Geeks On Call (GOCH) 10-Q 2009 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: February 28, 2009

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from: _______ to _______

Commission file number: 333-143931

Geeks On Call Holdings, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware	20-8097265
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
814 Kempsville Road
Suite 106	23502
Norfolk, VA
(Address of Principal Executive Offices)	(Zip code)
(757) 466-3448
(Registrant’s Telephone Number, Including Area Code)

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

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

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

Large Accelerated Filer [  ]	Accelerated Filer [  ]
Non-Accelerated Filer [  ]	Smaller reporting company [X]
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES [  ] NO [X]

As of May 15, 2009, 23,583,447 shares of common stock, $0.001 par value per share, of the issuer were outstanding.

Forward Looking Statements

This quarterly report on Form 10-Q may contain so-called “forward-looking statements,” all of which are subject to risks and uncertainties. Forward-looking statements can be identified by the use of words such as “expects,” “plans,” “will,” “forecasts,” “projects,” “intends,” “estimates,” and other words of similar meaning. One can identify them by the fact that they do not relate strictly to historical or current facts. These statements are likely to address our growth strategy, financial results, ability to raise additional capital and product and development programs. One must carefully consider any such statement and should understand that many factors could cause actual results to differ from our forward looking statements. These factors may include inaccurate assumptions and a broad variety of other risks and uncertainties, including some that are known and some that are not. No forward looking statement can be guaranteed and actual future results may vary materially.

Information regarding market and industry statistics contained in this quarterly report on Form 10-Q is included based on information available to us that we believe is accurate. It is generally based on industry and other publications that are not produced for purposes of securities offerings or economic analysis. We have not reviewed or included data from all sources, and cannot assure investors of the accuracy or completeness of the data included in this quarterly report of Form 10-Q. Forecasts and other forward-looking information obtained from these sources are subject to the same qualifications and the additional uncertainties accompanying any estimates of future market size, revenue and market acceptance of products and services. We do not assume any obligation to update any forward-looking statement. As a result, investors should not place undue reliance on these forward-looking statements.

The forward-looking statements included in this quarterly report on Form 10-Q are made only as of the date of this quarterly report on Form10-Q. We do not intend, and do not assume any obligation to, update these forward looking statements, except as required by law.

GEEKS ON CALL HOLDINGS, INC.

TABLE OF CONTENTS

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements	F-1
	Condensed Consolidated Balance Sheets as of February 28, 2009 (unaudited) and August 31, 2008	F-1
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended February 28, 2009 and February 29, 2008 (unaudited)	F-2
	Condensed Consolidated Statements of Stockholders’ Deficit for the Year Ended August 31, 2008 and Six Months Ended February 28, 2009 (unaudited)	F-3
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended February 28, 2009 and February 29, 2008 (unaudited)	F-5
	Notes to Condensed Consolidated Financial Statements (unaudited)	F-6 to F-28
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1
Item 4T.	Controls and Procedures	11
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	12
Item 1A.	Risk Factors	12
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	12
Item 3	Defaults upon Senior Securities	13
Item 4.	Submission of Matters to a Vote of Security Holders	13
Item 5.	Other Information	13
Item 6.	Exhibits	13

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

GEEKS ON CALL HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

	February 28, 2009			August 31, 2008
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	21,640		$	177,499
Accounts receivable, net of allowance for doubtful accounts of $147,657 and $23,601, respectively		141,824			146,707
Notes receivable, current portion, net of allowance for doubtful accounts of $8,884 and $48,320, respectively		74,941			63,429
Lease receivable, current portion		2,731			19,119
Financing costs, net of accumulated amortization of $183,113		283,377			—
Prepaid expenses and other current assets		527,315			344,808
Total current assets		1,051,828			751,562
Property and equipment, net		608,813			731,306
Other assets:
Deposits		2,034			2,034
Notes receivable, long term portion, net of allowance for doubtful accounts of $68,360 and $0, respectively		166,187			253,754
Customer lists, net of accumulated amortization of $35,542 and $21,458, respectively		69,958			84,042
Trademarks, net of accumulated amortization of $7,166 and $6,689, respectively		7,167			7,644
Total other assets		245,346			347,474
Total Assets	$	1,905,987		$	1,830,342
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable and accrued liabilities	$	2,510,307		$	2,155,192
Line of credit		467,520			200,000
Notes payable, current portion		454,510			449,959
Notes payable, related parties		191,000			—
Obligation under capital lease, current portion		26,955			69,505
Deferred franchise and initial advertising fees		78,317			70,026
Other deferred liabilities, current portion		7,525			7,525
Total current liabilities		3,736,134			2,952,207
Long-term liabilities:
Note payable, long term portion		62,295			88,129
Other deferred liabilities		66,179			71,130
Total liabilities		3,864,608			3,111,466
STOCKHOLDERS’ DEFICIT
Preferred stock, par value $0.001; authorized 10,000,000 shares, none issued and outstanding		—			—
Common stock, par value of $0.001; authorized 100,000,000 shares; issued and outstanding as of February 28, 2009 and August 31, 2008: 23,327,374 and 14,152,500 shares, respectively		23,327			14,153
Common stock subscription		—			—
Additional paid-in capital		10,693,186			9,109,354
Accumulated deficit		(12,675,134	)		(10,404,631	)
Total stockholders’ deficit		(1,958,621	)		(1,281,124	)
Total Liabilities and Stockholders’ Deficit	$	1,905,987		$	1,830,342

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

F-1

GEEKS ON CALL HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

	Three months ended						Six months ended
	February 28, 2009			February 29, 2008			February 28, 2009			February 29, 2008
REVENUES:
Franchise, area developer and initial advertising and marketing fees	$	208,795		$	141,055		$	446,930		$	403,865
Royalties and advertising and marketing fees		668,961			1,259,378			1,413,548			2,576,579
Other		9,109			10,630			21,617			35,690
Total revenue		886,865			1,411,063			1,882,095			3,016,134
OPERATING EXPENSES:
Selling, general and administrative expenses		1,532,619			1,688,374			3,278,518			2,666,395
Advertising and marketing expense		180,291			873,622			523,416			1,872,321
Depreciation and amortization		66,842			37,150			136,200			73,536
Total operating expenses		1,779,752			2,599,146			3,938,134			4,612,252
Loss from operations		(892,887	)		(1,188,083	)		(2,056,039	)		(1,596,118	)
Other income (expense):
Other income (expense)		(6,504	)		4,275			(1,200	)		4,275
Dividends on mandatory redeemable preferred stock		—			10,862			—			(6,340	)
Interest income (expense), net		(199,270	)		(364	)		(213,264	)		55
Net loss before provision for income taxes		(1,098,661	)		(1,173,310	)		(2,270,503	)		(1,598,128	)
Income taxes (benefit)		—			—			—			—
NET LOSS		(1,098,661	)		(1,173,310	)		(2,270,503	)		(1,598,128	)
Preferred stock dividend		—			9,199			—			68,992
NET LOSS AVAILABLE TO COMMON STOCKHOLDERS	$	(1,098,661	)	$	(1,182,509	)	$	(2,270,503	)	$	(1,667,120	)
Loss per shares, basic and diluted	$	(0.06	)	$	(0.16	)	$	(0.13	)	$	(0.28	)
Weighted average number of common shares outstanding, basic and diluted		19,108,965			7,370,627			16,820,574			6,038,933

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

F-2

GEEKS ON CALL HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT
YEAR ENDED AUGUST 31, 2008 AND FOR THE SIX MONTHS ENDED FEBRUARY 28, 2009
(unaudited)

	Common stock						Preferred stock, Class A				Preferred stock, Class B						Preferred stock, Class C
	Shares			Amount			Shares		Amount		Shares			Amount			Shares			Amount
Balance, August 31, 2007		4,707,229		$	4,707			—		—		160,404		$	2,152,417			119,784		$	741,291
Rounding		10			—			—		—		—			—			—			—
Preferred stock dividend		—			—			—		—		—			49,696			—			19,296
Common stock issued in exchange for conversion of Series B preferred stock and accrued dividends on December 14, 2007		2,097,756			2,098			—		—		(160,404	)		(2,202,113	)		—			—
Common stock issued in exchange for conversion of Series C preferred stock and accrued dividends on December 14, 2007		655,475			656			—		—		—			—			(119,784	)		(760,587	)
Common stock issued in exchange for conversion of Series D redeemable preferred stock and accrued dividends on December 14, 2007		552,225			552			—		—		—			—			—			—
Cancellation of previously issued common stock for services rendered		(12,695	)		(13	)		—		—		—			—			—			—
Effect of reverse merger on December 14, 2007		2,150,000			2,150			—		—		—			—			—			—
Sale of common stock		3,800,000			3,800			—		—		—			—			—			—
Fair value of vested options granted to officers and directors		—			—			—		—		—			—			—			—
Common stock issued in exchange for acquired assets		125,000			125			—		—		—			—			—			—
Common stock issued in June 2008 in exchange for services rendered		42,500			43			—		—		—			—			—			—
Common stock issued in August 2008 in exchange for services rendered		15,000			15			—		—		—			—			—			—
Common stock issued in August 2008 in exchange for reacquired franchise		20,000			20			—		—		—			—			—			—
Net loss		—			—			—		—		—			—			—			—
Balance, August 31, 2008		14,152,500			14,153			—		—		—			—			—			—
Common stock issued in September 2008 in exchange for services rendered		15,000			15			—		—		—			—			—			—
Sale of common stock subscription		—			—			—		—		—			—			—			—
Common stock issued in October 2008 in exchange for services rendered		21,501			21			—		—		—			—			—			—
Common stock issued in conjunction with certain anti-dilution provisions included as part of a private sale of common stock		7,292,199			7,292			—		—		—			—			—			—
Common stock issued in settlement with debt		63,000			63			—		—		—			—			—			—
Fair value of warrants issued in connection with issuance of debt		—			—			—		—		—			—			—			—
Fair value of warrant issued in exchange for compensation		—			—			—		—		—			—			—			—
Fair value of vested options granted to officers, employees and consultants		—			—			—		—		—			—			—			—
Common stock issued for stock subscription		1,328,174			1,328			—		—		—			—			—			—
Common stock issued in February 2009 in exchange for services rendered		455,000			455			—		—		—			—			—			—
Net loss		—			—			—		—		—			—			—			—
Balance, February 28, 2009		23,327,374		$	23,327			—	$	—		—		$	—			—		$	—

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

F-3

GEEKS ON CALL HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT
YEAR ENDED AUGUST 31, 2008 AND FOR THE SIX MONTHS ENDED FEBRUARY 28, 2009
(unaudited)

	Common stock to be issued
							Additional Paid in Capital			Accumulated Deficit
	Shares			Amount									Total
Balance, August 31, 2007		—		$	—		$	1,846,446		$	(5,370,659	)	$	(625,798	)
Rounding		—			—			—			—			—
Preferred stock dividend		—			—			—			(68,992	)		—
Common stock issued in exchange for conversion of Series B preferred stock and accrued dividends on December 14, 2007		—			—			2,200,015			—			—
Common stock issued in exchange for conversion of Series C preferred stock and accrued dividends on December 14, 2007		—			—			759,931			—			—
Common stock issued in exchange for conversion of Series D redeemable preferred stock and accrued dividends on December 14, 2007		—			—			620,160			—			620,712
Cancellation of previously issued common stock for services rendered		—			—			(23,087	)		—			(23,100	)
Effect of reverse merger on December 14, 2007		—			—			(2,150	)		—			—
Sale of common stock		—			—			3,193,103			—			3,196,903
Fair value of vested options granted to officers and directors		—			—			264,990			—			264,990
Common stock issued in exchange for acquired assets		—			—			187,375			—			187,500
Common stock issued in June 2008 in exchange for services rendered		—			—			42,456			—			42,499
Common stock issued in August 2008 in exchange for services rendered		—			—			11,535						11,550
Common stock issued in August 2008 in exchange for reacquired franchise		—			—			8,580						8,600
Net loss		—			—			—			(4,964,980	)		(4,964,980	)
Balance, August 31, 2008		—			—			9,109,354			(10,404,631	)		(1,281,124	)
Common stock issued in September 2008 in exchange for services rendered		—			—			10,485			—			10,500
Sale of common stock subscription		1,328,174			513,401			—			—			513,401
Common stock issued in October 2008 in exchange for services rendered		—			—			7,289			—			7,310
Common stock issued in conjunction with certain anti-dilution provisions included as part of a private sale of common stock		—			—			(7,292	)		—			—
Common stock issued in settlement with debt		—			—			21,358			—			21,421
Fair value of warrants issued in connection with issuance of debt		—			—			466,490						466,490
Fair value of vested options granted to officers, employees and consultants		—			—			477,683			—			477,683
Fair value of warrants issued in exchange for compensation		—			—			5,201			—			5,201
Common stock issued for stock subscription		(1,328,174	)		(513,401	)		512,073			—			—
Common stock issued in February 2009 in exchange for services rendered		—			—			90,545			—			91,000
Net loss		—			—			—			(2,270,503	)		(2,270,503	)
Balance, February 28, 2009		—		$	—		$	10,693,186		$	(12,675,134	)	$	(1,958,621	)

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

F-4

GEEKS ON CALL HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

	Six months ended
	February 28, 2009			February 29, 2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(2,270,503	)	$	(1,598,128	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		136,200			73,536
Loss on disposal of assets		854			—
Bad debt expense		167,236			64,022
Amortization of financing costs		183,113			—
Common stock issued in exchange for services rendered		108,810			—
Fair value of warrants issued in exchange for compensation		5,201			—
Fair value of vested options granted to officers, directors, employees and consultants		477,683			264,990
Changes in operating assets and liabilities:
Accounts receivable		(133,430	)		(117,712	)
Prepaid expenses and other current assets		(80,938	)		(203,377	)
Employee advances					(65,761	)
Accounts payable and accrued liabilities		376,536			(15,295	)
Deferred franchise fees		8,291			(129,843	)
Deferred other liabilities		(4,951	)		465
Net cash used in operating activities		(1,025,898	)		(1,727,103	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Collections of loans to franchisees and others		63,520			9,799
Purchase of property and equipment		—			(74,774	)
Net cash provided by (used in) investing activities		63,520			(64,975	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of common stock		—			(23,100	)
Proceeds (repayments) of capital lease obligation		(42,550	)		11,304
Proceeds (repayments) of credit line		267,520			(200,000	)
Proceeds from issuance of notes payable		101,847			—
Proceeds from issuance of notes payable, related party		191,000			—
Repayments of notes payable		(224,699	)		(110,000	)
Proceeds from sale of common stock		513,401			3,196,903
Net cash provided by financing activities		806,519			2,875,107
Net (decrease) increase in cash and cash equivalents		(155,859	)		1,083,029
Cash and cash equivalents, beginning of period		177,499			280,846
Cash and cash equivalents, end of period	$	21,640		$	1,363,875
Supplement disclosures of cash flow information
Interest paid	$	30,355		$	14,719
Income taxes paid	$	—		$	—
Fair value of vested options granted to officers, directors, employees and consultants	$	477,683		$	264,990
Fair value of warrants issued in connection with issuance of notes payable, related parties	$	246,778		$	—
Annual insurance premium financed	$	101,569		$	—
Fair value of warrants issued in exchange for compensation	$	5,201		$	—
Common stock issued in exchange for debt	$	21,420		$	—

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

F-5

GEEKS ON CALL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
FEBRUARY 28, 2009
(unaudited)

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

General

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading.

