---

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



---

FORM 10-QSB/A



---

Amendment No. 1

(Mark One)

|x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------

For the quarterly period ended June 30, 2006



| ̈ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
|- | ---------------------------------------------------------------

For the transition period from  to

Commission file number: 000-27131



---

INVERTED PARADIGMS CORPORATION

(Exact name of Registrant as specified in its charter)



---



|                                                               |  |                        
|-------------------------------------------------------------- |  | -----------------------
|Delaware                                                       |  | 88-0381258             
|(State or other Jurisdiction of Incorporation or Organization) |  | (IRS Employer I.D. No.)

11523 Palm Brush Tr. #341

Lakewood Ranch, FL 34202

(941) 926-6180

(Address and telephone number of principal executive offices)

1800 2ndStreet East, Suite 735

Sarasota, Florida 34326

(941) 256-0436

(Former address and
telephone number of principal executive offices)



---

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

The number of shares of the registrants
common stock, par value $0.001 per share, outstanding as of August 10, 2006 was 67,635,927 and there were 895 stockholders of record.

Transitional
Small Business Issuer Format: ̈YES    x  NO

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



---



---

EXPLANATORY NOTE

Inverted Paradigms Corporation (the Company) is filing this Amendment No. 1 to its Quarterly Report on Form 10-QSB for its fiscal quarter ended June 30, 2006, as filed with the Securities and Exchange
Commission on August 14, 2006 (the Original June 2006 Form 10-QSB), primarily to expand Managements Discussion and Analysis or Plan of Operations, to correct an error in recording stock issued as compensation, interest expense as a
result of the issuance of common stock and warrants in connection with promissory notes, and to correct the resulting effects upon additional paid in capital, accumulated deficit and capital deficiency.

Actual Changes in the Original June 2006 Form 10-QSB. The actual changes in the Original June 2006 Form 10-QSB included in this Amendment No. 1 are
amendments to (a) amended and restated Consolidated Balance Sheet as of June 30, 2006, (b) amended and restated Consolidated Statement of Operations for the three and six months ended June 30, 2006, (c) amended and restated Consolidated Statement of
Cash Flow for the six months ended June 30, 2006, (d) additional or updated disclosures in Notes 4, 6, 7 and 9, and (e) a new Note 11 discussing the restatement.

Notwithstanding that there are no changes in most of the Notes to the Consolidated Financial Statements included in this Amendment No. 1, a complete Form 10-QSB document including a complete set of the Consolidated
Financial Statements (together with all of the Notes from the Original June 2006 Form 10-QSB) has been included in this Amendment No. 1, for convenient reference.

In addition, see additional amended filings of the Company for relevant subsequent events.



---

INVERTED PARADIGMS CORPORATION AND SUBSIDIARIES

FORM 10-QSB

INDEX



|               |  |                                                                                                                           |  |   
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------- |  | --
|PART I.        |  | FINANCIAL INFORMATION                                                                                                     |  |   
|               |  |                                                                                                                          
|Item 1.        |  | Financial Statements                                                                                                      |  |   
|               |  |                                                                                                                          
|               |  | Consolidated Balance Sheet (unaudited) at June 30, 2006 (As restated)                                                     |  | 3 
|               |  |                                                                                                                          
|               |  | Consolidated Statements of Operations (unaudited) for the Three and Six Months Ended June 30, 2006 and 2005 (As restated) |  | 4 
|               |  |                                                                                                                          
|               |  | Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended June 30, 2006 and 2005 (As restated)           |  | 5 
|               |  |                                                                                                                          
|               |  | Notes to Consolidated Financial Statements (unaudited)                                                                    |  | 6 
|               |  |                                                                                                                          
|Item 2.        |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                     |  | 14
|               |  |                                                                                                                          
|Item 3.        |  | Controls and Procedures                                                                                                   |  | 22
|               |  |                                                                                                                          
|PART II        |  | OTHER INFORMATION                                                                                                         |  |   
|               |  |                                                                                                                          
|Item 1.        |  | Legal Proceedings                                                                                                         |  | 22
|               |  |                                                                                                                          
|Item 2.        |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                               |  | 22
|               |  |                                                                                                                          
|Item 3.        |  | Defaults Upon Senior Securities                                                                                           |  | 24
|               |  |                                                                                                                          
|Item 4.        |  | Submission of Matters to a Vote of Security Holders                                                                       |  | 24
|               |  |                                                                                                                          
|Item 5.        |  | Other Information                                                                                                         |  | 24
|               |  |                                                                                                                          
|Item 6.        |  | Exhibits                                                                                                                  |  | 24
|               | 
|SIGNATURE PAGE |  | 25                                                                                                                       



---

INVERTED PARADIGMS CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheet



|                                                                                                        |  |               |             |  
|------------------------------------------------------------------------------------------------------- |  | ------------- | ----------- | -
|                                                                                                        |  | June 30, 2006 |            
|                                                                                                        |  | (As restated) |            
|                                                                                                        |  | (unaudited)   |            
|Assets                                                                                                  |  |               |             |  
|Current assets:                                                                                         |  |               |             |  
|Cash                                                                                                    |  | $             | 58,200      |  
|Prepaid expenses                                                                                        |  |               | 17,973      |  
|                                                                                                        |  |               |             |  
|Total current assets                                                                                    |  |               | 76,173      |  
|                                                                                                        | 
|Property and equipment, net                                                                             |  |               | 18,888      |  
|Intangible asset                                                                                        |  |               | 119,956     |  
|Deposits                                                                                                |  |               | 510         |  
|                                                                                                        |  |               |             |  
|Total assets                                                                                            |  | $             | 215,527     |  
|                                                                                                        |  |               |             |  
|Liabilities and Stockholders Equity (Capital Deficiency)                                               |  |               |             |  
|Current liabilities:                                                                                    |  |               |             |  
|Accounts payable                                                                                        |  | $             | 123,824     |  
|Accrued expenses                                                                                        |  |               | 53,061      |  
|Notes payable to stockholders                                                                           |  |               | 515,800     |  
|                                                                                                        |  |               |             |  
|Total current liabilities                                                                               |  |               | 692,685     |  
|                                                                                                        | 
|Stockholders equity (capital deficiency):                                                              |  |               |             |  
|Common stock, $0.001 par value, 100,000,000 shares authorized, 62,260,927 shares issued and outstanding |  |               | 30,261      |  
|Additional paid-in capital                                                                              |  |               | 37,988,133  |  
|Accumulated deficit                                                                                     |  |               | (38,495,552 | )
|                                                                                                        |  |               |             |  
|Total stockholders equity (capital deficiency)                                                         |  |               | (477,158    | )
|                                                                                                        |  |               |             |  
|Total liabilities and stockholders equity (capital deficiency)                                         |  | $             | 215,527     |  
|                                                                                                        |  |               |             |  

See accompanying notes to unaudited consolidated financial statements.



3



---

INVERTED PARADIGMS CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations (unaudited)



