**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**FORM 10-KSB**

(Mark One)

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

For the            fiscal year ended  **May 31,            2007**

o  TRANSITION REPORT UNDER            SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| For the transition period from [ | ]to [ | ] |
|---------------------------------------|------------|---|

Commission file number  **000-52130**
| **TYPHOON ENTERPRISES INC.**                                                          |
|---------------------------------------------------------------------------------------|
| (Name of small business issuer in its charter)                                        |
| **Nevada**                                                                            |   | **20-3387991** |
| (State or other jurisdiction of incorporation or                        organization) |   | (I.R.S. Employer Identification No.) |
| **711 S. Carson Street, Suite #4, Carson City,                        NV**            |   | **89701** |
| (Address of principal executive offices)                                              |   | (Zip Code) |

Issuer's telephone number  **775-881-3326**

Securities registered pursuant to Section 12(b) of the Act:
| Title of each class**Nil** |   | Name of each exchange on which registered**Nil** |
|----------------------------|--------|--------------------------------------------------|

Securities registered pursuant to Section 12(g) of the Act:
| **Common Shares, par value $0.001** |
|-------------------------------------|
| (Title of class)                    |

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

Check if there is no disclosure of delinquent filers in response to Item            405 of Regulation S-B is not contained in this form, and no disclosure will be            contained, to the best of registrant's knowledge, in definitive proxy or information            statements incorporated by reference in Part III of this Form 10-KSB or any amendment            to this Form 10-KSB.**x**

State issuer's revenues for its most recent fiscal            year.  $Nil

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

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State            the aggregate market value of the voting and non-voting common equity held by            non-affiliates computed by reference to the price at which the common equity was sold,            or the average bid and asked prices of such common equity, as of a specified date            within 60 days. (See definition of affiliate in Rule 12b-2 of the Exchange            Act.)

Note:            If determining whether a person is an affiliate will involve an unreasonable effort and            expense, the issuer may calculate the aggregate market value of the common equity held            by non-affiliates on the basis of reasonable assumptions, if the assumptions are            stated.
|   | Not applicable as the OTC Bulletin Board has not reported                        the high or low bid prices for our common shares up to the current                        date. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE            YEARS)**

Check whether the issuer has filed all documents and reports required to            be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of            securities under a plan confirmed by a            court.     Yes o     No o

**(APPLICABLE ONLY TO CORPORATE REGISTRANTS)**

State            the number of shares outstanding of each of the issuer's classes of equity stock, as of            the latest practicable date.
|   | 62,080,000 common shares issued and outstanding as of August                        22, 2007 |
|--------|----------------------------------------------------------------------------------------------|

**DOCUMENTS INCORPORATED BY REFERENCE**

If            the following documents are incorporated by reference, briefly describe them and            identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into which the            document is incorporated: (1) any annual report to security holders; (2) any            proxy or information statement; and (3) any prospectus filed pursuant to Rule 424(b) or            (c) of the Securities Act of 1933 ("Securities Act"). The listed documents should be            clearly described for identification purposes (e.g., annual report to security holders            for fiscal year ended December 24, 1990).
| Transitional Small Business Disclosure Format (Check                        one):   | Yeso   | No**x**. |
|-----------------------------------------------------------------------------------------------|------------------|----------|

 

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**PART I**

**ITEM 1. DESCRIPTION OF BUSINESS.**

**Note Regarding Forward Looking Statements.**

This            annual report, including the following management's discussion and analysis, and other            reports filed by the registrant from time to time with the securities and exchange            commission (collectively the "filings") contain forward-looking statements which are            intended to convey our expectations or predictions regarding the occurrence of possible            future events or the existence of trends and factors that may impact our future plans            and operating results. These forward-looking statements are derived, in part, from            various assumptions and analyses we have made in the context of our current business            plan and information currently available to us and in light of our experience and            perceptions of historical trends, current conditions and expected future developments            and other factors we believe to be appropriate in the circumstances. You can generally            identify forward-looking statements through words and phrases such as "seek",            "anticipate", "believe", "estimate", "expect”,” intend", "plan", "budget",            "project", "may be", "may continue", "may likely result", and similar expressions. When            reading any forward-looking statement you should remain mindful that all            forward-looking statements are inherently uncertain as they are based on current            expectations and assumptions concerning future events or future performance of our            company, and are subject to risks, uncertainties, assumptions and other factors            relating to our industry and results of operations, including but not limited to the            following factors:
|   | **•** | our ability to attract and retain the personnel qualified to                        implement our growth strategies; |
|--------|------------|----------------------------------------------------------------------------------------------------------------------|
|   | **•** | our ability to obtain approval from government authorities                        for our products; |
|--------|------------|-----------------------------------------------------------------------------------------------------|
|   | **•** | our ability to protect the patents on our proprietary                        technology; |
|--------|------------|------------------------------------------------------------------------------------------|
|   | **•** | our ability to fund our short-term and long-term financing                        needs; |
|--------|------------|------------------------------------------------------------------------------------------|
|   | **•** | our ability to compete against large competitors in a                        rapidly changing market; |
|--------|------------|-------------------------------------------------------------------------------------------------------|
|   | **•** | changes in our business plan and corporate strategies;                        and |
|--------|------------|-----------------------------------------------------------------------------------|
|   | **•** | other risks and uncertainties discussed in greater detail in                        various sections of this report. |
|--------|------------|----------------------------------------------------------------------------------------------------------------------|

Should one or more of these risks or uncertainties materialize, or            should the underlying assumptions prove incorrect, actual results may differ            significantly from those anticipated, believed, estimated, expected, intended or            planned. Each forward-looking statement should be read in context with, and with an            understanding of, the various other disclosures concerning our company and our business            made in our filings. You should not place undue reliance on any forward-looking            statement as a prediction of actual results or developments. We are not obligated to            update or revise any forward-looking statement contained in this report to reflect new            events or circumstances unless and to the extent required by applicable law.

This list is not an exhaustive list of the factors that may affect any            of our forward-looking statements. These and other factors should be considered            carefully and readers should not place undue reliance on our forward-looking            statements.

Forward looking statements are made based on management’s beliefs,            estimates and opinions on the date the statements are made and we undertake no            obligation to update forward-looking statements if these beliefs, estimates and            opinions or other circumstances should change. Although we believe that the            expectations reflected in the forward-looking statements are reasonable, we cannot            guarantee future results, levels of activity, performance or achievements. Except as            required by applicable law, including the securities laws of the United States, we do            not intend to update any of the forward-looking statements to conform these statements            to actual results.

 

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Our            financial statements are stated in United States dollars (US$) and are prepared in            accordance with United States Generally Accepted Accounting Principles.

In            this annual report, unless otherwise specified, all dollar amounts are expressed in            United States dollars and all references to "common shares" refer to the common shares            in our capital stock.

As            used in this annual report, the terms "we", "us", "our", "Typhoon" and “Typhoon            Tunes Inc.” mean Typhoon Enterprises Inc., unless the context clearly requires            otherwise.

**Corporate Overview**

Our            registered office is located at 711 South Carson Street, Suite 4, Carson City, Nevada            89701. Our director is a Canadian citizen and will work from his home and receive mail            at Suite 306-1917 West 4th Avenue, Vancouver, British Columbia, Canada, V6J 1M7 until,            if ever, we require a public site, other than the public kiosks we expect to set up in            malls, airports or other high traffic areas.

Our            common stock is quoted on the OTC Bulletin Board under the symbol "TPHN".

**Our            Current Business**

*General Overview*

We            were incorporated in the State of Nevada on August 30, 2005 under the name            “Typhoon Tunes Inc.” with an authorized capital of 75,000,000 shares of            common stock with a par value of $0.001. On July 31, 2007, we changed our name to            “Typhoon Enterprises Inc.” We effected this name change by merging with our            wholly owned subsidiary, named “Typhoon Enterprises Inc.”, a Nevada            corporation that we formed specifically for this purpose. We changed the name of our            company to better reflect the direction and business of our company.

In            addition, effective July 31, 2007, we effected a four for one stock split of our            authorized, issued and outstanding common stock. As a result, our authorized capital            has increased from 75,000,000 shares of common stock with a par value of $0.001 to            300,000,000 shares of common stock with a par value of $0.001. Our issued and            outstanding share capital increased from 15,520,000 shares of common stock to            62,080,000 shares of common stock.

We            were formed to pursue our concept of making the worldwide inventory of online music            available to customers in a friendly and accessible fashion through retail mall kiosks            and other point-of-purchase locations, including on the World Wide Web at            typhoonmusic.net. We currently have no patents on our programs and no patents pending.            We have not generated any revenues to date; and we have been issued a "substantial            doubt" going concern opinion from our auditors.

In            February 2006, we filed a registration statement on Form SB-2 with the U.S. Securities            and Exchange Commission and received clearance to sell a total of 10,000,000 Units of            our Common Stock at a price of $0.025 per Unit. Each Unit consists of one share of            common stock, par value $0.001 (the "Shares"), and one common stock purchase warrant.            Each common stock purchase warrant (the "Warrants") entitles the holder to purchase one            additional share of common stock at an exercise price of $0.10 per Warrant, expiring in            May 2008, two years from the effective date of the registration statement. The Shares            and Warrants will be immediately detachable and separately eligible for trading if and            when a public market is ever developed for our securities. We engaged the services of a            market maker to apply for quotation on the Over-the-Counter Bulletin Board on our            behalf following completion of the offering and implementation of our business plans,            and our application has been approved. Our stock is listed and quoted for sale on the            Nasdaq Bulletin Board.

With the offering proceeds, we planned to develop a series of music            kiosks to be placed in areas of high pedestrian traffic for download assistance and            retail distribution of music. At these sites, the public will be able to choose music            of their choice either for download onto their personal storage device or for burning            onto a CD. Initially, we intend to direct our customers to online music suppliers and            be, in essence, a gateway or portal to their music content websites. As a result, the            type and amount of music available to our customers will be virtually unlimited or            limited

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only by the number of suppliers we use. Our management intends to            closely monitor trade publications, like "Billboard" magazine, and other media to stay            abreast of emerging trends in the music industry. Our customers will be required to log            into music provider websites, create an account using their own credit cards and agree            to the intellectual property and copyright laws posted by each provider. We will merely            be assisting our customers with this process and directing them to the websites,            thereby eliminating any intellectual property or copyright infringement liability on            our part. Our goal is to assist customers who want to download their music choices from            the internet to their personal players, but are either not computer savvy or do not            want or have the time to search for their music choices.

*Proposed Operations and Sources of Revenue*

We            plan to be a retail-based reseller and distributor of music. We will enter the market            by establishing ourselves as the first retailer to provide music exactly as demanded by            the customer on a song-by-song basis. We will establish a presence in malls and high            traffic retail locations in the form of kiosks where we will make music available to            people.

Initially, we intend to direct our customers to online music suppliers            and be, in essence, a gateway or portal to third-party music content websites. As a            result, the type and amount of music available to our customers will be virtually            unlimited or limited only by the number of suppliers we use. Our management intends to            closely monitor trade publications, like "Billboard" magazine, and other media to stay            abreast of emerging trends in the music industry.

There will no costs associated with directing our customers to music            supplier websites and no written agreements will be required. Once we are operational            and directing significant traffic to specific music suppliers, we intend to approach            them to request discounts for our customers and/or payment for "top positions", as well            as pay per click fees (PPC's).

We            anticipate that the majority of our revenues will be generated from usage fees charged            to our customers for using our computers and software to download music directly to            their portable music device, such as an iPod, MP3 player or personal computer, rather            than from the compilation of CD's. Customers will be charged a per minute fee, with a            minimum 10 minute usage charge. We intend to keep our usage charges as low as possible            initially in order to build a loyal customer base. Our initial research has indicated            an acceptable usage fee would be US $2.50-$3.00 for the first 10 minutes and            US $0.25 per minute after that.

Once we are operational and established, other potential sources of            revenue will be from PPC's and advertising fees from web-based companies who place            ads/links to their websites on our website. In addition, as resources and demand allow,            we may also sell retail merchandise, including branded clothing, hardware such as MP3            players, CD cases and other related products.

For            each customer's convenience, the process of purchasing music will be easy: customers            will be able to download music to their digital music device or to a CD, which we will            supply and do for them on a computer located in our kiosk, complete with a CD label            that itemizes each song's title and related information, in minutes on-the-spot.            Additionally, the kiosks will sell pre-made music mixes and, in the future when            resources and demand allows, we intend to include other items for sale, possibly such            as digital music players. The customer will pay for our usage charges and services, as            well as for the music they choose to download using a credit card over the            internet.

Because we will not initially be selling music, but rather, will be            serving as a portal to the music download sites and simply assisting our customers with            the compilation and download of the music they choose, we will not be subject to any            intellectual property or copyright laws. The customer will be responsible for complying            with and agreeing to any laws regarding intellectual property rights and copyright            infringement from the website(s) they choose to download their music content            from.

Customers will be required to log into the music-on-demand websites,            create their own account, accept any agreements regarding content download and use            their own credit card. As we expand and funds allow, we plan to offer "music on demand"            to the public in what we believe to be a new format. We plan to purchase music            (individual songs or pieces) from a wide variety of sources on the Internet, download            them to our server and then

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invite customers to purchase their preferences through a website. The            chosen music can then be either burned on a CD or downloaded onto a personal, portable            music device in the order chosen by the customer. At such will be subject to all the            risks related to government regulation, content, copyright and intellectual property            rights and are continuing to assess those risks. We have not yet completed our            evaluation of the costs to expand our services to "music on demand" and may not be able            to afford to comply with the legal requirements when we are financially able to do            so.

We            intend to place our kiosks in malls and other public locations with high pedestrian            traffic and decorate them with bright, attractive graphics featuring both popular and            classic titles to both draw attention to our offerings and to assist in customer            decision-making.

In            a world of bulk offerings, we hope to attract customers by offering them music that has            been completely customized, by them and to their own specifications, from their choice            of song to their choice of listening device, quickly and conveniently. We are hopeful            that, by offering our customers the choice to easily customize their own music using            our kiosks, we will become the solution for consumers looking for a convenient way to            get the music they want, when they want it.

Physically, the dimensions of the kiosks are currently planned at            approximately 7' x 12' in order to conform to retail space limitations, while allowing            convenient sizing opportunities for other venues such as trade show, fairs and other            such special events. The counter space of the kiosks will feature promotional displays            that highlight popular and top-selling songs from a number of musical genres to help            with the customers' buying decisions and aid in impulse purchases. Another feature of            the "Typhoon Tunes" kiosks will be terminals where customers can sample music clips and            conduct searches for songs they may wish to purchase.

Key            factors in our marketing will include customer convenience, individual choice, speed of            service and security. It is our intention to ensure that the level of customer service            will be as personalized as the musical tastes of our customers. We expect that some            customers will wish to make all of the choices by themselves and others will want help            through the whole process of choosing their music. We will try to offer each customer            the individual service they are looking for. Staffed by knowledgeable music            consultants, we wish to ensure customers will be provided individual service to make            their buying experience a pleasant one.

Once we have established a number of mall locations, we will seek to            pursue additional retail partnerships, where Typhoon Tunes kiosks would be available on            a sublease basis within a larger store or high traffic environment. By choosing            partners on a strategic basis, Typhoon Tunes and the retail partner would be able to            offer additional products and potentially increase sales in a complementary customer            base. These partnerships could include national electronic chains, mobile telecom            outlets, coffee shops (e.g., Starbucks' Hear Music), bookstores and other similar            retailers. As we progress, we will examine other point-of-purchase locations, including            a proposed website at www.typhoonmusic.net, which has not yet been            developed.

*Competition*

Presently, we have no direct competition but rather, significant            indirect competition. In the music retailing space, there are many players and            potentially any of them could be competitors. Some of those are listed            below:

Traditional retailers:
|   | • | HMV                           |
|--------|--------|-------------------------------|
|   | • | Barnes & Noble            |
|   | • | Borders                       |
|   | • | Tower Records                 |
|   | • | Wal-Mart Future Shop/Best Buy |
|   | • | Chapters/Indigo               |
|   | • | A&B Sound                 |

 

 

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On-line retailers:
|   | • | iTunes        |
|--------|--------|---------------|
|   | • | Puretracks    |
|   | • | My Music Inc. |
|   | • | Wal-Mart      |
|   | • | Amazon        |
|   | • | Lycos Music   |
|   | • | MP3.com       |

To            the date of our original proposal, none of these retailers has identified the niche            opportunity offered by Typhoon Tunes - customized music-on-demand. While various            electronic stores may burn CDs upon request, these outlets are not adequately set up            for high demand.