In the opinion of management, the unaudited condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the consolidated financial position as of February 28, 2009 and the results of operations and cash flows for the periods ended February 28, 2009 and February 29, 2008. The financial data and other information disclosed in the notes to the interim financial statements related to these periods are unaudited. The results for the three and six month periods ended February 28, 2009 is not necessarily indicative of the results to be expected for any subsequent quarter or the entire year ending August 31, 2009.

These unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto for the year ended August 31, 2008, included in the Company’s annual report on Form10-K filed with the SEC on December 4, 2008.

The consolidated financial statements as August 31, 2008 have been derived from the audited consolidated financial statements at that date but do not include all disclosures required by the accounting principles generally accepted in the United States of America.

Business and Basis of Presentation

The Company’s operating subsidiary, Geeks On Call America, Inc., was incorporated under the laws of the State of Virginia on June 11, 2001 and subsequently reincorporated on December 14, 2007 under the laws of the State of Delaware. The Company provides rapid-response, on-site computer solutions to residential customers, small to medium sized businesses and national accounts accross the United States. On-site solutions are provided through a network of independent franchisees and a national network of certified IT professionals conducting business under the trade names “1 800 905 GEEK” and “Geeks On Call”®.

Geeks On Call Holdings, Inc. was created through a reverse merger process with Lightview, Inc, which was incorporated under the laws of the State of Nevada on December 22, 2006 under the name Lightview, Inc, (“Lightview”) and formerly operated as a development stage company. On January 23, 2008, Lightview merged with and into Geeks On Call Holdings, Inc., a newly-formed wholly owned subsidiary of Lightview, for the sole purpose of reincorporating in the State of Delaware and changing the name of the company. Thereafter, on February 8, 2008, Geeks On Call America, Inc., Geeks On Call Holdings, Inc. and Geeks On Call Acquisition Corp, a newly-formed wholly-owned subsidiary of Geeks On Call Holdings, Inc. (“Acquisition Corp.”), entered into a merger agreement (the “Merger Agreement”). Upon closing of the merger transaction contemplated under the Merger Agreement (the “Merger”), Acquisition Corp. merged with and into Geeks On Call America, Inc., and Geeks On Call America, Inc., as the surviving corporation, became the sole wholly-owned operating subsidiary. The consolidated financial statements include the accounts of Geeks On Call Holdings, Inc., the registrant and Geeks On Call America, Inc., the sole wholly-owned operating subsidiary (collectively, the “Company”).

While the Company has generated revenues from its franchise operations, the Company has incurred expenses, and sustained losses. Consequently, its operations are subject to all risks inherent in the establishment of a new business enterprise. As of February 28, 2009, the Company has accumulated losses of $12,675,134.

All significant intercompany balances and transactions have been eliminated in consolidation.

F-6

GEEKS ON CALL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
FEBRUARY 28, 2009
(unaudited)

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Merger and Corporate Restructure

On February 8, 2008, the Company consummated a reverse merger by entering into an Agreement of Merger and Plan of Reorganization (“Reorganization”) with the stockholders of Geeks On Call America, Inc. (the “Share Exchange”), pursuant to which the stockholders of Geeks On Call America, Inc. (“Geeks”) exchanged all of the issued and outstanding capital stock of Geeks for 8,000,000 shares of common stock of Geeks On Call Holdings, Inc., representing 79% of Geeks On Call Holdings, Inc.’s (the “Parent”) outstanding capital stock, after the return to treasury and retirement of 2,866,667 shares of common stock of the Parent held by certain stockholders of the Parent made concurrently with the share exchange. Upon consummation of the Reorganization, Geeks became a sole wholly-owned subsidiary of the Parent (the “Company”).

The acquisition is accounted for as a “reverse acquisition”, since the stockholders of Geeks owned a majority of the Parent’s common stock immediately following the transaction. The combination of the two companies is recorded as a recapitalization of Geeks pursuant to which Geeks is treated as the surviving and continuing entity although the Parent is the legal acquirer. Accordingly, the Company’s historical financial statements are those of Geeks. The Company did not recognize goodwill or any intangible assets in connection with this transaction.

All references to common stock, share and per share amounts have been retroactively restated to reflect the reverse acquisition as if the transaction had taken place as of the beginning of the earliest period presented.

The total consideration paid was $-0- and the significant components of the transaction are as follows:

Geeks On Call Holdings, Inc. (Formerly Lightview, Inc.)
Summary Statement of Financial Position
At February 8, 2008

Assets:	$	-0-
Liabilities:	$	-0-
Net liabilities assumed	$	-0-
Total consideration:	$	-0-

Revenue Recognition

The Company accounts for revenue under the guidance provided by SFAS No. 45, “Accounting for Franchise Fee Revenue (as amended)” and EITF 00-21, “Revenue Arrangements with Multiple Deliverables”.

Franchise fee revenue is recognized when (i) all material obligations of the Company to prepare a franchisee for operations have been substantially completed; and (ii) all material initial services to be provided by the Company have been performed, with an appropriate provision for estimated uncollectible amounts. Obligations to prepare the franchisee for operations are substantially completed upon the completion by the franchisee of the Company’s training program.

There are no other material conditions or commitments or obligations that exist related to the determination of substantial performance or substantial completion of a franchise agreement.

F-7

GEEKS ON CALL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
FEBRUARY 28, 2009
(unaudited)

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Area Development Sales

Area developer sales, where by the Company sells the rights to develop a territory or market, are nonrefundable fees recognized as revenue upon signature of an area development agreement and substantial completion of all of the Company’s obligations associated with the opening of the first franchise under such agreement have been met. Substantial completion includes, but is not limited to, conducting market and trade area analysis, a meeting with the Company’s executive team, and performing potential franchise background investigation, all of which are completed prior to the Company’s execution of the area development agreement and receipt of the corresponding area development fee. As a result, the Company recognizes this fee in full upon receipt and with the opening of the first franchise under the area development agreement.

No additional substantive services are required after the first franchise is opened under the Area Development Agreement.

Advertising and Marketing and Royalty Fees

Initial advertising and marketing fees are recognized when the territory is open and the related advertising and marketing has been performed. Ongoing royalties and advertising and marketing fees are recognized as the franchised territory generates sales and ongoing advertising and marketing is performed.

Repossessed Franchises

From time to time the Company may recover franchise rights through repossession, or if a franchisee fails to open a previously granted franchise. If, for any reason, the Company refunds the consideration received, the original sale is canceled, and revenue previously recognized is accounted for as a reduction in revenue in the period the franchise is repossessed. If franchise rights are repossessed but no refund is made (a) the transaction is not regarded as a sale cancellation, (b) no adjustment is made to any previously recognized revenue, (c) any estimated uncollectible amounts resulting from unpaid receivables is provided for, and (d) any consideration retained for which revenue was not previously recognized is reported as revenue.

Deferred Franchise Fees

The Company may receive all or part of the initial franchise or advertising fee prior to the execution of the franchise agreement or the completion of the earnings process. These amounts are classified as deferred revenue until the fee qualifies to be recognized as revenue or is refunded.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles 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 revenue and expenses during the reporting period. Actual results could differ from those estimates.

Cash and cash equivalents

For purposes of the Statements of Cash Flows, the Company considers all highly liquid debt instruments purchased with a maturity date of three months or less to be cash and cash equivalents. The Company had $21,640 and $177,499 in cash and cash equivalents at February 28, 2009 and August 31, 2008, respectively.

Allowance for doubtful accounts

The Company periodically reviews its trade and notes receivables in determining its allowance for doubtful accounts. As of February 28, 2009 and August 31, 2008 allowance for doubtful accounts balances for trade receivables was $147,657 and $23,601, respectively. The allowance for doubtful accounts balances for notes receivable was $77,244 and $48,320 as of February 28, 2009 and August 31, 2008.

F-8

GEEKS ON CALL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
FEBRUARY 28, 2009
(unaudited)

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Inventories

Inventories, totaling $-0- and $32,402 (net of reserve for obsolete and slow moving inventory of $15,339) as of February 28, 2009 and August 31, 2008, respectively, are stated at the lower of cost (first in, first out) or net realizable value, and consist primarily of products for sale to franchisees, business forms, marketing and promotional supplies for sale to the Company’s franchisees. Inventories are included in prepaid expenses and other current assets in the accompanying unaudited condensed consolidated balance sheets. The Company has written off $40,402 at February 28, 2009 based on management’s assessment on the inventory valuation.

Property and Equipment

Property and equipment are recorded at cost and depreciated over their estimated useful lives using the straight-line method as follows:

Office furniture and equipment	10 years
Computer equipment	5 years
Vehicles	5 years
Software	3 years
Leasehold improvements	lesser of lease terms or 7 years

Expenditures for repairs and maintenance which do not materially extend the useful lives of property and equipment are charged to operations. When property or equipment is sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the respective accounts with the resulting gain or loss reflected in operations. Management periodically reviews the carrying value of its property and equipment for impairment. The property and equipment had not incurred any impairment loss at February 28, 2009 and August 31, 2008.

Customer lists

The Company acquired the rights to provide direct services to customers previously under a franchisee contract by issuing a note payable for the consideration of $154,500.

The Company amortized its intangible asset using the straight-line method over its estimated period of benefit. The estimated useful life for the customer lists is three years. The Company periodically, but at least annually, evaluates the recoverability of intangible assets and takes into account events or circumstances that warrant revised estimates of useful lives, or that impairment indicators are present.

For the three and six month periods ended February 28, 2009, amortization of $5,292 and $14,084 was charged to operations, respectively.

The Company’s management performed an evaluation of its intangible assets (customer lists) at August 31, 2008 for purposes of determining the implied fair value of the assets. The test indicated that the recorded book value of the customer lists exceeded its fair value, as determined by calculating a fair value based upon a discounted cash flows of the projected and assumed fees from the current binding service agreements and other recurring fees earned from these customer lists and accordingly recorded an impairment charge of $49,000 to prior year’s results of operations at August 31, 2008. The customer lists cost basis has been adjusted to reflect the new cost basis of $105,500 at August 31, 2008. Considerable management judgment is necessary to estimate the fair value; these estimates of cash flows are significantly impacted by estimates of revenues, costs, and other factors. Due to uncertainties in the estimation process, actual results could differ from such estimates. There was no impairment charged to operations for the three and six month periods ended February 28, 2009.

Advertising and Marketing

The Company follows the policy of charging the costs of advertising and marketing to expense as incurred. The Company charged to operations of $180,291 and $523,416 as advertising and marketing costs for the three and six month periods ended February 28, 2009, respectively and $873,622 and $1,872,321 for the three and six month periods ended February 29, 2008, respectively.

F-9

GEEKS ON CALL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
FEBRUARY 28, 2009
(unaudited)

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Impairment of Long-Lived Assets

The Company follows Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”). SFAS No. 144 requires that long-lived assets and certain identifiable intangibles held and used by the Company be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Events relating to recoverability may include significant unfavorable changes in business conditions, recurring losses, or a forecasted inability to achieve break-even operating results over an extended period. The Company evaluates the recoverability of long-lived assets based upon forecasted discounted cash flows. Should impairment in value be indicated, the carrying value of the long-lived assets and certain identifiable intangibles will be adjusted, based on estimates of future discounted cash flows resulting from the use and ultimate disposition of the asset. SFAS No. 144 also requires assets to be disposed of be reported at the lower of the carrying amount or the fair value less disposal costs.

As described above, the Company’s management performed an evaluation of its customer lists for purposes of determining the implied fair value of the assets. The test indicated that the recorded book value of the customer lists exceeded its fair value, as determined by discounted cash flows and accordingly recorded an impairment charge of $49,000 to its operations at August 31, 2008. There was no impairment charges to operations for the three and six month periods ended February 28, 2009 and February 29, 2008.

Stock Based Compensation

On December 16, 2004, the FASB issued SFAS No. 123(R) (revised 2004), “Share-Based Payment” which is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation”. SFAS No. 123(R) supersedes APB opinion No. 25, “Accounting for Stock Issued to Employees”, and amends SFAS No. 95, “Statement of Cash Flows”. Generally, the approach in SFAS No. 123(R) is similar to the approach described in SFAS No. 123. However, SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro-forma disclosure is no longer an alternative. The effective date for our application of SFAS No. 123(R) is September 1, 2006. Management has elected to apply SFAS No. 123(R) commencing on that date.

As more fully described in Note 16 below, the Company granted 65,000 and 2,285,000 stock options during the three month periods ended February 28, 2009 and February 29, 2008, respectively; and 150,000 and 2,285,000 stock options during the six month periods ended February 28, 2009 and February 29, 2008, respectively, to employees and directors of the Company under a non-qualified employee stock option plan.

As of February 28, 2009, 2,585,000 employee stock options were outstanding with 757,000 shares vested and exercisable.

As of February 28, 2009, there were 50,000 shares of non-employee stock options (consultants) outstanding and fully vested and exercisable.

Segment reporting

The Company adopted Statement of Financial Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and Related Information” (“SFAS 131”). SFAS establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information for those segments to be presented in interim financial reports issued to stockholders. SFAS 131 also establishes standards for related disclosures about products and services and geographic areas. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision making group, in making decisions how to allocate resources and assess performance. The information disclosed herein, materially represents all of the financial information related to the Company’s principal operating segment.

F-10

GEEKS ON CALL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
FEBRUARY 28, 2009
(unaudited)

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Income taxes

The Company follows SFAS No. 109, “Accounting for Income Taxes” (SFAS No. 109) for recording the provision for income taxes. Deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability during each period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change. Deferred income taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. Deferred taxes are classified as current or non-current, depending on the classification of assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse.