|                                                                                                                                                                                                                       |  |                             |            |   |                           |   |            |               |  |   |            |   |  |   |            |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | ---------- | - | ------------------------- | - | ---------- | ------------- |  | - | ---------- | - |  | - | ---------- | -
|                                                                                                                                                                                                                       |  | Three Months Ended June 30, |            |   | Six Months Ended June 30, |  
|                                                                                                                                                                                                                       |  | 2006                        |            |   | 2005                      |   |            | 2006          |  |   | 2005       |  
|                                                                                                                                                                                                                       |  | (As restated)               |            |   |                           |   |            | (As restated) |  |   |            |  
|Net sales                                                                                                                                                                                                              |  | $                           |           |   |                           | $ |           |               |  | $ |           |   |  | $ |           |  
|                                                                                                                                                                                                                       |  |                             |            |  
|Cost of sales                                                                                                                                                                                                          |  |                             |           |   |                           |   |           |               |  |   |           |   |  |   |           |  
|                                                                                                                                                                                                                       |  |                             |            |   |                           |   |            |               |  |   |            |   |  |   |            |  
|Gross profit                                                                                                                                                                                                           |  |                             |           |   |                           |   |           |               |  |   |           |   |  |   |           |  
|                                                                                                                                                                                                                       |  |                             |            |  
|Operating expenses                                                                                                                                                                                                     |  |                             |            |   |                           |   |            |               |  |   |            |   |  |   |            |  
|Sales and marketing                                                                                                                                                                                                    |  |                             | 17,202     |   |                           |   |           |               |  |   | 17,202     |   |  |   |           |  
|General and administrative expenses (inclusive of non-cash stock-based employee compensation of $15,740 and $117,635 and $67,731 and $271,008
for the three and six months ended June 30, 2006 and 2005, respectively) |  |                             | 493,771    |   |                           |   | 372,307    |               |  |   | 835,249    |   |  |   | 845,135    |  
|Technology and content                                                                                                                                                                                                 |  |                             | 10,598     |   |                           |   |           |               |  |   | 10,598     |   |  |   |           |  
|Depreciation and amortization                                                                                                                                                                                          |  |                             | 1,039      |   |                           |   |           |               |  |   | 1,208      |   |  |   |           |  
|                                                                                                                                                                                                                       |  |                             |            |   |                           |   |            |               |  |   |            |   |  |   |            |  
|Total operating expenses                                                                                                                                                                                               |  |                             | 522,610    |   |                           |   | 372,307    |               |  |   | 864,257    |   |  |   | 845,135    |  
|                                                                                                                                                                                                                       |  |                             |            |   |                           |   |            |               |  |   |            |   |  |   |            |  
|Loss from continuing operations                                                                                                                                                                                        |  |                             | (522,610   | ) |                           |   | (372,307   | )             |  |   | (864,257   | ) |  |   | (845,135   | )
|                                                                                                                                                                                                                       |  |                             |            |   |                           |   |            |               |  |   |            |   |  |   |            |  
|Other income (expense):                                                                                                                                                                                                |  |                             |            |   |                           |   |            |               |  |   |            |   |  |   |            |  
|Interest income                                                                                                                                                                                                        |  |                             | 98         |   |                           |   | 1,101      |               |  |   | 213        |   |  |   | 1,373      |  
|Interest expense                                                                                                                                                                                                       |  |                             | (24,302    | ) |                           |   |           |               |  |   | (33,081    | ) |  |   |           |  
|                                                                                                                                                                                                                       |  |                             |            |   |                           |   |            |               |  |   |            |   |  |   |            |  
|Other income, net                                                                                                                                                                                                      |  |                             | (24,204    | ) |                           |   | 1,101      |               |  |   | (32,868    | ) |  |   | 1,373      |  
|                                                                                                                                                                                                                       |  |                             |            |   |                           |   |            |               |  |   |            |   |  |   |            |  
|Net loss from continuing operations                                                                                                                                                                                    |  |                             | (546,814   | ) |                           |   | (371,206   | )             |  |   | (897,125   | ) |  |   | (843,762   | )
|Gain (loss) from discontinued operations                                                                                                                                                                               |  |                             | (761       | ) |                           |   | (5,102     | )             |  |   | 293        |   |  |   | (48,300    | )
|                                                                                                                                                                                                                       |  |                             |            |   |                           |   |            |               |  |   |            |   |  |   |            |  
|Net loss                                                                                                                                                                                                               |  | $                           | (547,575   | ) |                           | $ | (376,308   | )             |  | $ | (896,832   | ) |  | $ | (892,062   | )
|                                                                                                                                                                                                                       |  |                             |            |   |                           |   |            |               |  |   |            |   |  |   |            |  
|Weighted average common shares outstanding                                                                                                                                                                             |  |                             | 28,439,983 |   |                           |   | 12,894,729 |               |  |   | 24,527,690 |   |  |   | 12,894,729 |  
|                                                                                                                                                                                                                       |  |                             |            |   |                           |   |            |               |  |   |            |   |  |   |            |  
|Net loss per share from continuing operations - basic and diluted                                                                                                                                                      |  | $                           | (0.02      | ) |                           | $ | (0.03      | )             |  | $ | (0.04      | ) |  | $ | (0.07      | )
|                                                                                                                                                                                                                       |  |                             |            |   |                           |   |            |               |  |   |            |   |  |   |            |  
|Net loss per share from discontinued operations - basic and diluted                                                                                                                                                    |  | $                           | (0.00      | ) |                           | $ | (0.00      | )             |  | $ | (0.00      | ) |  | $ | (0.00      | )
|                                                                                                                                                                                                                       |  |                             |            |   |                           |   |            |               |  |   |            |   |  |   |            |  

See accompanying notes to unaudited consolidated financial statements.



4



---

INVERTED PARADIGMS CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows



|                                                                                                       |  |                           |          |   |             |   |          |  
|------------------------------------------------------------------------------------------------------ |  | ------------------------- | -------- | - | ----------- | - | -------- | -
|                                                                                                       |  | Six months ended June 30, |         
|                                                                                                       |  | 2006                      |          |   | 2005        |  
|                                                                                                       |  | (As restated)             |          |   |             |  
|                                                                                                       |  | (unaudited)               |          |   | (unaudited) |  
|Operating activities:                                                                                  |  |                           |          |   |             |   |          |  
|Net Loss                                                                                               |  | $                         | (896,832 | ) |             | $ | (892,062 | )
|Adjustments to reconcile net loss to cash used in operating activities:                                |  |                           |          |   |             |   |          |  
|Amortization of deferred stock-based employee compensation                                             |  |                           | 31,481   |   |             |   | 271,008  |  
|Amortization of stock issued for services                                                              |  |                           | 36,250   |   |             |   | 408,750  |  
|Consulting fee paid by investor                                                                        |  |                           | 75,000   |   |             |   |         |  
|Stock issued to directors for services                                                                 |  |                           | 28,000   |   |             |   |         |  
|Stock issued to vendors for services                                                                   |  |                           | 4,495    |   |             |   |         |  
|Depreciation and amortization                                                                          |  |                           | 1,208    |   |             |   |         |  
|Interest expense                                                                                       |  |                           | 14,552   |   |             |   |         |  
|(Increase) decrease in assets:                                                                         |  |                           |          |   |             |   |          |  
|Prepaid expenses                                                                                       |  |                           | (7,058   | ) |             |   |         |  
|Other assets                                                                                           |  |                           | (330     | ) |             |   |         |  
|Increase (decrease) in liabilities:                                                                    |  |                           |          |   |             |   |          |  
|Accounts payable                                                                                       |  |                           | 12,179   |   |             |   | 19,263   |  
|Accrued expenses                                                                                       |  |                           | 6,886    |   |             |   | 24,000   |  
|                                                                                                       |  |                           |          |   |             |   |          |  
|Net cash used in continuing operating activities                                                       |  |                           | (694,169 | ) |             |   | (169,041 | )
|Net cash used in discontinued operations                                                               |  |                           | (27,884  | ) |             |   | (4,574   | )
|                                                                                                       |  |                           |          |   |             |   |          |  
|Net cash used in operating activities                                                                  |  |                           | (722,053 | ) |             |   | (173,615 | )
|                                                                                                       |  |                           |          |   |             |   |          |  
|Cash flows from investing activities:                                                                  |  |                           |          |   |             |   |          |  
|Purchase of property and equipment                                                                     |  |                           | (18,946  | ) |             |   |         |  
|Cash acquired in connection with Silent Sword                                                          |  |                           | 28,894   |   |             |   |         |  
|Proceeds from collection of loan receivable                                                            |  |                           | 10,000   |   |             |   |         |  
|                                                                                                       |  |                           |          |   |             |   |          |  
|Net cash provided by continuing investing activities                                                   |  |                           | 19,948   |   |             |   |         |  
|Net cash provided by discontinued investing activities                                                 |  |                           |         |   |             |   | 500      |  
|                                                                                                       |  |                           |          |   |             |   |          |  
|Net cash provided by investing activities                                                              |  |                           | 19,948   |   |             |   | 500      |  
|                                                                                                       |  |                           |          |   |             |   |          |  
|Cash flows from financing activities:                                                                  |  |                           |          |   |             |   |          |  
|Fees paid to issue convertible note                                                                    |  |                           |         |   |             |   | (3,000   | )
|Fees paid to issue common stock                                                                        |  |                           | (44,200  | ) |             |   |         |  
|Proceeds from issuing restricted stock                                                                 |  |                           | 385,000  |   |             |   |         |  
|Proceeds from notes payable to stockholders                                                            |  |                           | 250,000  |   |             |   |         |  
|                                                                                                       |  |                           |          |   |             |   |          |  
|Net cash provided by (used in) financing activities                                                    |  |                           | 590,800  |   |             |   | (3,000   | )
|Net cash used in discontinued financing activities                                                     |  |                           |         |   |             |   | (9,915   | )
|                                                                                                       |  |                           |          |   |             |   |          |  
|Net cash provided by (used in) financing activities                                                    |  |                           | 590,800  |   |             |   | (12,915  | )
|                                                                                                       |  |                           |          |   |             |   |          |  
|Net decrease in cash and cash equivalents                                                              |  |                           | (111,305 | ) |             |   | (186,030 | )
|                                                                                                       |  |                           |          |   |             |   |          |  
|Cash, beginning of period                                                                              |  |                           | 169,505  |   |             |   | 248,729  |  
|                                                                                                       |  |                           |          |   |             |   |          |  
|Cash, end of period                                                                                    |  | $                         | 58,200   |   |             | $ | 62,699   |  
|                                                                                                       |  |                           |          |   |             |   |          |  
|Supplemental disclosures of cash flow information:                                                     |  |                           |          |   |             |   |          |  
|Cash paid during the period for interest                                                               |  | $                         |         |   |             | $ |         |  
|                                                                                                       |  |                           |          |   |             |   |          |  
|Supplemental schedule of non-cash investing and financing activities:                                  |  |                           |          |   |             |   |          |  
|Issuance of 10,000,000 shares of common stock in connection with the purchase of Silent Sword software |  | $                         | 150,000  |   |             | $ |         |  
|                                                                                                       |  |                           |          |   |             |   |          |  
|Accrued fees in connection with issuance of common stock                                               |  | $                         | 5,850    |   |             | $ |         |  
|                                                                                                       |  |                           |          |   |             |   |          |  

See accompanying notes to unaudited consolidated financial statements.



