Item 1.

Description of Business.

General

SK3 Group, Inc. (“ SK3 ”) is a holding company merged under the laws of the State of Delaware on January 7, 2005.  SK3 was formed by the merger of Slabsdirect.com, Inc. and CTT International Distributors Inc.  Slabsdirect.com, Inc. was incorporated under the laws of the State of Delaware on January 14, 2000 (“ Slabsdirect ”).  CTT International Distributors Inc. was incorporated under the laws of the State of Delaware on November 1, 2004.  As part of the merger, the Articles of Slabsdirect.com, Inc. were adopted as the Articles of SK3.  On May 23, 2007, in connection with the Merger Agreement (as described below) the Company changed its name from “CTT International Distributors, Inc.” to “SK3 Group, Inc.”

SK3 has one subsidiary, CTT Distributors Ltd. (the “ Subsidiary ”), which is the operating company and was incorporated under the laws of the Province of British Columbia on May 17, 2004.  The Subsidiary is a wholly-owned subsidiary of SK3.  

Pursuant to a share exchange agreement dated December 29, 2004, Slabsdirect agreed to issue 455,001 shares of common stock in exchange for all of the issued and outstanding shares of common stock of the Subsidiary.  The acquisition was considered a reverse acquisition for accounting and financial reporting purposes.  See Exhibit 10.1 – Share Exchange Agreement for more details.

Prior to the acquisition of the Subsidiary, Slabdirect’s sole asset consisted of ownership of a 100% interest in the issued and outstanding capital stock of Slabsdirect.com Online (BC) Ltd. (“SlabsOnline”), a company incorporated in the Province of British Columbia, Canada.  SlabsOnline has been unsuccessful in the business of establishing a vertical trade portal on the Internet for the natural stone industry. Slabsdirect disposed of its interest in SlabsOnline to the former president of Slabsdirect pursuant to the stock purchase agreement dated December 29, 2004.  See Exhibit 10.2 – Stock Purchase Agreement for more details.

CTT maintains its statutory registered agent’s office at 3511 Silverside Road, Suite 105, Wilmington, Delaware and its business office is located at 500 Mamaroneck Ave., Harrison, NY.  CTT’s office telephone number is (914) 777-2090.

References in this Annual Report to SK3 includes the Subsidiary, unless otherwise stated.

Proposed Merger with Reliablecom, Inc.

SK3 entered into an Agreement and Plan of Merger (the “Merger Agreement”) dated April 16, 2007 with Reliablecom Acquisition Corp., a wholly-owned subsidiary of the Company incorporated on April 16, 2007 (“Acquisition”), Reliablecom, Inc. (“Reliablecom”), and Kapadia Holdings, Inc., the sole shareholder of Reliablecom (“Holdings”).  Pursuant to the terms of the Merger Agreement, Acquisition will merge with and into Reliablecom, which will become a wholly-owned subsidiary of the CTT (the “Merger”).  SK3 will issue an aggregate of 14,625,000 post-dividend shares of common stock and 292,500 shares of series A Preferred stock (the “Preferred Stock”) to Holdings at the time of the closing of the merger. Each share of Preferred Stock will be convertible into 50 post-dividend shares of the Company’s common stock, upon effectuation of an increase in SK3’s authorized shares of common stock to 100,000,000 shares.

Upon execution of the Merger Agreement, SK3’s former President Amit Sankhala (“Sankhala”) resigned as an officer and a member of the Board of Directors of SK3. Sankhala also agreed to the return and cancellation of 8,000,000 pre-dividend shares of SK3’s common stock owned by him.

Prior to the closing of the Merger Agreement, CTT agreed to change its name to SK3 Group, Inc., and declare a two-for-one dividend on outstanding shares of common stock.  

The closing of the Merger Agreement is subject to customary closing conditions. In the event the Merger Agreement has not closed by June 30, 2007, the Merger Agreement shall be terminated unless otherwise agreed to by the respective parties.  On June 26, 2007, the parties entered into Amendment No. 1 to the Merger Agreement pursuant to which the termination date of the Merger Agreement was extended to July 31, 2007.  On August 10, 2007, the parties  entered into Amendment No. 2 to the Merger Agreement pursuant to which the termination date of the Merger Agreement was extended to September 30, 2007.

As of the date, the Company had not received or sent a termination notice to Reliablecom, Inc.

Proposed Acquisition of Sohel Distributors, Inc.

On May 9, 2007, SK3, Reliablecom and Sohel Distributors Inc. (SDI”), and Sohel Kapadia, the sole shareholder of SDI (“Seller”), entered into a Stock Purchase Agreement (the “Sohel Purchase Agreement”).  Pursuant to the terms of the Sohel Purchase Agreement, Reliablecom will acquire 100% of the issued and outstanding capital stock of SDI in exchange for (i) 85,000 shares of series A preferred stock of SK3 (the

“Preferred Stock”), and (ii) an earn-out of additional compensation for three years from the closing. The seller will receive 50% of the quarterly profits in excess of $37,500, together with 50% of the annual profits in excess of $150,000 plus the quarterly profit payments. The purchase price is subject to adjustment in the event the working capital of SDI is less than zero at closing. Each share of Preferred Stock has a liquidation preference of $0.01 and will be convertible into 50 post-dividend shares of the Company’s common stock, upon effectuation of an increase in SK3’s authorized shares of common stock to 100,000,000 shares.

Upon closing of the Sohel Purchase Agreement, Sk3, Reliablecom and the Seller will enter into an Escrow and Lock-up Agreement, subject to various terms, and pursuant to which the Seller will place the Preferred Stock into escrow.

Upon closing of the Sohel Purchase Agreement, the Seller will enter into an employment agreement with SDI, pursuant to which the Seller will serve as President of SDI. For the first three years of the term of the employment agreement, the seller will be paid $150,000 per year. The agreement has a term of three years, and will automatically be renewed for additional one year terms unless terminated by either party at lease 90 days prior to expiration.

The closing of the Sohel Purchase Agreement is subject to customary closing conditions. The Sohel Purchase Agreement may be terminated prior to closing at the election of the Seller or Reliablecom, in the event the Purchase Agreement has not closed by June 30, 2007.  On June 26, 2007, the parties entered into Amendment No. 1 to the Sohel Purchase Agreement pursuant to which the termination date of the Sohel Purchase Agreement was extended to July 31, 2007.  On August 2, 2007, the parties entered into Amendment No. 2 to the Sohel Purchase Agreement pursuant to which the termination date of the Sohel Purchase Agreement was extended to September 30, 2007.

As of the date, the Company had not received or sent a termination notice to Sohel Distributors, Inc.

Proposed Acquisition of The Phone Card Warehouse, Inc.

