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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549

FORM 10-QSB

xQuarterly
  Report under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended SEPTEMBER 30, 2004

 ̈Transition
  Report under 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period _____________ to _____________

Commission File Number 0-50119

IMAGE INNOVATIONS HOLDINGS INC.(Exact name of small Business Issuer as specified in its charter)

|NEVADA                                          | 91-1898414                       
|----------------------------------------------- | ---------------------------------
|(State or other jurisdiction of                 | (IRS Employer Identification No.)
|incorporation or organization)                  |                                  
|                                                |                                  
|432 PARK AVENUE SOUTH                           |                                  
|NEW YORK, NY                                    | 10022                            
|(Address of principal executive offices)        | (Zip Code)                       
|                                                |                                  
|Issuer's telephone number, including area code: | (518) 589-9994                   

NOT APPLICABLE


Check whether the issuer (1) 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 issuer was required
  to file such reports), and (2) has been subject to such filing requirements
  for the past 90 days x Yes  ̈
  No

State the number of shares outstanding of each of the issuer's
  classes of common stock, as of the latest practicable date: 24,910,000 Shares
  of $0.001 par value Common Stock outstanding as of November 11, 2004.

Transitional Small Business Disclosure Format (check one):
  Yes  ̈ No x

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PART I - FINANCIAL INFORMATION

|ITEM 1. | FINANCIAL STATEMENTS.
|------- | ---------------------

2

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IMAGE INNOVATIONS HOLDINGS INC.

Interim Consolidated Financial Statements
  (Unaudited)

INDEX:

| | F-1 Interim Consolidated Balance Sheet
      F-2 Interim Consolidated Statement of Operations
      F-3 Interim Consolidated Statement of Changes in Shareholders' Equity
      F-4 Interim Consolidated Statement of Cash Flows
      F-5 Notes to Interim Consolidated Financial Statements
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-1

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IMAGE INNOVATIONS HOLDINGS INC. Interim Consolidated Balance Sheet
  (Unaudited)

|                                                             | September 30 |            | December 31 |  
|------------------------------------------------------------ | ------------ | ---------- | ----------- | -
|                                                             | 2004         |            | 2003        |  
|                                                             |              |            |             |  
|ASSETS                                                       |              |            |             |  
|                                                             |              |            |             |  
|Current Assets                                               |              |            |             |  
|Cash                                                         | $            | 404,291    |             | $
|Accounts receivable trade                                    |              | 2,340,831  |             |  
|Amounts receivable from tax authorities                      |              | 22,200     |             |  
|Inventory                                                    |              | 3,423,026  |             |  
|Other current assets                                         |              | 691,436    |             |  
|Total current assets                                         |              | 6,881,784  |             |  
|Property and Equipment                                       |              | 386,231    |             |  
|Total Assets                                                 | $            | 7,268,015  |             | $
|                                                             |              |            |             |  
|LIABILITIES AND SHAREHOLDERS' EQUITY                         |              |            |             |  
|                                                             |              |            |             |  
|Current Liabilities                                          |              |            |             |  
|Accounts Payable                                             | $            | 294,410    |             | $
|Promissory Note                                              |              | 800,000    |             |  
|Demand loan H.E. Capital S.A.                                |              | 1,085,716  |             |  
|Total current liabilities                                    |              | 2,180,126  |             |  
|Commitments (Note 14)                                        |              |            |             |  
|                                                             |              |            |             |  
|Stockholders' Equity                                         |              |            |             |  
|Common Stock                                                 |              | 24,910     |             |  
|50,000,000 authorized shares, par
      value $.001          |              |            |             |  
|24,910,000 shares issued and outstanding                     |              |            |             |  
|                                                             |              |            |             |  
|Preferred Stock                                              |              | -          |             |  
|1,000,000 authorized preferred shares,
      par value $.001 |              |            |             |  
|Nil shares issued and outstanding                            |              |            |             |  
|                                                             |              |            |             |  
|Additional Paid in Capital                                   |              | 6,610,012  |             |  
|                                                             |              |            |             |  
|Accumulated Deficit                                          |              | (1,547,033 | )           |  
|Total stockholders' equity                                   |              | 5,087,889  |             |  
|Total liabilities and equity                                 | $            | 7,268,015  |             | $

The accompanying notes are integral part of the consolidated
  financial statements.

F-2

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IMAGE INNOVATIONS HOLDINGS INC. Interim Consolidated Statement of Operations
  (Unaudited)

|                                         | Three Months   |            | Three Months   |   | Nine Months    |   | Period From      |           
|---------------------------------------- | -------------- | ---------- | -------------- | - | -------------- | - | ---------------- | ----------
|                                         | Ended Sept 30, |            | Ended Sept 30, |   | Ended Sept 30, |   | January 14, 2003 |           
|                                         | 2004           |            | 2003           |   | 2004           |   | to Sept 30, 2003 |           
|Revenues:                                |                |            |                |   |                |   |                  |           
|Revenues                                 | $              | 2,297,830  |                | $ | -              |   | $                | 3,217,156 
|                                         |                |            |                |   |                |   |                  |           
|                                         |                | 2,297,830  |                |   | -              |   |                  | 3,217,156 
|                                         |                |            |                |   |                |   |                  |           
|Cost of sales                            |                | 947,913    |                |   | -              |   |                  | 1,475,938 
|                                         |                |            |                |   |                |   |                  |           
|Gross Margin                             |                | 1,349,917  |                |   | -              |   |                  | 1,741,218 
|                                         |                |            |                |   |                |   |                  |           
|Expenses:                                |                |            |                |   |                |   |                  |           
|Corporate Development                    |                | 234,810    |                |   | -              |   |                  | 854,653   
|Payroll & Consulting                     |                | 300,083    |                |   | 89,900         |   |                  | 812,556   
|Travel & Entertainment                   |                | 87,850     |                |   | -              |   |                  | 210,617   
|Professional fees                        |                | 92,203     |                |   | 5,965          |   |                  | 170,839   
|Amortization                             |                | 3,704      |                |   | 502            |   |                  | 7,326     
|General & Administration                 |                | 296,636    |                |   | 59,977         |   |                  | 546,685   
|Interest                                 |                | 32,213     |                |   | -              |   |                  | 46,880    
|Total Expenses                           |                | 1,047,499  |                |   | 156,344        |   |                  | 2,649,556 
|Net Income before Taxes                  |                | 302,418    |                |   | (156,344       | ) |                  | (908,338  
|                                         |                |            |                |   |                |   |                  |           
|Provision for Income Taxes:              |                |            |                |   |                |   |                  |           
|Income Tax                               |                | -          |                |   | -              |   |                  | -         
|Net Income (Loss)                        | $              | 302,418    |                | $ | (156,344       | ) | $                | (908,338  
|                                         |                |            |                |   |                |   |                  |           
|                                         |                |            |                |   |                |   |                  |           
|Basic Earnings/(Loss) Per Common Share   | $              | 0.01       |                | $ | (0.01          | ) | $                | (0.04     
|                                         |                |            |                |   |                |   |                  |           
|Fully Diluted Earnings Per Common Share  | $              | 0.01       |                | $ | (0.01          | ) | $                | (0.04     
|                                         |                |            |                |   |                |   |                  |           
|Weighted Average number of Common Shares |                |            |                |   |                |   |                  |           
|used in per share calculations           |                | 24,316,522 |                |   | 18,170,000     |   |                  | 23,095,153
|                                         |                |            |                |   |                |   |                  |           
|Fully diluted number of Common Shares    |                |            |                |   |                |   |                  |           
|used in per share calculations           |                | 27,745,000 |                |   | 18,170,000     |   |                  | 23,095,153

The accompanying notes are integral part of the consolidated
  financial statements.

F-3

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IMAGE INNOVATIONS HOLDINGS INC. Interim Consolidated Statement of Changes in Shareholders' Equity
  (Unaudited)

|                                                | Number     |   | Common |        | Additional      |   | Accumulated |   | Shareholders' |           
|----------------------------------------------- | ---------- | - | ------ | ------ | --------------- | - | ----------- | - | ------------- | ----------
|                                                | of Shares  |   | Stock  |        | Paid-In Capital |   | Deficit     |   | Equity        |           
|Shares issued on incorporation on January 14,   |            |   |        |        |                 |   |             |   |               |           
|2003                                            | 1,000      |   | -      |        | 1,000           |   | -           |   | 1,000         |           
|                                                |            |   |        |        |                 |   |             |   |               |           
|Adjustment to Accumulated Deficit to recognize  |            |   |        |        |                 |   |             |   |               |           
|costs related to the acquisition of Image       |            |   |        |        |                 |   |             |   |               |           
|Innovations as described in Note 1              | -          |   | -      |        | -               |   | (20,000     | ) | (20,000       | )         
|                                                |            |   |        |        |                 |   |             |   |               |           
|Prior Image share capital, replaced by Image    |            |   |        |        |                 |   |             |   |               |           
|Holdings share capital upon consolidation under |            |   |        |        |                 |   |             |   |               |           
|reverse takeover accounting                     | (1,000     | ) | -      |        | -               |   | -           |   | -             |           
|                                                |            |   |        |        |                 |   |             |   |               |           
|Current Image share capital, replaced by Image  |            |   |        |        |                 |   |             |   |               |           
|Holdings share capital upon consolidation under |            |   |        |        |                 |   |             |   |               |           
|reverse takeover accounting                     | 18,170,000 |   | 18,170 |        | (1,000          | ) | (17,170     | ) | -             |           
|                                                |            |   |        |        |                 |   |             |   |               |           
|Net monetary liabilities of Busanda acquired by |            |   |        |        |                 |   |             |   |               |           
|Image                                           | -          |   | -      |        | -               |   | (22,377     | ) | (22,377       | )         
|                                                |            |   |        |        |                 |   |             |   |               |           
|Transferred to Additional Paid In Capital       | -          |   | -      |        | (39,547         | ) | 39,547      |   | -             |           
|Shares issue for payment of debt                | 1,200,000  |   | 1,200  |        | 898,800         |   | -           |   | 900,000       |           
|Net Income (Loss)                               | -          |   | -      |        | -               |   | (618,695    | ) | (618,695      | )         
|Balance, December 31, 2003                      | 19,370,000 |   | 19,370 |        | 859,253         |   | (638,695    | ) | 239,928       |           
|                                                |            |   |        |        |                 |   |             |   |               |           
|Shares issued to acquire Inventory of MDK       |            |   |        |        |                 |   |             |   |               |           
|Sports                                          | 4,000,000  |   |        | 4,000  |                 |   | 3,011,279   |   |               | -         
|Units issued for payment of debt                | 266,667    |   |        | 267    |                 |   | 399,733     |   |               | -         
|Units issued for cash                           | 183,333    |   |        | 183    |                 |   | 274,817     |   |               | -         
|Shares issued for consulting services           | 200,000    |   |        | 200    |                 |   | 273,800     |   |               | -         
|Shares issued to Advisory Board                 | 150,000    |   |        | 150    |                 |   | 318,100     |   |               | -         
|Shares issued for consulting services           | 140,000    |   |        | 140    |                 |   | 244,362     |   |               | -         
|Stock Based Compensation                        | -          |   |        | -      |                 |   | 4,783       |   |               | -         
|Stock Options Issued for Services               | -          |   |        | -      |                 |   | 3,635       |   |               | -         
|Warrants Issued for Services                    | -          |   |        | -      |                 |   | 320,850     |   |               | -         
|Exercise of Warrants                            | 600,000    |   |        | 600    |                 |   | 899,400     |   |               | -         
|Net Income (Loss)                               | -          |   |        | -      |                 |   | -           |   |               | (908,338  
|Balance September 30, 2004                      | 24,910,000 |   | $      | 24,910 |                 | $ | 6,610,012   |   | $             | (1,547,033

The accompanying notes are integral part of consolidated financial
  statements.

