U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-QSB
 
x
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2007
 
o
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _______ to ________
 
COMMISSION FILE NUMBER: 333-70932
 
Interact Holdings Group, Inc.
(Name of small business issuer in its charter)

FLORIDA
  
65-1102865
(State or other jurisdiction of
incorporation or organization)
  
(I.R.S. Employer
Identification No.)
 
550 Greens Parkway, Suite 230, Houston, Texas 77067
(Address of principal executive offices)
 
(619) 342-7449
(Issuer’s telephone number)
 
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
 
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: As of November 6, 2007, the issuer had 307,477,464 shares of its common stock issued and outstanding.
 
Transitional Small Business Disclosure Format (check one): Yes o No x
 
 
TABLE OF CONTENTS
 
PART I. FINANCIAL INFORMATION
1
   
ITEM 1. 
FINANCIAL STATEMENTS
1
     
ITEM 2. 
MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
2
     
ITEM 3. 
CONTROLS AND PROCEDURES
5
     
PART II. OTHER INFORMATION
6
   
ITEM 1. 
LEGAL PROCEEDINGS
6
   
 
ITEM 2. 
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
6
     
ITEM 3. 
DEFAULTS UPON SENIOR SECURITIES
6
     
ITEM 4. 
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
6
     
ITEM 5. 
OTHER INFORMATION
6
     
ITEM 6. 
EXHIBITS
6
     
SIGNATURES
7

 
 
PART I. FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS
 
Consolidated Balance Sheets
F–1
 
 
Consolidated Statements of Operations (Unaudited)
F–2
 
 
Consolidated Statements of Cash Flows (Unaudited)
F–3
 
 
Notes to Unaudited Consolidated Financial Statements
F–4
 
1
 
INTERACT HOLDING GROUP, INC.
CONSOLIDATED BALANCE SHEETS
 
   
September 30,
2007
(Unaudited)
  
December 31,
2006
  
Assets
              
Current assets
              
Cash and cash equivalents
  
$
173,300
  
$
222,666
  
Accounts receivable, net
    
690,463
    
525,697
  
Inventory
    
–
    
–
  
Prepaid and other assets
    
137,704
    
146,143
  
Total current assets
    
1,001,467
    
894,506
  
Property and equipment
    
145,095
    
167,401
  
Customer list-net
    
595,352
    
674,147
  
Goodwill
    
1,868,986
    
1,868,986
  
Other Long Term Assets
    
28,206
    
28,206
  
Total assets
  
$
3,639,906
  
$
3,633,246
  
Liabilities and Stockholders’ Deficit
              
Current liabilities
              
Accounts payable and accrued expenses
  
$
599,202
  
$
669,361
  
Current derivative liability
    
502,706
    
250,000
  
Note payable - short term
    
967,288
    
1,245,585
  
Advance Billings
    
33,632
    
120,657
  
Capital lease - current portion
    
–
    
3,481
  
Other current liabilities
    
–
    
–
  
Total current liabilities
    
2,102,828
    
2,289,084
  
Derivative liability
    
3,336,569
    
2,544,177
  
Note payable - related parties
    
726,205
    
263,452
  
Total Liabilities
 
$
6,165,602
  
$
5,096,713
  
Stockholders’ deficit
              
Series A preferred stock, par value $.001 per share, 10,000,000 shares authorized; 960,000 shares issued and outstanding at September 30, 2007 and December 31, 2006, respectively
    
10
    
10
  
Series B preferred stock, par value $.001 per share, 10,000,000 shares authorized; 8,413,607 issued and outstanding at September 30, 2007
    
1,000
    
1,000
  
Series C preferred stock, par value $1.00 per share, 2,200,000 shares authorized, issued and outstanding as of September 30, 2007
    
2,200,000
    
2,200,000
  
Common stock, par value $.00001 per share, 5,000,000,000 shares authorized, 177,880,864 and 486,380 issued and outstanding
   
1,778
    
5
  
Additional paid-in capital
    
1,360,374
    
860,915
  
Stock subscription receivable
    
–
    
–
  
Accumulated deficit
    
(6,095,358
)
  
(4,562,376
)
Comprehensive Income - translation of non-dollar currency financials of Branch
    
6,500
    
6,979
  
Total stockholders’ deficit
    
(2,525,696
)
  
(1,463,467
)
Total liabilities and stockholders’ deficit
  
$
3,639,906
  
$
3,633,246
  

See Accompanying Notes to Consolidated Financial Statements
 
F–1

INTERACT HOLDING GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
   
For the three months ended 
September 30,
  
For the nine months ended 
September 30,
  
   
2007
  
2006
  
2007
  
2006
  
Revenues
  
$
1,112,078
  
$
938,706
  
$
3,373,855
  
$
2,165,256
  
Cost of goods sold
    
576,497
    
648,103
    
1,785,884
    
1,394,611
  
Gross profit
    
535,581
    
290,603
    
1,587,971
    
770,645
  
Research & development
   
115,498
    
84,709
    
333,658
    
84,709
  
Selling, general & administrative
   
51,573
    
598,573
    
2,120,772
    
2,292,314
  
Depreciation and amortization
    
38,393
    
57,363
    
110,940
    
165,039
  
Total operating expenses
    
205,464
    
655,936
    
2,565,370
    
2,457,353
  
Gain/(loss) from operations
    
330,117
    
(450,042
)
  