5



---

INVERTED PARADIGMS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

Note 1  Basis of Presentation

The accompanying unaudited consolidated financial statements as of and for the three and six months ended June 30, 2006 and 2005 have been prepared in accordance with accounting principles generally accepted in the United States of
America for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission for Form 10-QSB. Accordingly, they do not include all the information and footnotes required by accounting principles
generally accepted in the United States of America for complete financial statements. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments, consisting only of normal recurring accruals,
considered necessary for a fair presentation of the Companys financial position, results of operations, and cash flows for the periods presented.

The results of operations for the interim periods ended June 30, 2006 and 2005 are not necessarily indicative of the results to be expected for the full year. These interim consolidated financial statements
should be read in conjunction with the December 31, 2005 consolidated financial statements and related notes included in the Companys Annual Report on Form 10-KSB for the year ended December 31, 2005.

The Companys consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company has
experienced net losses since February 16, 1999 (date of inception), which losses have caused an accumulated deficit of approximately $38,500,000 as June 30, 2006. This factor, among others, raises substantial doubt about the Companys
ability to continue as a going concern.

Management has been able, thus far, to finance the losses through a series of private placements
and loans. The Company is continuing to seek other sources of financing and attempting to explore alternate ways of generating revenues through partnerships with other businesses. Conversely, the maintenance of our website and the development of our
software segment is expected to result in operating losses for the foreseeable future. There are no assurances that the Company will be successful in achieving its goals.

In view of these conditions, the Companys ability to continue as a going concern is dependent upon its ability to obtain additional financing or capital sources, to meet its financing requirements, and
ultimately to achieve profitable operations. Management believes that its current and future plans provide an opportunity to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments relating to
the recoverability and classification of recorded assets, or the amounts and classification of liabilities that may be necessary in the event the Company cannot continue as a going concern.

Note 2  Organization

Reporting
Entity. Inverted Paradigms Corporation and Subsidiaries (Inverted Paradigms or the Company) was incorporated in the State of Nevada on December 18, 1997. On September 29, 2003, the Company completed a
re-incorporation merger into a Delaware Corporation thus changing the state of incorporation from Nevada to Delaware. The Company was in the businesses of operating a golf retail website (where manufactures can link to their products) and is
currently developing our antivirus software called Silent SwordTMfor future sale.

Name Change.On August 12, 2004 a majority of the stockholders approved changing the name of the Company from LiquidGolf Holding
Corporation to Horizon Holding Corporation. On April 28, 2006 a majority of the stockholders approved changing the name of the Company from Horizon Holding Corporation to Inverted Paradigms Corporation.



6



---

INVERTED PARADIGMS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

Note 3  Summary of Significant Accounting Policies

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. Actual results could differ from those estimates.

Revenue Recognition.Upon the roll-out of Silent Sword, we will recognize revenue from the sale of software upon delivery of a
license to the customer, provided that persuasive evidence of an arrangement exists, the license fee is fixed and determinable, and collection of the fee is considered probable.

The Company recognizes revenue on a gross basis when the goods are shipped to the end user. The Company uses the gross method of revenue recognition, as
prescribed under EITF 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent, as the Company is the primary obligor in the transaction and is obligated to pay the supplier for work performed regardless of whether the
customer accepts the product.

Net Loss Per Share Information.Basic and diluted loss per share is calculated by dividing net
loss by the weighted-average number of common shares outstanding during the reporting period. The Companys common stock warrants have been excluded from the diluted loss per share computation since their effect is anti-dilutive.

Long Lived Assets.In accordance with Statement of Financial Accounting Standards (SFAS) 144, Accounting for the Impairment or
Disposal of Long-lived Assets, long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets is assessed by a
comparison of the carrying amount of the asset to the estimated future net cash flows expected to be generated by the asset. If estimated future undiscounted net cash flows are less than the carrying amount of the asset or group of assets, the asset
is considered impaired and an expense is recorded in an amount required to reduce the carrying amount of the asset to its then fair value.

Goodwill and Other Intangible Assets. The Company follows SFAS 142, Goodwill and Other Intangible Assets. SFAS 142 requires that intangible assets with estimable useful lives be amortized over their
respective estimated useful lives to their estimated residual values and reviewed for impairment in accordance with SFAS 144. If facts and circumstances lead the Companys management to believe that one of the Companys amortized
intangible assets may be impaired, the Company will evaluate the extent to which the related cost is recoverable by comparing the future undiscounted cash flows estimated to be associated with that asset to the assets carrying amount and
write-down that carrying amount to fair value to the extent necessary.

Website Design Costs. Website design costs include
direct costs incurred by the Company to develop and enhance the Companys website. Website design costs are expensed as incurred and totaled approximately $10,600 and $0 for the three and six months ended June 30, 2006 and 2005,
respectively. These amounts are included in technology and content expense in the accompanying consolidated statements of operations.

Software Development Costs.The Company capitalizes software development costs incurred to develop certain of the Companys products in accordance with Financial Accounting Standards No. 86, Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise Marketed (SFAS 86). Costs are capitalized only after the technological feasibility of the project has been established. In accordance with Statement of Financial Accounting Standards
No. 142 Goodwill and Other Intangible Assets (SFAS No.142), the Company has recorded its software development costs as a definite-lived intangible asset and is amortizing these costs over the shorter of its three-year estimated
useful life of the software or the products lifecycle. All



7



---

INVERTED PARADIGMS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

Note 3  Summary of Significant Accounting Policies, Continued

other costs to develop software, either in the preliminary project
stage or post implementation stage are expensed as incurred.

Stock-Based Compensation.Before January 1, 2006, the
Company accounted for stock-based compensation under the recognition and measurement principles of Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees (APB 25), and
related interpretations. The Company did not recognize compensation expense related to stock options granted to employees and directors where the exercise price was at or above fair value at the date of grant. Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation, established accounting and disclosure requirements using a fair-value-based method of accounting for stock-based employee compensation plans. As permitted by SFAS No. 123, the
Company elected to continue to apply the intrinsic-value-based method of APB No. 25 described above, and adopted only the disclosure requirements of SFAS No. 123, as amended by SFAS No. 148, Accounting For Stock-Based
Compensation - Transition and Disclosure.

On January 1, 2006, the start of the first quarter of fiscal 2006, the Company
adopted the provisions of Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (SFAS No. 123(R)) which requires that the costs resulting from all share-based payment transactions
be recognized in the financial statements at their fair values. The Company adopted SFAS No. 123(R) using the modified prospective application method under which the provisions of SFAS No. 123(R) apply to new awards and to awards modified,
repurchased, or cancelled after the adoption date. Additionally, compensation cost for the portion of the awards for which the requisite service has not been rendered that are outstanding as of the adoption date is recognized in the Statement of
Operations over the remaining service period after the adoption date based on the grant date fair value. In accordance with FAS 123(R), results for prior periods have not been restated.

Note 4  Asset Purchase  As Restated

On
January 31, 2006, the Company closed a Software Purchase and Development Agreement with Delta Insights, LLC to purchase its Silent Sword software and all trademarks, service marks, and logos. To acquire the software, the Company issued
10,000,000 shares of restricted common stock and may issue an additional 10,000,000 shares, subject to certain conditions. The 10,000,000 issued shares have been valued at $150,000 which has been allocated to intangible assets, net of cash received
in the amount of $28,894 and equipment valued at $1,550. The remaining 10,000,000 contingent shares have not been recorded as a liability or shown as outstanding securities since the outcome of the contingency is not yet determinable. The Company
plans on developing Silent SwordTMas a new segment of the business to grow revenues. Management is currently
evaluating the allocation of the purchase price between software costs and trademarks. The software costs will be amortized over a period of three years and the trademarks will not be amortized, but evaluated for impairment under the guidance of
Statement of Financial Accounting Standards No. 142 Goodwill and Other Intangible Assets. In addition, there was no research and development purchased by the Company. Prior to the Companys purchase, the software had been designed,
coded and tested to meet the technological feasibility requirements of Statements of Financial Accounting Standards No. 86, Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed. The software had
previously been sold and was being used by over 800 customers prior to being purchased by the Company. Management decided to perform additional work on the software before releasing a new version.



8



---

INVERTED PARADIGMS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

Note 5  Discontinued Operations

Acquisition of Leather Craft. On December 22, 2003, the
Company acquired certain assets from LeatherCraft Technology, Inc. (Leather Craft), including the name, for a single cash payment of $45,000. In addition to the single cash payment, the Company incurred a finders fee of $22,500
relating to the acquisition. Leather Craft sold leather bound notebooks and related products. The Company acquired Leather Craft in order to diversify its revenue streams. In connection with the purchase of assets, the Company entered into
consulting agreements with the two principals of Leather Craft to provide the Company consulting services for a period of three years. As compensation for services, each consultant may annually elect to receive: (i) cash payments in arrears of
$37,500; or (ii) 12,500 shares of our common stock.

The acquisition was accounted for under the purchase method of accounting;
accordingly, the purchase price has been allocated to reflect the fair value of assets and liabilities acquired at the date of acquisition The results of operations of the acquired business have been included in the accompanying consolidated
financial statements since the date of acquisition. The Company recorded goodwill of $67,500 as the purchase price exceeds the fair values of the assets acquired by that amount. The Company expects all of the goodwill to be deducted for tax
purposes.