Loss per share

In accordance with SFAS No. 128, “Earnings per Share”, the basic loss per share is computed by dividing loss available to common shareholders by the weighted average number of common shares outstanding. Diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding as if the potential common shares had been issued and if the additional common shares were dilutive. Common equivalent shares are excluded from the computation of the diluted loss per share as their effect would be anti-dilutive. There were -0- and 2,125,000 common stock equivalent shares as of February 28, 2009 and February 29, 2008, respectively.

Fair Value of Financial Instruments

SFAS No. 107, “Disclosures About Fair Value of Financial Instruments,” requires disclosure of the fair value of certain financial instruments. The carrying value of cash and cash equivalents, accounts payable and accrued liabilities, and short-term borrowings, as reflected in the consolidated balance sheets, approximate fair value because of the short-term maturity of these instruments. All other significant financial assets, financial liabilities and equity instruments of the Company are either recognized or disclosed in the consolidated financial statements together with other information relevant for making a reasonable assessment of future cash flows, interest rate risk and credit risk. Where practicable the fair values of financial assets and financial liabilities have been determined and disclosed; otherwise only available information pertinent to fair value has been disclosed.

Effective September 1, 2008, we adopted SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”) and SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115” (“SFAS No. 159”), which permits entities to choose to measure many financial instruments and certain other items at fair value. Neither of these statements had an impact on the Company’s consolidated financial position, results of operations or cash flows.

Reclassifications

Certain amounts in prior year’s consolidated financial statements and the related notes have been reclassified to conform to current period’s presentation. These reclassifications have no effect on previously reported results of operations.

Recent accounting pronouncements

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS No. 141(R)”), which establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in an acquiree, including the recognition and measurement of goodwill acquired in a business combination. SFAS No. 141R is effective as of the beginning of the first fiscal year beginning on or after December 15, 2008. Earlier adoption is prohibited. The Company does not expect the adoption of SFAS No. 141R on September 1, 2009 will have a material effect on its consolidated financial position, results of operations or cash flows.

F-11

GEEKS ON CALL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
FEBRUARY 28, 2009
(unaudited)

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Recent accounting pronouncements (continued)

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interest in Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS No. 160”), which will change the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests and classified as a component of equity within the consolidated balance sheets. SFAS No. 160 is effective as of the beginning of the first fiscal year beginning on or after December 15, 2008. Earlier adoption is prohibited. The Company does not expect the adoption of SFAS No. 160 on September 1, 2009 to have a material effect on its consolidated financial position, results of operations or cash flows.

In December 2007, the FASB ratified the consensus in Emerging Issues Task Force (EITF) Issue No. 07-1, “Accounting for Collaborative Arrangements” (EITF 07-1). EITF 07-1 defines collaborative arrangements and requires collaborators to present the result of activities for which they act as the principal on a gross basis and report any payments received from (made to) the other collaborators based on other applicable authoritative accounting literature, and in the absence of other applicable authoritative literature, on a reasonable, rational and consistent accounting policy is to be elected. EITF 07-1 also provides for disclosures regarding the nature and purpose of the arrangement, the entity’s rights and obligations, the accounting policy for the arrangement and the income statement classification and amounts arising from the agreement.

EITF 07-1 will be effective for fiscal years beginning after December 15, 2008, which will be the Company’s fiscal year 2009, and will be applied as a change in accounting principle retrospectively for all collaborative arrangements existing as of the effective date.

The Company does not expect the adoption of EITF 07-1on September 1, 2009 to have a material effect on its consolidated financial position, results of operations or cash flows.

In June 2008, the FASB ratified the consensus on Emerging Issues Task Force (EITF) Issue 07-5, “Determining whether an Instrument (or Embedded Feature) is indexed to an Entity’s Own Stock.” This issue addresses whether an instrument (or an embedded feature) is indexed to an entity’s own stock, which is the first part of the scope exception in paragraph 11(a) of SFAS No. 133, for purposes of determining whether the instrument should be classified as an equity instrument or accounted for as a derivative instrument. The provisions of EITF Issue No. 07-5 are effective for financial statements issued for fiscal years beginning after December 15, 2008 and will be applied retrospectively through a cumulative effect adjustment to retained earnings for outstanding instruments as of that date. The Company does not expect the adoption of EITF 07-05 to have a material effect on its consolidated financial position, results of operations or cash flows.

In March 2008, the FASB” issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities - an amendment to FASB Statement No. 133” (“SFAS No. 161”). SFAS No. 161 is intended to improve financial standards for derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. Entities are required to provide enhanced disclosures about: (a) how and why an entity uses derivative instruments; (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations; and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. It is effective for financial statements issued for fiscal years beginning after November 15, 2008, with early adoption encouraged. The Company does not expect the adoption of SFAS No. 161 to have a material effect on its consolidated financial position, results of operations or cash flows.

In April 2008, the FASB issued FSP No. FAS 142-3, “Determination of the Useful Life of Intangible Assets”. This FSP amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets”. The Company is required to adopt FSP 142-3 on September 1, 2009, earlier adoption is prohibited. The guidance in FSP 142-3 for determining the useful life of a recognized intangible asset shall be applied prospectively to intangible assets acquired after adoption, and the disclosure requirements shall be applied prospectively to all intangible assets recognized as of, and subsequent to, adoption. The Company does not expect the adoption of FSP No. FAS 142-3 to have a material effect on its consolidated financial position, results of operations or cash flows.

F-12

GEEKS ON CALL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
FEBRUARY 28, 2009
(unaudited)

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Recent accounting pronouncements (continued)

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS No. 162”). SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (the GAAP hierarchy). SFAS No. 162 will become effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.” The Company does not expect the adoption of SFAS No. 162 to have a material effect on its consolidated financial position, results of operations or cash flows.

In May 2008, the FASB issued FSP Accounting Principles Board (“APB”) 14-1 “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)” (“FSP APB 14-1”). FSP APB 14-1 requires the issuer of certain convertible debt instruments that may be settled in cash (or other assets) on conversion to separately account for the liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer’s non-convertible debt borrowing rate. FSP APB 14-1 is effective for fiscal years beginning after December 15, 2008 on a retroactive basis. The Company is currently evaluating the potential impact, if any, of the adoption of FSP APB 14-1 on its consolidated financial position, results of operations or cash flows.

In May 2008, the FASB issued FASB Statement No. 163, “Accounting for Financial Guarantee Insurance Contracts”, which clarifies how FASB Statement No. 60, “Accounting and Reporting by Insurance Enterprises”, applies to financial guarantee insurance contracts issued by insurance enterprises. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2008, including interim periods in that year. The Company does not expect the adoption of SFAS 163 to have a material effect on its consolidated financial statements.

In June 2008, the FASB issued FSP Emerging Issues Task Force (EITF) No. 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities ..” Under the FSP, unvested share-based payment awards that contain rights to receive non-forfeitable dividends (whether paid or unpaid) are participating securities, and should be included in the two-class method of computing EPS. The FSP is effective for fiscal years beginning after December 15, 2008, and interim periods within those years. The Company does not expect the adoption of FSP EITF No. 03-6-1 to have a material effect on its consolidated financial position, results of operations or cash flows.

In October 2008, the FASB issued FSP SFAS No. 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active.” This position clarifies the application of SFAS No. 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. It also reaffirms the notion of fair value as an exit price as of the measurement date. This position was effective upon issuance, including prior periods for which financial statements have not been issued. The adoption had no impact on the Company’s consolidated financial statements.

In December 2008, the FASB issued FSP 132(R)-1, Employers’ Disclosures about Postretirement Benefit Plan Assets, which is effective for fiscal years ending after December 15, 2009. FSP 132(R)-1 requires disclosures about fair value measurements of plan assets that would be similar to the disclosures about fair value measurements required by SFAS 157. The Company is assessing the potential effect of the adoption of FSP 132(R)-1 on its consolidated financial statements.

In December 2008, the FASB issued FSP SFAS 140-4 and FIN 46(R)-8, Disclosures about Transfers of Financial Assets and Interests in Variable Interest Entities. The FSP requires extensive additional disclosure by public entities with continuing involvement in transfers of financial assets to special-purpose entities and with variable interest entities (VIEs), including sponsors that have a variable interest in a VIE. This FSP became effective for the first reporting period ending after December 15, 2008 and did not have any material impact on the Company’s consolidated financial statements.

F-13

GEEKS ON CALL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
FEBRUARY 28, 2009
(unaudited)

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Recent accounting pronouncements (continued)

In January 2009, the FASB issued Financial Statement of Position (“FSP”) Issue No. EITF 99-20-1, “Amendments to the Impairment Guidance of EITF Issue No. 99-20” (“FSP EITF No. 99-20-1”). FSP EITF No. 99-20-1 amends the impairment guidance in EITF Issue No. 99-20, “Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests that Continue to be Held by a Transferor in Securitized Financial Assets” to achieve more consistent determination of whether an other-than-temporary impairment has occurred. The Company adopted FSP EITF No. 99-20-1 and it did not have a material impact on the consolidated financial statements.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC did not, or are not believed by management to, have a material impact on the Company’s present or future consolidated financial statements.

NOTE 2 - GOING CONCERN MATTERS

The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying unaudited condensed consolidated financial statements, the Company incurred a net loss available to common stockholders of $2,270,503 and $1,667,120 for the six-month periods ended February 28, 2009 and February 29, 2008, respectively. Additionally, the Company has negative cash flows from operations of $1,025,898 for the six-month period ended February 28, 2009 and an accumulated deficit of $12,675,134 as of February 28, 2009. These factors among others raised substantial doubt about the Company’s ability to continue as a going concern.

The Company’s continued existence is dependent upon management’s ability to develop profitable operations and resolve its liquidity problems. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.

The Company is actively pursuing additional equity or debt financing through discussions with private investors. However, there can be no assurance that additional financing will be available from external sources to the Company on satisfactory terms and conditions, if at all. In the event that the Company is unable to continue as a going concern, the Company may elect or be required to seek protection from its creditors by filing a voluntary petition in bankruptcy or may be subject to an involuntary petition in bankruptcy. To date, management has not considered this alternative, nor does management view it as a likely occurrence.

NOTE 3 - NOTES RECEIVABLE

Note receivables are recorded at cost, less allowance for doubtful accounts, if applicable. Repayment of the notes receivable is dependent on the performance of the underlying franchisees that collateralize the notes receivable. An allowance, if applicable, is estimated based on a comparison of amounts due to the estimated fair value of the underlying franchisee. As of February 28, 2009 and August 31, 2008 allowance for doubtful account balances for notes receivables was $77,244 and $48,320, respectively.

At February 28, 2009 and August 31, 2008, the notes receivable consist of bridge loans offered to franchisees during the period which the franchisees are establishing their permanent financing with third party lenders. The notes receivable bear interest at a rate of 9% per annum and are recorded at face value. Interest is recognized over the lives of the notes receivable.

F-14

GEEKS ON CALL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
FEBRUARY 28, 2009
(unaudited)

NOTE 3 – NOTES RECEIVABLE (Continued)

A summary of the notes receivable are as follows:

	February 28, 2009			August 31, 2008
Notes receivable, 9% per annum, secured by Franchisee	$	241,128		$	317,183
Less: Current portion		(74,941	)		(63,429	)
Long term portion	$	166,187		$	253,754

NOTE 4 – LEASE RECEIVABLE

Lease receivable is recorded at cost, less allowance for doubtful accounts, if applicable. The Company acquired and leased certain equipment to a franchisee with a monthly installment receipt of $1,924 over one year. The franchisee provides a personal guarantee as collateral. The lease receivable bears interest at a rate of 9% per annum and is recorded at face value. Interest is recognized over the life of the lease receivable.

A summary of the lease receivable are as follows:

	February 28, 2009			August 31, 2008
Lease receivable, 9% per annum, secured by Franchisee	$	2,731		$	19,119
Less: Current portion		(2,731	)		(19,119	)
Long term portion	$	—		$	—

NOTE 5 – PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consist primarily of advance payments for advertising and marketing with various forms of media and saleable promotional supplies or inventories as follows:

	February 28, 2009		August 31, 2008
Prepaid expenses and other current assets	$	286,097	$	139,214
Prepaid advertising and marketing		241,218		173,192
Promotional supplies and inventories, net of reserve for obsolete and slow moving inventory of $15,339 as of August 31, 2008		—		32,402
	$	527,315	$	344,808

F-15

GEEKS ON CALL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
FEBRUARY 28, 2009
(unaudited)

NOTE 6 – PROPERTY AND EQUIPMENT

As of February 28, 2009 and August 31, 2008, property and equipment was comprised of the following:

	February 28, 2009			August 31, 2008
Office furniture and equipment	$	359,719		$	360,573
Computer equipment		420,155			420,155
Vehicles		77,884			77,884
Software		604,362			604,362
Leasehold improvements		51,267			51,267
		1,513,387			1,514,241
Less: accumulated depreciation		(904,574	)		(782,935	)
	$	608,813		$	731,306

For the three month periods ended February 28, 2009 and February 29, 2008, depreciation expense charged to operations was $60,814 and $36,910, respectively.

For the six month periods ended February 28, 2009 and February 29, 2008, depreciation expense charged to operations was $121,639 and $73,058, respectively.

NOTE 7 – TRADEMARKS

Trademarks are recorded at cost and are amortized ratably over 15 years as summarized below:

	February 28, 2009			August 31, 2008
Trademarks	$	14,333		$	14,333
Less accumulated amortization		(7,166	)		(6,689	)
	$	7,167		$	7,644

For the three month periods ended February 28, 2009 and February 29, 2008, the amortization expense charged to operations was $237 and $238, respectively.

For the six month periods ended February 28, 2009 and February 29, 2008, the amortization expense charged to operations was $477 and $478, respectively.

NOTE 8 – CUSTOMER LISTS

In March 2008, the Company acquired customer lists for a purchase price of $154,500 payable over three years from the date of purchase (See Note 12).

The Company has adopted SFAS No. 142, “Goodwill and Other Intangible Assets”, whereby the Company periodically tests its intangible assets for impairment. On an annual basis, and when there is reason to suspect that their values have been diminished or impaired, these assets are tested for impairment, and write-downs will be included in the results of operations.