(977,399
)
  
(1,771,417
)
Other income (expense)
                          
Interest expense, net
    
(79,990
)
  
(101,273
)
  
(296,354
)
  
(301,528
)
Gain/(loss) on derivative liability
    
(71,000
)
  
(283,645
)
  
(225,000
)
  
(283,645
)
Debt forgiveness
    
–
    
–
    
–
    
–
  
Other income (expense)
    
(70,576
)
  
75,549
    
(34,229
)
  
(20,004
)
Total other income (expense)
    
(221,566
)
  
(309,369
)
  
(555,583
)
  
(605,177
)
Net income (loss) from continued operations
    
108,551
    
(759,411
)
  
(1,532,982
)
  
(2,376,594
)
Loss from discontinued operations
    
–
    
–
    
—
    
(81,454
)
Net income (loss) attributable to common shareholders
  
$
108,551
  
$
(759,411
)
  
(1,532,982
)
  
(2,458,048
)
Basic and diluted net income/(loss) from continuing operations
    
0.00
    
(0.01
)
  
(0.02
)
  
(0.03
)
Basic and diluted net income/(loss) from discontinued operations
    
0.00
    
0.00
    
(0.00
)
  
(0.00
)
Income (loss) per share, basic and diluted
  
$
(0.01
)
$
(0.01
)
$
(0.03
)
$
(0.03
)
Weighted average number of shares outstanding basic and diluted
    
114,981,339
    
151,158,574
    
81,928,439
    
94,898,121
  
 
See Accompanying Notes to Consolidated Financial Statements
 
F–2
 
INTERACT HOLDING GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
   
For the nine months ended
September 30,
  
   
2007
  
2006
  
Cash flows from operating activities
              
Loss from continued operations
  
$
(1,532,982
)
$
(2,376,594
)
Loss for discontinued operations
   
–
    
(81,456
)
Net loss
   
(1,532,982
)
  
(2,458,050
)
Adjustments to reconcile net income to net cash provided by operating activities
              
Depreciation and amortization
    
110,940
    
165,039
  
Debt forgiveness
    
–
    
–
  
Common stock issued for consulting services rendered
    
446,343
    
307,351
  
Common stock issued in exchange for employee services rendered
    
–
    
211,200
  
Common stock issued from stock subscription receivable
    
24,889
    
92,400
  
Accretion of discount on note payable
    
–
    
138,425
  
Derivative loss
    
225,000
        
Changes in assets and liabilities (Increase) decrease:
              
Accounts receivable
    
(164,766
)
  
(42,824
)
Inventories
    
–
    
19,633
  
Other assets
    
8,439
    
(156,235
)
Increase (decrease):
              
Accounts payable and accrued liabilities
    
(70,159
)
  
(150,145
)
Other liabilities
    
(87,025
)
  
(6,957
)
Net cash used in operating activities
    
(1,039,321
)
  
(1,880,161
)
Cash flows from investing activities
              
Purchase of property and equipment
    
(9,839
)
  
(21,409
)
Cash flows from financing activities
              
Proceeds from sale of stock, net of costs and fees
    
–
    
13,407
  
Proceeds from notes payable, net of repayments
    
541,001
    
1,421,172
  
Proceeds from notes payable - related parties, net of repayments
    
462,753
    
420,751
  
Payment for Capital Leases
    
(3,481
)
  
(8,844
)
Acquisition of UTSI
    
–
    
195,229
  
Net cash provided by financing activities
    
1,000,273
    
2,041,715
  
Net increase (decrease) in cash and cash equivalents
    
(48,887
)
  
140,145
  
Effect of exchange rate on cash and cash equivalents
    
(479
)
  
11,383
  
Cash and cash equivalents - beginning of period
    
222,666
    
36,361
  
Cash and cash equivalents - end of period
  
$
173,300
  
$
187,889
  
Supplemental disclosures of cash flow information
              
Cash paid for income taxes
    
–
    
–
  
Cash paid for interest
  
$
40,354
  
$
60,532
  
 
See Accompanying Notes to Consolidated Financial Statements
F–3
 
INTERACT HOLDING GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Note 1 – Organization and Principal Activities
 
Organization and Description of Business
 
Interact Holdings Group, Inc. (formerly “The Jackson Rivers Company”), through its operating subsidiaries, provides technology and services to the petroleum, utility and communications industries.
 
The accompanying consolidated financial statements include the accounts of Interact Holdings Group, Inc. and its wholly owned subsidiaries, Diverse Networks, Inc. and UTSI International Corporation (collectively, the “Company”). Significant inter-company transactions and accounts have been eliminated in consolidation.
 
Note 2 - Summary of Significant Accounting Policies
 
Basis of Presentation
 
The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America.
 
Cash Equivalents
 
Cash equivalents consist primarily of cash deposits and highly liquid investments with maturities of three months or less.
 