Acquisition of Game Fore Golf. On June 30, 2004 the Company acquired the Game Fore Golf business including
the name, for common stock. The Company issued 10,000 shares of its common stock for this acquisition. Game Fore Golf was accounted for as a part of Leather Craft. Game For Golf distributed specialty golf bags and head covers adorned with wildlife
artist works that Game Fore Golf is licensed, by the artist, to distribute.

The acquisition was accounted for under the purchase method of
accounting; accordingly, the purchase price has been allocated to reflect the fair value of assets and liabilities acquired at the date of acquisition. The results of operations of the acquired business have been included in the accompanying
consolidated financial statements since the date of acquisition. The Company recorded goodwill of $40,900 as the purchase price exceeded the fair values of the assets acquired by that amount. The Company expects all of the goodwill to be deducted
for tax purposes.

Discontinued Operations. In November 2004, the Company decided to discontinue the operations of Leather
Craft and Game Fore Golf, due to significantly fewer orders than expected for leather goods from Leather Crafts largest customer (the Companys leather goods product segment). As a result of this the Company recorded losses from
discontinued operations of $0 and $4,249 for the three and six months ended June 30, 2006.

In June 2006, the Company decided to
discontinue the operations of Liquidgolf, due to the inability to attract affiliates to the website. As a result of this the Company recorded losses from discontinued operations of $761 and a gain of $293 for the three and six months ended
June 30, 2006 and losses of $5,102 and $48,300 for the three and six months ended June 30, 2005.

Note 6  Stockholders Equity
(Capital Deficiency)  As Restated

Subscription Agreement. On May 30, 2006, we closed an agreement with White
Star, LLC for the purchase of 2,941,177 shares of our common stock for $250,000. The stock issued to White Star is considered restricted securities as defined by Rule 144 promulgated under the Securities Act of 1933, as amended. We also issued two
classes of warrants in accordance with this agreement. Class A warrants allows White Star to purchase 2,941,177 shares at $0.25 per share and Class B warrants allows White Star to purchase 2,941,177 shares at $0.35 a share. Both classes of
warrants expire on May 30, 2011.



9



---

INVERTED PARADIGMS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

Note 6  Stockholders Equity (Capital Deficiency)  As Restated, Continued

We incurred $32,500 in fees associated with this
transaction that were charged to additional paid in capital during the three months ended June 30, 2006. Also, as part of this transaction, we issued a warrant as compensation to purchase 294,118 shares of common stock at $0.085 per share and
the warrant is exercisable at issuance. The warrants may be exercised in cash or by an exchange of the value thereof as a cashless exercise.

Stock Purchase Agreement.On April 3, 2006, the Company entered into a stock purchase agreement with an investor (the Investor). This agreement allows the investor to purchase a maximum of 35,000,000 shares of
common stock of the Company at a purchase price of 20% off the bid price. These shares are deemed restricted securities as defined in Rule 144 of the Securities Act of 1933. The investor purchased 3,000,000 shares on April 17, 2006 for
$135,000. The Investor is under no obligation to purchase any further amounts of stock from the Company.

We incurred $17,550 in fees
associated with this transaction that were charged to additional paid in capital during the three months ended June 30, 2006. Also, as part of this transaction, we issued a warrant as compensation to purchase 300,000 shares of common stock at
$0.045 per share and the warrant is exercisable at issuance. The warrants may be exercised in cash or by an exchange of the value thereof as a cashless exercise.

Secured Promissory Note. On March 9, 2006, we sold in a private placement, unsecured promissory note in the amount of $250,000 to a stockholder. Interest accrues on the outstanding principal balance
from and after March 6, 2006 at a rate of 11% per annum. At maturity, October 31, 2006, in addition to the payment of principal and accrued interest, we will deliver as additional incentive for making the loan, 75,000 shares of our
common stock. The stock is considered restricted securities as defined by the Securities Act of 1933, as amended. The fair value of these shares amounts to $13,500 and will be amortized over the length of the loan. For the three and six months ended
June 30, 2006, $5,064 and $6,752 have been expensed in the Statement of Operations, respectively.

Also, as part of the this transactions,
the broker acquired a warrant as compensation, issued by the Company, to purchase 50,000 shares of common stock at $0.50 per share and the warrant is exercisable at issuance. The fair value of the warrant amounts to $5,400 based on the Black-Scholes
pricing model and will be amortized over the life of the loan. The Company used the following assumptions in determining this value:



|               |  |         |  
|-------------- |  | ------- | -
|Risk-free rate |  | 5       | %
|Expected life  |  | 3 years |  
|Volatility     |  | 121     | %
|Dividend Yield |  | 0       | %

In addition, $2,025 and $2,700 has been amortized and changed to interest expense during the three and six months
ended June 30, 2006, respectively.



10



---

INVERTED PARADIGMS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

Note 6  Stockholders Equity, (Capital Deficiency)  As Restated, Continued



|     |  |                                          |  |                |   |  |                |       |                 |                  |              |   |       
|---- |  | ---------------------------------------- |  | -------------- | - |  | -------------- | ----- | --------------- | ---------------- | ------------ | - | ------
|Year |  | Warrant Type                             |  | Warrant Shares |   |  | Exercise Price |       | Expiration Date |                  | Net Proceeds
|2002 |  | Class A warrants                         |  | 1,220,000      |   |  | $              | 1.00  |                 | April-May 2007   |              |   |       
|     |  |                                          |  |                |  
|2003 |  | Class A warrants cancelled               |  | (160,000       | ) |  |                |       |                 |                  |              |   |       
|2003 |  | Class A warrants exercised               |  | (63,000        | ) |  |                | 1.00  |                 |                  |              | $ | 63,000
|     |  |                                          |  |                |   |  |                |       |                 |                  |              |   |       
|     |  |                                          |  | 997,000        |   |  |                |       |                 |                  |              |   |       
|     |  |                                          |  |                |  
|2002 |  | Class B warrants                         |  | 1,220,000      |   |  |                | 1.50  |                 | April - May 2007 |              |   |       
|     |  |                                          |  |                |  
|2002 |  | Class B warrants cancelled               |  | (160,000       | ) |  |                |       |                 |                  |              |   |       
|     |  |                                          |  |                |   |  |                |       |                 |                  |              |   |       
|     |  | Total Class B warrants outstanding       |  | 1,060,000      |   |  |                |       |                 |                  |              |   |       
|     |  | Total Notes payable warrants outstanding |  |               |   |  |                |       |                 |                  |              |   |       
|     |  |                                          |  |                |  
|2004 |  | Notes payable warrants                   |  | 50,000         |   |  |                | 0.92  |                 | None             |              |   |       
|     |  |                                          |  |                |  
|2004 |  | Private placement warrants               |  | 3,718,491      |   |  |                | 0.75  |                 | Aug. - Oct. 2007 |              |   |       
|     |  |                                          |  |                |  
|2005 |  | Broker warrants                          |  | 50,000         |   |  |                | 0.50  |                 | Dec. 2008        |              |   |       
|     |  |                                          |  |                |  
|2006 |  | Broker warrants                          |  | 50,000         |   |  |                | 0.50  |                 | Mar. 2009        |              |   |       
|     |  |                                          |  |                |  
|2006 |  | Warrants                                 |  | 300,000        |   |  |                | 0.045 |                 | Apr. 2011        |              |   |       
|     |  |                                          |  |                |  
|2006 |  | Warrants                                 |  | 294,118        |   |  |                | 0.085 |                 | May 2011         |              |   |       
|     |  |                                          |  |                |  
|2006 |  | Class A warrants                         |  | 2,941,177      |   |  |                | 0.25  |                 | May 2011         |              |   |       
|     |  |                                          |  |                |  
|2006 |  | Class B warrants                         |  | 2,941,177      |   |  |                | 0.35  |                 | May 2011         |              |   |       
|     |  |                                          |  |                |   |  |                |       |                 |                  |              |   |       
|     |  | Total warrants outstanding               |  | 12,401,963     |   |  |                |       |                 |                  |              |   |       
|     |  |                                          |  |                |   |  |                |       |                 |                  |              |   |       
|     |  | Total proceeds from warrants exercised   |  |                |   |  |                |       |                 |                  |              | $ | 63,000
|     |  |                                          |  |                |   |  |                |       |                 |                  |              |   |       



11



---

INVERTED PARADIGMS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

Note 7  Restricted Stock Based Compensation  As Restated

On June 10, 2003, the Board of Directors adopted
the Horizon Holding Corporation 2003 Restricted Stock Plan (the 2003 Plan) and recommended that it be submitted to our stockholders for their approval at the 2003 Annual Meeting. The 2003 Plan was approved by the stockholders on
August 13, 2003. The terms of the 2003 Plan provide for grants of restricted stock awards.

Under the 2003 Plan, the total number of
shares of restricted common stock that may be subject to the granting of Awards during the term of the 2003 Plan shall be equal to 1,500,000 shares. Shares with respect to which awards previously granted that are forfeited, cancelled or terminated
are returned to the plan and may be reissued. As of June 30, 2006, 1,354,000 shares had been issued under this Plan.

On March 21,
2006, the Board of Directors adopted the Horizon Holding Corporation 2006 Restricted Stock Plan (the 2006 Plan) and recommended that it be submitted to our stockholders for their approval at the 2006 Annual Meeting. The 2006 Plan was
approved by the stockholders on April 28, 2006. The terms of the 2006 Plan provide for grants of restricted stock awards.

