2011 Financial Information – 3rd Quarter

CONSOLIDATED FINANCIAL STATEMENTS AND OTHER FINANCIAL
INFORMATION

for the Nine Months Ended September 30, 2012

COMPILATION REPORT

To the Board of Directors and Stockholder of Interact TV Incorporated

We have compiled the accompanying consolidated unaudited balance sheets of Interact TV Inc. (the “Company”) as of September 30, 2012, and the related consolidated unaudited statements of operations, changes in stockholders’ equity and cash flows for the nine months then ended. These financial statements are the responsibility of the Company’s management. We conducted our compilation in accordance with the Statements of Standards for Accounting and Review Services generally accepted in the United States.

Anthony M. Aliscio CPA Port Jefferson, NY

December 28, 2012

CONSOLIDATED BALANCE SHEET
As of September 30, 2012

CURRENT ASSETS

Cash and cash equivalents                                         $               307

Deferred tax asset                                                                   133,140

Total Current Assets                                                              133,447

OTHER ASSETS

Note receiveable                                                                      27,600

TOTAL ASSETS                                                             $        161,047

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES

Convertible notes                                                       $        346,084

Accounts payable                                                                 379,400

Notes payable                                                                             7,900

Total Current Liabilities                                                     733,384

TOTAL LIABILITIES                                                            733,384

STOCKHOLDERS’ EQUITY

Common stock, par value $0.00001 per share;

30,000,000,000 shares authorized;

16,613,750,746 shares issued
and outstanding                                                     $        186,082

Preferred Stock, par value $0.00001 per share;

240,000,000 shares authorized;

23,554,070 shares issued and outstanding                 247

Additional paid in capital                                        1,858,256

Retained earnings                                                    (2,616,922)

TOTAL STOCKHOLDERS’ EQUITY                        (572,337)

TOTAL LIABILITIES AND STOCKHOLDERS’EQUITY            $        161,047

CONSOLIDATED STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 2012

COST OF SALES                                                                129,500

GROSS PROFIT                                                                170,500

SELLING, GENERAL AND ADMINISTRATIVE

EXPENSES                                                                      1,304,742

LOSS FROM OPERATIONS                                    (1,134,242)

OTHER INCOME (EXPENSE)

Interest expense                                                             (69,712)

Interest income                                                                        100

TOTAL OTHER INCOME (EXPENSE)                        (69,612)

NET LOSS                                                                  $ (1,203,854)

Interact-TV Incorporated
Consolidated Statement of Cash Flows for the nine months ended September 30, 2012

Cash Provided by Operating Activities                 305,225

Cash Used in Operating Activities                         (357,295)

Net Cash Used in Operating Activities                  (52,070)

Cash Flows from Investing Activities

Cash Provided by Investing Activities                      3,500

Cash Used in Investing Activities                            (31,100)

Net Cash Used in Investing Activities                   (27,600)

Cash Flows from Financing Activities

Cash Provided by Sale of Preferred Stock              66,500

Cash Provided by Loans (Notes Payable)                 7,900

Net Cash Provided by Financing Activities           74,400

Net Change in Cash,
9 months ended September 30, 2012                      (5,270)

Cash, January 1, 2012                                                       5,577

Cash, September 30, 2012                                                  307

STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
For the Nine Months Ended September 30, 2012

Common                   Preferred                   Paid in                        Accumulated

Stock                                          Stock                                   Capital                                  Deficit

NOTE 1 – Organization and Summary of Significant Accounting Policies

Business Activity

Interact-TV Incorporated (the “Company”) is a Delaware corporation. The Company is a multi-faceted multi-media company with operations in both the music recording industry as well as music artist management. The Company has one wholly owned subsidiary; Viscount Media Trust, a California business trust. Viscount Media Trust, in turn has one wholly owned subsidiary: Viscount Records, Inc., a Delaware corporation, which in turn has one wholly owned subsidiary; Pocket Kid Records, a California business trust.

These statements are consolidated with its subsidiary and all subsidiaries thereunder as described above.

