                           --                2,605
     Rent                                                18,000               18,000
     Utilities                                               20                   --
     Bank charges                                           509                  312
                                                ---------------      ---------------
TOTAL OPERATING EXPENSES                                235,177              284,710
                                                ---------------      ---------------

LOSS FROM OPERATIONS                                   (227,895)            (273,586)

OTHER INCOME (EXPENSE)
     Interest expense and financing costs               (23,550)             (15,477)
     Change in accrued derivative liability            (108,708)            (375,401)
                                                ---------------      ---------------
TOTAL OTHER INCOME (EXPENSE)                           (132,258)            (390,878)
                                                ---------------      ---------------

LOSS BEFORE PROVISION FOR INCOME TAXES                 (360,153)            (664,464)

PROVISION FOR INCOME TAXES                                   --                   --
                                                ---------------      ---------------

NET LOSS                                               (360,153)            (664,464)

PREFERRED STOCK DIVIDENDS                              (286,815)            (272,219)
                                                ---------------      ---------------

NET LOSS ATTRIBUTED TO COMMON STOCKHOLDERS      $      (646,968)     $      (936,683)
                                                ===============      ===============

NET LOSS PER SHARE ATTRIBUTED TO COMMON
  STOCKHOLDERS - BASIC AND DILUTED:             $         (0.00)     $         (0.00)
                                                ===============      ===============

WEIGHTED AVERAGE SHARES OUTSTANDING:
     BASIC AND DILUTED                            1,605,863,585        1,028,156,986
                                                ===============      ===============

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

                                         F-4



<PAGE>

                                               Phoenix Interests, Inc. and Subsidiary
                                           Consolidated Statement of Stockholders' Deficit
                                           For The Years Ended December 31, 2008 and 2007


                                  ----------------------
                                         Series C                 Common Stock            Additional                      Total
                                  ----------------------   ----------------------------     Paid-in     Accumulated    Stockholders'
                                    Shares       Amount        Shares         Amount        Capital       Deficit        Deficit
                                  ----------   ---------   --------------   -----------   -----------   ------------   ------------

Balance, December 31, 2006           228,000   $     228      841,450,757   $   841,451   $ 1,547,890   $ (6,185,582)  $ (3,796,013)

Common stock issued for conversion
  of debt                                 --          --      101,576,923       101,577       (89,862)            --         11,715
Common stock issued for conversion
  of Series D preferred stock and
  preferred stock dividends               --          --      385,319,122       385,319      (320,338)            --         64,981
Common stock issued for conversion
  of Series E preferred stock
  and preferred stock dividends           --          --       35,714,285        35,714       (30,714)            --          5,000
Common stock issued for services          --          --      125,000,000       125,000      (112,500)            --         12,500
Accrued preferred stock dividends         --          --               --            --            --       (272,219)      (272,219)
Net loss                                  --          --               --            --            --       (664,464)      (664,464)
                                  ----------   ---------   --------------   -----------   -----------   ------------   ------------
Balance, December 31, 2007           228,000         228    1,489,061,087     1,489,061       994,476     (7,122,265)    (4,638,500)

Common stock issued for conversion
  of Series D preferred stock and
  preferred stock dividends               --          --      118,000,000       118,000      (109,740)            --          8,260
Accrued preferred stock dividends         --          --               --            --            --       (286,815)      (286,815)
Conversion of Series C preferred
  stock to Series D preferred
  stock                             (223,000)       (223)              --            --      (222,777)            --       (223,000)
Net loss                                  --          --               --            --            --       (360,153)      (360,153)
                                  ----------   ---------   --------------   -----------   -----------   ------------   ------------
Balance, December 31, 2008             5,000   $       5    1,607,061,087   $ 1,607,061   $   661,959   $ (7,769,233)  $ (5,500,208)
                                  ==========   =========   ==============   ===========   ===========   ============   ============


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

                                                                 F-5



<PAGE>

                               Phoenix Interests, Inc. and Subsidiary
                               Consolidated Statements of Cash Flows
                           For The Years Ended December 31, 2008 and 2007