On May 25, 2007, SK3, Reliablecom, The Phone Card Warehouse, Inc. (“TPC”), Kaushika Patel, the sole shareholder of TPC (the “Seller”) and Pradip Patel (“Patel”), entered into a Stock Purchase Agreement (the “TPC Purchase Agreement”).  Pursuant to the terms of the TPC Purchase Agreement, Reliablecom will acquire 100% of the issued and outstanding capital stock of TPC in exchange for:

• 30,000 shares of series A preferred stock of SK3, which shares shall not be transferable for a period of one year from closing;

• 30,000 shares of series A preferred stock of SK3 to be held in escrow (the "Escrow Shares").  Of the Escrowed Shares, 10,000 shall be released to the Seller if TPC’s earnings before interest taxes, depreciation and amortization (“EBITDA”) for the first year after closing are at least $1,500,000, 10,000 shall be released to the Seller if TPC’s EBITDA for the second year after closing are at least $1,600,000, and 10,000 shall be released to the Seller if TPC’s EBITDA for the second year after closing are at least $2,000,000.  In the event that the first and second year targets are not met, but the total annual EBITDA for the first three years exceeds $5,100,000, all of the shares remaining in escrow would be released to the Seller.  Any Escrowed Shares which are not released to the Seller as set forth above will be cancelled without consideration payable to the Seller;

• $7,000,000, of which $3,000,000 will be paid upon closing and $4,000,000 (the “Post-Closing Cash”) will be paid as set forth below.  The Post-Closing Cash will be subject to adjustment equal to the amount of accounts receivable outstanding as of closing, collected within 45 days from closing, plus inventory on hand, less accounts receivable or inventory outstanding for more than 45 days.  Such amounts shall only be paid to the Seller after all accounts payable outstanding as of the Closing have been paid; and

• An earn-out of additional cash compensation for three years from the closing date.  The Seller will receive 50% of the quarterly profits in excess of $62,500, together with 50% of the annual profits in excess of $250,000 plus the quarterly profit payments.

Each share of Preferred Stock has a liquidation preference of $0.01 per share and will be convertible into 50 shares of the Company’s common stock, upon effectuation of an increase in the Company’s authorized shares of common stock to 100,000,000.  

Upon closing of the TPC Purchase Agreement, each of the Seller and Pradip Patel will enter into an employment agreement with TPC, pursuant to which Mr. Patel and Seller will serve as chief executive officer and controller of TPC, respectively.  For the first three years of the term of Mr. Patel’s employment agreement, Mr. Patel will be paid $175,000 per year.  For the first three years of the term of Seller’s employment agreement, Seller will be paid $75,000 per year.  Mr. Patel’s employment agreement has a term of three years and shall automatically be renewed for additional one year terms unless terminated by either party at least 90 days prior to expiration.  Seller’s employment agreement has a term of three years and shall automatically be renewed for additional one year terms unless terminated by either party at least 90 days prior to expiration.  

The closing of the TPC Purchase Agreement is subject to customary closing conditions. The TPC Purchase Agreement may be terminated prior to closing at the election of the Seller or Reliablecom, in the event the TPC Purchase Agreement has not closed by June 30, 2007.  On June 26, 2007, the parties entered into Amendment No. 1 to the TPC Purchase Agreement pursuant to which the termination date of the TPC Purchase Agreement was extended to July 31, 2007.  On August 2, 2007, the parties entered into Amendment No. 2 to the TPC Purchase Agreement pursuant to which the termination date of the TPC Purchase Agreement was extended to September 30, 2007.

As of the date, the Company had not received or sent a termination notice to The Phone Card Warehouse, Inc.

Business of SK3

SK3 is in the e-commerce business and provides high-quality, non-branded computer and electronic merchandise at discount prices to the internet consumer through its website www.cheaperthanthem.com .  The website is hosted by Ezyra E-Business Services, an unrelated party, which charges SK3 an annual fee of $372.36 to host the website.  

Products and Services

SK3 has a direct business, in which it buys and takes possession of excess electronic and computer inventory for resale (the “ Direct Business ”).  In addition, SK3 has a fulfillment partner business, in which SK3 facilitates the sale of merchandise of other retailers, cataloguers or manufacturers (collectively “ Fulfillment Associates ”) through the website (the “ Fulfillment Business ”).

For both the Direct Business and Fulfillment Business, SK3 has developed a consumer and a wholesaler sales channel.  Therefore, SK3’s business consists primarily of four combinations of these components: direct consumer, direct wholesaler, fulfillment business consumer and fulfillment business wholesaler.  Wholesale purchases make up over 80% of SK3’s revenues to date.  Direct sales to consumers are 20%.  Retail goods are marked up by a margin of 50% and higher. Wholesale customers are charged 10-20% above cost depending on the volumes they order. There is no wholesaler agreement that SK3 uses as sales are strictly volume based.  SK3 currently serves four wholesale clients.

The security measures taken by SK3 include only allowing the president of the SK3 access to the confidential data and access to SK3’s server via secured password.  Also, none of the confidential payment information is accessible via the Website as it is e-mailed or faxed directly to SK3, and it is kept in a locked cabinet, which only Mr. Sankhala has access to.   SK3 does retain credit card information on the order forms for a period of six months, after which the information is shredded.

SK3’s sales have come from the United States and Canada.  The majority of SK3’s retail sales are from the United States off SK3’s website.  The majority of the wholesale sales are in Canada.  Sales from the United States account for 25% and sales from Canada account for 75%.

SK3 utilizes the Internet to create a more efficient market for liquidation computer and electronic merchandise.  SK3 provides consumers and businesses with quick and convenient access to high-quality, non-branded computer and electronic merchandise at discount prices.

SK3’s objective is to leverage the Internet to become the dominant closeout solution for holders of non-branded computer and electronic merchandise.  SK3 is pursuing this objective through the following key strategies:

SK3 intends to source its products from lower cost jurisdictions, primarily in Asia.

SK3 offers a 30-day money back guarantee on all products. Customers pay for shipping on purchases and returns. If returned, the item is checked for damage and repackaged if sound.

Management believes that by utilizing targeted online campaigns such as banner ad and e-mail campaigns, the results of which SK3 is able to quantify, it will be able to keep its per customer acquisition costs low.

Management believes it offers its wholesale customers a compelling opportunity for purchasing bulk inventory online at low prices with high-quality service.  Management believes that the small retail market is underserved by existing liquidators and it is working to take advantage of this significant opportunity.

Management believes that closeout electronic and computer merchandise is typically available in inconsistent quantities and prices and often is only available to consumers after it has been purchased and resold by disparate liquidation wholesalers.  Management believes that the traditional liquidation market for computer and electronic products is therefore characterized by fragmented supply and fragmented demand.  SK3 is utilizing the Internet to aggregate both supply and demand and create a more efficient market for liquidation of electronic and computer merchandise.  Although SK3 currently only offers MP3 players and MP3 accessories, it intends to expand its products to include other computer and electronic products after it has raised sufficient funds to do so. SK3 cannot provide any guarantees of its ability to raise financing

Direct Business

SK3’s Direct Business involves buying and taking possession of inventory for resale.  SK3 currently offers MP3 players and an FM transmitter accessory for MP3 players on the website.  SK3 intends to become an online retailer offering various discount, non-branded electronic and computer merchandise for sale over the Internet.  SK3 will offer its customers an opportunity to shop for bargains conveniently, while offering its suppliers an alternative inventory liquidation distribution channel.  SK3 expects to add new, limited inventory products to the website in order to create an atmosphere that encourages customers to visit frequently and purchase products before its inventory sells out.