F-16

GEEKS ON CALL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
FEBRUARY 28, 2009
(unaudited)

NOTE 8 – CUSTOMER LISTS (continued)

Customer lists are recorded at cost and are amortized ratably over three years as summarized below:

	February 28, 2009			August 31, 2008
Customer Lists at cost	$	105,500		$	154,500
Impairment charge, see below		—			(49,000	)
Adjusted cost basis		105,000			105,000
Less:
Accumulated amortization		(35,542	)		(21,458	)
	$	69,958		$	84,042

For the three month periods ended February 28, 2009 and February 29, 2008, the amortization expense charged to operations was $5,791 and $-0-, respectively.

For the six month periods ended February 28, 2009 and February 29, 2008, the amortization expense charged to operations was $14,084 and $-0-, respectively.

At August 31, 2008, the Company’s management performed an evaluation of its intangible assets (customer lists) for purposes of determining the implied fair value of the assets. The test indicated that the recorded book value of the customer lists exceeded its fair value, as determined by calculating a fair value based upon a discounted cash flows of the projected and assumed fees from the current binding service agreements and other recurring fees earned from these customer lists and accordingly recorded an impairment charge of $49,000 to prior year’s results of operations at August 31, 2008. The customer lists cost basis has been adjusted to reflect the new basis of $105,500 at August 31, 2008. Considerable management judgment is necessary to estimate the fair value; these estimates of cash flows are significantly impacted by estimates of revenues, costs, and other factors. Due to uncertainties in the estimation process, actual results could differ from such estimates. There was no impairment charged to operations for the three and six month periods ended February 28, 2009 and February 29, 2008.

NOTE 9 – FINANCING COSTS

From November 2008 through February 28, 2009, the Company issued an aggregate of 2,738,884 warrants in connection with the issuance of promissory notes and debt, including related party notes described in Note 13. The warrants are exercisable for five years at $0.34 per share. The fair value of the warrants were determined using the Black-Scholes Option Pricing Model based on the following assumptions: dividend yield: -0-%, volatility: 150.66% to 215.83%; risk free rate: 1.45% to 2.07%; expected life: 5 years.

The determined fair value of the warrants of $466,490 is amortized ratably over the six month term of the promissory notes.

	February 28, 2009			August 31, 2008
Financing costs	$	466,490		$	—
Less accumulated amortization		(183,113	)		—
	$	283,377		$	—

For the three month periods ended February 28, 2009 and February 29, 2008, the amortization expense charged to operations was $178,837 and $-0-, respectively.

For the six month periods ended February 28, 2009 and February 29, 2008, the amortization expense charged to operations was $183,113 and $-0-, respectively.

F-17

GEEKS ON CALL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
FEBRUARY 28, 2009
(unaudited)

NOTE 10 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

As of February 28, 2009 and August 31, 2008, accounts payable and accrued liabilities are comprised of the following:

	February 28, 2009		August 31, 2008
Accounts payable	$	2,067,092	$	1,783,905
Accrued salaries and expenses		371,918		365,002
Payroll taxes payable		71,297		6,285
	$	2,510,307	$	2,155,192

NOTE 11 - LINE OF CREDIT

In July 2008, the Company established a $400,000 revolving bank line of credit with a financial institution. Subsequently the bank line was increased to $475,000 in December 2008. This facility is secured by certain assets of the Company and is personally guaranteed by the Company’s Chief Executive Officer.

Amounts advanced pursuant to the line of credit are payable on demand at the discretion of the lender and will accrue interest at the rate of 5.5% per annum. Monthly payments of accrued interest, payable in cash, are calculated on the amount of credit outstanding beginning on August 7, 2008.

As of February 28, 2009 and August 31, 2008, the Company has outstanding balances of $467,520 and $200,000, respectively on the existing bank line of credit.

NOTE 12 - NOTES PAYABLE

As of February 28, 2009 and August 31, 2008, notes payable is comprised of the following:

	February 28, 2009			August 31, 2008
Note payable, 4.5% per annum with monthly payment of $4,596, due April 2011; unsecured	$	113,389		$	138,088
Note payable, prime plus 2% per annum, due September 8, 2008; unsecured.		—			200,000
Note payable, prime plus 7% per annum, due June 30, 2009; unsecured.		200,000			—
Note payable, prime plus 2% per annum, due September 18, 2008; unsecured		—			200,000
Note payable, prime plus 4% per annum, due June 29, 2009; unsecured		16,000			—
Note payable, prime plus 4% per annum, due July 3, 2009; unsecured		20,000			—
Note payable, prime plus 4% per annum, due July 30, 2009; unsecured		30,000			—
Note payable, approximately 35% imputed interest, open payment terms, secured		35,847			—
Note payable, 5.5% per annum with monthly payments of $11,546, due December 25, 2009, unsecured		101,569			—
Less: current portion		(454,510	)		(449,959	)
Long term portion	$	62,295		$	88,129

In March 2008, the Company issued an unsecured note payable of $154,500, due in thirty-six monthly payments, to acquire the rights and obligations to directly service customers previously serviced under certain binding service agreements of a former franchisee. (see Note 8 above)

In June 2008, the Company entered into Short Term Promissory Notes with two private investment sources in the amount of $200,000 each for the total principle sum of $400,000, each bearing interest at the prime rate plus two percent, as reported by the Wall Street Journal. The Notes are payable on demand after ninety days from the date of the Notes.

F-18

GEEKS ON CALL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
FEBRUARY 28, 2009
(unaudited)

NOTE 12 - NOTES PAYABLE (continued)

In October 2008, the Company paid the Short Term Promissory Note originally due September 8, 2008. Additionally, on October 1, 2008 the Company issued a new Short Term Promissory Note to replace the Note originally due September 18, 2008. The Short Term Promissory Note bears interest at 7% per annum and was due on December 30, 2008. This short term promissory note has been extended with the same terms and conditions and is now due on June 30, 2009.

As described in Note 9, in connection with the extension of the above promissory note, the Company issued an aggregate of 1,176,471 warrants to purchase the Company’s common stock for five years from the date of issuance at an exercise price of $0.34 per share.

In December 2008, the Company issued unsecured promissory note in the principal amount of $16,000, due June 29, 2009 with an interest rate of Wall Street Prime plus 4%, unsecured.

As described in Note 9, in connection with the issuance of the above promissory note, the Company issued an aggregate of 94,118 warrants to purchase the Company’s common stock for five years from the date of issuance at an exercise price of $0.34 per share.

In January 2009, the Company issued unsecured promissory note in the principal amount of $20,000, due July 3, 2009 with an interest rate of Wall Street Prime plus 4%, unsecured.

As described in Note 9, in connection with the issuance of the above promissory note, the Company issued an aggregate of 117,647 warrants to purchase the Company’s common stock for five years from the date of issuance at an exercise price of $0.34 per share.

In January 2009, the Company issued unsecured promissory note in the principal amount of $30,000, due July 29, 2009 with an interest rate of Wall Street Prime plus 4%, unsecured.

As described in Note 9, in connection with the issuance of the above promissory note, the Company issued an aggregate of 176,471 warrants to purchase the Company’s common stock for five years from the date of issuance at an exercise price of $0.34 per share

In February 2009, the Company borrowed $28,000 secured by future credit card processing. The note has a fixed $9,872.80 financing cost (estimated effective interest rate of 35%) and is payable at a rate of 18% of future credit card processing. The prepaid financing costs are amortized to interest expense over the term of the loan.

As described in Note 9, in connection with the issuance of the above described loan, the Company issued an aggregate of 35,000 warrants to purchase the Company’s common stock for five years from the date of issuance at an exercise price of $0.34 per share

In January 2009, the Company entered into a financing agreement for the purpose of financing the Company’s annual insurance premium. The agreement has an interest rate of 5.5% per annum, due in monthly installments of $11,546; unsecured.

For the three and six month periods ended February 28, 2009; interest expense of $3,663 and $-0- was charged to operations, respectively.

NOTE 13 - NOTES PAYABLE – RELATED PARTY

As of February 28, 2009 and August 31, 2008, notes payable, related party is comprised of the following:

	February 28, 2009			August 31, 2008
Note payable, prime plus 4% per annum, due May 26, 2009, unsecured	$	127,000		$	—
Note payable, prime plus 4% per annum, due June 5, 2009; unsecured.		25,000			—
Note payable, prime plus 4% per annum, due July 22, 2009; unsecured.		29,000			—
Note payable, prime plus 4% per annum, due August 20, 2009; unsecured		10,000			—
Less: current portion		(191,000	)		—
Long term portion	$	—		$	—

F-19

GEEKS ON CALL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
FEBRUARY 28, 2009
(unaudited)

NOTE 13 - NOTES PAYABLE – RELATED PARTY (continued)

In November 2008, the Company issued unsecured promissory notes in the aggregate principal amount of $130,000 to related parties, (two of the Company’s officers), due May 26, 2009 with an interest rate of Wall Street Prime plus 4%, unsecured. On January 6, 2009, $3,000 was paid towards the related party notes.

As described in Note 9, in connection with the issuance of the above related party promissory notes, the Company issued an aggregate of 764,706 warrants to purchase the Company’s common stock for five years from the date of issuance at an exercise price of $0.34 per share.

In December 2008, the Company issued an unsecured promissory note in the principal amount of $25,000 to a related party (Company’s officer), due June 5, 2009 with an interest rate of Wall Street Prime plus 4%, unsecured.

As described in Note 9, in connection with the issuance of the above related party promissory note, the Company issued 147,059 warrants to purchase the Company’s common stock for five years from the date of issuance at an exercise price of $0.34 per share.

In January 2009, the Company issued an unsecured promissory note in the principal amount of $29,000 to a related party (Company’s officer), due July 22, 2009 with an interest rate of Wall Street Prime plus 4%, unsecured.

As described in Note 9, in connection with the issuance of the above related party promissory note, the Company issued 170,588 warrants to purchase the Company’s common stock for five years from the date of issuance at an exercise price of $0.34 per share.

In February 2009, the Company issued an unsecured promissory note in the principal amount of $10,000 to a related party (Company’s officer), due August 20, 2009 with an interest rate of Wall Street Prime plus 4%, unsecured.

As described in Note 9, in connection with the issuance of the above related party promissory note, the Company issued 58,824 warrants to purchase the Company’s common stock for five years from the date of issuance at an exercise price of $0.34 per share.

For the three and six month period ended February 28, 2009, interest expense of $3,161 and $3,277 was charged to operations, respectively.

For the three and six month period ended February 29, 2008, interest expense of $-0- was charged to operations.

NOTE 14 – COMMITMENTS AND CONTINGENCIES

Litigation

The Company is subject to other legal proceedings and claims, which arise in the ordinary course of its business. Although occasional adverse decisions or settlements may occur, the Company believes that the final disposition of such matters should not have a material adverse effect on its financial position, results of operations or liquidity. In December 2008, the Company was served with individual lawsuits from ten franchisees. As of February 28, 2009, 6 of the suits had been settled by the Company. None of the settlements resulted in any payment by the Company. The Company intends to vigorously defend the remaining claims asserted against it. Management believes the ultimate outcome of this matter will not have a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity.

NOTE 15 - STOCKHOLDERS’ EQUITY

Preferred stock

As of November 30, 2007, the Company was authorized four classes of preferred stock: Class A has 200,000 authorized shares; Class B has 167,130 authorized shares; Class C has 128,870 authorized shares and Class D has 179,860 authorized shares. All classes have no par value.

On December 14, 2007, the Company amended and restated its certificate of incorporation which authorized two classes of stock “Common Stock” and “Preferred Stock”, respectively. The total number of shares the Company is authorized to issue as common stock and preferred stock with par value per share is five million seven hundred thousand (5,700,000) shares. Five million (5,000,000) shares shall be $0.001 par value Common Stock and seven hundred (700,000) shares shall be $0.001 par value Preferred stock. The Preferred Stock may be issued from time to time in one or more classes.

F-20

GEEKS ON CALL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
FEBRUARY 28, 2009
(unaudited)

NOTE 15 - STOCKHOLDERS’ EQUITY (continued)

As a result of the reverse Reorganization on February 8, 2008 as described in Note 1 above, the Company is authorized to issue 10,000,000 shares of $0.001 par value preferred stock and 100,000,000 shares of $0.001 par value common stock.

As of February 28, 2009 and August 31, 2008, there were no issued and outstanding shares of preferred stock.

��

Common stock

The Company is authorized to issue 100,000,000 shares of its common stock with a par value of $.001. As of February 28, 2009 and August 31, 2008, there were 23,327,374 and 14,152,500 shares of common stock issued and outstanding.

In connection with the Reorganization as described on February 8, 2008; the Company split its outstanding shares of common stock at a ratio of 1:2.115868. All references in the consolidated financial statements and notes to consolidated financial statements, numbers of shares and share amounts have been retroactively restated to reflect the split.

On December 14, 2007, the Company issued a total of 2,097,756 shares of its common stock in exchange for 160,404 shares of Class B Preferred stock and accrued and unpaid dividends.

On December 14, 2007, the Company issued a total of 655,475 shares of its common stock is exchange for 119,784 shares of Class C Preferred stock and accrued and unpaid dividends.

On December 14, 2007, the Company issued a total of 552,225 shares of its common stock in exchange for 103,417 shares of Class D Preferred stock and accrued and unpaid dividends.

On February 8, 2008, the Company accepted subscriptions for 300 units, consisting of an aggregate of 3,000,000 shares of the Company’s common stock and five-year warrants to purchase an aggregate of 1,500,000 shares of the Company’s common stock at an exercise price of $1.50 per share. The shares and warrants were sold in connection with the Company’s private placement conducted pursuant to the terms of a Confidential Private Placement Memorandum, dated October 22, 2007, as supplemented by Supplement No. 1 dated December 21, 2007, Supplement No. 2 dated January 16, 2008 and Supplement No. 3 dated January 31, 2008. The gross proceeds from the closing of the Private Placement amounted to $3,000,000 (net proceeds of $2,591,400). The Company issued 150,000 shares of its unregistered common stock and five-year warrants to purchase an aggregate of 240,000 shares of the Company’s common stock at an exercise price of $1.50 per share to the placement agent as partial offering costs. These securities issued to the placement agent were fair valued at $150,000. In addition, the Company has incurred additional offering costs of $408,600, which were deducted against the gross proceeds of $3,000,000. The Company has charged the total offering costs of $558,600 to the additional paid-in capital account in connection with this Private Placement.