Under the
2006 Plan, the total number of shares of restricted common stock that may be subject to the granting of Awards during the term of the 2006 Plan shall be equal to 6,000,000 shares. Shares with respect to which awards previously granted that are
forfeited, cancelled or terminated are returned to the plan and may be reissued.

Effective January 1, 2006, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 123R, Accounting for Stock-Based Compensation (SFAS No. 123R), which requires stock-based compensation to be measured based on the fair value of the awards on the
grant date. The Company elected the modified prospective method of transition as permitted by SFAS No. 123R. Under this transition method, the Company is required to record compensation expense for all awards granted after the date of
adoption and for the unvested portion of previously granted awards that were outstanding at the date of adoption, and accordingly, periods prior to adoption are not restated. The Company has not historically granted stock options to employees.
However, for the six months ended June 30, 2006, total equity-based compensation of approximately $31,400 was included in operating expense, resulting from the amortization of previously issued restricted stock awards. In connection with these
awards, unrecognized equity-based compensation was approximately $26,200 at June 30, 2006, which is expected to be fully amortized by December 31, 2006. In addition, the Company expensed $40,000 of restricted stock awards resulting from a grant of
250,000 shares of restricted stock, as described below.

Restricted Stock

During the six months ended June 30, 2006, the Company granted the following shares of restricted stock as compensation:



| |  |  | 600,000 shares were issued to four board members to satisfy $28,000 of previously accrued compensation. These shares have a weighted average grant date fair value
of approximately $0.05.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 250,000 shares were issued to our former CEO as severance payment. These shares have a weighted average grant date fair value of approximately $40,000. This amount
has been fully expensed during the six months ended June 30, 2006.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

All of the above shares vested immediately upon
issuance.

Note 8  Commitments and Contingencies

Employment Agreement. On February 23, 2006 we entered into an Employment Agreement with Chuck Wernicke to become the Chief Technology Officer. Mr. Wernicke will earn an annual salary of
$96,000. He will also participate in the executive benefit package offered to other executives in the Company during the term of his employment. The length of this agreement is for one year.

Settlement Agreement. On February 9, 2006, we entered into a settlement agreement with a stockholder. This stockholder had priority
rights with Delta Insights, LLC (Delta) in that he was to be returned his $100,000 investment in Delta in the event of the sale of Deltas technology. When Delta sold its Silent Sword software to the Company, the shareholder
believed he was entitled to the return of his investment. To avoid any litigation, the Company entered into a settlement that called for a cash payment of $25,000 paid immediately and a $75,000 payment to be made as funds are raised for the Company.
The settlement expense of $0 and $100,000 is included in general and administrative expenses in the accompanying consolidated statements of operations for the three and six months ended June 30, 2006, respectively. As of June 30, 2006, we
have paid a total of $75,000 with the unpaid portion of $25,000 included in accrued expenses in the accompanying consolidated balance sheet as of June 30, 2006.

Consulting Agreement. On June 9, 2006, we entered into an agreement (the Agreement) with Big Apple Consulting U.S.A., Inc. (the Consultant) to provide Inverted Paradigms
Corporation with investor relations and management consulting services for a period of one year. The fees for these services are $75,000 per month. We issued 4,750,000 restricted shares on July 17, 2006 to an escrow agent for payment of the
monthly fee. The first months fee of $75,000 was paid by a third party and charged to additional paid in capital.



12



---

INVERTED PARADIGMS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

Note 8  Commitments and Contingencies, Continued

The Consultant also has the right to purchase $1,000,000 of common
stock at a 35% discount to the market of the ten day average closing bid price, however at no time shall the ten day average closing bid price be calculated at a price per share less than $0.40.

Note 9  Extinguishment of Debt  As Restated

The Company had $8,431 of certain accounts payable that the Company was able to settle with the vendor for $5,500. Therefore, the Company recognized a gain on the extinguishment of debt in the amount of $0 and $2,931 for the three and six
months ended June 30, 2006 and recorded this amount as a reduction to selling general and administrative expense in the consolidated statement of operations.

Note 10  Subsequent Events

Warrant Exercise.On July 13, 2006, 594,118 warrants were
exercised in a cashless exercise. As a result of this transaction, the Company issued 1,000,000 shares of common stock.

Strategic
Alliance Agreement.On July 6, 2006, the Company entered into an agreement with Utek Corporation to seek additional technologies from colleges and universities for acquisition. The terms of the alliance are for one year for a
total fee of $120,000. We issued 285,714 shares of restricted common stock at $0.42 per share as payment.

Advance From Stockholder.The Company was advanced $20,000 by a certain stockholder on July 21, 2006. This amount is payable in thirty days and does not bear interest.

Discontinued Operations. In June 2006, the Company decided to discontinue the operations of Liquidgolf, due to the inability to attract affiliates to the website. As a result of this the Company recorded
losses from discontinued operations of $761 and a gain of $293 for the three six months ended June 30, 2006 and losses of $5,102 and $48,300 for the three and six months ended June 30, 2005.

Sale of Restricted Common Stock. On August 7, 2006, we closed an agreement (the Agreement) with an individual for the
purchase of 294,118 shares of our common stock for $25,000. The stock is considered restricted securities as defined by Rule 144 promulgated under the Securities Act of 1933, as amended.

Note 11  Restatement

The Company erroneously did not record interest expense for the
amortization of warrants issued as compensation and the amortization of the value of common stock to be issued as an inducement at the maturity of a promissory note entered into in November 2006 and March 2006. Also, the Company revalued stock
issued as compensation in March 2006.

This created a restatement of interest expense from $18,538, as originally filed, to $24,302 on the
amended consolidated statement of operations for the quarter ended June 30, 2006 and a restatement of interest expense from $21,229, as originally filed, to $33,081 and a restatement of general and administrative expense from $798,999, as originally
filed, to $835,249 for the six months ended June 30, 2006.



13



---

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

This
Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including, without limitation, statements regarding
the Companys expectations, beliefs, intentions or future strategies that are signified by the words expects, anticipates, intends, believes, or similar language. These forward-looking statements,
including those with respect to our operating results for 2006, are based upon current expectations and beliefs of the Companys management and are subject to risks and uncertainties that could cause results to differ materially from those
indicated in the forward-looking statements. Some, but not all, of the factors, which could cause actual results to differ materially include those set forth in the risks discussed below under the subheading Risk Factors and elsewhere in
this report. The Company undertakes no obligation to revise or publicly release the results of any revision to these forward-looking statements, or to explain why actual results differ. Readers should carefully review the risk factors described in
this section below and in any reports filed with the Securities and Exchange Commission (SEC).

Overview

We were incorporated under the name DP Charters in Nevada on December 18, 1997. On April 18, 2002, we changed our name to
Nomadic Collaboration International, Inc. Effective May 30, 2003, LGC Acquisition Company, a Delaware corporation and wholly owned subsidiary of Nomadic Collaboration International, Inc., a Nevada corporation, merged with and into
LiquidGolf Corporation, a Delaware corporation, such that LiquidGolf Corporation was the surviving entity, and by virtue thereof, LiquidGolf corporation became a wholly owned subsidiary of Nomadic Collaboration.

As a result of a merger, the name of the Company changed to LiquidGolf Holding Corporation. On September 29, 2003, the Company completed a
re-incorporation merger into a Delaware Corporation thus changing the state of incorporation from Nevada to Delaware.

On December 22,
2003, we acquired certain assets from Leather Craft Technology, Inc. (Leather Craft), including the name, for a single cash payment of $45,000. In addition to the single cash payment, the Company incurred a finders fee of $22,500
relating to the acquisition. Leather Craft sold leather bound notebooks and related products. The Company acquired Leather Craft in order to diversify its revenue streams.

On June 30, 2004, we acquired the Game Fore Golf business including the name, for common stock. The Company issued 10,000 shares of its common stock
for this acquisition. Game Fore Golf was accounted for by us as part of the leather goods product segment. Game Fore Golf distributed specialty golf bags and head covers adorned with wildlife artist works that Game Fore Golf is licensed, by the
artist, to distribute.

On August 12, 2004 a majority of our stockholders approved changing the name of the Company from LiquidGolf
Holding Corporation to Horizon Holding Corporation to reflect our business direction of diversifying its revenue streams.

In November
2004, we decided to discontinue the operations of Leather Craft including Game Fore Golf, due to significantly fewer orders than expected for leather goods from Leather Crafts largest customer.

Since the date of the merger with LiquidGolf Corporation in May 2003, our goal has been to create an online community for golfers that provided an
e-commerce marketplace for the sale of golf-related equipment and apparel, golf-related news and information and e-commerce solutions for other golf-related businesses. In February 2005, we closed our retail golf operation in Apopka, Florida to
focus on our golf web site operations, by seeking to partner with an experienced golf e-tailer. As of June 2006, we had been unable to find an experienced partner in the golf industry and decided to discontinue the operations of our golf business



14



---

In January 2006, in a continuing effort to build a revenue stream, we purchased the Silent
SwordTMsoftware and all trademarks, service marks, and logos. As of March 31, 2006, we have issued a total of
10,000,000 shares of our common stock for Silent SwordTM.Under the purchase agreement, we may issue a
maximum of 20,000,000 common shares subject to certain contingent provisions in the agreement. The stock issued is considered restricted securities as defined by the Securities Act of 1933, as amended. The product became available for sale in July
2006.

