f10k-2008_v2kwi.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended September 30, 2008

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

For the transition period from _______ to _______

Commission File No. 333-141201

V2K International, Inc.

(Exact name of registrant as specified in its charter)

Colorado	20-5614030
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

13949 West Colfax Avenue, Suite 250, Lakewood, Colorado	80401
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (303) 202-1120

Securities registered pursuant to Section 12(b) of the Act:	None
Securities registered pursuant to Section 12(g) of the Act:	None

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

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.

¨ Yes ý No

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 past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

ý Yes ¨ No

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

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.

Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer ¨	Smaller reporting company ý

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ¨Yes ýNo

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: $4,016,016.21 as of March 31, 2008

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 31,467,336 shares of common stock as of December 16, 2008

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This annual report includes “forward-looking statements.” All statements other than statements of historical facts included or incorporated by reference in this report, including, without limitation, statements regarding our future financial position, business strategy, budgets, projected costs and plans and objectives of management for future operations, are forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “project,” “estimate,” “anticipate,” “believe,” or “continue” or the negative thereof or variations thereon or similar terminology. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we cannot give any assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from our expectations (“Cautionary Statements”) include, but are not limited to:

·	our ability to generate sufficient capital to complete planned acquisitions;

·	the lack of liquidity of our common stock;

·	the availability of capital;

·	the strength and financial resources of our competitors;

·	general economic conditions; and

·	the securities or capital markets and other factors disclosed under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business” and elsewhere in this annual report.

All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements. We assume no duty to update or revise our forward-looking statements based on changes in internal estimates or expectations or otherwise.

V2K INTERNATIONAL, INC.

FORM 10-K

FOR THE FISCAL YEAR ENDED

SEPTEMBER 30, 2008

INDEX

		Page
PART I
Item 1.	Business	5
Item 1A.	Risk Factors	13
Item 1B.	Unresolved Staff Comments	16
Item 2.	Properties	16
Item 3.	Legal Proceedings	16
Item 4.	Submission of Matters to a Vote of Security Holders	16

PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	17
Item 6.	Selected Financial Data	17
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 8.	Financial Statements and Supplementary Data	24
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	25
Item 9A.	Controls and Procedures	25
Item 9B.	Other Information	26

PART III
Item 10.	Directors, Executive Officers and Corporate Governance	27
Item 11.	Executive Compensation	29
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	34
Item 13.	Certain Relationships and Related Transactions, and Director Independence	35
Item 14.	Principal Accounting Fees and Services	37

	PART IV
Item 15	Exhibits, Financial Statement Schedules	38

	SIGNATURES

PART I

Item 1. Business

Overview

We were incorporated on March 13, 2006 in the State of Colorado. On April 1, 2006, in a share for share exchange, we acquired all of the issued and outstanding shares of V2K Window Fashions, Inc., a company incorporated in Colorado on July 24, 1996, and V2K Manufacturing, Inc., a company incorporated in Colorado on September 21, 1994. On July 1, 2006, we transferred the software and our software development team into a separate entity named V2K Technology, Inc., a wholly-owned subsidiary and a Colorado corporation. On April 6, 2007, we organized Marketing Source International LLC, a Colorado limited liability company.

Through our wholly-owned subsidiaries, V2K Window Fashions, Inc., V2K Technology, Inc., and V2K Manufacturing, Inc., we sell and support franchises in the residential and commercial window fashion industry, develop and license proprietary software that allows users to decorate windows for both residential and commercial customers, and act as the primary supplier of soft window treatments to our franchisees by managing strategic alliances with outside vendors. Marketing Source International LLC will endeavor to generate revenues by acting as a product development and sales agent for overseas window covering manufacturers. As of the date of this filing, Marketing Source International LLC has engaged in only preliminary discussions with overseas window covering manufacturing sources.

Our current emphasis is in window fashions and accessories. Our subsidiary, V2K Window Fashions, Inc. (“V2K Window Fashions”) sells and supports franchises in the window fashion industry. We began selling franchises in March 1997. Our first franchisee started operations in August 1997. After selling several franchises, we halted our franchise sales activity while we refined our business plan and secured outside financing. We began aggressively developing the franchise business model in November 2001, at which point we had 9 franchises. As of September 30, 2008, we had 170 franchises, operating in thirty-nine states, three Canadian provinces and Aruba.

Using our proprietary software developed at V2K Technology, Inc. (“V2K Technology”), our franchisees sell window fashions of all kinds to both commercial and residential customers. All sales orders made by our franchisees are sent to us for fulfillment. Another subsidiary, V2K Manufacturing, Inc. (“V2K Manufacturing”), manages our strategic alliances with “soft” window fashion vendors, who manufacture fabric treatments, such as drapes and curtains. “Hard” goods, such as blinds, cellular shades, and shutters, are sourced to third party vendors. All items are shipped directly from the manufacturer or vendor to the franchisee.

We intend to become the dominant company in the window décor and accessory market. We plan to accomplish this goal by:

·	introducing our exclusive, three-dimensional proprietary software technology into the industry’s sales channel and supply chain;

·	growing the business aggressively through the franchise business model and corporate license agreements;

·	controlling the industry’s distribution channel; and

·	acquiring hard product manufacturing capabilities to become vertically integrated.

Our long-term vision is to capture the majority of the home décor arena using our scalable, three-dimensional, graphic technology, allowing our sources of distribution to bring unique general economies of scale to flooring, wall coverings, art, and accessory furnishings, among others. In addition, we have license opportunities in related fields, such as the casement window industry, paint industry, and other industries in the building and design trade.

Our corporate offices, which include V2K International and all our subsidiaries, are located at 13949 W. Colfax Avenue, Suite 250, Lakewood, Colorado 80401, and our telephone number is (303) 202-1120.

Our Proprietary Software

We have developed proprietary software that enables the user to decorate interiors of homes and other buildings on a computer screen. By using the same type of graphics engine utilized by computer games, the user “sees” a three-dimensional image of a room, drawn to scale, on the computer screen. Window coverings and accessories can be placed in the room, allowing the user to see the end result of the decorating effort. Moreover, our software prices the items and prints the necessary purchase orders.

As our current emphasis is in window fashions, the software has been customized to enable the user to:

·	design virtually any window covering style to scale on a computer or digital TV screen;

·	adjust or redraw the window covering;

·	calculate the price of the window covering immediately; and

·	print a customer sales order for the window covering, as well as purchase orders for the vendors, production orders for the workroom, and installation instructions for the installer.

We believe that our software is unique and provides users with two distinct advantages:

Customers can see what the window coverings will look like on their windows before they buy. A sales agent can stay with the customer, showing the customer exactly what the window treatment will look like, to scale, and how much it will cost, until the customer finds a satisfactory style and a price.

·	The time-consuming calculation and paperwork commonly associated with the window covering business has been eliminated. With one keystroke and no additional data entry, the sales agent can create the purchase orders for the vendors and the production order for the workroom.

We plan to develop a web-based version of the software that will allow customers to design their own window coverings on the Internet, and a kiosk version of our technology to be used in big box stores. We also plan to expand the existing software to provide a variety of interior and exterior design functions. We have not established any timetables for these plans.

Current Application of Software

Franchisees go into the homes or businesses of prospective customers equipped with a laptop computer. In their vehicles are samples of fabrics that we offer. After measuring the windows and entering the data into the computer, the franchisee can then put the whole room, including the ceiling, floor, windows, and walls to scale in the computer. A window library resides in the software containing almost any shape or style of window that exists. The franchisee may then enter the colors and texture of the walls, floor and ceiling, as well as show the room under a variety of lighting conditions.

The franchisee then begins to decorate the window electronically on the screen in the desired style specified by the customer. The software contains a fabric library that the franchisee can retrieve to show on the window treatment. While the windows are being decorated on the screen, the software computes the sales price of the treatment, gross margin, and percent of profit to the franchisee. The customer can know immediately the sales price of each window treatment and the order as a whole. The franchisee can see the margins and percent of profit and adjust the sales price down if necessary in order to get the sale.

Once the customer sees a design and price that is acceptable, the franchisee can bring in an actual sample of the fabric for the customer to see and touch. The software generates a sales order for the customer to sign. The franchisee generally collects 50% of the total purchase price as a deposit. V2K offers 3-, 6- and 12-month, no-payment, deferred interest consumer financing plans through a national financial institution. We do not guarantee any financing of the franchisees.

With an order in hand, the franchisee can send the order to us electronically. One of our product specialists then reviews the order to make sure it conforms to the product being sold, and verifies the pricing. Upon approval

by a product specialist, the order is then broken down by vendor and the materials are ordered. The vendor then processes the order and ships the finished products directly to the franchisee. Upon receipt of the finished goods, the franchisee arranges for third party installation at the customer’s home or office.

The Interior Decorating Market

The U.S. market for interior décor, including window fashions, is fragmented in terms of competition and established distribution channels. For example, according to a market research report, Window Treatments and Wallcoverings, by Catalina Research, published January 1, 2004, soft product window fashion sales were distributed as follows:

·	discount or mass merchandising department stores – 27%

·	conventional and national chain department stores – 10.8%

·	window treatment stores – 15.3%

·	warehouse clubs – 9.5%

·	electronic, mail order and direct selling retailers – 6.4%

·	other home furnishing stores – 6.3%

·	home centers, other building material dealers – 6.2%

·	specialty floor covering retailers – 4.5%

·	family clothing stores – 4.3%

·	general merchandisers – 2.6%

·	paint and wallpaper stores – 2.1%

·	furniture stores – 1.5%

·	hardware stores – 0.9%

·	piece goods stores – 0.8%

·	other retailers – 1.8%

This fragmentation has limited the implementation of technology as a competitive component in the window fashion industry. The industry is not automated at the point of sale and industry participants have, up to now, relied on antiquated manual systems for selling and administrating window fashions, resulting in quality control errors and higher operating margins.

Typically, a sales agent, decorator, or designer goes to a potential customer’s home and attempts to sketch or draw a treatment in which the customer is interested. In the case of “hard” treatments involving non-fabric items, the agent uses a yellow pad and calculator to provide the customer an approximate price. This is a long and tedious process. If the customer objects to the price or wants to explore other alternatives, a different treatment is selected and the pricing process begins anew. In the case of “soft” treatments involving the use of fabric, the agent will most likely have to meet with the manager of a workroom in order to calculate yardage, width cuts, repeats, and a variety of other variables, before he or she can get back to the customer with a price. This process may take as many as 3 to 5 days. If the customer objects to the price, the agent must either discount the price or start the entire process over again. Once the customer decides on a treatment, the agent will literally spend hours writing purchase orders for the vendors, and in the case of soft treatments, production orders for the workroom. It is inevitable that mistakes are made along the way.

Franchise and Licensing Operations

We do not sell window fashions directly to the customer. Instead, we have chosen to grow our business by selling franchise and license agreements.

We started selling franchises in March 1997. As of September 30, 2008, we had 170 franchises, operating in 39 states, the Canadian provinces of Alberta, Nova Scotia, British Columbia and Aruba. Entrepreneur magazine rated us 50th in its Top 101 Homebased Franchises 2006 Rankings and 176th in its Franchise 500 2007 Rankings. Potential investors should not conclude from this preceding statement that the magazine is actively endorsing or promoting our company.

We sell franchise units based on a minimum territory size of 30,000 households. Franchisees may purchase one or more additional areas of primary responsibility if they are not in default under their franchise agreements, if the additional areas are available, and if we approve. Additional areas may have more or less than 30,000 households. We will determine the fee for each additional area at the time of purchase, but it will be less than the initial franchise fee. As of the date of this report, the current fee for each additional area is $1.05 per household, but we may change this fee at any time.

We also make available a Small Market Franchise, based on a territory size of up to 15,000 households, in sparsely populated areas where a territory of 30,000 households would be difficult to cover because of the distances involved.

We currently charge a franchise fee of $59,900 ($39,900 for a Small Market Franchise) for which the franchisee receives the following:

·	a laptop computer, portable printer, and carrying case

·	V2K’s proprietary software, including an exclusive price management program

·	non-proprietary software

·	samples of fabric, hard products and decorative hardware

·	starter set of printed materials, including business cards, stationery, and promotional materials

·	training manual, policy and procedure manual and marketing kit and

·	the exclusive right to advertise in a designated area.

We also provide basic training for up to two persons for each franchise. We reimburse the franchisee for travel expenses for one person (up to $300) and pay lodging expenses for one person to attend the training as part of the franchise fee. The franchisee is liable for meals, travel, and lodging expenses for any additional person(s).

In addition to the franchise fee, we require franchisees to pay a non-refundable continuing royalty based on a percentage of the franchise’s annual gross sales in each franchise year, according to the following schedule:

·	first $200,000 of gross sales – 8%

·	next $100,000 of gross sales – 7%

·	amount over $300,000 of gross sales – 4%

The first franchise year commences on the first day of the first full month following the franchisee’s satisfactory completion of basic training or on any other date we may designate. Each subsequent one-year period is another franchise year.

The monthly minimum royalty fee in the first franchise year is $250/month, $500/month in the second franchise year, and $1,000/month in each franchise year thereafter. In the case of a Small Market Franchise, the monthly minimum royalty fee is $125/month in the first year, $250/month in the second year, and $500/month in each year thereafter.

In addition, we require franchisees to pay us the following:

Type of Fee or Expense	Amount		Due Date	Remarks
National/Regional/Local Advertising Fund(1)	2% of total gross sales, which percentage may be increased by us to up to 5% of gross sales; subject to minimum monthly fees(2)		Payable every 30 days	We and/or our contractors administer the Fund for the benefit of our system.

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(1) These fees are imposed by and payable to us. These fees are non-refundable. Late payment interest of 18% may begin after the due date. We may impose a late fee of $25.00 if the franchisee does not submit reports to us within 3 days of the due date.

(2) The Minimum National/Regional/Local Advertising Fund Fees are $62.50 per month in the first year, $125 per month in the second year, and $250 per month thereafter (including all months in any renewal terms);

Type of Fee or Expense	Amount	Due Date	Remarks
Showroom participation(1)	Up to $150 per month	Monthly as billed	Note (3)
Central telephone service(1)	Varies(4)	Monthly as billed	If the franchise is located in a central telephone service area, as designated by us, the franchise must pay its proportionate share of the costs of maintaining the service.(4)
Basic training(5)	Varies – We estimate that the cost of travel, lodging and meals for each person attending Basic Training will range from $200 to $1,200. The actual cost for each person may be higher or lower depending upon the distance traveled, and the meals and lodging selected.	As incurred	No training fee is charged for up to two persons.(6) The training fee for additional persons will be determined by us. We reimburse the franchisee for travel for one person (up to $300), and for lodging expenses for one attendee. The franchisee pays the cost of meals for one attendee and pays all travel, lodging and meals expenses for any other attendees.
Mandatory meetings and additional mandatory training(5)	Varies – We estimate that the cost per person for travel, lodging and meals to attend a one-day meeting will be $20 to $600. The actual cost for each person may be higher or lower depending upon the distance traveled, the	As incurred	No more than 1 mandatory meeting/training program will be scheduled each year. No attendance fee is charged by us, but the franchisee pays the cost of travel, lodging and meals.(7)

______________________

except if the franchisee qualifies for, and pays, the Small Market Franchise fee, the Minimum National/Regional/Local Advertising Fund Fees are $31.25 per month in the first year, $62.50 per month in the second year, and $125 per month thereafter (including all months in any renewal terms). We may require franchises to participate in a regional advertising cooperative, in which case all or part of this fee will be paid to the cooperative. To date, participation has not been required. If a cooperative were to be established, the cooperative would determine the amount of the fee.

(3) Upon 30 days written notice, we may provide a showroom in the franchises’ metropolitan or regional area for the franchisee to show the products and services provided by the franchise. In that case, the franchisees will be billed for its pro-rata rental fee, not to exceed $150 per month.

(4) Central telephone service is available in some areas in some states. With central telephone service, one telephone number is used for all franchises in the service area. The provider’s software routes each call to the appropriate franchise based on the caller’s location. The fee imposed by the provider of this service is split among the franchises in the service area.

(5) Payable to third parties that provide goods or services to the franchise.

(6) The training fee for each additional person the franchisee sends to basic training at any time is $250.

(7) If a franchisee fails to attend a mandatory meeting that is designated by us as an annual meeting, we may, at our sole determination, require the franchisee to pay a $500 missed annual meeting fee, which fee will be due within 30 days of notice by us to the franchise.

Type of Fee or Expense	Amount	Due Date	Remarks
	meals and lodging selected, and the length of the meetings.
Optional training(1)(5)	Varies(8) - We estimate that the cost person for travel, lodging and meals to attend a one-day optional training program will be $20 to $600 (plus the program fee). The actual cost for each person may be higher or lower depending upon the distance traveled, the meals and lodging selected, and the length of the training program.	2 weeks prior to beginning of training	We may, but are not required to, offer optional training programs that the franchisee may attend.
Product sample updates	Varies(9)	As incurred	Note(9)
Technology fee(1)	$75 per month; subject to an annual increase at our sole determination, but not more than 10% per year.	Monthly, as billed. As of the date of this filing, we do not charge this fee, but may do so upon at least 30 days prior written notice to the franchisee.	This fee may be assessed by us for website and e-mail hosting by us, for future web-based system integration, and for other technology related services.
Transfer/training fee(1)	The transfer fee is $7,000 plus any brokerage commissions, finder’s fees or similar charges that we are required to pay to any third party that is not an affiliate of ours. The training fee is $1,000.(10)	Prior to completing the transfer	Payable upon transfer of the franchise. No charge if the franchisee transfers to a business entity that it controls.
Audit(1)	Cost of audit and underpayment amount, plus interest.	Immediately upon billing	Payable only if audit shows an understatement of at least 2% of gross sales for any month.
Credit/debit card authorization and administrative fee(1)	Varies – We charge 3% of the amount of the debit or credit.	As incurred	Note (11)

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(8) We will charge a fee for this training, which fee will depend on the training provided. The franchisee will also be responsible for paying for his/her travel, lodging, and meals.

(9) The amount can vary widely from one year to the next, but currently the amount is estimated to be from $600 to $1,000 per year. As of the date of this filing, all updates are optional, but we may in the future mandate that the franchisee purchase certain updates.

(10) The transferee pays all travel, food, and lodging expenses to attend training. However, if the transferee is an existing V2K franchisee who has successfully completed basic training, we may waive the requirement that the transferee pay this fee and attend basic training.

(11) If the franchisee is more than 10 days late for payment of any fees, we may, upon 48 hours notice to the franchisee by facsimile, activate a direct charge to the franchisee’s credit or debit card for the fee, and bill the franchisee for any costs incurred by us in administering this program.