Intangible Assets
 
In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142 “Goodwill and Other Intangible Assets,” the Company evaluates intangible assets and other long-lived assets for impairment, at least on an annual basis and whenever events or changes in circumstances indicate that the carrying value may not be recoverable from its estimated future cash flows. Recoverability of intangible assets and other long-lived assets is measured by comparing their net book value to the related projected undiscounted cash flows from these assets, considering a number of factors including: past operating results, budgets, economic projections, market trends and product development cycles. If the net book value of the asset exceeds the related undiscounted cash flows, the asset is considered impaired, and a second test is performed to measure the amount of impairment loss.
 
Revenue Recognition
 
Revenue is recognized in accordance with SEC Staff Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition in Financial Statements.” The Company recognizes revenue when the significant risks and rewards of ownership have been transferred to the customer pursuant to applicable laws and regulations, including factors such as when there has been evidence of a sales arrangement, delivery has occurred, or service has been rendered, the price to the buyer is fixed or determinable, and collectibility is reasonably assured.

F–4

INTERACT HOLDING GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stock-Based Compensation
 
SFAS No. 123, “Accounting for Stock-Based Compensation,” established and encourages the use of the fair value based method of accounting for stock-based compensation arrangements under which compensation is determined using the fair value of stock-based compensation determined as of the date of the grant and is recognized over the periods in which the related services are rendered. The statement also permits companies to elect to continue using the current intrinsic value accounting method specified in Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” to account for stock-based compensation. The Company has elected to use the modified-prospective transition method. Under the modified-prospective transition method, compensation cost recognized includes (a) compensation cost for all share-based payments granted prior to, but not yet vested, as of December 31, 2005 based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123 and (b) compensation cost for all share-based payments granted on or subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123R. As of June 30, 2007, all options were fully vested; therefore, there are no expenses to the Company related to the implementation of SFAS No. 123R.
 
Property and Equipment
 
Property and equipment are recorded at acquisition cost and increased by the cost of any significant improvements made after purchase. The Company depreciates the cost over the estimated useful lives of the respective assets using the straight-line method over the estimated useful life.
 
Software
 
Software is stated at acquisition cost and amortized on a straight-line basis over their estimated useful life.
 
Income Taxes
 
The Company accounts for income taxes under SFAS No. 109, “Accounting for Income Taxes.” Under the asset and liability method of SFAS No. 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss and credit carryforwards and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under SFAS No. 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized as income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations.
 
Basic and Diluted Income/(Loss) Per Share
 
SFAS No. 128, “Earnings per Share,” requires presentation of basic earnings per share (“Basic EPS”) and diluted earnings per share (“Diluted EPS”). Basic earnings/(loss) per share is computed by dividing earnings/(loss) available to common stockholders by the weighted average number of common shares outstanding (including shares reserved for issuance) during the period. Diluted earnings per share give effect to all dilutive potential common shares outstanding during the period.

F–5

INTERACT HOLDING GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

All common stock shares are presented to reflect a 500-to-1 reverse stock split approved by the Board of Directors on November 21, 2006.
 
Segmented Information
 
Management has determined that the Company operates in one dominant industry segment. Additional segment disclosure requirements will be evaluated as it expands its operations.
 
Concentration of Credit Risk
 
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist of cash, cash equivalents and accounts receivable. The Company places its cash with high quality financial institutions and at times may exceed the FDIC $100,000 insurance limit. The Company extends credit based on an evaluation of the customer’s financial condition, generally without collateral. Exposure to losses on receivables is principally dependent on each customer’s financial condition. The Company monitors its exposure for credit losses and maintains allowances for anticipated losses, as required. Accounts are “written-off” when deemed uncollectible.
 
Special-Purpose Entities
 
The Company does not have any off-balance sheet financing activities.
 
Going Concern
 
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. As of September 30, 2007, the Company had a retained deficit of $6,095,358. This condition raises 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.
 
In order to improve the Company’s liquidity, the Company has and is actively pursuing additional equity financing through discussions with investment bankers and private investors. There can be no assurance that the Company will be successful in its continuing efforts to secure additional equity financing.
 
If operations and cash flows continue to improve through these efforts, management believes that the Company can continue to operate. However, no assurance can be given that management’s actions will result in profitable operations or the resolution of its liquidity problems.

F–6

INTERACT HOLDING GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Use of Estimates
 
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements. The Company bases its estimates on historical experience, management expectations for future performance, and other assumptions as appropriate. Key areas affected by estimates include the assessment of the recoverability of long-lived assets, which is based on such factors as estimated future cash flows. The Company re-evaluates its estimates on an ongoing basis. Actual results may vary from those estimates.
 
Impairment of Long-Lived Assets
 
In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the Company periodically assesses the impairment of long-lived assets when conditions indicate a possible loss. When necessary, the Company records charges for impairments of long-lived assets for the amount by which the present value of future cash flows, or some other fair value measure, is less than the carrying value of these assets. The Company has recorded no impairment charges.
 
Operating leases
 
The Company enters into lease agreements for a variety of business purposes, including facilities and equipment. These arrangements are noncancellable operating leases which do not meet the requirements of capital leases under SFAS No. 13, “Accounting for Leases” and are therefore expensed straight-line over the life of the operating lease.
 