                                                                            2008           2007
                                                                          ---------      ---------

CASH FLOW FROM OPERATING ACTIVITIES:
   Net loss                                                               $(360,153)     $(664,464)
   Adjustment to reconcile net loss to net cash
     used in operating activities:
       Depreciation and amortization                                             --          2,605
       Stock issued for services                                                 --         12,500
       Common Stock issued for financing costs                                   --         15,000
       Change in accrued derivative liability                               108,708        375,401
       Non-cash financing charge                                             20,000             --
       Issuance of Series D preferred stock for services                     90,000             --
   Changes in operating assets and liabilities:
     Accounts receivable                                                         --          1,042
     Accounts payable and accrued expenses                                    7,434         64,997
     Accrued compensation - related party                                    45,000        156,839
                                                                          ---------      ---------
Net cash used in operating activities                                       (89,011)       (36,080)
                                                                          ---------      ---------

CASH FLOW FROM FINANCING ACTIVITIES:
   Cash overdraft, net                                                        1,631         (1,330)
   Proceeds from notes payable                                              105,000         37,410
                                                                          ---------      ---------
Net cash provided by financing activities                                   106,631         36,080
                                                                          ---------      ---------

NET INCREASE IN CASH AND
   CASH EQUIVALENTS                                                          17,620             --

CASH AND CASH EQUIVALENTS, Beginning of period                                   --             --
                                                                          ---------      ---------

CASH AND CASH EQUIVALENTS, End of period                                  $  17,620      $      --
                                                                          =========      =========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

   Interest paid                                                          $      --      $      --
                                                                          =========      =========
   Income taxes paid                                                      $      --      $      --
                                                                          =========      =========

SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:

   Conversion of debentures/notes payable to common stock                 $      --      $ 101,577
                                                                          =========      =========
   Conversion of Series D & E dividends to common stock                   $   1,260      $ 421,033
                                                                          =========      =========
   Conversion of Series A, D & E preferred stock to common stock          $   7,000      $      --
                                                                          =========      =========
   Accrued compensation converted to convertible note - related party     $  35,000      $      --
                                                                          =========      =========

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

                                                F-6
</TABLE>



<PAGE>

                     PHOENIX INTERESTS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007



NOTE 1 -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Organization
------------

     Phoenix Interests, Inc. (the "Company") was organized under the laws of
Nevada on March 25, 1999 as Thoroughbred Interests, Inc. Effective May 18, 2004,
the Company changed its name to Phoenix Interests, Inc. The Company's prior
business operations consisted of purchasing, training and selling of
thoroughbred horses. As of December 31, 2003, the Company liquidated its entire
inventory of thoroughbred horses. On January 20, 2004, the Company elected to be
regulated as a business development company under the Investment Company Act of
1940. The Company filed Form 1-E under the Securities and Exchange Act notifying
the Securities and Exchange Commission of the intent to sell, under Regulation E
promulgated under the Securities Act of 1933, up to $5 million of the Company's
common stock. On March 14, 2006, the Company filed a Definitive Information
Statement with the Securities and Exchange Commission to withdraw as a business
development company under the Investment Company Act of 1940. The financial
statements for the year ended December 31, 2008 and 2007 have not been presented
in a business development company format.

Going Concern
-------------

     The accompanying consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America, which contemplate continuation of the Company as a going concern. The
Company incurred a net loss of $360,153, used cash for operations of $89,011 for
the year ended December 31, 2008, has an accumulated deficit of $7,769,233 as of
December 31, 2008 and has a working capital deficit of $5,500,208 as of December
31, 2008. These conditions raise substantial doubt as to the Company's ability
to continue as a going concern. These consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
These consolidated financial statements do not include any adjustments relating
to the recoverability and classification of recorded asset amounts, or amounts
and classification of liabilities that might be necessary should the Company be
unable to continue as a going concern. Management believes that it can continue
to raise equity financing to support its operations or find an acquisition
candidate to complete a merger.