F-4

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IMAGE INNOVATIONS HOLDINGS INC. Interim Consolidated Statement of Cash Flows 
  (Unaudited)

|                                                             | Three Months   |          | Three Months   |   | Nine Months    |   | Period From      |           
|------------------------------------------------------------ | -------------- | -------- | -------------- | - | -------------- | - | ---------------- | ----------
|                                                             | Ended Sept 30, |          | Ended Sept 30, |   | Ended Sept 30, |   | January 14, 2003 |           
|                                                             | 2004           |          | 2003           |   | 2004           |   | to Sept 30, 2003 |           
|                                                             |                |          |                |   |                |   |                  |           
|Operating Activities:                                        |                |          |                |   |                |   |                  |           
|Net Income (Loss)                                            | $              | 302,418  |                | $ | (156,344       | ) | $                | (908,338  
|Adjustments to reconcile net loss
      to net cash          |                |          |                |   |                |   |                  |           
|provided (used) to operating activities:                     |                |          |                |   |                |   |                  |           
|Amortization                                                 |                | 3,704    |                |   | 502            |   |                  | 7,326     
|Stock Based Compensation                                     |                | (72,617  | )              |   | -              |   |                  | 4,783     
|Stock Options/Warrants
      Issued for Services             |                | 324,485  |                |   | -              |   |                  | 324,485   
|Stock Issued for
      Corporate Development Services        |                | 161,677  |                |   | -              |   |                  | 836,752   
|Change
      in non-cash working capital                     |                | (812,760 | )              |   | (60,731        | ) |                  | (1,160,551
|Total
      Adjustments                                      |                | (395,511 | )              |   | (60,229        | ) |                  | 12,795    
|Net cash used in operating activities                        |                | (93,093  | )              |   | (216,573       | ) |                  | (895,543  
|                                                             |                |          |                |   |                |   |                  |           
|                                                             |                |          |                |   |                |   |                  |           
|Investing Activity:                                          |                |          |                |   |                |   |                  |           
|Purchase of
      Property & Equipment                       |                | (322,623 | )              |   | (3,921         | ) |                  | (376,240  
|Net Cash Used in Investing Activities                        |                | (322,623 | )              |   | (3,921         | ) |                  | (376,240  
|                                                             |                |          |                |   |                |   |                  |           
|                                                             |                |          |                |   |                |   |                  |           
|Financing Activities:                                        |                |          |                |   |                |   |                  |           
|Proceeds from H.E Capital Demand Loan                        |                | 748,819  |                |   | 470,544        |   |                  | 327,963   
|Proceeds from Promissory Note                                |                | -        |                |   | -              |   |                  | 800,000   
|Advances Payable                                             |                | -        |                |   | -              |   |                  | -         
|Proceeds from
      Issuance of Stock                        |                | -        |                |   | -              |   |                  | 275,000   
|Net Cash Provided by Financing Activities                    |                | 748,819  |                |   | 470,544        |   |                  | 1,402,963 
|                                                             |                |          |                |   |                |   |                  |           
|Net Increase in Cash                                         |                | 333,103  |                |   | 250,050        |   |                  | 131,180   
|                                                             |                |          |                |   |                |   |                  |           
|Cash Balance, Beginning of Period                            |                | 71,188   |                |   | 33,983         |   |                  | 273,111   
|Cash Balance, End of Period                                  | $              | 404,291  |                | $ | 284,033        |   | $                | 404,291   
|                                                             |                |          |                |   |                |   |                  |           
|                                                             |                |          |                |   |                |   |                  |           
|Supplemental Disclosures:                                    |                |          |                |   |                |   |                  |           
|Cash Paid for interest                                       | $              | 32,213   |                | $ | -              |   | $                | 46,880    
|Cash Paid for income taxes                                   | $              | -        |                | $ | -              |   | $                | -         
|Non-cash transactions                                        |                |          |                |   |                |   |                  |           
|Stock Based Compensation                                     | $              | (72,617  | )              | $ | -              |   | $                | 4,783     
|Stock Options/Warrants Issued for
      Services             | $              | 324,485  |                | $ | -              |   | $                | 324,485   
|Stock Issued for Corporate Development
      Services        | $              | 161,677  |                | $ | -              |   | $                | 836,752   
|Stock Issued to Acquire Inventory
      of MDK               | $              | -        |                | $ | -              |   | $                | 3,015,279 
|Stock Issued for Repayment of H.E.
      Capital Demand Loan | $              | 900,000  |                | $ | -              |   | $                | 1,300,000 

The accompanying notes are integral part of the consolidated
  financial statements.

F-5

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IMAGE INNOVATIONS HOLDINGS INC. 
  Notes to Interim Consolidated Financial Statements
  (Unaudited)

As at September 30, 2004

|1. | Organization
      Image Innovation Holdings Inc., formerly known as Busanda
        Explorations Inc. (the Company) was incorporated under the
        laws of the State of Nevada on March 3, 1998. Prior to June 30, 2003,
        the Company had entered into an agreement to purchase mineral property
        claims in the Laird Mining Division, British Columbia, Canada, but lost
        the claim due to lack of funding. The Company had no other business. The
        Company was therefore an inactive company with nominal net non-monetary
        assets, the shares of which were and continue to be quoted on the OTC
        Bulletin Board.
      Acquisition of Image Innovations Inc.
      Image Innovations, Inc. (Image) was incorporated
        under the laws of the State of Delaware on January 14, 2003. Image was
        established to become a recognized player in the field of promotional
        licensing and branding. The Company completed the acquisition of all of
        the issued and outstanding shares of Image effective June 30, 2003 pursuant
        to offers made by the Company dated June 23, 2003 to all the shareholders
        of Image to purchase their shares in exchange for an aggregate of 10,000,000
        shares of the Companys common stock on the basis of 10,000 shares
        for each outstanding share of Image. It was a condition precedent to closing
        that all shareholders of Image accept the Companys offer and that
        the audited financial statements of Image had been delivered to the Company.
        The Company issued 10,000,000 shares of its common stock to the existing
        shareholders of Image in consideration of the transfer by the existing
        shareholders of all of their shares of Image to the Company. As a result
        of this transaction, Image became a wholly owned subsidiary of the Company.
      Image Sports & Entertainment Inc.
      Image Innovations Sports & Entertainment Inc. (Image
        Sports & Entertainment) was incorporated under the laws of the
        State of Delaware on January 20, 2004 as the Companys wholly owned
        subsidiary. Image Sports & Entertainment acquired all of the celebrity
        image memorabilia inventory owned by MDK Sports & Entertainment Inc.
        (MDK Sports) during the Companys first quarter of 2004.
        The acquisition of assets was completed pursuant to an asset purchase
        agreement dated March 4, 2004 between the Company, Image Sports &
        Entertainment and MDK Sports (the Asset Purchase Agreement).
        As consideration of the sale, transfer and assignment of certain assets
        by MDK Sports to Image Sports & Entertainment, the Company issued
        to MDK Sports an aggregate of 4,000,000 restricted shares of the Companys
        common stock on closing.
      The Company also agreed to deliver to MDK Sports the
        following additional shares of our common stock upon achievement of the
        milestones set forth below, provided that no shares will be issuable in
        the event that the milestone is not achieved for whatever reason:
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

| |  | (a) | an aggregate of 2,500,000 shares of the Company common
        stock will be issued to MDK Sports in the event that each of the conditions
        listed below are met:
| |  | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |     |                                                                                                                                                                         

| |  |  | (i)  | The trademark License Agreement made on the 25thday of June 2003, by and among Roush Corporation d/b/a Roush Racing
        and Pfizer Inc. and Authentic Legends is transferred to Image Sports &
        Entertainment;                                                                                                                                             
| |  |  | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  |      |                                                                                                                                                                                                                                                                                                                                                                       
| |  |  | (ii) | The Authentic Legends Affiliations Agreement by and
        between Millennium International Sports and Entertainment, LLC and Carlo
        Beninati dated 5thday of November, 2003 whereby Carlo Beninati
        is to create a unique original work of art on canvas using the likeness
        of Mark Martin is transferred to Image Sports & Entertainment; and

F 6

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IMAGE INNOVATIONS HOLDINGS INC. 
  Notes to Interim Consolidated Financial Statements
  (Unaudited)

As at September 30, 2004

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | (b) | an aggregate of 1,500,000 shares of the Companys
        common stock will be issued to MDK Sports in the event that a Trademark
        License Agreement is made by and among Tony Stewarts Race team and
        Tony Stewarts Sponsor and Image Sports & Entertainment.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |     |                                                                                                                                                                                                                                                                               
|   | On September 30, 2004 the
        Company, Image Sports & Entertainment and MDK Sports reached an agreement
        that the additional shares issuable under the Asset Purchase Agreement
        would not be issued and that the Company and Image Sports & Entertainment
        would have no further obligations to MDK Sports under such Agreement.
      The inventory of MDK Sports acquired by Image Sports
        & Entertainment consists of over 22,000 pieces of collectible sports
        memorabilia and fine art. Certain members of the management of MDK Sports
        have become employees of Image Sports & Entertainment. Image Sports
        & Entertainment believes that these employees bring knowledge of the
        industry and contacts to distribution channels of value to Image Sports
        & Entertainment and Image the other subsidiary in the Image Group
        of Companies.
      Imaging Innovations Sports and Entertainment, Inc.
      Imaging Innovations Sports and Entertainment, Inc. (Imaging)
        was incorporated under the laws of the State of New York on August 13,
        2004 as our wholly owned subsidiary. On September 9, 2004 Imaging acquired
        a 8,625 square foot warehouse and storage facility in Tannersville, NY.
        located near Image Sports & Entertainments existing facility
        in Tannersville, NY.                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |     |                                                                                                                                                                                                                                                                               
|2. | Basis of Preparation and
        Presentation:
      The consolidated unaudited interim financial statements
        of the Company as of September 30, 2004 and for the three and nine months
        ended September 30, 2004, included herein have been prepared in accordance
        with the instructions for Form 10-QSB and Items 303 and 310 (B) of Regulation
        S-B. In the opinion of management, the accompanying consolidated unaudited
        interim financial statements reflect all adjustments, consisting only
        of normal recurring adjustments, necessary to present fairly the financial
        position of the Company at September 30, 2004, and the results of their
        operations for the three and nine months ended September 20, 2004 and
        2003 and from inception (January 14, 2003) to September 30, 2004, and
        their cash flows for the three and nine months ended September 30, 2004
        and 2003 and from inception (January 14, 2003) to September 30, 2004.
        Certain information and note disclosures normally included in financial
        statements prepared in accordance with generally accepted accounting principles
        in the United States of America have been condensed or omitted pursuant
        to such Securities and Exchange Commissions (SEC) rules
        and regulations relating to interim consolidated financial statements.
      The results of operations for such periods are not necessarily
        indicative of results expected for the full year or for any future period.
        These financial statements should be read in conjunction with the audited
        consolidated financial statements for the year ended December 31, 2003
        and related notes included in the Companys Form 10-KSB filed with
        the SEC filed on April 14, 2004.