The            other major competitive factor to our business will be the individuals who borrow CDs            and burn their own music or burn for others, or who download music based on illegal            peer-to-peer systems. While this may represent somewhat of a threat, because of its            illegal nature, there are many people in our target market who are not willing to            engage in this practice.

*Market Analysis*

Music has always been part of popular culture and to a large degree, it            defines the times in which we live. From iconic songs that can be attributed to            generational movements such as the 1960s, to wedding songs, to our own favorite songs,            music plays a large part in the personal lives of many people.

We            feel that today's consumer has become a sophisticated and individualistic shopper. From            personal ring tones on their telephones to personalized lattes to personal computers to            video-on-demand, the age of customization is definitely upon us. In the case of music,            consumers can opt to download music themselves from the Internet, but if time and            technical know-how are commodities they lack, or they have security fears regarding use            of online purchasing via credit card, then Typhoon Tunes will offer an attractive            alternative. In our opinion, this has provided an opportunity for us to set up a            low-fixed cost business model, while offering a high value proposition for all types of            people who are looking for a convenient, service-oriented, customized music            solution.

*Sale and Distribution Methods*

Marketing and sales will play important functions in creating awareness            and inducing trial of Typhoon Tunes' products and services. The opening of each kiosk            will be accompanied by a launch campaign. Specific marketing programs will            include:

Multimedia launch campaign 

We            intend to make the opening of each Typhoon Tunes location an exciting occasion. Making            use of advertising, public relations, radio/radio remotes and other promotional            programs, our goal will be to introduce Typhoon Tunes quickly and effectively to each            location's market base. To help encourage potential business to give us a try, two free            songs will be offered to new customers.

Advertising 

An            advertising maintenance campaign will be executed on an ongoing basis to keep the            "Typhoon Tunes" brand name in the minds of customers and to introduce new musical            offerings that have been added to our library. We will also advertising to help promote            our pre-mixed music CDs and other merchandise offerings.

 

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Cross-promotions with partners/media partners 

Many companies today offer music downloads as rewards in their            promotional campaigns. With this in mind, Typhoon Tunes will seek out marketing and            promotional partners to increase sales while leveraging the Typhoon Tunes brand to the            wider audience offered by these promotional partner programs.

Database marketing 

Each customer will be added to our database, including email address.            This database will serve as a significant marketing tool and, with the customer's            permission, in communicating news regarding Typhoon Tunes and its recent promotions,            song additions and sales programs. This database can also be customized such that            customers will only be emailed information relating to their specific musical tastes.            Emails will always provide directional links to Typhoon Tunes' website.

Website 

In            addition to serving as a marketing-communications tool, www.typhoontunes.com will also            serve as a fully functioning online retail site. Once developed and published, we            intend to make the entire library of Typhoon Tunes available from our website, which            has not yet been developed, for individual download, to be burned to a CD for pick-up            at the nearest Typhoon Tunes kiosk or shipped to the customer's address. We believe the            e-commerce capabilities of the website will increase revenue opportunities by allowing            24-hour shopping to complement our physical retail locations.

Loyalty program 

To            encourage repeat purchases, customers will be encouraged to join a loyalty program to            receive incentives for increased purchases. For example, customers may be given one            free song for every nine songs purchased, or some variation thereof, which has not yet            been developed. We feel this program will serve as a type of reward for customer            purchases, help instill goodwill on the part of Typhoon Tunes and, hopefully, encourage            increased purchases.

While the above programs represent the beginning of an integrated            marketing strategy, we will also seek to embark upon a product strategy to help            differentiate our offering from other music providers. To do this, we will work to            develop relationships with independent music labels to be able to offer music from            emerging and local artists, as well as the well-known and established            artists.

Further, we intend to develop our own repertoire of premixed themed CDs            (e.g., sixties and seventies music, "Today's Top Tunes in New York Clubs", "Aerobics to            Music", etc.) that will have appeal to specific segments of the market. Finally, as            resources and demand allow, we may also sell retail merchandise including branded            clothing, hardware such as MP3 players, CD cases and other related products.

In            order to accomplish these proposed marketing and advertising programs, we will need to            be able to secure sufficient funds either from completion of our initial public            offering, from revenues or through bank loans or other funding, none of which is            guaranteed, as we are still in the development stage.

*Suppliers and Raw Materials*

All            of the music available to our customers will be offered for download and purchase from            third party suppliers, with the assistance of our kiosk attendant, on a song-by-song            basis.

We            plan to implement the following three phases in steps, as funds allow:

 

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Outsourced Branded Solution (Phase 1) 

We            intend to use this method first, as we feel it will be the quickest and most cost            effective way to implement our plans and begin offering our music to the public.            Typhoon Tunes will act as a portal to direct customers to established outsourced music            distributors, generating revenue by charging usage fees. This solution can be done on a            modest budget and will allow us to both build an online presence and get an operational            kiosk to market for immediate customer feedback. We have not yet contacted any            potential suppliers, but rather, are compiling lists of contacts so that upon            completion of our initial public offering and receipt of the funds, we can begin            negotiations.

Assuming we are successful in implementing our initial Phase 1 business            plan sufficient to generate revenues, we will endeavor to expand our operations to            include Phases 2 and 3 below, if and when funds are available either through revenues            or from outside funding, such as bank loans or additional sales of our securities. We            have made no arrangements for any such financing or sales of our securities and do not            intend to unless and until our initial Phase 1 business plan is successful, which is            purely speculative at this juncture. At such time as we expand into Phases 2 and 3, we            would also be responsible for complying with all intellectual property laws regarding            the collection and purchase of musical content. In that regard, we will have to do            extensive legal investigation as to the intellectual property laws applicable to our            proposed expansion phases prior to pursuing them.

Partial In-House Solution (Phase 2) 

This next step solution would integrate an in-house system that monitors            and manages Typhoon Music and integrates the Typhoon Music Kiosks and integrates with            Phase 1 - the outsourced distributor. This step will be required to maintain Typhoon            Tunes music inventory, branding and to establish a successful long-term marketing            plan.

In-House Solution (Phase 3) 

An            in-house solution for building, collecting and distributing music would ultimately be            the best solution, although it would be very costly (minimum $300,000) and is not in            the predictable future. This solution would, however, provide freedom from contractual            obligations and no limit to the library that Typhoon Tunes builds.

We            intend to begin our marketing and distribution plans with Phase 1 above to ensure that            our product gets to market quickly in an attempt to generate income as quickly as            possible. Phases 2 and 3 will only be implemented as and when income is sufficient to            allow us to do so.

*Equipment*

Each kiosk will require an up-to-date computer, cash register and other            cash processing equipment for debit and credit cards. We will also require specific            software for ensuring fast and easy downloads through our distributors. The software            will be purchased direct from the distributor. In the long term, if we are able to            implement Phase 3 of our program, we may choose to develop our own in-house software,            however, as mentioned above, we will not be able to do this until we are generating            revenues and funds are available for expansion.

All            equipment is readily available and no special orders or waiting period will be required            to purchase the equipment.

*Patents and Trademarks*

On            June 5, 2007, we signed an agreement to purchase U.S. patent application 5,379,057 and            5,675,362, including related intellectual property, from Nova Mobility Systems Inc. The            patent applications relate to keyboardless touch screen devices. In the agreement, we            agreed to buy and Nova Mobility Systems Inc. agreed to sell the patent applications for            cash, of which a portion is payable immediately and balance is paid in equal            installments, commencing on the first three month anniversary of the date of the            agreement and then on each successive three month anniversary. We also agreed to secure            proper conditions for the future development and enforcement of the patent applications            and have agreed to a 10% royalty to be retained by Nova Mobility Systems            Inc.

 

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*Government and Industry Regulation*

Regulation of Internet - Websites are not currently subject to direct            federal laws or regulations applicable to access, content or commerce on the Internet.            However, due to the increasing popularity and use of the

Internet, it is possible that a number of laws and regulations may be            adopted with respect to the Internet covering issues such as:
|   | **•** | user privacy |
|--------|------------|--------------|
|   | **•** | freedom of expression |
|--------|------------|-----------------------|
|   | **•** | pricing |
|--------|------------|---------|
|   | **•** | content and quality of products and services |
|--------|------------|----------------------------------------------|
|   | **•** | taxation |
|--------|------------|----------|
|   | **•** | advertising |
|--------|------------|-------------|
|   | **•** | intellectual property rights |
|--------|------------|------------------------------|
|   | **•** | information security |
|--------|------------|----------------------|

The            adoption of any such laws or regulations might decrease the rate of growth of Internet            use, which in turn could decrease the demand for our services, increase the cost of            doing business or in some other manner have a negative impact on our business,            financial condition and operating results. In addition, applicability to the Internet            of existing laws governing issues such as property ownership, copyrights and other            intellectual property issues, taxation, libel, obscenity and personal privacy is            uncertain. The vast majority of such laws were adopted prior to the advent of the            Internet and related technologies and, as a result, do not contemplate or address the            unique issues of the Internet and related technologies.

Initially, our customers will be responsible for agreeing to copyright            infringement laws when downloading their music content from our third-party suppliers;            however, once we expand our business and begin downloading music ourselves for resale            to the public, we intend to abide by all copyright laws to ensure that any copyrighted            information that is provided on our website or included in any or our music offerings            has received approval from the source of the copyright information. When using the            information provided or refurbished from other sources and to protect us from any            potential intellectual property claims, we will endeavor to obtain all necessary            consents prior to the use of the sources and will reference the sources on our website            to give full credit where it is due.

At            such time as we expand our business operations to include providing music on demand, we            will be subject to all of the rules, regulations and laws relating to the download of            copyrighted materials and intellectual property. We have not yet done any legal            investigation of the copyright or intellectual property laws that will apply to our            proposed plan of operation and may not have sufficient funds to do so, if and when we            have funds available for our proposed expansion into the music-on-demand            market.

*Employees and Employment Agreements*

We            currently have no employees. James Shepard, our sole officer and director, devotes            approximately 20 hours per week to our business and is not compensated for his time            until and if we become profitable. We have contracted the services of a web designer            and programmer, a builder (for the kiosks), and eventually, will hire customer service            reps to work in the kiosks. We do not currently have any agreements, verbal or written,            with Mr. Shepard or any other proposed employee or independent contractor. We presently            do not have pension, health, annuity, insurance, stock options, profit sharing or            similar benefit plans; however, we may adopt such plans in the future. There            are

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presently no employee contracts, agreements or personal benefits            available to anyone associated directly or indirectly with the company. Government            regulations on business

To            operate an internet service business in Mexico, we first must obtain government            approval in order to establish the required wireless broadband network.We have begun            the application process for the necessary government permits but have not yet completed            our applications. We expect the process to be finalized in the next two months and we            cannot at this time estimate how much it will cost because the process and fee schedule            are undergoing modifications. Once the permit-stage is finalized, we will apply to the            Federal Communication Commission of Mexico for final regulatory approval.

**RISK FACTORS**

An            investment in our common stock involves a number of very significant risks. You should            carefully consider the following risks and uncertainties in addition to other            information in this annual report in evaluating our company and its business before            purchasing shares of our company's common stock. Our business, operating results and            financial condition could be seriously harmed due to any of the following risks. The            risks described below are not the only ones facing our company. Additional risks not            presently known to us may also impair our business operations. You could lose all or            part of your investment due to any of these risks.

**Risks Related to our Company**

*We            are a development stage company, have generated no revenues and lack an operating            history. An investment in the Units offered herein is highly risky and could result in            a complete loss of your investment if we are unsuccessful in our business            plans.*

We            were incorporated in August 2005; we have just completed our research and initial            business plan; have not yet realized any revenues; and have an accumulated deficit            since inception of $101,889. We have no operating history upon which an evaluation of            our future prospects can be made. Such prospects must be considered in light of the            substantial risks, expenses and difficulties encountered by new entrants into the            highly competitive music industry. Our ability to achieve and maintain profitability            and positive cash flow is highly dependent upon a number of factors, including our            ability to attract and retain customers for our concept, while keeping costs to a            minimum. Based upon current plans, we expect to incur operating losses in future            periods as we incur expenses associated with the initial startup of our business.            Furthermore, we cannot guarantee that we will be successful in realizing revenues or in            achieving or sustaining positive cash flow at any time in the future. Any such failure            could result in the possible closure of our operations or force us to seek additional            capital through loans or additional sales of our equity securities to continue business            operations, which would dilute the value of any Units you purchase in this            offering.

*We            are totally dependent on the proceeds from our previous offering to implement our            proposed business plans and do not have any other sources of funding, which could            severely limit any possible revenues and result in a failure of our business and a            total loss of any investment you make in our Company.*

We            received net proceeds of $172,000 from our previous offering, which we expect to spend            to purchase rights to music and implement our business plans. The initial development            will consist of developing advertising materials (website, graphics for kiosk,            promotion), the physical kiosk for a storefront presence and partnering contracts. In            the first year of our operation, we believe we will have funds sufficient to initially            develop at least one kiosk for placement in a mall or other high pedestrian traffic            site; however, there is no guarantee that we will be able to generate revenues or that            revenues will be sufficient to maintain our business. As a result, you could lose all            of your investment if we are not successful in our proposed business plans. Our            auditors have expressed substantial doubt as to our ability to continue as a going            concern.

 

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*We have not generated any revenue from our business and we will need            to raise additional funds in the near future. If we are not able to obtain future            financing when required, we might be forced to discontinue our business.*

Because we have not generated any revenue from our business and we            cannot anticipate when we will be able to generate revenue from our business, we will            need to raise additional funds for the further development of our business and to            respond to unanticipated requirements or expenses. We anticipate that we will need to            raise further financing in the approximate amount of $500,000 for the 12 month period.            We plan to raise this money through additional equity financing. We do not currently            have any arrangements for financing and we can provide no assurance to investors we            will be able to find such financing if required. Any sale of share capital will result            in dilution to existing shareholders. Furthermore, there is no assurance that we will            not incur debt in the future, that we will have sufficient funds to repay our future            indebtedness or that we will not default on our future debts, jeopardizing our business            viability. Finally, we may not be able to borrow or raise additional capital in the            future to meet our needs or to otherwise provide the capital necessary to conduct            business, which might result in the loss of some or all of your investment in our            common stock.

*Our            success depends greatly upon the efforts of James Shepard, our sole officer and            director. If we fail to retain James Shepard, it would severely negatively affect our            business, operating results and financial results.*

The            development and implementation of our proposed business is solely dependent on the            efforts of our President, James Shepard. Mr. Shepard is not and will not be compensated            for his services and the success of our business depends upon our ability to retain            him. We have not entered into a management agreement with Mr. Shepard and the loss of            his services could have a negative impact on our business operations, operating results            and possible revenues. If we were to lose the services of Mr. Shepard or are unable to            hire and train competent employees, as and when needed, implementation of our proposed            business operations could be delayed or worse, fail, and you could risk a total loss of            any investment you make in the securities offered herein.

*If            we are successful in moving forward in our business plan, we will need to hire            additional employees to work in the kiosks. If knowledgeable and customer-service            oriented employees are not available to us, as and when needed, we may be unable to            expand our business when we are ready to do so, which could result in possible revenue            losses.*

We            have no employees at this time. When we are ready to expand beyond an initial kiosk,            our success will depend in large part upon our ability to attract, develop, motivate            and retain customer service oriented employees, who are knowledgeable both about music            and about the required technical aspects of our business - burning CDs, obtaining music            legally from the Internet, etc. Competition for qualified personnel in this industry is            high and we may not be able to hire or retain qualified personnel, if and when needed.            As a result, we may be unable to expand our business when we are ready to do so, which            could result in possible revenue losses.

*Our            sole officer and director has conflicts of interest for his time in that he has other            activities that will prevent him from devoting full time to our operations, which may            slow our operations and possibly reduce our financial results.*

James Shepard, our sole officer and director, has conflicts of interest            for his time in that he has other activities that will prevent him from devoting full            time to our operations. Mr. Shepard is a conference producer and takes on various            conferences as opportunities present themselves. His available time to devote to our            business operations may therefore, be sporadic. In general, he intends to devote            approximately 20 hours per week to our business; however, when he is working on other            business matters, he may not be able to devote the full 20 hours to our business, which            may delay or limit our implementation of our business plans. When and if we have a            kiosk operational, it will be manned with an assistant or employee who may have periods            of low supervision when or if Mr. Shepard is involved in a conference not related to            our business, but until such time as the first kiosk is opened, Mr. Shepard will be the            only employee devoting time to our business. The limited number of hours Mr. Shepard            will have to devote to our business activities may negatively affect our operations and            reduce or limit our potential revenues and financial results, which could result in a            loss of your investment.