Stock Splits
-------------

     On January 7, 2004, the Company affected a one-for-ten reverse stock split
of its common stock. On January 20, 2006, the Company authorized a one for fifty
reverse stock splits of its common stock. All share information for common
shares has been retroactively restated for these two reverse stock splits.

Consolidated Financial Statements
---------------------------------

     The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary, Online Enterprises, Inc. The
accompanying consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America.
All inter-company accounts and transactions have been eliminated.

Stock Based Compensation
------------------------

     The Company accounts for its stock-based compensation in accordance with
SFAS No. 123R, "Share-Based Payment, an Amendment of FASB Statement No. 123."
The Company recognizes in the statement of operations the grant-date fair value
of stock options and other equity-based compensation issued to employees and
non-employees. There were no stock options granted during the year ended
December 31, 2008 and 2007.


                                      F-7


<PAGE>

Use of Estimates
----------------

     The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenue and expenses during the reporting periods. As of
December 31, 2008, the Company used estimates in determining accrued expenses,
the value of stock based compensation issued for services and the value of the
accrued derivative liability. Actual results could differ from these estimates.

Fair Value of Financial Instruments
-----------------------------------

     On January 1, 2008, the Company adopted SFAS No. 157, Fair Value
Measurements. SFAS No. 157 defines fair value, establishes a three-level
valuation hierarchy for disclosures of fair value measurement and enhances
disclosures requirements for fair value measures. The carrying amounts reported
in the balance sheets for receivables and current liabilities each qualify as
financial instruments and are a reasonable estimate of fair value because of the
short period of time between the origination of such instruments and their
expected realization and their current market rate of interest. The three levels
are defined as follow:

     o    Level 1 inputs to the valuation methodology are quoted prices
          (unadjusted) for identical assets or liabilities in active markets.
          The Company's Level 1 assets include cash equivalents, primarily
          institutional money market funds, whose carrying value represents fair
          value because of their short-term maturities of the investments held
          by these funds.

     o    Level 2 inputs to the valuation methodology include quoted prices for
          similar assets and liabilities in active markets, and inputs that are
          observable for the asset or liability, either directly or indirectly,
          for substantially the full term of the financial instrument. The
          Company's Level 2 liabilities consist of two liabilities arising from
          the issuance of a convertible debenture in 2006 and in accordance with
          EITF 00-19: a warrant liability for detachable warrants, as well as an
          accrued derivative liability for the beneficial conversion feature.
          These liabilities are remeasured on a quarterly basis. Fair value is
          determined using the Black-Scholes valuation model based on observable
          market inputs, such as share price data and a discount rate consistent
          with that of a government-issued security of a similar maturity.

     o    Level 3 inputs to the valuation methodology are unobservable and
          significant to the fair value measurement.

     The following table represents our assets and liabilities by level measured
at fair value on a recurring basis at December 31, 2008.

Description                            Level 1        Level 2        Level 3
---------------------------------     -----------   ------------   -----------
LIABILITIES
Accrued derivative liability                    -      1,844,625             -

Cash and Cash Equivalents
-------------------------

     For purposes of the statements of cash flows, the Company defines cash
equivalents as all highly liquid debt instruments purchased with a maturity of
three months or less, plus all certificates of deposit.

Concentration of Credit Risk
----------------------------

     Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist of cash and accounts receivables. The
Company places its cash with high quality financial institutions and at times
may exceed the FDIC $250,000 insurance limit. The Company extends credit based
on an evaluation of the customer's financial condition, generally without
collateral. Exposure to losses on receivables is principally dependent on each
customer's financial condition. The Company monitors its exposure for credit
losses and maintains allowances for anticipated losses, as required. The Company
derived 100% of its revenue through AmericaTab.

                                      F-8


<PAGE>

Impairment of Long-Lived Assets
-------------------------------

     In accordance with Statement No. 144, long-lived assets, such as property,
equipment, and purchased intangibles subject to amortization, are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to estimated undiscounted future cash flows expected to be generated by the
asset. If the carrying amount of an asset exceeds its estimated future cash
flows, an impairment charge is recognized by the amount by which the carrying
amount of the asset exceeds the fair value of the asset. Assets to be disposed
of would be separately presented in the balance sheet and reported at the lower
of the carrying amount or fair value less costs to sell, and are no longer
depreciated. The assets and liabilities of a disposed group classified as held
for sale would be presented separately in the appropriate asset and liability
sections of the balance sheet.