SK3’s three suppliers are currently from Taiwan and China.  The Taiwanese suppliers have the factories in China.  SK3 currently uses LTP Tech because they have an office in Richmond, British Columbia which is close to SK3’s office.  SK3 has other suppliers but has not elected to purchase from them until SK3 has the demand for those products.  SK3’s supply agreements are simply purchase orders to the supplier.  There are no contractual obligations, the higher the volume purchased, the lower SK3’s costs.  SK3 holds merchandise for usually 90 days.  SK3 has the right to return defective merchandise within a one year period.  SK3 does not offer any extended warranties on products.

Fulfillment Partner Business

SK3 also has a Fulfillment Business where SK3 sells merchandise of Fulfillment Associates through the website.  SK3 manages the orders collected for the Fulfillment Associates through the website and forwards the orders on to the Fulfillment Associate, who then fills the order.  The Fulfillment Associates perform essentially the same operations as a warehouse: order picking and shipping.  From a customer’s point of view, shipping from SK3 or from the warehouse of one of these Fulfillment Associates is indistinguishable.  SK3 also utilizes a secured warehouse of one of its Fulfillment Associates located at Unit 110, 4471 - #6 Road, Richmond, British Columbia.

SK3 currently has a business relationship with three Fulfillment Associates.  The three Fulfillment Associates are RJTech, Inc., LTP Tech and Shian Wang.  In the fulfillment component of its business, SK3 does not physically handle the merchandise it sells for the Fulfillment Associates, as the merchandise was shipped directly by them.  The Fulfillment Associate also handles all customer returns.

Manufacturers and retailers traditionally hold inventory to buffer against uncertain demand within their normal, “inline” sales channels.  Inline sales channels are manufacturers’ primary distribution channels, which are characterized by regularly placed orders by established retailers at or near wholesale prices.  In recent years, several dynamics have shifted inventory risk from retailers to manufacturers, including:

• dominant retailers insist on just-in-time deliveries from manufacturers;
• dominant retailers often cancel orders mid-production and return unsold merchandise;
• style, color, or model changes can quickly turn inventory into closeout merchandise;
• incorrect estimates of consumer demand that can lead to overproduction; and
• changes in a retailer financial situation or strategy results in cancelled orders.

The disposal of excess, or overstock, inventory represents a substantial burden for many manufacturers.  Manufacturers seek to avoid liquidating through traditional retail channels where the manufacturer’s discounted products may be sold alongside other full-price products.  This can result in weaker pricing and decreased brand strength, and is known as channel conflict or sales channel pollution.  As a result, many manufacturers turn to liquidation wholesalers and discount retailers.  These liquidation channels provide manufacturers limited control of distribution and are, management believes, unreliable and expensive to manage when compared with their inline channels.

Fulfillment Business differs from Direct Business in that SK3 remits payment to its Fulfillment Associates by company check on industry standard terms of 2% on 30 days.  Margins for the Fulfillment Business are lower than the Direct Business.

Distribution of Products and Services

When customers place orders on the website, orders are fulfilled either by a Fulfillment Associate or directly from SK3’s supplier’s warehouse located in Richmond, British Columbia.  SK3’s merchandise is stored at SK3’s supplier’s secured warehouse, which is insured and secured.  They charge SK3 $0.05 cents per unit for storage and insurance that they sell SK3.  This saves SK3 the expense of storing the merchandise itself.  The $0.05 is built into the price of every unit SK3 purchases.  The inventory is stored at the supplier’s warehouse.  The cost is not segregated as it is merely a courtesy to SK3 from the supplier.

SK3 monitors both sources for accurate order fulfillment and timely shipment.  Through the website, orders are relayed to the warehouse management system throughout each day, and the warehouse management system in turn confirms to the shipment of each order.  SK3 advertises a standard of shipping within two business days of order placement, but most orders ship within one business day.  As a general policy, SK3 requires verification of receipt of payment or credit card authorization before it ships products to consumers or wholesale purchasers.  SK3 currently charges $10.00 for basic ground shipping, but customers can choose from various expedited shipping services at their expense.  SK3 offers a 30-day money back guarantee on all products.  Customers pay for shipping on both purchases and returns.  If returned, the item is checked for damage and repackaged if sound.  The manufacturer is responsible for all defective merchandise for one year.  Customers e-mail SK3 and SK3 responds as such.  SK3 endeavors to respond within 5 business hours of receiving an e-mail from a customer.

Market

The primary and initial target market for SK3’s products is currently males between the ages of 21 and 45, who desire the best quality electronic products for their entertainment.  These consumers tend to have a high level of product knowledge and usually know specifically

what they are searching for.  Currently it is a challenge for them to access high-performance but inexpensive electronic products and components that are manufactured in Asia.

Secondly, once SK3 has the capital to do so, SK3 intends to also cater to the impulse purchaser by providing an entertaining website focusing on lifestyle fulfillment, not merely the fulfillment end of a warehouse type environment.

Thirdly, as a part of SK3’s marketing plan and subject to the availability of capital, SK3 intends to develop strategic Internet alliances with several companies that are offering e-engine software that will assist SK3 in operating an online e-commerce site.  SK3 is currently in the process of creating relationships with the webmasters of various strategic sites on the Internet in order to drive traffic and sales on the website.  These relationships may include reciprocal hyperlinks, banner ads or profiles on these sites.

Fourthly, SK3 plans to target more Fulfillment Associates and create a business relationship with those Fulfillment Associates.  Despite the challenges encountered by manufacturers in the liquidation market, the proliferation of outlet malls, wholesale clubs and discount chains is evidence of the strong level of consumer demand for discount and closeout merchandise.  However, consumers face several difficulties in shopping for closeout and overstock merchandise.  For example, many traditional merchandise liquidation outlets are located in remote locations and have limited shopping hours, which management believes makes shopping burdensome and infrequent for many consumers.  In addition, the space available in a traditional merchandise liquidation outlet constrains the number of products that a traditional merchandise liquidation outlet can offer at any given time.

However, management believes that the market for online liquidation is still early in its development and is characterized by only a large number of competitors, some of which utilize an auction model to price their goods.  Furthermore, management believes that there are no dominant companies in the online liquidation market, and many of the companies that do offer overstock or liquidation merchandise are focused on single product lines.

Lastly, small retailers are under competitive pressure from large national retailers.  Small retailers generally do not have purchasing leverage with manufacturers; consequently, they are more likely to pay full wholesale prices and are more likely to receive inferior service.  Management believes that small retailers generally do not have access to the liquidation market because liquidation wholesalers are most often interested in liquidating large volumes of merchandise, rather than the small quantities appropriate for small, local retailers.