 

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*The            music distribution industry is highly competitive and we may be unable to successfully            compete and generate revenues, which could result in a total loss of your            investment.*

The            music industry is highly competitive with respect to price and quality in both legal            and illegal sales of music. As a result, there is a high failure rate in the industry.            Our proposed services will face significant competition not only from other            well-established online music providers, but from the free peer-to-peer services, such            as Sharman Network Inc.'s KaZaA, StreamCast Networks, Inc.'s Morpheus, and a variety of            other similar services that allow computer users to connect with each other and to copy            many types of program files, including music and other media, from one another's hard            drives, all without securing licenses from content providers. While the U.S. Supreme            Court's July 2005 ruling in the peer-to-peer piracy case MGM Studios, Inc. v. Grokster,            Ltd., may mean that peer-to-peer networks that do not filter for unlicensed content            available over their networks could be liable for damages for copyright infringement,            enforcement efforts against peer-to-peer networks have not effectively shut down all of            these services to date, and there can be no assurance that these services will ever be            shut down. The ongoing presence of these "free" services substantially impairs the            marketability of legitimate services, regardless of the ultimate resolution of their            legal status.

Because digital recorded music formats, such as MP3, do not always            contain mechanisms for tracking the source or ownership of digital recordings, users            are able to download and distribute unauthorized or "pirated" copies of copyrighted            recorded music over the Internet. This piracy is a significant concern to record            companies and artists, and is a primary reason many record companies and artists are            reluctant to digitally deliver their recorded music over the Internet. As long as            pirated recordings are available, many consumers will choose free pirated recordings            rather than paying for legitimate recordings. Continued illegal content downloading and            sharing may slow growth in the market for paid digital music downloads, which could            harm our results of operations and future business operations.

*We            will be required to continuously update our software and upgrade our software and            hardware in order to successfully compete in the ever changing industry to accommodate            new personal media players and devices.*

We            will be required to constantly update our software and adapt new drivers as new devices            come on the market. If we are unable to successfully interface with our customers'            portable music devices with the software we currently are developing, we could be            forced to expend significant, unexpected time and funds on further research and            development for compatible software. There can be no assurance that our proposed            delivery system will allow us to successfully develop our business. The current            delivery system we are developing will allow customers to download music they purchase            onto their own personal, portable music devices, e.g., iPod, computer, CDs, DVDs, as            well as other new devices which may currently be in production. Each of these devices            requires different software in order to download music in various file formats. As we            expect our customers to equally use all of these methods, we intend to develop our            initial software to focus on the most current music digital music devices. Each of our            kiosks will be running a computer with Windows XP loaded with the appropriate driver            interfaces for as many currently manufactured models as possible. There is no guarantee            that we will be able to afford to continue to upgrade our software and/or hardware as            required, as and when new devices are introduced. Any such failure would result in a            loss of customers and could harm our results of operations and business.

*The            music industry is generally affected by changes in consumer preferences and national,            regional and local economic conditions, as well as demographic trends. If we are unable            to successfully launch our business line and generate revenues, you could lose any            investment you make in our securities.*

Music preferences are constantly changing in consumer preferences            nationally, regionally and locally, as well as by age group. In order to become            successful and, thus, profitable, we must be able to continue to keep up with the            latest trends and musical preferences of all age groups who could become our customers.            If we are unable to successfully obtain rights to all the many different types of music            available, we could suffer a loss of customers and possible revenues.

 

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Our            proposed expansion into the "music-on-demand" industry will subject our operations to            all regulations associated with the download and distribution of copyrighted materials            and intellectual property. If we are unable to comply with any of these laws, rules and            regulations, we may not be able to expand our operations to include "music-on-demand"            services, which would severely limit our business operations and any possible            revenues.

Our            proposed "music-on-demand" operations will be subject to rapidly changing laws and            regulations, which include data privacy laws, content regulation and sales and use            taxes. Because of this rapidly evolving and uncertain regulatory environment, we cannot            predict how these laws and regulations might affect our proposed expansion into the            "music-on-demand" business. In addition, these uncertainties make it difficult to            ensure compliance with the laws and regulations governing the Internet. These laws and            regulations could harm our operations and force us to change our currently proposed            business operations.

Although there are few laws and regulations directly applicable to the            Internet, proposed laws and regulations could be adopted in the future covering issues            such as music licensing, license fees, copyrights, privacy, pricing, sales taxes and            characteristics and quality of Internet services. The adoption of restrictive laws or            regulations could slow Internet usage or expose us to significant liabilities            associated with content available on our proposed website. The application of existing            laws and regulations governing Internet issues such as property ownership, libel and            personal privacy are also subject to substantial uncertainty. There can be no assurance            that current or new government laws and regulations, or the application of existing            laws and regulations (including laws and regulations governing issues such as property            ownership, content, taxation, defamation and personal injury), will not expose us to            significant liabilities, significantly slow Internet growth or otherwise cause a            material adverse effect on our proposed business operations, results of operations or            financial condition.

Our            proposed expansion into the "music-on-demand" industry will subject our operations to            potential liability for negligence and/or infringement of copyright and intellectual            property laws, as well as government regulations.

If            and when we expand our business operations to include "music-on-demand" services, as a            distributor of Internet content, we will face potential liability for negligence,            copyright, patent, trademark, defamation, indecency and other claims, based on the            nature and content of the materials that we download. Such claims have been brought,            and sometimes successfully pressed, against Internet content distributors. In addition,            we could be exposed to liability with respect to the content or unauthorized            duplication or broadcast of content downloaded from our website. We could also be            exposed to liability for third party content posted by our customers in chat rooms or            bulletin boards offered on our website. It is also possible that if any information            provided on our website contains errors or false or misleading information, third            parties could make claims against us for losses incurred in reliance on such            information. In addition, the provision of such information may be illegal in some            jurisdictions. In the future our website may contain a significant number of links to            other websites. As a result, we may be subject to claims alleging that, by directly or            indirectly providing links to other websites, we are liable for copyright or trademark            infringement or the wrongful actions of third parties through their respective            websites.

Any            violation of a copyright or intellectual property law, or government regulation by a            customer, may also be imposed on indirectly on us. Any such imposition of a liability            that is not covered by insurance, is in excess of insurance coverage or is not covered            by an indemnification by a content provider could have a material adverse effect on our            business, results of operations and financial condition.

Liability or alleged liability could harm our business by damaging our            reputation, requiring us to incur expensive legal costs in defense, exposing us to            awards of damages and costs and diverting management's attention away from our business            operations. Any such liability or violation could severely impact our proposed business            operations and/or proposed revenues.

We            have not yet fully examined or done any legal investigation of the copyright or            intellectual property laws that will apply to our proposed plan of operation to expand            into the music-on-demand business and may not have sufficient funding to do so if and            when we are financially able to expand. As a result, we may never be able to expand our            operations to music on demand, which would severely limit our possible revenues and            business operations.

 

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*Customers may choose to download their own music directly from the            Internet and avoid using our services.*

Once customers have our services to assist them with the download of            their music choices, they may become more comfortable with the Internet or more            familiar and at ease with the download process and may choose to go directly to the            music-on-demand website providers, rather than using our services, which would impact            our possible revenues.

*We            do not currently have any patent or trademark protection for our concept and business            plan and there is no guarantee that someone else will not duplicate our ideas and bring            them to market before we do or make a better product, either of which could severely            limit our proposed sales and revenues.*

We            have searched the Internet and trade manuals and believe our distribution system will            be unique; however, we have no patents or trademarks for our designs or brand name. As            business is established and operations expand, we may seek such protection; however, we            currently have no specific plans to do so. We believe we can obtain trademark            protection for our brand name, logo and advertising materials once they have been            designed, but we do not believe we will be able to copyright our distribution system            since the music distribution concept is already available on the Internet. Even if we            do trademark or copyright our materials, it may not prevent unauthorized persons from            copying aspects of our business or brand. There is no assurance a third party will not            choose to copy or duplicate our proprietary information and/or brand name. Any            encroachment upon our proprietary information, including the unauthorized use of our            brand name, the use of a similar name by a competing company or a lawsuit initiated            against us for infringement upon another company's proprietary information or improper            use of their trademark, may affect our ability to create brand name recognition, cause            customer confusion and/or have a detrimental effect on our business.

We            are unaware of any infringement upon our proprietary rights and/or brand name and have            not been notified by any third party that we are infringing upon anyone else's            proprietary rights; however, any such infringement, litigation or adverse proceeding            could result in substantial costs and diversion of resources and could seriously harm            our business operations and/or results of operations.

**Risks Related to our Securities**

*The            terms of any future financing may adversely affect your interest as            stockholders*

If            we require additional financing in the future, we may be required to incur indebtedness            or issue equity securities, the terms of which may adversely affect your interests in            our Company. For example, the issuance of additional indebtedness may be senior in            right of payment to your shares upon our liquidation. In addition, indebtedness may be            under terms that make the operation of our business more difficult because the            lender’s consent will be required before we take certain actions. Similarly the            terms of any equity securities we issue will likely be senior with regard to the            payment of dividends to your common stock and may contain superior rights and other            rights as compared to your common stock. Further, any such issuance of equity            securities may dilute your interest in our company, which may decrease the value of            your investment

*We            do not intend to pay dividends and there will be fewer ways in which you can obtain a            return on any investment in our Company.*

We            have never paid cash dividends and currently do not intend to pay cash dividends for            the foreseeable future. Because we do not intend to declare dividends, any gain on an            investment in our Company will need to come through appreciation of the price of our            common stock. There can be no assurance that the price of our common stock will            increase.

 

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*Trading of our stock is restricted by the SEC's penny stock            regulations, which may limit a stockholder's ability to buy and sell our            stock.*

The            Securities and Exchange Commission has adopted regulations which generally define            "penny stock" to be any equity security that has a market price (as defined) less than            $5.00 per share or an exercise price of less than $5.00 per share, subject to certain            exceptions. Our securities are covered by the penny stock rules, which impose            additional sales practice requirements on brokers or dealers who sell to persons other            than established customers and "accredited investors". The term "accredited investor"            refers generally to institutions with assets in excess of $5,000,000 or individuals            with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or            $300,000 jointly with their spouse. The penny stock rules require a broker or dealer,            prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver            a standardised risk disclosure document in a form prepared by the SEC, which provides            information about penny stocks and the nature and level of risks in the penny stock            market. The broker or dealer also must provide the customer with current bid and offer            quotations for the penny stock, the compensation of the broker or dealer and its            salesperson in the transaction and monthly account statements showing the market value            of each penny stock held in the customer's account. The bid and offer quotations, and            the broker or dealer and salesperson compensation information, must be given to the            customer orally or in writing prior to effecting the transaction and must be given to            the customer in writing before or with the customer's confirmation. In addition, the            penny stock rules require that prior to a transaction in a penny stock not otherwise            exempt from these rules, the broker or dealer must make a special written determination            that the penny stock is a suitable investment for the purchaser and receive the            purchaser's written agreement to the transaction. These disclosure requirements may            have the effect of reducing the level of trading activity in the secondary market for            the stock that is subject to these penny stock rules. Consequently, these penny stock            rules may affect the ability of brokers or dealers to trade our securities. We believe            that the penny stock rules will discourage investor interest in and limit the            marketability of our common stock. This may limit your ability to buy and sell our            stock and cause the price of the shares to decline.

*NASD sales practice requirements may also limit a stockholder's            ability to buy and sell our stock.*

In            addition to the "penny stock" rules described above, the National Association of            Securities Dealers (NASD) has adopted rules that require that in recommending an            investment to a customer, a broker or dealer must have reasonable grounds for believing            that the investment is suitable for that customer. Prior to recommending speculative            low priced securities to their non-institutional customers, brokers or dealers must            make reasonable efforts to obtain information about the customer's financial status,            tax status, investment objectives and other information. Under interpretations of these            rules, the NASD believes that there is a high probability that speculative low priced            securities will not be suitable for at least some customers. The NASD requirements make            it more difficult for brokers or dealers to recommend that their customers buy our            common stock, which may prevent you from reselling your shares and may cause the price            of the shares to decline.

*Because the majority of our assets and at least one of our Directors            and Officers are located outside the United States of America, it may be difficult for            an investor to enforce within the United States any judgments obtained against our            property and our Directors and Officers.*

The            majority of our present and future assets are and will continue be located in Mexico            and at least one of our directors and officers is a resident of Mexico and all or a            substantial portion of such persons’ assets are located outside the United            States. As a result, it may be difficult for an investor to effect service of process            or enforce within the United States any judgments obtained against our officers or            directors or that portion of our assets located outside the United States, including            judgments predicated upon the civil liability provisions of the securities laws of the            United States or any state thereof. In addition, there is uncertainty as to whether the            courts of Mexico and other jurisdictions would recognize or enforce judgments of United            States courts obtained against our Mexican assets or our directors and officers            predicated upon the civil liability provisions of the securities laws of the United            States or any state thereof, or be competent to hear original actions brought in Mexico            or other jurisdictions against us or our directors and officers predicated upon the            securities laws of the United States or any state thereof.

 

 

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*Any            future sale of stock held by our existing stockholder, who currently holds 57.99% of            our total issued and outstanding shares, could severely impact the market price of our            stock.*

James Shepard, our sole officer and director currently holds 36,000,000            common shares in our company. These shares are "restricted securities", as that term is            defined in Rule 144 of the Rules and Regulations of the SEC promulgated under the Act.            Under Rule 144, such shares can be publicly sold, subject to volume restrictions and            certain restrictions on the manner of sale, commencing one year after their            acquisition. Any sale of these shares held by Mr. Shepard after the applicable            restrictions expire could have a depressive effect on the price of our common stock in            any market that may develop, of which there is no guarantee. Mr. Shepard does not            currently have any plans to sell his shares at any time after this offering is            completed.

*We            are a small, development stage start-up company with only one director on our Board,            which could result in a lack of independence needed on certain issues and decisions            which impacting our shareholders.*

We            are a small start-up company with only one director, James Shepard, who is also our            President, CEO, Secretary, Treasurer, CFO and Principal Accounting Officer. As a            result, we lack independent directors, independent board committees and an independent            audit committee financial expert. In addition, Mr. Shepard will own approximately 47%            of our issued and outstanding common stock after completion of this offering, giving            him significant control of any decisions regarding the company and/or our securities.            There can be no assurance that Mr. Shepard will be completely independent in the            decisions he makes as our sole director and/or principal stockholder that will ensure            protection of the rights of other stockholders who purchase our securities in this            offering.

*Because the majority of our assets and at least one of our Directors            and Officers are located outside the United States of America, it may be difficult for            an investor to enforce within the United States any judgments obtained against our            property and our Directors and Officers.*

The            majority of our present and future assets are and will continue be located outside the            United States and the majority of our directors and officers are resident outside the            United States, and all or a substantial portion of such persons’ assets are            located outside the United States. As a result, it may be difficult for an investor to            effect service of process or enforce within the United States any judgments obtained            against our officers or directors or that portion of our assets located outside the            United States, including judgments predicated upon the civil liability provisions of            the securities laws of the United States or any state thereof. In addition, there is            uncertainty as to whether courts in other jurisdictions would recognize or enforce            judgments of United States courts obtained against our assets or our directors and            officers predicated upon the civil liability provisions of the securities laws of the            United States or any state thereof, or be competent to hear original actions brought in            other jurisdictions against us or our directors and officers predicated upon the            securities laws of the United States or any state thereof.

**ITEM 2. DESCRIPTION OF PROPERTY.**

**Executive Offices**

Our            registered statutory office is located at 6100 Neil Road, Suite 500, Reno,            Nevada 89544.

We do            not own or lease any property. All work for the online service is done from the home of            the contractors and all service work in the building of the kiosks is done on the            premises of the building contractor.

**ITEM 3. LEGAL PROCEEDINGS.**

We            know of no material, active or pending legal proceedings against our company, nor are            we involved as a plaintiff in any material proceeding or pending litigation. There are            no proceedings in which any of our directors, officers or affiliates, or any registered            or beneficial shareholder, is an adverse party or has a material interest adverse to            our interest.

 

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**ITEM            4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS.**

None.

**PART II**

**ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER            MATTERS.**

The            principal market on which our common stock is quoted is the OTC Bulletin Board under            the Symbol "TPHN". The OTC Bulletin Board securities are not listed and traded on the            floor of an organized national or regional stock exchange. Instead, OTC Bulletin Board            securities transactions are conducted through a telephone and computer network            connecting dealers in stocks. OTC Bulletin Board stocks are traditionally smaller            companies that do not meet the financial and other listing requirements of a regional            or national stock exchange.

The            high and the low bid prices for our common shares for each quarter are not available            from the OTC Bulletin Board. In order for the OTC Bulletin Board to report the high and            low bid prices for a particular security, there must be three market makers for that            security. During the period from the date our common shares were first traded on the            OTC Bulletin Board to the end of our May 31, 2007 fiscal year, there were only one or            two market makers for our common stock. As such, the OTC Bulletin Board has not            reported the high or low bid prices for our common shares during the            periods.