Organization Costs
------------------

     The Company has incurred various expenditures in the formation of its
corporate and organizational structure. In accordance with SOP 98-5 these costs
were expensed as incurred.

Accrued Derivative Liability
----------------------------

     The convertible debenture and the Series A, D and E preferred stock can be
converted into common stock at a conversion price that is a percentage of the
market price; therefore the number of shares that could be required to be
delivered upon "net-share settlement" is essentially indeterminate. In
accordance with SFAS No. 133, the Company has bifurcated the beneficial
conversion features embedded in its convertible debentures and preferred stock
and has recorded the fair value of these beneficial conversion features as a
current liability.

Convertible Preferred Stock
---------------------------

     The Company's Series A, D and E preferred stock are presented as a current
liability since the Company has financial instruments that are convertible into
common stock at a conversion price that is a percentage of the market price;
therefore the number of shares that could be required to be delivered upon
"net-share settlement" is essentially indeterminate and the Company does not
have enough authorized shares to satisfy the conversion of its convertible
preferred stock.

Revenue Recognition
-------------------

     Revenue is recognized at the time a bet is placed on the Company's online
website.

Income Taxes
------------

     The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Deferred taxes are provided on the liability
method whereby deferred tax assets are recognized for deductible temporary
differences, and deferred tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between the reported
amounts of assets and liabilities and their tax bases. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of management, it is more
likely than not that some portion or all of the deferred tax assets will be
realized. Deferred tax assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of enactment.


                                      F-9


<PAGE>

Earnings (Loss) Per Share
-------------------------

     The Company reports earnings (loss) per share in accordance with SFAS No.
128, "Earnings per Share." Basic earnings (loss) per share is computed by
dividing income (loss) available to common shareholders by the weighted average
number of common shares available. Diluted earnings (loss) per share is computed
similar to basic earnings (loss) per share except that the denominator is
increased to include the number of additional common shares that would have been
outstanding if the potential common shares had been issued and if the additional
common shares were dilutive. Diluted earnings (loss) per share has not been
presented since the effect of the assumed conversion of options and warrants to
purchase common shares would have an anti-dilutive effect. The following
potential common shares have been excluded from the computation of diluted net
loss per share for years ended December 31, 2008 and 2007 because the effect
would have been anti-dilutive:

                                               2008                   2007
                                          -----------------     ----------------

Common stock issuable upon
     conversion of notes payable             6,758,040,000         5,630,040,000
Common stock issuable  upon
     conversion of preferred stock          41,814,570,476        33,262,350,476


Comprehensive Loss
------------------

     SFAS No. 130, "Reporting Comprehensive Loss," establishes standards for the
reporting and display of comprehensive income and its components in the
consolidated financial statements. For the year ended December 31, 2008 and
2007, the Company did not have items that represented other comprehensive income
and, accordingly, a statement of comprehensive loss has not been included
herein.

Reclassification
----------------

     Certain reclassifications have been made to the 2007 balances to conform to
the 2008 presentation.

Recently Issued Accounting Pronouncements
-----------------------------------------

     In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests
in Consolidated Financial Statements", which is an amendment of Accounting
Research Bulletin ("ARB") No. 51. This statement clarifies that a noncontrolling
interest in a subsidiary is an ownership interest in the consolidated entity
that should be reported as equity in the consolidated financial statements. This
statement changes the way the consolidated income statement is presented, thus
requiring consolidated net income to be reported at amounts that include the
amounts attributable to both parent and the noncontrolling interest. This
statement is effective for the fiscal years, and interim periods within those
fiscal years, beginning on or after December 15, 2008. Based on current
conditions, the Company does not expect the adoption of SFAS 160 to have a
significant impact on its results of operations or financial position.