Type of Fee or Expense	Amount	Due Date	Remarks
Insufficient funds fee(1)	Varies	As incurred	Note (12)
Insurance(5)	Varies – Insurance in Denver costs about $50 per month. The franchisee’s cost may be higher or lower, depending upon its location and the insurance carrier selected	Varies	Franchisee must obtain our approval of insurance carrier. We have appointed an approved carrier and established minimum required covered amounts.
Indemnification	Varies – The franchisee will pay the amount of the liability assessed against us plus the expenses incurred in defending us.	Varies	The franchisee must reimburse us for any liability and costs incurred by us by reason of the franchise or our operation of the business on the franchisee’s behalf.

Franchisees place all orders for products with us. We in turn place them with our vendors. Finished products are shipped to our franchisees, but billed to us, generally on terms of net 30 days. Terms of payment with our franchisees are net 15 days. We believe that this arrangement results in quality control of the products being sold to the customer and provides us with a way to monitor our franchisees’ operations. In addition, franchisees commencing business do not have to identify and establish accounts with product vendors.

We believe the advantages to our franchisees are the following:

·	Start-up costs are $40,170 - $82,300.

·	The franchisee does not have to have any industry-specific knowledge or prior experience.

·	We provide the franchisee with extensive training and support.

·	The franchisee has no inventory to purchase or maintain, nominal receivables, and minimal general and administrative expenses.

·	The franchisee receives a complete business start up package.

·	Our software product allows franchisees to set themselves apart from the way others in the industry do business. To the best of our knowledge and information there is no software product currently on the market that is comparable with that of V2K.

·	Our software product provides franchisees with a marketing advantage. Customers can determine what a treatment will look like on their windows before they purchase.

·	Our software product provides franchisees with a sales and closing advantage. Our franchisees can stay with a customer until that customer is satisfied. Our franchisees do not have to check back with a workroom to calculate pricing.

·	Our software product enables franchisees to administrate the sale of window treatments more efficiently and accurately than others in the industry.

Our management believes that it takes the average franchisee two years to establish its franchise business. At September 30, 2008, approximately 70% of our franchisees had been in business for two years or longer, as compared to September 30, 2007, at which approximately 65% of our franchisees had been in business for two years or longer. Our franchisee retention rates were 82% and 81% for the years ended September 30, 2008 and 2007, respectively.

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(12) If any check the franchisee sends to us is returned to us by a financial institution (or other entity), or if we cannot charge the franchisee’s credit or debit card for the full amount owed to us (in accordance with Note 11 above), because of insufficient funds, the account being closed or otherwise, we may charge the franchise a fee of the lesser of $20, or the highest rate permitted by applicable law.

We also propose to sell domestic and international license agreements for the use of our software to a limited number of major retailers who have shown interest in our system. It is envisioned that our license agreements will include a one-time license fee and a monthly royalty or user fee.

Manufacturing and Sourcing

Franchisees submit all purchase orders to us. We place the orders for the products with a number of third party vendors, including soft product manufacturers with whom we have development strategic alliances.

For the years ended September 30, 2008 and 2007, approximately 69% and 64%, respectively, of materials and supplies were acquired from three major vendors (Lafayette Venetian Blind, Inc., Krohn’s Coverings, Inc., and DSC Window Fashions, Inc.), with the largest vendor, Lafayette Venetian Blind, Inc., representing 38% and 35%, respectively of the total for each year. The related accounts payable to the largest vendor was approximately $291,131 as of September 30, 2008 and $311,704 as of September 30, 2007. We believe that if we were to lose any of these vendors, we could replace the vendor(s) with others who provide the same materials and supplies. However, we could incur disruption of processing orders from franchisees while transitioning from one vendor to another and this could negatively impact our business.

Research and Development

We incurred research and development expenses of $317,891 and $426,069 for the years ended September 30, 2008 and 2007, respectively.

Competition

We assess our competitive conditions as follows:

·	We compete against other companies that offer franchise opportunities. There are numerous franchise and business opportunities offered by others in all industries.

We compete against other companies in the window fashion industry and others offering window fashions. As described above, the market for window fashions is fragmented. We compete with many different types of retailers that sell many or most of the items sold by us, including department stores, mass merchandisers, mail order, specialty retail stores, and other retailers. In some cases these competitors have substantially greater financial and other resources than us, including, in some cases, more profitable retail economics or better name recognition.

Budget Blinds appears to be our closest competitor, in the sense that it is engaged in the window covering industry, and offers franchises. Also, a few other companies are starting to offer custom window treatments.

We are aware of three other companies that offer a software product having some of the functions of our proprietary software:

DreamDraper® by Evan Marsh Designs, Inc. is an application that a designer can use to create a visual two-dimensional representation. DreamDraper® comes with hundreds of static two-dimensional line drawing graphics of windows and window treatments. The designer can go to the catalog of two-dimensional line drawing pieces and manually create a representation of the window and window treatments utilizing the Microsoft PowerPoint application. DreamDraper® has no integrated pricing component. However, it did come out with a quick quote system recently, but the two systems are independent of each other.

Minutes Matter is very similar to DreamDraper® in that it is used by designers to create a representation of windows and window treatments. Minutes Matter does not rely on Microsoft PowerPoint, but has its own design environment. It has a catalog of hundreds of static two-dimensional line drawing pieces that the user chooses from and then manually assembles the window and window treatments. Minute Matters does not have a pricing component.

·	Solatech, Inc. has introduced a software product similar in some ways to V2K’s. Solatech is a two-dimensional photo rendering software that has very limited soft goods capability, with no scaling or visuals that represent what the product selection will look like in the customer’s home.

We cannot assure you that additional competitors will not enter our line of business. Increased competition by existing or future competitors, resulting in our having to reduce prices in an effort to gain or retain market share, could result in reductions in our sales and profitability, which could have a material adverse effect on our business and financial condition.

Government Regulation

To offer and sell franchises, we must comply with the rules and regulations of the Federal Trade Commission, as well as the laws of the states in which offers and sales are made. The Federal Trade Commission franchise rule requires that we furnish potential franchisees with written disclosures containing information about the franchised business, the franchise relationship, and us. We have made these disclosures by following the Uniform Franchise Offering Circular Guidelines prepared by state franchise law officials. We must provide a potential franchisee with the written disclosures upon the earlier of (1) the first personal meeting with the prospective purchaser; (2) ten business days before signing any binding agreement; or (3) ten business days before any payment to us.

The Federal Trade Commission does not review or approve any disclosures, advertising, or agreements. However, 15 states have franchise investment laws that require us to provide pre-sale disclosures. Of the 15 states, 13 treat the sale of a franchise like the sale of a security and generally prohibit the offer or sale of a franchise within their state until a franchise offering circular has been filed with, and registered by, the designated state agency. We estimate that the registration renewal fees to maintain compliance with such state laws costs us approximately $7,500 per year.

Trademarks and Copyrights

In November 2005, our subsidiary, V2K Window Fashions, filed an “actual use” application for the new principal trademark/service mark “V2K WINDOW DÉCOR & MORE and Design” (Ser. No. 76/649642). The trademark application process has been completed, and according to the United States Patent and Trademark Office, the registration will be issued in “due course.”

Our subsidiary, V2K Window Fashions, has registered our “V2K” logo with the United States Patent and Trademark office. The registration date is April 9, 2002, and our registration number is 2,559,601, for Computer Software and Business Services. We also registered the logo for Retail Store Services and Design for Others of Window Coverings and Treatments on March 29, 2005, registration number 2,935,943.

In January 2005, our subsidiary, V2K Window Fashions, filed a patent application with the U.S. Patent and Trademark Office for its three-dimensional, Décor Creator software technology, which application was subsequently assigned to another subsidiary, V2K Technology. The patent application is pending, and has been assigned Serial # 11/030445.

Our subsidiary, V2K Technology, claims a copyright in the Décor Creator software.

Employees

We had 16 full-time and 1 part-time employees as of September 30, 2008. None of our employees is covered by a collective bargaining agreement.

Item 1A. Risk Factors

We have incurred losses and cannot assure you of profitability. With the exception of net income of $69,195 for the year ended December 31, 2003, we have incurred net losses, including a loss of $986,279 for our most recently completed fiscal year. As of September 30, 2008, our accumulated deficit was $3,291,434. To date, we have not generated revenues sufficient to fund our business and pay our ongoing expenses. There can be no assurance that we will be profitable in the future.

We are dependent upon outside financing. We rely upon external sources of financing to fund future growth and the implementation of our business plan. Since our inception in July 1996, we have financed our operations through internally generated revenues, the sale of our stock and by borrowing from third parties and affiliates of our Company. While we believe that our cash flow will provide sufficient capital to maintain all current operations and to implement our short-term plans, which would require approximately $300,000, we will likely require external financing for our long-term plans for growth and the development of our business plan. We have not yet developed a budget or a timeframe within which to implement our long-term plans. Sources of external financing may include short-term loans, bank borrowings, joint ventures, and future debt and equity offerings. We do not know whether future financing will be available on acceptable terms, or at all. Any additional financing may result in dilution to our shareholders. Our failure to obtain external financing may have a material adverse effect on our ability to realize our long-term plans to expand the business.

Our current business plan is dependent upon our ability to sell franchises and to have successful franchisees. Our growth is dependent upon our continued ability to sell franchises. Our existing franchise base of approximately 170 is too small to produce enough royalty revenue and gross profit margin from sales of materials and supplies to support our operations. Under our business plan, we plan to sell 12 franchises in fiscal 2009 and 79 franchises in fiscal 2010. To be successful, we need to be able to identify suitable franchise candidates, provide them with adequate training, and manage competently the infrastructure to support the franchises. In addition, our franchisees must be successful in their business operations. If they are not successful, it will adversely impact our sales of franchises and we will not generate sufficient royalty income needed to operate.

We use franchise broker networks and Internet advertising to generate leads to identify suitable franchise candidates. If prospective candidates indicate a sufficient amount of interest, we encourage them to travel to our offices for a “discovery day” and reimburse them for $300 of airfare and one night of lodging. After our franchisees attend a two-week basic training program, which includes instruction pertaining to operating our proprietary software, product knowledge and design, business management and sales and marketing, we provide them with a 90-day “quick start” marketing program. We also assign a franchise support person to each new franchisee to follow-up on a franchisee’s progress.

We are affected by economic conditions and consumer trends. Our success will depend upon a number of factors relating to consumer spending, including future economic conditions affecting disposable consumer income, such as employment, business conditions, interest rates, and taxation. If existing economic conditions deteriorate, consumer spending may decline, thereby adversely affecting our business and results of operations.

We must be able to anticipate and respond to changing merchandise trends and consumer demands in a timely manner. If we should miscalculate consumers’ purchasing habits and tastes, we will not be able to compete against other window covering businesses.

We face competition from existing and potential competitors. We face substantial competition in the overall window covering industry, as well as competition from others offering franchises and business opportunities. Due to our small size, it can be assumed that most if not all of our competitors have significantly greater financial, technical, marketing and other competitive resources. Many of our competitors and potential competitors have greater name recognition and more extensive customer bases that could be leveraged, for example, to position themselves as being more experienced, having better products, and being more knowledgeable than us. To compete, we may be forced to offer lower prices and narrow our marketing focus, resulting in reduced revenues.

Our success and ability to compete depends upon our ability to secure and protect our proprietary technology. Our success depends on our ability to protect our proprietary technology. In the event that a third party misappropriates or infringes on our intellectual property, our business would be seriously harmed. Third parties may independently discover or invent competing technologies or reverse engineer our software. We expect that if we should successfully market franchises and licenses to use our software, competitors may attempt to duplicate our technology. While we have a pending patent application on the business process associated with our software, we would still have to enforce our rights against those who might attempt to infringe on our intellectual property. Such enforcement efforts are likely to be expensive and time-consuming.

The loss of our officers and directors or our failure to attract and retain additional personnel could adversely affect our business. Our success depends largely upon the efforts, abilities, and decision-making of our executive officers and directors. Although we believe that we maintain a core group sufficient for us to effectively conduct our operations, the loss of any of our key personnel could, to varying degrees, have an adverse effect on our operations and system development. We currently maintain “key-man” life insurance on Victor Yosha, our president/chief executive officer, and Mike Lee, the lead programmer of our technology subsidiary. However, there is no contract in place assuring their services for any length of time. The loss of either of them would have a material adverse affect on us. We do not have assurance that the services of any member of our management will remain available to us for any period of time, or that we will be able to enter into employment contracts with any of our management, or that any of our plans to reduce dependency upon key personnel will be successfully implemented.

The knowledge and expertise of our officers and directors are critical to our operations. There is no guarantee that we will be able to retain our current officers and directors, or be able to hire suitable replacements in the event that some or all of our current management leave our company. In the event that we should lose key members of our staff, or if we are unable to find suitable replacements, we may not be able to maintain our business and might have to cease operations, in which case you might lose all of your investment.

We use outside suppliers to fulfill the orders placed with us by our franchisees. Orders placed with us by our franchisees are filled by outside suppliers, with our three largest vendors constituting approximately 69% of materials and supplies for the year ended September 30, 2008. We have chosen to limit the number of suppliers that we use in order to obtain better pricing terms from them and to insure the quality of the products delivered to our franchisees’ customers. We believe that if we were to lose any of these vendors, we could replace the vendor(s) with others who provide the same materials and supplies. However, we could incur disruption of processing orders from franchisees while transitioning from one vendor to another and this could negatively impact our business.

A limited number of shareholders collectively own a majority of our common stock and may act, or prevent certain types of corporate actions, to the detriment of other shareholders. As of the date of this report, our directors, officers, and more than 10% shareholders own beneficially 70% of our common stock. Accordingly, these shareholders may, if they act together, exercise significant influence over all matters requiring shareholder approval, including the election of a majority of the directors and the determination of significant corporate actions. This concentration could also have the effect of delaying or preventing a change in control that could otherwise be beneficial to our shareholders.

Outstanding warrants may negatively impact our ability to obtain future financing. We have outstanding warrants to purchase 4,553,750 shares of common stock at $0.50 through September 30, 2009, outstanding warrants to purchase 1,000,000 shares of common stock at $0.30 through January 5, 2010, outstanding warrants to purchase 731,453 shares of common stock at $0.15 through September 30, 2010 and outstanding warrants to purchase 731,453 shares of common stock at $0.25 through September 30, 2011. As long as these warrants remain unexercised and outstanding, the terms under which we may be able to obtain additional capital financing may be adversely affected.

We have a substantial number of shares that may become freely tradable and could therefore result in a reduced market price. As of November 30, 2008, we had an aggregate of 31,467,336 shares of our common stock issued and outstanding, with 10,445,561 registered shares, currently owned by existing shareholders, freely tradable. In addition, we registered the resale of 1,000,000 shares issuable upon the exercise of warrants. The sale of a significant number of these shares in the public market may adversely affect prevailing market prices of our shares.

Our common stock is subject to penny stock regulation that may affect the liquidity for our common stock. Our common stock is subject to regulations of the Securities and Exchange Commission (“SEC”) relating to the market for penny stocks. These regulations generally require that a disclosure schedule explaining the penny stock market and the risks associated therewith be delivered to purchasers of penny stocks and impose various sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and accredited investors. The regulations applicable to penny stocks may severely affect the market liquidity for our common stock, as some brokers refrain from trades involving penny stocks to avoid the additional work to comply with these requirements. As a result, your ability to sell your securities in the secondary market could be limited.

Future equity transactions, including exercise of options or warrants, could result in dilution. From time to time, we intend to sell restricted stock, warrants, and convertible debt to investors in private placements. Because the stock will be restricted, the stock will likely be sold at a greater discount to market prices compared to a public stock offering, and the exercise price of the warrants is likely to be at or even lower than market prices. These transactions will cause dilution to existing shareholders. Also, from time to time, options will be issued to officers, directors, or employees, with exercise prices equal to the then prevailing market price. As of September 30, 2008, 28,225,660 options that had been granted to officers, directors and employees were outstanding. Exercise of in-the-money options and warrants will result in dilution to existing shareholders. The amount of dilution will depend on the spread between the market and exercise price, and the number of shares involved.

Trading in our common stock may be limited thereby making it more difficult for investors to resell their shares of our common stock. Our common stock is quoted on the OTC Bulletin Board. The OTC Bulletin Board is not an exchange and, because trading of securities on the OTC Bulletin Board is often more sporadic than the trading of securities listed on an exchange or NASDAQ, you may have difficulty reselling any of the shares that you purchase from the selling shareholders.

Item 1B. Unresolved Staff Comments

Not applicable.

Item 2. Properties

Facilities

Our principal offices are located at 13949 W. Colfax Avenue, Suite 250, Lakewood, Colorado 80401. We lease approximately 10,800 square feet under a five and half year lease that commenced August 1, 2007.

Item 3. Legal Proceedings

There are no legal proceedings pending and, to the best of our knowledge, there are no legal proceedings contemplated or threatened that are deemed material to us or our business.

Item 4. Submission of Matters to a Vote of Security Holders

None.

PART II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is currently quoted on the OTC Bulletin Board (“OTCBB”)” under the symbol “VTOK.” The trading symbol often appears as “VTOK.OB” in quotation requests on the Internet. Priced quotations for our stock were not entered until November 2007. The following table sets forth the range of high and low bid quotations for each fiscal quarter for the fiscal year ended September 30, 2008. These quotations reflect inter-dealer prices without retail mark-up, markdown, or commissions and may not necessarily represent actual transactions.

	Bid Prices ($)
	High	Low
2008 Fiscal Year:
December 31, 2007	$0.50	$0.19
March 31, 2008	$0.42	$0.15
June 30, 2008	$0.32	$0.10
September 30, 2008	$0.23	$0.03

On December 19, 2008, the closing bid price for the common stock on the OTCBB was $0.004 per share.

Holders and Dividends

As of December 16, 2008, there were 79 record holders of our common stock. To date, we have not declared or paid any dividends on our common stock. We do not intend to declare or pay any dividends on our common stock in the foreseeable future, but rather to retain any earnings to finance the growth of our business. Any future determination to pay dividends will be at the discretion of our board of directors and will depend on our results of operations, financial condition, contractual and legal restrictions and other factors the board of directors deems relevant

Recent Sales of Unregistered Securities

During the quarter ended September 30, 2008, we authorized the issuance of 731,453 common stock purchase warrants exercisable at $0.15 each through September 30, 2010, and 731,453 common stock purchase warrants exercisable at $0.25 each through September 30, 2011. No underwriters were used in the above stock transactions. The registrant relied upon the exemption from registration contained in Section 4(2) as to the transactions, as the investors were either deemed to be sophisticated with respect to the investment in the securities due to their financial condition and involvement in the registrant’s business or accredited investors.

