XCel Brands, Inc. - Annual Report: 2007 (Form 10-K)

RECENT DEVELOPMENT

On August 24, 2009, the “Company” along with its wholly-owned subsidiary, NetFabric Technologies, Inc., d/b/a UCA Services, Inc. (“UCA”) and Fortify Infrastructure Services, Inc. (“Fortify) entered into Amendment No. 1 (“Amendment”) to the Option and Purchase Agreement  (“Option Agreement”) in connection with the closing of Fortify’s  purchase of all of the outstanding capital stock of UCA upon exercise of its option granted under the Option Agreement. Pursuant to the Amendment, among other things, the Secured Convertible Promissory Note in the principal amount of $5 million issued by UCA to Fortify was cancelled, releases of certain obligations of the parties were granted as specified in the Amendment , and the commencement date and measurement period for the earn-out and bonuses provided for in the Option Agreement were modified.

After the divesture of UCA, the Company does not have any operations.

On March 13, 2009, the Company along with its wholly-owned subsidiary, UCA entered into a Convertible Note Purchase Agreement dated March 12, 2009 with Fortify. Pursuant to the Convertible Note Purchase Agreement, Fortify purchased a Secured Convertible Promissory Note (the “Note”) from UCA in the principal amount of $5 million with the Company being a guarantor for UCA’s borrowings. Fortify, UCA and the Company also entered into the Option Agreement. Pursuant to the Option Agreement, Fortify has an option to acquire all of the outstanding shares of common stock of UCA.

    

The holders of a majority of the Company’s outstanding common stock had previously approved the terms of the Option Agreement by a written consent as detailed in the Company’s Definitive Schedule 14 C Information Statement filed with the Securities and Exchange Commission (the “SEC”) on July 9, 2009.

 

ITEM 1. DESCRIPTION OF BUSINESS

 

We were incorporated in the State of Delaware on August 31, 1989 as Houston Operating Company. On December 9, 2004, we acquired NetFabric Corporation ("NetFabric Corp.") and on April 19, 2005, we changed our name to NetFabric Holdings, Inc. On May 20, 2005, we acquired UCA.

 

We are now organized into two distinct divisions. NetFabric Holdings, Inc. is the holding company that houses the finance and administrative functions and is responsible for financing transactions and regulatory compliance activities. UCA provides IT services and solutions to a wide range of clients in the financial industry as well as the pharmaceutical, healthcare and hospitality sectors.

 

NetFabric Corp. Acquisition

 

On December 9, 2004, we entered into an acquisition agreement (the "Acquisition Agreement") with all of the stockholders of NetFabric Corp. At the closing, which occurred simultaneously with the execution of the Acquisition Agreement, we acquired all of the issued and outstanding capital stock of NetFabric Corp. from the stockholders in exchange for an aggregate of 32,137,032 newly-issued shares of our common stock. The acquisition was accounted for as a reverse merger whereby NetFabric Corp. was treated as the acquirer. NetFabric Corp. was incorporated in the State of Delaware on December 17, 2002, as a new corporation and not as a result of a material reclassification, merger, consolidation, purchase or divesture.

 

Prior to our acquisition of NetFabric Corp., we did not have any operations, and we were a shell company whose primary business objective was to merge and become public. Immediately prior to the NetFabric Corp. acquisition, our directors were Wesley F. Whiting and Redgie Green. Our officers were, Wesley F. Whiting - President and Redgie Green - Secretary. The directors of NetFabric Corp. were Jeff Robinson (Chairman), Richard Howard and Charlotte Denenberg. The officers of NetFabric Corp. were, Jeff Robinson - Chief Executive Officer, Walter Carozza- Chief Financial Officer, Philip Barak - Vice President of Finance, and Victoria Desidero - Vice President of Marketing.

 

UCA Acquisition

 

On May 20, 2005, we entered into and closed on a share exchange agreement, whereby we purchased all of the issued and outstanding shares of UCA from its shareholders in exchange for the issuance of 24,096,154 shares of our common stock.

 

On February 13, 2006, we entered into an agreement with UCA to amend the terms of the share exchange agreement between the Company and the UCA shareholders, dated May 20, 2005. Pursuant to the amendment, we issued an aggregate of nine million shares of our common stock to the former shareholders of UCA. In return, the former shareholders of UCA released the Company from the capital raising covenant of the share exchange agreement. To facilitate the transaction, Mr. Jeff Robinson, our Chief Executive Officer, surrendered nine million shares of our common stock owned by him.

 

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Discontinued Operations

 

NetFabric Corp. provided hardware and services to small to mid-sized businesses ("SMBs") that utilized the Internet for telephone communications or Voice over Internet Protocol ("VoIP"). NetFabric Corp. developed and marketed appliances, or Customer Premises Equipment ("CPE") that simplified the integration of standard telephone systems with an IP infrastructure. With minimal revenues from VoIP operations, we concluded that we could not implement our original business for VoIP operations within our resources or with the additional capital we could raise in the near term. On May 5, 2006, our Board of Directors decided that the Company should exit from the hardware-based VoIP communications product line (including resale of transport services) targeted at SMBs. In accordance with Statement of Financial Accounting Standards No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets", ("SFAS No. 144"), the results of operations from the VoIP business segment have been reclassified as discontinued operations for all periods presented. After the discontinuation of VoIP operations, our only operations are that of UCA, which are discussed in more detail in Item 6 below.

 

Our Services

 

We served  the information and communications needs of a wide range of Fortune 500 and SMB clients in the financial markets industry, as well as the pharmaceutical, health care and hospitality sectors. Our broad range of services included  (i) Managed Services (ii) Professional Services (iii) IT Infrastructure & Communications Services and Maintenance, and (iv) Application Development and Maintenance.

 

Managed Services

 

In Managed Services, we served clients seeking to outsource management of some or all of their IT applications. As a result, their internal management and staff are able to focus on projects that create and foster initiatives leading to a competitive advantage for their company. Our services in this area included  data center services, help desk and facilities management. We also provided  a fully managed suite for storage management, information protection (backup and recovery) and information optimization (archival services) from the data center to the desktop.

 

Professional Services

 

We provided a wide range of IT staffing services to clients in diversified vertical markets, including financial services, telecommunications, manufacturing, information technology, pharmaceutical, transportation and health care. Consultative and staffing resources may be used to undertake a role on a long-term strategic project or fill a short-term need for a technology skill set. We delivered qualified consultants and project managers for contract assignments and full-time employment across many technology disciplines. Areas of expertise included  project management, business analysis, systems architecture and design, database architecture and design, application code development, network engineering, quality assurance and testing.

 

IT Infrastructure & Communications Services

 

We provided customers with IT infrastructure (such as personal computers, printers, phone systems, networks, servers and switches) design, development, deployment services from project planning and implementation to full-scale network, server and workstation installations. We also provided an end-to-end solution for automating the deployment/version upgrades of desktop and server operating systems, including the associated packaging required to migrate a client's enterprise applications to computers across an organization quickly and reliably.