Fair Value of Financial Instruments
 
The Company uses the following methods and assumptions to estimate the fair value of derivative and other financial instruments at the relative balance sheet date:
 
 
·
Short-term financial statements (cash equivalents, accounts receivable and payable, short-term borrowings, and accrued liabilities) – cost approximates fair value because of the short maturity period.
 
 
·
Long-term debt – fair value is based on the amount of future cash flows associated with each debt instrument discounted at our current borrowing rate for similar debt instruments of comparable terms.
 
Note 3 – Recently Issued Accounting Pronouncements
 
In May 2005, the FASB issued SFAS No. 154, entitled “Accounting Changes and Error Corrections – a replacement of APB Opinion No. 20 and FASB Statement No. 3.” This Statement replaces APB Opinion No. 20, “Accounting Changes” and FASB Statement No. 3, “Reporting Accounting Changes in Interim Financial Statements,” and changes the requirements for the accounting for and reporting of a change in accounting principle. This statement applies to all voluntary changes in accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. Opinion 20 previously required that most voluntary changes in accounting principle be recognized by including in net income of the period of the change the cumulative effect of the change to the new accounting principle. This Statement requires retrospective application to prior periods’ financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. This Statement defines the application of a different accounting principle to prior accounting periods as if that principle had always been used or as the adjustment of previously issued financial statements to reflect a change in the reporting entity. This Statement also redefines “restatement” as the revising of previously issued financial statements to reflect the correction of an error. The adoption of SFAS 154 did not impact the financial statements.

F–7

INTERACT HOLDING GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
In February 2006, FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Statements.” SFAS No. 155 amends SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” and SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” SFAS No. 155, permits fair value measurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS No. 133, establishes a requirement to evaluate interest in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial statements that contain an embedded derivative requiring bifurcation, clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives, and amends SFAS No. 140 to eliminate the prohibition on the qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. This statement is effective for all financial instruments acquired or issued after the beginning of the Company’s first fiscal year that begins after September 15, 2006. Management believes that this statement will not have a significant impact on the financial statements.
 
In March 2006, FASB issued SFAS 156 “Accounting for Servicing of Financial Assets.” This Statement amends FASB Statement No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities,” with respect to the accounting for separately recognized servicing assets and servicing liabilities. This Statement:
 
 
1.
Requires an entity to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into a servicing contract.
 
 
2.
Requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable.
 
 
3.
Permits an entity to choose “Amortization method” or “Fair value measurement method” for each class of separately recognized servicing assets and servicing liabilities.
 
 
4.
At its initial adoption, permits a one-time reclassification of available-for-sale securities to trading securities by entities with recognized servicing rights, without calling into question the treatment of other available-for-sale securities under Statement 115, provided that the available-for-sale securities are identified in some manner as offsetting the entity’s exposure to changes in fair value of servicing assets or servicing liabilities that a servicer elects to subsequently measure at fair value.
 
 
5.
Requires separate presentation of servicing assets and liabilities subsequently measured at fair value in the statement of financial position and additional disclosures for all separately recognized servicing assets and servicing liabilities.
 
Management believes that this statement will not have a significant impact on the financial statements.
 
In June 2006, the FASB issued FIN 48 “Accounting for Uncertainty in Income Taxes “ FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.” FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective in fiscal years beginning after December 15, 2006. Management believes that this Statement will not have a significant impact on the financial statements.

F–8

INTERACT HOLDING GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In September 2006, FASB issued SFAS No. 157, “Fair Value Measures.” SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (“GAAP”), expands disclosures about fair value measurements, and applies under other accounting pronouncements that require or permit fair value measurements. SFAS No. 157 does not require any new fair value measurements, however the FASB anticipates that for some entities, the application of SFAS No. 157 will change current practice. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, which for the Company would be its fiscal year beginning January 1, 2008. The implementation of SFAS No. 157 is not expected to have a material impact on the Company’s results of operations and financial condition.
 
In September 2006, the FASB issued SFAS No. 158, “Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106 and 132(R).” This statement requires employers to recognize the overfunded or underfunded status of a defined benefit postretirement plan (other than a multi-employer plan) as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income of a business entity or changes in unrestricted net assets of a not-for-profit organization. This statement also requires an employer to measure the funded status of a plan as of the date of its year-end statement of financial position with limited exceptions. The provisions of SFAS No. 158 are effective for employers with publicly traded equity securities as of the end of the fiscal year ending after December 15, 2006. This pronouncement does not currently apply to the Company.
 