On February 21, 2008, the Company accepted subscriptions for 65 units, consisting of an aggregate of 650,000 shares of the Company’s common stock and five-year warrants purchasing an aggregate of 325,000 shares of the Company’s common stock at an exercise price of $1.50 per share. The shares and warrants were sold in connection with the Company’s private placement conducted pursuant to the terms of a Confidential Private Placement Memorandum, dated October 22, 2007, as supplemented by Supplement No. 1 dated December 21, 2007, Supplement No. 2 dated January 16, 2008 and Supplement No. 3 dated January 31, 2008. The gross proceeds from the second closing of the Private Placement amounted to $650,000 (net proceeds of $605,503).

The Company issued five-year warrants to purchase an aggregate of 52,000 shares of the Company’s common stock at an exercise price of $1.50 per share to the placement agent in connection with the Private Placement. The Company has incurred a total offering cost of $44,497 from this second closing of the Private Placement, which has been charged against the additional paid-in capital account.

F-21

GEEKS ON CALL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
FEBRUARY 28, 2009
(unaudited)

NOTE 15 – STOCKHOLDERS’ EQUITY (continued)

Common stock (continued)

On April 1, 2008, the Company issued a total of 125,000 shares of its common stock in exchange for the purchase of software. The Company valued the shares at $1.50 per share for a total of $187,500, which, in combination with the cash payment of $100,000, represents the fair value of the asset (aggregate of $287,500), received which did not differ materially from the value of the stock issued and the cash payment made.

In June 2008, the Company issued a total of 42,500 shares of its common stock in exchange for services rendered. The Company valued the shares at $1.00 per share for a total of $42,500, which represents the fair value of the services, received which did not differ materially from the value of the stock issued.

On August 22, 2008, the Company issued a total of 15,000 shares of its common stock in exchange for services rendered. The Company valued the shares at $0.77 per share for a total of $11,550, which represents the fair value of the services, received which did not differ materially from the value of the stock issued.

On August 28, 2008, the Company issued an aggregate of 20,000 shares of its common stock in exchange for reacquiring an existing franchise territory. The Company valued the shares at $0.43 per share for a total of $8,600, which represents the fair value of the franchise territory reacquired that has been charged to the results of operations, which did not differ materially from the value of the stock issued.

On September 3, 2008, the Company issued an aggregate of 15,000 shares of its common stock in exchange for services rendered. The Company valued the shares at $0.70 per share for a total of $10,500, which represents the fair value of the services, received which did not differ materially from the value of the stock issued.

On September 30, 2008, in the first traunch of a private placement offering, the Company sold to accredited investors a total of 24.75 units, consisting of 824,997 shares of its common stock and warrants to purchase 412,495 shares of its common stock, at an aggregate offering price of $495,000. Each share of common stock issued was sold as part of a unit that also includes a warrant to purchase one-half share of common stock exercisable at $0.75 per share, for a period ending on the fifth anniversary of the issuance of the warrants. The Company paid the placement agent for the offering of these units, aggregate placement fees of $49,500. The placement agent also received warrants to purchase a total of 65,600 shares of the Company’s common stock, exercisable at $0.75 per share, for a period ending on the fifth anniversary of the final closing of the offering.

On October 15, 2008, October 16, 2008 and October 23, 2008, the Company closed on three additional traunches of a private placement offering (the “October Private Placement”) in which the Company sold to accredited investors an aggregate of 8 units, consisting of an aggregate of 444,354 shares of common stock and warrants to purchase 222,175 shares of the Company’s common stock, for aggregate proceeds of $160,000. Each share of common stock issued was sold as part of a unit that also includes a warrant to purchase one-half share of common stock exercisable at a price between $0.37 and $0.46 per share, for a period ending on the fifth anniversary of the issuance of the warrants. The Company paid the placement agent for the offering of these units’ aggregate placement fees of $16,000. The placement agent also received warrants to purchase a total of 35,546 shares of the Company’s common stock, exercisable for a period ending on the fifth anniversary of the final closing of the offering.

On October 20, 2008, the Company issued an aggregate of 21,501 shares of its common stock in exchange for services rendered. The Company valued the shares at $0.34 per share for a total of $7,310, which represents the fair value of the services, received which did not differ materially from the value of the stock issued.

On October 27, 2008, the Company issued an aggregate of 970,588 shares of the Company’s common stock pursuant to certain anti dilution provisions granted to investors in the private placement in connection with the Reorganization in February 2008.

On November 4, 2008, the Company issued an aggregate of 63,000 shares of its common stock in exchange for previously incurred debt. The Company valued the shares at $0.34 per share for a total of $21,420, which represents the fair value of the incurred debt which did not differ materially from the value of the stock issued.

F-22

GEEKS ON CALL HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION

FEBRUARY 28, 2009

(unaudited)

NOTE 15 – STOCKHOLDERS’ EQUITY (continued)

Common stock (continued)

On November 5, 2008, the Company closed a private placement offering in which the Company sold to accredited investors one unit consisting of 58,823 shares of its common stock and warrants to purchase 29,411 shares of its common stock, for aggregate proceeds of $20,000. Each share of common stock issued was sold as part of a unit that also included a warrant to purchase one-half share of common stock exercisable at $0.42 per share, for a period ending on the fifth anniversary of the issuance of the warrants. The Company paid the placement agent for the offering of this unit aggregate placement fees of $2,000. The placement agent also received warrants to purchase a total of 4,705 shares of the Company’s common stock, exercisable at $0.42 per share, for a period ending on the fifth anniversary of the final closing of the offering.

In January 2009, the Company issued an aggregate of 6,321,611 shares of the Company’s common stock pursuant to certain anti dilution provisions granted to investors in the private placement in connection with the Reorganization in February 2008.

On February 27, 2009, the Company issued 455,000 shares of its common stock in exchange for services rendered in what management deems to be a strategic transaction. The Company valued the shares at $0.20 per share for a total of $91,000, which represents the fair value of the services, received which did not differ materially from the value of the stock issued

NOTE 16 – WARRANTS AND OPTIONS

Warrants

The following table summarizes the warrants outstanding and exercisable for the shares of the Company’s common stock issued to officers, investors and placement agents of the Company. These warrants were issued in lieu of cash compensation for services performed or financing expenses in connection with the issuance of promissory notes and the sale of the Company’s common stock. Warrants issued in connection with the private placement of the Company’s common stock and possess all of the conditions for equity classification and therefore were classified as equity.

Warrants Outstanding								Warrants Exercisable
Exercise Price		Number Outstanding		Weighted Average Remaining  Contractual Life  (Years)		Weighted Average  Exercise Price		Number Exercisable		Weighted  Average Exercise  Price
$	0.34		5,654,767		4.49	$	0.34		5,654,767	$	0.34
			5,654,767						5,654,767

Transactions involving warrants are summarized as follows:

	Number of  Shares		Weighted Average Price Per Share
Balance, August 31, 2007		—	$	—
Granted		2,117,000		0.34	*
Exercised		—		—
Canceled / Forfeited / Expired		—		—
Outstanding at August 31, 2008		2,117,000	$	0.34	*
Granted		3,537,767		0.34	*
Exercised		—		—
Canceled / Forfeited / Expired		—		—
Outstanding at February 28, 2009		5,654,767	$	0.34

F-23

GEEKS ON CALL HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION

FEBRUARY 28, 2009

(unaudited)

NOTE 16 - WARRANTS AND OPTIONS (continued)

Warrants (continued)

*Pursuant to the private placement agreement, certain warrants contain certain anti-dilutive provisions. As described in Note 15 above, the Company sold common stock in private placements in September and October 2008. The warrants issued in conjunction with such private placements have been reset to an exercise price of $0.34 per share accordingly.

In November 2008, the Company issued warrants to purchase an aggregate of 764,706 shares of its common stock in connection with the issuance of promissory notes to its two officers as described in Note 9 above. The warrants are exercisable for five years at $0.34 per share. The fair value of the warrants were determined using the Black-Scholes Option Pricing Model based on the following assumptions: dividend yield: -0-%, volatility: 150.66%; risk free rate: 2.01%; expected life: 5 years.

In December 2008, the Company issued warrants to purchase an aggregate of 1,417,648 shares of its common stock in connection with the issuance of promissory notes including related parties as described in Note 9 above. The warrants are exercisable for five years at $0.34 per share. The fair value of the warrants were determined using the Black-Scholes Option Pricing Model based on the following assumptions: dividend yield: -0-%, volatility: 204.32% to 214.37%; risk free rate: 1.45% to 1.67%; expected life: 5 years.

In January 2009, the Company issued warrants to purchase an aggregate of 464,706 shares of its common stock in connection with the issuance of promissory notes including related parties as described in Note 9 above. The warrants are exercisable for five years at $0.34 per share. The fair value of the warrants were determined using the Black-Scholes Option Pricing Model based on the following assumptions: dividend yield: -0-%, volatility: 213.66% to 215.13%; risk free rate: 1.61% to 1.85%; expected life: 5 years.

In January 2009, the Company issued warrants to purchase 26,552 shares of its common stock in settlement of services rendered. The warrants are exercisable for five years at $0.34 per share. The fair value of the warrants were determined using the Black-Scholes Option Pricing Model based on the following assumptions: dividend yield: -0-%, volatility: 214.37%; risk free rate: 1.75%; expected life: 5 years.

In February 2009, the Company issued warrants to purchase an aggregate of 93,824 shares of its common stock in connection with the issuance of promissory notes including related parties as described in Note 9 above. The warrants are exercisable for five years at $0.34 per share. The fair value of the warrants were determined using the Black-Scholes Option Pricing Model based on the following assumptions: dividend yield: -0-%, volatility: 215.13% to 215.83%; risk free rate: 1.81% to 2.07%; expected life: 5 years.

Employee Stock Options

Effective September 1, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123(R), “Share-Based Payment”, using the modified prospective method. Under this method, the provisions of SFAS No. 123(R) apply to all awards granted or modified after the date of adoption and all previously granted awards not yet vested as of the date of adoption. The initial adoption of this standard had no effect on the Company’s consolidated financial statements as the Company had not granted any awards prior to February 8, 2008.

The following table summarizes the options outstanding and exercisable for the shares of the Company’s common stock granted to officers, employees and directors of the Company:

Options Outstanding								Options Exercisable
Exercise Price		Number Outstanding		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price
$	0.11		65,000		5.79	$	0.11		—
$	1.00		2,285,000		4.94	$	1.00		757,000	$	1.00
$	1.05		85,000		5.55	$	1.05		—
$	1.15		150,000		5.33	$	1.15		—
			2,585,000		5.00	$	0.99		757,000	$	1.00

F-24

GEEKS ON CALL HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION

FEBRUARY 28, 2009

(unaudited)

NOTE 16 - WARRANTS AND OPTIONS (continued)

Employee Stock Options (continued)

Transactions involving employee stock options are summarized as follows:

	Number of Shares		Weighted Average Price Per Share
Balance, August 31, 2007		—	$	—
Granted		2,435,000		1.01
Exercised		—		—
Canceled / Forfeited / Expired		—		—
Outstanding at August 31, 2008		2,435,000	$	1.01
Granted		150,000		0.65
Exercised		—		—
Canceled / Forfeited / Expired		—		—
Outstanding at February 28, 2009		2,585,000	$	0.99

On February 8, 2008, the Board of Directors approved the 2008 Equity Incentive Plan (the “Plan”) whereby the Plan is intended as an incentive, to retain in the employ of and as directors, officers, consultants, advisors and employees of the Company. The Plan provides for the grant of incentive stock options and nonqualified stock options (collectively, “Options,”) Option price and term are determined by the Plan Committee at the time of grant. The vesting periods of the Options are determined by the Plan Committee at the time of grant, however, in the absence of any Option vesting periods designated by the Plan Committee at the time of grant, Options vest and become exercisable at one-third of the total number of shares subject to the grant on each of the first, second and third anniversaries of the date of grant. The terms of the options are not to exceed ten years and in the case of an incentive stock option granted to an optionee who, at time such incentive option is granted, owns more than 10% of the total combined voting power of all classes of stock of the Company, not to exceed five years.

The exercise price of the incentive stock options shall not be less than 100% of the fair market value or the prevailing market price of the stock at the time of grant provided, however, with respect to an optionee who, at the time such incentive stock option is granted, owns more than 10% of the total combined voting power of all classes of stock of the Company, the exercise price shall not be less than 110% of the fair market value per share of Stock on the grant date. The exercise price of the nonqualified options shall not be less than 100% of the fair market value on the grant date. The Company has reserved 3,000,000 shares of its common stock under the Incentive Options plan.

On February 8, 2008, the Company granted options to purchase an aggregate of 2,275,000 shares of its common stock to officers, directors and employees at $1.00 per share over the next six years vested as follows; options to purchase 300,000 shares of common stock vested immediately and the remaining 1,975,000 options vest as to 20% on each anniversary of the date of grant. The fair value, determined using the Black Scholes Option Pricing Model, of the vested portion of the options of $690,015 was recorded as stock compensation expense for the six month period ended February 28, 2009. The following assumptions were utilized: Dividend yield: -0-%, volatility: 124.86%; risk free rate: 2.60%; expected life: 6 years.

On February 29, 2008, the Company granted 10,000 options to an employee to purchase its common stock at $1.00 per share over the next six years vesting 20% at each anniversary. The fair value, determined using the Black Scholes Option Pricing Model, of the vested portion of the options of $4,911 was recorded as stock compensation expense for the six month period ended February 28, 2009. The following assumptions were utilized: Dividend yield: - -0-%, volatility: 124.86%; risk free rate: 2.50%; expected life: 6 years.

On July 1, 2008, the Company granted 150,000 options to an officer to purchase its common stock at $1.15 per share over the next six years vesting 20% at each anniversary. The fair value, determined using the Black Scholes Option Pricing Model, of the vested portion of the options of $21,430 was recorded as stock compensation expense for the six month period ended February 28, 2009. The following assumptions were utilized: Dividend yield: -0-%, volatility: 148.04%; risk free rate: 3.33%; expected life: 6 years.

F-25

GEEKS ON CALL HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION

FEBRUARY 28, 2009

(unaudited)

NOTE 16 - WARRANTS AND OPTIONS (continued)

Employee Stock Options (continued)

On September 18, 2008, the Company granted 85,000 options to an employee to purchase its common stock at $1.05 per share over the next six years vesting 20% at each anniversary. The fair value, determined using the Black Scholes Option Pricing Model, of the vested portion of the options of $5,799 was recorded as stock compensation expense for the six month period ended February 28, 2009. The following assumptions were utilized: Dividend yield: -0-%, volatility: 144.50%; risk free rate: 2.59%; expected life: 6 years.