Principal Suppliers

SK3 is not dependent on any single supplier for its products.  SK3’s products are supplied by a variety of manufactures, liquidation wholesalers, and Fulfillment Associates.  SK3 currently utilizes three Fulfillment Associates because of choice and relationship to SK3 and product mix.  The three Fulfillment Associates are RJTech, Inc., LTP Tech and Shian Wang.

SK3 is not reliant on any one supplier. SK3 sources its products from China and utilizes LTP Tech in North America as its only supplier.  SK3 elects not to use other suppliers as LTP Tech is able to supply the products that SK3 requires at this time and LTP Tech offers SK3 the best price points.  SK3 has dozens of other suppliers that it could utilize, if needed.

SK3 has three manufacturer relationships and two liquidator relationships that it maintains.  There are no exclusivity contracts with any supplier or liquidator.  Suppliers tend to be external agents of electronic products, manufacturers are companies that SK3 goes direct to for product cutting out the agents, and liquidators are usually those individuals who purchase excess stock and inventory at a steep discount to the retail and then liquidate that inventory to companies like SK3.  The manufacturers and liquidators are related to both SK3’s wholesale and direct business.

Technology and Intellectual Property

SK3 uses its internally developed website and uses the services of Telus Communications to obtain connectivity to the Internet.  SK3 currently stores its data on an Access database cluster using Dell server system computer hardware.  Currently, SK3 uses two Dell servers for the website, which are connected to its database.

SK3 regards its domain name and similar intellectual property as critical to its success.  SK3 relies on a combination of laws and contractual restrictions with its employees, customers, suppliers, affiliates and others to establish and protect its proprietary rights.  Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use SK3’s intellectual property without authorization.  In addition, SK3 cannot assure you that others will not independently develop similar intellectual property.

From time to time, SK3 may be subject to legal proceedings and claims in the ordinary course of its business, including claims of alleged infringement of the trademarks and other intellectual property rights of third parties by SK3.  These types of claims could result in increased costs of doing business through legal expenses, adverse judgments or settlements or require SK3 to change its business practices in expensive ways.  In addition, litigation could result in interpretations of the law that require SK3 to change its business practices or otherwise increase its

costs.  Currently, SK3 does not have any insurance coverage for any potential liabilities.  In the future, if it is affordable, SK3 may obtain general liability insurance.

Also, third parties may recruit SK3 employees who have had access to SK3’s proprietary technologies, processes and operations. These recruiting efforts expose SK3 to the risk that such employees will misappropriate SK3 intellectual property.

Additional litigation may be necessary in the future to enforce SK3’s intellectual property rights, to protect its trade secrets or to determine the validity and scope of the proprietary rights of others.  Any litigation, regardless of outcome or merit, could result in substantial costs and diversion of management and technical resources, any of which could materially harm SK3’s business.

Competition

SK3’s products and services compete with other online retailers and traditional liquidation brokers, some of which may specifically adopt SK3’s methods and target its customers.  SK3 currently competes with a variety of companies that can be divided into several broad categories:

• liquidation e-tailers such as Overstock.com;

• online retailers with discount departments such as Amazon.com, Inc., eBay, Inc. and Buy.com, Inc.; and
• traditional retailers and liquidators such as Sears Inc., Walmart Stores, Inc. and Best Buy Inc.

SK3 also face potential competition from Internet companies not yet focused on the liquidation market, and from retail companies not yet operating online.  SK3 is unable to anticipate which other companies are likely to offer services in the future that will compete with the services it provides.

In addition, many of SK3’s current and potential competitors have greater brand recognition, longer operating histories, larger customer bases and significantly greater financial, marketing and other resources than SK3, and may enter into strategic or commercial relationships with larger, more established and well-financed companies.  Some of SK3’s competitors could enter into exclusive distribution arrangements with SK3 vendors and deny SK3 access to their products, devote greater resources to marketing and promotional campaigns and devote substantially more resources to their web site and systems development than SK3.  New technologies and the continued enhancement of existing technologies also may increase competitive pressures on SK3.  SK3 cannot assure you that it will be able to compete successfully against current and future competitors or address increased competitive pressures.

The online liquidation services market is new, rapidly evolving, intensely competitive and has relatively low barriers to entry, as new competitors can launch new web sites at relatively low cost.  SK3 believe that competition in the online liquidation market is based predominantly on (1) price, (2), product quality and selection, (3) shopping convenience, and (4) customer service.

SK3 provides manufacturers of electronic and computer products with a one-stop liquidation channel to sell both large and small quantities of excess and closeout inventory without disrupting sales through traditional channels.  Key advantages for manufacturers liquidating their excess inventory through SK3 include:

Resolution of channel conflict .  Channel conflicts arise when a manufacturer’s excess inventory is sold through the same channel as their other product offerings. Since excess inventory is usually sold at a discount, sales of the manufacturer’s other product offerings may be impacted as a consumer in a retail store may opt for the excess product or become confused by the pricing and model discrepancies. By using SK3, management believes manufacturers have an alternative and independent channel where they can sell excess inventory without the fear of hindering the sale of their other products.

Single point of distribution .  Manufacturers often use multiple liquidation sources to clear their excess inventory. Multiple sources create additional logistics issues that they would rather avoid. By using SK3, manufacturers have a single source for the distribution of excess inventory.

Improved control of distribution .  By using SK3, manufacturers can monitor what kind of customer, whether individual consumer or small retailer, ultimately purchases their merchandise. In addition, a manufacturer can request that its products be offered in only one of its sales channels in order to avoid sales channel pollution.

Improved transaction experience .  By having a reliable inventory clearing channel, manufacturers are able to more quickly and easily dispense of their excess merchandise.

However, some key disadvantages for manufacturers liquidating their excess inventory through SK3 include manufacturers may not want to work with SK3 due to its limited operating history, resources and SK3’s only officer’s lack of experience in the sector.

SK3 also offers consumers a compelling alternative for bargain shopping.  Key advantages for consumers include convenient access on a secure site and responsive customer care.  SK3 has developed a secure e-commerce site that has industry standard encryption, but has elected to use PayPal as a processor for credit cards for ease of transaction.  SK3 also offers small businesses and retailers a compelling method for

obtaining products for resale.  SK3 believes that small businesses and retailers can secure lower prices and better service through SK3 than they typically receive from manufacturers or other distributors.

Management believes SK3 is able to offer these advantages because, unlike many small businesses and retailers, SK3 will have the ability to access the liquidation market to buy merchandise in bulk quantities for which it often receives volume-based price discounts provided SK3 has sufficient working capital to make these types of acquisitions.  Accordingly, SK3 has designed it shipping and receiving operations with the flexibility to accommodate both the receipt of large shipments of inventory purchases, and the distribution of bulk loads to its small business customers.  SK3 receives all shipments to its Fulfillment Associate and manufacturer in Richmond, British Columbia.  As stated, this supplier has secured warehouse facilities and as such SK3 has no logistical issues.  SK3’s products are small in size and as such 100 units can fit into a four square foot box.  The largest order that SK3 received and shipped to date was its FM receiver line where 500 units were received and 400 units were shipped.