F 7

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IMAGE INNOVATIONS HOLDINGS INC. 
  Notes to Interim Consolidated Financial Statements
  (Unaudited)

As at September 30, 2004

| | The accompanying unaudited consolidated financial statements
        have been prepared to reflect the acquisition on June 30, 2003 of Image
        by the Company (the Acquisition). The consolidated financial
        statements of the Company give effect to the Acquisition under which the
        shareholders of Image exchanged all of their common shares of Image for
        common shares of the Company.
      Notwithstanding its legal form, the Acquisition has
        been accounted for as a reverse takeover, as the former shareholders of
        Image own approximately 55% of the Companys common shares and constitute
        the majority shareholders of the Company. Also, as the Company was inactive
        with nominal net non-monetary assets, the Acquisition has been accounted
        for as an issuance of stock by Image accompanied by a recapitalization
        (see note 10 Common Stock). The net monetary liabilities of the Company
        acquired by Image have been charged to the accumulated deficit.
      As required under reverse takeover accounting, these
        financial statements have been issued under the name of the Company and
        reflect the share capital structure of the Company. However, they reflect
        the financial statements of Image and account for the Acquisition as an
        acquisition of the Company by Image. The consolidated financial statements
        therefore include:
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|   | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | a consolidated balance sheet prepared from the balance
        sheets of the Company and its wholly owned subsidiaries Image, Image Sports
        & Entertainment and Imaging as at September 30, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | consolidated statements of operations, cash flows
        and changes in shareholders equity prepared from the statements
        of operations, cash flows and changes in shareholders equity of
        the Company and its wholly owned subsidiaries for the period from January
        14, 2003 (date of incorporation of Image) to September 30, 2004. The results
        of operations, cash flows and changes in shareholders equity of
        Image are included for the period from January 14, 2003 (date of incorporation
        of Image) to September 30, 2004. The results of operations, cash flows
        and changes in shareholders equity of Image Sports & Entertainment
        are included for the period from January 20, 2004 (date of incorporation
        of Image Sports & Entertainment) to September 30, 2004. The results
        of operations, cash flows and changes in shareholders equity of
        Imaging are included for the period from August 13, 2004 (date of incorporation
        of Imaging) to September 30, 2004. The results of operations, cash flows
        and changes in shareholders equity of the Company are included commencing
        June 30, 2003, the date of the Acquisition.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|3. | Going Concern
      The accompanying financial statements have been prepared
        on a going concern basis, which contemplates the realization of assets
        and the satisfaction of liabilities and commitments in the normal course
        of business. During its first period of operations the Company did not
        generate sufficient revenues to pay its operating costs and has accumulated
        operating losses. The Company achieved profitability in the quarter ended
        September 30, 2004 but the continuation of the Company is dependent upon
        continuing to achieve a profitable level of operations. Management plans
        to raise additional funds to finance planned growth through debt financing
        or equity capital. While the Company is expending its best efforts to
        achieve the above plans, there is no assurance that the Company will continue
        to achieve profitable operations or that the Company will generate sufficient
        funds to continue to grow.

F 8

---

IMAGE INNOVATIONS HOLDINGS INC. 
  Notes to Interim Consolidated Financial Statements
  (Unaudited)

As at September 30, 2004

|4. | Summary of Significant Accounting Policies:
|-- | -------------------------------------------
|   |                                            
|   | a)                                         
|   |                                            
|   | b)                                         
|   |                                            
|   | c)                                         
|   |                                            
|   | d)                                         
|   |                                            
|   | e)                                         
|   |                                            
|   | f)                                         
|   |                                            
|   | g)                                         

F 9

---

IMAGE INNOVATIONS HOLDINGS INC. 
  Notes to Interim Consolidated Financial Statements
  (Unaudited)

As at September 30, 2004

| | h) | Stock-based Compensation
      In December 2002, the FASB issued SFAS No. 148, Accounting
        for Stock-Based Compensation-Transition and Disclosure, an amendment of
        FASB Statement No. 123. SFAS No. 148 Statement No. 123, Accounting
        for Stock-Based Compensation, to provide alternative methods of
        transactions for an entity that chooses to change to the fair-value-based
        method of accounting for stock-based employee compensation. It also amends
        the disclosure provisions of that statement to require prominent disclosure
        about the effects that accounting for stock-based employee compensation
        using the fair-value-based method would have on reported net income and
        earnings per share and to require prominent disclosure about the entitys
        accounting policy decisions with respect to stock-based employee compensation.
        Certain of the disclosure requirements are required for all companies,
        regardless of whether the fair value method or intrinsic value method
        is used to account for stock-based compensation arrangements. The amendments
        to SFAS No. 123 are effective for financial statements for fiscal years
        ended after December 15, 2002 and for interim periods beginning after
        December 15, 2002.
      The Company accounts for its employee incentive stock
        option plans using the intrinsic value method in accordance with the recognition
        and measurement principles of Accounting Principles Board Opinion No.
        25, Accounting for Stock Issued to Employees, as permitted
        by SFAS No. 123. The adoption of the disclosure requirements of SFAS No.
        148 did not have a material effect on the Companys financial position
        or results of operations.
      Had the Company determined compensation expense based
        on the fair value at the grant dates for those awards consistent with
        the method of SFAS 123, the Company would have a decrease in net income
        per share for the three months ended September 30, 2004, and the Companys
        net loss per share would have been increased for the nine months ended
        September 30, 2004 as follows:
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                               | Three Months |          |   | Nine Months |           
|-------------------------------------------------------------- | ------------ | -------- | - | ----------- | ----------
|                                                               |              |          |   |             |           
|Net Income (loss) for the period                               |              | 302,418  |   |             | (908,338  
|                                                               |              |          |   |             |           
|Deduct total stock based employee compensation expense         |              |          |   |             |           
|determined under fair value based
      methods for all awards |              | (114,633 | ) |             | (483,802  
|                                                               |              |          |   |             |           
|Pro forma net income/(loss)                                    |              | 187,785  |   |             | (1,392,140
|                                                               |              |          |   |             |           
|Basic and diluted net earings/(loss) per share as reported     | $            | 0.01     |   | $           | (0.04     
|                                                               |              |          |   |             |           
|Pro forma basic and diluted net loss per share                 | $            | 0.01     |   | $           | (0.06     

| |  | The above pro forma disclosure may not be representative of the effects
        on reported net operations for future years as options vest over five
        years and the Company may continue to grant options to employees.
      The fair market value of each option grant is estimated at the date
        of grant using the Black-Scholes option-
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F 10

---

IMAGE INNOVATIONS HOLDINGS INC. 
  Notes to Interim Consolidated Financial Statements
  (Unaudited)

As at September 30, 2004

| |  | pricing model with the following weighted-average assumptions:
| |  | --------------------------------------------------------------

|Dividend yield          | 0.00%        
|----------------------- | -------------
|Expected volatility     | 50.00%       
|Risk-free interest rate | 2.74 to 3.84%
|Expected life           | 5 years      

| | k) | Earnings per Common Share
      Earnings per common share are computed pursuant to SFAS
        No. 128, Earnings Per Share. Basic loss per share is computed
        as net income (loss) available to common shareholders divided by the weighted
        average number of common shares outstanding for the period. Diluted earnings
        per share reflects the potential dilution that could occur from common
        shares issuable through stock options and warrants.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | l) | 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 the 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | m) | Fair Value Disclosure
      The carrying value for cash, receivables, accounts and
        notes payable approximate fair values because of the immediate or short-term
        maturities of these financial instruments. The carrying amounts of the
        Companys long-term debt also approximate fair values based on current
        rates for similar debt.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | n) | New Accounting Pronouncements
      In May 2003, the Financial Accounting Standards Board
        issued Statement No. 150, Accounting for Certain Financial Instruments
        with Characteristics of Both Liabilities and Equity,effective for
        the fiscal period beginning after December 15, 2003. Statement No. 150
        establishes standards for how an issuer classifies and measures certain
        financial instruments with characteristics of both liabilities and equity.
        To the extent that the Company is either now or in the future required
        to repurchase shares of common stock, the adoption of Statement No. 150
        would require the Company to classify common stock subject to redemption
        as a liability as of January 1, 2004, based on the latest revision. Prospectively,
        changes in the liability with the exception of redemptions will be included
        in pre-tax income.
      In November 2002, the Emerging Issues Task Force (EITF)
        reached a consensus on Issue No. 00-21 (Issue 00-21), Revenue
        Arrangements with Multiple Deliverables. Issue 00-21 provides guidance
        on how to account for arrangements that involve delivery or performance
        of multiple products, services and/or rights to use assets. The adoption
        of Issue 00-21 is not expected to have an impact on the Companys
        financial position or results of operations.