On December 15, 2008, the Company granted 65,000 options to an employee to purchase its common stock at $0.11 per share over the next six years vesting 20% at each anniversary. The fair value, determined using the Black Scholes Option Pricing Model, of the vested portion of the options of $294 was recorded as stock compensation expense for the six month period ended February 28, 2009. The following assumptions were utilized: Dividend yield: - -0-%, volatility: 205.52%; risk free rate: 1.50%; expected life: 6 years.

Non - - Employee Stock Options

The following table summarizes the options outstanding and exercisable for the shares of the Company’s common stock granted to non employees of the Company:

Options Outstanding								Options Exercisable
Exercise Price		Number Outstanding		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price
$	1.50		50,000		5.27	$	1.50		50,000	$	1.50

Transactions involving non employee stock options are summarized as follows:

	Number of Shares		Weighted Average Price Per Share
Balance, August 31, 2007		—	$	—
Granted		50,000		1.50
Exercised		—		—
Canceled / Forfeited / Expired		—		—
Outstanding at August 31, 2008		50,000	$	1.50
Granted		—		—
Exercised		—		—
Canceled / Forfeited / Expired		—		—
Outstanding at February 28, 2009		50,000	$	1.50

On June 9, 2008, the Company granted 50,000 options with a six year term to consultants to purchase its common stock at $1.50 per share 50% of these options vest 90 days after issuance and 50% of these options vest 180 days after issuance. The fair value, determined using the Black Scholes Option Pricing Model, of the vested portion of the options of $20,473 was recorded as stock compensation expense for the six month period ended February 28, 2009. The following assumptions were utilized: dividend yield: -0-%, volatility: 142.75% to 198.37%; risk free rate: 1.67% to 2.96%; expected life: 6 years.

F-26

GEEKS ON CALL HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION

FEBRUARY 28, 2009

(unaudited)

NOTE 17 - RELATED PARTY TRANSACTIONS

As of February 28, 2009 and August 31, 2008, certain employees owed the Company $-0- and $48, respectively, for travel and other advances. These advances have been included in the accompanying consolidated balance sheets under the caption, prepaid expenses and other current assets. Subsequent to November 30, 2008, all advances have been repaid.

In October 2007, the Company entered into an exclusive private label/marketing agreement (the “Agreement”) with Telkonet, Inc. (a major supplier of the Company) for products under the trade name Geek Link System. Pursuant to the Agreement, the Company was to resale these private labeled products to customers through the Company’s existing network of franchisees. In addition, the Company, Telkonet, Inc. and certain stockholders of the Company entered into an agreement whereby Telkonet, Inc. acquired 2,454,500 shares of the Company’s common stock from these existing stockholders, which in effect transferred 39.6% ownership in the Company to Telkonet, Inc. by these stockholders. Telkonet Inc.’s ownership of the Company decreased to 10.52% as of February 28, 2009.

On February 8, 2008, we entered into a consulting agreement with Douglas Glenn, a member of our board of directors. The term of the agreement is two years. Mr. Glenn receives an annual consulting fee of $50,000, which is payable in monthly installments. In the event we undergo a change of control, the aggregate balance of consulting fee will become immediately due and payable. 

Mr. Glenn also received, immediately upon the consummation of the Merger, 150,000 options with a six year term. Twenty percent of the options will vest on each of the first five anniversaries of the date of grant. The options have an exercise price of $1.00 per share.

Mr. Glenn who is a member of our Board of Directors is an officer of the financial institution that currently holds our line of credit. We believe that the terms of this credit facility are favorable to us, or alternatively, are materially consistent with those terms that would have been obtained by us in an arrangement with an unaffiliated third party.

During the six month period ended February 28, 2009, the Company issued an aggregate of $191,000 in promissory notes (net of repayments of $3,000) to related parties, (two of the Company’s officers), due six months from issuance with maturity dates ranging from May 26, 2009 to August 20, 2009, and an interest rate of Wall Street Prime plus 4%, unsecured.

As described in Note 9, in connection with the issuance of the above related parties promissory notes, the Company issued an aggregate of 1,139,177 warrants to purchase the Company’s common stock for five years from the date of issuance at an exercise price of $0.34 per share.

NOTE 18 – FAIR VALUE MEASUREMENT

The financial assets of the Company measured at fair value on a recurring basis are cash equivalents. The Company’s cash equivalents are generally classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. The Company’s long-term notes receivable are classified within Level 3 of the fair value hierarchy because they are valued using unobservable inputs, due to the fact that observable inputs are not available, or situations in which there is little, if any, market activity for the asset or liability at the measurement date. The Company’s long term liabilities and other deferred liabilities are classified within Level 3 of the fair value hierarchy because they are valued using inputs which are not actively observable, either directly or indirectly.

• Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

• Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; or

• Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and are unobservable.

The following table sets forth the Company’s short-and long-term notes receivable as of February 28, 2009 which are measured at fair value on a recurring basis by level within the fair value hierarchy. As required by SFAS No. 157, these are classified based on the lowest level of input that is significant to the fair value measurement:

F-27

GEEKS ON CALL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
FEBRUARY 28, 2009
(unaudited)

NOTE 18 – FAIR VALUE MEASUREMENT (continued)

	Level 1		Level 2		Level 3		Assets at fair value
Cash and cash equivalents	$	21,640	$	—	$	—	$	21,640
Notes receivable		—		—		208,178		208,178
Sub-total		21,640		—		208,178		229,818
Long-term debt and other deferred liabilities		—		—		128,474		128,474
Total	$	21,640	$	—	$	336,652	$	358,292

NOTE 19 – SUBSEQUENT EVENTS

On March 2, 2009, the Company issued warrants to purchase an aggregate of 58,824 shares of common stock in connection with the issuance of a promissory note to an investor. The warrants are exercisable for five years at $0.34 per share.

On March 10, 2009, the Company entered into an agreement, that management deems to be strategic, with a third party to negotiate and resolve its indebtedness with certain creditors. Under the terms of the agreement the Company has agreed to issue 450,000 shares of the Company's common stock. Also, per the agreement the third party could receive an additional 1,000,000 shares of the Company's common stock with the amount of common stock, contingent upon the negotiated settlement amount of debt reduction in settlement agreements with the Company's creditors. The Company has yet to execute any settlement agreements, nor can there be any assurance that the Company will have adequate financing to pay the negotiated settlement amounts in accordance with such agreements.

On March 10, 2009, the Company borrowed $7,000 secured by future credit card processing. The note has a fixed $2,468 financing cost (estimated effective interest rate of 35%) and is payable at a rate of 18% of future credit card processing.

F-28

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation

The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this quarterly report on Form 10-Q. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including but not limited to those set forth under “Risk Factors” in our annual report on Form 10-K filed with the SEC on December 4, 2008.

          Management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates and assumptions, including, but not limited to, those related to revenue recognition, allowance for doubtful accounts, income taxes, goodwill and other intangible assets, and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates and assumptions.

Company Overview

          Our operating subsidiary, Geeks On Call America, Inc., was formed in June 2001 and provides rapid-response, on-site computer solutions to residential customers, small to medium sized businesses and national accounts across the United States. On-site solutions are provided through a network of independent franchised service providers, as well as a national network of certified IT professionals, conducting business under the trade names “1-800-905-GEEK,” and “Geeks On Call.” Our on-site support services include troubleshooting, maintaining, upgrading and networking computers, and service programs, designed to establish a long-term relationship with the client. Additionally, we provide training and consulting to our clients at their home or business location. Our mission is to bring state-of-the-art technology products and computer solutions directly to customers at their locations and eliminate the inconvenience of traveling to a traditional retailer or depot service center. Geeks on Call provides IT service and solutions in all 50 States.

Corporate History

The Company’s operating subsidiary, Geeks On Call America, Inc., was incorporated under the laws of the State of Virginia on June 11, 2001 and subsequently reincorporated on December 14, 2007 under the laws of the State of Delaware. Between 2001 and 2008 The Company experienced tremendous growth in its franchise network, granting franchises in more than 30 States, thus creating one of the most highly recognizable brands in the IT services industry. In 2008 the company began to augment its franchise network through the establishment of its preferred provider network made up of certified trained and tested third party IT professionals who meet the same standards as our franchise technicians. As of April 2009 the Company now provides on-site IT solutions in all 50 States.

Geeks On Call Holdings, Inc. was created through a reverse merger process with Lightview, Inc, which was incorporated under the laws of the State of Nevada on December 22, 2006 under the name Lightview, Inc, (“Lightview”) and formerly operated as a development stage company. On January 23, 2008, Lightview merged with and into Geeks On Call Holdings, Inc., a newly-formed wholly owned subsidiary of Lightview, for the sole purpose of reincorporating in the State of Delaware and changing the name of the company. Thereafter, on February 8, 2008, Geeks On Call America, Inc., Geeks On Call Holdings, Inc. and Geeks On Call Acquisition Corp, a newly-formed wholly-owned subsidiary of Geeks On Call Holdings, Inc. (“Acquisition Corp.”), entered into a merger agreement (the “Merger Agreement”). Upon closing of the merger transaction contemplated under the Merger Agreement, Acquisition Corp. merged with and into Geeks On Call America, Inc., and Geeks On Call America, Inc., as the surviving corporation, became the sole wholly-owned operating subsidiary. The consolidated financial statements include the accounts of Geeks On Call Holdings, Inc., the registrant and Geeks On Call America, Inc., the sole wholly-owned operating subsidiary (collectively, the “Company”).

1

Results of Operations

Our revenues are derived primarily from royalties and advertising and marketing fees earned from operating franchises and fees earned from the sales of franchise territories. Fees from the sale of franchises are recognized in income in the period that substantially all services and conditions relating to the sale under our franchise agreement have been performed, typically the period in which the franchisee has completed and passed our training class.

Three Months Ended February 28, 2009 compared to Three Months Ended February 29, 2008

Revenue

          The following table summarizes our revenues for the three months ended February 28, 2009 and February 29, 2008:

	Three months ended
	February 28, 2009		February 29, 2008
Total Revenue	$	886,865	$	1,411,063

For the three months ended February 28, 2009, revenue decreased by 37%, as compared to the same period in 2008. This decrease in revenue in the amount of $524,198 was primarily attributable to a reduction in 16 franchise owners and their 56 respective franchised territories, their corresponding advertising and marketing and royalty revenues, a reduction in the granting of new franchises, and the implementation of the Reboot Plan explained below. The Company, in conjunction with their Franchise Advisory Council, created a program for the franchisees (the “Reboot Plan”) designed to reduce the regular advertising and marketing fees paid into the advertising and marketing fund by franchises. The rationale for the reduction is to focus more of the franchise owner’s resources locally on local advertising and marketing. The net result of the Reboot Plan is a reduction in advertising and marketing fees paid by the franchisees to the Company. In the Reboot Plan, advertising and marketing fees will be scaled back over a 12 month period. The first reduction took place in September 2008. The second reduction took place in the first full week of April 2009. The final reduction is scheduled to take place in the first full week of September 2009. The net effect of the plan will reflect a reduction in overall advertising and marketing revenues but will be offset by a proportionate reduction in advertising and marketing spending.

Operating Loss

          The following table summarizes our operating loss for the three months ended February 28, 2009 and February 29, 2008:

	Three months ended
	February 28, 2009			February 29, 2008
Operating income (loss)	$	(892,887	)	$	(1,188,083	)

Operating expenses, which consist of selling, general and administrative expenses, advertising and marketing and depreciation and amortization totaled $1,779,752 for the three months ended February 28, 2009, as compared to $2,599,146 for the three months ended February 29, 2008, representing a decrease of approximately 32%. Our operating loss for the three months ended February 28, 2009 was $892,887 as compared to an operating loss of $1,188,083 for the three months ended February 29, 2008, representing a decrease in operating loss of approximately 25%. Our operating loss decreased due to increased selling, general and administrative expenses as explained below and off set by a reduction in advertising and marketing expenses

 

Selling, General and Administrative Expenses

          The following table summarizes our selling, general and administrative expenses for the three months ended February 28, 2009 and February 29, 2008:

	Three months ended
	February 28, 2009		February 29, 2008
Selling, general and administrative expenses	$	1,532,619	$	1,688,374

          For the three months ended February 28, 2009, selling, general and administrative expenses were $1,532,619 as compared to $1,688,374 for the three months ended February 29, 2008, a decrease of $155,755, or 9%. The decrease in selling, general and administrative expenses of $155,755 are mainly attributable to the following five areas and other direct and/or indirect overhead expenses.

2

Professional fees

          We achieved a reduction of approximately $192,000, related to maintaining our public company administration and compliance including professional fees associated with the reporting and filing requirements reflected in the February 2008 quarterly report, which included initial costs associated with becoming a publicly traded company. For the three months ended February 28, 2009, we incurred approximately $194,000 in legal, accounting and reporting expenses compared to approximately $386,000 in similar costs during the for the three months ended February 29, 2008.

Inventory write-off

          We incurred an expense of approximately $40,000 for the three months ended February 28, 2009 as compared to $-0- for the three months ended February 29, 2008 due to the write-off of obsolete and slow moving inventory.

Reduction in staffing overhead

          We achieved an expense reduction of approximately $32,000 for the three months ended February 28, 2009 over the three months ended February 29, 2008 in connection with changing our field service technician model to a third party provider model which eliminated all costs associated with their employment and allows for greater margins going forward, we further reduced corporate staff to be in line with current business objectives.

Stock based compensation

          We incurred non cash expenses for the vesting of options previously issued to officers, directors, employees and consultants of approximately $117,000 and the issuance of restricted stock for consulting fees of approximately $91,000 for the three months ended February 28, 2009 as compared to approximately $264,000 for the three months ended February 29, 2008.

Bad debt

          We incurred a non cash expense of approximately $167,000 for the three months ended February 28, 2009 as compared to approximately $64,000 for the three months ended February 29, 2008 due to an increase in the allowance for a loss provision on accounts and loan receivables resulting from franchise owners who defaulted on their contractual obligations under their franchise agreements.