On April 28, 2006 a majority of our stockholders approved changing the name of the Company from Horizon Holding Corporation to
Inverted Paradigms Corporation.

Plan of Operation

We plan to grow our business with sales of our Silent SwordTMsoftware. The software offers a comprehensive set of security solutions. The solutions include anti-virus, anti-spyware, anti-spam, intrusion prevention, secure messaging, web filtering and
vulnerability management. We offer management tools to keep threat-protection systems up-to-date. We completed a re-designing and re-testing our software, Silent SwordTM, in June 2006 and the software became available for purchase on July 6, 2006.

Cash Requirements

We believe we will need an additional $2,000,000
to continue operations over the next twelve months. These expenses include the following:



|                                              |  |   |          
|--------------------------------------------- |  | - | ---------
|Marketing                                     |  | $ | 781,000  
|Officers salaries and related taxes          |  |   | 390,000  
|Other general and admin expenses              |  |   | 200,000  
|Management consultants                        |  |   | 160,000  
|Payroll and related taxes                     |  |   | 135,000  
|Health and liability insurance                |  |   | 100,000  
|Legal, accounting and other professional fees |  |   | 100,000  
|Rent                                          |  |   | 57,000   
|Travel                                        |  |   | 40,000   
|Director fees                                 |  |   | 30,000   
|Web design and hosting                        |  |   | 2,000    
|Other computer and office equipment           |  |   | 5,000    
|                                              |  |   |          
|Total                                         |  | $ | 2,000,000
|                                              |  |   |          

If we are unable to raise the required capital, we will need to reduce current and expected expenses in the
future. The most significant reduction would be in marketing of our product. This may greatly reduce our ability to generate sales.

If additional capital
is raised, we plan to use the capital to further enhance our software, increase marketing, and accelerate our ability to reach the retail market by selling our product in retail stores. We currently are planning to sell our software exclusively on
our website. Additional capital would also allow us to pay for packaging and distribution of our software in a compact disc format.

Results of
Operations

The relationships between revenue, cost of revenue, and operating expenses reflected in the financial information included
in this quarterly report do not represent future expected financial relationships. We expect that total cash expenses will decrease with the implementation of our operating plan, but at a much slower rate of decline than the corresponding revenue
decrease.



15



---

CONSOLIDATED FINANCIAL INFORMATION



|                          |  |                            |          |   |                           |   |          |               |  |   |          |   |  |   |          |  
|------------------------- |  | -------------------------- | -------- | - | ------------------------- | - | -------- | ------------- |  | - | -------- | - |  | - | -------- | -
|                          |  | Three Months EndedJune 30, |          |   | Six Months Ended June 30, |  
|                          |  | 2006                       |          |   | 2005                      |   |          | 2006          |  |   | 2005     |  
|                          |  | (As restated)              |          |   |                           |   |          | (As restated) |  |   |          |  
|Revenue                   |  | $                          |         |   |                           | $ |         |               |  | $ |         |   |  | $ |         |  
|Cost of Revenue           |  |                            |         |   |                           |   |         |               |  |   |         |   |  |   |         |  
|Operating Expenses        |  |                            | 522,600  |   |                           |   | 372,300  |               |  |   | 864,200  |   |  |   | 845,100  |  
|Interest (Income) Expense |  |                            | 24,200   |   |                           |   | (1,100   | )             |  |   | 32,900   |   |  |   | (1,400   | )
|Discontinued operations   |  |                            | (800     | ) |                           |   | (5,100   | )             |  |   | 300      |   |  |   | (48,300  | )
|                          |  |                            |          |   |                           |   |          |               |  |   |          |   |  |   |          |  
|Net Loss                  |  | $                          | (547,600 | ) |                           | $ | (376,300 | )             |  | $ | (896,800 | ) |  | $ | (892,000 | )
|                          |  |                            |          |   |                           |   |          |               |  |   |          |   |  |   |          |  

Comparison of the Three Months Ended June 30, 2006 and June 30, 2005.

Net Revenue. We have had no revenue in 2006 since we did not release our product until July 2006. Revenue for 2005 for our golf business is
included in discontinued operations.

Cost of Revenue. We have had no cost of revenue in 2006 since we did not release our product
until July 2006. Cost of revenue for 2005 for our golf business is included in discontinued operations.

Operating Expenses.
Operating expenses increased approximately $150,300 to $522,600 from $372,300 for the same period in 2005. This increase can be attributed to costs associated with hiring additional employees, investor relations and marketing of our new product.

Interest Income and Expense. In 2006, we had interest expense of approximately $24,200 from notes payable. There were no notes
payable in 2005 and we earned interest of approximately $1,100 from bank interest on cash accounts.

Discontinued Operations.In
June 2006 we discontinued the operation of our golf business. The business has had limited operations since closing its store in February 2005.

Net Loss. Net loss for 2006 was approximately $548,000 compared to $376,300 for 2005. The increase in our net loss was a result of increased selling, general and administrative expenses and interest expense incurred by us in 2006.

Comparison of the Six Months Ended June 30, 2006 and June 30, 2005.

Net Revenue. We have had no revenue in 2006 since we did not release our product until July 2006. Revenue for 2005 for our golf business is included in discontinued operations.

Cost of Revenue. We have had no cost of revenue in 2006 since we did not release our product until July 2006. Cost of revenue for 2005 for our
golf business is included in discontinued operations.

Operating Expenses. Operating expenses increased approximately $19,100 to
$864,200 from $845,100 for the same period in 2005. The additional increase in costs are associated with hiring additional employees, investor relations and marketing of our new product.

Interest Income and Expense. In 2006, we had interest expense of approximately $33,000 from notes payable. There were no notes payable in 2005 and
we earned interest of approximately $1,400 from bank interest on cash accounts.



16



---

Discontinued Operations.In June 2006 we discontinued the operation of our golf business. The
business has had limited operations since closing its store in February 2005. The gain in 2006 is attributed to the settlement of accounts with vendors.

Net Loss. Net loss for 2006 was approximately $897,000 compared to $892,000 for 2005. The decrease in our net loss was attributed to a non-cash expense of $408,750 for the amortization of a prepaid expense
recorded in connection with an investment banking commitment retaining PanAmerica Capital Group, Inc. to assist the Company in all financial activities of the Company. We also had increases in selling, general and administrative expenses and
interest expense in 2006.

Liquidity and Capital Resources

We currently intend to satisfy our long-term liquidity requirements from cash flow from operations and to the extent such funds are insufficient, we must raise additional funds to sustain operations. However, our
long-term liquidity requirements will depend on many factors, including but not limited to various risks associated with our business that affect our sales levels and pricing, our ability to recover all of our up-front costs related to future
acquisitions, capital expenditures and operating expense requirements, and there can be no assurance that we will not need to raise additional funds to satisfy them.

Cash flow from operations. We have been unable to generate either significant liquidity or cash flow to fund our current operations. We anticipate that cash flows from operations will be insufficient to
fund our business operations for the next twelve-month period.

Cash flow from discontinued operations. We reported cash flow
from discontinued operations separately in operating, investing and financing activities. In 2006, cash flow from discontinued operations included a change in accounts payable for $28,000. In 2005, cash flow from discontinued operating activities
include depreciation of $640, a change in investments of $35,000, a change in inventories of $48,967 a change in prepaids of $8,214, a change in other assets of $900, a change in accounts payable of $74,035 and a change in other liabilities of
$20,886. Also in 2005, discontinued operations for investing and financing included $500 for the sale of assets and $9,915 paid on a capital lease, respectfully.

Variables and Trends

We have a limited operating history in connection with the current operation of our web site and
software development. Accordingly, the comparison of the financial data for the periods presented may not be a meaningful indicator of our future performance and must be considered in light of our limited operating history and our outsourcing of
certain operations of our golf Internet website.

Critical Accounting Policies

We make use of estimates and assumptions that impact the reported amounts of assets and liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting period. On an ongoing basis, we evaluate our estimates, including those related to bad debts, inventories and goodwill. These estimates and assumptions are based on historical results and
trends as well as our forecasts as to how these might change in the future.

We believe the following critical accounting policies, among
others, impact the significant judgments and estimates we use in the preparation of our financial statements:

Revenue Recognition

Upon the roll-out of Silent Sword, we will recognize revenue from the sale of software upon delivery of a license to the customer, provided
that persuasive evidence of an arrangement exists, the license fee is fixed and determinable, and collection of the fee is considered probable.

The Company recognizes revenue on a gross basis when the goods are shipped to the end user. The Company uses the gross method of revenue recognition, as prescribed under EITF 99-19, Reporting Revenue Gross as a Principal versus Net as
an Agent, as the Company is the primary obligor in the transaction and is obligated to pay the supplier for work performed regardless of whether the customer accepts the product.



17



---

Software Development Costs

The Company capitalizes software development costs incurred to develop certain of the Companys products in accordance with Financial Accounting Standards No. 86, Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed (SFAS 86). Costs are capitalized only after the technological feasibility of the project has been established. In accordance with Statement of Financial Accounting Standards No. 142
Goodwill and Other Intangible Assets (SFAS No.142), the Company has recorded its software development costs as a definite-lived intangible asset and is amortizing these costs over the shorter of the three-year estimated useful life of
the software or the products life cycle.