Basis of Presentation

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

Cash and Cash Equivalents

For purposes of the statement of cash flows, the Company considers all short-term investments with an original maturity of three months or less at the date of purchase to be cash equivalents.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are customer’s obligations due under normal trade terms. The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. The Company’s estimate is based on historical collection experience and a review of the current status of trade accounts receivable. It is reasonably possible that the Company’s estimate of the allowance for doubtful accounts will change.

Property and Equipment

Property and equipment is stated at cost net of accumulated depreciation and amortization. The costs of additions and betterments are capitalized and expenditures for repairs and maintenance are expensed in the period incurred. When items of property and equipment are sold or retired, the related costs and accumulated depreciation are removed from the accounts and any gain or loss is included in operations for the period.

The Company capitalizes leased equipment when the terms of the lease result in the transfer to the Company of substantially all of the benefits and risks of ownership of the equipment.

Depreciation and amortization of property and equipment are provided utilizing primarily the straight-line method over the estimated useful lives of the respective assets as follows:

Building and Improvements                                                                                                                   39.5 years

Machinery and equipment                                                                                                                    3 to 5 years

Furniture and fixtures                                                                                                                                      5 years

Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the improvement utilizing the straight-line method. The Company presently has no property plant and equipment.

Impairment of Long-Lived Assets

The Company reviews the carrying value of long-lived assets to determine if they have been permanently impaired by adverse conditions that may affect the Company, or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. As of September 30, 2012, no impairment of long-lived assets was deemed necessary.

Accounting for Derivative Instruments and Hedging Activities

The Company recognizes all derivative instruments as either assets or liabilities in the balance sheet at fair value, which is recorded through earnings. If a derivative is a qualifying hedge, depending on the nature of the hedge, changes in the fair value of the derivative are either offset against the change in fair value of the underlying assets or liabilities through earnings or recognized in accumulated comprehensive income until the underlying hedged item is recognized in earnings. The ineffective portion of a derivative’s change in the fair value is to be immediately recognized in earnings.

The Company enters into convertible note contracts to fund the Company’s operation. As of September 30, 2012, the Company had no derivative instruments. See footnote 2 for further discussion on convertible notes.

Revenue Recognition

Revenue is recognized when (i) persuasive evidence of an arrangement exists, a signed non-cancelable contract (ii) delivery has occurred and the music rights have been transferred to the licensee, who is able to use them, (iii) the fee is fixed or determinable and (iv), collectability of the sale is reasonably assured. All significant duties and obligations owed to the licensee are met.

Advertising Expenses

The Company expenses all advertising costs as incurred. Advertising expenses for the nine months ended September 30, 2012 was approximately $6,707, and was recorded as advertising expense in the selling, general and administrative expenses in the accompanying statements of operations.

Income Taxes

Management has concluded that there are no uncertain tax positions that would require recognition in the financial statements. If the Company were to incur an income tax liability from an uncertain tax position in the future, interest on any income tax liability would be reported as interest expense and penalties on any income tax liability would be reported as income taxes.

Management’s conclusions regarding uncertain tax positions may be subject to review and adjusted at a later date based upon ongoing analyses of tax laws, regulations, and interpretations thereof as well as other factors. Generally, federal, state, and local authorities may examine the tax returns for three years from the date of filing and the current and prior three years remain subject to examination as of December 31, 2011.

Deferred taxes represent the tax effects of differences between the financial reporting and tax basis of the Company’s assets and liabilities at the enacted tax rates in effect for the years in which the differences are expected to reverse. The Company evaluates the recoverability of deferred tax assets and establishes a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Income tax expense consists of the income tax within the period and the change during the period in deferred tax assets and liabilities.

Total accrued deferred tax assets as of December 31, 2011 was $133,140. The Company is not calculating deferred tax asset accrual for the interim period.