In September 2006, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 108 (Topic IN), “Quantifying Misstatements in Current Year Financial Statements” (“SAB No. 108”). SAB No. 108 addresses how the effect of prior year uncorrected misstatements should be considered when quantifying misstatements in current year financial statements. SAB No. 108 requires SEC registrants (i) to quantify misstatements using a combined approach which considers both the balance sheet and income statement approaches; (ii) to evaluate whether either approach results in quantifying an error that is material in light of relevant quantitative and qualitative factors; and (iii) to adjust their financial statements if the new combined approach results in a conclusion that an error is material. SAB No. 108 addresses the mechanics of correcting misstatements that include effects from prior years. It indicates that the current year correction of a material error that included prior period effects may result in the need to correct prior year financial statements even if the misstatement in the prior year or years is considered immaterial. Any prior year financial statements found to be materially misstated in years subsequent to the issuance of SAB No. 108 would be restated in accordance with SFAS No. 154, “Accounting Changes and Error Corrections.” Because the combined approach represents a change in practice, the SEC staff will not require registrants that followed an acceptable approach in the past to restate prior years’ historical financial statements. Rather, these registrants can report the cumulative effect of adopting the new approach as an adjustment to the current year’s beginning balance of retained earnings. If the new approach is adopted in a quarter other than the first quarter, financial statements for prior interim periods within the year of adoption may need to be restated. SAB No. 108 is effective for fiscal years ending after November 15, 2006, which for the Company would be its fiscal year beginning January 1, 2007. The implementation of SAB No. 108 is not expected to have a material impact on the Company’s financial position or results of operations.

F–9

INTERACT HOLDING GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Note 4 – Acquisitions
 
On December 2, 2005, the Company acquired Diverse Networks, Inc. (“DNI”) pursuant to an Agreement and Plan of Merger, which provided that each share of DNI’s common stock would be converted into the right to receive either (i) $0.21 in the form of a one-year 8% promissory note, or (ii) one share of Series B Preferred Stock, at the election of each DNI stockholder. The transaction was accounted for as a recapitalization effected through a reverse merger, in which DNI was treated as the “acquiring” company for financial reporting purposes.
 
Each share of Series B Preferred Stock will initially be convertible starting December 1, 2007, into that number of shares of the Company’s common stock obtained by multiplying the number of shares to be converted by a fraction, the numerator of which is .5942795 and the denominator of which is equal to the prevailing market price of the Company’s common stock at the time of conversion. The conversion rate is subject to adjustment.
 
The Company issued approximately $862,000 in promissory notes and one million shares of Series B Preferred Stock to DNI stockholders. In addition, the Company assumed $228,000 of outstanding DNI debt in connection with the transaction.
 
The Company expensed $401,727 of net liabilities assumed upon the recapitalization and recorded the amount to recapitalization expense on the statement of operations.
 
On May 5, 2006, the Company acquired UTSI International Corporation (“UTSI”) pursuant to an “Agreement and Plan of Merger,” dated May 5, 2006. Pursuant to the Merger Agreement, UTSI merged with and into the Company, with the Company as the surviving corporation. Each share of UTSI’s common stock outstanding at the effective time of the merger was converted into the right to receive 1.4380297 shares of Series C Preferred Stock. The 1,529,871 shares of UTSI’s common stock outstanding were converted into an aggregate of 2,200,000 shares of Series C Preferred Stock.
 
Each share of Series C Preferred Stock will initially be convertible, starting after May 5, 2008, into that number of shares of the Company’s common stock obtained by multiplying the number of shares to be converted by a fraction, the number of which is $1.00 and the denominator of which is equal to the “market price” of the Company’s common stock at the time of conversion subject to adjustment.
 
The purchase price was allocated to tangible and intangible assets and liabilities at the date of acquisition as follows:
 
F–10
 
INTERACT HOLDING GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Current assets
  
$
389,884
  
Property and equipment
    
23,630
  
Customer list
    
735,433
  
Goodwill
    
1,868,986
  
Total assets
  
$
3,017,933
  
Less – Total liabilities
    
817,933
  
   
$
2,200,000
  

The following unaudited pro forma financial information presents the combined results of operations of the Company and UTSI as if the acquisition had occurred as of the beginning of the period presented. The unaudited pro forma financial information is not necessarily indicative of what the Company’s consolidated results of operations actually would have been had the Company completed the acquisition at the beginning of each period. In addition, the unaudited pro forma financial information does not attempt to project the future results of operations of the combined company.

   
Years Ended December 31,
  
   
2006
 
2005
 
Revenues
  
$
3,587,107
  
$
4,288,505
  
Cost of goods sold
    
1,897,884
    
2,401,321
  
Gross profit
  
$
1,689,223
  
$
1,887,184
  
 
              
Research and development
  
$
185,665
    
–
  
Selling, general and administrative
    
3,810,324
  
$
2,169,869
  
Recapitalization expense
    
–
    
1,513,727
  
Depreciation and amortization
    
170,215
    
185,986
  
Total operating expenses
  
$
4,166,204
  
$
3,869,582
  
Loss from operations
  
$
(2,476,981
)
$
(1,982,398
)
Other expense, net
    
682,236
    
48,815
  
Loss before income taxes
  
$
(3,159,217
)
$
(2,031,213
)
Income taxes (benefit)
    
81,139
    
(200,229
)
Net loss from continuing operations
  
$
(3,240,356
)
$
(1,830,984
)

Note 5 – Property and equipment
 
Property and equipment consists of the following: 
 