Item 6. Selected Financial Data

Not required.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the financial statements and the related notes included in this annual report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ significantly from those projected in the forward-looking statements as a result of many factors, including those discussed in “Risk Factors,” “Business” and elsewhere in this report.

History and Overview

V2K International, Inc. (“International”) was incorporated as a Colorado corporation on March 13, 2006. Through our wholly owned subsidiaries, V2K Window Fashions, Inc., V2K Technology, Inc., V2K Manufacturing, Inc., and Marketing Source International, LLC, we sell and support franchises in the residential and commercial window fashion industry, develop and license proprietary software that allows users to decorate windows for both residential and commercial customers, manage strategic alliances with third party vendors and act as a product development and sales agent for overseas window covering manufacturers.

Details of the Company’s subsidiaries as of September 30, 2008 are described below:

Entity name	Place of incorporation and legal entity	Principal activities	Effective interest held
V2K Window Fashions, Inc.	Colorado corporation	Franchise sales and support	100%
V2K Technology, Inc.	Colorado corporation	Development and licensing of software	100%
V2K Manufacturing, Inc.	Colorado corporation	Management of soft window covering vendors	100%
Marketing Source International, LLC	Colorado limited liability company	Product development and sales agent for overseas window covering manufacturers	100%

In April 2006, in a share for share exchange, we acquired all issued and outstanding shares of V2K Window Fashion’s preferred and common stock in exchange for shares of common stock in V2K International on a 1 for 35 basis and 1 for 10 basis, respectively.

In August 2006, V2K Window Fashions opened its first company-owned franchise location, incorporated as Window Fashions Franchise LLC. In July 2007, V2K Window Fashions sold 100% of its ownership interest in Window Fashions Franchise LLC to a third party. Window Fashions Franchise LLC had been a wholly owned subsidiary of V2K Window Fashions.

In April 2006, V2K Window Fashions transferred legal ownership of V2K Manufacturing and the related equity interest to V2K International. V2K Window Fashions had acquired V2K Manufacturing in January 2004. In October 2007, we sold the inventory and fixed assets of V2K Manufacturing to a third party. V2K Manufacturing continues to act as the primary supplier of soft window treatments to V2K Window Fashions and its franchisees, but does so by managing strategic alliances with several outside vendors.

In July 2006, in order to further protect the intellectual property associated with the software and to facilitate future licensing agreements, the software and software development team formerly held by V2K Window Fashions were spun-off to form V2K Technology. V2K Technology became a wholly owned subsidiary of V2K International and licenses a customized window fashions franchise software to V2K Window Fashions.

In April 2007, we organized Marketing Source International LLC, a Colorado limited liability company. This company will endeavor to generate revenues by acting as a product development and sales agent for overseas window coverings manufacturers. Marketing Source International LLC has engaged in only preliminary discussions as of the date of this filing.

As of the date of this filing, V2K Window Fashions is our primary operating subsidiary, making franchising our primary operations. V2K Window Fashions was incorporated in July 1996 to offer licenses to use the “Pictures and Prices” software, which had been developed by an affiliated company, Pictures and Prices

Corporation. The assets of Pictures and Prices Corporation were later transferred to us in 1999. We packaged the software license with our training manuals, policies, procedures, and knowledge and began selling franchises in March 1997. After obtaining a core group of franchises in 1998, we focused our efforts on building our infrastructure to provide support to our franchises, refining our business model, and developing our business plan.

Since our inception through September 30, 2008, in order to fund the development of our proprietary software and to develop our franchising operations, we have obtained approximately $3,338,086 from: debt subsequently converted to equity ($842,000), including amounts contributed by our officers and directors ($667,000); the sale of stock ($1,514,633); and current outstanding loans ($981,453). We believe that our real value lies in our software. However, that value is not reflected in our financial statements due to accounting policies (discussed below) pertaining to research and development costs. We believe that our software has now been developed to the point where it can be used for a variety of niches within the home décor industry.

Critical Accounting Policies

Franchise Operations - Overview. Franchisees are required to pay the Company an initial franchise fee, royalty fees aggregating between 4% and 8% of gross sales and an advertising contribution fee of 2% of gross sales. In addition, all materials and goods sold by franchisees are processed, billed and collected through the Company using approved vendors and suppliers.

As of September 30, 2008, we supported 170 independently owned franchises located in 39 states, three Canadian provinces and Aruba. A summary of franchise activity is as follows:

	September 30, 2008			September 30, 2007
Franchises in operation - beginning of period		182			182
Franchises sold during the period		19			34
Franchises cancelled, terminated or repurchased during the period		(31	)		(34	)
Franchises in operation - end of period		170			182

Franchise Operations - Reacquired Franchise Rights. We occasionally reacquire the rights to a franchise territory. When this occurs we contract with the franchisee to reacquire the territory for a specified amount that can consist of cash, a note payable, and/or forgiveness of debt. While these territories provide benefits to the Company, they lack physical substance, thus, under Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets”, we record reacquired franchise rights as intangible assets at fair value. Fair value is established as the total amount of consideration that changed hands, not to exceed the estimated resale amount of the territory less all related costs of sales. We have concluded that reacquired territories have indeterminate lives, so the resulting intangible assets are not amortized. When reacquired territories are resold, the intangible assets are offset against the cost of the sale, and the related carrying value is reduced. We assess impairment of intangible assets on an annual basis. If any impairment is found, the carrying amount of the asset is written down to the fair value. In the years ended September 30, 2008 and 2007 we reacquired franchise rights from two and three franchisees, respectively.

Franchise Operations - Repossessed Franchises. We have the right to repossess (cancel) franchises. When this occurs we cancel a franchise agreement and take the franchise territory back from the franchisee. We cancel franchises for failure to abide by the terms and conditions of franchise agreements, and for failure to meet minimum performance standards pursuant to franchise agreements. Occasionally, franchises voluntarily surrender their territories. No consideration is exchanged in these situations, and none of the franchise fee is refunded, thus under SFAS No. 45, “Accounting for Franchise Fee Revenue,” no fair value is assigned to these transactions. In the years ended September 30, 2008 and September 30, 2007, we repossessed 29 and 31 franchises, respectively.

Revenue Recognition. Initial franchise fees are recognized as revenue upon the commencement of operations by the franchisee, which is when we have performed substantially all initial services required by the franchise agreement. Unearned income represents franchise fees received for which we have not yet performed all

of our initial obligations under the franchise agreement. Such obligations, consisting mostly of training, are generally fulfilled within 60 days of receipt of the initial franchise fee. Royalties and advertising fees are recognized as earned.

Franchisees place all orders for materials and supplies with us. We review each proposed purchase order to determine whether the products can be made as requested, make any necessary changes, and then place the corresponding orders with our vendors. Accordingly, we determine all product specifications. While the products are shipped directly to the franchisees by the vendors, we receive title to the shipped items and have the physical risk of loss upon shipment. We are liable to the vendors for payment and collect the amounts due for the goods from the franchisees. We negotiate all pricing with the vendors and have the ability to establish rebate programs with vendors, mark-ups or any other method of creating margin. In addition, we are responsible to the franchisees for goods shipped by the vendors that do not meet specifications. We have discretion in supplier selection. Thus, we act as a principal as defined in the Emerging Issues Task Force, Issue 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent.” Revenue from materials and supplies sales is recorded upon shipment to the franchisee by the vendor and represented approximately 73% and 65% of total revenue for the years ended September 30, 2008 and 2007, respectively.

Intangible Asset Impairment. Intangible assets consist of reacquired franchise rights from the repurchase of franchise territories. We have determined that reacquired franchise rights have indefinite lives and are not subject to amortization. Intangible assets with indefinite lives are reviewed for impairment annually or more frequently if events or circumstances indicate the carrying amount of the assets may be impaired. As of September 30, 2008, no impairment has been recorded.

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 reported amounts of revenues and expenses during the reporting period. At this time, our operations are such that there are two primary areas of estimates and assumptions that could potentially have a material impact to the financial statements if significantly miscalculated. These areas are the allowance for doubtful accounts and share-based compensation.

Allowance for Bad Debts. The allowance for doubtful accounts incorporates protection against write-offs for bad debt with respect to both notes receivable and accounts receivable. This allowance is calculated based on historical write-offs as a percentage of these accounts and from current analysis of our existing franchise base. We believe that the current allowance is adequate for these potential write-offs based on these assumptions. This account is reviewed monthly and adjusted as needed. At September 30, 2008 and 2007, allowance for doubtful accounts receivable was $41,483 and $40,057, respectively. The allowance for uncollectible notes receivable was $20,234 and $27,574 as of September 30, 2008 and September 30, 2007, respectively.

The potential risk of these estimates can be material to the financial statements, because the receivables are the largest assets on the balance sheet. If we were to incur adjustments for write-offs that were not covered under the allowance it would be posted through operating expenses, and the offset would reduce the related receivables balance on the balance sheet. Based on the average receivable balances for the last 24 months, if the estimate was significantly miscalculated it could have a negative impact of $50,000 to $100,000 to the financial statements. We believe based on our knowledge and ongoing review that the risk of miscalculating to this level is low, barring any unforeseen economic downturn.

Share-based Compensation. Share-based compensation involves calculating the value of stock options granted under our stock option plan, following calculation methods prescribed by SFAS 123R. We use the Black-Scholes stock option pricing model, which requires assumptions for expected option life, a risk-free interest rate, dividend yield, and volatility. Expected option life represents the period of time that options granted are expected to be outstanding, the risk-free interest rate is based on the U.S. Treasury market, and volatility is derived from trading prices of the stock of a peer company. For the years ended September 30, 2008 and 2007, share-based compensation was $83,057 and $237,000, respectively. Share-based compensation is included in selling, general and administrative expenses as an operating expense and therefore has a significant impact on results of operations.

Variable Interest Entities. The Financial Accounting Standards Board (“FASB”) issued Interpretation 46 (revised 2003), “Consolidation of Variable Interest Entities” and requires the primary beneficiary of a variable interest entity to consolidate that entity. The primary beneficiary of a variable interest entity is the party that absorbs a majority of the variable interest entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, because of ownership, contractual or other financial interests in the entity.

The primary entities in which we possess a variable interest are franchise entities, which operate our franchised window fashions retail operations. We do not possess any ownership interests in franchise entities, other than one wholly-owned franchise which we owned and consolidated until its sale in July 2007 (see Item 6 – History and Overview). We do not generally provide financial support to the franchisees. Management has reviewed the franchise entities and determined that, other than the former 100% owned franchise, we are not the primary beneficiary of the entities, and therefore, these entities have not been consolidated

Results of Operations

At this point in our development, our results of operations are impacted primarily by the sales of franchises, as our existing franchise base is too small to generate enough royalty revenue and gross profit margin from sales of materials and supplies to support our operations. While revenues from sales of material and supplies comprise 73% and 65% of total revenues for the years ended September 30, 2008 and September 30, 2007, respectively, the margin on these sales averages approximately 4-6%. We limit our mark-up to our franchisees so that they can be competitive in quoting prices to customers and also operate profitably.

Year Ended September 30, 2008 as Compared to Year Ended September 30, 2007. Our sales of franchises revenues decreased by $997,095(49%) primarily due to selling 19 franchises for the year ended September 30, 2008, as compared to 34 for the year ended September 30, 2007. Our margin on sales of franchises was 39% for 2008, as compared to 44% for 2007. The most significant component of cost of franchise sales is the selling commission. If we obtain the sale of a franchise through the assistance of a broker, we pay a commission equal to 40% of the franchise purchase price, with an additional 7.2% commission paid to our in-house sales personnel. If we obtain the sale of a franchise without the assistance of a broker, we pay a 12% commission to our in-house sales personnel. Approximately 85% of our sales of franchises are generated through brokers. Other components of cost of franchise sales are the costs of training that we provide (such as lodging and travel expenses), equipment provided to the franchisee (laptop computer, printer and carrying case), books of fabric samples, and starter sets of marketing materials. The decrease in margin on the sale of franchise units in 2008 was primarily the result of additional items we provided to new franchisees during the 2008 fiscal year. These items included a business coaching program provided by a third party, an increased allotment of start-up marketing materials, reimbursement of the franchisees’ marketing budget up to a certain amount and additional broker bonuses for multiple deals in a certain period of time. There were also incremental increases in the cost of the other items we have always provided in conjunction with the purchase of a franchise. The additional items were provided on a test basis and may not be continued through the current fiscal year.

In 2008, royalty fees and sales of materials and supplies decreased by $216,925 (26%) and $870,865 (16%), respectively. We believe that the decrease is due to the general slowdown in the economy, especially with respect to the downturn in the housing market, and our efforts to eliminate under-performing franchises from the system. The 31 franchises that we cancelled, repurchased or who left the system voluntarily, were replaced by newer franchises that will increase their revenue generation over time.

While our revenues decreased by $2,084,885 (25%), our operating expenses decreased by $2,195,436 (23%), resulting in the operating loss of $954,466 in 2008.

Selling, general and administrative expenses decreased by $650,732 (25%), primarily due to a reduction of $154,000 in stock compensation expense, $253,000 in personnel costs, $73,000 in advertising, approximately $210,000 reduction in personnel and overhead due to sale of Manufacturing assets, $24,000 in travel and entertainment, $25,000 in training, $15,000 in meals and entertainment. All of these reductions were partially offset by an increase of $177,000 in marketing and promotional expenses at V2K International. Research and development costs were $317,891 in 2008, compared to $426,069 in 2007. Bad debt expense decreased by $25,231 (28%) in 2008.

Interest expense increased by $36,011 (178%) in 2008, primarily due to $731,453 in bridge loans and an additional $150,000 in draws on the line of credit. Interest accrued or paid on the bridge loans was $30,399 for 2008, compared to $8,167 for 2007.

As a result of the above, our net loss for the year ended September 30, 2008 was $986,279, as compared to a net loss of $1,014,351 for the year ended September 30, 2007, a decrease in the net loss of $28,072.

Liquidity and Financial Condition

We have incurred negative operating cash flows, operating losses, and negative working capital. We have relied upon sales of our common stock and borrowing in the form of bridge loans and convertible debentures to address our liquidity needs. To a lesser extent, we have also used bank financing.

Some of the key components to our operating cash flows are the changes in accounts receivable and accounts payable. As we are essentially a product distributor, our level of activity is reflected in our accounts receivable and accounts payable. We receive invoices from vendors for product and simultaneously bill our franchisees. The Days Sales Outstanding (“DSO”) as of September 30, 2008 and September 30, 2007 was 36 days and 29 days, respectively. We believe that the increase is primarily due to the economic slowdown, and delayed payments on a few large projects requiring remakes that have since been resolved and collected.

At September 30, 2008. At September 30, 2008, we had a working capital deficit of $1,151,926 as compared to a deficiency of $366,059 at September 30, 2007. While our current assets decreased by $210,695, our current liabilities increased by $575,172. The most significant decreases in current assets were with respect to notes receivable, which decreased by $79,696, and cash, both non-restricted and restricted, which decreased by a total of $234,528. The decrease in cash was due to our operating loss.

The most significant increases in current liabilities were as a result of an increase in bridge loan of $731,453, and an increase of $150,000 on the line of credit. These increases were partially offset by a reduction in accounts payable and accrued expenses of $178,453, $75,206 in note payable-other, and $81,247 in unearned income.

Unearned income, which represents franchise fees received for which we are performing our initial obligations under the franchise agreement, decreased by $81,247 from September 30, 2007. Our primary obligation under the franchise agreement is providing training for two persons for each franchise. We reimburse the franchisee for travel (up to $400) and pay lodging expenses for one person to attend the training as part of the franchise fee. At the training, the franchisee receives equipment (a laptop computer, portable printer and carrying case), software (both V2K’s proprietary software and non-proprietary software such as Microsoft Office and QuickBooks), manuals (training, as well as policy and procedure), and an electronic marketing kit. Samples of fabric and hard products and a starter set of printed materials (business cards, stationery and promotional materials) are shipped to the franchisee when training occurs. Accordingly, since we perform substantially all initial obligations required by the franchise agreement once training is completed, we recognize initial franchise fees as revenues at that time.

Note payable – other decreased by $75,206 from September 30, 2007. This note consists of the currently deferred portion of our rent obligation under an office lease entered into effective September 15, 2002. Under the terms of the lease, the landlord deferred a portion of the monthly rent aggregating $140,000 over the period from September 15, 2002 to August 15, 2007. The deferred portion is evidenced by a non-interest bearing promissory note, which is payable in cash or shares of our common stock at the option of the landlord. We accrete the deferred portion of the monthly rent utilizing an imputed interest rate of 5.75%. The balance at September 30, 2008 of $34,005 represents the remaining deferral and related imputed interest.

For the year ended September 30, 2008, we used cash of $996,205 for operating activities, as compared to $571,722 for the year ended September 30, 2007. Financing activities provided cash of $771,816 in 2008, primarily through proceeds from bridge loans and proceeds from a line of credit in the amounts of $731,453 and $150,000, respectively. In comparison, financing activities in 2007 provided cash of $435,783, $371,608 from the sale of common stock and $100,000 from line of credit.

Contractual Obligations

As of September 30, 2008, we had the following contractual obligations:

Contractual obligations	Payments due by period
Contractual obligations	Total	Less than 1 year	2-3 years	3-5 years	More than 5 years
Deferred rent	$163,346	$ 28,786	$ 73,860	$ 60,700	--
Capital lease obligations	3,796	3,796	--	--	--
Office lease obligations	783,515	162,837	369,157	251,521	--
Equipment lease obligations	27,526	7,260	14,520	5,746	--
Total	$978,183	$202,679	$457,537	$317,967	--

Plan of Operations

We have recently completed a company-wide cost reduction program that we estimate will result in a monthly reduction of an additional $43,000 in expenses, operating losses and increased revenues once the full effect of these measures is felt in January of 2009.

In October 2007, we sold the inventory and fixed assets of V2K Manufacturing to a third party. This has resulted in a reduction of approximately $15,000 in consolidated monthly net operating losses and approximately $13,000 per month in negative cash flow, and we anticipate this reduction for all of fiscal 2009. V2K Manufacturing continues to act as the primary supplier of soft window treatments to Windows and its franchisees, but does so by managing strategic alliances with outside vendors. We remain committed to the concept of becoming a vertically integrated company by reacquiring soft product manufacturing capabilities, and acquiring or merging with a manufacturer of hard products.

We have also decreased the monthly operating expenses at V2K Technology by approximately $3,000 per month, through salary reductions and a reduction in personnel. In addition, since the version of the software for custom window treatments that is licensed to V2K Window Fashions is now complete, the costs associated with maintaining that system should incrementally decrease. We will continue to pursue licensing opportunities with synergistic manufacturers, distributors and retailers in the commercial and home décor markets, and will propose that any license agreements we enter into will include an upfront fee for software customization. We anticipate that development of new platforms for our technology, primarily an e-commerce/web based version of the software and a kiosk application, will not commence until fiscal 2009.