Advertising and Marketing

          The following table summarizes our advertising and marketing expense for the three months ended February 28, 2009 and February 29, 2008:

	Three months ended
	February 28, 2009		February 29, 2008
Advertising and marketing expense	$	180,291	$	873,622

          For the three months ended February 28, 2009, we attribute $180,291 compared to $873,622 for the three months ended February 29, 2008 to expenses related to advertising and marketing and support of the national brand of the Company. The decrease in advertising and marketing expense was directly related to a reduction in the number of active operating franchises, and in conjunction with the Franchise Advisory Council, a program for the Company’s franchisees (the ”Reboot Plan”) designed to reduce the regular advertising and marketing fees paid into the advertising and marketing fund by franchises in order to enable them to spend the savings on advertising and marketing activities in their local markets. In the Reboot Plan, advertising and marketing fees will be scaled back over a 12 month period. The first reduction took place in September 2008. The second reduction took place the first full week of April 2009. The final reduction is scheduled to take place the first full week of September 2009. The net effect of the Reboot Plan will reflect a reduction in overall marketing and advertising revenues and a proportionate reduction in our overall advertising and marketing spending

Depreciation and Amortization

          The following table summarizes our depreciation and amortization for the three months ended February 28, 2009 and February 29, 2008:

	Three months ended
	February 28, 2009		February 29, 2008
Depreciation and amortization	$	66,842	$	37,150

          Depreciation and amortization increased by $29,692 for the three months ended February 28, 2009 compared to the three months ended February 29, 2008. The increase is attributed to the increase in depreciable assets.

3

Six Months Ended February 28, 2009 compared to Six Months Ended February 29, 2008

Revenue

          The following table summarizes our revenues for the six months ended February 28, 2009 and February 29, 2008:

	Six months ended
	February 28, 2009		February 29, 2008
Total Revenue	$	1,882,095	$	3,016,134

          For the six months ended February 28, 2009, revenue decreased by 38%, as compared to the same period in 2008. This decrease in revenue in the amount of $1,134,039 was primarily attributable to a reduction in 16 franchise owners and their 56 respective franchised territories, their corresponding advertising and marketing and royalty revenues, a reduction in the granting of new franchises, and the implementation of the Reboot Plan explained below. The Company, in conjunction with their Franchise Advisory Council, created a program for the franchisees (the “Reboot Plan”) designed to reduce the regular advertising and marketing fees paid into the advertising and marketing fund by franchisees. The rationale for the reduction is to focus more of the franchise owner’s resources locally on local advertising and marketing. The net result of the Reboot Plan is a reduction in advertising and markting fees paid by the franchisees to the Company. In the Reboot Plan, advertising and marketing fees will be scaled back over a 12 month period. The first reduction took place in September 2008. The second reduction took place in the first full week of April 2009. The final reduction is scheduled to take place in the first full week of September 2009. The net effect of the plan will reflect a reduction in overall advertising and marketing revenues but will be offset by a proportionate reduction in advertising and marketing spending.

Operating Loss

          The following table summarizes our operating loss for the six months ended February 28, 2009 and February 29, 2008:

	Six months ended
	February 28, 2009			February 29, 2008
Operating income (loss)	$	(2,056,039	)	$	(1,596,118	)

Operating expenses, which consist of selling, general and administrative expenses, advertising and marketing and depreciation and amortization totaled $3,938,134 for the six months ended February 28, 2009, as compared to $4,612,252 for the six months ended February 29, 2008, representing a decrease of approximately 15%. Our operating loss for the six months ended February 28, 2009 was $2,056,039 as compared to an operating loss of $1,596,118 for the six months ended February 29, 2008, representing an increase in operating loss of approximately 29%. Our operating loss increased due to increased selling, general and administrative expenses as explained below and off set by a reduction in advertising and marketing expense.

Selling, General and Administrative Expenses

          The following table summarizes our selling, general and administrative expenses for the six months ended February 28, 2009 and February 29, 2008:

	Six months ended
	February 28, 2009		February 29, 2008
Selling, general and administrative expenses	$	3,278,518	$	2,666,395

          For the six months ended February 28, 2009, selling, general and administrative expenses were $3,278,518 as compared to $2,666,395 for the six months ended February 29, 2008, an increase of $612,123, or 23%. The increase in selling, general and administrative expenses of $612,123 are mainly attributable to these five areas and other direct and/or indirect overhead expenses.

Professional fees

          We achieved a reduction of approximately $175,000, related to maintaining our public company administration and compliance including professional fees associated with the reporting and filing requirements reflected in the February 2008 quarterly report, which included initial costs associated with becoming a publicly traded company. For the six months ended February 28, 2009, we incurred approximately $366,000 in legal, accounting and reporting expenses compared to approximately $541,000 in similar costs for the six months ended February 29, 2008.

4

Inventory write-off

          We incurred an expense of approximately $40,000 for the six months ended February 28, 2009 as compared to $-0- for the six months ended February 29, 2008 due to the write-off of obsolete and slow moving inventory.

Reduction in staffing overhead

          We incurred an expense of approximately $309,000 for the six months ended February 28, 2009 in connection with the costs of personnel for our field service technicians as compared to approximately $30,000 for the six months ended February 29, 2008. For the six months ended February 28, 2009 we employed approximately 14 field service technicians as compared to 6 during the previous year’s comparable period, or an addition of 8 technicians. For the six months ended February 28, 2009 we modified our field service technician model by moving to a third party provider model which will eliminate all costs associated with the employment of our field service technicians and allow for greater margins going forward, we further reduced corporate staff to be in line with current business objectives.

Stock based compensation

          We incurred non cash expenses for the vesting of options previously issued to officers, directors, employees and consultants of approximately $478,000 and the issuance of restricted stock for consulting fees of approximately $142,000 for the six months ended February 28, 2009 as compared to approximately $264,000 for the same period last year.

Bad debt

          We incurred a non cash expense of approximately $167,000 for the six months ended February 28, 2009 as compared to approximately $64,000 for the six months ended February 29, 2008 due to an increase in the allowance for a loss provision on accounts and loan receivables resulting from franchise owners who defaulted on their contractual obligations under their franchise agreements.

Advertising and Marketing

          The following table summarizes our advertising and marketing expense for the six months ended February 28, 2009 and February 29, 2008:

	Six months ended
	February 28, 2009		February 29, 2008
Advertising and Marketing expense	$	523,416	$	1,872,321

          For the six months ended February 28, 2009, we attribute $523,416 compared to $1,872,321 for the six months ended February 29, 2008 to expenses related to advertising and marketing and support of the national brand of the Company. The decrease in advertising and marketing expense was directly related to a reduction in the number of active operating franchises, and in conjunction with the Franchise Advisory Council, a program for the Company’s franchisees (the Reboot Plan”) designed to reduce the regular advertising and marketing fees paid into the advertising and marketing fund by franchises in order to enable them to spend the savings on advertising and marketing activities in their local markets. In the Reboot Plan, advertising and marketing fees will be scaled back over a 12 month period.. The first reduction took place in September 2008. The second reduction took place the first full week of April 2009. The final reduction is scheduled to take place in September 2009. The net effect of the Reboot Plan will reflect a reduction in overall advertising and marketing spending.

Depreciation and Amortization

          The following table summarizes our depreciation and amortization for the six months ended February 28, 2009 and February 29, 2008:

	Six months ended
	February 28, 2009		February 29, 2008
Depreciation and amortization	$	136,200	$	73,536

          Depreciation and amortization increased by $62,664 for the six months ended February 28, 2009 compared to the six months ended February 29, 2008. The increase is attributed to the increase in depreciable assets.

5

Liquidity and Capital Resources

Net Cash Used in Operating Activities

          The following table summarizes our net cash used in operating activities for the six months ended February 28, 2009 and February 29, 2008:

	Six months ended
	February 28, 2009		February 29, 2008
Net cash used in operating activities	$	1,025,898	$	1,727,103

          Cash utilized in operating activities was $1,025,898 for the six months ended February 28, 2009, as compared to $1,727,103 for the six months ended February 29, 2008. The decrease was primarily due to the reduction in costs associated with filing requirements to be a public company, investor relations, and the hiring of additional staff and consultants as compared to the six months ended February 29, 2008. In addition, the Company issued common stock, warrants, and granted stock options in exchange for services and compensation for the six months ended February 28, 2009 as compared to cash payments made for the six months ended February 29, 2008.

Net Cash Provided by (Used in) Investing Activities

          The following table summarizes our net cash provided by (used in) investing activities for the six months ended February 28, 2009 and February 29, 2008:

	Six Months Ended
	February 28, 2009		February 29, 2008
Net cash provided (used in) investing activities	$	63,520	$	(64,975	)

          Net cash provided in investing activities totaled $63,520 for the six months ended February 28, 2009 as compared to net cash used in investing activities of $64,975 for the six months ended February 29, 2008. The difference in cash provided in investing activities was mainly attributable from collections of loan payments from franchisees and others during the six months ended February 28, 2009.

Net Cash Provided by Financing Activities

          The following table summarizes our net cash provided by financing activities for the six months ended February 28, 2009 and February 29, 2008:

	Six Months Ended
	February 28, 2009		February 29, 2008
Net cash provided by financing activities	$	806,519	$	2,875,107

          Net cash provided by financing activities totaled $806,519 for the six months ended February 28, 2009, as compared to $2,875,107 for the six months ended February 29, 2008. The reason for the decrease was primarily attributable to the decrease in proceeds from the sale of common stock in connection with certain private placements of our common stock of only $513,401 for the six months ended as compared to $3,196,903 for the six months ended February 29, 2008. In addition, the Company received proceeds from issuance of new notes payable to investors and related parties and proceeds from our line of credit which totaled $560,367 during the six months ended February 28, 2009 and off set by repayments of notes payable and capital lease obligation of $267,249.

          The accompanying financial statements have been prepared assuming that we will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. However, our ability to continue as a going concern will be dependent upon our ability to generate sufficient cash flow from operations to meet our obligations on a timely basis, to obtain additional financing, and ultimately attain profitability.

          Our liquidity needs consist of our working capital requirements and indebtedness payments. Historically, we have financed our operations through the sale of equity and convertible debt as well as borrowings from various credit sources.

6

Liquidity and Capital Resources (continued)

          As of February 28, 2009, we had a working capital deficit of $2,684,306 as compared to a working capital deficit of $2,200,645 at August 31, 2008. For the six months ended February 28, 2009, we generated a net cash flow deficit from operating activities of $1,025,898 consisting primarily of year to date losses of $2,270,503, adjusted primarily for stock based compensation of $591,694, increase of operating assets and liabilities, net changes of $165,508, and depreciation and amortization of $136,200. Cash provided by investing activities totaled $63,520, consisting of loan payments received from franchisees and others of $63,520. Cash provided by financing activities for the six months ended February 28, 2009 totaled $806,519 consisting of $513,401of proceeds from the sale of common stock subscriptions, proceeds from issuance of notes payable and line of credit in the amount of $560,367, less repayments of previously incurred debt of $267,249.

          While we have raised capital to meet our working capital and financing needs in the past, we have recently reduced our operational overhead to the point where we generate sufficient monthly recurring revenue to conduct our normal business operations. We continue to seek additional financing in order to fund the expansion and infrastructure of our operations on a National level and to eliminate existing short term financial indebtedness. Exploitation of potential revenue sources will be financed primarily through available working capital, the sale of securities and convertible debt, exercise of outstanding warrants, issuance of notes payable and other debt or a combination thereof, depending upon the transaction size, market conditions and other factors.

          However, if during that period or thereafter, we are not successful in generating sufficient working capital from operations or in raising sufficient capital resources, on terms acceptable to us, this could have a material adverse effect on our business, results of operations liquidity and financial condition. No assurance can be given that any source of additional cash will be available to us. If no source of additional cash is available to us, we may have to significantly reduce the scope of our operations or possibly seek court protection from creditors or cease business operations altogether.

Off-Balance Sheet Arrangements

Since our inception we have not engaged in any off-balance sheet arrangements, including the use or structured finance, special purpose entities or variable interest entities.

Critical Accounting Policies and Estimates

The SEC has issued Financial Reporting Release No. 60, “Cautionary Advice Regarding Disclosure About Critical Accounting Policies” (“FRR 60”), suggesting companies provide additional disclosure and commentary on their most critical accounting policies. In FRR 60, the SEC has defined the most critical accounting policies as the ones that are most important to the portrayal of a company’s financial condition and operating results, and require management to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, our most critical accounting policies include: (a) use of estimates in the preparation of financial statements; (b) stock-based compensation arrangements; (c) revenue recognition; and (d) long-lived assets. The methods, estimates and judgments we use in applying these most critical accounting policies have a significant impact on the results we report in our consolidated financial statements.

Use of Estimates in the Preparation of Consolidated Financial Statements

The preparation of the consolidated financial statements included in this annual report requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate these estimates, including those related to revenue recognition and concentration of credit risk. We base our estimates on historical experience and on various other assumptions that is believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Stock-Based Compensation Arrangements

We intend to issue shares of common stock to various individuals and entities for management, legal, consulting and marketing services. These issuances will be valued at the fair market value of the service provided and the number of shares issued is determined, based upon the open market closing price of common stock as of the date of each respective transaction. These transactions will be reflected as a component of selling, general and administrative expenses in the accompanying statement of operations.

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Revenue Recognition

The Company accounts for revenue under the guidance provided by SFAS No. 45, “Accounting for Franchise Fee Revenue (as amended)” and EITF 00-21, “Revenue Arrangements with Multiple Deliverables”.

Franchise fee revenue is recognized when (i) all material obligations of the Company to prepare the franchisee for operations have been substantially completed; and (ii) all material initial services to be provided by the Company have been performed, with an appropriate provision for estimated uncollectible amounts. Obligations to prepare the franchisee for operations are substantially completed upon the completion by the franchisee of the Company’s training program.

There are no other material conditions or commitments or obligations that exist related to the determination of substantial performance or substantial completion of the franchise agreement.

Area Development Sales

Area developer sales, wherein the Company sells the rights to develop a territory or market, are nonrefundable fees recognized as revenue upon signature of the Area Development Agreement and substantial completion of all of the Company’s obligations associated with the opening of the first franchise under the agreement have been met. Substantial completion includes, but is not limited to, conducting market and trade area analysis, a meeting with the Company’s Executive Team, and performing potential franchise background investigation, all of which are completed prior to our execution of the Area Development Agreement and receipt of the corresponding area development fee. As a result, the Company recognizes this fee in full upon receipt and with the opening of the first franchise under the Area Development Agreement.

No additional substantive services required after the first franchise is opened under the Area Development Agreement.

Advertising and Marketing and Royalty Fees

Initial advertising and marketing fees are recognized when the territory is open and the related advertising and marketing has been performed. Ongoing royalties and advertising and marketing fees are recognized currently as the franchised territory generates sales and ongoing advertising and marketing is performed.