**Holders of our Common Stock**

As            of August 22, 2007, there were four registered holders of record of our common stock.            As of such date, 62,080,000 common shares of our company were issued and            outstanding.

**Dividend Policy**

Since the inception of our Company, we have not paid any cash dividends            on our common stock and have no present intention of paying any dividends on the shares            of our common stock. Our current policy is to retain earnings, if any, for use in our            operations and in the development of our business. Our future dividend policy will be            determined from time to time by our board of directors.

**Recent Sales of Unregistered Securities**

None.

**Equity Compensation Plan Information**

We            currently do not have any stock option or equity compensation plans or            arrangements.

**Purchases of Equity Securities by the Issuer and Affiliated            Purchasers**

We            did not purchase any of our shares of common stock or other securities during our            fiscal year ended May 31, 2007.

**ITEM 6. PLAN OF OPERATION.**

**Overview**

You            should read the following discussion of our financial condition and results of            operations together with the audited financial statements and the notes to audited            financial statements included elsewhere in this filing prepared in accordance with            accounting principles generally accepted in the United States. This discussion contains            forward-looking statements that reflect our plans, estimates and beliefs. Our actual            results could differ materially from those anticipated in these forward-looking            statements.

 

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**Plan of Operation**

We            were incorporated in August 2005, completed an SB2 application which was accepted in            May 2006 and subsequently completed our initial offering. We successfully pursued our            business plan according to schedule as outlined in quarterly reports filed on the SEC            site (www.sec.gov) on October 30, 2006, January 11, 2007 and April 16, 2007.

For            the fiscal year ended May 31 2007, we incurred a net operating loss of $78,953. Our            total expenses were $78,953, of which $36,528 were for legal and accounting fees            incurred in connection with the preparation and filing of our various public documents            with the U.S. Securities and Exchange Commission and for the review of the legality of            patents purchased.

*Liquidity and Capital Resources*

At            May 31, 2007, we had $27,675 in cash on hand, $4,412 accounts receivable and $21,000 of            prepaid expenses. As we have not yet started gaining revenue, there can be no assurance            that we will be able to access further financing or that debt or equity financing will            be available to us on acceptable terms to meet our financial needs for the coming            fiscal year, as and when needed. Our auditors have expressed substantial doubt about            our ability to continue as a going concern.

Cash provided by financing activities for the year ended May 31, 2007            was $196,000, consisting of $9,000 attributed to the sale of shares to our Founder, who            is our sole officer and director; and the balance from additional shareholders who have            invested in the company.

There was no cash used in investing activities for the year ended May            31, 2007.

Our            net loss for the year ended May 31, 2007 was $78,953 and our net loss since inception            is $101,889.

At May            31, 2007, we had working capital deficit of $101,889.

At May            31, 2007, our total current assets were $50,675 which consisted of cash of            $27,675.

At May            31, 2007, our total current liabilities were $4,412.

Operating expenses for the year ended May 31, 2007 were            $78,953.

For            the year ended May 31, 2007, we posted losses of $78,953 and of $101,889 since            incorporation. The principal components of the loss for the year ended May 31, 2007            were general and administrative expenses and taxes.

We            anticipate no material commitments for capital expenditures in the near term.            Management is not aware of any trend in our proposed industry, which may have a            negative impact on future income, revenue or income from operations.

We            are relying solely on the monies raised from shareholders to pursue the development,            setup and marketing of our products. No other source of capital has been identified or            sought.

We            have never had any discussions with any possible acquisition candidate, nor have we any            intention of doing so.

We            do not expect to purchase any real estate and do not own any to sell.

We            do not expect to hire full time employees until our business operations are established            and we have constructed and placed our first kiosk.

 

----

|   | - 20 - |
|--------|--------|

 

*Proposed Milestones to Implement Business Operations*

In            order to become fully operational and profitable, we will need to achieve each of the            milestones outlined below, all of which are dependent on receipt of the proceeds from            our initial public offering, of which their can be no assurance.

The**first quarter milestones**which were established for the company after completion of the initial            offering were as follows and have been completed:
|   | 1. | Develop and publish the website                                                                                            |
|--------|----|----------------------------------------------------------------------------------------------------------------------------|
|   | 2. | Begin design and construction of a first model of a kiosk to                        be used for test purposes and training |
|   | 3. | Finalize logo and graphics that will be associated with our                        brand name.                             |

The**milestones for the second and third            quarters**for the company after completion of the initial            offering were as follows with all being completed except numbers 4 and 5:
|   | 1. | Once our website is established and operational, we will                        begin seeking space in a mall or other high traffic location to begin                        negotiations for our first kiosk |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | 2. | Complete the model kiosk and test all equipment                                                                                                                                                               |
|   | 3. | Have all graphics and promotional material                        completed                                                                                                                                   |
|   | 4. | Develop and begin to initiate advertising and PR                        plan                                                                                                                                  |
|   | 5. | Begin hiring and training an employee to staff the                        kiosk`                                                                                                                              |
|   | 6. | Purchase initial foundation for music library                                                                                                                                                                 |
|   | 7. | Complete details to handle debit and credit card                        transactions                                                                                                                          |

The            milestones for the last quarter were to:
|   |   | Enter into a lease agreement and have the first TyTunes                        kiosk operational |
|--------|--------|--------------------------------------------------------------------------------------------------|
|   |   | Continue to research and develop software and expand online                        suppliers     |
|   |   | Launch full advertising and marketing program                                                    |
|   |   | Scout out additional locations for subsequent kiosk                        locations             |

As            we researched locations for a physical kiosk including a variety of partnership            opportunities, it became evident that the costs for a high profile physical location            were prohibitive. In spite of the exploration of a variety of partnership locations, a            decision was taken to delay the launch of a physical site and put all resources into a            more lucrative online site. The online site is functional but has not been widely            publicized to this point as much time and effort has gone into exploring and purchasing            patents for the desired touch-screen technology to ensure the site has easy-to-use and            up-to-date technology.

*Off-Balance Sheet Arrangements*

We            have no off-balance sheet arrangements or contractual or commercial            commitments.

 

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|   | - 21 - |
|--------|--------|

 

*Subsequent Events*

As            a result of discussions held in regard to the requirements of our online business -            namely a touch-screen technology, we came to understand that a certain functionality            was required which would require licensing. In the exploration of the most effective            way to achieve our needs we were able to satisfy our requirements through the purchase            of patents from a private company, Nova Mobility Systems. The need to protect these and            other patents we may develop or purchase has led us to adding a secondary prong to our            business which would include the development and or purchase of desirable patents and            any protection that may be required. The expanded mandate has led us to change the name            of our business to Typhoon Enterprises Inc. to more accurately reflect the direction            and business of our company.*See 8K posted on SEC site            (www.sec.gov) on August 13, 2007.*To assist us to achieve            this end, the company borrowed $250,000 (prior to deductions for banking            fees).

The            table below summarizes our anticipated expenditures for the next twelve            months.

Over the next 12 months we anticipate that we will incur the following            operating expenses:
|   |                                  |   |       |
|--------|---------------------------------------|--------|------------|
|   | **Program**                           |   | **Cost**   |
|   | Purchase of Hardware                  | $      | 12,000     |
|   | Sales, Marketing and Promotional Plan |   | 25,000     |
|   | Costs of remaining a public company   |   | 30,000     |
|   | **TOTAL**                             | **$**  | **67,000** |

We            believe that we will require additional funds to implement our growth strategy in            exploration operations. These funds may be raised through equity financing, debt            financing, or other sources, which may result in further dilution in the equity            ownership of our shares. There is no assurance that we will be able to maintain            operations at a level sufficient for an investor to obtain a return on his investment            in our common stock. Further, we may continue to be unprofitable.

*Going Concern*

Due            to the uncertainty of our ability to meet our current operating and capital expenses,            in their report on the annual financial statements for the year ended May 31, 2007, our            independent auditors included an explanatory paragraph regarding concerns about our            ability to continue as a going concern.

There is substantial doubt about our ability to continue as a going            concern and achieving a profitable level of operation. The issuance of additional            equity securities by us could result in a significant dilution in the equity interests            of our current shareholders. Obtaining commercial loans, assuming those loans would be            available, will increase our liabilities and future cash commitments.

**APPLICATION OF CRITICAL ACCOUNTING POLICIES**

The            financial statements included herein have been prepared pursuant to the rules and            regulations of the Securities and Exchange Commission. Management believes the            disclosures made are adequate to make the information not misleading. The financial            statements and accompanying notes are prepared in accordance with the United States            generally accepted accounting principles. Preparing financial statements requires            Management to make estimates and assumptions that affect the reported amounts of assets            and liabilities and disclosure of contingent assets and liabilities at the date of the            financial statements and the reported amounts of revenues and expenses during the            reporting period. These estimates and assumptions are affected by Management's            application of accounting policies. These important accounting policies include the            successful efforts method of accounting for property and equipment, revenue            recognition, accounting for income taxes and foreign currency translation.

Management maintains disclosure controls and procedures designed to            ensure that we are able to timely collect the information we are required to disclose            in our reports filed with the U.S. Securities and Exchange Commission.

 

----

|   | - 22 - |
|--------|--------|

 

As of            the end of the period covered by this report, we performed an evaluation, under the            supervision and with the participation of our Management, of the effectiveness of the            design and operation of our disclosure controls and procedures pursuant to Exchange Act            Rule 13a-14. Based upon the evaluation, our Principal Executive Officer and Principal            Accounting Officer concluded that the current disclosure controls are effective in            timely alerting us to any material information required to be included in our periodic            SEC filings.

We            also maintain a system of internal controls designed to provide reasonable assurance            that (i) transactions are executed in accordance with Management's general and specific            authorization; (ii) transactions are recorded as necessary to permit preparation of            financial statements in conformity with the United States generally accepted accounting            principles and to maintain accountability for assets; (ii) access to assets is            permitted only in accordance with Management's general or specific authorization; and            (iv) the recorded accountability for assets is compared with the existing assets at            reasonable intervals and appropriate action is taken with respect to any differences.            We believe that our internal controls are effective to provide reasonable assurance            that our financial statements are fairly presented in conformity with generally            accepted accounting principals. Since our most recent evaluation, there have been no            changes in our internal controls or in other factors that could significantly affect            our internal controls, nor were any corrective actions required with regard to            significant deficiencies and material weaknesses. However, our auditors did not test            the effectiveness of nor relied on our internal controls for the fiscal year ended May            31, 2007.

**Recent accounting pronouncements**

In            February 2007, the Financial Accounting Standards Board (the “FASB”) issued            SFAS No. 159, “The Fair Value Option for Financial Assets and Financial            Liabilities” (“SFAS 159”).  SFAS 159 allows the company to            choose to measure many financial assets and financial liabilities at fair value.             Unrealized gains and losses on items for which the fair value option has been elected            are reported in earnings.  SFAS 159 is effective for fiscal years beginning after            15 November 2007.  The Company is currently evaluating the requirements of SFAS            159 and the potential impact on the Company’s financial statements.

In            September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for            Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB            Statements No. 87, 88, 106 and 132(R)” (“SFAS 158”). SFAS 158            requires an employer that sponsors one or more single-employer defined benefit plans to            (a) recognize the overfunded or underfunded status of a benefit plan in its statement            of financial position, (b) recognize as a component of other comprehensive income, net            of tax, the gains or losses and prior service costs or credits that arise during the            period but are not recognized as components of net periodic benefit cost pursuant to            SFAS 87, “Employers’ Accounting for Pensions”, or SFAS 106,            “Employers’ Accounting for Postretirement Benefits Other Than            Pensions”, (c) measure defined benefit plan assets and obligations as of the date            of the employer’s fiscal year-end, and (d) disclose in the notes to financial            statements additional information about certain effects on net periodic benefit cost            for the next fiscal year that arise from delayed recognition of the gains or losses,            prior service costs or credits, and transition asset or obligation. SFAS 158 is            effective for the Company’s fiscal year ending 31 May 2007. The adoption of            SFAS 158 is not expected to have a material impact on the Company’s            financial position, results of operations or cash flows.

In            September 2006, the FASB issued SFAS No. 157, “Fair Value Measurement”            (“SFAS 157”). The Statement provides guidance for using fair value to            measure assets and liabilities. The Statement also expands disclosures about the extent            to which companies measure assets and liabilities at fair value, the information used            to measure fair value, and the effect of fair value measurement on earnings. This            Statement applies under other accounting pronouncements that require or permit fair            value measurements. This Statement does not expand the use of fair value measurements            in any new circumstances. Under this Statement, fair value refers to the price that            would be received to sell an asset or paid to transfer a liability in an orderly            transaction between market participants in the market in which the entity transacts.            SFAS 157 is effective for the Company for fair value measurements and disclosures made            by the Company in its fiscal year beginning on 1 June 2008. The adoption of            SFAS 157 is not expected to have a material impact on the Company’s            financial position, results of operations or cash flows.

In            July 2006, the FASB issued FIN. 48, “Accounting for Uncertainty in Income Taxes            (an interpretation of FASB Statement No. 109)” (“FIN 48”), which is            effective for fiscal years beginning after 15 December 2006. This interpretation was            issued to clarify the accounting for uncertainty in income taxes recognized in the            financial statements by prescribing a recognition threshold and measurement attribute            for the financial statement recognition

----

|   | - 23 - |
|--------|--------|

 

and            measurement of a tax position taken or expected to be taken in a tax return. The            Company is currently evaluating the potential impact of FIN 48, but it is not expected            to have a material impact on the Company’s financial position, results of            operations or cash flows.

In            March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of            Financial Assets” (“SFAS 156”), which amends SFAS 140. SFAS 156 may            be adopted as early as 1 January 2006, for calendar year-end entities, provided that no            interim financial statements have been issued. Those not choosing to early adopt are            required to apply the provisions as of the beginning of the first fiscal year that            begins after 15 September 2006 (e.g., 1 January 2007, for calendar year-end            entities).  The intention of the new statement is to simplify accounting for            separately recognized servicing assets and liabilities, such as those common with            mortgage securitization activities, as well as to simplify efforts to obtain hedge-like            accounting.  Specifically, the FASB said SFAS 156 permits a service using            derivative financial instruments to report both the derivative financial instrument and            related servicing asset or liability by using a consistent measurement attribute, or            fair value.  The adoption of SFAS 156 is not expected to have a material            impact on the Company’s financial position, results of operations or cash            flows.

**ITEM 7. FINANCIAL STATEMENTS.**

Our            financial statements are stated in United States dollars (US$) and are prepared in            accordance with United States Generally Accepted Accounting Principles.