F–11
 
INTERACT HOLDING GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

   
Life
  
As of June 30,
2007
  
Office furniture and equipment
    
3–7
  
$
1,122,899
  
Leasehold improvements
    
10
    
299,112
  
         
$
1,422,011
  
Less – Accumulated depreciation
        
1,276,916
  
         
$
145,095
  
 
Note 6 – Derivative liability
 
On March 31, 2006, the Company entered into a Securities Purchase Agreement with certain accredited investors pursuant to which they agreed to issue up to $2,000,000 of principal amount of convertible promissory notes in three separate tranches and warrants to purchase shares of the Company’s common stock (the “Securities Purchase Agreement”). The tranches of notes are to be issued and sold as follows: (i) $700,000 upon execution and delivery of the Securities Purchase Agreement; (ii) $600,000 within five days of filing of a registration statement with the SEC registering the shares of common stock issuable upon conversion of the notes and exercise of the warrants issued pursuant to the Securities Purchase Agreement (the “Registration Statement”) and (iii) $700,000 within five days of the Registration Statement being declared effective by the SEC. The convertible notes have a three year term and bear interest at 6%. The notes are convertible into the Company’s common stock pursuant to a “variable conversion price” equal to the “Applicable Percentage” multiplied by the “Market Price.” “Applicable Percentage” is initially 50%, provided that such percentage will be increased to 55% if the Registration Statement is filed on or before April 30, 2006 and further increased to 60% if the Registration Statement is declared effective by the SEC on or before July 29, 2006. “Market Price” means the average of the lowest three trading prices (as defined) for the Company’s common stock during the twenty trading day period prior to conversion. Upon an event of default, the notes are immediately due and payable at an amount equal to the greater of (i) 140% of the then outstanding principal amount of notes plus interest and (ii) the “parity value” defined as (a) the highest number of shares of common stock issuable upon conversion of the notes multiplied by (b) the highest closing price for the Company’s common stock during the period beginning on the date of the occurrence of the event of default and ending one day prior to the demand for prepayment due to the event of default. The notes are secured by a first lien on all of the Company’s assets, including all intellectual property.
 
Subject to certain terms and conditions, the notes are redeemable by the Company at a rate of between 120% to 140% of the outstanding principal amount of the notes plus interest. In addition, so long as the average daily price of the Company’s common stock is below the “initial market price,” the Company may prepay such monthly portion due on the outstanding notes and the investors agree that no conversions will take place during such month where this option is exercised by the Company.
 
The notes were issued with warrants to purchase up to 50,000,000 shares of the Company’s common stock at an exercise price of $0.07 per share, subject to adjustment.
 
In connection with the offer and sale of the notes and warrants, the Company engaged Envision Capital LLC, as a finder for the transaction. Envision received a ten percent cash commission on the sale of the notes and warrants to purchase up to 5,000,000 shares of the Company’s common stock on the same terms and conditions as the warrants issued to purchasers under the Securities Purchase Agreement.
 
F–12
 
INTERACT HOLDING GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
The Company is accounting for the conversion option in the convertible note and the conversion price in the Securities Purchase Agreement and the associated warrants as derivative liabilities in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” and EITF 00-19 “Accounting for Derivative Financial Instruments Indexed to and Potentially Settled in a Company’s Own Stock” due to the fact that the conversion feature and the warrants both have a variable conversion price.
 
The fair value of the Convertible Note was determined utilizing the Black-Scholes stock option valuation model. The significant assumptions used in the valuation are: the exercise price as noted above; the stock price as of June 30, 2007; expected volatility of 66%; risk-free interest rate of approximately 4.50%; and a term of one year.
 
The fair value of the Securities Purchase Agreement was determined utilizing the Black-Scholes option valuation model. The significant assumptions used in the valuation are: the exercise price as noted above; the stock price as of September 30, 2007; expected volatility of 66%; risk free interest rate of approximately 4.50%; and a term of three years.
 
The notes are due as follows:

March 31, 2009
  
$
690,630
  
May 4, 2009
    
600,000
  
October 11, 2009
    
700,000
  
 
  
$
1,990,630
  
 
On August 21, 2007, the Company entered into another Securities Purchase Agreement with the same accredited investors who previously invested in the Company on March 31, 2006, pursuant to which the Company agreed to issue an additional tranche of $330,000 of convertible promissory notes. The convertible notes have a three-year term and bear interest at a rate of eight percent (8%) per annum, and are convertible into shares of our common stock under the same terms set forth above in this Note 6. The notes also include warrants to purchase up to 20,000,000 shares of the Company’s common stock at an exercise price of $0.0014 per share, subject to adjustment. In connection with the offer and sale of these notes and the warrants, the Company has engaged Envision Capital LLC as a finder for the transaction. Under the terms of the engagement, Envision received a ten percent (10%) cash commission on the sale of the notes, as well as warrants to purchase up to 5,000,000 shares of the Company’s common stock on the same terms and conditions as the warrants issued to purchasers under such Securities Purchase Agreement.
 
F–13
 
INTERACT HOLDING GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Note 7 – Notes Payable
 
The Company is obligated to individuals and corporations for notes with interest rates between 8 and 10%, mostly payable in monthly and quarterly installments.
 
Note 8- Leases
 
The Company leases office space for its various subsidiaries.
 