At V2K Window Fashions we have further reduced our monthly operating expenses by approximately $40,000, primarily via reductions in personnel, overhead and scaling back some of the items we provide in conjunction with the purchase of V2K franchise. We do not believe that this will impair our ability to sell franchises. Beginning in fiscal 2007, we also commenced a process of eliminating under-performing franchisees from our system, which will in turn lead to a reduction in our costs to maintain that system. This process will continue in fiscal 2009.

We believe that our quickest path to profitability is retail sales, and thus our primary focus in fiscal 2009 will be on improving our lead generation for franchisees via kiosks in high traffic locations, and additional internet lead generating sources such as search engine optimization (SEO) and pay per click. In utilizing these additional techniques and reducing our overhead we believe that the consolidated entity will break even on a monthly basis beginning in January 2009.

Based on the cost reductions outlined above, and assuming we meet our projected results for both retail and franchise sales and maintain our current DSO on accounts receivable of 36 or fewer days, we anticipate that the company will have positive cash flow starting in January 2009.

Recently Issued Accounting Pronouncements

EITF No. 03-6-1 – In June 2008, the FASB issued Staff Position No. EITF 03-6-1 (“EITF No. 03-6-1”), Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities. EITF No. 03-6-1 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting, and therefore, need to be included in the earnings allocation in calculating earnings per share under the two-class method described in Statement of Financial Accounting Standards No. 128, Earnings per Share. EITF No. 03-6-1 requires companies to treat unvested share-based payment awards that have non-forfeitable rights to dividend or dividend equivalents as a separate class of securities in calculating earnings per share. EITF No. 03-6-1 is effective for fiscal years beginning after December 15, 2008. We are currently assessing the potential effect of EITF No. 03-6-1 on our financial statements

SFAS No. 162 – In May 2008, the FASB issued Statement of Financial Accounting Standards No. 162 (“SFAS No. 162”), The Hierarchy of Generally Accepted Accounting Principles. SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States. SFAS No. 162 will become effective 60 days following Securities and Exchange Commission (“SEC”) approval of the Public Company Accounting Oversight Board (“PCAOB”) amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. We do not anticipate the adoption of SFAS No. 162 to have a material impact on our financial statements.

FSP No. 142-3 – In April 2008, the FASB issued Staff Position No. 142-3 (“FSP No. 142-3”), Determination of the Useful Life of Intangible Assets. FSP No. 142-3 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 Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets. The FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. We are currently assessing the potential effect of FSP No. 142-3 on our financial statements.

SFAS No. 161 – In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161 (“SFAS No. 161”), Disclosures about Derivative Instruments and Hedging Activities. SFAS No. 161 amends and expands the disclosure requirements of SFAS No. 133, Accounting for Derivative Instruments and Hedging. SFAS No. 161 is effective for fiscal years beginning after November 15, 2008. We believe that the adoption of this standard will not a have a material impact on our financial statements.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Not required.

Item 8. Financial Statements and Supplementary Data

See the pages beginning with F-1.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

On October 28, 2008, we appointed Cordovano and Honeck, LLP (“Cordovano”) as our registered independent public accountant for the fiscal year ended September 30, 2008. On October 28, 2008, we dismissed Gordon, Hughes & Banks, LLP (“GH&B”) as our registered independent public accountant. The decisions to appoint Cordovano and dismiss GH&B were approved by our Board of Directors on October 28, 2008.

During the fiscal years ended September 30, 2007 and 2006 and through the subsequent interim period up through the date of dismissal (October 28, 2008), there were no disagreements with GH&B on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of GH&B, would have caused GH&B to make reference thereto in its report on our financial statements for such years. Further, there were no reportable events as described in Item 304(a)(1)(v) of Regulation S-K occurring within our two most recent fiscal years and the subsequent interim period up through the date of dismissal (October 28, 2008).

During our two most recent fiscal years and the subsequent interim period up through the date of engagement of Cordovano (October 28, 2008), neither we nor anyone on our behalf consulted Cordovano regarding the application of accounting principles to a specific completed or contemplated transaction, the type of audit opinion that might be rendered on our financial statements, or any matter that was either the subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K) or a reportable event as described in Item 304(a)(1)(v) of Regulation S-K. Further, Cordovano did not provide us with written or oral advice that was an important factor that we considered in reaching a decision as to any accounting, auditing or financial reporting issues.

We provided a copy of the foregoing disclosures to GH&B prior to the date of the filing of our report on Form 8-K and requested that GH&B furnish us with a letter addressed to the Securities and Exchange Commission stating whether or not it agreed with the statements in this disclosure. A copy of the letter furnished in response to that request was filed as Exhibit 16.1 to the Form 8-K filed November 3, 2008.

Item 9A. Controls and Procedures

Disclosure Controls and Procedures

Disclosure controls and procedures, as defined in Rule 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), are our 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 SEC’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 or submit under the Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Rule 15d-15 under the Exchange Act, requires us to carry out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2008, being the date of our most recently completed fiscal year end. This evaluation was implemented under the supervision and with the participation of our President and Chief Executive Officer, Victor J. Yosha, and the Chief Financial Officer, Jerry A. Kukuchka. Based on this evaluation, these officers have concluded that the design and operation of our disclosure controls and procedures are effective.

Management’s Annual Report on Internal Control Over Financial Reporting

Our board of directors and audit committee are responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of our consolidated financial statements for external purposes in accordance with generally accepted accounting principles.

Our President and Chief Executive Officer, Victor J. Yosha, and our Chief Financial Officer, Jerry A. Kukuchka, have completed their assessments of the effectiveness of our internal control over financial reporting (as defined in Rule 15d-(f) promulgated under the Exchange Act) as of September 30, 2008, and therefore, are able to assert that, as of September 30, 2008, our internal control over financial reporting is effective based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). It should be noted that a control system, no matter how well conceived or operated, can only provide reasonable assurance, not absolute assurance, that the objectives of the control system are met.

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this annual report.

Changes in Internal Control over Financial Reporting

During the period covered by this annual report, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

None.

PART III

Item 10.

Directors, Executive Officers and Corporate Governance

Our officers, directors and key employees are as follows:

Name	Age	Position
Victor J. Yosha	62	President, Chief Executive Officer, and Director
Gordon E. Beckstead	71	Chairman of the Board of Directors and Treasurer
Samuel Smith	42	Vice President
Jerry A. Kukuchka	41	Chief Financial Officer
R. J. Wittenbrink	72	Secretary, General Counsel and Director
Tom Grimm	62	Director
Carlyle Griffin	63	Director
Douglas A. Miller	58	Director

The term of office of each director ends at the next annual meeting of our shareholders or when such director’s successor is elected and qualifies. The term of office of each officer ends at the next annual meeting of our board of directors, expected to take place immediately after the next annual meeting of shareholders, or when such officer’s successor is elected and qualifies. Our last annual meeting of shareholders was held on February 20, 2008 in Lakewood, Colorado. We have not made any changes to the procedures by which shareholders may recommend nominees to our board of directors.

Victor J. Yosha has been our president and chief executive officer and a director since the inception of V2K Window Fashions in July 1996. From 1994 to 1999, Mr. Yosha served initially as a consultant to, and later as the chief executive officer of, Pictures and Prices Corporation, a private corporation owned and controlled by Robert and Lynda Leo. Pictures and Prices Corporation developed and distributed proprietary software technology for the window fashion industry. From 1988 to 1994, Mr. Yosha and was president and chairman of Seattle Office Systems, Inc., a company which he co-founded to sell and service office equipment. Seattle Office Systems eventually grew to 80 employees with revenues in excess of $6,000,000 annually and was sold to a company now known as Danka Business Systems PLC. In 1970, Mr. Yosha co-founded American Office Equipment Company, Denver, Colorado, which sold and serviced office equipment. He was president of that company until 1987. That company eventually grew to 300 employees with annual revenues in excess of $25,000,000 and was one of the largest distributors of Minolta Copier products in the world.

Gordon E. Beckstead has been our chairman of the board of directors since May 2001. He has been a business consultant since December 1984, providing financing and management advice. From June 1984 to December 1986, Mr. Beckstead was the chairman of ATE, Inc., a long distance reseller based in Las Vegas, Nevada, with operations in Nevada, Idaho, Washington, and California. In addition, he was a director of Citizens National Bank of Boise, Idaho, from April 1981 to December 1986. From 1977 to 1984, Mr. Beckstead was a partner in an accounting firm which he founded. Prior to 1977 he was a partner in the international accounting firm then known as Deloitte Haskins & Sells. He received a bachelor’s degree from Utah State University in 1959.

Samuel Smith has been our executive vice president and chief operating officer since February 2008. From March 2006 to February 2008 he was our vice president. From November 2001 to March 2006, he was our chief financial officer. Mr. Smith came to us in November 2001 from the Horizons Real Estate Group, where he concentrated on brokering commercial loans, strategic planning, and website development. From 1997 to 2000, Mr. Smith owned and operated a small business consulting firm that specialized in writing business plans and financing proposals for start-up entities. Mr. Smith received his bachelor’s degrees in economics and political science from Middlebury College in 1988, and an MBA from the Johnson Graduate School of Management at Cornell University in 1996.

Jerry A. Kukuchka, CPA, became our chief financial officer in March 2006. From August 2004 to January 2006, he was the director of accounting for LMC Resources, Inc., Denver, Colorado, a human resources outsourcing company with approximately 4,000 employees in 35 states. Mr. Kukuchka provided consulting services in the areas of accounting and internal control documentation as an independent contractor from March 2004 to August 2004. From June 1998 to February 2004, he was the VP Finance for PW Eagle (formerly Extrusion Technologies, Inc.),

Denver, Colorado, where he was responsible for all financial reporting functions, budgeting, forecasting, and tax compliance requirements for a PVC pipe manufacturer with 3 plants and 300 employees. He was the regional controller for Pinon Management, Inc., Lakewood, Colorado, from February 1997 to March 1998. This company operated four nursing homes in the Denver area and had over 300 employees. Mr. Kukuchka worked for a Denver area public accounting firm from October 1992 to June 1996. He is a member of the Colorado Society of Certified Public Accountants and graduated from Metropolitan State College in 1989 with a bachelor’s degree in accounting.

R. J. Wittenbrink has been our secretary and general counsel since our inception and a director since April 1997. Mr. Wittenbrink has been practicing law in the Denver, Colorado area since 1963. During the last 25 years, he has concentrated both as an attorney and principal in the formation and operation of small business and real estate development. Mr. Wittenbrink received a bachelor’s degree from St. Louis University in 1959 and a juris doctor law degree from the University of Denver in 1963.

Tom Grimm has been a director since March 2006, and the owner of a V2K Window Fashions franchise since May 2004. Mr. Grimm currently sits on the Board of Directors of Naartjie children’s clothing store, and from March 2003 to March 2006 was the Chairman of the Board of Governors for Operation Smile. From October 1998 to September 2002 he was Executive Vice President of Wal-Mart Stores, Inc. and President and CEO of Sam’s Club. Prior to that Mr. Grimm served as President and CEO of the Pace Warehouse Club Division of Kmart Stores, Inc. in Denver, Colorado, and was the founder, President and CEO of Price Savers Wholesale Warehouse, Inc. in Salt Lake City, Utah. Mr. Grimm is a graduate of Weber State University in Ogden, Utah.

Carlyle Griffin has been a director since October 2006. Since his “retirement” in 1999, Mr. Griffin has started his own consulting firm and remains active in the business community. During a thirty-one year career at IBM he held numerous marketing and marketing management positions, and managed a multi-state area for IBM Credit Corporation. Mr. Griffin received his Bachelor of Science degree in Business Management from Penn State University in 1966, and an MBA from Penn Sate University in 1968.

Douglas A. Miller, C.P.A., has been a director since January 2008. He graduated from the University of Colorado at Denver with a degree in Accounting in 1974. After working several years in private industry as an accountant and controller in the areas of manufacturing and real estate, he joined the firm of Swanson, Miller, and Associates, PC of Lakewood, Colorado, and has been a partner there since 1981. He practices in the areas of tax return preparation, tax planning and compliance, estate planning, advisory services for business and individual owners, litigation support, retirement plan administration and financial statement review and analysis. Mr. Miller is a member of the American Institute of Certified Public Accountants and the Colorado Society of Certified Public Accountants.

No other directorships are held by each director in any company with a class of securities registered pursuant to Section 12 of the Securities Exchange Act of 1934 or any company registered as an investment company, under the Investment Company Act of 1940.

Audit Committee

Douglas A. Miller and Carlyle Griffin serve on the Audit Committee of our board of directors. Douglas A. Miller is considered our audit committee financial expert and is independent.

Conflicts of Interest

Two of our two non-officer directors, Tom Grimm and Carlyle Griffin, are associated with other firms involved in a range of business activities. Consequently, there are potential inherent conflicts of interest in their acting as directors of our company. While these directors are engaged in other business activities, we anticipate that such activities will not interfere in any significant fashion with the affairs of our business, in terms of having adequate time to devote to the business of the company. Messrs. Grimm and Carlyle devote less than 10% of their working in their roles as directors. All of our officers devote 100% of their working time to V2K.

Our officers and directors are now and may in the future become shareholders, officers or directors of other companies, which may be formed for the purpose of engaging in business activities similar to us. Accordingly,

additional direct conflicts of interest may arise in the future with respect to such individuals acting on behalf of us or other entities. Moreover, additional conflicts of interest may arise with respect to opportunities which come to the attention of such individuals in the performance of their duties or otherwise. Currently, we do not have a right of first refusal pertaining to opportunities that come to their attention and may relate to our business operations.

Our officers and directors are, so long as they are our officers or directors, subject to the restriction that all opportunities contemplated by our plan of operation which come to their attention, either in the performance of their duties or in any other manner, will be considered opportunities of, and be made available to us and the companies that they are affiliated with on an equal basis. A breach of this requirement will be a breach of the fiduciary duties of the officer or director. If we or the companies with which the officers and directors are affiliated both desire to take advantage of an opportunity, then said officers and directors would abstain from negotiating and voting upon the opportunity. However, all directors may still individually take advantage of opportunities if we should decline to do so. Except as set forth above, we have not adopted any other conflict of interest policy with respect to such transactions.

Code of Ethics

We have adopted a code of ethics that applies to our chief executive officer, chief financial officer, principal accounting officer or controller, or persons performing similar functions.

Section 16(a) Beneficial Ownership Reporting Compliance

Since we do not have a class of equity securities registered under Section 12 of the Exchange Act, we are not subject to the requirements of Section 16 of that Act.

Item 11. Executive Compensation

Compensation Discussion and Analysis

Our board of directors is responsible for developing the executive compensation principles, policies and programs for our executive officers and is also responsible for determining the compensation to be paid to our executive officers.

The objectives of our compensation programs are to provide fair market value cash compensation and an incentive scheme related to the growth of the company to our key employees, including, but not limited to, our executive officers. Our compensation program has two components: salary and stock options.

We design our salary component to pay our key employees a base salary as close to the market rate as possible so that we can be competitive in the labor market. With some company functions, we provide a performance bonus, such as sales commissions, as added motivation for our key people. We determine both salaries and performance bonuses based on market value.

We have granted stock options to align the interests of our key employees to the growth of our company. Stock option grants are determined on an individual basis with our directors making the decision in each case, based on what they believe the particular employee will bring to the company.

The following table sets forth information about the remuneration of our principal executive officer and principal financial officer (“Named Officers”) for services rendered during the years ended September 30, 2008, 2007 and 2006. None of our other executive officers had total compensation of $100,000 or more. Certain columns as required by the regulations of the Securities and Exchange Commission have been omitted as no information was required to be disclosed under those columns.

Summary Compensation Table

Name and Principal Position	Year	Salary ($)	Bonus ($)	Stock Awards ($)	Option Awards ($)	Non-Equity Incentive Plan Compensation ($)	Nonquali-fied Deferred Compensation Earnings ($)	All Other Compensation ($)	Total ($)
Victor J. Yosha, President and CEO	2008 2007 2006	2,500 50,000 60,000	-0- -0- -0-	-0- -0- -0-	13,777 (1) 58,997 (1) 37,454 (1)	-0- -0- -0-	-0- -0- -0-	-0- -0- -0-	16,277 108,887 97,454
Jerry A. Kukuchka, Chief Financial Officer (2)	2008 2007 2006	95,897 97,507 50,104	-0- 200 -0-	-0- -0- -0-	4,363 (1) 6,876 (1) 1,894 (1)	-0- -0- -0-	-0- -0- -0-	-0- -0- -0-	100,260 104,576 51,998

______________

(1)	The options were valued using the Black-Scholes stock option pricing model with the following assumptions: Expected option life-years: 3.00 – 7.50; Risk-free interest rate: 5.125%; Dividend yield: 0; Volatility: 0.28.

(2)	Mr. Kukuchka became our Chief Financial Officer in March 2006.

Mr. Yosha was originally granted options to purchase 6,500,000 shares by V2K Window Fashions in July 2004. Upon the reorganization of V2K Window Fashions into V2K International in April 2006, these options were replaced with options to purchase common stock of V2K International on comparable terms. At the time of the replacement, options to purchase 2,500,000 shares had vested, options to purchase 2,000,000 shares vested in July 2006, and options to purchase 2,000,000 shares vested in July 2007.

We granted Mr. Yosha options to purchase 50,000 shares at $0.20 per share in May 2006for his service as a director. These options vested in May 2007 and are exercisable until May 2011. In June 2006, we granted Mr. Yosha options to purchase 1,000,000 shares at $0.20 per share. One-third of these options vested on June 30, 2007, one-third vested June 30, 2008 and the remaining one-third vest June 30, 2009. These options are exercisable until June 30, 2011. On August 9, 2007, we designated options to purchase 83,333 shares at $0.05 per share, that had previously been granted and reserved for anticipated growth, to Mr. Yosha. 35,715 of these options had already vested, 11,905 vested on July 9, 2008 and the remaining 35,713 vest one-fourth each annually beginning July 9, 2009. These options exercisable until July 9, 2014.

In June 2006, we granted Mr. Kukuchka options to purchase 250,000 shares at $0.20 per share. 50,000 of these options vested on June 30, 2007 and are exercisable until June 30 2012; 50,000 vested on June 30, 2008 and are exercisable until June 30, 2013; and the remaining 150,000 vest one-third each annually beginning June 30, 2009, and expire one-third each annually beginning June 30, 2014..

There were no grants of plan-based awards to either of the Named Officers during the fiscal year ended September 30, 2008.