The            following financial statements are filed as part of this annual report:
|   | Consent of Independent Registered Public Accounting                        Firm |
|--------|---------------------------------------------------------------------------------|
|   | Balance Sheet                                                                   |
|   | Statements of Operations                                                        |
|   | Statements of Cash Flows                                                        |
|   | Statements of Changes in Stockholders’                        Equity      |
|   | Notes to Financial Statements                                                   |

 

 

----

|   | - 24 - |
|--------|--------|

 

 

**JAMESSTAFFORD**
|   |   |   | **James Stafford**

**Chartered Accountants**

Suite 350 – 1111 Melville Street

Vancouver, British Columbia

Canada V6E 3V6

Telephone +1 604 669 0711

Facsimile +1 604 669 0754 |
|--------|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

 

**Consent of Independent Registered Public Accounting            Firm**

 

We            consent to the incorporation of our report dated 9 August 2007, with respect to the            balance

sheets            of Typhoon Tunes Inc. as at 31 May 2007, and the related statement of operations,            cash

flows            and the changes in stockholder’s equity from the date of inception on 30 August            2005 to

31 May            2007 in the Form 10-KSB of Typhoon Tunes Inc.

 

/s/*James Stafford*

**Chartered Accountants**

 

Vancouver, Canada

 

9            August 2007

 

 

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|   | - 25 - |
|--------|--------|

 

 

 

**Typhoon Tunes Inc.**

**(A Development Stage Company)**

 

Financial Statements

(Expressed in U.S. Dollars)

**31 May 2007**

 

 

----

|   | - 26 - |
|--------|--------|

 

**Typhoon Tunes Inc.**

**(A Development Stage Company)**

Balance Sheets

(Expressed in U.S. Dollars)

**As at 31 May**

 
|                                                                                  |   | **2007**  |   | **2006** |
|---------------------------------------------------------------------------------------|--------|-----------|--------|----------|
|                                                                                  |   | **$**     |   | **$**    |
|                                                                                  |   |      |   |     |
| **Assets**                                                                            |   |      |   |     |
| **Current**                                                                           |   |      |   |     |
| Cash and cash equivalents                                                             |   | 27,675    |   | 585      |
| Account receivable                                                                    |   | 2,000     |   | -        |
| Prepaid expenses                                                                      |   | 21,000    |   | -        |
|                                                                                  |   |      |   |     |
|                                                                                  |   | 50,675    |   | 585      |
|                                                                                  |   |      |   |     |
| **Plant, property and equipment**(Note 3)                                             |   | 5,756     |   | -        |
| **Website and kiosk development costs**(Note 4)                                       |   | 42,092    |   | -        |
|                                                                                  |   |      |   |     |
|                                                                                  |   | 98,523    |   | 585      |
|                                                                                  |   |      |   |     |
| **Liabilities**                                                                       |   |      |   |     |
| **Current**                                                                           |   |      |   |     |
| Accounts payable and accrued liabilities (Note 5)                                     |   | 4,412     |   | 8,021    |
| Note payable (Note 6)                                                                 |   | -         |   | 3,000    |
| Due to related party (Note 7)                                                         |   | -         |   | 3,500    |
|                                                                                  |   |      |   |     |
|                                                                                  |   | 4,412     |   | 14,521   |
|                                                                                  |   |      |   |     |
| **Stockholders’ equity (deficit)**                                              |   |      |   |     |
| **Capital stock**(Note                        9)                                      |   |      |   |     |
| Authorized                                                                            |   |      |   |     |
| 75,000,000 common shares, par value $0.001                                            |   |      |   |     |
| Issued and outstanding                                                                |   |      |   |     |
| 31 May 2007 – 15,520,000 common shares, par value                        $0.001 |   |      |   |     |
| 31 May 2006 – 9,000,000 common shares, par value                        $0.001  |   | 15,520    |   | 9,000    |
| **Additional paid-in capital**                                                        |   | 176,861   |   | -        |
| **Warrants**                                                                          |   | 3,619     |   | -        |
| **Deficit, accumulated during the development                        stage**          |   | (101,889) |   | (22,936) |
|                                                                                       |   |      |   |     |
|                                                                                  |   | 94,111    |   | (13,936) |
|                                                                                  |   |      |   |     |
|                                                                                  |   | 98,523    |   | 585      |

 

**Nature and Continuance of Operations**(Note            0),**Subsequent Event**(Note 12)            and**Commitment**(Note 13)

 

**On            behalf of the Board:**

 
| /s/ James Shepard   | Director |
|-------------------------------|----------|

 

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

 

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|   | - 27 - |
|--------|--------|

 

**Typhoon Tunes            Inc.**

**(A Development Stage            Company)**

Statements of            Operations

(Expressed in U.S.            Dollars)

 
|                                                                            | **For the period from the date of inception on 30 August                        2005 to****31 May 2007** | **For the year ended****31 May 2007** | **For the period from the date of inception                        on****30 August 2005 to****31 May 2006** |
|---------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------|---------------------------------------|-------------------------------------------------------------------------------------------------------------|
|                                                                            |                                                                                                     | **$**                                 |                                                                                                        | **$** |   | **$** |
|                                                                            |                                                                                                     |                                  |                                                                                                        |   |   |   |
| **Expenses**                                                                    |                                                                                                     |                                  |                                                                                                        |   |   |   |
| Depreciation (Note 3)                                                           |                                                                                                     | 386                                   |                                                                                                        | 386 |   | - |
| Filing fees                                                                     |                                                                                                     | 1,284                                 |                                                                                                        | 1,080 |   | 204 |
| Legal and accounting                                                            |                                                                                                     | 57,498                                |                                                                                                        | 36,528 |   | 20,970 |
| Management fees (Notes 8, 9 and 11)                                             |                                                                                                     | 18,000                                |                                                                                                        | 18,000 |   | - |
| Office and miscellaneous                                                        |                                                                                                     | 3,272                                 |                                                                                                        | 2,367 |   | 905 |
| Rent (Notes 8, 9 and 11)                                                        |                                                                                                     | 6,000                                 |                                                                                                        | 6,000 |   | - |
| Transfer agent fees                                                             |                                                                                                     | 2,526                                 |                                                                                                        | 1,669 |   | 857 |
| Website planning costs                                                          |                                                                                                     | 12,923                                |                                                                                                        | 12,923 |   | - |
|                                                                            |                                                                                                     |                                  |                                                                                                        |   |   |   |
| **Net loss for the period**                                                     |                                                                                                     | (101,889)                             |                                                                                                        | (78,953) |   | (22,936) |
|                                                                            |                                                                                                     |                                  |                                                                                                        |   |   |   |
| **Basic and diluted loss per common share**                                     |                                                                                                     |                                  |                                                                                                        | (0.006) |   | (0.003) |
|                                                                            |                                                                                                     |                                  |                                                                                                        |   |   |   |
| **Weighted average number of common shares                        outstanding** |                                                                                                     |                                  |                                                                                                        | 13,812,874 |   | 9,000,000 |

 

 

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

 

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|   | - 28 - |
|--------|--------|

 

**Typhoon Tunes Inc.**

**(A Development Stage Company)**

Statements of Cash Flows

(Expressed in U.S. Dollars)

 
|                                                                                          |  

                         

                         

                         

**For the period from the date of inception on 30 August                        2005 to**

**31 May 2007** | **For the**

**year ended**

**31 May 2007** | **For the period from the date of inception on 30 August                        2005 to**

**31 May 2006** |
|-----------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------|------------------------------------------------------------------------------------------------------------|
|                                                                                          |                                                                                                                                                                                                               | **$**                                        |                                                                                                       | **$** |   | **$** |
|                                                                                          |                                                                                                                                                                                                               |                                         |                                                                                                       |   |   |   |
| **Cash flows used in operating activities**                                                   |                                                                                                                                                                                                               |                                         |                                                                                                       |   |   |   |
| Net loss for the period                                                                       |                                                                                                                                                                                                               | (101,889)                                    |                                                                                                       | (78,953) |   | (22,936) |
| Adjustments to reconcile loss to net cash used by operating                        activities |                                                                                                                                                                                                               |                                         |                                                                                                       |   |   |   |
| Contributions to capital – expenses (Notes 8, 9 and                        11)          |                                                                                                                                                                                                               | 24,000                                       |                                                                                                       | 24,000 |   | - |
| Depreciation (Note 3)                                                                         |                                                                                                                                                                                                               | 386                                          |                                                                                                       | 386 |   | - |
| Changes in operating assets and liabilities                                                   |                                                                                                                                                                                                               |                                         |                                                                                                       |   |   |   |
| (Increase) in account receivable                                                              |                                                                                                                                                                                                               | (2,000)                                      |                                                                                                       | (2,000) |   | - |
| (Increase) in prepaid expenses                                                                |                                                                                                                                                                                                               | (21,000)                                     |                                                                                                       | (21,000) |   | - |
| Increase (decrease) in accounts payable and accrued                        liabilities        |                                                                                                                                                                                                               | 4,412                                        |                                                                                                       | (3,609) |   | 8,021 |
|                                                                                          |                                                                                                                                                                                                               |                                         |                                                                                                       |   |   |   |
|                                                                                          |                                                                                                                                                                                                               | (96,091)                                     |                                                                                                       | (81,176) |   | (14,915) |
|                                                                                          |                                                                                                                                                                                                               |                                         |                                                                                                       |   |   |   |
| **Cash flows used in investing activities**                                                   |                                                                                                                                                                                                               |                                         |                                                                                                       |   |   |   |
| Purchase of computer hardware                                                                 |                                                                                                                                                                                                               | (6,142)                                      |                                                                                                       | (6,142) |   | - |
| Website and kiosk development costs                                                           |                                                                                                                                                                                                               | (42,092)                                     |                                                                                                       | (42,092) |   | - |
|                                                                                          |                                                                                                                                                                                                               |                                         |                                                                                                       |   |   |   |
|                                                                                          |                                                                                                                                                                                                               | (48,234)                                     |                                                                                                       | (48,234) |   | - |
|                                                                                          |                                                                                                                                                                                                               |                                         |                                                                                                       |   |   |   |
| **Cash flows from financing activities**                                                      |                                                                                                                                                                                                               |                                         |                                                                                                       |   |   |   |
| Common shares and warrants issued for cash                                                    |                                                                                                                                                                                                               | 259,000                                      |                                                                                                       | 250,000 |   | 9,000 |
| Common shares and warrants rescinded for cash                                                 |                                                                                                                                                                                                               | (87,000)                                     |                                                                                                       | (87,000) |   | - |
| Increase (decrease) in note payable                                                           |                                                                                                                                                                                                               | -                                            |                                                                                                       | (3,000) |   | 3,000 |
| Increase (decrease) in due to related party                                                   |                                                                                                                                                                                                               | -                                            |                                                                                                       | (3,500) |   | 3,500 |
|                                                                                          |                                                                                                                                                                                                               |                                         |                                                                                                       |   |   |   |
|                                                                                          |                                                                                                                                                                                                               | 172,000                                      |                                                                                                       | 156,500 |   | 15,500 |
|                                                                                          |                                                                                                                                                                                                               |                                         |                                                                                                       |   |   |   |
| **Increase in cash and cash equivalents**                                                     |                                                                                                                                                                                                               | 27,675                                       |                                                                                                       | 27,090 |   | 585 |
|                                                                                          |                                                                                                                                                                                                               |                                         |                                                                                                       |   |   |   |
| **Cash and cash equivalents, beginning of                        period**                     |                                                                                                                                                                                                               | -                                            |                                                                                                       | 585 |   | - |
|                                                                                          |                                                                                                                                                                                                               |                                         |                                                                                                       |   |   |   |
| **Cash and cash equivalents, end of period**                                                  |                                                                                                                                                                                                               | 27,675                                       |                                                                                                       | 27,675 |   | 585 |

 

**Supplemental Disclosures with Respect to Cash Flows**(Note 11)

 

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

 

 

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|   | - 29 - |
|--------|--------|

 

**Typhoon Tunes Inc.**

**(A Development Stage Company)**

Statements of Changes in Stockholders’ Equity

(Expressed in U.S. Dollars)

 
|                                                                                                  |   | **Number of common shares issued** | **Share Capital** |    | **Additional paid-in capital** | **Warrants** | **Deficit, accumulated during the development                        stage** | **Stockholders’ equity** |
|-------------------------------------------------------------------------------------------------------|--------|------------------------------------|-------------------|---------|--------------------------------|--------------|------------------------------------------------------------------------------|--------------------------------|
|                                                                                                  |   |                               |              | **$**   |                           | **$**        |                                                                         | **$**                          |   | **$** |   | **$** |
|                                                                                                  |   |                               |              |    |                           |         |                                                                         |                           |   |   |   |   |
| **Balance at 30 August 2005 (inception)**                                                             |   | -                                  |              | -       |                           | -            |                                                                         | -                              |   | - |   | - |
| Common shares issued for cash ($0.001 per share) (Note                        9)                      |   | 9,000,000                          |              | 9,000   |                           | -            |                                                                         | -                              |   | - |   | 9,000 |
| Net loss for the period                                                                               |   | -                                  |              | -       |                           | -            |                                                                         | -                              |   | (22,936) |   | (22,936) |
|                                                                                                  |   |                               |              |    |                           |         |                                                                         |                           |   |   |   |   |
| **Balance at 31 May 2006**                                                                            |   | 9,000,000                          |              | 9,000   |                           | -            |                                                                         | -                              |   | (22,936) |   | (13,936) |
| Common shares and warrants issued for cash ($0.001 per unit                        ) (Note 9)         |   | 10,000,000                         |              | 10,000  |                           | 234,449      |                                                                         | -                              |   | - |   | 244,449 |
| Common shares and warrants rescinded for cash ($0.001 per                        unit ) (Note 9)      |   | (3,480,000)                        |              | (3,480) |                           | (81,588)     |                                                                         | -                              |   | - |   | (85,068) |
| Warrants granted (Note 9)                                                                             |   | -                                  |              | -       |                           | -            |                                                                         | 5,551                          |   | - |   | 5,551 |
| Warrants rescinded (Note 9)                                                                           |   | -                                  |              | -       |                           | -            |                                                                         | (1,932)                        |   | - |   | (1,932) |
| Contributions to capital by related party – expenses                        (Notes 8, 9 and 11) |   | -                                  |              | -       |                           | 24,000       |                                                                         | -                              |   | - |   | 24,000 |
| Net loss for the year                                                                                 |   | -                                  |              | -       |                           | -            |                                                                         | -                              |   | (78,953) |   | (78,953) |
|                                                                                                  |   |                               |              |    |                           |         |                                                                         |                           |   |   |   |   |
| **Balance at 31 May 2007**                                                                            |   | 15,520,000                         |              | 15,520  |                           | 176,861      |                                                                         | 3,619                          |   | (101,889) |   | 94,111 |

 

 

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

 

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|   | - 30 - |
|--------|--------|

 

 

**Typhoon Tunes Inc.**

**(A Development Stage            Company)**

Notes to Financial Statements

(Expressed in U.S. Dollars)

**31 May 2007**

 
| **1.** | **Nature and Continuance of Operations** |
|--------|------------------------------------------|

             

Typhoon Tunes Inc. (the “Company”) was incorporated under            the laws of the State of Nevada on 30 August 2005. The Company was formed to provide            music through retail mall kiosks and other point-of-purchase locations, including on            the Internet at typhoontunes.com.

The Company plans to initially offer download assistance of music from            third-party Internet music suppliers to the public in what it believes to be a new            format, designed to target people who are not Internet or computer savvy or who are not            willing or able to download their music preferences on their own.

Once the Company is operational, and as funds allow, the Company also            intends to expand into a new genre, "music on demand" - downloading individual songs            requested by customers onto a CD/DVD or their personal portable music device or by            creating a CD/DVD of the customer’s choice. By offering customized music, the            Company feels it can be the solution for consumers looking for an easy and convenient            way to get the music they want, when they want it. Additionally, if customers wish,            they will have the option to purchase pre-made music mixes. For example, this could            include "today's top ten New York club hits" or "London's favorite hits of the year".            At a later date, after our first year of operations, we will consider expanding our            offerings to include digital music players and other merchandise.

The Company is a development stage enterprise, as defined in Statements            of Financial Accounting Standards (“SFAS”) No. 7,            “*Accounting and Reporting by Development Stage            Enterprises*”. The Company is devoting all of its            present efforts to securing and establishing a new business and its planned principle            operations have not commenced. Accordingly, no revenue has been derived during the            organization period. All losses accumulated since inception has been considered as part            of the Company’s development stage activities.

             

The Company’s financial statements as at 31 May 2007 and for the            year then ended have been prepared on a going concern basis, which contemplates the            realization of assets and the settlement of liabilities and commitments in the normal            course of business. The Company has a loss of $78,953 for the year ended 31 May 2007            (31 May 2006 – $22,936) and has working capital of $46,263 at 31 May 2007 (31 May            2006 – working capital deficiency of $13,936).

             

Management cannot provide assurance that the Company will ultimately            achieve profitable operations or become cash flow positive, or raise additional debt            and/or equity capital. Management believes that the Company’s capital resources            should be adequate to continue operating and maintaining its business strategy during            the fiscal year ending 31 May 2008. However, if the Company is unable to raise            additional capital in the near future, due to the Company’s liquidity problems,            management expects that the Company will need to curtail operations, liquidate assets,            seek additional capital on less favorable terms and/or pursue other remedial measures.            These financial statements do not include any adjustments related to the recoverability            and classification of assets or the amounts and classification of liabilities that            might be necessary should the Company be unable to continue as a going            concern.

             

 

----

|   | - 31 - |
|--------|--------|

 

**Typhoon Tunes Inc.**

**(A Development Stage            Company)**

Notes to Financial Statements

(Expressed in U.S. Dollars)

**31 May 2007**

             

At 31 May 2007, the Company has not yet moved into the revenue            generation stage of the business and suffered losses from development stage activities            to date. Although management is currently attempting to implement its business plan,            and is seeking additional sources of equity or debt financing, there is no assurance            these activities will be successful. Accordingly, the Company must rely on its            president to perform essential functions without compensation until a business            operation can be commenced. These factors raise substantial doubt about the ability of            the Company to continue as a going concern. The financial statements do not include any            adjustments that might result from the outcome of this uncertainty.

             
| **2.** | **Significant Accounting Policies** |
|--------|-------------------------------------|

The following is a summary of significant accounting policies used in            the preparation of these financial statements.

**Basis of presentation**

The financial statements of the Company have been prepared in accordance            with accounting principles generally accepted in the United States of America            applicable to development stage enterprises, and are expressed in U.S. dollars. The            Company’s fiscal year end is 31 May.

             

**Cash and cash equivalents**

Cash and cash equivalents include highly liquid investments with            original maturities of three months or less.