Regulations

 SK3 is subject to general business regulations and laws, as well as regulations and laws specifically governing the Internet and e-commerce.  Currently, other than business and operations licenses applicable to most commercial ventures and the standard consumer protection laws, SK3 is not required to comply with any extraordinary regulations for its business operations.  As a result of doing business through the Internet in many jurisdictions, SK3 must comply with many laws and regulations that deal with taxation, advertising, consumer protection, user privacy, data protection, pricing, content, copyrights, distribution, electronic contracts and other communications, broadband residential Internet access, and the characteristics and quality of products and services.

SK3 is subject to the same federal, state and local laws as other companies conducting business on the Internet.  Today there are relatively few laws specifically directed towards conducting business on the Internet.  However, due to the increasing popularity and use of the Internet, many laws and regulations relating to the Internet are being debated at the state and federal levels.  These laws and regulations could cover issues such as user privacy, freedom of expression, pricing, fraud, quality of products and services, taxation, advertising, intellectual property rights and information security. Applicability to the Internet of existing laws governing issues such as property ownership, copyrights and other intellectual property issues, taxation, libel, obscenity and personal privacy could also harm SK3’s business.  For example, United States and foreign laws regulate SK3’s ability to use customer information and to develop, buy and sell mailing lists.  The vast majority of these laws was adopted prior to the advent of the Internet, and do not contemplate or address the unique issues raised thereby. T hose laws that do reference the Internet, such as the Digital Millennium Copyright Act and the CAN-SPAM Act of 2003, are only beginning to be interpreted by the courts and their applicability and reach are therefore uncertain.  These current and future laws and regulations could harm SK3’s business, results of operation and financial condition.

However, there can be no assurance that current or new laws or regulations will not, in the future, impose additional fees and taxes on SK3 and its business operations.  Any new laws or regulations relating to the Internet or any new interpretations of existing laws could have a negative impact on SK3’s business and add additional costs to SK3’s business operations.

Currently, SK3 only operates in British Columbia and has no nexus to any State.  Accordingly, SK3 is not required to collect or remit any tax on its transactions with consumers, with the exception of the 7% sales tax charged to British Columbia consumers and the 7% goods and service tax charged to consumers residing in Canada.

Websites are not currently subject to direct federal laws or regulations applicable to access, content or commerce on the Internet.  However, due to the increasing popularity and use of the Internet, it is possible that a number of laws and regulations may be adopted with respect to the Internet covering issues such as:

• user privacy

• freedom of expression

• pricing

• content and quality of products and services

• taxation

• advertising

• intellectual property rights

• information security

The adoption of any such laws or regulations might decrease the rate of growth of Internet use, which in turn could decrease the demand for SK3’s products and services, increase the cost of doing business, or in some other manner have a negative impact on SK3’s business, financial condition and operating results.  In addition, applicability to the Internet of existing laws governing issues such as property ownership, copyrights and other intellectual property issues, taxation, libel, obscenity and personal privacy is uncertain.  The vast majority of such laws were adopted prior to the advent of the Internet and related technologies and, as a result, do not contemplate or address the unique issues of the Internet and related technologies.

Additionally, in response to concerns regarding “spam” (unsolicited electronic messages), “pop-up” web pages and other Internet advertising, the federal government and a number of states have adopted or proposed laws and regulations that would limit the use of unsolicited Internet advertisements.  While a number of factors may prevent the effectiveness of such laws and regulations, the cumulative effect may be to limit the attractiveness of effecting sales on the Internet, thus reducing the value of SK3’s business operations.  Currently, SK3 does not “spam” and there are no laws or regulations governing Internet advertising that have a negative impact on SK3’s business.

Also, several telecommunications companies have petitioned the Federal Communications Commission to regulate Internet service providers and on-line service providers in a manner similar to long distance telephone carriers and to impose access fees on those companies.  This could increase the cost of transmitting data over the Internet.

Finally, SK3 has adopted a code of ethics (the “ Code ”) that is applicable to every officer, director, employee and consultant of the company and its affiliates.  The Code reaffirms the high standards of business conduct required of all employees.  The Code is part of SK3’s continuing efforts to (1) ensure that it complies with all applicable laws, (2) have an effective program in place to prevent and detect violations of law, and (3) educate and train its employees to be aware and understand ethical business practices.  In most circumstances, the Code sets standards that are higher than the law requires.

Employees and Employment Agreements

Currently, SK3 has 0 employees and SK3 does not intend to hire third party independent contractors to provide services to SK3.  Mr. Sankhala, the sole officer and director until April 16, 2007, was responsible for all the business operations of SK3.  Such duties were handled by Sajid Kapadia until April 15, 2008, whose duties included website maintenance, all corporate governance, order processing and shipping, and all related to the products and to SK3.  Mr. Sankhala resigned on April 16, 2007 and Sajid Kapadia was appointed sole officer of SK3. These duties are not handled by Amit Sankhala, the company’s sole officer.  Mr. Kapadia resigned on April 15, 2008 and Amit Sankhala was appointed as sole officer of SK3.

At present, SK3’s sole officer does not have an employment agreement with SK3.  SK3 presently does not have pension, health, annuity, insurance, stock options, profit sharing or similar benefit plans; however, SK3 may adopt plans in the future.  There are presently no personal benefits available to any employees.

SK3 has also adopted eight corporate values to provide a framework for all employees in conducting themselves in their jobs.  These values are not intended to substitute for the Code, but will serve as guidelines in helping the employees to conduct SK3’s business in accordance with the Code.

The Code is not intended to cover every possible situation in which an employee may find himself or herself.  It is meant to give each employee the boundaries within which SK3 expects each employee to conduct himself or herself while representing SK3.  An employee may find himself or herself in a situation where there is no clear guidance given by the Code.  If that occurs, return to the objective stated below: common sense, good judgment, high ethical standards and integrity, and refer to SK3’s values.  In addition, there are many resources upon which an employee may rely, including the president.

RISK FACTORS

You should consider each of the following risk factors and the other information in this Annual Report, including SK3’s financial statements and the related notes, in evaluating SK3’s business and prospects.  The risks and uncertainties described below are not the only ones that impact on our business.  Additional risks and uncertainties not presently known to SK3 or that SK3 currently considers immaterial may also impair its business operations.  If any of the following risks actually occur, SK3’s business and financial results could be harmed. In that case, the trading price of SK3’s common stock could decline.

Risks associated with SK3:

1.

SK3 is a development stage company and may not be able to continue as a going concern and may not be able to raise additional financing.

A note provided by SK3’s independent auditors in SK3’s financial statements for the period from inception, May 17, 2004, through December 31, 2007 contains an explanatory note that indicates that SK3 is a development stage company and its ability to continue as a going concern and to emerge from the development stage is dependent on continued financial support from its shareholders, raising additional capital to fund future operations and ultimately to attain profitable operations.