F 11

---

IMAGE INNOVATIONS HOLDINGS INC. 
  Notes to Interim Consolidated Financial Statements
  (Unaudited)

As at September 30, 2004

|   |                                                                                                                                 | The Company does not believe that any other recently
        issued and adopted, but not yet effective, accountant standards would
        have a material effect on the accompanying financial statements.                                                                                                                                                         
|-- | ------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                     
|   | o)                                                                                                                              | Foreign Exchange
      Assets and liabilities of the Company, which are denominated
        in foreign currencies, are translated at exchange rates prevailing at
        the balance sheet date. Non-monetary assets and liabilities are translated
        at historical rates. Revenues and expenses are translated at average rates
        throughout the year.
|   |                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                     
|5. | Other Current Assets Other
        current assets consist of the following at September 30, 2004 and December
        31, 2003:

|                                   | Sep-04  |  | Dec-03  | 
|---------------------------------- | ------- |  | ------- | 
|Payroll taxes and related expenses | -       |  | 1,358   | 
|Professional fees                  | 576,546 |  | -       | 
|Lease payments                     | 5,603   |  | 10,224  | 
|Prepaid royalties on licenses      | 109,287 |  | 35,000  | 
|Vendors paid in advance            | -       |  | 88,972  | 
|                                   | 691,436 |  | 135,554 | 
|                                   |         |  |         | 

|6. | Property and Equipment
|-- | ----------------------

|                        |         |  | Accumulated  |  | Net book | 
|----------------------- | ------- |  | ------------ |  | -------- | 
|                        | Cost    |  | Amortization |  | Value    | 
|Warehouse Building      | 225,000 |  |              |  | 225,000  | 
|Warehouse Land          | 75,000  |  |              |  | 75,000   | 
|Furniture and equipment | 58,464  |  | 2,044        |  | 56,420   | 
|Warehouse Equipment     | 12,750  |  | 885          |  | 11,865   | 
|Computer equipment      | 14,896  |  | 2,832        |  | 12,064   | 
|Computer software       | 8,789   |  | 2,907        |  | 5,882    | 
|                        | 394,899 |  | 8,668        |  | 386,231  | 
|                        |         |  |              |  |          | 

| | A total of $7,326 has been recognized as depreciation expense for the
      nine months ended September 30, 2004.
| | -----------------------------------------------------------------------------------------------------------------

F 12

---

IMAGE INNOVATIONS HOLDINGS INC. 
  Notes to Interim Consolidated Financial Statements
  (Unaudited)

As at September 30, 2004

|7.  | Accrued liabilities
      At September 30, 2004, Included in accounts payable & accrued liabilities
        are accrued salaries and directors fees of $54,500.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|8.  | Promissory Note
      A promissory note in the principal amount of $800,000
        was issued to a third party on April 27, 2004 and was due on October 27,
        2004. The note bears interest monthly at the rate of 10% per annum payable
        in monthly payments of $6,667 on May 27, June 27, July 27 and August 27,
        2004, and thereafter at the rate of 18% per annum in monthly payments
        of $12,000 commencing on September 27, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|9.  | Demand Loan H. E. Capital S. A.
      H.E. Capital S.A. (H.E Capital) has been
        a major source of funding for the Company to date. The Company has a loan
        agreement with H.E Capital for a non-revolving secured $5 million dollar
        loan, bearing interest at 9% per annum and due upon demand by H.E. Capital.
        The loans are secured by a general security agreement granted by the Company
        against all of its assets.
      On December 30, 2003 the Company sold 1,200,000 Units
        consisting of one (1) Common Share and one (1) Warrant to H.E. Capital
        at a purchase price equal to$ 0.75 per Unit, for an aggregate purchase
        price of $900,000. In accordance with The Regulation S Subscription Agreement
        made between the Company an H.E. Capital. The Purchase Price was paid
        by H.E. Capital by cancellation of $900,000 of indebtedness of the Company
        to H.E. Capital.
      On March 4, 2004 the Company sold 266,667 Units consisting
        of one (1) Common Share and one (1) Warrant to H.E. Capital at a purchase
        price equal to US$1.50 per Unit, for an aggregate purchase price of US$400,000,
        in accordance with The Regulation S Subscription Agreement made between
        the Company an H.E. Capital. The Purchase Price was paid by H.E. Capital
        by cancellation of $400,000 of indebtedness of the Company to H.E. Capital.
      On September 30, 2004 H.E. Capital exercised 600,000
        warrants to purchase 600,000 restricted Common Shares. The Purchase Price
        was paid by H.E. Capital by cancellation of $900,000 of indebtedness of
        the Company to H.E. Capital.
      The outstanding principal balance of loans H.E Capital
        has advanced to the Company under the loan agreement was $1,085,716 as
        of September 30, 2004 ($175,704 as of December 31, 2003). H.E. Capital
        has provided debt or equity funding totaling $2,410,210 for the nine months
        ended September 30, 2004. There is no assurance that H.E. Capital will
        continue to advance additional amounts in order to fund the business of
        the Company or that they will not demand repayment.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10. | Common Stock
      The Company has authorized capital of 50,000,000 common
        shares, $0.001 par value per share. At September 30, 2004, the Company
        has issued 24,910,000 shares of common stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

F 13

---

IMAGE INNOVATIONS HOLDINGS INC. 
  Notes to Interim Consolidated Financial Statements
  (Unaudited)

As at September 30, 2004

|    | Shares issued to third parties for services rendered
        are valued at the closing price of the Companys common stock on
        the date of the related agreements to issue the shares and expensed over
        the term the services are contracted to be received.
      On March 5, 2004, the Company issued 4,000,000 common
        shares to acquire the inventory of MDK Sports valued at $3,015,279 as
        described in Note 1.
      On March 12, 2004, the Company issued 266,667 units
        to H.E. Capital. Each unit consists of one common share and one warrant
        to purchase one common share at $2.00 per share exercisable for 2 years
        from the date of issuance. H.E. Capital paid for the units by cancellation
        of $400,000 of indebtedness of the Company to H.E. Capital as described
        in Note 7.
      On March 12, 2004, the Company issued 183,333 units
        for $275,000 in cash. Each unit consists of one common share and one warrant
        to purchase one common share at $2.00 per share exercisable for 2 years
        from the date of issuance. H.E Capital purchased 133,333 of these shares
        and warrants.
      On March 13, 2004, the Company issued 200,000 common
        shares for services received in connection with the MDK Sports acquisition.
        The services were valued at $274,000. on the date the agreement was reached
        and was expensed over the three months the services were rendered.
      Between February 28 and March 16, 2004 the Company appointed
        seven members to an Advisory Board and issued a total of 150,000 common
        shares for service to be provided over an eighteen month term to these
        members and their agents. The value of all the services are $318,250 based
        on the date each agreement was reached and are being expensed over the
        eighteen months the services are being rendered.
      Between April 2 and June 8, 2004, the Company issued
        140,000 common shares to three consulting groups for financial consulting
        services. The value for all the services are $244,502 based on the date
        each agreement was reached and is being expensed monthly as the services
        are being rendered in accordance with the contracts. The services to be
        provided to the Company vary between three months and seven months.
      On September 30, 2004, the Company issued 600,000 common
        shares to H.E Capital when H.E. Capital exercised warrants as described
        in Note 7.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|11. | Warrants
      At September 30, 2004, the Company has outstanding 1,250,000
        warrants to various parties to purchase shares of the Companys common
        stock at prices ranging from $1.50 to $6.17.
      Warrants issued to third parties for services are valued
        using the Black-Scholes method on the date of the related agreements to
        issue the warrants and expensed over the term the services are contracted
        to be received.
      On December 31, 2003 as part of the sale of units the
        Company issued 1,200,000 warrants to H.E. Capital, at that time a related
        party, to purchase shares of the Companys common stock at $1.50
        as described in Note 7. On March 4, 2004 as part of the sale of units
        the Company issued 266,667 warrants to H.E. Capital to purchase shares
        of the Companys common stock at $2.00 as described in Note 7.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

F 14

---

IMAGE INNOVATIONS HOLDINGS INC. 
  Notes to Interim Consolidated Financial Statements
  (Unaudited)

As at September 30, 2004

|    | On March 12, 2004 as part of the sale of units the
        Company issued 183,333 warrants to purchase shares of the Companys
        common stock at $2.00 as described in Note 8.
      On August 25, 2004 the Company issued 200,000 warrants
        to purchase 100,000 common shares at $5.14 and 100,000 common shares at
        $6.17 for financial consulting services. In accordance with Company policy
        the services were valued at $320,850 using the Black-Scholes method on
        the date of the related agreements to issue the warrants and expensed
        over the term the services are contracted to be received.
      On September 30, 2004 H.E. Capital exercised 600,000
        of the warrants they received on December 30, 2003 as described in Note
        8.                
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|12. | Stock Incentive Plans
      On January 2, 2004 the Company implemented a Stock Option
        Plan (2004 Stock Option Plan), which allows the Board of Directors
        to grant options to employees, members of the Board of Directors and consultants
        and contractors. The plans provide the Board of Directors the ability
        to determine the type, size, terms and vesting periods of the awards under
        the plans.
      The number of shares available under the 2004 Stock
        Option Plan is 2,500,000. As of September 30, 2004 1,585,000 options have
        been granted and 915,000 options were outstanding under the 2004 Stock
        Option Plan. Purchase options are granted having exercise prices equal
        to the closing price of the stock on the date of grant.

F 15

---

IMAGE INNOVATIONS HOLDINGS INC. 
  Notes to Interim Consolidated Financial Statements
  (Unaudited)

As at September 30, 2004

Issuance of Stock Options

The following summarizes changes in stock options since January 1, 2004:

|                                        | Number of |  | Weighted average |     
|--------------------------------------- | --------- |  | ---------------- | ----
|                                        | options   |  | exercise price   |     
|                                        |           |  |                  |     
|Employees' and Directors' Stock Options |           |  |                  |     
|Outstanding, beginning of period        | -         |  |                  | -   
|Granted                                 | 1,525,000 |  | $                | 1.73
|Exercised                               | -         |  |                  | -   
|Forfeited                               | -         |  |                  | -   
|Outstanding, end of period              | 1,525,000 |  | $                | 1.73

|                                 | Number of |  | Weighted average |     
|-------------------------------- | --------- |  | ---------------- | ----
|                                 | options   |  | exercise price   |     
|                                 |           |  |                  |     
|Non-employee stock options       |           |  |                  |     
|Outstanding, beginning of period | -         |  |                  | -   
|Granted                          | 60,000    |  | $                | 2.68
|Exercised                        | -         |  |                  | -   
|Forfeited                        | -         |  |                  | -   
|Outstanding, end of period       | 60,000    |  | $                | 2.68

As at September 30, 2004, 935,088 of the outstanding stock
  purchase options have vested 930,702 for employees and Directors and 4,386 for
  non-employees.

Employees and Directors Stock Options

At September 30, 2004 1,525,000 options were outstanding to
  employees and directors. Using the Black-Scholes method of valuation the estimated
  fair value of each option granted ranges from $0.60 to $2.13 producing a total
  estimated value of $1,242,332. The Companys accounting policy recognizes
  the intrinsic value when stock options are granted with a strike price below
  the closing price of the Companys common stock on the date the option
  was granted. The Company did not grant any options with a strike price below
  the closing price of the Companys common stock on the date the option
  was granted. The difference between the total estimated fair value and the expense
  recorded by the Company was $1,242,332. This difference was not recorded by
  the Company.

F 16

---

IMAGE INNOVATIONS HOLDINGS INC. 
  Notes to Interim Consolidated Financial Statements
  (Unaudited)

As at September 30, 2004

No options were granted during the 2003 fiscal year.