Stock-Based Compensation

Before January 1, 2006, the Company accounted for stock-based compensation under the recognition and measurement principles of Accounting Principles
Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees (APB 25), and related interpretations. The Company did not recognize compensation expense related to stock options granted to employees and
directors where the exercise price was at or above fair value at the date of grant. Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, established accounting and disclosure requirements using a
fair-value-based method of accounting for stock-based employee compensation plans. As permitted by SFAS No. 123, the Company elected to continue to apply the intrinsic-value-based method of APB No. 25 described above, and adopted only the
disclosure requirements of SFAS No. 123, as amended by SFAS No. 148, Accounting For Stock-Based Compensation - Transition and Disclosure.

On January 1, 2006, the start of the first quarter of fiscal 2006, the Company adopted the provisions of Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment
(SFAS No. 123(R)) which requires that the costs resulting from all share-based payment transactions be recognized in the financial statements at their fair values. The Company adopted SFAS No. 123(R) using the modified
prospective application method under which the provisions of SFAS No. 123(R) apply to new awards and to awards modified, repurchased, or cancelled after the adoption date. Additionally, compensation cost for the portion of the awards for which the
requisite service has not been rendered that are outstanding as of the adoption date is recognized in the Statement of Operations over the remaining service period after the adoption date based on the awards original estimate of fair value.
Results for prior periods have not been restated.

Off Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

RISKS FACTORS

A more comprehensive list of risk factors are set forth in the Companys Annual Report on Form 10-KSB
for the year ended December 31, 2005 and our other filings with the Securities and Exchange Commission. In addition to those risk factors, you should consider the following:

We have limited operating funds, and our ability to continue as a going concern is dependent upon our ability to obtain additional capital to operate our business.

We have incurred net losses and negative cash flows from operations in all of the quarters since our inception. Our lack of sufficient financing to implement our business
plan, and our expectation of continued operating losses for the foreseeable future raises substantial doubt about our ability to continue as a going concern. Our independent registered certified public accounting firm has issued its report, which
includes an explanatory paragraph for going concern uncertainty on our financial statements as of December 31, 2005. Our ability to continue as a going concern is heavily dependant upon our ability to obtain additional capital to sustain
operations. Currently, we have no commitments to obtain additional capital, and there can be no assurance additional capital will be available on acceptable terms, if at all.



18



---

We will need additional financing, the availability of which is uncertain, to fund our business and to implement our
business plan.

We will require additional financing in order to carry out our business plan. Such financing may take the form of the
issuance of common or preferred stock or debt securities, or may involve bank financing. There can be no assurance that we will obtain such additional capital on a timely basis, on favorable terms, or at all. If we are unable to generate the
required amount of additional capital, our ability to meet our financial obligations and to implement our business plan may be adversely effected.

We
will need additional capital, the availability of which is uncertain, to fund our business and complete the implementation of our business plan.

We will require additional financing in order to carry out our business plan. Such financing may take the form of the issuance of common or preferred stock or debt securities, or may involve bank financing. There can be no assurance that we
will obtain such additional capital on a timely basis, on favorable terms, or at all. If we are unable to generate the required amount of additional capital, our ability to meet our financial obligations and to implement our business plan may be
adversely effected.

We may dilute existing stockholders by issuing more of our common stock

It is likely that in order to obtain additional funds as needed, we will have to sell additional securities including, but not limited to, its common
stock, the effect of which may result in a substantial dilution of the present equity interests of our shareholders.

We rely heavily on our
intellectual property rights which offer only limited protection against potential infringers.

We rely on a combination of pending
patents, copyright and trademark laws, trade secrets, confidentiality procedures and contractual provisions to protect our proprietary rights. Despite such efforts to protect our proprietary rights, unauthorized parties from time to time have copied
aspects of our software products or have obtained and used information that we regard as proprietary. Policing unauthorized use of our software products could be time-consuming and costly. Furthermore, our means of protecting our proprietary rights
may not be adequate, and our competitors may independently develop similar technology.

Intellectual property litigation in the network and system
security market is common and can be expensive.

As more and more software patents are granted worldwide, as the number of products and
competitors in our industry segments grows and as the functionality of products in different industry segments overlap, we expect that software product developers will be increasingly subject to infringement claims. Infringement or misappropriation
claims may be asserted against us, and any such assertions could harm our business. Additionally, certain patent holders have become more aggressive in threatening litigation in attempts to obtain fees for licensing the right to use patents. Any
such claims or threats, whether with or without merit, could be time-consuming to defend, result in costly litigation and diversion of resources, or could cause product shipment delays or require us to enter into royalty or licensing agreements. In
addition, such royalty or license agreements, if required, may not be available on acceptable terms, if at all, which would likely harm our business.

Our management may be unable to effectively integrate our software purchase and to manage our growth and we may be unable to fully realize any anticipated benefits.

In the event our software is successful, we could experience rapid growth in revenues, personnel, complexity of administration and in other areas. There
can be no assurance that we will be able to manage the significant strains that future growth may place on our administrative infrastructure, systems, and controls. If we are unable to manage future growth effectively, our business, operating
results and financial condition may be materially adversely affected.



19



---

If we are unable to hire and retain key personnel, then we may not be able to implement our business plan.

We are dependent on our ability to hire and retain highly skilled and qualified personnel. We face competition for qualified personnel
from numerous industry sources, and there can be no assurance that we will be able to attract and retain qualified personnel on acceptable terms. We do not have key man insurance on any of our employees. The loss of service of any of our key
personnel could have a material adverse effect on our operations or financial condition.

We face product development risks associated with rapid
technological changes in our market.

Any change to our customers operating systems could require us to modify our products and
could cause us to delay product releases. In addition, any decline in the market acceptance of these operating systems we support may require us to ensure that all of our products and services are compatible with other operating systems to meet the
demands of our customers. If potential customers do not want to use the Microsoft operating systems we support, we will need to develop more products that run on other operating systems adopted by our customers. If we cannot successfully develop
these products in response to customer demands, our business could be adversely impacted. The development of new products in response to these risks would require us to commit a substantial investment of resources, and we might not be able to
develop or introduce new products on a timely or cost-effective basis, or at all, which could lead potential customers to choose alternative products.

Risks Specific to Our Industry

General economic conditions may affect consumer and business purchases.

We will become increasingly subject to the risks arising from adverse changes in domestic and global economic and political conditions. If economic growth
in the United States and other countries economies is slowed, many customers may delay or reduce technology purchases. This could result in reductions in sales of our products, longer sales cycles, slower adoption of new technologies and
increased price competition.

We are subject to intense competition in the system and network protection markets, and we expect to face increased
competition in the future.

The software industry has limited barriers to entry, and the availability of desktop computers with
continually expanding performance at progressively lower prices contributes to the ease of market entry. The markets in which we compete are characterized by vigorous competition, both by entry of competitors with innovative technologies and by
consolidation of companies with complementary products and technologies.

In addition, some of our competitors have greater financial,
technical, sales and marketing and other resources. Furthermore, a reduction in the number and availability of compatible third-party applications may adversely affect the sale of our products. Because of these and other factors, competitive
conditions in the industry are likely to intensify in the future. Increased competition could result in continued price reductions, reduced net revenues and profit margins and loss of market share, any of which would likely harm our business.

Government Regulations and Legal Uncertainties Could Burden Our Business

The adoption or modification of laws or regulations applicable to software and the Internet could harm our business. New laws may be imposed relating to
intellectual property, privacy, libel and taxation apply to the software industry. New laws and regulations and interpretations of existing laws and regulations could subject us and/or our customers to potential liability, which could have an
adverse effect on our business, operating results and financial condition. The adoption of any future laws or regulations might decrease the growth of the Internet, decrease demand for our products and services, impose taxes or other costly
technical requirements or otherwise increase the cost of doing business or in some other manner have a significant adverse effect on us or our customers, which, in turn, could have a significant adverse effect on our business and operating results.
In addition, applying existing laws governing issues such as property ownership, copyrights and other intellectual property issues, taxation, libel, obscenity and personal privacy to the Internet is uncertain. The vast majorities of these 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. Changes to these laws intended to address these issues, including some
recently proposed changes, could create uncertainty in the marketplace which could reduce



20



---

demand for our services or increase the cost of doing business as a result of costs of litigation or increased service delivery costs, or could in some other
manner have a significant adverse effect on our business and operating results. As our services are available over the Internet in multiple states and foreign countries, and as we facilitate sales by our customers to end users located in these
states and foreign countries, these jurisdictions may claim that we are required to qualify to do business as a foreign corporation in each of these states or foreign countries. Any new legislation or regulation, or the application of laws or
regulations from jurisdictions whose laws may not currently apply to our business, could have a significant adverse effect on our business and operating results.

Risks Related to Our Securities

Our common stock is subject to the penny stock rules of the sec and the trading
market in our securities is limited, which makes transactions in our stock cumbersome and may reduce the value of an investment in our stock.