             

**Financial instruments**

             

The carrying value of cash, accounts payable and accrued liabilities,            loan payable and due to related party approximates their fair value because of the            short maturity of these instruments. The Company’s operations are in Canada and            virtually all of its assets and liabilities are giving rise to significant exposure to            market risks from changes in foreign currency rates. The Company’s financial risk            is the risk that arises from fluctuations in foreign exchange rates and the degree of            volatility of these rates. Currently, the Company does not use derivative instruments            to reduce its exposure to foreign currency risk.

             

**Derivative financial instruments**

             

The Company has not, to the date of these financial statements, entered            into derivative instruments to offset the impact of foreign currency            fluctuations.

             
|   | **Software, kiosk and website development                        costs** |
|--------|--------------------------------------------------------------------------|

             

The costs of computer software developed or obtained for internal use,            during the preliminary project phase, as defined under AICPA Statement of Position 98-1            “*Accounting for the Costs of Computer Software Developed            or Obtained for Internal Use*”, will be expensed as            incurred. The costs of website development during the planning stage, as defined under            Emerging Issued Task Force (“EITF”) No. 00-2            “*Accounting for Web Site Development            Costs*”, will also be expensed as incurred.

 

 

----

|   | - 32 - |
|--------|--------|

 

**Typhoon Tunes Inc.**

**(A Development Stage            Company)**

Notes to Financial Statements

(Expressed in U.S. Dollars)

**31 May 2007**

 

Computer software, website, and kiosk development incurred during the            application and infrastructure development stage, including external direct costs of            materials and services consumed in developing the software and creating graphics and            website content, will be capitalized and amortized over the estimated useful life,            beginning when the software is ready for use and after all substantial testing is            completed and the website is operational.

**Income taxes**

             

Deferred income taxes are reported for timing differences between items            of income or expense reported in the financial statements and those reported for income            tax purposes in accordance with SFAS No. 109, “Accounting for Income Taxes”            (“SFAS 109”), which requires the use of the asset/liability method of            accounting for income taxes. Deferred income taxes and tax benefits are recognized for            the future tax consequences attributable to differences between the financial statement            carrying amounts of existing assets and liabilities and their respective tax bases, and            for tax losses and credit carry-forwards. Deferred tax assets and liabilities are            measured using enacted tax rates expected to apply to taxable income in the years in            which those temporary differences are expected to be recovered or settled. The Company            provides for deferred taxes for the estimated future tax effects attributable to            temporary differences and carryforwards when realization is more likely than            not.

**Basic and diluted net loss per share**

             

The Company computes net loss per share in accordance with SFAS No. 128,            “Earnings per Share” (“SFAS 128”). SFAS 128 requires            presentation of both basic and diluted earnings per share (“EPS”) on the            face of the income statement. Basic EPS is computed by dividing net loss available to            common shareholders (numerator) by the weighted average number of shares outstanding            (denominator) during the period. Diluted EPS gives effect to all potentially dilutive            common shares outstanding during the period using the treasury stock method and            convertible preferred stock using the if-converted method. In computing diluted EPS,            the average stock price for the period is used in determining the number of shares            assumed to be purchased from the exercise of stock options or warrants. Diluted EPS            excludes all potentially dilutive shares if their effect is anti-dilutive.

 
|   | **Comprehensive loss** |
|--------|------------------------|

             

SFAS No. 130, “Reporting Comprehensive Income” (“SFAS            130”), establishes standards for the reporting and display of comprehensive loss            and its components in the financial statements. As at 31 May 2007, the Company has no            items that represent a comprehensive loss and, therefore, has not included a schedule            of comprehensive loss in the financial statements.

 

 

----

|   | - 33 - |
|--------|--------|

 

 

**Typhoon Tunes Inc.**

**(A Development Stage            Company)**

Notes to Financial Statements

(Expressed in U.S. Dollars)

**31 May 2007**

**Revenues and expenses recognition**

             

The Company recognizes revenue in accordance with Securities and            Exchange Commission Staff Accounting Bulletin No. 104, “Revenue Recognition in            Financial Statements” ("SAB 104"). The Company recognizes revenue when all of the            following criteria are met: 1) there is persuasive evidence that an arrangement exists,            2) delivery of goods has occurred, 3) the sales price is fixed or determinable, and 4)            collectibility is reasonably assured. The Company uses guidance provided by the            Financial Accounting Standards Board's Emerging Issues Task Force Item 99-19            (“EITF 99-19”) in determining whether to report revenues on either a gross            or net basis.

             

Revenues are reported on a gross basis when the majority of the            following indicators exist: 1) the Company is the primary obligor in the arrangement,            2) the Company has general inventory risk, 3) latitude in establishing price rests with            the Company, 4) the Company changes the product or performs part of the service, 5) the            Company has discretion in supplier selection, 6) product or service specifications are            determined in part by the Company, 7) physical loss inventory risk exists for the            Company, and 8) the Company has credit risk. The Company reports revenues on a gross            basis when it acts as principal and the preceding indicators exist.

             

Revenues are reported on a net basis when the majority of the following            indicators exist: 1) the supplier is the primary obligor in the arrangement, 2) the            amount the Company earns is fixed, and 3) the supplier has credit risk. The Company            reports revenues on a net basis when it provides brokerage services, including            assisting buyers and sellers in preparing and coordinating the purchase and delivery of            products, generating commission revenues from facilitating the process.

**Segments of an enterprise and related information**

             

SFAS No. 131, “Disclosures about Segments of an Enterprise and            Related Information” (“SFAS 131”), supersedes SFAS No.14,            “Financial Reporting for Segments of a Business Enterprise”. SFAS 131            establishes standards for the way that public companies report information about            operating segments in annual financial statements and requires reporting of selected            information about operating segments in interim financial statements issued to the            public. It also establishes standards for disclosures regarding products and services,            geographic areas and major customers. SFAS 131 defines operating segments as components            of a company about which separate financial information is available that is evaluated            regularly by the chief operating decision maker in deciding how to allocate resources            and in assessing performance. The Company has evaluated this SFAS and does not believe            it is applicable at this time.
|   | **Start-up expenses** |
|--------|-----------------------|

             

The Company has adopted Statement of Position No. 98-5,            “*Reporting the Costs of Start-up            Activities*”, which requires that costs associated with            start-up activities be expensed as incurred.  Accordingly, start-up costs            associated with the Company's formation have been included in the Company's general and            administrative expenses for the period from the date of inception on 30 August 2005 to            31 May 2007.

 

----

|   | - 34 - |
|--------|--------|

 

**Typhoon Tunes Inc.**

**(A Development Stage            Company)**

Notes to Financial Statements

(Expressed in U.S. Dollars)

**31 May 2007**

 

**Foreign currency translation**

             

The Company’s functional and reporting currency is the U.S.            dollar. The financial statements of the Company are translated to U.S. dollars in            accordance with SFAS No. 52, “Foreign Currency Translation” (“SFAS            52”). Monetary assets and liabilities denominated in foreign currencies are            translated using the exchange rate prevailing at the balance sheet date. Gains and            losses arising on translation or settlement of foreign currency denominated            transactions or balances are included in the determination of income. The Company has            not, to the date of these financial statements, entered into derivative instruments to            offset the impact of foreign currency fluctuations.

             

**Use of estimates**

             

The preparation of 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 amounts of assets and liabilities and            disclosures of contingent assets and liabilities at the date of the financial            statements and the reported amounts of revenues and expenditures during the reporting            period. Actual results could differ from these estimates.

             

**Stock-based compensation**

             

Effective 1 March 2006, the Company adopted the provisions of SFAS            No. 123(R), “*Share-Based            Payment*” (“SFAS 123(R)”), which establishes            accounting for equity instruments exchanged for employee services. Under the provisions            of SFAS 123(R), stock-based compensation cost is measured at the grant date, based on            the calculated fair value of the award, and is recognized as an expense over the            employees’ requisite service period (generally the vesting period of the equity            grant). Before 1 March 2006, the Company accounted for stock-based compensation to            employees in accordance with Accounting Principles Board Opinion No. 25,            “*Accounting for Stock Issued to            Employees*”, and complied with the disclosure            requirements of SFAS 123, “*Accounting for Stock-Based            Compensation*”.  The Company adopted SFAS 123(R)            using the modified prospective method, which requires the Company to record            compensation expense over the vesting period for all awards granted after the date of            adoption, and for the unvested portion of previously granted awards that remain            outstanding at the date of adoption. Accordingly, financial statements for the periods            prior to 1 March 2006 have not been restated to reflect the fair value method of            expensing share-based compensation. Adoption of SFAS 123(R) does not change the way the            Company accounts for share-based payments to non-employees, with guidance provided by            SFAS 123 (as originally issued) and Emerging Issues Task Force Issue No. 96-18,            “*Accounting for Equity Instruments That Are Issued to            Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or            Services*”.

             
|   | **Recent accounting pronouncements** |
|--------|--------------------------------------|

             

In February 2007, the Financial Accounting Standards Board (the            “FASB”) issued SFAS No. 159,*“The Fair Value            Option for Financial Assets and Financial Liabilities”*(“SFAS 159”).  SFAS 159 allows the company to choose to            measure many financial assets and financial liabilities at fair value.  Unrealized            gains and losses on items for which the fair value option has been elected are reported            in earnings.  SFAS 159 is effective for fiscal years beginning after 15 November            2007.  The Company is currently evaluating the requirements of SFAS 159 and the            potential impact on the Company’s financial statements.

             

----

|   | - 35 - |
|--------|--------|

 

**Typhoon Tunes Inc.**

**(A Development Stage            Company)**

Notes to Financial Statements

(Expressed in U.S. Dollars)

**31 May 2007**

 

In September 2006, the FASB issued SFAS No. 158,            “*Employers’ Accounting for Defined Benefit Pension            and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106            and 132(R)*” (“SFAS 158”). SFAS 158 requires            an employer that sponsors one or more single-employer defined benefit plans to (a)            recognize the overfunded or underfunded status of a benefit plan in its statement of            financial position, (b) recognize as a component of other comprehensive income, net of            tax, the gains or losses and prior service costs or credits that arise during the            period but are not recognized as components of net periodic benefit cost pursuant to            SFAS 87,*“Employers’ Accounting for            Pensions”*, or SFAS 106,*“Employers’ Accounting for Postretirement Benefits Other            Than Pensions”*, (c) measure defined benefit plan assets            and obligations as of the date of the employer’s fiscal year-end, and (d)            disclose in the notes to financial statements additional information about certain            effects on net periodic benefit cost for the next fiscal year that arise from delayed            recognition of the gains or losses, prior service costs or credits, and transition            asset or obligation. SFAS 158 is effective for the Company’s fiscal year ending            31 May 2007. The adoption of SFAS 158 is not expected to have a material impact on            the Company’s financial position, results of operations or cash flows.

             

In September 2006, the FASB issued SFAS No. 157,            “*Fair Value Measurement*”            (“SFAS 157”). The Statement provides guidance for using fair value to            measure assets and liabilities. The Statement also expands disclosures about the extent            to which companies measure assets and liabilities at fair value, the information used            to measure fair value, and the effect of fair value measurement on earnings. This            Statement applies under other accounting pronouncements that require or permit fair            value measurements. This Statement does not expand the use of fair value measurements            in any new circumstances. Under this Statement, fair value refers to the price that            would be received to sell an asset or paid to transfer a liability in an orderly            transaction between market participants in the market in which the entity transacts.            SFAS 157 is effective for the Company for fair value measurements and disclosures made            by the Company in its fiscal year beginning on 1 June 2008. The adoption of            SFAS 157 is not expected to have a material impact on the Company’s            financial position, results of operations or cash flows.

             

In July 2006, the FASB issued FIN.            48,*“Accounting for Uncertainty in Income Taxes (an            interpretation of FASB Statement No. 109)”*(“FIN            48”), which is effective for fiscal years beginning after 15 December 2006. This            interpretation was issued to clarify the accounting for uncertainty in income taxes            recognized in the financial statements by prescribing a recognition threshold and            measurement attribute for the financial statement recognition and measurement of a tax            position taken or expected to be taken in a tax return. The Company is currently            evaluating the potential impact of FIN 48, but it is not expected to have a material            impact on the Company’s financial position, results of operations or cash            flows.

             

In March 2006, the FASB issued SFAS No. 156,            “*Accounting for Servicing of Financial            Assets*” (“SFAS 156”), which amends SFAS            140. SFAS 156 may be adopted as early as 1 January 2006, for calendar year-end            entities, provided that no interim financial statements have been issued. Those not            choosing to early adopt are required to apply the provisions as of the beginning of the            first fiscal year that begins after 15 September 2006 (e.g., 1 January 2007, for            calendar year-end entities).  The intention of the new statement is to simplify            accounting for separately recognized servicing assets and liabilities, such as those            common with mortgage securitization activities, as well as to simplify efforts to            obtain hedge-like accounting.  Specifically, the FASB said SFAS 156 permits a            service using derivative financial instruments to report both the derivative financial            instrument and related servicing asset or liability by using a consistent measurement            attribute, or fair value.  The adoption of SFAS 156 is not expected to have a            material impact on the Company’s financial position, results of operations or            cash flows.

 

----

|   | - 36 - |
|--------|--------|

 

**Typhoon Tunes Inc.**

**(A Development Stage            Company)**

Notes to Financial Statements

(Expressed in U.S. Dollars)

**31 May 2007**

 
| **3.** | **Plant, Property and Equipment** |
|--------|-----------------------------------|

             
|              |   |     | **Accumulated amortization** |            | **Net Book Value** |
|-------------------|--------|----------|------------------------------|-----------------|--------------------|
|              |   | **Cost** |                         | **31 May 2007** |               | **31 May 2006** |
|              |   | **$**    |                         | **$**           |               | **$** |   | **$** |
|              |   |     |                         |            |               |   |   |   |
| Computer hardware |   | 6,142    |                         | 386             |               | 5,756 |   | - |
|              |   |     |                         |            |               |   |   |   |
|              |   | 6,142    |                         | 386             |               | 5,756 |   | - |

 

During the year ended 31 May 2007, total additions to property and            equipment were $6,142 (31 May 2006 – $Nil).

             
| **4.** | **Website and Kiosk Development Costs** |
|--------|-----------------------------------------|

             
|                                |   |             |  

**Accumulated amortization** |                 | **Net Book Value** |
|-------------------------------------|--------|------------------|--------------------------------------|----------------------|--------------------|
|                                |   |  

**Cost** |                                 | **31 May**

**2007** |               | **31 May 2006** |
|                                |   | **$**            |                                 | **$**                |               | **$** |   | **$** |
|                                |   |             |                                 |                 |               |   |   |   |
| Website and kiosk development costs |   | 42,092           |                                 | -                    |               | 42,092 |   | - |
|                                |   |             |                                 |                 |               |   |   |   |
|                                |   | 42,092           |                                 | -                    |               | 42,092 |   | - |

 

During the year ended 31 May 2007, the Company incurred website and            kiosk development costs of $42,092 (31 May 2006 – $Nil).

 
| **5.** | **Accounts Payable and Accrued Liabilities** |
|--------|----------------------------------------------|

             

Accounts payable and accrued liabilities are non-interest bearing,            unsecured and have settlement dates within one year.

 
| **6.** | **Note Payable** |
|--------|------------------|

             

The note payable amount of $Nil (31 May 2006 – $3,000) is            non-interest bearing, unsecured and has no fixed term of repayment.

             
| **7.** | **Due to Related Party** |
|--------|--------------------------|

             

The amount due to a related party of $Nil (31 May 2006 – $3,500)            is payable to a director and shareholder of the Company. This balance is non-interest            bearing, unsecured and has no fixed terms of repayment.

 

----

|   | - 37 - |
|--------|--------|

 

**Typhoon Tunes Inc.**

**(A Development Stage            Company)**

Notes to Financial Statements

(Expressed in U.S. Dollars)

**31 May 2007**

 
| **8.** | **Related Party Transactions** |
|--------|--------------------------------|

 

During the year ended 31 May 2007, an officer, director and shareholder            of the Company has made contributions to capital for management fees and rent in the            amount of $18,000 (31 May 2006 – $Nil, cumulative – $18,000) and $6,000 (31            May 2006 – $Nil, cumulative – $6,000) respectively. These amounts have been            recorded as an increase in expenditures and an increase in additional paid-in capital            (Notes 9 and 11).

 
| **9.** | **Capital Stock** |
|--------|-------------------|

             

**Authorized**

             

The total authorized capital is 75,000,000 common shares with a par            value of $0.001 per common share.

             

**Issued and outstanding**

The total issued and outstanding capital stock is 15,520,000 common            shares with a par value of $0.001 per common share.

             

On 31 October 2005, 9,000,000 capital stock of the Company were issued            for cash proceeds of $9,000.