 

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Application Development and Maintenance

 

We helped organizations plan, develop, integrate and manage custom applications software, packaged software and industry-specific software solutions. We offered applications development and maintenance-support solutions for our customers, including shared risk engagements and fully outsourced projects, managed quality assurance and testing services, including functional testing, compatibility tests, performance testing, regression testing and benchmarking. Benefits to clients using these services  included reduced costs, extended value of technology investments, information sharing and enhanced ability to adapt to market changes.

 

Sales and Marketing

 

We sold our IT services through a direct sales force located principally in the New York area. These sales associates, also known as client executives, were supported by sales support personnel.. We had approximately 10 sales associates and sales support personnel selling our IT services. We also had independent sales agents (non-employees), who sell our services on a commission basis. In addition, three large providers of software and solutions services marketed our services as a part of their sales effort to their customers where our services are part of an overall package. Our marketing strategy was to develop long-term partnership relationships with existing and new clients that will lead to us becoming a preferred provider of information technology services. We sought to employ a cross-selling approach, where appropriate, to expand the number of services utilized by a single client.

 

Competition

 

The information technology services industry is highly competitive and served by numerous international, national, regional and local firms, all of which are our existing or potential competitors. Our primary competitors were software consulting and implementation firms, applications software firms, service groups of computer equipment companies, general management consulting firms, programming companies, offshore firms and temporary staffing firms, as well as the internal information technology staff of our clients. We believed that the principal competitive factors in the information technology services industry include the range of services offered, cost, technical expertise, responsiveness to client needs, speed in delivering information technology solutions, quality of service and perceived value. A critical component of our ability to compete in the marketplace was our ability to attract, develop, motivate and retain skilled professionals. We believed  that we can compete favorably in hiring such personnel by offering competitive compensation packages and attractive assignment opportunities. Many of our competitors had stronger brand recognition and significantly greater financial, technical, marketing and other resources than we did Our share of the market compared to theirs was too small to quantify.

 

Seasonality

 

Our business was affected by the seasonal fluctuations in corporate IT expenditures. Generally, expenditures were lowest during the first quarter of the year when our clients are finalizing their IT budgets. In addition, our quarterly results fluctuated depending on, among other things, the number of billing days in a quarter and the seasonality of our clients' businesses. Our business was also affected by the timing of holidays and seasonal vacation patterns, generally resulting in lower revenues and gross margins in the fourth quarter of each year. In addition, we experienced an increase in our cost of sales and a corresponding decrease in gross profit and gross margin in the first quarter of each year as a result of resetting certain state and federal employment tax salary limitations.

 

Major Customers/ Clients

 

We derived a significant portion of our service revenue from a limited number of corporate clients. Our two largest clients for the year ended December 31, 2007 accounted for 39% and 10%, respectively, of our revenues. The volume of work we performed for specific clients may vary from year to year, particularly since we typically were not the only outside service provider for our clients. Thus, a major client in one year may not provide the same level of revenue in a subsequent year. In certain cases, clients have reduced their spending on IT services due to economic conditions and consequently have reduced the volume of business from us.

 

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Employees

 

As of December 31 2007, we had 75 employees, including 24 employees and 51 billable consultants. We have 10 employees in sales, 8 in service/products delivery management, and 6 in executive and administrative positions. In addition to the 51 billable consultants who are employees, we utilize the services of approximately 100 to 125 billable independent contractors.

 

As of April 1, 2008, we have not filed annual, quarterly or periodic with the Securities and Exchange Commission (the "SEC"). Prior to April 1, 2008, we filed annual, quarterly and special reports, proxy statements and other information with the Securities and Exchange Commission (the "SEC").The public may read and copy any materials that we have filed with the SEC at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that contains the reports, proxy and information statements and other information regarding the Company that we have filed electronically with the SEC. The address of the SEC's Internet site is http://www.sec.gov.

 

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES

 

Our common stock was quoted on the NASD's Over-the-Counter Bulletin Board ("OTCBB") under the trading symbol "NFBH". Our common stock has been quoted on the NASD's OTCBB since March of 2001. On April 19, 2005, our name was changed from Houston Operating Company to NetFabric Holdings, Inc. and our stock symbol was changed from "HOOC" to "NFBH".  Our common stock has been quoted on the Pink Sheets under the ticker symbol “NFBH” since May 7, 2008.

The following table sets forth the high and low bid prices for our common stock for the periods indicated as reported by the NASDAQ OTCBB. The source of this data is Bloomberg Profession Services.  The data does not reflect inter-dealer prices and the quotations are without retail mark-ups, mark-downs or commissions, may not represent actual transactions, and have not been adjusted for stock dividends or splits.

		High				Low
YEAR ENDING DECEMBER 31, 2007
First Quarter		$	0.14			$	0.12
Second Quarter		$	0.10			$	0.10
Third Quarter		$	0.11			$	0.11
Fourth Quarter		$	0.08			$	0.07
YEAR ENDED DECEMBER 31, 2006
First Quarter		$	0.95			$	0.68
Second Quarter		$	0.90			$	0.35
Third Quarter		$	0.33			$	0.09
Fourth Quarter		$	0.12			$	0.10

 

As of January 8, 2010, the number of stockholders of record was approximately 467 (excluding beneficial owners and any shares held in street name or by nominees).

 

In the past three years, we have not paid any dividends upon our common stock. The payment of common stock dividends, if any, in the future rests within the discretion of our Board of Directors and will depend upon, among other things, our earnings, capital requirements and financial condition, as well as other relevant factors. Recent Sales of Unregistered Securities; Use of Proceeds From Registered Securities

 

During the three months ended December 31, 2007:

 

We issued two individuals warrants to acquire 390,000 shares of our common stock at an exercise price of $0.01 per share as additional consideration for borrowings from them pursuant to promissory notes issued by the Company.

 

The foregoing shares were issued pursuant to exemptions from registration under Sections 3(a)(9) and 4(2) of the Securities Act of 1933.

 

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Equity Plan Compensation Information

 

The following table sets forth information as of December 31, 2007 regarding compensation plans under which our equity securities are authorized for issuance.

Number of Securities

Remaining Available for

Number of Securities

Future Issuance Under

to be Issued Upon

Weighted Average

Equity Compensation

Exercise of

Exercise Price of

Plans (Excluding

Outstanding Options,

Outstanding Options,

Securities Reflected in

Warrants and Rights

Warrants and Rights

Column (a))

Plan Category

(a)

(b)

(c)

Equity Compensation Plans(1)

6,225,085

$

0.41

2,774,915

Equity compensation plans not approved by

equity holders(2)

6,320,419

0.44

0

Total

12,545,504

2,774,915

 

(1) Pursuant to our 2005 Stock Option Plan.