The Securities and Exchange Commission has adopted Rule 15g-9 which establishes the definition of a penny stock, for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or
with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require:



| |  |  | that a broker or dealer approve a persons account for transactions in penny stocks; and
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

In order to approve a persons account for transactions in penny stocks, the broker or dealer must:



| |  |  | obtain financial information and investment experience objectives of the person; and
| | - |  | ------------------------------------------------------------------------------------



| |  |  | make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be
capable of evaluating the risks of transactions in penny stocks.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The broker or dealer must also deliver, prior to any
transaction in a penny stock, a disclosure schedule prescribed by the Commission relating to the penny stock market, which, in highlight form:



| |  |  | sets forth the basis on which the broker or dealer made the suitability determination; and
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | that the broker or dealer received a signed, written agreement from the investor prior to the transaction.
| | - |  | ----------------------------------------------------------------------------------------------------------

Generally, brokers may be less willing to execute transactions in securities subject to the penny stock rules. This may make it more
difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.

Disclosure also has to be
made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights
and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in
penny stocks.

Our share price may be highly volatile.

The market prices of equity securities of small companies have experienced extreme price volatility in recent years not necessarily related to the individual performance of specific companies. Factors such as
announcements by us, or our competitors concerning products, technology, governmental regulatory actions, other events affecting healthcare companies generally and general market conditions may have a significant impact on the market price of our
shares and could cause it to fluctuate substantially.



21



---

ITEM 3 - CONTROLS AND PROCEDURES

We have evaluated, with the participation of our Chief Executive Officer
and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of June 30, 2006. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and
procedures are effective to ensure that we record, process, summarize, and report information required to be disclosed by us in our quarterly reports filed under the Securities Exchange Act within the time periods specified by the Securities and
Exchange Commissions rules and forms.

During the quarterly period covered by this report, there were no changes in our internal
controls over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. There were no significant changes in the Companys internal controls or in other factors
that could significantly affect its internal controls subsequent to the Evaluation Date.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time we are engaged in various legal and regulatory proceedings
arising in the normal course of business. While it is not possible to determine with certainty the outcome of these matters, we are of the opinion that the eventual resolution of such proceedings will not have a material adverse impact on our
financial position or operating results. The Company is not a party to any pending legal proceedings nor is any of its property subject to pending legal proceedings.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.



| | (a) | Not applicable.
| | --- | ---------------



| | (b) | Not applicable.
| | --- | ---------------



| | (c) | On August 7, 2006, we closed an agreement (the Agreement) with an individual for the purchase of 294,118 shares of our common stock for $25,000. The stock is
considered restricted securities as defined by Rule 144 promulgated under the Securities Act of 1933, as amended.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

On
May 30, 2006, we closed an agreement with White Star, LLC for the purchase of 2,941,177 shares of our common stock for $250,000. The stock is considered restricted securities as defined by Rule 144 promulgated under the Securities Act of 1933,
as amended. We also issued two classes of warrants in accordance with this agreement. Class A warrants allow the subscriber to purchase 2,941,177 shares at .25 cents per share and Class B warrants allow the subscriber to purchase 2,941,177
shares at .35 cent a share. Both classes expire five years from the date of the closing.

On April 3, 2006, the Company entered into a
stock purchase agreement with an investor (the Investor). This agreement allows the investor to purchase a maximum of 35,000,000 shares of common stock of the Company at a purchase price of 20% of the bid price. These shares are deemed
restricted securities as defined in Rule 144 of the Securities Act of 1933. The investor purchased 3,000,000 shares on April 17, 2006 for $135,000. The Investor is under no obligation to purchase any further amounts of stock from the Company.

On March 9, 2006, we sold in a private placement, a secured promissory note in the amount of $250,000 to a stockholder. Interest
accrues on the outstanding principal balance from and after March 6, 2006 at a rate of 11 percent per annum. At maturity, October 31, 2006, in addition to the payment of principal and accrued interest, we will deliver as additional
incentive for making the loan, 75,000 shares of our common stock. The stock is considered restricted securities as defined by the Securities Act of 1933, as amended.



22



---

On December 6, 2005, we sold in a private placement, a secured promissory note in the amount of
$50,000 to a stockholder. Interest accrues on the outstanding principal balance from December 6, 2005 at a rate of 8 percent per annum. The note holder has the sole option of converting the principal represented by this note into our common
stock at a strike price equal to a 50 percent discount to the average closing bid price of the stock for the ten days immediately prior to the conversion. The note holder may convert all or any part of the principal represented by this note. The
maturity date for the promissory is December 5, 2006.

On November 15, 2005, we issued a note payable to Burns Family Trust for
$200,000 including interest at a fixed rate of 11%. At maturity, April 18, 2006, in addition to the payment of principal and accrued interest, we will deliver as additional incentive for making the loan, 50,000 shares of our common stock. The
stock is considered restricted securities as defined by the Securities Act of 1933, as amended. The fair value of these shares was calculated to be approximately $5,000 based on the closing price of our stock on the date of issuance. No charge has
been reflected in the accompanying consolidated financial statements.

On July 7, 2005, we sold in a private placement, a secured
promissory note in the amount of $5,000 to a stockholder. Interest accrued on the outstanding principal balance from July 7, 2005 at a rate of 8 percent per annum. The note holder had the sole option of converting the principal represented by
this note into our common stock at a strike price equal to a 50 percent discount to the average closing bid price of the stock for the ten days immediately prior to the conversion. The note holder could convert all or any part of the principal and
accrued interest represented by this note. On December 6, 2005, we issued 57,076 shares of our common stock to satisfy the promissory note conversion agreement.

On July 7, 2005, we sold in a private placement, a secured promissory note in the amount of $10,000 to a stockholder. Interest accrued on the outstanding principal balance from July 7, 2005 at a rate of 8
percent per annum. The note holder has the sole option of converting the principal represented by this note into our common stock at a strike price equal to a 50 percent discount to the average closing bid price of the stock for the ten days
immediately prior to the conversion. The note holder may convert all or any part of the principal and accrued interest represented by this note. On November 28, 2005 we issued 129,595 shares of our common stock to satisfy the promissory note
conversion agreement.

On February 16, 2004, we sold in a private placement, a secured promissory note in the amount of $600,000 to a
stockholder. Interest accrued on the outstanding principal balance from and after February 16, 2004 at a rate of 18 percent per annum. The note holder had the sole option of converting the principal represented by this note into our common
stock at a strike price equal to a 40 percent discount to the average closing bid price of the stock for the twenty days immediately prior to the conversion. The note holder may convert all or any part of the principal represented by this note. As
part of the same transaction, the note holder acquired a warrant, issued by the us, to purchase 50,000 shares of our common stock at $1.25 per share. On June 14, 2004, the Company entered into a promissory note conversion agreement (the
Agreement) with this stockholder. The agreement called for the holder of the note to exercise the option to convert the principal sum of $600,000 into shares of the Companys common stock at the lesser of $1.25 per share or a 40% discount
to the average closing bid price for the thirty days after the signing of the agreement. In addition, per the agreement, the Company paid the accrued interest on the note in cash. On August 4, 2004 the Company issued 714,285 shares of common
stock to satisfy the promissory note conversion agreement.

On August 14, 2004 we offered $1,500,000 in $0.30 units. Each unit consists
of one share of common stock and a warrant to purchase three shares of our common stock at a purchase price of $0.75 per share. As of March 15, 2006 we had sold $371,185 in units to 12 accredited



23



---

investors. Each of the investors had access to and was provided with relevant information concerning the company. The securities were exempt from
registration pursuant to Rule 506 of Regulation D and Section 4(2) of the Securities Act of 1933, as amended.

Item 3. Defaults Upon Senior Securities.

Not Applicable.

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

Not Applicable

Item 5. Other Information.

Not Applicable.

Item 6. Exhibits

(a) Exhibits



|               |  |                                                                                                                                                           
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT NUMBER |  | DESCRIPTION                                                                                                                                               
|31.1           |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended*
|               | 
|31.2           |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended*
|               | 
|32.1           |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.*       
|               | 
|32.2           |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.*       

---

|* | Filed herewith.
|- | ---------------



24



---

SIGNATURES

In accordance with the requirements of the Exchange Act of 1934, the registrant caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.

Date: February 8, 2007



INVERTED PARADIGMS CORPORATIONBy:

/s/ Stewart YorkName:

Stewart YorkTitle:

Chief Executive Officer, Secretary and Director


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



|       |  |                         |  |  |  |                                    
|------ |  | ----------------------- |  |  |  | -----------------------------------
|By:    |  | /s/ Steven Weldon       |  |  |  |                                    
|Name:  |  | Steven Weldon           |  |  |  | (Date)             February 8, 2007
|Title: |  | Chief Financial Officer |  |  |  |                                    
|       |  |                         | 
|By:    |  | /s/ Dwight Day          |  |  |  |                                    
|Name:  |  | Dwight Day              |  |  |  | (Date)             February 8, 2007
|Title: |  | Director                |  |  |  |                                    
|       |  |                         | 
|By:    |  | /s/ William Parsons     |  |  |  |                                    
|Name:  |  | William Parsons         |  |  |  | (Date)             February 8, 2007
|Title: |  | Director                |  |  |  |                                    



25



---

EXHIBIT INDEX



|              |  |                                                                                                                                                           
|------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBITNUMBER |  | DESCRIPTION                                                                                                                                               
|31.1          |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended*
|              | 
|31.2          |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended*
|              | 
|32.1          |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.*       
|              | 
|32.2          |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.*       

---

|* | Filed herewith.
|- | ---------------



26