Fair Value of Financial Instruments

The Company utilizes a three-level hierarchy (the “Valuation Hierarchy”) for fair value measurements. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The following fair value hierarchy is used in selecting inputs, with the highest priority given to Level 1, as these are the most transparent or reliable:

• Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. The Company has no level 1 assets and liabilities as of September 30, 2012.
• Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. The Company has no level 2 assets and liabilities as of September 30, 2012.
• Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement. The Company has no level 3 assets and liabilities as of September 30, 2012.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include the accounts receivable and inventory allowances and deferred tax valuation allowance. Actual results could differ from those estimates.

NOTE 2 – Convertible notes payable

As of September 30, 2012, the Company had five convertible notes outstanding, as follows:

On September 1, 2009 Viscount Records, Inc., a wholly owned subsidiary of Viscount Media Trust (which in turn is a wholly owned subsidiary of the Company) issued a convertible note in the amount of $150,000 at an interest rate of 8 percent per annum to Viscount Productions Ltd in exchange for a recording artist contract. The contract was subsequently assigned to FMCOCO, Inc. (a related party, see note 3 below). As of September 30, 2012 the note had an estimated fair value of approximately $1190,217 including interest.

On November 25, 2009 the Company issued a convertible note payable to FMCOCO in the amount of $20,000 at an interest rate of 5 percent per annum. As of September 30, 2012 the note had an estimated fair value of approximately $5,359 including interest.

On February 11, 2010 the Company issued a convertible note payable to FMCOCO in the amount of $60,000 at an interest rate of 8 percent per annum. As of September 30, 2012 the note had an estimated fair value of approximately $73,716 including interest.

On April 1, 2010 the Company issued a convertible note payable to FMCOCO in the amount of $20,000 at an interest rate of 5 percent per annum. As of September 30, 2012 the note had an estimated fair value of approximately $13,991 including interest.

On February 28, 2012 the Company issued a convertible note payable to FMCOCO (the fifth convertible note held by FMCOCO) in the amount of $60,000 at an interest rate of 8 percent per annum. As of September 30, 2012 the note has an estimated fair value of approximately $62,800 including interest.

All convertible notes have a conversion rate equal to one share of common stock of the Company in exchange for every $0.00001 of the total value of the note plus any accrued interest at the time of conversion.

NOTE 3 – Related Party Transactions

Stan Medley is the President and primary owner of FMCOCO, Inc., a Colorado corporation. As of December 31, 2011, FMCOCO is the holder of all five currently outstanding convertible notes issued by ITVI or its subsidiaries, with a total value of $346,084. In addition, FMCOCO owns 100,000 shares of the Preferred Stock, Series A of ITVI. FMCOCO also has been retained by Pocket Kid Records to provide promotion services for a fee of $5,000 per month. Pocket Kid Records is a California business trust which is owned, through two intermediary subsidiaries, by ITVI, and which has as its sole trustee ITVI.

Stan Medley is also the President of Fordee Management Company, which has a joint venture agreement with Pocket Kid Records, a subsidiary of ITVI, to co-produce the first album of Pocket Kid recording artist Dead Sara and in exchange, receive half of any proceeds due Pocket Kid as a result of any licensing, publishing or other fees related to the album or proceeds from the sale of such album, as well as receive re-imbursement of all expenses paid in producing the album. Stan Medley’s son Steve Medley is a director of the Company (ITVI).

Steve Medley is one of the four directors of ITVI. He is also the sole trustee of SM CA Trust, a California business trust, which owns 2,000,000 shares of the Preferred Stock, Series A of ITVI (out of a total of 2,244,000 shares of Series A outstanding), which amounts to 71.3% voting control of the entire company (ITVI), as well as 20,000,000 shares of Preferred Stock, Series B (out of a total of 20,814,070 shares of Series B outstanding). Steve is the son of Stan Medley, president and primary owner of FMCOCO.

NOTE 4 – Commitments and Contingencies

Legal Matters

The Company, including all of its subsidiaries, is not aware of, nor involved or engaged in any pending, threatened or current legal proceedings.

NOTE 5 – Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable.

The Company places cash deposits and temporary cash investments with various financial institutions. At times, cash and cash equivalents may be uninsured or in deposit accounts that exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance limits.