On 26 September 2006, 10,000,000 Units (the “Units”) of the            Company were issued for cash proceeds of $250,000. Each Unit consists of one common            share of the Company and one share purchase warrant. Each share purchase warrant            entitles the holder to purchase an additional common share of the Company at a price of            $0.10 per common share expiring 18 May 2008.

On 2 February 2007, the Company chose to offer a rescission to            shareholders who were not accredited investors and a total of 3,480,000 units            (consisting of 3,480,000 common shares of the Company and 3,480,000 share purchase            warrants) valued at $87,000 were rescinded.

As of 31 May 2007, there were 6,520,000 share purchase warrants            outstanding. Each common share purchase warrant entitles the holder to purchase one            additional common share of the Company at a price of $0.10 per share expiring 18 May            2008.

During year ended 31 May 2007, an officer, director and shareholder of            the Company made contributions to capital by payment of Company expenses (Notes 8 and            11).

 

 

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|   | - 38 - |
|--------|--------|

 

**Typhoon Tunes Inc.**

**(A Development Stage            Company)**

Notes to Financial Statements

(Expressed in U.S. Dollars)

**31 May 2007**

             

**Warrants**

             

The following share purchase warrants were outstanding at 31 May            2007:

             
|     |   | **Exercise price** |   | **Number**

**of warrants** |   | **Remaining**

**contractual life (years)** |
|----------|--------|--------------------|--------|-----------------------------|--------|---------------------------------------------|
|     |   | **$**              |   |                        |   |                                        |
|     |   |               |   |                        |   |                                        |
| Warrants |   | 0.10               |   | 6,520,000                   |   | 1.00                                        |
|     |   |               |   |                        |   |                                        |
|     |   |               |   | 6,520,000                   |   |                                        |

The following is a summary of warrant activities during the year ended            31 May 2007 and the period from the date of inception on 30 August 2005 to 31 May            2006:

             
|                                                                                                       |   | **Number of warrants** |   | **Weighted average exercise price** |
|------------------------------------------------------------------------------------------------------------|--------|------------------------|--------|-------------------------------------|
|                                                                                                       |   |                   |   | **$**                               |
|                                                                                                       |   |                   |   |                                |
| Outstanding and exercisable at 30 August 2005                                                              |   | -                      |   | -                                   |
|                                                                                                       |   |                   |   |                                |
| Granted                                                                                                    |   | -                      |   | -                                   |
| Exercised                                                                                                  |   | -                      |   | -                                   |
| Expired                                                                                                    |   | -                      |   | -                                   |
|                                                                                                       |   |                   |   |                                |
| Outstanding and exercisable at 31 May 2006                                                                 |   | -                      |   | -                                   |
|                                                                                                       |   |                   |   |                                |
| Weighted average fair value of warrants granted during the                        period ended 31 May 2006 |   |                   |   | -                                   |
|                                                                                                       |   |                   |   |                                |
|                                                                                                       |   |                   |   |                                |
|                                                                                                       |   |                   |   |                                |
|                                                                                                       |   |                   |   |                                |
| Outstanding and exercisable at 31 May 2006                                                                 |   | -                      |   | -                                   |
|                                                                                                       |   |                   |   |                                |
| Granted                                                                                                    |   | 10,000,000             |   | 0.10                                |
| Exercised                                                                                                  |   | -                      |   | -                                   |
| Expired                                                                                                    |   | -                      |   | -                                   |
| Rescinded                                                                                                  |   | 3,480,000              |   | -                                   |
|                                                                                                       |   |                   |   |                                |
| Outstanding and exercisable at 31 May 2007                                                                 |   | 6,520,000              |   | 0.10                                |
|                                                                                                       |   |                   |   |                                |
| Weighted average fair value of warrants granted during the                        year ended 31 May 2007   |   |                   |   | 0.0006                              |

             

----

|   | - 39 - |
|--------|--------|

 

 

**Typhoon Tunes Inc.**

**(A Development Stage            Company)**

Notes to Financial Statements

(Expressed in U.S. Dollars)

**31 May 2007**

 

The weighted average grant date fair value of warrants issued during the            year ended 31 May 2007, amounted to $0.0006 per warrant (31 May 2006 – $Nil per            warrant). The fair value of each warrant granted was determined using the Black-Scholes            option pricing model and the following weighted average assumptions:

             
|                    |   |   |   | **As at**

**31 May**

**2007** |   | **As at**

**31 May**

**2006** |
|-------------------------|--------|--------|--------|---------------------------------|--------|---------------------------------|
|                    |   |   |   |                            |   |                            |
| Risk free interest rate |   |   |   | 4.38%                           |   | -                               |
| Expected life           |   |   |   | 1.63 years                      |   | -                               |
| Annualized volatility   |   |   |   | 59%                             |   | -                               |
| Expected dividends      |   |   |   | -                               |   | -                               |

             
| **10.** | **Income Taxes** |
|---------|------------------|

             

The Company has losses to 31 May 2007 carried forward for income tax            purposes. There are no current or deferred tax expenses for the period ended 31 May            2007 due to the Company’s loss position. The Company has fully reserved for any            benefits of these losses. The deferred tax consequences of temporary differences in            reporting items for financial statement and income tax purposes are recognized, as            appropriate. Realization of the future tax benefits related to the deferred tax assets            is dependent on many factors, including the Company’s ability to generate taxable            income within the net operating loss carryforward period. Management has considered            these factors in reaching its conclusion as to the valuation allowance for financial            reporting purposes.

 

The provision for refundable federal income tax consists of the            following:

             
|                                                                                |   | **For the**

**year ended 31 May 2007** |   | **For the period from the date of inception on 30 August                        2005 to**

**31 May 2007** |
|-------------------------------------------------------------------------------------|--------|-----------------------------------------|--------|------------------------------------------------------------------------------------------------------------|
|                                                                                |   | **$**                                   |   | **$**                                                                                                      |
|                                                                                |   |                                    |   |                                                                                                       |
| Deferred tax asset attributable to:                                                 |   |                                    |   |                                                                                                       |
| Current operations                                                                  |   | 26,844                                  |   | 34,642                                                                                                     |
| Contributions to capital by related parties (Notes 8 and                        11) |   | (8,160)                                 |   | (8,160)                                                                                                    |
| Less: Change in valuation allowance                                                 |   | (18,684)                                |   | (26,482)                                                                                                   |
|                                                                                |   |                                    |   |                                                                                                       |
| Net refundable amount                                                               |   | -                                       |   | -                                                                                                          |

             

 

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|   | - 40 - |
|--------|--------|

 

**Typhoon Tunes Inc.**

**(A Development Stage            Company)**

Notes to Financial Statements

(Expressed in U.S. Dollars)

**31 May 2007**

             

The composition of the Company’s deferred tax assets as at 31 May            2007 and 31 May 2006 is as follows:

             
|                                       |   | **31 May 2007** |   | **31 May 2006** |
|--------------------------------------------|--------|-----------------|--------|-----------------|
|                                       |   | **$**           |   | **$**           |
|                                       |   |            |   |            |
| Net income tax operating loss carryforward |   | (77,889)        |   | (22,936)        |
|                                       |   |            |   |            |
| Statutory federal income tax rate          |   | 34%             |   | 34%             |
| Effective income tax rate                  |   | 0%              |   | 0%              |
|                                       |   |            |   |            |
| Deferred tax asset                         |   | 26,482          |   | 7,798           |
| Less: Valuation allowance                  |   | (26,482)        |   | (7,798)         |
|                                       |   |            |   |            |
| Net deferred tax asset                     |   | -               |   | -               |

             

The potential income tax benefit of these losses has been offset by a            full valuation allowance.

             

As at 31 May 2007, the Company has an unused net operating loss            carryforward balance of approximately $77,889 that is available to offset future            taxable income. This unused net operating loss carryforward balance for income tax            purposes expires between the years 2025 to 2027.

             
| **11.** | **Supplemental Disclosures with Respect to Cash                        Flows** |
|---------|--------------------------------------------------------------------------------|

             
|                                        |   | **For the period from the date**

**of inception**

**on 30 August**

**2005 to**

**31 May**

**2007** |   | **For the**

**year ended 31 May**

**2007** |   | **For the period from the date**

**of inception on 30 August**

**2005 to**

**31 May**

**2006** |
|---------------------------------------------|--------|---------------------------------------------------------------------------------------------------------|--------|----------------------------------------------|--------|----------------------------------------------------------------------------------------------------|
|                                        |   | **$**                                                                                                   |   | **$**                                        |   | **$**                                                                                              |
|                                        |   |                                                                                                    |   |                                         |   |                                                                                               |
| Cash paid during the year for interest      |   | -                                                                                                       |   | -                                            |   | -                                                                                                  |
| Cash paid during the year for income

taxes |   | -                                                                                                       |   | -                                            |   | -                                                                                                  |

             

During the year ended 31 May 2007, an officer, director and stockholder            of the Company made contributions to capital for management fees and rent in the            amounts of $18,000 (31 May 2006 – $Nil, cumulative – $18,000) and $6,000            (31 May 2006 – $Nil, cumulative – $6,000) respectively (Notes 8 and            9).

             

 

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|   | - 41 - |
|--------|--------|

 

**Typhoon Tunes Inc.**

**(A Development Stage            Company)**

Notes to Financial Statements

(Expressed in U.S. Dollars)

**31 May 2007**

 
| **12.** | **Subsequent Event** |
|---------|----------------------|

             

Subsequent to 31 May 2007, the Company purchased U.S. patent application            5,379,057 and 5,675,362 which relate to keyboardless touch screen devices (the            “Patents”) for cash payments to the vendor by the Company over a three year            period. The Company has also agreed to pay the vendor a 10% royalty related to the            Patents. Certain terms of this purchase have not been disclosed by the Company and have            been filed separately with the Secretary, Securities and Exchange Commission and are            subject to a confidential treatment request pursuant to Rule 24b-2 of the Securities            Exchange Act of 1934.

             

Effective 31 July 2007, the Company effected a four for one stock split            of the authorized, issued and outstanding common shares. As a result, the authorized            capital has increased from 75,000,000 shares of capital stock with a par value of            $0.001 to 300,000,000 shares of capital stock with a par value of $0.001. The issued            and outstanding share capital increased from 15,520,000 shares of capital stock to            62,080,000 shares of capital stock of the Company.

             
| **13.** | **Commitment** |
|---------|----------------|

 

The Company is subject to certain cash payment commitments related to            the purchase of the Patents subsequent to 31 May 2007 (Note 12).

 

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|   | - 42 - |
|--------|--------|

 

**ITEM            8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING            AND** **FINANCIAL            DISCLOSURE.**

None.

**ITEM 8A. DISCLOSURE CONTROLS AND PROCEDURES**

The            financial statements included herein have been prepared pursuant to the rules and            regulations of the Securities and Exchange Commission. Management believes the            disclosures made are adequate to make the information not misleading. The financial            statements and accompanying notes are prepared in accordance with the United States            generally accepted accounting principles. Preparing financial statements requires            Management to make estimates and assumptions that affect the reported amounts of assets            and liabilities and disclosure of contingent assets and liabilities at the date of the            financial statements and the reported amounts of revenues and expenses during the            reporting period. These estimates and assumptions are affected by Management's            application of accounting policies. These important accounting policies include the            successful efforts method of accounting for property and equipment, revenue            recognition, accounting for income taxes and foreign currency translation.

Management maintains disclosure controls and procedures designed to            ensure that we are able to timely collect the information we are required to disclose            in our reports filed with the U.S. Securities and Exchange Commission.

As            of the end of the period covered by this report, we performed an evaluation, under the            supervision and with the participation of our Management, of the effectiveness of the            design and operation of our disclosure controls and procedures pursuant to Exchange Act            Rule 13a-14. Based upon the evaluation, our Principal Executive Officer and Principal            Accounting Officer concluded that the current disclosure controls are effective in            timely alerting us to any material information required to be included in our periodic            SEC filings.

We            also maintain a system of internal controls designed to provide reasonable assurance            that (i) transactions are executed in accordance with Management's general and specific            authorization; (ii) transactions are recorded as necessary to permit preparation of            financial statements in conformity with the United States generally accepted accounting            principles and to maintain accountability for assets; (ii) access to assets is            permitted only in accordance with Management's general or specific authorization; and            (iv) the recorded accountability for assets is compared with the existing assets at            reasonable intervals and appropriate action is taken with respect to any differences.            We believe that our internal controls are effective to provide reasonable assurance            that our financial statements are fairly presented in conformity with generally            accepted accounting principals. Since our most recent evaluation, there have been no            changes in our internal controls or in other factors that could significantly affect            our internal controls, nor were any corrective actions required with regard to            significant deficiencies and material weaknesses. However, our auditors did not test            the effectiveness of nor relied on our internal controls for the fiscal year ended May            31, 2007.

 

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**PART III**

**ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND            CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.**

**Directors and Executive Officers, Promoters and Control            Persons**

The            company is managed to this point by James Shepard, our sole officer and director who            receives no compensation for either responsibility.

Directors are elected at the annual meeting of stockholders and serve            for one year or until their successors are elected and qualify. Officers are elected by            the Board of Directors and their terms of office are, except to the extent governed by            employment contract, at the discretion of the Board of Directors.

 
| **Name**      | **Age** | **Position Held****with our Company**                | **Date First Elected****or Appointed** |
|---------------|---------|------------------------------------------------------|----------------------------------------|
| James Shepard | 41      | President, CEO, Secretary,Treasurer CFO and Director | August 30, 2005                        |

**Business Experience**

The            following is a brief account of the education and business experience of each director            and executive officer during at least the past five years, indicating each person's            principal occupation during the period, and the name and principal business of the            organization by which he was employed.

*James Shepard, President, Secretary, Treasurer and a            Director*

James Shepard has been our sole officer and director since inception.            Mr. Shepard devotes approximately 20 hours per week to our business. Since 1992, Mr.            Shepard has been employed by JGS Events Inc., a company of which he is the owner,            president and founder. With extensive experience in trade show production, he owns and            has produced many shows including:
|   | **•** | 4th World Chinese Entrepreneurs Convention Industry &                        Trade Exhibition |
|--------|------------|---------------------------------------------------------------------------------------------------|
|   | **•** | Aerospace North America Home Improvement Trade                        Show |
|--------|------------|----------------------------------------------------------------------------|
|   | **•** | Alberta Heavy Construction Show |
|--------|------------|---------------------------------|
|   | **•** | Pacific Agriculture Show |
|--------|------------|--------------------------|
|   | **•** | Aqua '92 |
|--------|------------|----------|
|   | **•** | Pacific Rim Computer Show |
|--------|------------|---------------------------|
|   | **•** | Cultus Lake Floating Boat Show |
|--------|------------|--------------------------------|
|   | **•** | Property Management Trade Show |
|--------|------------|--------------------------------|
|   | **•** | Exfor West |
|--------|------------|------------|
|   | **•** | Ship to Shore |
|--------|------------|---------------|
|   | **•** | eWorld Exhibition & Conference |
|--------|------------|------------------------------------|

 

 

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|   | - 44 - |
|--------|--------|

 

 
|   | **•** | Spring & Fall Home Shows |
|--------|------------|------------------------------|
|   | **•** | Heavy Construction Show |
|--------|------------|-------------------------|
|   | **•** | Vancouver Spring & Fall Gift Show |
|--------|------------|---------------------------------------|
|   | **•** | Home-Based Business & Opportunities Show |
|--------|------------|----------------------------------------------|
|   | **•** | Wood Technology Show |
|--------|------------|----------------------|

Prior to forming JGS Events, Mr. Shepard worked with Southex Exhibitions            as sales manager/show management. James Shepard completed a Bachelor of Arts from the            University of British Columbia in 1988.

**Family Relationships**

There are no family relationships among our directors or executive            officers.

**Involvement in Certain Legal Proceedings**

Our            directors, executive officers and control persons have not been involved in any of the            following events during the past five years:
|   | 1. | any bankruptcy petition filed by or against any business of                        which such person was a general partner or executive officer either at the                        time of the bankruptcy or within two years prior to that time;                                                                                                                                                 |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | 2. | any conviction in a criminal proceeding or being subject to                        a pending criminal proceeding (excluding traffic violations and other minor                        offenses);                                                                                                                                                                                                    |
|   | 3. | being subject to any order, judgment, or decree, not                        subsequently reversed, suspended or vacated, of any court of competent                        jurisdiction, permanently or temporarily enjoining, barring, suspending or                        otherwise limiting his involvement in any type of business, securities or                        banking activities; or |
|   | 4. | being found by a court of competent jurisdiction (in a civil                        action), the Securities and Exchange Commission or the Commodity Futures                        Trading Commission to have violated a federal or state securities or                        commodities law, and the judgment has not been reversed, suspended, or                        vacated.              |

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

Section 16(a) of the Exchange Act requires our executive officers and            directors and persons who own more than 10% of a registered class of our equity            securities to file with the SEC initial statements of beneficial ownership, reports of            changes in ownership and annual reports concerning their ownership of our common stock            and other equity securities, on Forms 3, 4 and 5 respectively. Executive officers,            directors and greater than 10% shareholders are required by the SEC regulations to            furnish us with copies of all Section 16(a) reports that they file.