The Company leases certain equipment under capital leases. The capital leases will expire during the year ending December 31, 2007. The future minimum lease payments due in 2007 total $2,781. These leases are secured by the leased equipment.
 
Future minimum payments under capital and operating leases as of December 31, 2006 are as follows:
 
 
$
384,908
  
2008
    
381,461
  
2009
    
381,461
  
2010
    
215,433
  
2011
    
106,095
  
     

Note 9 – Major Customers
 
During the nine months ending September 30, 2007, the Company had four major customers, sales to which represent approximately 55% of the Company’s total revenues.
 
F–14
 
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
 
The following discussion and analysis should be read in conjunction with our unaudited consolidated financial statements and related notes included in this report. This report contains “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements contained in this report that are not historic in nature, particularly those that utilize terminology such as “may” or “will,” or comparable terminology, are forward looking statements based upon current expectations and assumptions. Various risks and uncertainties could cause actual results to differ materially from those expressed in these forward looking statements. This report should be read in conjunction with the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2006 filed on May 10, 2007 and its Quarterly Reports on Form 10-QSB for the quarter ended March 31, 2007 and June 30, 2007 filed with the Securities and Exchange Commission (the “SEC”).
 
The Jackson Rivers Company was incorporated on May 8, 2001 under the laws of the State of Florida as a development-stage company. On January 4, 2007, The Jackson Rivers Company changed its name to Interact Holdings Group, Inc. (the “Company”, “we” or “us”) pursuant to a written consent passed by stockholders owning a majority of the Company’s issued and outstanding common stock.
 
Recent Developments
 
On August 21, 2007, we entered into another Securities Purchase Agreement with the same accredited investors who previously invested in us on March 31, 2006, pursuant to which we agreed to issue an additional tranche of $330,000 of convertible promissory notes. The convertible notes have a three-year term and bear interest at a rate of eight percent (8%) per annum, and are convertible into shares of our common stock under the same terms set forth in Note 6 to the consolidated financial statements included with this Quarterly Report. The notes also include warrants to purchase up to 20,000,000 shares of our common stock at an exercise price of $0.0014 per share, subject to adjustment. In connection with the offer and sale of these notes and the warrants, we engaged Envision Capital LLC as a finder for the transaction. Under the terms of the engagement, Envision received a ten percent (10%) cash commission on the sale of the notes, as well as warrants to purchase up to 5,000,000 shares of our common stock on the same terms and conditions as the warrants issued to purchasers under such Securities Purchase Agreement.

On September 28, 2007, Management received a letter of default from its subsidiary UTSI International Corporation (“UTSI”), indicating that we were in default on several conditions set forth in the Agreement and Plan of Merger signed on May 5, 2006.  These conditions included our responsibility to provide UTSI with operating capital, and a requirement that our capitalization exceed an agreed-upon amount.  Management drafted a letter offering cures to these default conditions through seeking new financing and restructuring our common stock, which cures were accepted by UTSI.  These cures must be in place by December 31, 2007. 
 
Our Business
 
The Company is in the business of providing operational and technical support to companies in the oil & gas pipeline industries, electrical utility and other industries. We offer a wide range of expertise specific to these industries including engineering design, inspection and audit services. We provide customers with hardware and automation systems. We offer and help integrate business efficiency and real time operations software applications. Through our networks operations facility, we can also provide our customers with a variety of managed services.
 
2
 
Several factors can be identified as to why our services are sought after: (i) escalating energy costs are necessitating higher production standards and great resource management; (ii) aging infrastructures have increased maintenance budgets and initiated new efforts to update equipment and operations; and (iii) increases in security and control systems post-9/11 have put greater emphasis and more dollars into operations management.
 
To meet these industry needs, we provide high technology tools and services that help other companies, government/institutions, and functional organizational units manage their industrial infrastructure and economic assets more effectively. Our customers today include major petroleum companies such as Shell, BP, Chevron and others.
 
We presently own two operational companies, UTSI and Diverse Networks, Inc. (“DNI”), both located in Houston, Texas. Taken together, DNI and UTSI have more than 30 years of experience and have worked with over 40 of the world’s top petroleum companies.
 
Plan of Operations
 
We are actively seeking to expand the commercialization of our services to other key industries such as telecommunications, water and waste water, and distributed energy, but cannot guarantee we will be successful in doing so. We also maintain operations in Madrid, Spain, which we hope to use to reach out to a growing international market for our products and services.
 
Results of Continuing Operations
 
The results of operations are set forth below for the periods ended September 30, 2007 and September 30, 2006.
 