 

 

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

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and accompanying notes and the other financial information appearing elsewhere in this report and reports included herein by reference. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements.

 

Our independent registered public accounting firm has indicated in their report, dated  May 11, 2009, on our December 31, 2007 financial statements since we have experienced net losses since inception and have a working capital deficiency their report indicates that these matters raise substantial doubt about our ability to continue as a going concern. Our plan with regard to this matter is discussed elsewhere in this document. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

CORPORATE HISTORY

 

We were formerly known as Houston Operating Company and were incorporated in Delaware on August 31, 1989. On December 9, 2004, we entered into an Acquisition Agreement with all of the stockholders of NetFabric Corp., a Delaware corporation. NetFabric Corp. was incorporated in Delaware on December 17, 2002 and began operations in July 2003. At the closing, which occurred simultaneously with the execution of the Acquisition Agreement, we acquired all of the issued and outstanding capital stock of NetFabric Corp. from the stockholders in exchange for an aggregate of 32,137,032 newly-issued shares of our common stock. The acquisition was accounted for as a reverse merger whereby NetFabric Corp. was treated as the acquirer. On April 19, 2005, our name was changed from Houston Operating Company to NetFabric Holdings, Inc. and our stock symbol was changed from "HOOC" to "NFBH."

 

UCA SERVICES, INC. ACQUISITION

 

On May 20, 2005, we entered into and closed on a share exchange agreement, whereby we purchased all of the issued and outstanding shares of UCA Services, Inc., a New Jersey company (“UCA Services”) from its shareholders in exchange for the issuance of 24,096,154 shares of our common stock. UCA Services is an IT services and solutions company that serves the information needs of a wide range of Fortune 500 clients in the financial markets industry and the pharmaceutical, health care and hospitality sectors. UCA Services delivers a broad range of IT services in managed services, professional services, infrastructure building and maintenance, application development and maintenance areas. The acquisition was accounted for using the purchase method of accounting with UCA Service’s results of operations included in our consolidated financial statements from the date of acquisition.

 

DISCONTINUED OPERATIONS

 

Prior to acquiring NetFabric Corp., Houston Operating Company did not have any operations, and we were a shell company whose primary business objective was to merge and become public. NetFabric Corp. was a provider of hardware and services to small to mid-sized businesses ("SMBs") that utilized the Internet for telephone communications or Voice over Internet Protocol ("VoIP"). It developed and marketed appliances or Customer Premises Equipment ("CPE") that simplified the integration of standard telephone systems with an IP infrastructure. In addition, NetFabric Corp resold transport services of a third party VoIP transport provider.

 

Our operations, prior to the UCA Services acquisition, consisted of developing VoIP appliances, including research and product development activities. We also hired additional personnel for sales and marketing and developed our sales and marketing programs.

 

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With minimal revenues from VoIP operations, we concluded that we could not implement our original business plan for VoIP operations within our resources or with the additional capital we could raise in the near term. On May 5, 2006, our Board of Directors decided that the Company should exit the hardware-based VoIP communications product line (including resale of transport services) that is targeted to SMBs. In accordance with Statement of Financial Accounting Standards (‘SFAS’) No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets", ("SFAS No. 144"), the results of operations from the VoIP business segment has been reclassified as discontinued operations for all periods presented. After the discontinuation of VoIP operations, our only operations are that of UCA Services.

 

OVERVIEW OF UCA SERVICES BUSINESS

 

UCA Services derived revenues primarily from managed IT services, professional services, application development services and business process management services. Service arrangements with customers were generally on a time and material basis or fixed-price, fixed-timeframe revenue basis. UCA Services principal operating expenses were direct employee costs, consultant expenses and selling, general and administrative expenses. The principal components of selling, general and administrative expenses were salaries of sales and support personnel, and office rent. Direct employee costs and consultant expenses were comprised primarily of the costs of consultant labor, including employees, subcontractors and independent contractors, and related employee benefits. Approximately 50% of our consultants were employees and the remainder are subcontractors and independent contractors.

 

We compensated  most of our consultants only for the hours that we bill to our clients for projects undertaken, which allowed us to better match our labor costs with our revenue generation. With respect to our consultant employees, we were responsible for employment-related taxes, medical and health care costs and workers' compensation. Labor costs are sensitive to shifts in the supply and demand of IT professionals, as well as increases in the costs of benefits and taxes.

 

As previously noted, the December 9, 2004 acquisition of NetFabric Corp. was accounted for as a reverse merger whereby NetFabric Corp. was treated as the acquirer. Accordingly, the historical financial statements of NetFabric Corp. have been presented for all periods required. NetFabric Corp. began operations in January 2003 and was a development stage company until the UCA acquisition. The UCA acquisition was accounted for using the purchase method of accounting with the results of the operations included in the Company's consolidated financial statements from the date of acquisition.

 

Comparison of Years Ended December 31, 2007 and 2006:

 

Revenues.

 

Revenues for the year ended December 31, 2007, decreased by $1,375,432 or 7.8% over the prior year. The decreases in revenues were due to non replacement or non renewal of certain projects undertaken in 2006.

 

Direct employee compensation and consultant expenses.

 

Excluding non-cash share based compensation, for the year ended December 31, 2007, our direct employee compensation and consultant expenses decreased by $847,147 or 6.40% to $12,482,919. The decrease was due to decreased revenues in 2007. Excluding non-cash share based compensation as a percentage of revenues our direct employee compensation and consultant expenses was 76.9%, compared to 75.7% in 2006. The increase in employee compensation and consultant expenses as a percentage of revenues was due to the nature projects performed in 2007.

Selling, general and administrative expenses.

 

Excluding non-cash share based compensation, our selling, general and administrative expenses decreased for the year ended December 31, 2007 by $1,003,302, or 17.7%, to $4,662,684. The decreases in our selling, general and administrative expenses in  2007 compared to 2006 was due expense reductions implemented in the latter half of 2006 and the third quarter of 2007.

 

Amortization of debt discount.

 

Amortization of debt discount for the year ended December 31, 2007 decreased by $2,061,278, or 73.1%, to $758,011. A significant amount of amortization of debt discount resulting from the allocation of value to certain equity instruments issued in connection with debt were amortized in 2006 and due to repayment of certain underlying debt, amortization of debt discount decreased in 2007. At December 31, 2007, the aggregate unamortized debt discount was $855,162, which will be amortized and charged to operations over the term of the respective debt.

 

Depreciation and amortization.

 

For the year ended December 31, 2007, depreciation and amortization decreased by $27,908, or 8.1%, to $316,938.

Debt issuance costs.

 

The Company paid approximately $282,005 fees in connection with its short term fees during the year ended December 31, 2007 and were charged to operation. In 2006, the Company did not have any material amounts paid as fees for short term borrowings.

 

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Interest expense.