     In December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business
Combinations." This statement replaces FASB Statement No. 141, "Business
Combinations." This statement retains the fundamental requirements in SFAS 141
that the acquisition method of accounting (which SFAS 141 called the purchase
method) be used for all business combinations and for an acquirer to be
identified for each business combination. This statement defines the acquirer as
the entity that obtains control of one or more businesses in the business
combination and establishes the acquisition date as the date that the acquirer
achieves control. This statement requires an acquirer to recognize the assets
acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree at the acquisition date, measured at their fair values as of that date,
with limited exceptions specified in the statement. This statement applies
prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008. The Company does not expect the adoption of SFAS 160 to have
a significant impact on its results of operations or financial position.


                                      F-10


<PAGE>

     In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative
Instruments and Hedging Activities an amendment of FASB Statement No. 133." SFAS
161 changes the disclosure requirements for derivative instruments and hedging
activities. Entities are required to provide enhanced disclosures about (a) how
and why an entity uses derivative instruments, (b) how derivative instruments
and related hedged items are accounted for under SFAS 133 and its related
interpretations, and (c) how derivative instruments and related hedged items
affect an entity's financial position, financial performance, and cash flows.
Based on current conditions, the Company does not expect the adoption of SFAS
161 to have a significant impact on its results of operations or financial
position.

     In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally
Accepted Accounting Principles." SFAS 162 identifies the sources of accounting
principles and the framework for selecting the principles to be used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (GAAP) in
the United States (the GAAP hierarchy). SFAS 162 will not have an impact on the
Company's financial statements.

     In May 2008, the FASB issued SFAS No. 163, "Accounting for Financial
Guarantee Insurance Contracts, an interpretation of FASB Statement No. 60." The
scope of SFAS 163 is limited to financial guarantee insurance (and reinsurance)
contracts, as described in this Statement, issued by enterprises included within
the scope of Statement 60. Accordingly, SFAS 163 does not apply to financial
guarantee contracts issued by enterprises excluded from the scope of Statement
60 or to some insurance contracts that seem similar to financial guarantee
insurance contracts issued by insurance enterprises (such as mortgage guaranty
insurance or credit insurance on trade receivables). SFAS 163 also does not
apply to financial guarantee insurance contracts that are derivative instruments
included within the scope of FASB Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 163 will not have an impact on the
Company's financial statements.


NOTE 2 - RELATED PARTY TRANSACTIONS

     Total rent expense accrued to Mr. Tilton, the Company's CEO for the years
ended December 31, 2008 and 2007 was $18,000 and $18,000, respectively.

     During the year ended December 31, 2008, $35,000 from unpaid officer
compensation was converted to convertible debt.


NOTE 3 - CONVERTIBLE DEBT

     In 2007, the Company converted at total of $37,480 of accounts payable and
$229,022 of officer compensation into convertible debt. In addition, in 2008 the
Company converted $35,000 of officer compensation into convertible debt. The
convertible debt can be converted at the option of the debt holder into shares
of the Company's common stock at a 50% discount to the market price at the date
of conversion.


NOTE 4 -NOTE PAYABLE

       During the year ended December 31, 2007, the Company issued two notes
payable in the amount of $25,000 and $15,000. The notes are unsecured, bears
interest at the rate of 12% per annum and are payable upon demand.

     During the three months ended March 31, 2008, the Company issued a note
payable in the amount of $20,000. The note is unsecured, bears interest at the
rate of 12% per annum and is payable upon demand.

     All three notes can be converted into shares of common stock at a 50%
discount at the option of the noteholder.

     During the three months ended June 30, 2008, the Company issued a note
payable in the amount of $50,000. The note is unsecured, bears interest at the
rate of 12% per annum and is payable upon demand.

     During the three months ended September 30, 2008, the Company issued a note
payable in the amount of $10,000. The note is unsecured, bears interest at the
rate of 18% per annum and is payable upon demand.

     During the three months ended December 31, 2008, the Company issued a note
payable in the amount of $25,000. The note is unsecured, bears interest at the
rate of 18% per annum and is payable upon demand.