SK3 has a working capital deficiency and has accumulated losses since inception. These factors raise substantial doubt about SK3’s ability to continue as a going concern.  To date there has been no significant revenue. In a development stage company, management devotes most of its activities to developing a market for its products and services. These consolidated financial statements have been prepared on a going concern basis, which implies that SK3 will continue to realize its assets and discharge its liabilities in the normal

course of business.  SK3 has not generated significant revenue and has never paid any dividends. SK3 is unlikely to pay dividends or generate significant earnings in the immediate or foreseeable future. There is no guarantee that SK3 will be able to raise any equity financing or generate profitable operations. SK3 has a working capital deficit of $195,904 and has accumulated losses of $342,426 since inception. These factors raise substantial doubt regarding SK3’s ability to continue as a going concern.

This note may make it more difficult for SK3 to raise additional equity or debt financing needed to run its business and is not viewed favorably by analysts or investors.  SK3 urges potential investors to review this report before making a decision to invest in SK3.

2.

SK3 lacks an operating history and has losses that it expects to continue into the future. If the losses continue SK3 will have to suspend operations or cease operations.

SK3 has had no significant operating history upon which an evaluation of its future success or failure can be made.  SK3’s net loss since its inception on May 17, 2004 is $308,144.  SK3’s ability to achieve and maintain profitability and positive cash flow is dependent upon its ability to generate revenues from its planned business operations and to reduce development costs.  Without the generation of any revenues or any capital being raised in an equity or debt financing, SK3 will run out of operating funds within four months.

Based upon current plans, SK3 expects to incur $3,000 per month in operating losses in the next 12 to 18 months.  This will happen because there are expenses associated with the development and operation of its website.  SK3 cannot guaranty that it will be successful in generating revenues in the future or that it will be able to raise any working capital for operating funds in the future.  Failure to generate revenues or raise any financing may cause SK3 to go out of business.

3.

SK3 is relatively new to the internet marketplace with no history of operations and, as a result, SK3’s ability to operate and  compete effectively may be affected negatively.

In deciding whether to purchase SK3’s shares of common stock, and the likelihood SK3’s success, you should consider that SK3 is relatively new to the internet marketplace and has no operating history upon which to judge its current operations.  As a result, you will be unable to assess SK3’s future operating performance or its future financial results or condition by comparing these criteria against its past or present equivalents.

Also, the computer and Internet industries are characterized by rapidly changing technologies, frequent introductions of new products, services, and industry standards.  SK3’s future success will depend on its continued ability to adapt to rapidly changing technologies by continually improving the performance features and reliability of SK3’s services, as well as, the development and maintenance of the Internet’s infrastructure to cope with this increased traffic.  SK3’s future success will also depend in large part on its continued ability to develop and enhance SK3’s products and services.  There are significant technical risks in the development of new or enhanced services, including the risk that SK3 will be unable to effectively use new technologies, adapt its services to emerging industry standards, or develop, introduce and market new or enhanced products and services.

Also, if SK3 is unable to develop and introduce enhanced or new products and services quickly enough to respond to market or user requirements or to comply with emerging industry standards, or if these products and services do not achieve market acceptance, SK3 may not be able to compete effectively.

4.

SK3 does not have sufficient funds to complete each phase of its proposed plan of operation and as a result may have to suspend operations.

Each of the phases of SK3’s plan of operation is limited and restricted by the amount of working capital that SK3 has and is able to raise from financings and generate from business operations.  SK3 currently does not have sufficient funds to complete each phase of its proposed plan of operation and SK3 expects that it will not satisfy its cash requirements for the next 12 months.  As a result, SK3 may have to suspend or cease its operations on one or more phases of the proposed plan of operation.  

As of December 31, 2007, SK3 had $0 in cash.  Until SK3 is able to generate any consistent and significant revenue it will be required to raise additional funds by way of equity financing to finance its operations.  At any phase of SK3’s plan of operation, if SK3 finds that it does not have adequate funds to complete a phase, it may have to suspend its operations and attempt to raise more money so it can proceed with its business operations.  If SK3 cannot raise the capital to proceed it may have to suspend operations until it has sufficient capital.  

SK3 will also require additional financing if the costs of the proposed phases of the plan of operation are greater than anticipated. SK3 will require additional financing to sustain its business operations if SK3 is not successful in earning revenues from its business operations.  SK3 can provide no assurance to investors that SK3 will be able to find additional financing if required.  Any sale of additional share capital will result in dilution to existing shareholders.

5.

Since SK3’s management lacks any formal training or experience in operating an e-commerce business, SK3 may have to hire or retain qualified personnel.  If SK3 is unable to hire or retain any qualified personnel, SK3 may have to suspend or cease operations, which will result in the loss of your investment.

SK3’s sole officer, Amit Sankhala, is inexperienced in operating an e-commerce business, SK3 may be forced to hire or retain qualified management, employees or consultants to perform administrative, sales or marketing roles related to an e-commerce business.  Mr. Sankhala has no direct training or experience in these areas and as a result may not be fully aware of all of the specific requirements related to working within this industry.  Mr. Kapadia ’s decisions and choices may not take into account standard managerial approaches e-commerce companies commonly use.  Consequently, SK3’s operations, earnings, and ultimate financial success could suffer irreparable harm due to management’s lack of experience in this industry.  As a result, SK3 may have to suspend or cease operations that will result in the loss of your investment.

Competition for qualified personnel is intense and SK3 may not be able to hire or retain qualified personnel, which could also have a negative impact on SK3’s business.

6.

SK3 has no independent board members, which places them in a conflict of interest with respect to compliance with SK3’s Code of Ethics.

There is no independent director and no other compliance officer or employee to oversee compliance of SK3’s Code of Ethics.  As a result, a conflict of interest when it comes to overseeing compliance and enforcement of SK3’s Code of Ethics.  The Code of Ethics is part of SK3’s continuing efforts to (1) ensure that it complies with all applicable laws, (2) have an effective program in place to prevent and detect violations of law, and (3) educate and train its Employees to be aware and understand ethical business practices.  As Mr. Sankhala is the sole compliance officer, he would be conflicted if he had to investigate himself if any operation or activity that involved SK3, and as a result Mr. Sankhala as the sole officer and director of SK3, was in violation of the law or of the Code of Ethics.  Such reportable violations include insider trading, non-compliance with financial reporting and record keeping requirements, failure to communicate accurate and timely information, failure to keep information confidential, failure to ensure the health and safety of SK3’s employees, a conflict of interest for personal gain at the expense of SK3, failure to compete fairly, and non-compliance with all state, federal, or international regulations.  Violations of the law or the Code of Ethics could subject SK3 to severe penalties and fines, which could negatively impact on SK3’s financial position and business.

7.

Because Mr. Sankhala owns more than 50% of the outstanding shares, he will be able to decide who will be elected to the board of directors and you may not be able to elect any board member, which may lead to the entrenchment of management, and will also be able to impede or effect a change of control or a sale of assets.