 

For the year ended December 31, 2007, interest expense decreased by $1,304, or 0.4 %, to $315,135.Since the borrowings and interest levels were generally at the same levels in 2007, interest expense did not vary significantly.

 

Derivative Financial Instruments.

 

In July 2005, we entered into an agreement pursuant to which we sold Cornell Capital Partners ("Cornell") secured convertible debentures (the "Cornell Debentures") in the aggregate principal amount of $1,000,000. In October 2005, we entered into a securities purchase agreement with Cornell whereby both parties agreed to amend and consolidate all of the convertible debentures issued to Cornell into one new secured convertible debenture in the principal amount of $1,658,160 ("October Convertible Debenture"). As a result of the change in the conversion terms of the October Convertible Debentures, on October 27, 2005, we determined that the embedded conversion feature of the October Cornell Debentures became subject to the provisions of SFAS No. 133. Therefore, we accounted for the embedded conversion feature as a liability in accordance with the guidance of EITF 00-19, "Accounting for Derivative Financial Instruments.

Indexed to, and Potentially Settled in, a Company's Own Stock" ("EITF 00-19"). Accordingly, we recorded the fair value of the embedded conversion feature of $784,784 as a non-current liability on the balance sheet as of October 27, 2005 and a portion of the amounts previously recorded to additional paid-in capital as part of the Original Cornell Debentures were reclassified from equity to liabilities. For the year ended December 31, 2006, we recorded a gain in value for derivative financial instruments of $336,352 related to the change in fair value of the embedded conversion feature, which is recorded in the accompanying consolidated statement of operations. For the year ended December 31, 2005, we recorded a charge in value for derivative financial instruments of $2,131,109 related to the change in fair value of the embedded conversion feature which is recorded in the accompanying consolidated statement of operations. In February 2006, we paid the October Convertible Debenture (the "Cornell Repayment") and accordingly, the value of the embedded conversion future was reclassified to additional paid-in capital.

Debt extinguishment costs.

 

In August 2007, we entered into an Agreement to Convert (“ Agreement”) with Fred Nazem, a stockholder. Pursuant to this Agreement, the stockholder agreed to convert $218,882 due to him in outstanding convertible debentures and accrued interest ($18,882) into 5,472,050 shares of common stock, including 4,900,394 shares as an inducement for conversion. The fair value of the inducement to convert approximated $539,000 and was charged to operations in the three months ended September 30, 2007 as debt extinguishment costs.

 

As part of the Cornell Repayment, we paid an early redemption charge of 15% of the principal amount redeemed or $248,724, which charge is included on the accompanying consolidated statement for operations for the year ended December 31, 2006. In connection with the Cornell Repayment, we also agreed to reduce the exercise price of the 560,000 warrants from $0.50 to $0.40. The change in exercise price of the warrants was treated as a new issuance of warrants and was valued using the Black Scholes option-pricing model. The reduction in exercise price resulted in a fair value of $372,353 for the warrants, which was charged to operations for the year ended December 31, 2006.

 

On May 24, 2006, we entered into a Waiver and Agreement to Convert (the "Waiver Agreement") with Macrocom Investors LLC ("Macrocom"). Pursuant to the Waiver Agreement, Macrocom agreed immediately to convert a note issued by us due on October 10, 2006 in the principal amount of $500,000 (the "Note"), including all interest accrued thereon, into 1,000,000 shares of restricted common stock of the Company. In addition, Macrocom and we agreed to waive and release each other from any claims in connection with the Note and all other agreements executed to date between Macrocom and us. In exchange for the waiver and the early conversion, we agreed to issue an additional 1,500,000 shares of restricted common stock to Macrocom. The fair value of the additional consideration was $1,125,000 and the amount was charged to operations during the year ended December 31, 2006 as debt extinguishment costs.

 

Non-cash charge for dispute settlement.

 

In January 2006, we entered into a termination agreement with a consultant. In connection with the termination, an officer, director and stockholder of the Company transferred 1,000,000 shares of our common stock owned by him to the consultant. We accounted for the settlement as an expense in our consolidated financial statements as a non-cash charge for dispute settlements, based on the value of the option of $0.94 per share on the date of settlement, with a corresponding credit to contributed (paid-in) capital from the officer, director and stockholder during the year ended December 31, 2006. In February 2006, we entered into an amendment agreement with the former UCA shareholders. Pursuant to the amendment agreement, an officer, director and stockholder of the Company transferred 9,000,000 shares of our common stock owned by him to the former UCA shareholders. Since the settlement was not a contingency associated with the acquisition of UCA Services, we accounted for the shares transferred by the individual as an expense, based on the value of the shares on the settlement date, February 13, 2006.

 

In process research and development.

 

In August 2006, the Company entered into an agreement with Utek Corporation ("Utek"), an unaffiliated specialty finance company focused on technology transfers, to acquire a technology license for intrusion detection software developed by a university. We anticipate further development and testing of the technology. Because of the uncertainties surrounding the ultimate commercial deployment of the technology and due to the technology not having alternative use, we charged the cost of the license agreement of $160,000 as in process research and development costs during the year ended December 31, 2006.

 

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Goodwill impairment

 

Pursuant to SFAS No. 142 “Goodwill and Other Intangibles Assets,” (“SFAS No. 142”), the Company performed its annual testing of goodwill impairment in the second quarter of 2007. As a part of goodwill impairment testing, management reviewed various factors, such as the market price of the Company’s common stock, discounted cash flows from projected earnings and values of comparable companies to determine whether impairment exists. Based on this evaluation it was determined that the goodwill was impaired.   The impairment was due to a continued decline in our market capitalization during the past year, and due to lower future cash flows expected to be generated by the business due to working capital constraints. The implied value of the goodwill was $10,585,000 compared to a carrying value of $13,982,451, indicating an impairment of $3,397,451. The impairment loss was charged to operations during the three months ended June 30, 2007.

 

We evaluated our business conditions and future strategic direction including the delisting of its common shares from trading on the Bulletin Board (“OTCBB”) and concluded that an interim testing of goodwill is warranted at December 31, 2007. As a part of the interim goodwill impairment testing, management reviewed various factors and used a market approach (comparison of financial data for publicly traded companies engaged in similar lines of business) to determine whether impairment exists. Based on this evaluation, it was determined that the goodwill was impaired. The impairment was, in part, due to decreased values of comparable companies. The implied value of goodwill was $5,704,000 compared to carrying value of $10,585,000, indicating an impairment of $4,881,000. The additional impairment loss was charged to operations during the three months ended December 31, 2007. In total an impairment loss of $8,278,451 was charged to operations during the year ended December 31, 2007.

Discontinued Operations.