Based solely on our review of the copies of such forms received by us,            or written representations from certain reporting persons, we believe that all filing            requirements applicable to our officers, directors and greater than ten percent            beneficial owners were complied with, with the exception of the following:
| **Name**      | **Number of Late Reports** | **Number of Transactions Not****Reported on a Timely Basis** | **Failure to File****Requested Forms** |
|---------------|----------------------------|--------------------------------------------------------------|----------------------------------------|
| James Shepard | None                       | None                                                         | None                                   |
|          |                       |                                                         |                                   |
|          |                       |                                                         |                                   |

 

 

 

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|   | - 45 - |
|--------|--------|

 

**Audit Committee and Audit Committee Financial Expert**

We            do not have a standing audit committee at the present time. Our board of directors has            determined that we do not have a board member that qualifies as an “audit            committee financial expert” as defined in Item 401(e) of Regulation S-B, nor do            we have a board member that qualifies as “independent” as the term is used            in Item 7(d)(3)(iv) of Schedule 14A under the Securities Exchange Act of 1934, as            amended.

We            believe that the sole member of our board of directors is capable of analyzing and            evaluating our financial statements and understanding internal controls and procedures            for financial reporting. The board of directors of our company does not believe that it            is necessary to have an audit committee because we believe that the functions of an            audit committee can be adequately performed by the board of directors, solely            consisting of Sean Dickenson. In addition, we believe that retaining an independent            director who would qualify as an “audit committee financial expert” would            be overly costly and burdensome and is not warranted in our circumstances given the            early stages of our development and the fact that we have not generated any revenues            from operations to date.

**Other Committees**

We            do not have standing nominating or compensation committees, or committees performing            similar functions. Our board of directors believes that it is not necessary to have a            standing compensation committee at this time because the functions of such committee            are adequately performed by our board of directors.

Our            board of directors also is of the view that it is appropriate for us not to have a            standing nominating committee because our board of directors has performed and will            perform adequately the functions of a nominating committee. Our board of directors has            not adopted a charter for the nomination committee. There has not been any defined            policy or procedure requirements for stockholders to submit recommendations or            nomination for directors. Our board of directors does not believe that a defined policy            with regard to the consideration of candidates recommended by stockholders is necessary            at this time because we believe that, given the early stages of our development, a            specific nominating policy would be premature and of little assistance until our            business operations are at a more advanced level. There are no specific, minimum            qualifications that our board of directors believes must be met by a candidate            recommended by our board of directors. The process of identifying and evaluating            nominees for director typically begins with our board of directors soliciting            professional firms with whom we have an existing business relationship, such as law            firms, accounting firms or financial advisory firms, for suitable candidates to serve            as directors. It is followed by our board of directors’ review of the            candidates’ resumes and interview of candidates. Based on the information            gathered, our board of directors then makes a decision on whether to recommend the            candidates as nominees for director. We do not pay any fee to any third party or            parties to identify or evaluate or assist in identifying or evaluating potential            nominee.

**ITEM 10. EXECUTIVE COMPENSATION.**

The            particulars of compensation paid to the following persons:
|   | • | our principal executive officers;                                                                                                                                                                                                                                                                    |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | • | each of our two most highly compensated executive officers                        who were serving as executive officers at the end of the year ended May 31,                        2007; and                                                                                                       |
|   | • | up to two additional individuals for whom disclosure would                        have been provided under (b) but for the fact that the individual was not                        serving as our executive officer at the end of the most recently completed                        financial year, |

who            we will collectively refer to as the named executive officers, of our years ended May            31, 2007 and 2006, are set out in the following summary compensation table:

 

 

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|   | - 46 - |
|--------|--------|

 

 
| **SUMMARY COMPENSATION TABLE**                         |
|--------------------------------------------------------|
| **Name****and Principal Position**                     | **Year** | **Salary****($)** | **Bonus****($)** | **Stock Awards****($)** | **Option Awards****($)** | **Non-Equity Incentive Plan Compensa-tion****($)** | **Change in Pension Value and Nonqualified Deferred                        Compensation Earnings****($)** | **All****Other Compensa-tion****($)** | **Total****($)** |
| James ShepardPresident, CEO, Treasurer & Secretary | 20072006 | NilNil | NilNil | NilNil | NilNil | NilNil | NilNil | NilNil | NilNil |

We            have not entered into any employment agreement or consulting agreement with our current            director and executive officer. There are no arrangements or plans in which we provide            pension, retirement or similar benefits for directors or executive officers. Our            directors and executive officers may receive stock options at the discretion of our            board of directors in the future. We do not have any material bonus or profit sharing            plans pursuant to which cash or non-cash compensation is or may be paid to our            directors or executive officers, except that stock options may be granted at the            discretion of our board of directors from time to time. We have no plans or            arrangements in respect of remuneration received or that may be received by our            executive officers to compensate such officers in the event of termination of            employment (as a result of resignation, retirement, change of control) or a change of            responsibilities following a change of control.

**Outstanding Equity Awards at Fiscal Year-End**

As            at May 31, 2007, we had not adopted any equity compensation plan and no stock, options,            or other equity securities were awarded to our executive officers.

**Aggregated Options Exercised in the Year Ended May 31, 2007 and Year            End Option Values**

There were no stock options exercised during the year ended May 31,            2007.

**Repricing of Options/SARS**

We            did not reprice any options previously granted during the year ended May 31,            2007.

**Director Compensation**

Directors of our company may be paid for their expenses incurred in            attending each meeting of the directors. In addition to expenses, directors may be paid            a sum for attending each meeting of the directors or may receive a stated salary as            director. No payment precludes any director from serving our company in any other            capacity and being compensated for such service. Members of special or standing            committees may be allowed similar reimbursement and compensation for attending            committee meetings. During the year ended May 31, 2007, we did not pay any compensation            or grant any stock options to our directors.

 

 

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|   | - 47 - |
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**ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND            MANAGEMENT.**

As            of August 22, 2007, there were 62,080,000 shares of our common stock outstanding. The            following table sets forth certain information known to us with respect to the            beneficial ownership of our common stock as of that date by (i) each of our            directors, (ii) each of our executive officers, and (iii) all of our directors and            executive officers as a group. Except as set forth in the table below, there is no            person known to us who beneficially owns more than 5% of our common stock. The number            of shares beneficially owned is determined under rules of the SEC and the information            is not necessarily indicative of beneficial ownership for any other purpose. Under such            rules, beneficial ownership includes any shares as to which the individual has the sole            or shared voting power or investment power and any shares which the individual has the            right to acquire within 60 days of July 3, 2007 through the exercise of any stock            option or other right. Unless otherwise noted, we believe that each person has sole            investment and voting power (or shares such powers with his or her spouse) with respect            to the shares set forth in the following table:

 
| **Name and Address of Beneficial                        Owner**1     | **Amount and Nature of****Beneficial Ownership** | **Percentage****of Class** |
|----------------------------------------------------------------------|--------------------------------------------------|----------------------------|
| Brown Brothers Harriman & Co.

140 Broadway

New York, NY 10005  | 22,080,000                                       | 35.5%                      |
| James Shepard

306-1917 West 4th Avenue

Vancouver, BC V6J 1M7       | 36,000,000                                       | 57.99%                     |
| *Directors and Executive Officers as a                        Group* | *36,000,000*                                     | *57.99%*                   |

1 In general, a person is considered a beneficial owner of a            security if that person has or shares the power to vote or direct the voting of such            security, or the power to dispose of such security. A person is also considered to be a            beneficial owner of any securities of which the person has the right to acquire            beneficial ownership within (60) days.

**Changes in Control**

There are no arrangements known to us, the operation of which may at a            subsequent date result in a change of control of our company.

**ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,            AND** **DIRECTOR            INDEPENDENCE.**

During the year ended 31 May 2007, an officer, director and shareholder            of our company has made contributions to capital for management fees and rent in the            amount of $18,000 (31 May 2006 – $Nil, cumulative – $18,000) and $6,000 (31            May 2006 – $Nil, cumulative – $6,000) respectively. These amounts have been            recorded as an increase in expenditures and an increase in additional paid-in capital            (Notes 8, 9 and 11).

**Corporate Governance**

*Board of Directors Independence*

We            currently act with one director. As James Shepard is our sole executive officer and            holds approximately 57.99% of our common stock as of August 22, 2007, Mr. Shepard is            not independent as defined in Item 7(d)(3)(iv) of Schedule 14A under the Exchange            Act.

We            do not have a standing audit, compensation or nominating committee, but our entire            board of directors acts in such capacities. We believe that the sole member of our            board of directors is capable of analyzing and evaluating our financial statements and            understanding internal controls and procedures for financial reporting. The board of            directors of our company does not believe that it is necessary to have a standing            audit, compensation or nominating committee because we believe that the functions of            such committees can be adequately performed by the board of directors, solely            consisting of James Shepard. In addition, we believe that retaining one or more            directors who would qualify as independent in accordance with Item 7(d)(3)(iv) of            Schedule 14A under the Exchange Act would

 

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|   | - 48 - |
|--------|--------|

 

be            overly costly and burdensome and is not warranted in our circumstances given the early            stages of our development and the fact the we have not generated any revenues from            operations to date.

*Code of Ethics*

Effective August 29, 2007, our company's board of directors adopted a            Code of Business Conduct and Ethics that applies to, among other persons, our company's            president (being our principal executive officer) and our company's secretary (being            our principal financial and accounting officer and controller), as well as persons            performing similar functions. As adopted, our Code of Business Conduct and Ethics sets            forth written standards that are designed to deter wrongdoing and to            promote:

(1)  honest and ethical conduct, including the ethical            handling of actual or apparent conflicts of interest between personal and professional            relationships;

(2)  full, fair, accurate, timely, and understandable            disclosure in reports and documents that we file with, or submit to, the Securities and            Exchange Commission and in other public communications made by us;

(3)  compliance with applicable governmental laws, rules and            regulations;

(4)  the prompt internal reporting of violations of the Code            of Business Conduct and Ethics to an appropriate person or persons identified in the            Code of Business Conduct and Ethics; and

(5)  accountability for adherence to the Code of Business            Conduct and Ethics.

Our            Code of Business Conduct and Ethics requires, among other things, that all of our            company's personnel shall be accorded full access to our president and secretary with            respect to any matter which may arise relating to the Code of Business Conduct and            Ethics. Further, all of our company's personnel are to be accorded full access to our            company's board of directors if any such matter involves an alleged breach of the Code            of Business Conduct and Ethics by our president or secretary.

In            addition, our Code of Business Conduct and Ethics emphasizes that all employees, and            particularly managers and/or supervisors, have a responsibility for maintaining            financial integrity within our company, consistent with generally accepted accounting            principles, and federal, provincial and state securities laws. Any employee who becomes            aware of any incidents involving financial or accounting manipulation or other            irregularities, whether by witnessing the incident or being told of it, must report it            to his or her immediate supervisor or to our company's president or secretary. If the            incident involves an alleged breach of the Code of Business Conduct and Ethics by the            president or secretary, the incident must be reported to any member of our board of            directors. Any failure to report such inappropriate or irregular conduct of others is            to be treated as a severe disciplinary matter. It is against our company policy to            retaliate against any individual who reports in good faith the violation or potential            violation of our company's Code of Business Conduct and Ethics by another.

Our            Code of Business Conduct and Ethics is filed as Exhibit 14.1 to this annual report on            Form 10-KSB. We will provide a copy of the Code of Business Conduct and Ethics to any            person without charge, upon request. Requests can be sent to: Typhoon at 711 South            Carson Street, Suite #4, Carson City, Nevada 89701.

 

 

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|   | - 49 - |
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**ITEM 13. EXHIBITS**

Exhibits required by Item 601 of Regulation S-B
| **Exhibit No.** | **Description**                                                                                                                                                                                                                                                       |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1             | Articles of Incorporation of the Registrant, filed as an                        exhibit to the registration statement on Form SB-2 filed with the                        Commission on February 21, 2006 and incorporated herein by                        reference. |
| 3.2             | By-laws of the Registrant, filed as an exhibit to the                        registration statement on Form SB-2 filed with the Commission on February                        21, 2006 and incorporated herein by reference.                                          |
| 3.3             | Articles of Merger filed as an exhibit to our current report                        on Form 8-K filed with the Commission on August 14, 2007 and incorporated                        herein by reference.                                                             |
| 3.2             | Certificate of Change filed as an exhibit to our current                        report on Form 8-K filed with the Commission on August 14, 2007 and                        incorporated herein by reference.                                                          |
| 10.1            | Form of stock subscription agreement, filed as an exhibit to                        the registration statement on Form SB-2 filed with the Commission on                        February 21, 2006 and incorporated herein by reference.                               |
| 10.2            | Form of warrant certificate, filed as an exhibit to the                        registration statement on Form SB-2 filed with the Commission on February                        21, 2006 and incorporated herein by reference.                                        |
| 10.3            | Amended form of stock subscription agreement, filed as an                        exhibit to the registration statement on Form SB-2/A filed with the                        Commission on April 10, 2006 and incorporated herein by                        reference. |
| 10.4            | Patent Rights Purchase Agreement filed as an exhibit to our                        current report on Form 8-K filed with the Commission on June 14, 2007 and                        incorporated herein by reference.                                                 |
| 14.1*           | Code of Ethics                                                                                                                                                                                                                                                        |
| 16.1            | Letter re change in certifying accountant filed as an                        exhibit to our current report on Form 8-K filed with the Commission on July                        13, 2006 and incorporated herein by reference.                                        |
| 31.1*           | Certification pursuant to Rule 13a-14 and Rule 15d-14(a),                        promulgated under the Securities and Exchange Act of 1934, as amended                        (Principal Executive Officer and Principal Financial Officer).                          |
| 32.1*           | Certification pursuant to 18 U.S.C. Section 1350, as adopted                        pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Principal                        Executive Officer and Principal Financial Officer).                                   |

 

*Filed            herewith

 

 

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|   | - 50 - |
|--------|--------|

 

**ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES**

**Audit Fees**

The            aggregate fees billed for professional services rendered by our principal accountant            for the audit of our annual financial statements for the fiscal year ended May 31, 2007            were $6,485.

**Audit Related Fees**

We            incurred no fees for the fiscal year ended May 31, 2007 for assurance and related            services by our principal accountant that were reasonably related to the performance of            the audit or review of our financial statements, and not reported under Audit Fees            above.

**Tax            Fees**

Taxes for the fiscal year ended May 31, 2007 are currently being            prepared and the costs for the preparation of the tax return are estimated to be            approximately $850.

**All            Other Fees**

We            incurred no other fees during the fiscal year ended May 31, 2007 and since inception            for products and services rendered by our principal accountants other than those stated            in this and other publicly posted reports (see www.sec.gov).

**Audit Committee Requirements**

Section 10A(i) of the Exchange Act prohibits our auditors from            performing audit services for us, as well as any services not considered to be "audit            services", unless such services are pre-approved by the audit committee of the Board of            Directors, or unless the services meet certain de minimis standards. Because we are            still in the development stage and have not yet completed our business plans and/or            generated any revenues, we have not yet appointed an audit committee. Our Board of            Directors ensure that:

All            audit services that the auditor may provide to us or any subsidiary (including, without            limitation, providing comfort letters in connection with securities underwritings or            statutory audits) as required by s.10A(i)(1)(A) of the Exchange Act (as amended by the            Sarbanes-Oxley Act of 2002) are preapproved by the Board.

All            non-audit services (other than certain de minimis services described in s.10A(i)(1)(B)            of the Exchange Act (as amended by the Sarbanes-Oxley Act of 2002)) that the auditors            propose to provide to us or any of our subsidiaries are preapproved by the            Board.

All            audit fees were approved by the Board of Directors.

 

 

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|   | - 51 - |
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**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.

**TYPHOON ENTERPRISES INC.**

By:/s/ James Shepard

James            Shepard

President and Director

Principal Executive Officer and Principal Financial Officer

Date:            August 30, 2007

Pursuant to the requirements of the Securities Exchange Act of 1934,            this report has been signed below by the following persons on behalf of the registrant            and in the capacities and on the dates indicated.

By:/s/ James Shepard

James            Shepard

President and Director

Principal Executive Officer and Principal Financial Officer

Date:            August 30, 2007.