Outstanding Equity Awards At Fiscal Year-End

Option Awards						Stock Awards
Name	Number of Securities Underlying Unexercised Options (#) Exercisable	Number of Securities Underlying Unexercised Options (#) Unexercisable	Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)	Option Exercise Price ($)	Option Expiration Date	Number of Shares or Units of Stock That Have Not Vested (#)	Marked Value of Shares or Units of Stock That Have Not Vested ($)	Equity Incentive Plan Awards: Number 0f Unearned Shares, Units or Other Rights That Have Not Vested (#)	Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (#)
Victor J. Yosha	6,500,000 50,000 666,666 47,620	-0- -0- 333,334 (1) 35,713 (2)	-0- -0- -0- -0-	0.05 0.20 0.20 0.05	07/09/2014 05/02/2011 06/30/2011 07/09/2014	N/A	N/A	N/A	N/A-
Jerry A. Kukuchka	50,000 50,000 -0- -0- -0-	-0- -0- 50,000 (1) 50,000 (3) 50,000 (4)	-0- -0- -0- -0- -0-	0.20 0.20 0.20 0.20 0.20	06/30/2012 06/30/2013 06/30/2014 06/30/2015 06/30/2016	N/A	N/A	N/A	N/A

_________________

(1)	These options vest on June 30, 2009.

(2)	One third of these options vest annually beginning July 9, 2009.

(3)	These options vest on June 30, 2010.

(4)	These options vest on June 30, 2011.

During the fiscal year ended September 30, 2008, there were no exercises of stock options by the Named Officers.

Compensation of Directors

Each of our non-employee directors receives reimbursement for expenses of attendance for each scheduled meeting that requires physical attendance.

Compensation for our directors for our last completed fiscal year is set forth below, with the exception of Victor J. Yosha, whose compensation has been disclosed above.

Director Compensation

Name	Fees Earned or Paid in Cash ($)	Stock Awards ($)	Option Awards ($)	Non-Equity Incentive Plan Compensation ($)	Change in Pension Value and Non-Qualified Deferred Compensation Earnings ($)	All Other Compensation ($)	Total ($)
Gordon E. Beckstead	-0-	-0-	13,778 (1)	-0-	-0-	-0-	13,778
Carlyle Griffin	-0-	-0-	-0- (2)	-0-	-0-	-0-	-0-
Tom Grimm	-0-	-0-	-0- (3)	-0-	-0-	-0-	-0-
R.J. Wittenbrink	-0-	-0-	-0- (4)	-0-	-0-	-0-	-0-
Douglas A. Miller	-0-	-0-	4,513 (5)	-0-	-0-	-0-	4,513

_____________________

(1)

Mr. Beckstead was originally granted options to purchase 7,000,000 shares by V2K Window Fashions in July 2004. Upon the reorganization of V2K Window Fashions into V2K International in April 2006, these options were replaced with options to purchase common stock of V2K International on comparable terms.

	At the time of the replacement, options to purchase 2,666,670 shares had vested, options to purchase 2,166,670 shares vested in July 2006, and options to purchase 2,166,660 shares vested in July 2007. These options are exercisable at $0.05 per share until July 9, 2014. We granted Mr. Beckstead options to purchase 50,000 shares at $0.20 per share in May 2006 for his service as a director. These options vested on May 2, 2007 and are exercisable until May 2, 2011. On June 30, 2006, we granted Mr. Beckstead options to purchase 1,000,000 shares at $0.20 per share. One-third of these options vested on June 30, 2007, one-third vested on June 30, 2008 and the remaining one-third vest June 30, 2009. These options are exercisable until June 30, 2011. On August 9, 2007, we designated options to purchase 83,333 shares at $0.05 per share, that had previously been granted and reserved for anticipated growth, to Mr. Beckstead. 35,715 of these options had already vested, 11,905 vested on July 9, 2008, and the remaining 35,713 vest one-third each annually beginning July 9, 2009. These options are exercisable until July 9, 2014.

(2)	Mr. Griffin was originally granted options to purchase 1,250,000 shares by V2K Window Fashions in July 2004. Upon the reorganization of V2K Window Fashions into V2K International in April 2006, these options were replaced with options to purchase common stock of V2K International on comparable terms. At the time of the replacement, options to purchase 416,670 shares had vested, options to purchase 416,670 shares vested in July 2006, and options to purchase 416,660 shares vested in July 2007. These options are exercisable at $0.05 per share until July 9, 2014. On June 30, 2006, we granted Mr. Griffin options to purchase 50,000 shares at $0.20 per share. 10,000 of these options vested on June 30, 2007 and are exercisable until June 30 2012; 10,000 vested on June 30, 2008 and are exercisable until June 30, 2013; and the remaining 30,000 vest one-third each annually beginning June 30, 2009, and expire one-third each annually beginning June 30, 2014. We granted Mr. Griffin options to purchase 50,000 shares at $0.20 per share in October 2006 for his service as a director. These options vested on October 17, 2007 and are exercisable until October 17, 2011.

(3)	We granted Mr. Grimm options to purchase 50,000 shares at $0.20 per share on May 2, 2006 for his service as a director. These options vested on May 2, 2007 and are exercisable until May 2, 2011.

(4)

Mr. Wittenbrink was originally granted options to purchase 1,500,000 shares by V2K Window Fashions in July 2004. Upon the reorganization of V2K Window Fashions into V2K International in April 2006, these options were replaced with options to purchase common stock of V2K International on comparable terms. At the time of the replacement, options to purchase 500,000 shares had vested, options to purchase 500,000 shares vested in July 2006, and options to purchase 500,000 shares vested in July 2007. These options are exercisable at $0.05 per share until July 9, 2014. We granted Mr. Wittenbrink options to purchase 50,000 shares at $0.20 per share in May 2006 for his service as a director. These options vested on May 2, 2007 and are exercisable until May 2, 2011. On August 9, 2007, we designated options to purchase 83,333 shares at $0.05 per share, that had previously been granted and reserved for anticipated growth, to Mr. Wittenbrink. 35,715 of these options had already vested, 11,905 vested on July 9, 2008, and the remaining 35,713 vest one-third each annually beginning July 9, 2009. These options exercisable until July 9, 2014.

Employment Agreements

We do not have employment agreements with any of our executive officers. We do not have any contract, agreement, plan or arrangement, whether written or unwritten, that provides for payment(s) to a named executive officer at, following, or in connection with any termination, including without limitation resignation, severance, retirement or a constructive termination of a named executive officer, or a change in control of our company or a change in the named executive officer's responsibilities.

Stock Option Plan

Our shareholders adopted the 2006 Stock Option Plan on March 31, 2006 that permits the granting of options to purchase up to 30,000,000 shares. Options may be granted to officers, directors, employees, and consultants on a case-by-case basis. This Plan will remain in effect until it is terminated by the board of directors or, if so appointed by the board, a committee of two or more disinterested directors administering the Plan, except that no incentive stock option will be granted after March 31, 2016.

The 2006 Stock Option Plan is intended to (i) encourage ownership of shares by our employees and directors of and certain consultants to the company; (ii) induce them to work for the benefit of the company; and (iii) provide additional incentive for such persons to promote the success of the company.

The board of directors or committee may amend, suspend or discontinue the Plan at any time or from time to time; provided that no action of the board will cause incentive stock options granted under this Plan not to comply with Section 422 of the Internal Revenue Code unless the board specifically declares such action to be made for that purpose and provided further that without the approval of our shareholders, no such action may: (i) materially increase the maximum aggregate number of shares that may be issued under options granted pursuant to the Plan, (ii) materially increase the benefits accruing to Plan participants, or (iii) materially modify eligibility requirements for the participants. Moreover, no such action may alter or impair any option previously granted under the Plan without the consent of the holder of such option.

The Plan contains provisions for proportionate adjustment of the number of shares for outstanding options and the option price per share in the event of stock dividends, recapitalizations, stock splits or combinations.

Each option granted under the Plan will be evidenced by a written option agreement between us and the optionee. The option price of any incentive stock option or non-qualified option may be not less than 100% of the fair market value per share on the date of grant of the option; provided, however, that any incentive stock option granted to a person owning more than ten percent of the total combined voting power of the common stock will have an option price of not less than 110% of the fair market value per share on the date of grant. “Fair Market Value” per share as of a particular date is defined in the Plan as the closing price of our common stock as reported on a national securities exchange or the last transaction price on the reporting system or, if none, the average of the closing bid and asked prices of our common stock in the over-the-counter market or, if such quotations are unavailable, the value determined by the board in its discretion in good faith.

The exercise period of incentive stock options or non-qualified options granted under the Plan may not exceed ten years from the date of grant thereof. Incentive stock options granted to a person owning more than ten percent of the total combined voting power of our common stock will be for no more than five years.

To exercise an option, the optionee must pay the full exercise price in cash, by check or such other legal consideration as may be approved by the Committee. Such other consideration may consist of shares of common stock having a fair market value equal to the option price, cashless exercise, a personal recourse note, or in a combination of cash, shares, cashless exercise and a note, subject to approval of the Committee.

An option may not be exercised unless the optionee then is an employee, consultant, officer, or director of our company or its subsidiaries, and unless the optionee has remained continuously as an employee, consultant, officer, or director of our company since the date of grant of the option. If the optionee ceases to be an employee, consultant, officer, or director of our company or its subsidiaries other than by reason of death, disability, or for cause, all options granted to such optionee, fully vested to such optionee but not yet exercised, will terminate three months after the date the optionee ceases to be an employee, consultant, officer or director of our company.

If the employee is terminated “for cause” (as that term is defined in the Plan), such employee’s options will terminate immediately on the date the optionee ceases employment or association.

If an optionee dies while an employee, consultant, officer or director of our company, or if the optionee’s employment, consultant, officer, or director status terminates by reason of disability, all options theretofore granted to such optionee, whether or not otherwise exercisable, unless earlier terminated in accordance with their terms, may be exercised at any time within one year after the date of death or disability of said optionee, by the optionee or by the optionee’s estate or by a person who acquired the right to exercise such options by bequest or inheritance or otherwise by reason of the death or disability of the optionee.

As of September 30, 2008, 28,225,660 options were outstanding under the Plan.

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table provides certain information as to our officers and directors individually and as a group, and the holders of more than 5% of our common stock, as of September 30, 2008.

Name and Address of Beneficial Owner	Amount and Nature of Beneficial Ownership	Percent of Class (1)
Gordon E. Beckstead 13949 W. Colfax Avenue, Suite 250 Lakewood, Colorado 80401	13,242,732 (2)	32.9%
Victor J. Yosha 13949 W. Colfax Avenue, Suite 250 Lakewood, Colorado 80401	13,052,128 (3)	32.9%
R.J. Wittenbrink 13949 W. Colfax Avenue, Suite 250 Lakewood, Colorado 80401	4,217,378 (4)	12.6%
Robert & Lynda Leo 3445 W. 45th Avenue Denver, CO 80211	3,383,013 (5)	10.1%
Carlyle Griffin 16163 Canyon Wren Way Morrison, Colorado 80465	2,154,720 (6)	6.6%
Lea Blohm P.O. Box 3740 Parker, Colorado 80134	2,060,535 (7)	6.5%
Ed Williams 1506 Thornebrooke Circle Dalton, GA 30720	2,050,000 (8)	6.5%
Michael J Lee 2805 Norris Avenue Winter Park, FL 32789	1,789,790 (9)	5.4%
Samuel Smith 13949 W. Colfax Avenue, Suite 250 Lakewood, Colorado 80401	1,320,292 (10)	4.0%
Tom Grimm 1895 Stone Hollow Drive Bountiful, Utah 84010	550,000 (11)	1.7%
Douglas A. Miller 6435 Umber Circle Arvada, CO 80007	524,370 (12)	1.7%
Jerry A. Kukuchka 13949 W. Colfax Avenue, Suite 250 Lakewood, Colorado 80401	200,000 (13)	0.6%
All officers and directors as a group (8 persons)	35,261,620 (14)	66.1%

_____________________

(1)

Where persons listed on this table have the right to obtain additional shares of common stock through the exercise of outstanding options or warrants or the conversion of convertible securities within 60 days from September 30, 2008, these additional shares are deemed to be outstanding for the purpose of computing the percentage of class owned by such person, but are not deemed to be outstanding for the purpose of computing the percentage of any other person. Percentages are based on 31,467,336 shares outstanding.

(2)	Includes 7,764,286 shares issuable upon the exercise of vested stock options and 970,826 shares issuable upon the exercise of warrants. Does not include shares issuable upon the conversion of a promissory note.

(3)	Includes 7,264,286 shares issuable upon exercise of vested stock options and 887,362 shares issuable upon exercise of warrants. Does not include shares issuable upon the conversion of a promissory note.

(4)	Includes 1,597,620 shares issuable upon exercise of vested stock options and 354,718 shares issuable upon exercise of warrants.

(5)	Includes 2,033,333 shares issuable upon the exercise of vested stock options.
(6)	Includes 1,320,000 shares issuable upon exercise of vested stock options.
(7)	Includes 250,000 shares issuable upon exercise of warrants.

(8)	Includes 50,000 shares issuable upon exercise vested stock options.

(9)	Includes 1,769,790 shares issuable upon exercise of vested stock options.

(10)	Includes 1,250,292 shares issuable upon exercise of vested stock options and 25,000 shares issuable upon exercise of warrants.

(11)	Includes 50,000 shares issuable upon exercise of vested stock options and 250,000 shares upon the exercise of warrants.

(12)	Includes 25,000 shares issuable upon the exercise of warrants.

(13)	Includes 100,000 shares issuable upon exercise of vested stock options and 50,000 shares upon the exercise of warrants.

(14)	Includes 19,346,484 shares issuable upon exercise of vested stock options and 2,562,906 shares upon the exercise of warrants.

Changes in Control

There are no agreements known to management that may result in a change of control of our company.

Equity Compensation Plan Information

The following table sets forth information as of the end of the most recently completed fiscal year, September 30, 2008:

Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted average exercise price of outstanding options, warrants and rights	Number of securities remaining available for future issuance
Equity compensation plans approved by security holders	11,225,660	$0.10	18,774,340
Equity compensation plans not approved by security holders	17,000,000	$0.05	-0-
Total	28,225,660	$0.07	18,774,340

Item 13. Certain Relationships and Related Transactions, and Director Independence

None of our present directors, officers or principal shareholders, nor any family member of the foregoing, nor, to the best of our information and belief, any of our former directors, officers or principal shareholders, nor any family member of such former directors, officers or principal shareholders, has or had any material interest, direct or indirect, in any transaction, or in any proposed transaction which has materially affected or will materially affect us.

Promoters and Organizers. Gordon Beckstead and Victor J. Yosha may be deemed to be the organizers of V2K International, Inc. due to their role in organizing the business of the company and control persons due to their ownership of a significant percentage of voting securities. Messrs. Beckstead and Yosha, together with all of the other shareholders of V2K Window Fashions, Inc., received 35 shares of V2K International common stock for every share of V2K Window Fashions preferred stock and 10 shares of V2K International common stock for every share of V2K Window Fashions common stock owned by them in April 2006 when V2K International acquired V2K Window Fashions. In addition, they, together with all of the other holders of stock options in V2K Window Fashions, received replacement stock options from V2K International in this acquisition transaction. Other transactions between us and Messrs. Beckstead and/or Yosha are described below.

Convertible Debentures. In February 2005, Gordon Beckstead, an officer, director and principal shareholder, and one of our shareholders each loaned us $50,000 pursuant to the terms of a three-year convertible promissory note. Interest accrues at the rate of one percent plus the prime rate as announced in the Wall Street Journal and is paid quarterly. We paid Mr. Beckstead interest of $1,156 and $4,438 for the years ended September 30, 2007 and 2006, respectively. The holders had the right to convert the notes at any time into shares of common stock at a price of $0.20 per share. We agreed to register the shares issuable upon conversion. On January 31, 2007, Mr. Beckstead and the other lender each converted their debentures into 250,000 shares of common stock.

Bridge Loans. In January 2006, Gordon Beckstead, Victor J. Yosha, and R.J. Wittenbrink each loaned us $25,000 as part of a bridge loan we obtained in the aggregate amount of $200,000. Messrs. Beckstead, Yosha and Wittenbrink are officer, directors, and principal shareholders of the company. Their loans were made on the same terms as those received from non-affiliated third party lenders. The associated loan agreement and promissory note called for quarterly interest payments in arrears at the rate of four percent plus the prime rate as published in the Money Rate Table of the Western Edition of the Wall Street Journal. Repayment of the promissory note was to commence upon the earlier of (a) the completion of our private placement or (b) July 5, 2006. At the option of the lenders, at any time prior to consummation of the private placement, the lenders could convert all or any of the principal amounts into the securities on the same terms as those offered in the private placement. Upon the minimum portion of the private placement having been sold, the lenders were required to convert at least 50% of the note principal. In August 2006, all of the lenders entered into an amendment to the loan agreement and promissory note, whereby they agreed to convert the entire amount of the note immediately prior to the closing of the private placement, so long as the minimum offering was sold. We further agreed that if we had failed to close the private placement by January 5, 2007, we would repay half of the principal amount of the notes by January 31, 2007 and the remainder by applying $3,000 from the sale of each franchise until the notes were paid in full. Messrs. Beckstead, Yosha and Wittenbrink agreed to defer repayment of their loans until the non-affiliated lenders had been paid. In January 2007, all of the lenders extended the deadline for closing the private placement to January 31, 2007.

Effective January 31, 2007, all of the lenders, including Messrs. Beckstead, Yosha, and Wittenbrink, converted their loans into securities on the same terms as those offered in our private placement. Each of Messrs. Beckstead, Yosha and Wittenbrink received 125,000 shares of common stock and warrants to purchase 125,000 shares of common stock. The warrants are exercisable at $0.50 per share until September 30, 2009. We granted registration rights with respect to all of the shares purchased in the private placement. Accordingly, the 125,000 shares issued to each of Messrs. Beckstead, Yosha and Wittenbrink were registered for resale.

For the years ended September 30, 2008 and 2007, we paid interest of $0 and $1,021, respectively to each of Messrs. Beckstead, Yosha and Wittenbrink, respectively.

We issued warrants to purchase an aggregate of 1,000,000 shares of common stock to all of the lenders when the loans were made. The warrants are exercisable at $0.30 per share and expire January 5, 2010. We granted piggyback registration rights (on a “best efforts” basis) with respect to the shares issuable upon exercise of these warrants.