 

On May 5, 2006, our Board of Directors decided to exit from the hardware-based VoIP communications product line (including resale of transport services) that is targeted to SMBs. In accordance with Statement of Financial Accounting Standards No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets", ("SFAS No. 144"), the results of operations from the VoIP business segment has been reclassified as discontinued operations for all periods presented. For the year ended December 31, 2006, loss from discontinued operations decreased by $421,013, or 88.7%, from$474,411 in the prior year. The decreases were due to our scaling back of VoIP operations in 2006 and eventual exit from the business during 2006. Revenues from VoIP operations have been nominal in all periods presented and operating expenses are the losses reported.

 

Net loss.

 

 

LIQUIDITY AND CAPITAL RESOURCES

 

On December 31, 2007, our working capital deficiency was $4,937,149, compared to a working capital deficiency of $3,767,282 on December 31, 2006. The increase in the working capital deficiency was principally due to operating losses. During the year ended December 31, 2007, our operating activities from continuing operations used approximately $266,000  of cash, compared to approximately $1,019,000 used during the year ended December 31, 2006.

 

During the year ended December 31, 2006, our operating losses, after adjusting for non-cash items, utilized approximately $1,237,000 of cash, and working capital items provided approximately $970,000 of cash. The principal component of these working capital changes was an increase in our accounts payable and decrease in accounts receivable. During the year ended December 31, 2006, our operating losses, after adjusting for non-cash items, utilized approximately $1,715,000 of cash, and working capital items used approximately $690,000 of cash.

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

As previously reported in the Company's Form 8-K filed on January 26, 2007, the Board of Directors of the Company dismissed  J.H. Cohn LLP (‘JHC”) as the Independent Registered Public Accounting Firm of the Company on January 24, 2007.

 

On January 24, 2007, the Company hired Goldstein Golub Kessler LLP ("GGK") to serve as the Company's Independent Registered Public Accounting Firm. During the period that JHC had acted as the Company's independent accountants, the Company did not consult with GGK on any matter that (i) involved the application of accounting principles to a specific completed or contemplated transaction, or the type of audit opinion that might be rendered on the Company's financial statements, in each case where written or oral advice was provided, that was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue; or (ii) was either the subject of a disagreement or event, as that term is described in Item 304(a)(1)(iv)(A) of Regulation S-B.

 

During the Company's December 31,2005 fiscal year and through January 24, 2007, there were no disagreements with JHC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of JHC, would have caused them to make reference to the subject matter of the disagreements in connection with their reports. During our two most recent fiscal years, and the subsequent interim period through the date JHC was dismissed, JHC did not advise the Company as to any reportable events of the type described in Item 304(a)(1)(iv)(B) of Regulation S-B.

On December 4, 2007, the Company was notified that certain of the partners of Goldstein Golub Kessler LLP (GGK), became partners of McGladrey & Pullen, LLP in a limited asset purchase agreement and that GGK resigned as independent registered public accounting firm for the Company.  McGladrey & Pullen, LLP was appointed as the Company’s new independent registered public accounting firm.

The audit report of GGK on the consolidated financial statements of NetFabric Holdings, Inc. and subsidiaries as of and for the year ended December 31, 2006 did not contain an adverse opinion or a disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles. GGK's December 31, 2006 audit report relating to GGK's audit of Company's financial statements for the fiscal year ended December 31, 2006 included an emphasis paragraph relating to an uncertainty as to the Company's ability to continue as a going concern.

The decision to engage McGladrey & Pullen, LLP was approved by the board of directors, effective December 4, 2007.

During the Company’s most recent fiscal year ended December 31, 2006 and through December 4, 2007, the Company did not consult with McGladrey & Pullen, LLP on (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that may be rendered on the Company’s financial statements, and McGladrey & Pullen, LLP did not provide either a written report or oral advice to the Company that McGladrey & Pullen, LLP concluded was an important factor considered by the Company in reaching a decision as to any accounting, auditing, or financial reporting issue; or (ii) the subject of any disagreement, as defined in Item 304 (a)(1)(iv) of Regulation S-K and the related instructions, or a reportable event within the meaning set forth in Item 304(a)(1)(v) of Regulation S-K.

In connection with the audit of the Company's consolidated financial statements for the fiscal year ended December 31, 2006 and through December 4, 2007, there were: (i) no disagreements between the Company and GGK on any matters of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of GGK, would have caused GGK to make reference to the subject matter of the disagreement in their report on the Company's financial statements for such year, and (ii) no reportable events within the meaning set forth in Item 304(a)(1)(v) of Regulation S-K.

 

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ITEM 9A. CONTROLS AND PROCEDURES

 

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Such controls and procedures, by their nature, can provide only reasonable assurance regarding management’s control objectives.

 

The Company carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and Principal Financial Officer, on the effectiveness of the design and operation of its disclosure controls and procedures pursuant to Exchange Act Rules 13a-15 and 15d-15 as of December 31, 2007. However, disclosure controls were not effective because the Company did not file this report on a timely basis.

 

There was no change in the Company’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during the quarter ended December 31, 2007 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

Management’s Annual Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed by, or under the supervision of, the chief executive officer and principal financial officer and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

 

Our evaluation of internal control over financial reporting includes using the COSO framework, an integrated framework for the evaluation of internal controls issued by the Committee of Sponsoring Organizations of the Treadway Commission, to identify the risks and control objectives related to the evaluation of our control environment.

 

Based on our evaluation under the frameworks described above, our management has concluded that our internal control over financial reporting was effective as of December 31, 2007.

 

This annual report does not include an attestation report of the company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation requirements by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

 

ITEM 9B. OTHER INFORMATION

 

None.

 

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

 

The following table sets forth the names and positions of our executive officers and directors. Our directors serve for one year or until successors are elected and qualify. Our Board of Directors elect our officers, and their terms of office are at the discretion of the Board, except to the extent governed by an employment contract.

 

Name		Age		Position		With Company Since
Fahad Syed		41		Chairman and Chief Executive Officer		May 2005
Vasan Thatham		51		Chief Financial Officer		June 2005
Charlotte G. Denenberg		61		Director		November 2004
Joseph Perno		66		Director		April 2006

 

Below are the biographies of each of our officers and directors as of  January 8, 2010.

 

FAHAD SYED. Mr. Syed has been the Chairman and Chief Executive Officer of the Company since May 2006. Mr. Syed has been a Director of the Company since May 2005. Mr. Syed is an entrepreneur and co-founder of UCA Services, Inc. and has more than 14 years of experience in Global Services. Mr. Syed is an expert in the development of best practices in IT, channel and direct sales strategies and effective service delivery models. Mr. Syed was the Managing Director of UCA Services, Inc, from June 2003 to May 2005 and he is currently the Chief Executive Officer of UCA Services, Inc. Prior to that, Mr. Syed was Vice President of IT services with UCA Computer Systems, Inc., a system integrator, from December 1998 to May 2003. Previously, Mr. Syed held prominent positions in development and management of financial products at the Housing Development Finance Corporation (HDFC), a pioneer private sector housing finance institution in India. Mr. Syed holds a Masters Degree in Development Sciences from Tata Institute of Social Sciences, Mumbai, India, a Bachelors degree in Sociology from Aligarh University, India and a Diploma in Systems from National Institute of Information Technology, Mumbai, India.