The following table summarizes information about stock options outstanding
  and exercisable at September 30, 2004:

|Outstanding and exercisable |             |  |           |  |          |      |             |         | 
|--------------------------- | ----------- |  | --------- |  | -------- | ---- | ----------- | ------- | 
|                            |             |  | Weighted  |  |          |      |             |         | 
|                            |             |  | Average   |  | Weighted |      |             |        
|                            |             |  | Remaining |  | Average  |      |             |        
|                            | Number      |  | Life      |  | Exercise |      | Number      |        
|                            | Outstanding |  | in Years  |  | Price    |      | Exercisable |        
|Range of exercise price:    |             |  |           |  |          |      |             |         | 
|$1.01 to $2.00              | 1,100,000   |  | 9.29      |  | $        | 1.34 |             | 608,772 | 
|$2.01 to $3.00              | 465,000     |  | 6.72      |  | $        | 2.67 |             | 306,316 | 
|$3.01 to $4.00              | 20,000      |  | 4.95      |  | $        | 4.38 |             | 20,000  | 
|                            | 1,585,000   |  |           |  |          |      |             | 935,088 | 

|13. | Private Placement Agent
      On September 14, 2004 the Company engaged J Giordano
        Securities Group (JGSG) as its exclusive agent in the private
        placements of securities of the Company or any of its affiliates in one
        or more related transactions to one or more investors in the form of convertible
        preferred stock, convertible debt securities, equity-linked securities
        or other equity or equity-linked arrangements, including debt securities
        with warrants.
      Upon the consummation of any sale of debt or equity
        securities of the Company in connection with the Private Placements the
        Company will pay JGSG a fee (the Placement Fee) equal
        to 8.0% of the total equity and 6.0% of the total debt consideration received
        by the Company in connection with the Private Placements (the Transaction
        Consideration).
      In addition to the Placement Fee, upon the closing of
        the sale of securities in connection with the Private Placements, the
        Company shall issue to JGSG warrants to purchase the same securities
        of the Company (the Warrants) in an amount equal to 10% of
        the Transaction Consideration to be priced on the same terms as the Investors
        in the Private Placements. The Warrants shall expire five years from the
        date of issuance. The Warrants shall carry the same registration rights
        and anti-dilution provisions as the securities sold in the Private Placements.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|14. | Commitments
      (a) Image license agreements  Image has entered into the following
        license agreements:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

| |  | NHL Enterprises, LP for the license of the National Hockey League
          name and other NHL logos and indicia for use in connection with batteries
          and other battery related products. The license is a non-exclusive license
          for the United States. The license is for a term expiring December 31,
          2004.
        NHL Enterprises Canada, LP for the license of the National Hockey
          League name and other NHL logos and indicia for use in connection with
          batteries and other battery related products in Canada. The license
          is a non-exclusive license for Canada. The license is for a term expiring
          December 31, 2005.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F 17

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IMAGE INNOVATIONS HOLDINGS INC. 
  Notes to Interim Consolidated Financial Statements
  (Unaudited)

As at September 30, 2004

| |  | NFL Properties LLC for the grant of a license to use the National
          Football League mark and other related marks in connection with batteries,
          flashlights with batteries, e-badge with batteries, radios with batteries,
          and universal remote controls with batteries. The license will be limited
          to the United States. The license was for a term expiring March 31,
          2004 and Image has received a letter of intent extending the license
          for a term expiring March 31, 2005.
        Riddell Sports Group. Riddell is the official supplier of Football
          helmets to the NFL and supplies helmets to most football teams of the
          NCAA and the CFL. Under the terms of the agreement Image will manufacture
          and distribute a pocket size AM/FM radio with ear jacks, replicating
          Riddell-style football helmet. The initial term of the agreement is
          for one year with renewal terms up to the year 2005 if certain conditions
          are fulfilled.
        MLB Properties, for the license to use Major league Baseball trademarks,
          service marks, copyright, and trade dress. Under the terms of the agreement
          Image I will manufacture and distribute alkaline batteries, keychain
          flashlights, and cell phone holders all featuring Club Logos. The initial
          term of the agreement is from June 1, 2004 to December 31, 2005 with
          a royalty rate of 11% of net sales.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

| | Image plans to pursue negotiations with further sports leagues and
        sports teams to obtain additional license rights.
      The annual payments for these licenses for the next three years are
        as follow:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2004 | $89,167
|---- | -------
|2005 | 160,833
|2006 | 10,000 

(b) Lease Commitments  The approximate
  future minimum lease under non-cancelable operating leases in effect on September
  30, 2004 are as follows:

|     | Office Space | Equipment
|---- | ------------ | ---------
|2004 | 50,682       | 9,112    
|2005 | 61,752       | 10,402   
|2006 | 61,752       | 8,675    
|2007 | 61,752       | 3,060    
|2008 | 61,752       | 3,060    
|     | 297,690      | 34,309   
|     |              |          

F 18

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IMAGE INNOVATIONS HOLDINGS INC. 
  Notes to Interim Consolidated Financial Statements
  (Unaudited)

As at September 30, 2004

|15. | Significant Customers
      The top five customers for the nine months ended September
        30, 2004 generated 77% of the revenues 38%, 13%, 10%, 8%, and 8% respectively.
        Three of these five customers were top five customers for the three months
        ended September 30, 2004. The top five customers for the three months
        ended September 30, 2004 generated 83% of the revenues 53%, 11%, 8%, 5%,
        5% respectively.
      For the three and nine months ended September 30, 2004
        the Companys revenues were generated by 128 and 120 customers respectively.
        The Companys accounts receivable at September 30, 2004 is represented
        by 101 customers. Two of our top five customers for the months ended September
        30, 2004 represent 69% of our total accounts receivable at September 30,
        2004.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F 19

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IMAGE INNOVATIONS HOLDINGS INC. 
  Notes to Interim Consolidated Financial Statements
  (Unaudited)

As at September 30, 2004

|16. | Income Taxes
      Income taxes are provided for the tax effects of transactions
        reported in the financial statements, and consist of taxes currently due
        plus deferred taxes related to differences between the financial statement
        and tax bases of assets and liabilities for financial statement and income
        tax reporting purposes. Deferred tax assets and liabilities represent
        the future tax return consequences of these temporary differences, which
        will either be taxable or deductible in the year when the assets or liabilities
        are recovered or settled. Accordingly, measurement of the deferred tax
        assets and liabilities attributable to the book-tax basis differentials
        are computed at a rate of 34% federal 6% state.
      As of September 30, 2004, the Company had deferred tax
        assets of approximately $580,272 resulting from temporary differences
        and net operating loss carry-forwards of approximately $1,600,000, which
        are available to offset future taxable income, if any, through 2018. As
        utilization of the net operating loss carry-forwards and temporary difference
        is not assured, the deferred tax asset has been fully reserved through
        the recording of a 100% valuation allowance.
      The tax effects of temporary differences, loss carry-forwards
        and the valuation allowance that give rise to deferred income tax assets
        at September 30, 2004 are as follows:
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Temporary differences:                                       |   |          |  
|------------------------------------------------------------ | - | -------- | -
|                                                             |   |          |  
|Fair value of warrants and common stock                      | $ | 2,000    |  
|Net operating losses                                         |   | 378,000  |  
|Less valuation allowance                                     |   | (380,000 | )
|Deferred tax assets                                          | $ | -        |  
|                                                             |   |          |  
|The reconciliation of the effective income tax rate
      to |   |          |  
|the federal statutory rate for the years ended               |   |          |  
|September 30, 2004 and 2003 is as follows:                   |   |          |  
|                                                             |   |          |  
|Federal income tax rate                                      |   | -38      | %
|Change in valuation allowance on net operating               |   |          |  
|carry-forwards                                               |   | 38       | %
|Effective income tax rate:                                   |   | 0        | %
|                                                             |   |          |  

|17. | Related Party Transactions
      H.E Capital who has been a major source of funding for
        the Company was a related party prior to February 24, 2004 when common
        officers and directors of both companies resigned their positions with
        the Company. While related to the Company H.E. Capitals transactions
        with the Company consisted of advancing funds under the loan agreement
        described in Note 7 and purchasing common shares and warrants described
        in Notes 7 and 8.
      The Company had no other related party transactions.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F 20

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IMAGE INNOVATIONS HOLDINGS INC. 
  Notes to Interim Consolidated Financial Statements
  (Unaudited)

As at September 30, 2004

|18. | Consolidated Segment Data
      The Companys reportable segments are wholly owned subsidiaries
        that operate and are managed separately. The Sports & Entertainment
        subsidiary was created in January 2004 so there is no comparative data
        for 2003.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                      | September 30, 2004 |  
|------------------------------------- | ------------------ | -
|                                      | nine months        |  
|Revenue Image Sports & Entertainment  | 2,943,823          |  
|Revenue Image                         | 273,333            |  
|                                      |                    |  
|Total Revenues                        | 3,217,156          |  
|GM Image Sports & Entertainment       | 1,634,579          |  
|GM% Image Sports & Entertainment      | 56                 | %
|GM Image                              | 106,639            |  
|GM% Image                             | 39                 | %
|                                      |                    |  
|Total Gross Margin - GM               | 1,741,218          |  
|GM%                                   | 54                 | %
|Expenses Image Sports & Entertainment | 734,662            |  
|Expenses Image                        | 842,554            |  
|Expenses Image Holdings               | 1,072,340          |  
|                                      |                    |  
|Total Expenses                        | 2,649,556          |  
|                                      |                    |  

F 21

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|ITEM 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
|------- | ----------------------------------------------------------

FORWARD-LOOKING STATEMENTS

The information in this Quarterly Report on Form 10-QSB 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. These forward-looking statements involve risks and uncertainties,
  including statements regarding Image Innovations Holdings' capital needs, business
  plans and expectations. Forward-looking statements are made, without limitation,
  in relation to operating plans, business development, availability of funds
  and operating costs. Any statements contained herein that are not statements
  of historical facts may be deemed to be forward-looking statements. In some
  cases, you can identify forward-looking statements by terminology such as "may",
  "will", "should", "expect", "plan", "intend", "anticipate", "believe", "estimate",
  "predict", "potential" or "continue", the negative of such terms or other comparable
  terminology. Actual events or results may differ materially. In evaluating these
  statements, you should consider various factors, including the risks outlined
  below, and, from time to time, in other reports Image Innovations Holdings files
  with the SEC, including Image Innovations Holdings' Annual Report on Form 10-KSB
  for the year ended December 31, 2003 and subsequent Quarterly Reports on Form
  10-QSB and Current Reports on Form 8-K. These factors may cause Image Innovations
  Holdings' actual results to differ materially from any forward-looking statement.
  Image Innovations Holdings disclaims any obligation to publicly update these
  statements, or disclose any difference between its actual results and those
  reflected in these statements. The information constitutes forward-looking statements
  within the meaning of the Private Securities Litigation Reform Act of 1995.
  Given these uncertainties, readers are cautioned not to place undue reliance
  on such forward-looking statements.