Repossessed Franchises

From time to time the Company may recover franchise rights through repossession if a franchisee decides not to open a franchise. If, for any reason, the Company refunds the consideration received, the original sale is canceled, and revenue previously recognized is accounted for as a reduction in revenue in the period the franchise is repossessed. If franchise rights are repossessed but no refund is made (a) the transaction is not regarded as a sale cancellation, (b) no adjustment is made to any previously recognized revenue, (c) any estimated uncollectible amounts resulting from unpaid receivables is provided for, and (d) any consideration retained for which revenue was not previously recognized is reported as revenue.

Deferred Franchise Fees

The Company may receive all or part of the initial franchise or advertising fee prior to the execution of the franchise agreement of completion of the earnings process. These amounts are classified as deferred revenue until the fee qualifies to be recognized as revenue or is refunded.

Long-lived Assets

Long-lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. We evaluate at each balance sheet date whether events and circumstances have occurred that indicate possible impairment. If there are indications of impairment, we use future undiscounted cash flows of the related asset or asset grouping over the remaining life in measuring whether the assets are recoverable. In the event such cash flows are not expected to be sufficient to recover the recorded asset values, the assets are written down to their estimated fair value. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value of asset less the cost to sell.

Recent accounting pronouncements

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS No. 141(R)”), which establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in an acquiree, including the recognition and measurement of goodwill acquired in a business combination. SFAS No. 141R is effective as of the beginning of the first fiscal year beginning on or after December 15, 2008. Earlier adoption is prohibited. The Company does not expect the adoption of SFAS No. 141R on September 1, 2009 will have a material effect on its consolidated financial position, results of operations or cash flows.

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Recent accounting pronouncements (continued)

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interest in Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS No. 160”), which will change the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests and classified as a component of equity within the consolidated balance sheets. SFAS No. 160 is effective as of the beginning of the first fiscal year beginning on or after December 15, 2008. Earlier adoption is prohibited. The Company does not expect the adoption of SFAS No. 160 on September 1, 2009 to have a material effect on its consolidated financial position, results of operations or cash flows.

In December 2007, the FASB ratified the consensus in Emerging Issues Task Force (EITF) Issue No. 07-1, “Accounting for Collaborative Arrangements” (EITF 07-1). EITF 07-1 defines collaborative arrangements and requires collaborators to present the result of activities for which they act as the principal on a gross basis and report any payments received from (made to) the other collaborators based on other applicable authoritative accounting literature, and in the absence of other applicable authoritative literature, on a reasonable, rational and consistent accounting policy is to be elected. EITF 07-1 also provides for disclosures regarding the nature and purpose of the arrangement, the entity’s rights and obligations, the accounting policy for the arrangement and the income statement classification and amounts arising from the agreement.

EITF 07-1 will be effective for fiscal years beginning after December 15, 2008, which will be the Company’s fiscal year 2009, and will be applied as a change in accounting principle retrospectively for all collaborative arrangements existing as of the effective date.

The Company does not expect the adoption of EITF 07-1on September 1, 2009 to have a material effect on its consolidated financial position, results of operations or cash flows.

In June 2008, the FASB ratified the consensus on Emerging Issues Task Force (EITF) Issue 07-5, “Determining whether an Instrument (or Embedded Feature) is indexed to an Entity’s Own Stock.” This issue addresses whether an instrument (or an embedded feature) is indexed to an entity’s own stock, which is the first part of the scope exception in paragraph 11(a) of SFAS No. 133, for purposes of determining whether the instrument should be classified as an equity instrument or accounted for as a derivative instrument. The provisions of EITF Issue No. 07-5 are effective for financial statements issued for fiscal years beginning after December 15, 2008 and will be applied retrospectively through a cumulative effect adjustment to retained earnings for outstanding instruments as of that date. The Company does not expect the adoption of EITF 07-05 to have a material effect on its consolidated financial position, results of operations or cash flows.

In March 2008, the FASB” issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities - an amendment to FASB Statement No. 133” (“SFAS No. 161”). SFAS No. 161 is intended to improve financial standards for derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. Entities are required to provide enhanced disclosures about: (a) how and why an entity uses derivative instruments; (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations; and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. It is effective for financial statements issued for fiscal years beginning after November 15, 2008, with early adoption encouraged. The Company does not expect the adoption of SFAS No. 161 to have a material effect on its consolidated financial position, results of operations or cash flows.

In April 2008, the FASB issued FSP No. FAS 142-3, “Determination of the Useful Life of Intangible Assets”. This FSP amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets”. The Company is required to adopt FSP 142-3 on September 1, 2009, earlier adoption is prohibited. The guidance in FSP 142-3 for determining the useful life of a recognized intangible asset shall be applied prospectively to intangible assets acquired after adoption, and the disclosure requirements shall be applied prospectively to all intangible assets recognized as of, and subsequent to, adoption. The Company does not expect the adoption of FSP No. FAS 142-3 to have a material effect on its consolidated financial position, results of operations or cash flows.

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS No. 162”). SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (the GAAP hierarchy). SFAS No. 162 will become effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.” The Company does not expect the adoption of SFAS No. 162 to have a material effect on its consolidated financial position, results of operations or cash flows.

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Recent accounting pronouncements (continued)

In May 2008, the FASB issued FSP Accounting Principles Board (“APB”) 14-1 “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)” (“FSP APB 14-1”). FSP APB 14-1 requires the issuer of certain convertible debt instruments that may be settled in cash (or other assets) on conversion to separately account for the liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer’s non-convertible debt borrowing rate. FSP APB 14-1 is effective for fiscal years beginning after December 15, 2008 on a retroactive basis. The Company is currently evaluating the potential impact, if any, of the adoption of FSP APB 14-1 on its consolidated financial position, results of operations or cash flows.

In May 2008, the FASB issued FASB Statement No. 163, “Accounting for Financial Guarantee Insurance Contracts”, which clarifies how FASB Statement No. 60, “Accounting and Reporting by Insurance Enterprises”, applies to financial guarantee insurance contracts issued by insurance enterprises. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2008, including interim periods in that year. The Company does not expect the adoption of SFAS 163 to have a material effect on its consolidated financial statements.

In June 2008, the FASB issued FSP Emerging Issues Task Force (EITF) No. 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities ..” Under the FSP, unvested share-based payment awards that contain rights to receive non-forfeitable dividends (whether paid or unpaid) are participating securities, and should be included in the two-class method of computing EPS. The FSP is effective for fiscal years beginning after December 15, 2008, and interim periods within those years. The Company does not expect the adoption of FSP EITF No. 03-6-1 to have a material effect on its consolidated financial position, results of operations or cash flows.

In October 2008, the FASB issued FSP SFAS No. 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active.” This position clarifies the application of SFAS No. 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. It also reaffirms the notion of fair value as an exit price as of the measurement date. This position was effective upon issuance, including prior periods for which financial statements have not been issued. The adoption had no impact on the Company’s consolidated financial statements.

In December 2008, the FASB issued FSP 132(R)-1, Employers’ Disclosures about Postretirement Benefit Plan Assets, which is effective for fiscal years ending after December 15, 2009. FSP 132(R)-1 requires disclosures about fair value measurements of plan assets that would be similar to the disclosures about fair value measurements required by SFAS 157. The Company is assessing the potential effect of the adoption of FSP 132(R)-1 on its consolidated financial statements.

In December 2008, the FASB issued FSP SFAS 140-4 and FIN 46(R)-8, Disclosures about Transfers of Financial Assets and Interests in Variable Interest Entities. The FSP requires extensive additional disclosure by public entities with continuing involvement in transfers of financial assets to special-purpose entities and with variable interest entities (VIEs), including sponsors that have a variable interest in a VIE. This FSP became effective for the first reporting period ending after December 15, 2008 and did not have any material impact on the Company’s consolidated financial statements.

In January 2009, the FASB issued Financial Statement of Position (“FSP”) Issue No. EITF 99-20-1, “Amendments to the Impairment Guidance of EITF Issue No. 99-20” (“FSP EITF No. 99-20-1”). FSP EITF No. 99-20-1 amends the impairment guidance in EITF Issue No. 99-20, “Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests that Continue to be Held by a Transferor in Securitized Financial Assets” to achieve more consistent determination of whether an other-than-temporary impairment has occurred. The Company adopted FSP EITF No. 99-20-1 and it did not have a material impact on the consolidated financial statements.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC did not, or are not believed by management to, have a material impact on the Company’s present or future consolidated financial statements.

Going Concern Matters

The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying unaudited condensed consolidated financial statements, the Company incurred a net loss available to common stockholders of $2,270,503 and $1,667,120 for the six month period ended February 28, 2009 and February 29, 2008, respectively. Additionally, the Company has negative cash flows from operations of $1,025,898 for the six month period ended February 28, 2009 and an accumulated deficit of $12,675,134 as of February 28, 2009. These factors among others raised substantial doubt about the Company’s ability to continue as a going concern.

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Going Concern Matters (continued)

The Company’s continued existence is dependent upon management’s ability to develop profitable operations and resolve its liquidity problems. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.

The Company is actively pursuing additional equity or debt financing through discussions with private investors. However, there can be no assurance that any additional financing will be available from external sources to the Company on satisfactory terms and conditions, if at all. In the event that the Company is unable to continue as a going concern, the Company may elect or be required to seek protection from its creditors by filing a voluntary petition in bankruptcy or may be subject to an involuntary petition in bankruptcy. To date, management has not considered this alternative, nor does management view it as a likely occurrence.

Item 4T. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

          Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.

          Our management, under the supervision and with the participation of our Chief Executive Officer, Mr. Richard T. Cole, our Executive VP and Chief Operating Officer, Mr. Richard G. Artese and our Vice-President of Finance, Mr. Keith W. Wesp, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act) as of February 28, 2009. Based on our internal evaluation, our Chief Executive Officer, Chief Operating Officer and Vice-President of Finance concluded that our disclosure controls and procedures were effective as of February 28, 2009.

Limitations on Effectiveness of Controls and Procedures

          Our management, including our Chief Executive Officer, Chief Operating Officer and Vice-President of Finance, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Changes in Internal Control over Financial Reporting

During our year end reporting management conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act) as of August 31, 2008. Based upon that evaluation of our internal control over financial reporting as described below under “Management’s Report on Internal Control over Financial Reporting,” the Chief Executive Officer, Chief Operating Officer and Vice-President of Finance concluded that our disclosure controls and procedures were ineffective as of the year end report due to insufficient resources within the finance department. As of February 28, 2009 management had rectified the identified problems by recruiting and hiring additional financial and accounting personnel to prepare and analyze financial information in a timely manner and to allow review and on-going monitoring and enhancement of our controls. Subsequent to February 28, 2009, some of the individuals were laid off due to a work force reduction and we have yet to access the impact of such layoffs on our disclosure and procedure controls.

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PART II
OTHER INFORMATION

Item 1. Legal Proceedings

The Company is subject to other legal proceedings and claims, which arise in the ordinary course of its business. Although occasional adverse decisions or settlements may occur, the Company believes that the final disposition of such matters should not have a material adverse effect on its financial position, results of operations or liquidity. In December 2008, the Company was served with individual lawsuits from ten franchisees. As of February 28, 2009, 6 of the suits had been settled by the Company. None of the settlements resulted in any payment by the Company. On March 19, 2009 the court entered the dismissal order with prejudice on 5 of the 6 settled lawsuits. The sixth settle lawsuit was dismissed with prejudice on April 3, 2009. On May 1, 2009, the court dismissed 3 of the remaining 4 outstanding lawsuits with no significant financial impact to the Company. As of May 15, 2009 the Company continues to work towards resolving the one remaining lawsuit. The Company intends to vigorously defend the claim asserted against it. Management believes the ultimate outcome of this matter will not have a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity.

On March 12, 2009, the Company filed 3 lawsuits in connection with enforcing guarantees for payments of past due royalties and advertising and marketing fees from franchisees that have filed bankruptcy in the amount of approximately $200,000.

Item 1A.	Risk Factors
None.
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds

          On November 26, 2008, we issued warrants to purchase an aggregate of 764,706 shares of common stock in connection with the issuance of promissory notes to two of our officers. The warrants are exercisable for five years at $0.34 per share.

          On December 5, 2008, we issued warrants to purchase an aggregate of 147,059 shares of common stock in connection with the issuance of a promissory note to one of our officers. The warrants are exercisable for five years at $0.34 per share.

          On December 29, 2008, we issued warrants to purchase an aggregate of 94,118 shares of common stock in connection with the issuance of a promissory note to an investor. The warrants are exercisable for five years at $0.34 per share.

          On December 30, 2008, we issued warrants to purchase an aggregate of 1,176,471 shares of common stock in connection with the issuance of a promissory note to an investor. The warrants are exercisable for five years at $0.34 per share.

          On January 3, 2009, we issued warrants to purchase an aggregate of 117,647 shares of common stock in connection with the issuance of a promissory note to an investor. The warrants are exercisable for five years at $0.34 per share.

          On January 9, 2009, we issued warrants to purchase an aggregate of 176,471 shares of common stock in connection with the issuance of a promissory note to an investor. The warrants are exercisable for five years at $0.34 per share.

          On January 22, 2009, we issued warrants to purchase an aggregate of 170,588 shares of common stock in connection with the issuance of a promissory note to one of our officers. The warrants are exercisable for five years at $0.34 per share.

          On February 20, 2009, we issued warrants to purchase an aggregate of 58,824 shares of common stock in connection with the issuance of a promissory note to one of our officers. The warrants are exercisable for five years at $0.34 per share.

          On February 26, 2009, we issued warrants to purchase an aggregate of 35,000 shares of common stock in connection with the issuance of a promissory note to an investor. The warrants are exercisable for five years at $0.34 per share.

          On March 2, 2009, we issued warrants to purchase an aggregate of 58,824 shares of common stock in connection with the issuance of a promissory note to an investor. The warrants are exercisable for five years at $0.34 per share.

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Item 3.	Defaults Upon Senior Securities
None
Item 4.	Submission of Matters to a Vote of Security Holders
None
Item 5.	Other Information
None
Item 6.	Exhibits

Exhibit No.	Description
31.1*	Section 302 Certification by the Principal Executive Officer
31.2*	Section 302 Certification by the Principal Financial Officer
32.1*	Section 906 Certification by the Principal Executive Officer and the Principal Financial Officer

* Filed herewith

SIGNATURES

          Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		GEEKS ON CALL HOLDINGS, INC.
Date:	May 15, 2009	By:	/s/ Richard T. Cole
			Richard T. Cole
			Chief Executive Officer
			(Principal Executive Officer)
Date:	May 15, 2009	By:	/s/ Keith W. Wesp
			Keith Wesp
			Vice-President of Finance
			(Principal Financial Officer)

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