 

VASAN THATHAM. Vasan Thatham has been Vice President and Chief Financial Officer of the Company since June 2005. Prior to joining the Company, from February 1999 through June 2005, Mr. Thatham was Vice President and Chief Financial Officer of Provo International, Inc., a company engaged in providing Internet and telecommunications services. Prior to that, Mr. Thatham held various positions with Esquire Communications, Ltd., Strings Ltd., Ernst & Young in Kuwait and KMPG Peat Marwick in India. Mr. Thatham is a chartered accountant under the laws of India.

 

CHARLOTTE G. DENENBERG. Ms. Denenberg has been a Director of the Company since November 2004. She received a BA in Psychology and Mathematics with Highest Distinction, Phi Beta Kappa, from Northwestern University, and an MS and a PhD in Mathematics from the Illinois Institute of Technology. For the past two years she has consulted for a variety of companies in the telecommunications industry. From 1998 to 2002, she worked for Metromedia Fiber Network Services, Inc. (MFN) as Vice President, Optical Infrastructure (December 1998 to June 2000) and as Vice President and Chief Technology Officer (July 2000 to June 2002). MFN was engaged in the design, installation and maintenance of inter-city and intra-city optical fiber networks.

 

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JOSEPH PERNO. Mr. Perno has been a Director of the Company since April 2006. Since his retirement in March 2003, he has been a consultant to emerging technology companies. From March 1994 to March 2003, he was Senior Vice President of Technology at Chubb Corporation, a provider of property and casualty insurance to businesses and individuals worldwide. Prior to that, he was associated for 18 years with Chubb Corporation and Crum and Foster Insurance Organizations in various capacities. Mr. Perno has been a member of the LOMA Property and Casualty Systems Committee for twenty three years, serving as Chairman of that organization from 1991 to 1992. He also served on the Boards of Directors of ACORD, IVANS, the North River Insurance Company, US Fire Insurance Company, The Westchester Insurance Company and the agency systems vendor, Redshaw, Inc.

 

Family Relationships

 

There are no family relationships among the directors or executive officers of the Company.

 

Involvement In Certain Legal Proceedings

 

None of our officers, directors, promoters or control persons have been involved in the past five years in any of the following:

 

(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, or 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 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.

 

Code of Ethics

 

On March 3, 2005, we adopted a Code of Ethics (the "Code") that applies to the Company, our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. The text of the Code will be provided, without charge, upon request sent to our Secretary at 299 Cherry Hill Road, Parsippany, NJ 07054.

 

Audit Committee

 

The Audit Committee is responsible for making recommendations to the Board of Directors as to the selection and independence of our independent registered public accounting firm (the "Independent Auditor"), maintaining communication with the Independent Auditor, reviewing the annual audit report submitted by the Independent Auditor and determining the nature and extent of problems, if any, presented by such audit warranting consideration by our Board of Directors. Currently, the Company does not have an audit committee and in accordance with ss.3(a)(58)(B) of the Securities Exchange Act of 1934, the entire Board of Directors is acting as the Company's Audit Committee.

 

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Compensation Committee

 

The Compensation Committee is a standing committee of the Board of Directors and is authorized to review and make recommendations to the Board of Directors on all matters regarding the remuneration of our executive officers, including the administration of our compensation plans. The Compensation Committee is intended to be comprised of at least three members. Currently, the Compensation Committee is comprised of only Ms. Charlotte G. Denenberg.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

 

ITEM 11. EXECUTIVE COMPENSATION

 

 

Summary Compensation Table

																								Nonqualified
																				Non-Equity				Deferred
												Stock				Option				Incentive Plan				Compensation				All Other
				Salary				Bonus				Awards				Awards(3)				Compensation				Earnings				Compensation				Total
Name and Principal Positlion		Year		($)				($)				($)				($)				($)				($)				($)				($)
Fahad Syed		2007			335,000																												335,000
Chief Executive Officer (1)		2006			195,336																												195,336
Jeff Robinson		2006			96,756																												96,756
Chief Executive Officer (2)
Vasan Thatham		2007			150,000												80,124																230,124
Chief Financial Officer (3)		2006			147,053												80,124																227,177

 

(1) Effective May 5, 2006, Fahad Syed was appointed CEO and elected Chairman.

(2) Effective May 5, 2006, Jeff Robinson resigned as Chairman and CEO of the Company.

(3) Value of option awards is the dollar amount recognized for financial statements reporting purposes with respect for fiscal year 2007 and 2006 . See Note 11 to Consolidated Financial Statements.

 

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Employment Agreements

 

 

PRINCIPAL STOCKHOLDERS

 

The table below sets forth information with respect to the beneficial ownership of our common stock as of January 8, 2010 for (i) persons who own more than 5% of our outstanding common stock; (ii) each of our directors or those nominated to be directors, and executive officers; and (iii) all of our directors and executive officers as a group.

Name and Address		Amount and Nature of				Percentage
of Beneficial Owner		Beneficial Ownership				of Class(1)
Fred Nazem			23,279,527	(2)			24.0	%
44 East 73rd Street
New York, NY 10021
Faisal Syed			13,238,462				13.6	%
12 Kings Brook Court
Mendham, NJ 07945
Mohamed Asif			13,238,462				13.6	%
53 Burnet Hill Road
Livingston, NJ 07039
Fahad Syed			6,731,731				9.6	%
c/o NetFabric Holdings, Inc
299 Cherry Hill Road
Parsippany, NJ 07054
Jeff Robinson			4,832,476				5.0	%
Five Tomaselli Court
Ballston Spa, NY 12020
Vasan Thatham			300,000	(3)			*
c/o NetFabric Holdings, Inc.
299 Cherry Hill Road
Parsippany, NJ 07054
Charlotte G. Denenberg			125,000	(4)			*
c/o NetFabric Holdings, Inc.
299 Cherry Hill Road
Parsippany, NJ 07054
Joseph Perno			125,000	(4)			*
c/o NetFabric Holdings, Inc.
299 Cherry Hill Road
Parsippany, NJ 07054
Laurus Master Fund, Ltd.			5,221,393	(5)			5.3	%
c/o Laurus Capital Management, LLC
335 Madison Avenue
New York, NY 10017
All Directors and Executive
Officers as a Group (4 persons)			7,281,731	(6)			7.5	%

 

* Less than 1%.