The table below summarizes the shares and warrants that were issued:

Lender	Amount of Loan	Warrants @ $0.30 Issued When Loans were Made	Shares Issued Upon Conversion of Loan	Warrants @ $0.50 Issued Upon Conversion of Loan
Gordon E. Beckstead	$25,000	125,000	125,000	125,000
Victor J. Yosha	$25,000	125,000	125,000	125,000
Robert J. Wittenbrink	$25,000	125,000	125,000	125,000
George A. Johnson	$50,000	250,000	250,000	250,000
John D. Kucera	$25,000	125,000	125,000	125,000
Robert M. Nieder	$50,000	250,000	250,000	250,000

On September 30, 2008,we consolidated and restructured amounts loaned to us by Messrs. Beckstead, Wittenbrink, and Yosha from January 2008 through September 2008. The amounts had been loaned primarily as demand notes with interest at 12% per annum.

The new notes are secured by the assets of V2K Technology and mature nine months from date of issuance, subject to a three-month extension at our option. Interest is paid semi-annually and accrues at the rate of 12% per annum. The notes are convertible into shares of our common stock at any time at the option of the holder at 90% of the volume-weighted average price for the 20 trading days immediately preceding the date of conversion, subject to a floor price of $0.15.

For each dollar that has been loaned, we issued two redeemable common stock purchase warrants, one of which is exercisable at $0.15 per share for two years and one of which is exercisable at $0.25 for three years. Each warrant is exercisable to purchase one share of common stock.

Accordingly, we issued new notes and warrants as follows:

Lender	Amount of new note	Number of $0.15 warrants	Number of $0.25 warrants
Gordon E. Beckstead	$360,413	360,413	360,413
R.J. Wittenbrink	$52,359	52,359	52,359
Victor J. Yosha	$318,681	318,681	318,681

Future Transactions. All future affiliated transactions will be made or entered into on terms that are no less favorable to us than those that can be obtained from any unaffiliated third party. A majority of the independent, disinterested members of our board of directors will approve future affiliated transactions.

Director Independence

As of the date of this report, our common stock is not listed on an exchange. As such, we are not currently subject to corporate governance standards of listed companies, which require, among other things, that the majority of the board of directors be independent. Since we are not currently subject to corporate governance standards relating to the independence of our directors, we choose to define an “independent” director in accordance with the NASDAQ Global Market’s requirements for independent directors (NASDAQ Marketplace Rule 4200). The NASDAQ independence definition includes a series of objective tests, such as that the director is not an employee of the company and has not engaged in various types of business dealings with the company.

Douglas A. Miller, Tom Grimm and Carlyle Griffin are considered independent directors under the above definition. We do not list that definition on our Internet website.

Item 14. Principal Accountant Fees and Services

The fees billed for professional services rendered by our principal accountant are as follows:

FISCAL		AUDIT-RELATED
YEAR	AUDIT FEES	FEES	TAX FEES	ALL OTHER FEES
2007	$94,675	-0-	$8,795	-0-
2008	$81,797	-0-	$12,725	-0-

Pre-Approval Policies and Procedures

The board of directors must pre-approve any use of our independent accountants for any non-audit services. All services of our auditors are approved by our whole board and are subject to review by our whole board.

PART IV

Item 15. Exhibits, Financial Statement Schedules

Regulation S-K Number	Exhibit
3.1	Articles of Incorporation (1)
3.2	Bylaws (1)
3.3	Articles of Amendment filed June 6, 2008 (2)
10.1	2006 Stock Option Plan (1)
10.2	Form of Franchise Agreement (3)
10.3	Software License Agreement from V2K Technology, Inc. to V2K Window Fashions, Inc. (1)
10.4	Office Lease and Note (3)
10.5	Convertible Note in Favor of Gordon E. Beckstead dated September 30, 2008 (4)
10.6	Convertible Note in Favor of R. J. Wittenbrink dated September 30, 2008 (4)
10.7	Convertible Note in Favor of Victor J. Yosha dated September 30, 2008 (4)
10.8	Security Agreement with Gordon E. Beckstead, R. J. Wittenbrink and Victor J. Yosha dated September 30, 2008 (4)
14.1	Code of Ethics for Chief Executive Officer
14.2	Code of Ethics for Chief Financial Officer
14.3	Code of Ethics for Principal Accounting Officer
14.4	Code of Ethics for Director of Operations
16.1	Letter from Gordon, Hughes & Banks, LLP (5)
31.1	Rule 15d-14(a) Certification of Chief Executive Officer
31.2	Rule 15d-14(a) Certification of Chief Financial Officer
32.1	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Chief Executive Officer
32.2	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Chief Financial Officer

____________________

(1)	Filed as an exhibit to the registrant's registration statement on Form SB-2, file number 333-141201, filed March 9, 2007.
(2)	Filed as an exhibit to the registrant's current report on Form 8-K dated June 6, 2008, file number 333-141201, filed June 12, 2008.
(3)	Filed as an exhibit to Amendment No. 1 to the registrant’s registration statement on Form SB-2, file number 333-141201, filed May 1, 2007.

(4)	Filed as an exhibit to the registrant’s current report on Form 8-K dated September 30, 2008, file number 333-141201, filed October 6, 2008.

(5)	Filed as an exhibit to the registrant’s current report on Form 8-K dated October 28, 2008, file number 333-141201, filed November 3, 2008.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

	V2K INTERNATIONAL, INC.

Date: December 24, 2008	/s/ Victor J. Yosha
	Victor J. Yosha, President

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

Signature	Title	Date
/s/ Victor J. Yosha	President, Chief Executive Officer and Director	December 24, 2008
Victor J. Yosha	(Principal Executive Officer)

/s/ Jerry A. Kukuchka	Chief Financial Officer	December 24, 2008
Jerry A. Kukuchka	(Principal Financial Officer)

/s/ Gordon E. Beckstead	Director	December 29, 2008
Gordon E. Beckstead

	Director
Carlyle Griffin

/s/ R. J. Wittenbrink	Director	December 24, 2008
R.J. Wittenbrink

	Director
Tom Grimm

	Director
Douglas A. Miller

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Director and Shareholders

V2K International, Inc.

Lakewood, Colorado

We have audited the accompanying balance sheet of V2K International, Inc. as of September 30, 2008, and the related statements of operations, changes in stockholders’ deficit and cash flows for the year ended September 30, 2008. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of V2K International, Inc. as of September 30, 2008, and the results of its operations and its cash flows for the year ended September 30, 2008 in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses, has a working capital deficit at September 30, 2008, and has an accumulated deficit of $3,291,434 as of September 30, 2008. These conditions raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The 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.

/s/ Cordovano and Honeck LLP

Cordovano and Honeck LLP

Englewood, Colorado

December 10, 2008

F-1

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders

V2K International, Inc.

Lakewood, Colorado

We have audited the consolidated balance sheet of V2K International, Inc. and subsidiaries (the “Company”) as of September 30, 2007 and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of V2K International, Inc. and subsidiaries as of September 30, 2007, and the consolidated results of their operations and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

/s/ Gordon, Hughes & Banks, LLP

Gordon, Hughes & Banks, LLP

Greenwood Village, Colorado

December 11, 2007

F-2

V2K INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2008 AND SEPTEMBER 30, 2007

ASSETS

CURRENT ASSETS	2008			2007
Cash and cash equivalents	$	23,059		$	270,389
Cash - restricted		55,091			42,289
Accounts receivable, net of allowance for
doubtful accounts of $41,483 (2008) and $40,057 (2007)		582,068			581,808
Current portion of notes receivable		38,303			117,999
Inventory		-			8,343
Prepaid expenses and other		202,763			91,151
Total Current Assets		901,284			1,111,979

PROPERTY AND EQUIPMENT, at cost, net of accumulated
depreciation of $238,133 (2008) and $264,433 (2007)		107,485			150,052

REACQUIRED FRANCHISE RIGHTS		73,409			43,459

NOTES RECEIVABLE - net of current portion		10,763			30,323

Total Assets	$	1,092,941		$	1,335,813

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

CURRENT LIABILITIES
Accounts payable and accrued expenses	$	943,903		$	1,122,356
Current portion of note payable - other		34,005			109,211
Current portion of capital lease obligations		3,481			3,642
Line of credit		250,000			100,000
Notes payable - related parties		731,453			-
Current portion of deferred rent		28,786			-
Unearned income		61,582			142,829
Total Current Liabilities		2,053,210			1,478,038

LONG TERM LIABILITIES
Capital lease obligations, net of current portion		-			3,481
Note payable - other, net of current portion		-			30,789
Deferred rent, net of current portion		134,560			115,058
Total Long Term Liabilities		134,560			149,328
Total Liabilities		2,187,770			1,627,366

STOCKHOLDERS’ EQUITY
Common stock - $.001 par value, authorized 100,000,000 shares
Issued and outstanding - 31,467,336 shares (2008) and
31,147,336 shares (2007)		31,467			31,147
Additional paid-in capital		2,165,138			1,982,455
Accumulated (deficit)		(3,291,434	)		(2,305,155	)
Total Stockholders' Equity (Deficit)		(1,094,829	)		(291,553	)

Total Liabilities and Stockholders' Equity (Deficit)	$	1,092,941		$	1,335,813

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

F-3

V2K INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED SEPTEMBER 30, 2008 AND SEPTEMBER 30, 2007

	2008			2007
REVENUES
Sales of franchises	$	1,047,727		$	2,044,822
Royalty and advertising fees		618,899			835,824
Sales of materials and supplies		4,584,072			5,454,937
Total Revenues		6,250,698			8,335,583

OPERATING EXPENSES
Cost of franchise sales		636,799			1,144,283
Cost of materials and supplies		4,310,822			5,239,864
Research and development expenses		317,891			426,069
Selling, general and administrative expenses		1,939,652			2,590,384
Total Operating Expenses		7,205,164			9,400,600

(LOSS) FROM OPERATIONS		(954,466	)		(1,065,017	)

OTHER INCOME (EXPENSES)
Interest (expense)		(56,241	)		(20,230	)
Other income		32,303			62,564
(Loss) on disposition of assets		(7,875	)		(690	)
Gain on sale of LLC		-			19,179
Total Other Income (Expense)		(31,813	)		60,823

NET (LOSS) BEFORE INCOME TAXES		(986,279	)		(1,004,194	)

PROVISION FOR INCOME TAX		-			-

NET (LOSS) FROM CONTINUING OPERATIONS	$	(986,279	)	$	(1,004,194	)

(LOSS) FROM DISCONTINUED OPERATIONS,
NET OF INCOME TAX	$	-		$	(10,157	)

NET (LOSS)	$	(986,279	)	$	(1,014,351	)

NET (LOSS) PER SHARE -
Basic and diluted	$	(0.0315	)	$	(0.0338	)

NET(LOSS) PER SHARE FROM CONTINUED
OPERATIONS
Basic and diluted	$	(0.0315	)	$	(0.0335	)

NET(LOSS) PER SHARE FROM DISCONTINUED
OPERATIONS	$	-		$	(0.0003	)
Basic and diluted

WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING -
Basic and diluted		31,360,003			30,000,774

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

F-4

V2K INTERNATIONAL, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)

FOR THE YEARS ENDED SEPTEMBER 30, 2008 AND SEPTEMBER 30, 2007

					Additional		Subsciptions
	Common Stock				Paid-In		Receivable						Accumulated
	Shares		Par Value		Capital		Shares			Amount			(Deficit)			Total

Balances, October 1, 2006		27,378,586	$	27,379	$	1,077,617		150,000		$	30,000		$	(1,290,804	)	$	(155,808	)

Sale of common stock for
cash at $0.20 per share, net
of offering costs of $82,413		2,268,750		2,268		369,338		(150,000	)		(30,000	)		-			341,606

Stock compensation expense		-		-		237,000		-			-			-			237,000

Conversion of bridge loan
into common stock at $0.20
per share		1,000,000		1,000		199,000		-			-			-			200,000

Conversion of debentures
into common stock at $0.20
per share		500,000		500		99,500		-			-			-			100,000

Net (loss)		-		-		-		-			-			(1,014,351	)		(1,014,351	)

Balances, September 30, 2007		31,147,336	$	31,147	$	1,982,455		-		$	-		$	(2,305,155	)	$	(291,553	)

Stock Issued for franchise rights		20,000		20		3,980		-			-			-			4,000
@ .20 per share

Stock Compensation Expense		-		-		83,057		-			-			-			83,057

Stock Issued for services
@ .29 per share		300,000		300		86,700		-			-			-			87,000

Warrants issued on Bridge Loan		-		-		8,946		-			-			-			8,946

Net Loss FY2008		-		-		-		-			-			(986,279	)		(986,279	)
Balances, September 30, 2008		31,467,336	$	31,467	$	2,165,138		-		$	-		$	(3,291,434	)	$	(1,094,829	)

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

F-5

V2K INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED SEPTEMBER 30, 2008 AND SEPTEMBER 30, 2007

	2008			2007
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss)	$	(986,279	)	$	(1,014,351	)
Adjustments to reconcile net (loss) to net cash (used)
by operating activities
Depreciation and amortization		44,832			61,871
Bad debt provision		65,351			90,582
Rent expense satisfied with debt		-			15,833
Stock issued for franchise rights		4,000			-
Warrants issued on Brideg Loan		8,946			-
Stock issued for services		87,000			-
Stock compensation expense		83,057			237,000
Loss on disposition of assets		7,874			690
(Gain) on sale of LLC		-			(19,179	)
Changes in assets and liabilities
Decrease (increase) in accounts receivable		(65,611	)		88,328
Decrease (increase) in prepaid expenses and other		(111,612	)		10,053
Decrease (increase) in notes receivable		99,256			(51,165	)
Decrease in inventory		8,343			482
Decrease (increase) in accounts payable and accrued expenses		(178,453	)		28,323
Proceeds from deferred rent		48,288			26,616
Acquisition of franchises and interests therein		(29,950	)		(43,459	)
(Decrease) in unearned income		(81,247	)		(3,346	)

Net cash (used) by operating activities		(996,205	)		(571,722	)

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of equipment		13,827			-
Proceeds from sale of LLC		-			29,950
Purchase of property and equipment		(23,966	)		(29,863	)

Net cash provided (used) by investing activities		(10,139	)		87

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock		-			371,608
(Decrease) in subscriptions receivable		-			(30,000	)
Proceeds from capital lease		-			8,961
Proceeds from notes payable - related parties		731,453			-
(Payments) on note payable		(105,995	)		-
(Payments) on capital lease obligation		(3,642	)		(1,838	)
Proceeds from line of credit		150,000			100,000
(Payments) on bank loan		-			(12,948	)

Net cash provided by financing activities		771,816			435,783

NET INCREASE (DECREASE) IN CASH		(234,528	)		(135,852	)

CASH, BEGINNING OF PERIOD		312,678			448,530

CASH, END OF PERIOD	$	78,150		$	312,678

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

F-6

V2K INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED SEPTEMBER 30, 2008 AND SEPTEMBER 30, 2007

(CONTINUED)

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

During the years ended September 30, 2008 and September 30, 2007, the Company paid cash of $25,842 and $29,763, respectively, for interest on debt.

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

During the year ended September 30, 2008, the Company incurred $83,057 of stock compensation expense, issued 300,000 shares at $.29 for services, 20,000 shares at $.20 to reacquire franchise rights, issued 731,453 warrants at $0.15 and 731,453 warrants at $0.25 attached to the bridge loan (see Note 8).

During the year ended September 30, 2007, the Company: incurred $237,000 of stock compensation expense; converted $200,000 in bridge loans to 1,000,000 Units of a private placement, each Unit consisting of one share of common stock at $0.20 and one warrant to purchase one share of common stock at $0.50 (see Note 1 – Private Offering Memorandum and Note 8); converted $100,000 in debentures into 500,000 shares of common stock ($0.20 per share, see Note 10); entered into leaseholds for debt of $91,855; and acquired $8,961 of equipment on a capitalized lease.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents at September 30, 2008 and September 30, 2007 consist of:

	2008		2007
Cash	$	23,059	$	270,389
Restricted cash (Note 1)		55,091		42,289
	$	78,150	$	312,678

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

F-7

V2K INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

V2K International, Inc. (“International”) was incorporated as a Colorado corporation on March 13, 2006. The Company, through its subsidiary companies, V2K Window Fashions, Inc., V2K Technology, Inc., V2K Manufacturing, Inc. and Marketing Source International, LLC, sells and supports franchises in the residential and commercial window fashion industry, develops and licenses proprietary software that allows users to decorate windows for both residential and commercial customers, manufactures and sells the resulting soft window treatment products and provides product development resources and acts as a sales agent for overseas window covering manufacturers.

International and subsidiaries are hereinafter collectively referred to as the “Company”.

Details of the Company’s subsidiaries as of September 30, 2008 are described below:

Entity name	Place of incorporation and legal entity	Principal activities	Effective interest held

V2K Window Fashions, Inc. (“Windows”)	Colorado corporation	Franchise sales and support	100%

V2K Technology, Inc. (“Technology”)	Colorado corporation	Development and licensing of software	100%

V2K Manufacturing, Inc. (“Manufacturing”)	Colorado corporation	Manufacture of soft window covering products	100%

Marketing Source International, LLC (“MSI”)	Colorado limited liability company	Product development and sales agent for overseas window covering manufacturers	100%

In April 2006, International, in a share for share exchange, acquired all issued and outstanding shares of Window’s preferred and common stock. Shares of Window’s preferred and common stocks were exchanged for shares of common stock in International on a 1 for 35 basis and 1 for 10 basis, respectively. Windows sells and supports franchises in the residential and commercial window fashion industry. Franchisees sell and install window treatments for retail and commercial clients using software licensed from Technology, training manuals, policies, procedures and knowledge. Franchisees are located throughout the United States, in two Canadian provinces and in Aruba.

In August 2006, Windows opened its first company-owned franchise location, incorporated as Window Fashions Franchise LLC (“Franchise LLC”). In July 2007, the Windows sold 100% of its ownership interest in Franchise LLC to a third party. The Company has accounted for Franchise LLC as a discontinued operation (see Note 16).

F-8

V2K INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

ORGANIZATION (CONTINUED)

In April 2006, Windows transferred legal ownership of Manufacturing and the related equity interest to International. Windows had acquired Manufacturing in January 2004.

In July 2006, in order to further protect the intellectual property associated with the software and to facilitate future licensing agreements, the software and software development team formerly held by Windows were spun-off to form V2K Technology, Inc. Technology is a wholly owned subsidiary of International, and licenses a customized window fashions franchise software to Windows.

In April 2007, the Company formed MSI to generate revenues by acting as a product development resource and sales agent for overseas window covering manufacturers. MSI is a wholly owned subsidiary of International.