Amit Sankhala, SK3’s sale officer and director currently owns an aggregate 19,902,504 shares (70.59%) and has voting control of SK3.  Holders of SK3’s shares of common stock do not have cumulative voting rights, which means that the holders of more than 50% of the outstanding shares, voting for the election of members of the board of directors, can elect all of the members to be elected, if they so choose, and, in that event, the holders of the remaining shares will not be able to elect any of member to SK3’s board of directors.  As a result, Mr. Sankhala will be able to set the number of directors to be elected and to elect all of the members of SK3’s board of directors, to control SK3’s business operations, and to entrench management.

Also, as a result of Mr. Sankhala having voting control of SK3, Mr. Sankhala has the ability to approve or defeat a change of voting control of SK3 and to approve or reject any offer for the purchase and sale of SK3’s assets.

SK3 is also afforded the protections of Section 203 of the Delaware General Corporation Law, which could delay or prevent a change in control of SK3 or could impede a merger, consolidation, takeover or other business combination involving SK3 or discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of SK3.

8.

SK3 does not expect to pay dividends in the foreseeable future.

SK3 has never paid cash dividends on its shares of common stock and has no plans to do so in the foreseeable future.  SK3 intends to retain earnings, if any, to develop and expand its business operations.

9.

SK3’s director owns a substantial amount of SK3’s shares of common stock: if he were to sell his shares in the public market within a short period of time, the price of SK3’s shares of common stock could drop significantly.

Amit Sankhala, sole officer and a director of SK3, currently owns 19,902,504 shares of common stock, which represent 70.59% of the 28,191,303 issued and outstanding shares of common stock of SK3.  Mr. Sankhala may sell large amounts of common stock into the public market over relatively short periods of time subject to Rule 144.  Any sale of a substantial amount of SK3’s common stock in the public market by Mr. Sankhala may adversely affect the market price of SK3’s common stock.  Such sales could create public perception of difficulties or problems with SK3’s business and may depress SK3’s stock price.

10.

A change in control of SK3 can be delayed, impeded or effected byu the director of SK3, who owns 70.59% outstanding 28,191,303 shares.

SK3’s director owns 19,902,504 shares of common stock and as a result have the ability to influence the vote for a change of voting control of SK3 or the vote to approve or reject any offer for the purchase and sale of SK3’s assets.

11.

“Penny Stock” rules may make buying or selling SK3’s shares of common stock difficult, and severely limit the market and liquidity of the shares of common stock.

Trading in SK3’s shares of common stock is subject to certain regulations adopted by the SEC commonly known as the “penny stock” rules.  These rules govern how broker-dealers can deal with their clients and “penny stocks”.  The additional burdens imposed upon broker-dealers by the “penny stock” rules may discourage broker-dealers from effecting transactions in SK3’s securities, which could severely limit their market price and liquidity of SK3’s securities.  See “Penny Stock Rules” below on page 19 for more information.

Risks associated with SK3’ business:

12.

Failure to successfully compete in the e-commerce industry with established e-commerce companies may result in SK3’s inability to continue with its business operations.

Currently, there is significant competition in this market.  SK3 expects competition in this market to increase significantly as traditional liquidators and online retailers continue to develop services that compete with SK3’s services and there are a few barriers to entry in this market.  In addition, competitors may decide to create their own websites to sell their own excess inventory and the excess inventory of third parties.

Many of SK3’s current competitors have longer operating histories, larger customer bases, greater brand recognition and significantly greater financial, marketing and other resources than SK3 does.  Some of SK3’s competitors may be able to secure merchandise from suppliers on more favorable terms, devote greater resources to marketing and promotional campaigns, adopt more aggressive pricing or inventory availability policies, and devote substantially more resources to their website and systems development than SK3 does.  Increased competition may result in reduced operating margins, loss of market share and a diminished brand franchise.  SK3 cannot assure you that we will be able to compete successfully against current and future competitors.

If SK3 is unable to develop and introduce enhanced or new technology or services quickly enough to respond to market or user requirements or to comply with emerging industry standards, or if these services do not achieve market acceptance, SK3 may not be able to compete effectively.  Competitive pressures created by any one of SK3’s competitors could have a negative impact on SK3’s business, results of operations and financial condition and as a result, SK3 may not be able to continue with its business operations.

13.

Since SK3 relies on one provider to host its website, SK3’s technical systems could fail if this service is interrupted, which in turn would have a negative impact on SK3’s business.

Although SK3 has back up facilities for its computer systems, SK3 relies on one provider to host the website, Ezyra E-Business Services.  If Ezyra E-Business Services failed to provide service to its systems, SK3 would be unable to maintain website availability.  Interruptions could result from natural disasters as well as power loss, telecommunications failure and similar events.   SK3’s business depends on the efficient and uninterrupted operation of its computer and communications hardware systems.  Any system interruptions that cause its website to be unavailable could materially adversely affect its business.  Furthermore, SK3 will be depending on outside expertise to maintain and expand its website design and capabilities.  There is no assurance that website consultants can be retained who will understand the needs of and have the solution for a desirable, user-friendly commercial website.

14.

SK3 relies on one supplier for its Direct Business and on three Fulfillment Associates for its Fulfillment Business for a majority of its inventory.

SK3 currently sources its entire inventory for its Direct Business from one supplier, LTP Tech.  Also, SK3 sources a majority of its inventory for its Fulfillment Business from three Fulfillment Associates.  SK3 does not have long-term contracts or arrangements with its supplier or Fulfillment Associates to guarantee the availability of inventory.  If SK3’s current supplier and Fulfillment Associates were to stop supplying inventory to SK3 on acceptable terms, SK3 may not be able to acquire inventory from other suppliers in a timely and efficient manner and on acceptable terms.  SK3’s accounts payable are due 30 days after receipt of the invoice.

15.

SK3’s business exposes SK3 to potential product liability claims, and SK3 may incur substantial expenses if SK3 is subject to product liability claims or litigation, which could result in a negative impact on its business.

SK3’s products involve a minimal inherent risk of product liability claims and associated adverse publicity.  However, SK3 may be held liable if any product it sells causes injury or is otherwise found unsuitable.  Currently, SK3 does not carry any product liability insurance or general business coverage.  A product liability claim, regardless of its merit or eventual outcome, could result in significant legal defense costs.  These costs would have the effect of increasing SK3’s expenses and diverting management’s attention away from the operation of its business, and could harm SK3’s business.

16.

SK3 may be subject to legal proceedings involving its intellectual property that could result in substantial costs and which could materially harm SK3’s business operations.

From time to time, SK3 may be subject to legal proceedings and claims in the ordinary course of its business, including claims of alleged infringement of the trademarks and other intellectual property rights of third parties by SK3.  These types of claims could result in increased costs of doing business through legal expenses, adverse judgments or settlements or require SK3 to change its business practices in expensive ways.  Additional litigation may be necessary in the future to enforce SK3’s intellectual property rights, to protect its trade secrets or to determine the validity and scope of the proprietary rights of others.  Any litigation, regardless of outcome or merit, could result in substantial costs and diversion of management and technical resources, any of which could materially harm SK3’s business.