(1) Applicable percentage of ownership is based on 97,053,044 shares of common stock outstanding as of January  8, 2010 for each stockholder. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting of investment power with respect to securities. Shares of common stock subject to securities exercisable or convertible into shares of common stock that are currently exercisable or exercisable within 60 days of January 8,, 2010 are deemed to be beneficially owned by the person holding such options for the purpose of computing the percentage of ownership of such persons, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.

 

(2) Includes 6,592,212 shares held by the Fred F. Nazem Children's Trust, whose trustees are Alexander Nazem, Farhad Nazem and Sohelya Gharib. Fred Nazem disclaims beneficial ownership of these securities.

 

(3) Includes 300,000 shares issuable upon exercise of options.

 

(4) Includes 125,000 shares issuable upon exercise of options.

 

 (5) Includes  554,282 shares issuable upon exercise of warrants.  Laurus Capital Management, LLC manages Laurus Master Fund Ltd. Eugene Grin and David Grin, through other entities, are the controlling principals of Laurus Capital Management, LLC and share sole voting and investment power over the securities owned by Laurus Master Fund Ltd.

 

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(6) Includes 550,000 shares issuable upon exercise of options.

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

In April 2006, we sold the 2006 Convertible Debentures in the face amount of $150,000 to Fahad Syed, an officer and director and in the face amount of $50,000 to Fred Nazem, a stockholder (For the purposes of this paragraph, Mr. Syed and Mr. Nazem are collectively referred to as the "Debenture Holders"). The 2006 Convertible Debentures bear interest at 8% and were due originally on June 17, 2006. At the option of the Debenture Holders, the 2006 Convertible Debentures can be converted into shares of the Company's common stock at a conversion price of $.50 per share. In connection with the sale, we issued warrants to the two Debenture Holders for an aggregate amount of 150,000 shares of the Company's common stock as additional consideration. In December 2006, the Debenture Holders extended the maturity of the 2006 Convertible Debentures to April 2007. In April 2007, the maturity of Convertible Debenture due to Fahad Syed was extended to December 2007 and repaid in 2008.

 

In June 2006, we sold a Stockholder Convertible Debenture in the face amount of $150,000 to Fred Nazem. The Stockholder Convertible Debenture bears interest at 8% and was due on August 4, 2006. At the option of the holder, the Stockholder Convertible Debenture can be converted into shares of the Company's common stock at a conversion price of $.50 per share. In connection with the sale, we issued 300,000 shares of its common stock as additional consideration. In December 2006, Fred Nazem extended the maturity of the Stockholder Convertible Debenture to April 2007. In August 2007, the Company entered into an Agreement to Convert (the “Agreement”) with Fred Nazem, a stockholder. Pursuant to this Agreement, the stockholder agreed to convert $218,882 due to him in outstanding convertible debentures and accrued interest of $18,882 into 5,472,050 shares of common stock, which includes 4,900,394 shares as an inducement for conversion.

 

We had a sublease with UCA Global, Inc., an entity affiliated with Faisal Syed, a stockholder . The lease is for an office of 13,000 square feet for a three year term through July 2008 with an annual rent of $144,000. The sublease rent was determined by the landlord based on the area of usage and we pay our share of rent directly to the landlord. Pursuant to entering into a lease for a new office premises, the Company has terminated the sublease arrangement effective June 2007.

 

Prior to our acquisition of UCA, UCA issued a promissory note to Faisal Syed, a stockholder, in the principal amount of $100,000. The note bears interest at the rate of 6%. The promissory note, together with accrued but unpaid interest, was due on June 16, 2005. We repaid the promissory note in February 2006.

 

In June 2005, Fred Nazem, a stockholder, advanced $70,000 to the Company for working capital. The loan was interest free and not subject to any written agreement and did not have any formal due date. We paid the note in February 2006.

 

In June 2005, Fahad Syed, an officer and director, advanced $200,000 to the Company for working capital. Initially, the loan was interest free and not subject to any written agreement. In December 2005, we issued a promissory note to formalize our borrowing. The note bore interest at 5% and it was due in January 2006. We paid the note in February 2006. In December 2005, we also issued a warrant to acquire 300,000 shares of our common stock at $1.00 per share to Fahad Syed as additional consideration. The warrant expires in January 2009.

 

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In July 2005, we sold convertible debentures to a stockholder, Fred Nazem, and to CCS Group, LLC. ("CCS"), an entity affiliated with Walter Carozza, our former officer, in the face amounts of $50,000 each, repayable in April 2006. The convertible debentures can be converted into 100,000 shares of our common stock at a conversion price of $.50 per share. In connection with the sale, we issued each of them warrants to acquire 100,000 shares of our common stock at an exercise price of $1.50 per share. The warrants expire three years from the date of issuance. We also issued to Mr. Nazem and CCS 37,500 shares each of our common stock as additional consideration. Fred Nazem converted the debenture into 100,000 shares of common stock in April 2006. The maturity date of the convertible debenture held by CCS was extended to September 2006. In September, CCS converted the convertible debenture into 100,000 shares of common stock. As consideration for the conversion, we issued CCS 300,000 shares of our common stock.

 

In the normal course of business, the Company performed services for and billed Clear to Close, Inc., an entity affiliated with the Company's stockholders, in the amounts of $ 0 and $68,000, respectively, during the years ended December 31, 2007 and 2006. As of December 31, 2007, approximately $235,000 was owed to the Company by Clear to Close, Inc. including amounts owed to UCA prior to the acquisition and a full allowance is provided due to uncertainty over the recovery of the amount.

 

 

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

Through September 30, 2005, Goldstein Golub Kessler LLP ( "GGK") had a continuing relationship with American Express Tax and Business Services Inc. ("TBS") from which it leased auditing staff who were full time, permanent employees of TBS and through which its partners provided non-audit services. Subsequent to September 30, 2005 this relationship ceased and GGK established a similar relationship with RSM McGladrey, Inc. GGK has no full time employees, and, therefore, none of the audit services performed were provided by permanent, full-time employees of the GGK. GGK manages and supervises the audit and audit staff and is exclusively responsible for the opinion rendered in connection with its examination. GGK performed an audit of our annual financial statements for the year ended December 31, 2006.

 

Certain of the partners of GGK became partners of McGladrey & Pullen, LLP in a limited asset purchase agreement effective October 3, 2007. As a result, GGK resigned as our auditors effective December 4, 2007 and McGladrey & Pullen, LLP was appointed as the auditors of our annual financial statements for the year ended December 31, 2007.

 

Audit Fees

 

The aggregate fees billed or to be billed for professional services rendered by our independent registered public accounting firm for the audit of our annual financial statements, review of financial statements included in our quarterly reports and other fees that are normally provided by the accounting firm in connection with statutory and regulatory filings or engagements for the fiscal years ended December 31, 2007 and 2006 were $170,000 and $160,000, respectively. For 2007, 125,000 of fees was billed by McGladrey & Pullen, LLP and $45,000 was billed by GGK. For 2006, $100,000 of fees were billed or to be billed by our  independent registered public accounting firm GGK and $60,000 were billed by JHC, our former independent registered public accounting firm.