OVERVIEW

Image Innovations Holdings Inc., formerly Busanda Explorations
  Inc. ("We", "Image Innovations Holdings" or the "Company"), is a Nevada corporation
  who's shares are publicly traded on the OTC Bulletin Board (symbol IMGV). The
  Company has three subsidiaries, Image Innovations, Inc., Image Innovations Sports
  & Entertainment Inc. and Imaging Innovations Sports and Entertainment, Inc.
  (collectively, the "Image Innovations Group of Companies"). The Image Innovations
  Group of Companies is in the business of selling sports and celebrity artwork
  and collectibles and promotional items branded with licensed logos for professional
  sport leagues and teams.

Effective June 30, 2003, the Company completed the acquisition
  of all of the issued and outstanding shares of Image Innovations Inc., a Delaware
  corporation ("Image Innovations"). Image Innovations was incorporated on January
  14, 2003 to engage in the business of promotional licensing and branding with
  the objective of adding value to a wide variety of relatively low cost, but
  desirable products, by endorsing them with the brand logos of sports teams and/or
  other recognized trademarks.

Image Innovations Sports & Entertainment Inc. ("Image
  Sports & Entertainment") was incorporated under the laws of the State of
  Delaware on January 20, 2004 as the Company's wholly owned subsidiary. Image
  Sports & Entertainment acquired all of the celebrity image memorabilia inventory
  owned by MDK Sports & Entertainment Inc. ("MDK Sports") on March 4, 2004.
  The acquisition of assets was completed pursuant to an asset purchase agreement
  dated March 4, 2004 between the Company, Image Sports & Entertainment and
  MDK Sports.

ACQUISITION OF IMAGE INNOVATIONS

We completed the acquisition of all of the issued and outstanding
  shares of Image Innovations effective June 30, 2003 pursuant to offers made
  by us dated June 23, 2003 to all the shareholders of Image Innovations to purchase
  their shares in exchange for an aggregate of 10,000,000 shares of our common
  stock on the basis of 10,000 shares for each outstanding share of Image Innovations.
  It was a condition precedent of closing that all shareholders of Image Innovations
  accept our offer and that audited financial statements of Image Innovations
  had been delivered to us. We issued 10,000,000 shares of our common stock to
  the existing shareholders of Image Innovations in consideration of the transfer
  by the existing shareholders of all

3

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of their shares of Image Innovations to us. As a result of
  this transaction, Image Innovations became a wholly owned subsidiary of Image
  Innovations Holdings.

IMAGE SPORTS & ENTERTAINMENT

Image Sports & Entertainment was incorporated under the
  laws of the State of Delaware on January 20, 2004 as the Company's wholly owned
  subsidiary. Image Sports & Entertainment acquired all of the celebrity image
  memorabilia inventory owned by MDK Sports during the Company's first quarter
  of 2004. The acquisition of assets was completed pursuant to an asset purchase
  agreement dated March 4, 2004 between the Company, Image Sports & Entertainment
  and MDK Sports (the "Asset Purchase Agreement"). As consideration for the sale,
  transfer and assignment of certain assets by MDK Sports to Image Sports &
  Entertainment, the Company issued to MDK Sports an aggregate of 4,000,000 restricted
  shares of the Company's common stock on closing.

The Company also agreed to deliver to MDK Sports the following
  additional shares of our common stock upon achievement of the milestones set
  forth below, provided that no shares will be issuable in the event that the
  milestone is not achieved for whatever reason:

| | (a) | an aggregate of 2,500,000
        shares of the Company common stock will be issued to MDK Sports in the
        event that each of the conditions listed below are met:                                                                                                      
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                               
| |     | (i)                                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                               
| |     | (ii)                                                                                                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                               
| | (b) | an aggregate of 1,500,000
        shares of the Company's common stock will be issued to MDK Sports in the
        event that a Trademark License Agreement is made by and among Tony Stewart's
        Race team and Tony Stewart's Sponsor and Image Sports & Entertainment.

On September 30, 2004 the Company, Image Sports & Entertainment
  and MDK Sports reached an agreement that the additional shares issuable under
  the Asset Purchase Agreement would not be issued and that the Company and Image
  Sports & Entertainment would have no further obligations to MDK Sports under
  such Agreement.

The inventory of MDK Sports acquired by Image Sports &
  Entertainment consists of over 22,000 pieces of collectible sports memorabilia
  and fine art. Certain members of the management of MDK Sports have become employees
  of Image Sports & Entertainment. Image Sports & Entertainment believes
  that these employees bring knowledge of the industry and contacts to distribution
  channels of value to Image Sports & Entertainment and in the rest of the
  Image Innovations Group of Companies.

IMAGING INNOVATIONS SPORTS AND ENTERTAINMENT, INC.

Imaging Innovations Sports and Entertainment, Inc. ("Imaging")
  was incorporated under the laws of the State of New York on August 13, 2004
  as our wholly owned subsidiary. On September 9, 2004, Imaging acquired a 8,625
  square foot warehouse and storage facility in Tannersville, New York. located
  near Image Sports & Entertainment's existing facility in Tannersville.

PLAN OF OPERATIONS

We anticipate that we will require approximately $7 million
  of funding over the next fifteen months in order to carry out the plan of operations
  for the Image Innovations Group of Companies. In addition the Company is looking
  for suitable acquisitions limited to $50 million for vertical and/or horizontal
  integration. The Company will require funding to complete any acquisition.

4

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The required funding for operations is comprised of the following
  amounts:

|1. | We anticipate that we will spend approximately $6.5
        million to fund the acquisition of additional inventory for both our operating
        subsidiaries Image Innovations and Image Sports & Entertainment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | For Image Innovations, we anticipate that we will
        continue to develop new products under our existing licenses and acquire
        new licences. We anticipate that we will continue to produce our products
        in China. The amount that we spend to maintain our inventory will be dependent
        both on the amount of financing that we are able to achieve and upon our
        success in establishing certain sales levels for our products.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | For Image Sports & Entertainment we anticipate
        the creation of additional celebrity art creations. We anticipate that
        we will increase our inventory of sports memorabilia from present levels
        as opportunities to acquire and/or create unique memorabilia present themselves.
        In addition we will build our inventory of celebrity art creations. Our
        celebrity art inventory is created by our artists and includes limited
        edition fine art prints and posters signed by both the celebrity and artist.
        The cost of the inventory created by Image Sports & Entertainment
        includes the cost of creating the original art, the cost of creating or
        purchasing limited edition prints and the fees paid the celebrities to
        endorse the art creations. The cost of creating memorabilia includes the
        cost of purchasing the unsigned memorabilia and the fees paid the celebrities
        to endorse them. Our ability to acquire additional inventory for our Image
        Sports & Entertainment business will be contingent upon the amount
        of financing that we are able to obtain and our ability to secure economic
        contracts with celebrities to endorse them.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|2. | We anticipate that we will require approximately
        $5.2 million in additional working capital, excluding inventory, primarily
        to fund accounts receivable from our customers. We anticipate that we
        will be required to provide our customers between approximately 45 
        60 days credit.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|3. | We will require $800,000 to repay a promissory note.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|4. | We require approximately $300,000 to complete the
        refurbishing of our warehouse located in Tannersville, New York and to
        fund the purchase of office furniture and equipment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|5. | We anticipate that we will generate approximately
        $6 million from operations to contribute to our required funding. We anticipate
        our overhead expenses which are currently approximately $350,000 per month
        will increase as we introduce new products and increase our revenues.
        If we achieve less than the necessary financing or if our sales are less
        than projected, then we will scale back our overhead expenses accordingly.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

We anticipate the majority of the expenditures described above
  will be incurred over the next six months, provided that they may be accelerated
  if we achieve the necessary financing. We are pursuing both debt and equity
  financing in order to proceed with the plan of operations for Image Innovations
  and Image Sports & Entertainment. We have arranged financing with Coach
  Capital LLC and H.E Capital S.A. as described below, and continue to pursue
  other financing opportunities. However, there is no assurance that the necessary
  financing will be achieved. Accordingly, there is a risk that we will not achieve
  additional financing and that we will have to scale back the plan of operations
  of Image Innovations and Image Sports & Entertainment to reflect the actual
  finance available to us. While H.E. Capital S.A. has provided loans to fund
  our initial business operations, there is no assurance that H.E. Capital S.A.
  will provide further funds to enable us to continue to fund our plan of operations.
  If we are not able to achieve the necessary financing, then our ability to complete
  our plan of operations will be impaired and our business and financial condition
  will be adversely affected. Should we be unable to raise all required funding,
  we would adjust the operations by reducing the inventory levels and delaying
  the refurbishing of the warehouse.

PRESENTATION OF FINANCIAL INFORMATION

As discussed above, we completed the acquisition of Image
  Innovations effective June 30, 2003. Under accounting principles generally accepted
  in the United States ("GAAP"), our financial statements have been prepared using
  reverse-acquisition accounting principles, which resulted in Image Innovations
  acquiring Image Innovations Holdings for accounting purposes. Accordingly, Image
  Innovations is treated as the

5

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acquirer for accounting purposes, even though Image Innovations
  Holdings is the legal acquirer. Under GAAP, comparative figures for prior periods
  are based on the operating results of Image Innovations, but the type of share
  capital and number of issued and outstanding shares continue to reflect those
  of Image Innovations Holdings. Image Innovations was incorporated on January
  14, 2003.

OPERATING RESULTS

Our Consolidated Statement of Operations and Consolidated
  Statement of Cash Flows included in this Quarterly Report on Form 10-QSB provide
  comparative financial information for the results of our operations for the
  nine months from January 1, 2004 to September 30, 2004 to our results of operations
  for the period from January 14, 2003, being the date of incorporation of Image
  Innovations, to September 30, 2003. Our operating results for the nine months
  and three months ended September 30, 2004 include the results of operations
  of our Image Sports & Entertainment business commencing in March 2004.

RevenuesOur revenues, gross margins and overhead expenses for the nine months and
  three months ended September 30, 2004 are summarized as follows:

|                                      | September 30, 2004 |  
|------------------------------------- | ------------------ | -
|                                      | nine months        |  
|Revenue Image Sports & Entertainment  | 2,943,823          |  
|Revenue Image                         | 273,333            |  
|                                      |                    |  
|Total Revenues                        | 3,217,156          |  
|GM Image Sports & Entertainment       | 1,634,579          |  
|GM% Image Sports & Entertainment      | 56                 | %
|GM Image                              | 106,639            |  
|GM% Image                             | 39                 | %
|                                      |                    |  
|Total Gross Margin - GM               | 1,741,218          |  
|GM%                                   | 54                 | %
|Expenses Image Sports & Entertainment | 734,662            |  
|Expenses Image                        | 842,554            |  
|Expenses Image Holdings               | 1,072,340          |  
|                                      |                    |  
|Total Expenses                        | 2,649,556          |  

The growth in revenues during the third quarter was primarily
  attributable to our Image Sports & Entertainment memorabilia business, which
  commenced operations in March 2004. Sales attributable to our Image Sports &
  Entertainment memorabilia business included (i) sales from limited edition copies
  of celebrity fine art sports memorabilia created by our artists Carlo Beninati
  and Doug London and signed by the celebrity for us; (ii) sales from limited
  edition copies of celebrity fine art sports memorabilia acquired unsigned by
  us for resale and signed by the celebrity; (iii) sales of sports memorabilia
  acquired unsigned by us and signed by celebrities for us; and (iv) sales of
  inventory acquired from MDK Sports.