PRIVATE OFFERING MEMORANDUM

Using a Private Offering Memorandum dated September 6, 2006, the Company offered for sale 3,750,000 Units, each Unit consisting of one share of common stock and one common stock purchase warrant, which were immediately detachable, at $0.20 per Unit pursuant to exemptions from registration contained in Section 3(b) and Rule 506 of Regulation D of the Securities Act of 1933 and the securities laws of certain states, for a total of $750,000. Each warrant initially entitled the holder to purchase one share of common stock at an exercise price of $0.50 per share through September 30, 2008. The exercise period was extended to September 30, 2009. All warrants are automatically redeemable by the Company at $0.001 if the common stock is then listed on a recognized stock exchange or trading at $1.00 per share for 20 consecutive trading days.

At September 30, 2006, the Company had received subscriptions totaling $287,000, including $15,000 from officers of the Company (see Note 15) and $30,000 for which the corresponding shares of common stock (150,000 shares) had not been issued.

On January 31, 2007, the Company closed the private placement, having sold 3,553,750 Units for $710,750 ($0.20 per unit), including $15,000 to officers of the Company (see Note 15). On July 11, 2007, the SEC declared the Company’s Form SB-2 registration statement effective, registering the shares underlying the private placement for resale.

BASIS OF PRESENTATION

The accompanying consolidated financial statements include the Company and its wholly owned subsidiaries. All significant inter-company transactions have been eliminated in consolidation.

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The Company has incurred net losses since inception, and as of September 30, 2008, had an accumulated deficit of $3,291,434. These conditions raise substantial doubt as to the Company's ability to continue as a going concern. These financial statements do not include any adjustments that might result from the outcome of this uncertainty. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

F-9

V2K INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

BASIS OF PRESENTATION (CONTINUED)

Management recognizes that the Company must generate additional resources to enable it to continue operations. Management intends to raise additional financing through debt financing and equity financing or through other means that it deems necessary, with a view to moving forward and sustaining a prolonged growth in its strategy phases. However, no assurance can be given that the Company will be successful in raising additional capital. Further, even if the Company raises additional capital, there can be no assurance that the Company will achieve profitability or positive cash flow. If management is unable to raise additional capital and expected significant revenues do not result in positive cash flow, the Company will not be able to meet its obligations and may have to cease operations.

FRANCHISE OPERATIONS

Franchise Overview

The Company currently supports independently owned franchises located in thirty-nine states, three provinces in Canada and Aruba. A summary of franchise activity is as follows:

	September 30, 2008	September 30, 2007
Franchises in operation - beginning of period	182	182
Franchises sold during the period	19	34
Franchises cancelled, terminated or repurchased during the period	(31)	(34)
Franchises in operation - end of period	170	182

Franchisees are required to pay the Company an initial franchise fee, royalty fees aggregating between 4% and 8% of gross sales and an advertising contribution fee of 2% of gross sales. In addition, all materials and goods sold by franchisees are processed, billed and collected through the Company using approved vendors and suppliers.

Reacquired Franchise Rights

The Company occasionally reacquires the rights to a franchise territory. When this occurs the Company contracts with the franchisee to reacquire the territory for a specified amount that can consist of cash, a note payable, and/or forgiveness of debt. While these territories provide benefits to the Company, they lack physical substance, thus, under Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets”, the Company records reacquired franchise rights as intangible assets at fair value. Fair value is established as the total amount of consideration that changed hands, not to exceed the estimated resale amount of the territory less all related costs of sales. The Company has concluded that reacquired territories have indeterminate lives, so the resulting intangible assets are not amortized. When reacquired territories are resold, the intangible assets are offset against the cost of the sale, and the related carrying value is reduced. The Company assesses impairment of intangible assets on an annual basis. If any impairment is found, the carrying amount of the asset is written down to the fair value. In the twelve months ended September 30, 2008 and 2007 the Company reacquired franchise rights from two and three franchisees, respectively.

F-10

V2K INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Repossessed Franchises

The Company has the right to repossess (cancel) franchises. When this occurs the Company cancels a franchise agreement and takes the franchise territory back from the franchisee. The Company cancels franchises for failure to abide by the terms and conditions of franchise agreements, and for failure to meet minimum performance standards pursuant to franchise agreements. Occasionally, franchisees voluntarily surrender their territories. No consideration is exchanged in these situations, and none of the franchise fee is refunded, thus under SFAS No. 45, “Accounting for Franchise Fee Revenue”, no fair value is assigned to these transactions. In the twelve months ended September 30, 2008 and September 30, 2007, the Company repossessed 29 and 31 franchises, respectively.

REVENUE RECOGNITION

Initial franchise fees are recognized upon the commencement of operations by the franchisee, which is when the Company has performed substantially all initial services required by the franchise agreement. Unearned income represents franchise fees received for which the Company has not completed its initial obligations under the franchise agreement. Such obligations, consisting mostly of training, are generally fulfilled within 60 days of receipt of the initial franchise fee. Royalties and advertising fees are recognized as earned.

Franchisees place all orders for materials and supplies with the Company. The Company reviews each proposed purchase order to determine whether the products can be made as requested, makes any necessary changes, and then places the corresponding orders with its vendors. Accordingly, the Company determines all product specifications. While the products are shipped directly to the franchisees by the vendors, the Company receives title to the shipped items and has the physical risk of loss upon shipment. The Company is liable to the vendors for payment and collects the amounts due for the goods from the franchisees. The Company negotiates all pricing with the vendors and has the ability to establish rebate programs with vendors, mark-ups or any other method of creating margin. In addition, the Company is responsible to the franchisees for goods shipped by the vendors that do not meet specifications. The Company has discretion in supplier selection. Thus, the Company acts as a principal as defined in the Emerging Issues Task Force, Issue 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent.” Revenue from materials and supplies sales is recorded upon shipment to the franchisee by the vendor and represents approximately 73% and 65% of total revenue for the years ended September 30, 2008 and September 30, 2007, respectively.

INVENTORY

Inventory is valued at the lower of cost, using the first in first out method, or market and consists of manufacturing materials and supplies.

PROPERTY AND EQUIPMENT

Property and equipment is recorded at cost. Depreciation of equipment is provided by use of the straight-line method over the estimated useful lives of the related assets of three to five years. Leasehold improvements are amortized using the straight-line method over the life of the lease. Expenditures for replacements, renewals and betterments are capitalized. Maintenance and repairs are charged to operations as incurred.

F-11

V2K INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

INTANGIBLE ASSET IMPAIRMENT

Intangible assets consist of reacquired franchise rights from the repurchase of franchise territories. The Company has determined that reacquired franchise rights have indefinite lives and are not subject to amortization. Intangible assets with indefinite lives are reviewed for impairment annually or more frequently if events or circumstances indicate the carrying amount of the assets may be impaired. As of September 30, 2008, no impairment has been recorded.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company has adopted Statement of Financial Accounting Standards (SFAS) 144, “Accounting for the Impairment and Disposal of Long-Lived Assets,” which requires that long-lived assets to be held and used be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company will assess the recoverability of the carrying cost of long-lived assets based on a review of projected undiscounted cash flows related to the asset held for use. If assets are determined to be impaired, then the asset will be written down to its fair value based on the present value of the discounted cash flows of the related asset or other relevant measures. As of September 30, 2008, no impairment has been recorded.

ADVERTISING COSTS

The Company expenses all costs of advertising as incurred. Total advertising expense for the years ended September 30, 2008 and September 30, 2007 was $123,282 and $196,603, respectively. Advertising expense does not include expenditures on behalf of franchisees from the National/Regional/Local Advertising Fund (see Note 1 – Cash Equivalents).

INCOME TAXES

The Company has adopted the provisions of SFAS 109, “Accounting for Income Taxes.” SFAS 109 requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

Temporary differences between the time of reporting certain items for financial and tax reporting purposes consist primarily of depreciation of equipment and allowance for uncollectible receivables.

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 reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

F-12

V2K INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

RESEARCH AND DEVELOPMENT COSTS

The Company has adopted the provisions of SFAS 86, “Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed,” which requires capitalization of certain software development costs subsequent to the establishment of technological feasibility. Based on the Company’s product development process, technological feasibility is established upon completion of a working model. Since the

Company does not incur any costs between the completion of the working model and the point at which the product is ready for general release, all research and development costs are charged to expense as incurred. Research and development expenses for the years ended September 30, 2008 and September 30, 2007 were $317,891 and $426,069, respectively.

VARIABLE INTEREST ENTITIES

The Financial Accounting Standards Board (“FASB”) issued Interpretation 46 (revised 2003), “Consolidation of Variable Interest Entities” and requires the primary beneficiary of a variable interest entity to consolidate that entity. The primary beneficiary of a variable interest entity is the party that absorbs a majority of the variable interest entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, because of ownership, contractual or other financial interests in the entity.

The primary entities in which the Company possesses a variable interest are franchise entities, which operate our franchised window fashions. The Company does not possess any ownership interests in franchise entities, other than one wholly-owned franchise which we owned and consolidated until its sale in July 2007 (see Note 1 – Organization and Note 17). The Company does not generally provide financial support to the franchises. Management has reviewed the franchise entities and determined that, other than the former 100% owned franchise, the Company is not the primary beneficiary of the entities, and therefore, these entities have not been consolidated.

INCOME (LOSS) PER SHARE

Basic income (loss) per share is computed based on the weighted average number of common shares outstanding during each period. The computation of diluted earnings per share assumes the conversion, exercise or contingent issuance of securities only when such conversion, exercise or issuance would have a dilutive effect on income per share. The dilutive effect of convertible securities is reflected in diluted earnings per share by application of the “as if converted method.” The dilutive effect of outstanding options and warrants and their equivalents is reflected in diluted earnings per share by application of the treasury stock method.

For the years ended September 30, 2008 and September 30, 2007 all outstanding options were excluded from the computation of diluted loss per share as the effect of the assumed exercise and conversions would be anti-dilutive.

SHARE BASED COMPENSATION

F-13

V2K INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

SHARE BASED COMPENSATION (CONTINUED)

The calculated value of stock options granted under these plans, following calculation methods prescribed by SFAS 123, uses the Black-Scholes stock option pricing model with the following assumptions used:

	2008	2007
Expected option life-years	2.5 – 7.00	3.00
Risk-free interest rate	2.31% -3.83%	5.25%
Dividend yield	-	-
Volatility	58% - 121%	68%

CASH EQUIVALENTS

For purposes of reporting cash flows, the Company considers as cash equivalents all highly liquid investments with a maturity of three months or less at the time of purchase. At September 30, 2008 and September 30, 2007, there were no cash equivalents.

Cash at September 30, 2008 and September 30, 2007 includes $55,091 and $42,289, respectively, of cash restricted for advertising and marketing. Such funds were contributed by franchisees to a National/Regional/Local Advertising Fund pursuant to franchise agreements, and may not be used for the general operations of the Company.

SHIPPING AND HANDLING FEES AND COSTS

All amounts billed to a customer in a sales transaction related to shipping and handling represent revenues earned and are reported as revenue, and the costs incurred by the Company for shipping and handling are reported as an expense in cost of materials and supplies.

FAIR VALUE

The carrying amount reported on the balance sheet for cash, accounts receivable, inventory, accounts payable and accrued liabilities approximates fair value because of the immediate or short-term maturity of these financial instruments.

The carrying amounts of notes receivable approximate fair value as the effective rates for those instruments are comparable to market rates at year end.

Based upon the borrowing rates currently available to the Company for loans with similar terms and average maturities, the fair value of long-term debt approximates its carrying value.

CONCENTRATIONS OF CREDIT RISK

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash, trade accounts receivable and notes receivable.

The Company maintains cash accounts at a single financial institution. At September 30, 2008 and 2007, the Company had $0 and $57,758, respectively on deposit in excess of the federally insured amount. The Company periodically evaluates the credit worthiness of financial institutions, and maintains cash accounts only in large high quality financial institutions, thereby minimizing exposure for deposits in excess of federally insured amounts. The Company believes that credit risk associated with cash is minimal.

F-14

V2K INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

CONCENTRATIONS OF CREDIT RISK (CONTINUED)

The Company has recorded trade accounts receivable from business operations. The Company periodically evaluates the collectibility of trade receivables and has provided an allowance for potentially uncollectible accounts.

The Company has recorded notes receivable from business operations. The Company periodically evaluates the collectibility of its notes receivable and has provided an allowance for potentially uncollectible notes.

For the years ended September 30, 2008 and September 30, 2007, approximately 69% and 64%, respectively, of materials and supplies were acquired from three major vendors, the largest vendor’s activity representing 38% and 35%, respectively, of the total. The related accounts payable to the largest vendor was approximately $291,131 as of September 30, 2008, and $311,704 as of September 30, 2007.

SEGMENT REPORTING

SFAS 131, “Disclosures about Segment Reporting of an Enterprise and Related Information,” establishes standards for the way public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to stockholders. It also establishes standards for related disclosure about products and services, geographic areas and major customers. The Company and its subsidiaries operate in five industry segments, as disclosed in footnote 13.

RECENT PRONOUNCEMENTS

EITF No. 03-6-1 – In June 2008, the FASB issued Staff Position No. EITF 03-6-1 (“EITF No. 03-6-1”), Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities. EITF No. 03-6-1 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting, and therefore, need to be included in the earnings allocation in calculating earnings per share under the two-class method described in Statement of Financial Accounting Standards No. 128, Earnings per Share. EITF No. 03-6-1 requires companies to treat unvested share-based payment awards that have non-forfeitable rights to dividend or dividend equivalents as a separate class of securities in calculating earnings per share. EITF No. 03-6-1 is effective for fiscal years beginning after December 15, 2008. The Company is currently assessing the potential effect of EITF No. 03-6-1 on its financial statements

SFAS No. 162 – In May 2008, the FASB issued Statement of Financial Accounting Standards No. 162 (“SFAS No. 162”), The Hierarchy of Generally Accepted Accounting Principles. SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States. SFAS No. 162 will become effective 60 days following Securities and Exchange Commission (“SEC”) approval of the Public Company Accounting Oversight Board (“PCAOB”) amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. The Company does not anticipate the adoption of SFAS No. 162 to have a material impact on its financial statements.

F-15

V2K INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

RECENT PRONOUNCEMENTS (CONTINUED)

FSP No. 142-3 – In April 2008, the FASB issued Staff Position No. 142-3 (“FSP No. 142-3”), Determination of the Useful Life of Intangible Assets. FSP No. 142-3 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 Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets. The FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. The Company is currently assessing the potential effect of FSP No. 142-3 on its financial statements.

SFAS No. 161 – In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161 (“SFAS No. 161”), Disclosures about Derivative Instruments and Hedging Activities. SFAS No. 161 amends and expands the disclosure requirements of SFAS No. 133, Accounting for Derivative Instruments and Hedging. SFAS No. 161 is effective for fiscal years beginning after November 15, 2008. The Company believes that the adoption of this standard will not a have a material impact on its financial statements.

NOTE 2 – ACCOUNTS AND NOTES RECEIVABLE

Accounts receivable consists of amounts due from franchisees for sale of merchandise at September 30, 2008 and September 30, 2007, as follows:

	2008			2007
Accounts receivable – trade	$	623,551		$	621,865
Less allowance for doubtful accounts		(41,483	)		(40,057	)
	$	582,068		$	581,808

The Company performs ongoing credit evaluations of its franchisees and has not required collateral or other forms of security for product sales or franchisee fees. The Company maintains an allowance for potential losses based on its estimate of uncollectible accounts. The Company’s allowance for doubtful accounts increased by $1,426 from September 30, 2007 to September 30, 2008, and the Company charged directly to operations $65,351 and $90,582 of uncollectible accounts in the years ended September 30, 2008 and September 30, 2007, respectively.

Notes receivable consists of balances due from franchisees. The notes are interest and non-interest bearing and are payable in monthly installments of $414 to $33,317, maturing at various dates through October 2009. The Company has recorded interest on the non-interest bearing notes, discounted at an imputed interest rate of 5.75%. At September 30, 2008 and September 30, 2007, notes receivable are comprised of:

	2008			2007
Notes receivable, fair value	$	69,300		$	175,896
Less allowance		(20,234	)		(27,574	)
		49,066			148,322
Less current portion		(38,303	)		(117,999	)
Long term portion	$	10,763		$	30,323

F-16

V2K INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

NOTE 2 – ACCOUNTS AND NOTES RECEIVABLE (CONTINUED)

The Company performs ongoing credit evaluations of its creditors and has not required collateral or other forms of security for promissory notes. The Company maintains an allowance for potential losses based on its estimate of uncollectible amounts. The Company’s allowance for uncollectible notes receivable decreased by $7,340 from September 30, 2007 to September 30, 2008.

NOTE 3 - PROPERTY AND EQUIPMENT

Property and equipment at September 30, 2008 and September 30, 2007 consists of the following:

	2008			2007
Furniture and equipment	$	68,243		$	99,162
Computer equipment		89,624			88,060
Software		86,800			86,490
Leasehold improvements		91,990			131,812
Assets under capital lease		8,961			8,961
		345,618			414,485

Less accumulated depreciation and amortization		(238,133	)		(264,433	)

	$	107,485		$	150,052

Depreciation and amortization expense (includes assets under capital lease) for the years ended September 30, 2008 and September 30, 2007 was $44,832 and $61,871, respectively.

NOTE 4 – NOTE PAYABLE - OTHER

Note payable – other at September 30, 2008 and September 30, 2007 consists of the currently deferred portion of the Company’s monthly rent obligation under an office lease entered into effective September 15, 2002. Under the terms of the lease, the landlord has deferred a portion of the monthly rent aggregating $140,000 over the period September 15, 2002 to August 15, 2007. The deferred portion is evidenced by a non-interest bearing promissory note. The Company accretes the deferred portion of the monthly rent utilizing an imputed interest rate of 5.75%. The note decreased by $105,995 during the year ended September 30, 2008. The note increased $15,833 during the year ended September 30, 2007. The balance at September 30, 2008 and September 30, 2007 of $34,005 and $140,000, respectively, represents the accretion of the note.

Future minimum payments under the terms of the note are as follows:

Year ending September 30, 2009

$ 34,005

F-17

V2K INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

NOTE 5 – CAPITAL LEASE OBLIGATIONS

Capitalized lease obligations at September 30, 2008 consist of a lease for office equipment, repayable in monthly installments of $316, and bearing an interest rate of 16.3%.

Future minimum payments on capitalized leases are as follows:

Year ending September 30, 2009	$	3,796
		3,796
Less amount representing interest		(315	)
Present value of net minimum lease payments		3,481
Less current maturity		(3,481	)
Long-term portion	$	0

NOTE 6 – LINE OF CREDIT

In August 2007, the Company opened a line of credit with a commercial bank in the amount of $250,000. The line of credit is collateralized with a first priority security interest in the personal property of Windows ($715,957 carrying value of collateral at September 30, 2008), and up to 125% of the amount is personally guaranteed by officers of the Company (see Note 15). Interest on the outstanding principal balance accrues at the Prime Rate, as set by the bank, and is payable monthly. The line of credit is available until February 26, 2009, at which time any outstanding principal balance and accrued interest are due. There is no prepayment penalty on the principal balance.