 

Audit Related Fees

 

The aggregate fees billed or to be billed for audit related services by our independent registered public accounting firm that are reasonably related to the performance of the audit or review of our financial statements, other than those previously reported in this Item 14, for the fiscal years ended December 31, 2007 and 2006 were $0 and $0, respectively.

 

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Tax Fees

 

The aggregate fees billed for professional services rendered by our independent registered public accounting firm for tax compliance, tax advice and tax planning for the fiscal years ended December 31, 2007 and 2006 were $0 and $0, respectively.

 

All Other Fees

 

There were no other fees billed for services by our independent registered public accounting firm for either audit related or non audit services for the fiscal years ended December 31, 2007 and 2006.

 

The Audit Committee considered and determined that the services performed are compatible with maintaining the independence of the independent registered public accounting firm.

 

Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditor

 

The Audit Committee is responsible for pre-approving all audit and permitted non-audit services to be performed for us by our Independent Registered Public Accounting Firm as outlined in its Audit Committee charter. Prior to engagement of the Independent Registered Public Accounting Firm for each year's audit, management or the Independent Registered Public Accounting Firm submits to the Audit Committee for approval an aggregate request of services expected to be rendered during the year, which the Audit Committee pre-approves. During the year, circumstances may arise when it may become necessary to engage the Independent Registered Public Accounting Firm for additional services not contemplated in the original pre-approval. In those circumstances, the Audit Committee requires specific pre-approval before engaging the Independent Registered Public Accounting Firm. Currently, the Company does not have an audit committee and in accordance with ss.3(a)(58)(B) of the Securities Exchange Act of 1934, the entire Board of Directors is acting as the Company's Audit Committee. The entire Board of Directors does not delegate to management its responsibility to pre-approve services performed by the Independent Registered Public Accounting Firm.

 

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ITEM 15. EXHIBITS.

A.		Exhibits
Exhibit 2.1		Share Exchange Agreement between the Company, NetFabric, NetFabric’s shareholders and Littlehampton LLC, dated December 9, 2004. (1)
Exhibit 2.2		Share Exchange Agreement between the Company, UCA Services, Inc. and all of the Shareholders of UCA Services, Inc. dated 20, 2005. (4)
Exhibit 3.1		Articles of Incorporation (12)
Exhibit 3.2		By-Laws. (7)
Exhibit 10.1		Letter Agreement between Houston Operating Company, NetFabric Corporation, Macrocom Investors, LLC and Littlehampton Investments, LLC, dated March 25, 2005. (3)
Exhibit 10.2		Financing Agreement between NetFabric and Macrocom, dated July 22, 2004. (1)
Exhibit 10.3		Loan Agreement between NetFabric and Macrocom, dated October 14, 2004. (1)
Exhibit 10.4		Amendment to Financing and Loan Agreement between NetFabric and Macrocom, dated December 2, 2004. (1)
Exhibit 10.5		Distribution Agreement between NetFabric and Williams, dated November 29, 2004. (1)
Exhibit 10.6		Lease Agreement between NetFabric and Silvermine, dated January 1, 2004. (1)
Exhibit 10.7		2005 Stock Option Plan. (2)
Exhibit 10.8		Agreement with Macrocom Investors, LLC for Convertible Debentures dated July 19, 2005. (5)
Exhibit 10.9		Warrant, dated as October 27, 2005, issued by the Company to Cornell Capital Partners, LP. (6)
Exhibit 10.10		Securities Purchase Agreement, dated as of October 27, 2005, by and between the Company and Cornell Capital Partners, LP. (6)
Exhibit 10.11		Investor Registration Rights Agreement, dated as of October 27, 2005, by and between the Company and Cornell Capital Partners, LP. (6)

 

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Exhibit 10.12		Escrow Agreement, dated as of October 27, 2005, by and among the Company, Cornell Capital Partners, LP and David Gonzalez, Esq., as escrow agent pursuant to the Securities Purchase Agreement. (6)
Exhibit 10.13		Amended and Restated Security Agreement, dated as of October 27, 2005, by and between the Company and Cornell Capital Partners, LP. (6)
Exhibit 10.14		Amended and Restated Security Agreement, dated as of October 27, 2005, by and between the Company and Cornell Capital Partners, LP. (6)
Exhibit 10.15		Amended and Restated Security Agreement, dated as of October 27, 2005, by and between UCA Services, Inc. and Cornell Capital Partners, LP. (6)
Exhibit 10.16		Officer Pledge and Escrow Agreement, dated as of October 27, 2005, by and among the Company, Cornell Capital Partners, LP and David Gonzalez, Esq., as escrow agent. (6)
Exhibit 10.17		Form of Secured Convertible Debenture issued to Cornell Capital Partners, LP dated October 27, 2005. (6)
Exhibit 10.18		Employment Agreements with Fahad Syed. (7)
Exhibit 10.19		Amendment of The Share Exchange Agreement dated February 13, 2006 by and among NetFabric, Holdings, Inc. UCA Services, Inc. and UCA Shareholders. (8)
Exhibit 10.20		Security Agreement, dated February 10, 2006, by and between the Company and Laurus Master Fund, Ltd.
Exhibit 10.21		Secured Convertible Note, dated February 10, 2006, by and between the Company and Laurus Master Fund, Ltd. (9)
Exhibit 10.22		Secured Non-Convertible Note, dated February 10, 2006, by and between the Company and Laurus Master Fund, Ltd. (9)
Exhibit 10.22		Option, dated February 10, 2006, by the Company. (9)
Exhibit 10.23		Registration Rights Agreement, dated February 10, 2006, by and between the Company and Laurus Master Fund, Ltd. (9)
Exhibit 10.24		Subsidiary Guaranty, dated February 10, 2006 from NetFabric Corporation and UCA Services, Inc. (9)
Exhibit 10.25		Letter agreement, dated February 10, 2006 between the Company and Laurus Master Fund. (9)
Exhibit 10.27		Form of Convertible Debenture dated April 19, 2006 issued by the Company. (10)
Exhibit 10.28		Form of Warrant, dated April 19, 2006 issued by the Company. (10)
Exhibit 10.28		Agreement and Plan of Acquisition by and between Intrusion Detection Technologies, Inc., UTEK Corporation and NetFabric Holdings, Inc. (11)
Exhibit 14.1		Code of Business Conduct and Ethics. (3)
Exhibit 21.1		Subsidiaries of the Registrant*
Exhibit 31.1		Rule 13a-14(a)/15d-14(a) Certification (CEO)*
Exhibit 31.2		Rule 13a-14(a)/15d-14(a) Certification (CFO)*
Exhibit 32.1		Section 1350 Certification (CEO)*
Exhibit 32.2		Section 1350 Certification (CFO)*

 

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