The following table sets forth, for the periods indicated, selected financial data from continuing operations:
 

   
For the three months ended
September 30,
  
For the nine months ended
September 30,
  
   
2007
  
2006
  
2007
  
2006
  
Revenues
  
$
1,112,078
  
$
938,706
  
$
3,373,855
  
$
2,165,256
  
Cost of goods sold
    
576,497
    
648,103
    
1,785,884
    
1,394,611
  
Gross profit
    
535,581
    
290,603
    
1,587,971
    
770,645
  
Research & development
    
115,498
    
84,709
    
333,658
    
84,709
  
Selling, general & administrative
    
51,573
    
598,573
    
2,120,272
    
2,292,314
  
Depreciation and amortization
    
38,393
    
57,363
    
110,940
    
165,039
  
Total operating expenses
    
205,464
    
655,936
    
2,565,370
    
2,457,353
  
Profit/(loss) from operations
    
330,117
    
(450,042
)
  
(977,399
)
  
(1,771,417
)
 
3
 
Comparison of the Three Months and Nine Months ended September 30, 2007 and September 30, 2006
 
Net Sales 
 
Our net sales for operations increased to $1,112,078 and $3,373,855 for the three months and nine months ended September 30, 2007, respectively. This translates to an increase of approximately 15.6% and 31.9% respectively for each of the periods indicated. This increase is primarily due to the acquisitions of DNI and UTSI, as well as an overall increase in sales.
 
Cost of Sales
 
Cost of sales decreased to $576,497 for the three months ended September 30, 2007, and increased to $1,785,884 for the nine months ended September 30, 2007. As a percentage of net sales, cost of sales decreased to 52% and 64% for the three and nine months ended September 30, 2007, respectively, versus approximately 69% and 64% of sales for the three and nine months ended September 30, 2006. This decrease is primarily due to better margins being achieved after acquisition.
 
Research and Development
 
Research and development expenses related to the development of future products were $115,498 for the three months ended September 30, 2007 compared to $84,709 for the corresponding period in 2006. For the nine months ended September 30, 2007, research and development expenses totaled $333,658, compared to $84,709 for the corresponding period in 2006. We incurred such expenses because we continue to develop and research new ideas and products.
 
Selling, General and Administrative Expenses
 
Selling, general and administrative expenses decreased to $2,120,272 for the nine months ended September 30, 2007 from $2,292,314 for the corresponding period in 2006. These expenses decreased to $51,573 for the three months ended September 30, 2007 from $598,573 for the corresponding period in 2006, as we did not incur as significant stock for services in the most recent quarter.
 
Operating profit/loss 
 
We incurred an operating profit of $330,117 for the three months ended September 30, 2007, compared to a loss of $450,042 for the corresponding period in 2006. Our loss for the nine months ended September 30, 2007 decreased to $977,399 from $1,771,417 for the corresponding period in 2006. This decreased loss was primarily due to us beginning to achieve our goals.
 
Liquidity and Capital Resources
 
We have financed our operations, acquisitions, debt service, and capital requirements through cash flows generated from financing activities and debt financing, and the Company expects to fund its operations for the next 12 months through the same means. Our working capital deficit at September 30, 2007 was $1,101,361.
 
We used $1,039,921 of net cash in operating activities for the nine months ended September 30, 2007 and we were provided with $1,000,273 from financing activities.
 
4
 
Off-Balance Sheet Arrangements
 
None.
 
ITEM 3. CONTROLS AND PROCEDURES
 
Evaluation of Disclosure Controls and Procedures. As of the end of the period covered by this quarterly report, our management carried out an evaluation, under the supervision and with the participation of our CEO and CFO, of the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on this evaluation, our CEO and CFO concluded that our disclosure controls and procedures as of the end of the period covered by this quarterly report are effective to provide reasonable assurance that the information we are required to disclose in the reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.
 
Changes in Internal Controls. We reviewed our internal controls over financial reporting and there have been no changes in our internal controls or in other factors that occurred during the quarter ended September 30, 2007 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
5
 
PART II. OTHER INFORMATION
 
ITEM 1. LEGAL PROCEEDINGS
 
None.
 
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
On August 21, 2007, we entered into a Securities Purchase Agreement with the same accredited investors who previously invested in us on March 31, 2006, pursuant to which we agreed to issue an additional tranche of $330,000 of convertible promissory notes. The convertible notes have a three-year term and bear interest at a rate of eight percent (8%) per annum, and are convertible into shares of our common stock under the same terms set forth in Note 6 to the consolidated financial statements included with this Quarterly Report. The notes also include warrants to purchase up to 20,000,000 shares of our common stock at an exercise price of $0.0014 per share, subject to adjustment. Such notes and warrants were issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended. In connection with the offer and sale of these notes and the warrants, we engaged Envision Capital LLC as a finder for the transaction. Under the terms of the engagement, Envision received a ten percent (10%) cash commission on the sale of the notes, as well as warrants to purchase up to 5,000,000 shares of our common stock on the same terms and conditions as the warrants issued to purchasers under such Securities Purchase Agreement.
 
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
 
None.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
None.
 
ITEM 5. OTHER INFORMATION
 
There were no matters required to be disclosed in a Current Report on Form 8-K during the fiscal quarter covered by this report that were not so disclosed.
 
There were no changes to the procedures by which security holders may recommend nominees to the Company’s Board of Directors since the Company last disclosed such procedures.
 
ITEM 6. EXHIBITS
 
No.
  
Description
31.1
  
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) of the Exchange Act.
32.1
  
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
6

SIGNATURES
 
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
INTERACT HOLDINGS GROUP, INC.
 
 
November 15, 2007
By:
  /s/ Jeffrey W. Flannery
   
  Jeffrey W. Flannery
   
  Chief Executive Officer and
  Chief Financial Officer
 
7