At September 30, 2008 and 2007, the Company had drawn $250,000 and 100,000, respectively against the line of credit.

NOTE 7 – NOTE PAYABLE – BANK

In May 2004, the Company entered into a loan agreement with a commercial bank for equipment in the amount of $54,103. The loan was satisfied during the year ended September 30, 2007.

NOTE 8 – NOTES PAYABLE – RELATED PARTIES

On September 30, 2008 the Company consolidated and restructured $731,453 in amounts previously loaned to the Company by three officers and directors. The amounts had been loaned to the Company primarily as demand notes with interest at 12% per annum. The new notes are secured by the assets of V2K Technology, a wholly owned subsidiary of the Company, and mature nine months from date of issuance , subject to a three-month extension at the option of the Company. Interest is paid semi-annually and accrues at the rate of 12% per annum. The notes are convertible into shares of the Company’s common stock at any time at the option of the holder at 90% of the volume weighted average price for the 20 trading days immediately preceding the date of conversion, subject to a floor price of $0.15.

Also, for each dollar that was loaned, the Company issued two redeemable common stock purchase warrants, one exercisable at $0.15 per share for two years the other exercisable at $0.25 per share for three years. Each warrant is exercisable to purchase one share of common stock. The calculated value of these warrants issued was $8,946 which was recorded as interest expense in these consolidated financial statements. The calculation was determined using methods prescribed by SFAS 123, and using the Black-Scholes warrant pricing model with the following assumptions: Expected option life of 1.0 and 1.5 years, Risk-free interest rate of 2.0% and 2.28%, and volatility of 85% and 93%. No beneficial conversion on these warrants exists because the quoted market rate of the stock was below the “floor” conversion rate on September 30, 2008.

F-18

V2K INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

NOTE 8 – NOTES PAYABLE – RELATED PARTIES (CONTINUED)

In January 2006, the Company issued $200,000 of convertible promissory notes for cash, including $75,000 to officers of the Company (see Note 15). The notes required quarterly interest payments in arrears at the rate of four percent plus the prime rate as published in the Money Rate Table of the Western Edition of the Wall Street Journal. Repayment of the notes was to commence upon the earlier of (a) the completion of a private placement or (b) July 5, 2006. If repayment were to commence pursuant to the completion of the private placement, the entire amount of the notes, except for any amounts that had been converted (see below) would be repaid from the proceeds of the private placement. At the option of the lenders, at any time prior to the consummation of the private placement, the lenders could convert all or any of the principal amounts into the securities in the private placement. Upon the minimum portion of the private placement having been sold, the lenders were required to convert at least fifty percent of the note into the private placement.

On January 31, 2007, the Company closed the private placement (see Note 1 – Private Offering Memorandum) and all of the bridge loan lenders converted the entire amount of the note into 1,000,000 units ($0.20 per unit), consisting of 1,000,000 shares of common stock and 1,000,000 warrants to purchase shares of common stock at $0.50 per share.

Interest accrued and paid on the bridge loan for the year ended September 30, 2007 was $8,167.

The lenders were issued warrants to purchase a total of 1,000,000 shares of common stock in International at $0.30 per share. The warrants expire January 5, 2009. The Company granted piggyback registration rights (on a “best efforts” basis) with respect to the shares issuable upon exercise of these warrants. The fair value of the warrants was estimated as of the issue date under the Black-Scholes pricing model, with the following assumptions: common stock based on a market price of $0.20 per share, zero dividends, expected volatility of 28% (as derived from an analysis of trading prices of the stock of a peer company), risk free interest rate of 6.00% and expected life of 1.5 years. The fair value of the warrants of $7,655 was included as other expense during the fiscal year ended September 30, 2006. Included in the shares registered with the SEC on the Company’s Form SB-2 registration statement were the shares underlying these warrants.

NOTE 9 – DEFERRED RENT

In July 2007 the Company entered into a non-cancelable lease for office facilities (see Note 16 – Leasehold Commitments). The lease agreement contains a tenant improvement allowance of $108,570, of which the Company has capitalized $91,206 as leasehold improvements. The unused amount of $17,364 was used as rent reduction for February and March 2008, in the amounts of $14,024 and $3,340, respectively. As of September 30, 2008, $71,859 of the capitalized leasehold improvements remains unamortized. The Company recognizes a deferred rent liability for the utilized tenant improvement allowances within other long-term liabilities and amortizes these amounts over the term of the lease as a reduction of rent expense. The lease also contains a rent escalation clause. The Company records rental expense on a straight-line basis over the term of the lease, with $91,487 deferred as of September 30, 2008. Total deferred rent at September 30, 2008 was $163,346. Remaining amortization as follows:


Year ending September 30, 2009	$	28,786
Year ending September 30, 2010		34,216
Year ending September 30, 2011		39,644
Year ending September 30, 2012		45,073
Thereafter		15,627
	$	163,346

F-19

V2K INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

NOTE 10 – CONVERTIBLE DEBENTURES

In 2005, the Company issued $100,000 of convertible debentures for cash, including $50,000 to an officer of the Company (see Note 15). The debentures had a three-year term, and matured in February 2008. These debentures required quarterly interest only payments at the Wall Street Journal prime rate plus 1%. On January 31, 2007, the debenture holders converted all $100,000 in debentures into 500,000 shares of common stock ($0.20 per share).

Interest accrued and paid on the debentures for the year ended September 30, 2007 was $2,313.

NOTE 11– STOCKHOLDERS’ EQUITY

COMMON STOCK

During the year ended September 30, 2008 the Company issued 300,000 shares at $.29 per share for services rendered and 20,000 shares at $.20 per share to reacquire franchise rights.

During the year ended September 30, 2007 the Company: sold 2,268,750 shares of common stock for cash of $453,750 ($0.20 per share); accepted the conversion of a $200,000 bridge loan (see Note 8) into 1,000,000 shares of common stock ($0.20 per share); and accepted the conversion of $100,000 of convertible debentures (see Note 10) into 500,000 shares of common stock ($0.20 per share).

Prior to the share for share exchange with Windows (see Note 1 – Organization), the Company issued 5,391,811 shares of common stock in conjunction with the recapitalization of V2K International, Inc.

STOCK OPTION PLAN

The Company has adopted the V2K International, Inc. 2006 Stock Option Plan (the Plan). Under the Plan, the Board of Directors, in its discretion, may issue options to officers, directors, employees, and consultants on a case-by-case basis. In general, options may be exercised by payment of the option price by either (i) cash, (ii) tender of shares of its common stock which have a fair market value equal to the option price, or (iii) by such other consideration as the Board of Directors may approve at the time the option is granted. The Company has reserved an aggregate 30,000,000 shares of its common stock for options granted under the Plan.

F-20

V2K INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

NOTE 11– STOCKHOLDERS’ EQUITY (CONTINUED)

STOCK OPTION PLAN (CONTINUED)

A summary of the status of the Company’s stock option plans as of September 30, 2008 and September 30, 2007, and changes during the years then ended is presented below:

	2008					2007
				Weighted					Weighted
				Average					Average
				Exercise					Exercise
	Shares			Price		Shares			Price
Outstanding at beginning
of period		29,180,660		$	0.070		29,180,660		$	0.069

Granted		110,000			0.249		50,000			0.200

Cancelled		(865,000	)		0.143		(50,000	)		0.140

Expired		(200,000	)		0.057		-			-

Outstanding at end
of period		28,225,660			0.069		29,180,660			0.070

Options exercisable at
period end, option price
range $0.05 - $0.29		24,597,205			0.058		23,476,785			0.058

Weighted average remaining
contractual life of options
exercisable at period end		5.41					6.32

Weighted average of fair
value of options granted
during the period	$	0.249				$	0.097

Effective October 1, 2006, the Company adopted the fair value recognition provisions to SFAS 123(R), using the modified-prospective transition method. Under that transition method, the employee compensation cost of $83,057 and $237,000 was recognized in the years ended September 30, 2008 and 2007 which includes: (i) compensation cost for all share-based payments granted prior to, but not yet vested as of October 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123; and (ii) compensation cost for all share-based payments granted subsequent to October 1, 2006 based on the grant date fair value estimated in accordance with the provision of SFAS 123(R). Results from prior periods have not been restated.

As September 30, 2008, there was $56,091 of total unrecognized compensation cost related to nonvested options granted under the plans. That cost is expected to be recognized over the next 21 months.

In the year ended September 30, 2008, 110,000 new options were issued under the Plan.

F-21

V2K INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

NOTE 11– STOCKHOLDERS’ EQUITY (CONTINUED)

STOCK OPTION PLAN (CONTINUED)

The calculated value of stock options granted under the Plan, following calculation methods prescribed by SFAS 123, uses the Black-Scholes stock option pricing model with the following assumptions:

	2008
Expected option life-years	2.5 – 7.0
Risk-free interest rate	2.31% - 3.83%
Dividend yield	-
Volatility	58% - 121%

NOTE 12 - INCOME TAXES

The Company accounts for income taxes under SFAS 109, which requires use of the liability method. SFAS 109 provides that deferred tax assets and liabilities are recorded based on the differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes, referred to as temporary differences.

Deferred tax assets and liabilities at the end of each period are determined using the currently effective tax rates applied to taxable income in the periods in which the deferred tax assets and liabilities are expected to be settled or realized. The reconciliation of enacted rates the years ended September 30, 2008 and September 30, 2007 is as follows:

	2008	2007

Federal	34%	34%
State	4%	4%
Net operating loss carryforward	-	-
Increase in valuation allowance	(38%)	(38%)
	-	-

At September 30, 2008, the Company had a net operating loss carry forward of approximately $2,725,000 that may be offset against future taxable income subject to limitations imposed by the Internal Revenue Service. This carryforward is subject to review by the Internal Revenue Service and, if allowed, may be offset against taxable income through 2028. A portion of the net operating loss carryovers begin expiring in 2019.

Deferred tax assets are as follows:

	2008			2007
Deferred tax asset due to net operating loss	$	1,036,000		$	691,000
Valuation allowance		(1,036,000	)		(691,000	)
		-			-

F-22

V2K INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

NOTE 12 - INCOME TAXES (CONTINUED)

The deferred tax asset relates principally to the net operating loss carryforward. A valuation allowance was established at September 30, 2008 and September 30, 2007 to eliminate the deferred tax benefit that existed at that time since it is uncertain if the tax benefit will be realized. The deferred tax asset (and the related valuation allowance) increased by $337,000 and $270,000 for the years ended September 30, 2008 and September 30, 2007, respectively.

Effective October 1, 2007 the Company must adopt the provisions of Financial Interpretation 48 (FIN 48), “Accounting for Uncertainty in Income Taxes.” Management does not believe the adoption will have a material impact on future results of operations.

NOTE 13 – SEGMENT INFORMATION

The Company and its subsidiaries (see Note 1 – Organization), operate in five industry segments. Parent Holding (International) provides the corporate vehicle for raising capital for the subsidiaries and fulfills the Company’s existence as a public reporting company; Windows sells and supports franchises in the residential and commercial window fashion industry; Technology develops and licenses proprietary software that allows users to decorate windows for both residential and commercial customers; Manufacturing manufactures soft product window treatments exclusively for Windows franchisees; and MSI acts as product development resource and sales agent for overseas window covering manufacturers.

Identified assets by industry are those assets that are used in our operations in each industry. The Company’s assets are principally cash, accounts receivable and equipment.

The Company has adopted SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information”, which requires the presentation of descriptive information about reportable segments which is consistent with that made available to the management of the Company to assess performance.

Windows derives its revenues from sales of franchises, royalty and sales of materials and supplies to franchisees. Manufacturing receives its income from the sale of labor on soft product window treatments to Window’s franchisees. MSI derives its revenues by acting as a product development resource and sales agent for overseas window covering manufacturers.

During the years ended September 30, 2008 and September 30, 2007, inter-segment revenues were $407,771 and $558,088, respectively. The accounting policies applied by each segment are the same as those used by the Company in general. Inter-segment revenues are appropriately eliminated in consolidation.

There have been no material changes in the amount of assets of any operating segment since the last annual report.

F-23

V2K INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

NOTE 13 – SEGMENT INFORMATION (CONTINUED)

Segment information for the years ended September 30, 2008 and September 30, 2007 consists of the following:

	Parent									Manu-
	Holding			Windows			Technology			facturing			MSI			Total
Revenues
2008		-			6,250,699			-			-			-			6,250,699
2007		-			8,334,983			-			-			600			8,335,583

Inter-segment revenues
2008		-			-			-			407,771			-			407,771
2007		-			-			-			558,088			-			558,088

Net (loss)
2008		(266,635	)		(341,930	)		(317,891	)		(53,917	)		(5,906	)		(986,279	)
2007		(237,450	)		(104,461	)		(426,069	)		(174,762	)		(71,609	)		(1,014,351	)

Identifiable assets (net)
2008		2,290,874			949,755			-			5,133			600			3,246,362
2007		1,680,554			1,280,045			-			42,396			600			3,003,595

Depreciation and amortization
charged to identifiable assets
2008		-			44,247			-			585			-			44,832
2007		-			39,759			-			22,112			-			61,871

Interest revenue
2008		-			19,914			-			-			-			19,914
2007		-			22,837			-			-			-			22,837

Interest expense
2008		-			25,661			-			-			-			25,661
2007		-			19,988			-			242			-			20,230

Reconciliation of segment totals to consolidated amounts:

	2008			2007
Total revenues for reportable segments	$	6,658,470		$	8,893,670
Elimination of inter-segment revenues		(407,771	)		(558,088	)
Total Consolidated Revenues	$	6,250,699		$	8,335,583

Reconciliation of segment totals to consolidated amounts (continued):

	2008			2007
Identifiable assets (net)	$	3,246,362		$	3,003,595
Elimination of intercompany assets		(2,153,421	)		(1,667,782	)
Total Consolidated Assets	$	1,092,941		$	1,335,813

F-24

V2K INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

NOTE 14- SALE OF ASSETS OF V2K MANUFACTURING

In October 2007, the Company sold the inventory and fixed assets of Manufacturing (see Note 1-Organization) to a third party. The company accepted a promissory note in the amount of $13,827, bearing interest at 8%, with twenty-four monthly payments of $625 commencing in February 2008. All financial statement reporting for Manufacturing for the 12 month periods ended September 30, 2008 and September 30, 2007 is included in these consolidated financial statements. The sale of the assets resulted in a net loss of $7,874. Manufacturing has not been classified as a discontinued operation in these consolidated financial statements as it continues as a legal entity and wholly owned subsidiary of the company, and has been included in the segment reporting footnote(see Note 13). Manufacturing now acts as a broker for the manufacturing of soft window treatments supplied to Windows and its franchisees by managing strategic alliances with outside vendors.

NOTE 15 - RELATED PARTY TRANSACTIONS

During the year ended September 30, 2008: the Company consolidated and restructured $731,453 in amounts previously loaned to the Company by three officers and directors. The amounts had been loaned to the Company primarily as demand notes. The notes are convertible into shares of the Company’s common stock at any time at the option of the holder. Also, for each dollar that was loaned, the Company issued two redeemable common stock purchase warrants. Each warrant is exercisable to purchase one share of common stock (see Note 8).

During the year ended September 30, 2007: officers of the Company personally guaranteed up to 125% of a line of credit with a commercial bank (see Note 6); $75,000 in bridge loans held by officers of the Company were converted into 375,000 shares of common stock ($0.20 per share) and 375,000 warrants to purchase shares of common stock at $0.50 per share (see Note 8); $50,000 in debentures held by an officer of the Company were converted into 250,000 shares of common stock ($0.20 per share) (see Note 10); and $65,000 in commissions related to sales of the Company’s private placement (see Note 1 – Private Offering Memorandum) were paid to an existing shareholder.

NOTE 16 – COMMITMENTS AND CONTINGENCIES

LEASEHOLD COMMITMENTS

In July 2007 the Company entered into a non-cancelable lease for office facilities in Lakewood, Colorado. The lease began August 1, 2007 and ends January 31, 2013. The lease terms call for six months of free rent, followed by escalating rents over the life of the lease. Minimum payments due under the lease are as follows:


Year ending September 30, 2009	$	162,837
Year ending September 30, 2010		186,397
Year ending September 30, 2011		182,760
Year ending September 30, 2012		188,188
Thereafter		63,333
	$	783,515

F-25

V2K INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

NOTE 16 – COMMITMENTS AND CONTINGENCIES (CONTINUED)

OPERATING LEASE COMMITMENTS

The Company leases equipment under operating leases. The future minimum lease payments due under non-cancelable operating leases is as follows:

Year ending September 30, 2009	$	7,260
Year ending September 30, 2010		7,260
Year ending September 30, 2011		7,260
Year ending September 30, 2012		5,746
	$	27,526

CONTINGENCIES

Under the terms of the member purchase agreement of Franchise LLC (see Note 1 – Organization and Note 16), the Company may be liable for an amount of any unsatisfied debt obligation that was incurred on behalf of Franchise LLC through July 31, 2007. These potential contingent liabilities have been estimated to be approximately $22,500.

NOTE 17 – DISCONTINUED OPERATIONS

In July 2007, the Company divested its entire interest in Franchise LLC (see Note 1 – Organization). The Company has accounted for Franchise LLC as a discontinued operation. The Company accepted a promissory note in the amount of $29,950, bearing interest at 8%, with twenty-four monthly payments of $1,355 commencing in November 2007. The divestment resulted in a gain on the sale of $19,179.

The Company recorded a net loss from discontinued operations, net of tax, of $10,157 for the year ended September 30, 2007.

NOTE 18 – SUBSEQUENT EVENTS

In October 2008, the Company entered into an agreement amending the payment schedule of the promissory note carried on the consolidated financial statements as “note payable-other.” The amendment abates the October, November and December 2008 payments for 90 days, with the next payment being due January 1st, 2009. The interest continues to accrue during the abatement period and is due and payable in addition to the monthly payment on January 1st, 2009. All other terms and conditions of the note shall remain in full force and effect (see Note 4).

In October 2008, the Company entered into an agreement amending the payment schedule of the Leasehold commitment (see Note 16). The agreement calls for a temporary rent credit for the period of October 1, 2008 through December 31, 2008, during which period the Company shall pay monthly to the landlord only the common area shared expenses of $563. Also, commencing January 1, 2009 through December 31, 2009 the Company shall pay rent to the landlord of $18,093 plus rent increases and other operating cost reconciliations pursuant to the original lease. Following December 31, 2009 the Company shall revert back to payments outlined in the original lease of May 2007.

F-26