Our Image Sports & Entertainment sports and entertainment
  memorabilia business continues to develop. Revenues for the quarter were $2,943,823
  (second quarter $712,575) and Gross Margins were $1,264,513 or 61% (second quarter
  $$310,612). Image Sports & Entertainment inventory at September 30, 2004
  was $2,909,585. This inventory consists of approximately $2.6 million for sports
  and entertainment memorabilia inventory acquired in the MDK Sports acquisition
  and additional sports and entertainment memorabilia items created by us that
  we believe can be sold through our distribution channels at a profit. Included
  in inventory are the fine art memorabilia created by our artists. The cost of
  creating this memorabilia includes the cost of

6

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creating the original work of art, appearance and signing
  fees paid to the celebrity and the cost of making the limited edition reproductions.
  Any recurring monthly costs associated with retaining our artists are included
  in overheads. In addition to fine art sports and entertainment memorabilia,
  Image Sports & Entertainment maintains an inventory of sports and entertainment
  memorabilia for resale.

Our Image Innovations licensed products business continues
  to develop. Revenues for the third quarter were $240,697 (second quarter $25,783)
  and the Gross Margin was $85,404 or 35% (second quarter $17,422). Image Innovations
  inventory at September 30, 2004 was $513,441. Image Innovations has built its
  customer base to over 230 customers. Image Innovations develops its own products
  which are manufactured in China and shipped to our warehouse in Tannersville,
  New York. Included in the cost of this inventory are all the costs incurred
  to manufacture and deliver the product to our warehouse. Image Innovations pays
  a percentage of gross sales to its licensors as a royalty for the use of the
  brand name. These royalty payments are included in cost of sales. The cost of
  developing the products are included in overheads.

Expenses
  We incurred expenses totalling $1,015,286 for the quarter compared to second
  quarter $946,618 and $156,344 for the quarter ended September 30, 2003. We incurred
  expenses totalling $2,649,556 for the nine months ended September 30, 2004,
  compared to $350,832 for the period ended September 30, 2003. The increase in
  expenses over 2003 reflects the expansion of our business operations, costs
  associated with the acquisition of the MDK Sports inventory by Image Sports
  & Entertainment and costs associated with the startup of our Image Sports
  & Entertainment and Image Innovations businesses.

Our payroll and consulting expenses increased to $812,556
  during the nine months ended September 30, 2004, compared to $202,186 during
  the period ended September 30, 2003. Our payroll and consulting expenses increased
  to $300,083 during the three months ended September 30, 2004, compared to $89,900
  during the three months ended September 30, 2003. These increases reflect the
  increase in our staff as our business operations have expanded. We presently
  have 18 full-time equivalent employees.

We incurred corporate development expenses in the amount of
  $854,653 during the nine months ended September 30, 2004, of which $234,810
  was incurred during the three months ended September 30, 2004. The $854,653
  in development expenses includes: $297,836 for consultant fees in connection
  with the acquisition by Image Sports & Entertainment assets from MDK Sports;
  $316,582 for three financial consultants who are assisting the Company in developing
  financial information and business strategies; $123,767 for our Advisory Board.
  To enhance the management team's depth and breadth of industry contacts, the
  Company maintains an advisory board consisting of seven well-known individuals
  highly experienced in the industry. The members of the advisory board were appointed
  between February 28 and March 16, 2004 and the Company issued a total of 150,000
  common shares for services to be provided over an eighteen month term by these
  members and their agents. Fees of $68,102 were paid to investor relation and
  public relation companies, and a further $28,651 was incurred for marketing
  events to promote the Company and its products during the unveiling and signing
  of the fine art prints and other memorabilia. The majority of these costs for
  consultant expenses were paid by the Company through the issuance of restricted
  shares of our common stock.

We incurred travel and entertainment expenses of $210,617
  during the nine months ended September 30, 2004, of which $ 87,850 was incurred
  during the three months ended September 30, 2004. Travel expenses were incurred
  in connection with the MDK Sports inventory acquisition completed by Image Sports
  & Entertainment, negotiating our license agreements, attending trade shows,
  establishing and maintaining contacts for our distribution network, visiting
  customers, coordinating and attending the signings of our memorabilia and limited
  edition fine art creations by celebrities and our artists, and traveling between
  our Vancouver office and our offices in Tannersville, NY and New York, NY.

We anticipate that our operating expenses will continue to
  increase as we carry out our plan of operations for the continued growth of
  Image Innovations and Image Sports & Entertainment.

Net Loss
  We achieved net income of $302,418 for the three months ended September 30,
  2004, compared to a net loss of $156,344 for the three months ended September
  30, 2003. We incurred a net loss of $908,338 for the nine months ended September
  30, 2004, compared to a loss of $350,832 for the period ended September 30,
  2003. Our year to date net losses reflect the fact that our business has expanded
  concurrent with our efforts to achieve revenues. This expansion included the
  acquisition of Image Sports & Entertainment assets in our

7

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first quarter which resulted in expenses associated with the
  acquisition, but with minimal revenue attributable to this business during our
  first quarter and modest revenues in the second quarter. Our expenses have increased
  through the start-up phase of our operations as we have expanded our business
  operations with the objective of achieving revenues. The Company achieved positive
  net income for a quarter for the first time during the three months ending September
  30, 2004.

LIQUIDITY AND FINANCIAL CONDITION

We had cash and cash equivalents of $404,291 as of September 30, 2004, compared to $273,111 as of December 31, 2003.

We had working capital of $5,087,889 as of September 30, 2004,
  compared to working capital of $239,928 as of December 31, 2003. The increase
  in working capital is attributed to the following: (i) the acquisition of $3,015,279
  of celebrity image memorabilia inventory owned by MDK Sports in March 2004,
  as described above under the heading "Image Sports & Entertainment"; (ii)
  retirement of $1,300,000 in debt owed by the Company to H.E. Capital in exchange
  for 266,667 units at $1.50 per unit consisting of one common share and one warrants
  to purchase the Company's common stock for $2.00 and H.E. Capital exercising
  600,000 warrants to purchase 600,000 common shares of the Company at $1.50;
  (iii) the issuance of common shares for service valued at $1,166,020; and (iv)
  common shares issued for $275,000 cash; offset by (v) the year to date operating
  losses of $908,338.

Inventory
  Our inventory increased to $ 3,423,026 as of September 30, 2004 from $nil as
  of December 31, 2003 as a result of the acquisition of the $2,909,585 sports
  and entertainment memorabilia inventory of MDK Sports and the building of additional
  inventory in Image Sports & Entertainment and Image Innovations as part
  of the Company's start-up of operations.

Accounts Receivable 
  Our accounts receivable increased to $ 2,340,831 as of September 30, 2004 from
  $nil as of December 31, 2003 as a result of sales completed primarily during
  the three months ended September 30, 2004. Accounts receivable as of September
  30, 2004 represented approximately 73% of sales during the first nine months
  of our fiscal year. 58% of our receivables are less than 60 days old. Management
  has reviewed each account over 60 days old and considers these amounts to be
  collectible.

Cash FlowsWe used cash of $895,543 in operating activities during the nine months
  ended September 30, 2004, compared to $545,418 for the period ended September
  30, 2003.

We used cash of $376,240 in investing activities during the
  nine months ended September 30, 2004, compared to $8,556 for the period ended
  September 30, 2003. The Company purchased a warehouse for $300,000 and spent
  an additional $53,790 to install shelving and an alarm system and to purchase
  equipment required to adapt it for our operations.

Cash used in operating and investing activities was offset
  by cash of $1,402,963 provided by financing activities that resulted from (i)
  a private placement of shares and share purchase warrants for cash of $275,000
  during our first quarter; (ii) the advance by H.E. Capital of $327,963 during
  our second quarter and (iii) a loan of $800,000 from Coach Capital during our
  second quarter. We anticipate we will continue to use cash in our operating
  activities for the current fiscal year as we implement our plan of operations.

Loan Agreement
  We entered into a loan agreement dated April 27, 2004 with Coach Capital LLC
  (the "Loan Agreement") during our second quarter whereby we borrowed $800,000
  for a six month term. Under the Loan Agreement, we have agreed to pay interest
  on the principal amount borrowed at the rate of 10% per annum payable monthly
  for the first four months of the term and at the rate of 18% per annum thereafter.
  We also agreed to pay a loan fee of $8,000. Further, we have agreed to grant
  a first charge against our assets and undertaking as well as the assets and
  undertaking of Image Sports & Entertainment, and have agreed not to grant
  any additional charges against such assets and undertaking without the prior
  written consent of Coach Capital LLC.

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H.E. Capital
  We have been largely dependent upon H.E. Capital S.A. ("H.E. Capital") in order
  to fund the business of the Company to date. H.E. Capital entered into a loan
  agreement with the Company dated January 14, 2003 ("the Loan Agreement") and
  has since entered into various agreements amending and increasing the amount
  available to be advanced under Loan Agreement to $5 million. Under the terms
  of the loan agreement the loans accrued interest at the rate of 9% per annum
  and are repayable upon demand. The loans were secured by a general security
  agreement granted by the Company against all of its assets.

As of September 30, 2004 H.E. Capital had advances $1,085,716
  to the Company compared to $175,704 at December 31, 2003. An aggregate of $900,000
  of advances from H.E. Capital was converted into shares and share purchase warrants
  effective December 29, 2003. H.E. Capital agreed to cancel, surrender and forgive
  all interest accrued on the indebtedness of $900,000 that was converted into
  shares and share purchase warrants. On March 25, 2004, we repaid a further $400,000
  owing to H.E. Capital at that time by the issuance of shares and share purchase
  warrants. H.E. Capital agreed to cancel, surrender and forgive all interest
  accrued on the indebtedness of $400,000 that was converted into shares and share
  purchase warrants. On September 30, 2004, we repaid $900,000 owing to H.E. Capital
  when H.E Capital exercised 600,000 of the warrants they acquired in December
  2003, to purchase common shares at $1.50. H.E. Capital agreed to cancel, surrender
  and forgive all interest accrued on this indebtedness of $900,000 in payment
  of the balance owed in relation to the exercise of the 600,000 warrants.

H.E. Capital shared common officers and directors with the
  Company from the date of the acquisition of Image Innovations Inc. until they
  resigned their positions with the Company on February 24, 2004.