                                      F-11


<PAGE>

NOTE 5 -STOCKHOLDERS' DEFICIT

     On January 2, 2004, the Company filed a Certificate of Amendment to its
Articles of Incorporation for the State of Nevada to amend its capitalization.
The amendment grants the Company the authority to issue 1 billion shares of par
value $0.001 stock consisting of 20,000,000 preferred shares and 980,000,000
common shares.

     On October 5, 2005, the Company filed an Information Statement requesting
approval from the stockholders to give the Company's board of directors the
authority to (1) effect a reverse stock split of each share of common stock of
the Company at a ratio of one share for up to 50 shares of common stock
outstanding, as determined by the Company's board of directors at its
discretion, and (2) amend the Company's Articles of Incorporation to increase
from 980,000,000 to 5,000,000,000 the number of shares of common stock the
Company is authorized to issue. The stockholders approved items (1) and (2)
above and on November 9, 2005, the Company filed a Certificate of Amendment with
the Nevada Secretary of State increasing the number of authorized common shares
to 5,000,000,000.

     On January 7, 2004, the Company affected a one-for-ten reverse stock split
of its common stock. On January 20, 2006, the Company authorized a one for fifty
reverse stock split of its common stock. All share information for common shares
has been retroactively restated for these two reverse stock splits.

     Common Stock
     ------------

     The Company had the following transactions in its common stock:

     o    For the year ended December 31, 2008, the Company issued 118,000,000
          of common stock for the conversion of Series D stock and preferred
          stock dividends of $7,000 and $1,260, respectively.

     Preferred Stock
     ---------------

     The Company has debt and equity instruments that can be converted into
common stock at a conversion prices that are a percentage of the market price;
therefore the number of shares that could be required to be delivered upon
"net-share settlement" is essentially indeterminate. Therefore, the Series A, D
and E Preferred Stock which can be converted into shares of common stock are
shown in the accompanying consolidated balance sheet as a current liability.

     SERIES A PREFERRED STOCK - There are 5,000 shares of Series A preferred
stock authorized. Each share of Series A preferred stock is entitled to receive
a monthly dividend of $2.00 per share, payable quarterly in arrears, and is
convertible into common stock at the rate of $100 per share ($500,000 in the
aggregate) at a discount of (1) 75% of the closing bid price of the common stock
(if at the option of the holder), or (2) 60% of the closing bid price of the
common stock (if at the option of our company). In the event of liquidation, all
shares of Series A preferred stock would automatically be converted into shares
of our common stock at rate of $100 per share, with holders of shares of Series
A preferred stock being entitled to receive, in the aggregate, shares of our
common stock valued at $500,000. Shares of Series A preferred stock vote with
shares of our common stock on an as-converted basis.

     SERIES B PREFERRED STOCK - There are 100,000 shares of Series B preferred
stock authorized. In the event of liquidation, each share of Series B preferred
stock ranks equivalent to one share of our common stock. Shares of Series B
preferred stock are not entitled to participate in dividends declared on our
common stock. The Series B preferred stock votes together with our common stock
on the basis of 1,000 votes per share.

     SERIES C PREFERRED STOCK - There are 12,000,000 shares of Series C
preferred stock authorized. Each share of Series C preferred stock is
convertible into one share of our common stock. The Series C preferred stock is
non-interest bearing, does not have voting rights, and is not entitled to
receive dividends. In the event of a liquidation, each share of Series C
preferred stock will automatically convert into one share of our common stock
and will otherwise not be entitled to any preference over shares of our common
stock or any shares of our preferred stock. Shares of Series C preferred stock
are entitled to name two members of our board of directors.