Risks associated with SK3’s industry:

17.

Any new laws or regulations relating to the Internet or any new interpretations of existing laws could have a negative impact on SK3’s business.

Currently, other than business and operations licenses applicable to most commercial ventures, SK3 is not required to obtain any governmental approval for its business operations.  However, there can be no assurance that current or new laws or regulations will not, in the future, impose additional fees and taxes on SK3 and its business operations.  Additionally, in response to concerns regarding “spam” (unsolicited electronic messages), “pop-up” web pages and other Internet advertising, the federal government and a number of states have adopted or proposed laws and regulations that would limit the use of unsolicited Internet advertisements.  While a number of factors may prevent the effectiveness of such laws and regulations, the cumulative effect may be to limit the attractiveness of effecting sales on the Internet, thus reducing the value of SK3’s business operations.  Also, several telecommunications companies have petitioned the Federal Communications Commission to regulate Internet service providers and on-line service providers in a manner similar to long distance telephone carriers and to impose access fees on those companies.  This could increase the cost of transmitting data over the Internet.  Any new laws or regulations relating to the Internet or any new interpretations of existing laws could have a negative impact on SK3’s business and add additional costs to SK3’s business operations.

18.

SK3 may be subject to liability for past sales, which could have a negative impact on SK3’s future business operations.

In accordance with current industry practice, SK3 does not currently collect sales or other similar taxes for physical shipments of inventory into the United States.  One or more local, state or foreign jurisdictions may seek to impose sales tax collection obligations on SK3 and other out-of-state companies that engage in online commerce.  SK3’s business could be adversely affected if one or more States or any foreign country successfully asserts that SK3 should collect sales or other taxes on the sale of its inventory.  Currently, decisions of the U.S. Supreme Court restrict the imposition of obligations to collect state and local sales and use taxes with respect to sales made over the Internet.  However, a number of States, as well as the U.S. Congress, have been considering various initiatives that could limit or supersede the Supreme Court’s position regarding sales and use taxes on Internet sales.  If any of these initiatives addressed the Supreme Court’s constitutional concerns and resulted in a reversal of its current position, SK3 could be required to collect sales and use taxes in certain or all States.  The imposition by state and local governments of various taxes upon Internet commerce could create administrative burdens for SK3 and could decrease its future sales and have a negative impact on SK3’s future business operations.

19.

SK3 is subject to regulations relating to consumer privacy and data protection, which may adversely affect the growth of SK3’s Internet business or its marketing efforts.

SK3 is subject to increasing regulation at the federal, state and international levels relating to privacy and the use of personal user information.  For example, SK3 is subject to various telemarketing laws that regulate the manner in which SK3 may solicit future suppliers and customers.  Such regulations, along with increased governmental or private enforcement, may increase the cost of growing SK3’s business.

In addition, several States have proposed, and California, Minnesota, Utah, and Vermont have recently passed, legislation that would limit the uses of personal user information gathered online or require online services to establish privacy policies.  In addition to these four States, many other jurisdictions already have such laws and continuously consider strengthening them, especially against online services. SK3 in certain instances are subject to some of these current laws.

The Federal Trade Commission has adopted regulations regarding the collection and use of personal identifying information obtained from children under 13.  Bills proposed in Congress would extend online privacy protections to adults.  Moreover, proposed legislation in this country and existing laws in foreign countries require companies to establish procedures to notify users of privacy and security policies, obtain consent from users for collection and use of personal information, and/or provide users with the ability to access, correct and delete personal information stored by SK3.  SK3 could become a party to a similar enforcement proceeding.  These data protection regulations and enforcement efforts may restrict SK3’s ability to collect demographic and personal information from users, which could be costly or harm SK3’s marketing efforts.

Specific statutes intended to protect user privacy have been passed in many non-U.S. jurisdictions, including virtually every non-U.S. jurisdiction in which SK3 currently offers its products.  Failure to comply could subject SK3 to lawsuits, fines, criminal penalties, statutory damages, adverse publicity, and other losses that could harm our business.  Changes to existing laws or the passage of new laws intended to address these privacy and data protection and retention issues could directly affect the way SK3 does business or could create uncertainty on the Internet.  This could reduce demand for SK3’s inventory, increase the cost of doing business as a result of litigation costs or increased inventory or delivery costs, or otherwise harm SK3’s business.

20.

Security of online transactions via the Internet and any security breaches will have a negative impact on SK3’s business.

The secure transmission of confidential information over public telecommunications facilities is a significant barrier to electronic commerce and communications on the Internet.  SK3 retains all pertinent data about a customer, including name, payment information, address, what they purchased, and credit card information.  Many factors may cause compromises or breaches of security systems used by SK3 and other Internet sites to protect proprietary information.  A compromise of security on the Internet would materially negatively affect the use of the Internet for commerce and communications.  This in turn would negatively affect SK3’s business.  Circumvention of SK3’s security measures could result in misappropriation of its proprietary information or cause interruptions of SK3’s operations.  Protecting against the threat of such security breaches may require SK3 to expend significant amounts of capital and other resources.  There can be no assurance that SK3’s security measures will prevent security breaches.  Currently, SK3 has no security features in place on its website, with the exception that SK3 utilizes PayPal as a processor for credit cards.

SK3 does not carry insurance against the risk of credit card fraud, so the failure to adequately control fraudulent credit card transactions could reduce SK3’s net revenues and its gross margin.  SK3 may in the future suffer losses as a result of orders placed with fraudulent credit card data even though the associated financial institution approved payment of the orders.  If SK3 is unable to detect or control credit card fraud, SK3’s liability for these transactions could negatively impact SK3’s business.  To date, SK3 has not been assessed any fines for chargebacks in the past, but chargebacks may arise in the future.  SK3 has taken measures to detect and reduce the risk of fraud, but these measures may not be effective.  If these measures do not succeed, SK3’s business will suffer.

21.

SK3’s business will be adversely affected if the infrastructure of the Internet is unable to support demands placed on it by SK3’s business.

The success of commercial use of the Internet depends in large part upon the development and maintenance of the Internet  ’s infrastructure, including the development of complementary products such as various broadband technologies.  The number of users of the Internet and the amount of traffic on the Internet have grown significantly and are expected to continue to grow, placing greater demands on the Internet's infrastructure.  This infrastructure may not be able to support the demands placed on it by this continued growth without its performance or reliability being decreased.  Any outages or delays in services could lower the level of Internet usage.  In addition, the infrastructure and complementary products and services necessary to make the Internet a viable commercial marketplace may not develop.  If usage of the Internet is curtailed due to infrastructure constraints or lack of complementary products, SK3 expects an adverse impact on its business and revenues.  Even if such infrastructure and complementary products and services do develop, there can be no guarantee that the Internet will become a viable commercial marketplace for products and services such as those offered by SK3.