There is no assurance that H.E. Capital will advance any additional
  amounts to us in order to continue to fund our business or that they will not
  demand repayment.

Licensing Commitments
  Image has entered into the following license agreements:

| | NHL Enterprises, LP for the license of the National
        Hockey League name and other NHL logos and indicia for use in connection
        with batteries and other battery related products. The license is a non-exclusive
        license for the United States. The license is for a term expiring December
        31, 2004.                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | NHL Enterprises Canada, LP for the license of the
        National Hockey League name and other NHL logos and indicia for use in
        connection with batteries and other battery related products in Canada.
        The license is a non-exclusive license for Canada. The license is for
        a term expiring December 31, 2005.                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | NFL Properties LLC for the grant of a license to
        use the National Football League mark and other related marks in connection
        with batteries, flashlights with batteries, e-badge with batteries, radios
        with batteries, and universal remote controls with batteries. The license
        will be limited to the United States. The license was for a term expiring
        March 31, 2004 and Image has received a letter of intent extending the
        license for a term expiring March 31, 2005.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | Riddell Sports Group. Riddell is the official supplier
        of Football helmets to the NFL and supplies helmets to most football teams
        of the NCAA and the CFL. Under the terms of the agreement Image will manufacture
        and distribute a pocket size AM/FM radio with ear jacks, replicating Riddell-style
        football helmet. The initial term of the agreement is for one year with
        renewal terms up to the year 2005 if certain conditions are fulfilled.                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | MLB Properties, for the license to use Major league
        Baseball trademarks, service marks, copyright, and trade dress. Under
        the terms of the agreement Image I will manufacture and distribute alkaline
        batteries, keychain flashlights, and cell phone holders all featuring
        Club Logos. The initial term of the agreement is from June 1, 2004 to
        December 31, 2005 with a royalty rate of 11% of net sales.                                                                          

Image plans to pursue negotiations with further sports leagues
  and sports teams to obtain additional license rights.

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Requirement of Additional Financing to fund Plan of OperationsAs described in the section entitled Plan of Operations, we anticipate that
  we will require approximately $7 million over the next fifteen months in order
  to carry out the plan of operations for the Image Innovations Group of Companies.
  Our ability to generate revenues will depend on our ability to obtain financing
  to fund our plan of operations and our success in implementing our plan of operations.
  We have no arrangement for the financing of the business of the Company and/or
  its wholly owned subsidiaries and there is no assurance that the required financing
  will be obtained. There is no assurance that we will be able to obtain the financing
  required to enable us to carry out our plan of operations. If any financing
  is achieved, then it is anticipated that existing shareholders will suffer dilution.

We plan to pursue financings through debt and or private placements
  of our common stock or common stock and share purchase warrants in order to
  raise the funds necessary to enable us to pursue our plan of operations for
  the next fifteen months.

CRITICAL ACCOUNTING POLICIES

Revenue and Cost Recognition 
  Revenue on product sales is recognized when persuasive evidence of an arrangement
  exists, such as when a purchase order or contract is received from the customer;
  the price is fixed; title to the goods has passed; and there is a reasonable
  assurance of collection of the sales proceeds. We obtain purchase authorizations
  from our customers for a specified amount of product at a specified price and
  consider title to have passed at the time of shipment. Revenue is recognized
  on shipment to the extent there is a reasonable assurance of collection.

Inventory 
  Inventory is valued at the lower of cost or net realizable value and is determined
  on the first-in, first-out method.

Property and Equipment 
  Property and equipment is recorded at cost. Depreciation and amortization of
  property and equipment is provided for by the straight-line method over the
  estimated useful lives of the respective assets. The estimated useful lives
  of furniture and fixtures, office equipment and machinery and equipment are
  six years. Computer equipment is depreciated over four years and software is
  depreciated over two years. Leasehold improvements are depreciated over the
  remaining lives of the leases.

Income Taxes 
  The Company accounts for income taxes in accordance with the "liability method"
  of accounting for income taxes. Accordingly, deferred tax assets and liabilities
  are determined based on the difference between the financial statement and tax
  bases of assets and liabilities, using enacted tax rates in effect for the year
  in which the differences are expected to reverse. Current income taxes are based
  on the respective periods' taxable income for federal, state and city income
  tax reporting purposes.

Stock-based Compensation 
  In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
  Compensation-Transition and Disclosure, an amendment of FASB Statement No. 123."
  SFAS No. 148 Statement No. 123, "Accounting for Stock-Based Compensation," to
  provide alternative methods of transactions for an entity that chooses to change
  to the fair-value-based method of accounting for stock-based employee compensation.
  It also amends the disclosure provisions of that statement to require prominent
  disclosure about the effects that accounting for stock-based employee compensation
  using the fair-value-based method would have on reported net income and earnings
  per share and to require prominent disclosure about the entity's accounting
  policy decisions with respect to stock-based employee compensation. Certain
  of the disclosure requirements are required for all companies, regardless of
  whether the fair value method or intrinsic value method is used to account for
  stock-based compensation arrangements. The amendments to SFAS No. 123 are effective
  for financial statements for fiscal years ended after December 15, 2002 and
  for interim periods beginning after December 15, 2002.

The Company accounts for its employee incentive stock option
  plans using the intrinsic value method in accordance with the recognition and
  measurement principles of Accounting Principles Board Opinion No. 25,

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"Accounting for Stock Issued to Employees," as permitted by
  SFAS No. 123. The adoption of the disclosure requirements of SFAS No. 148 did
  not have a material effect on the Company's financial position or results of
  operations.

Had the Company determined compensation expense based on the
  fair value at the grant dates for those awards consistent with the method of
  SFAS 123, the Company would have a decrease in net income per share for the
  three months ended September 30, 2004, and the Company's net loss per share
  would have been increased for the nine months ended September 30, 2004 as follows:

|                                                                 |   | Three Months |   |   | Nine Months |  
|---------------------------------------------------------------- | - | ------------ | - | - | ----------- | -
|Net Income (loss) for the period                                 |   | 302,418      |   |   | (908,338    | )
|Deduct total stock based employee compensation expense           |   |              |   |   |             |  
|determined under fair value based methods for all
      awards   |   | (114,633     | ) |   | (483,802    | )
|Pro forma net income/(loss)                                      |   | 187,785      |   |   | (1,392,140  | )
|Basic and diluted net earings/(loss) per share as
      reported | $ | 0.01         |   | $ | (0.04       | )
|Pro forma basic and diluted net loss per share                   | $ | 0.01         |   | $ | (0.06       | )




The fair market value of each option grant is estimated at
  the date of grant using the Black-Scholes option-pricing model with the following
  weighted-average assumptions:

| | Dividend yield          | 0.00%         | 
| | ----------------------- | ------------- | 
| | Expected volatility     | 50.00%        | 
| | Risk-free interest rate | 2.74 to 3.84% | 
| | Expected life           | 5 years       | 

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 the 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.

Foreign Exchange 
  Assets and liabilities of the Company, which are denominated in foreign currencies,
  are translated at exchange rates prevailing at the balance sheet date. Non-monetary
  assets and liabilities are translated at historical rates. Revenues and expenses
  are translated at average rates throughout the year.

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|ITEM 3. | CONTROLS AND PROCEDURES.
|------- | ------------------------

Under the supervision and with the participation of our management,
  including our Chief Executive Officer and Chief Financial Officer, we conducted
  an evaluation of the effectiveness of the design and operation of our disclosure
  controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
  Securities Exchange Act of 1934) as of the end of the period covered by this
  report (the "Evaluation Date"). Based on this evaluation, our Chief Executive
  Officer and Chief Financial Officer concluded as of the Evaluation Date that
  our disclosure controls and procedures were effective such that the information
  relating to the Company required to be disclosed in our SEC reports (i) is recorded,
  processed, summarized and reported within the time periods specified in SEC
  rules and forms, and (ii) is accumulated and communicated to our management,
  including its Chief Executive Officer and Chief Financial Officer, as appropriate
  to allow timely decisions regarding required disclosure.

PART II--OTHER INFORMATION

|ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|------- | -----------------------------------------------------------

We completed the following sales of securities without registration pursuant
  to the Securities Act of 1933, as amended (the "Act") during our fiscal quarter
  ended September 30, 2004:

|1. | On August 25, 2004, we issued two warrants to purchase
        100,000 shares of our common stock to Aries Equity Corp. Under the terms
        of one warrant, 100,000 shares of our common stock may be purchased for
        an exercise price of $5.14 per share. Under the terms of the second warrant,
        100,000 shares of our common stock may be purchased for an exercise price
        of $5.17 per share. Both warrants expire on August 25, 2009. The warrants
        were issued in consideration of financial consulting services to be provided
        by Aries Equity Corp. over the next 12 months. The warrants were issued
        pursuant to an exemption from registration under Section 4(2) of the Act.                                                                                                                                                                                                                                                                                                      
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|2. | On September 30, 2004, we issued 600,000 shares of
        our common stock to H.E. Capital S.A. The shares were issued upon exercise
        of 600,000 warrants held by H.E. Capital S.A. The warrants were granted
        in accordance with the Subscription Agreement between H.E. Capital S.A.
        and us, dated as of December 29, 2003, in which H.E. Capital S.A. subscribed
        for 1,200,000 units. Each unit consisted of one share of our common stock
        and one two-year warrant to purchase one share of our common stock at
        an exercise price of $1.50 per share. In lieu of tendering payment of
        $900,000 upon exercise of the warrant, H.E. Capital S.A. agreed to cancel
        and forgive $900,000 we owed to it pursuant to the Loan Agreement between
        H.E. Capital S.A. and us, dated as of September 30, 2004. The units were
        issued and the warrants were exercised pursuant to an exemption from registration
        under Regulation S promulgated under the Act.

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|ITEM 6. | EXHIBITS
|------- | --------

|Exhibit Number |  |                                                                                             
|-------------- |  | --------------------------------------------------------------------------------------------
|31.1           |  | Certification of Chief Executive
      Officer required by Rule 13a-14(a) or Rule 15d-14(a).
|31.2           |  | Certification of Chief Financial
      Officer required by Rule 13a-14(a) or Rule 15d-14(a).
|32.1           |  | Certification of Chief Executive
      Officer required by Rule 13a-14(b) or 18 U.S.C. 1350.
|32.2           |  | Certification
      of Chief Financial Officer required by Rule 13a-14(b) or 18 U.S.C. 1350.

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SIGNATURES

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

IMAGE INNOVATIONS HOLDINGS INC.



|Date: | November 15, 2004      
|----- | -----------------------
|      |                        
|By:   | /s/ Alain Kardos       
|      |                        
|      | ALAIN KARDOS           
|      | Chief Executive Officer
|      |                        
|By:   | /s/ Derick Sinclair    
|      |                        
|      | DERICK SINCLAIR        
|      | Chief Financial Officer

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