                                      F-12


<PAGE>

     SERIES D PREFERRED STOCK - There are 25,000 shares of Series D preferred
stock authorized. Shares of Series D preferred stock are entitled to
participate, on an as-converted basis, in any dividends declared on the common
stock. In the event of a voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, holders of Series D preferred stock shall be
entitled to share pari passu with the holders of shares of common stock in the
assets of the Corporation, on an as converted basis, whether such assets are
capital or surplus of any nature. Any outstanding shares of Series D preferred
stock may, at the option of the holder, be converted at any time or from time to
time into fully paid and nonassessable shares of common stock at the conversion
rate in effect at the time of conversion, determined as provided herein, except
that (1) a holder of shares of Series D preferred stock may at any given time
convert only up to that number of shares of Series D preferred stock as would
result in the aggregate beneficial ownership of the Company's common stock
(calculated in accordance with Rule 13d-3 of the Securities Exchange Act of
1934, as amended) of that holder and all persons affiliated with that holder not
being more than 4.99% of the Company's common stock then outstanding and (2) a
holder of shares of Series D preferred stock may not convert more than half of
that holder's shares of Series D preferred stock within any 30-day period. The
number of shares into which one share of Series D preferred stock is convertible
will be determined by dividing (1) the sum of (A) Stated Value plus (B) an
amount equal to 1% of the Stated Value multiplied by the number of months from
the original issue date until the date of conversion (pro rated for any period
of less than a month) by (2) the conversion price at that time. The conversion
price is the lesser of (1) 70% of the closing bid price and (2) $0.0192 (the
amount being 120% of the closing bid price on December 22, 2004).

     During the year ended December 31, 2008, the Company issued 900 shares of
Series D preferred stock for consulting services.

     SERIES E PREFERRED STOCK - There are 5,000 shares of Series E preferred
stock authorized. Shares of Series E preferred stock may, at the option of the
holder, be converted into shares of common stock at the conversion rate in
effect at the time of conversion. The number of shares into which one share of
Series E preferred stock is convertible will be determined by dividing (1) the
sum of (A) the "Stated Value" (equal to $100) plus (B) an amount equal to 1.5%
of the Stated Value multiplied by the number of months from the date of issuance
until the date of conversion (pro rated for any period of less than a month) by
(2) the lesser of (A) $0.006 and (B) the Conversion Price at that time. For
these purposes, "Conversion Price" means 70% of the Closing Bid Price, and
"Closing Bid Price" on a given day means the lowest closing bid price of the
common stock out of the closing bid price of the common stock on each of the
five immediately preceding trading days on NASDAQ or any other principal
securities price quotation system or market on which prices of the common stock
are reported.


NOTE 6 - INCOME TAXES

     Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial statement
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets as of December 31, 2008 are as
follows:

                                                        DECEMBER 31,
                                                            2008
                                                      ----------------
Deferred tax assets:
     Federal net operating loss                       $      1,760,000
     State net operating loss                                  266,000
                                                      ----------------

Total deferred tax assets                                    2,026,000
     Less valuation allowance                               (2,026,000)
                                                      ----------------
                                                      $             --
                                                      ================

     At December 31, 2008, the Company had federal and state net operating loss
("NOL") carryforwards of approximately $5,170,000 and $5,324,000, respectively.
NOLs could, if unused, expire in varying amounts in the years 2017 through 2019.


                                      F-13


<PAGE>

     The valuation allowance increased by $134,000 and $248,000 during 2008 and
2007, respectively. The Company has provided a 100% valuation allowance on the
deferred tax assets at December 31, 2008 to reduce such asset to zero, since
there is no assurance that the Company will generate future taxable income to
utilize such asset. Management will review this valuation allowance requirement
periodically and make adjustments as warranted.

     The reconciliation of the effective income tax rate to the federal
statutory rate for the years ended December 31, 2008 and 2007 is as follows:

                                                          2008          2007
                                                       ----------   ----------
Federal income tax rate                                   (34.0%)      (34.0%)
State tax, net of federal benefit                          (5.0%)       (5.0%)
Increase in valuation allowance                            39.0%        39.0%
                                                       ----------   ----------
Effective income tax rate                                   0.0%         0.0%
                                                       ==========   ==========

     Utilization of the net operating loss and tax credit carryforwards is
subject to significant limitations imposed by the change in control under I.R.C.
382, limiting its annual utilization to the value of the Company at the date of
change in control times the federal discount rate.



                                      F-14