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**UNITED STATESSECURITIES AND EXCHANGE COMMISSION** Washington, D.C. 20549

FORM 10-QSB

**x******Quarterly
  Report under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended JUNE 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
  (Former name, former address and former fiscal year, if changed since last report)

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: 24,310,000 Shares of $0.001 par value Common Stock outstanding
  as of 
  June 30, 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.(A development stage enterprise)Interim Consolidated Balance Sheet 
  (Unaudited)

|                                                            |   | June 30    |   |   | December 31 |  
|----------------------------------------------------------- | - | ---------- | - | - | ----------- | -
|                                                            |   | 2004       |   |   | 2003        |  
|ASSETS                                                      |   |            |   |   |             |  
|                                                            |   |            |   |   |             |  
|Current Assets                                              |   |            |   |   |             |  
|Cash                                                        | $ | 71,188     |   | $ | 273,111     |  
|Accounts receivable trade                                   |   | 753,673    |   |   | -           |  
|Amounts receivable from tax authorities                     |   | 28,090     |   |   | 12,000      |  
|Inventory                                                   |   | 3,292,629  |   |   | -           |  
|Deposits & Prepaid
      expenses                           |   | 671,267    |   |   | 135,554     |  
|Total current assets                                        |   | 4,816,847  |   |   | 420,665     |  
|                                                            |   |            |   |   |             |  
|Equipment (Note 5)                                          |   | 67,312     |   |   | 17,317      |  
|                                                            |   |            |   |   |             |  
|Total Assets                                                | $ | 4,884,159  |   | $ | 437,982     |  
|                                                           
|LIABILITIES AND SHAREHOLDERS' EQUITY                        |   |            |   |   |             |  
|                                                            |   |            |   |   |             |  
|Current Liabilities                                         |   |            |   |   |             |  
|Accounts Payable                                            | $ | 275,335    |   | $ | 22,350      |  
|Promissory Note (Note 6)                                    |   | 800,000    |   |   | -           |  
|Demand loan H.E. Capital
      S.A. (Note 7)                |   | 336,897    |   |   | 175,704     |  
|                                                            |   |            |   |   |             |  
|Total current liabilities                                   |   | 1,412,232  |   |   | 198,054     |  
|                                                            |   |            |   |   |             |  
|Commitments (note 9)                                        |   |            |   |   |             |  
|                                                           
|Stockholders' Equity                                        |   |            |   |   |             |  
|Common Stock (note 8)                                       |   | 24,310     |   |   | 19,370      |  
|50,000,000
      authorized shares, par value $.001         |   |            |   |   |             |  
|24,310,000
      shares issued and outstanding              |   |            |   |   |             |  
|1,650,000
      share warrants issued and outstanding       |   |            |   |   |             |  
|                                                            |   |            |   |   |             |  
|Preferred Stock                                             |   | -          |   |   | -           |  
|1,000,000
      authorized preferred shares, par value $.01 |   |            |   |   |             |  
|Nil shares issued and outstanding                           |   |            |   |   |             |  
|Additional Paid in Capital                                  |   | 5,297,067  |   |   | 859,253     |  
|                                                            |   |            |   |   |             |  
|Accumulated Deficit                                         |   | (1,849,450 | ) |   | (638,695    | )
|                                                            |   |            |   |   |             |  
|Total stockholders'
      equity                            |   | 3,471,927  |   |   | 239,928     |  
|                                                            |   |            |   |   |             |  
|Total liabilities and equity                                | $ | 4,884,159  |   | $ | 437,982     |  

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

F-1

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IMAGE INNOVATIONS HOLDINGS INC.(A development stage enterprise)Interim Consolidated Statement of Operations(Unaudited)

|                                            |   | Three Months   |   | Three Months   |          |   |  | Six Months     |            |   | Period From            |          |   |  | Period From            |           
|------------------------------------------- | - | -------------- | - | -------------- | -------- | - |  | -------------- | ---------- | - | ---------------------- | -------- | - |  | ---------------------- | ----------
|                                            |   | Ended June 30, |   | Ended June 30, |          |   |  | Ended June 30, |            |   | January 14, 2003       |          |   |  | January 14, 2003       |           
|                                            |   | 2004           |   | 2003           |          |   |  | 2004           |            |   | to June
      30, 2003 |          |   |  | to June
      30, 2004 |           
|                                           
|Revenues:                                   |   |                |   |                |          |   |  |                |            |   |                        |          |   |  |                        |           
|Revenues                                    | $ | 738,358        |   | $              | -        |   |  | $              | 919,326    |   | $                      | -        |   |  | $                      | 1,024,485 
|                                           
|                                            |   | 738,358        |   |                | -        |   |  |                | 919,326    |   |                        | -        |   |  |                        | 1,024,485 
|                                           
|Cost of sales                               |   | 410,313        |   |                | -        |   |  |                | 528,025    |   |                        | -        |   |  |                        | 582,793   
|                                           
|Gross Margin                                |   | 328,045        |   |                | -        |   |  |                | 391,301    |   |                        | -        |   |  |                        | 441,692   
|                                           
|Expenses:                                   |   |                |   |                |          |   |  |                |            |   |                        |          |   |  |                        |           
|Advertising & Marketing                     |   | 12,750         |   |                | -        |   |  |                | 19,127     |   |                        | -        |   |  |                        | 43,529    
|Automobile operating expenses               |   | 8,995          |   |                | -        |   |  |                | 10,795     |   |                        | -        |   |  |                        | 13,557    
|Brokerage                                   |   | 3,460          |   |                | -        |   |  |                | 3,460      |   |                        | -        |   |  |                        | 6,466     
|Contract fees                               |   | -              |   |                | -        |   |  |                | 25         |   |                        | -        |   |  |                        | 25        
|Corporate Development                       |   | 301,703        |   |                | -        |   |  |                | 619,843    |   |                        | -        |   |  |                        | 619,843   
|Depreciation                                |   | 2,409          |   |                | 151      |   |  |                | 3,622      |   |                        | 154      |   |  |                        | 4,964     
|Insurance                                   |   | 21,485         |   |                | 10,284   |   |  |                | 29,506     |   |                        | 10,284   |   |  |                        | 43,318    
|Interest expense                            |   | 14,667         |   |                | -        |   |  |                | 14,667     |   |                        | -        |   |  |                        | 14,667    
|Legal and Audit                             |   | 47,690         |   |                | 750      |   |  |                | 84,904     |   |                        | 1,821    |   |  |                        | 91,259    
|Maintenance & Repairs                       |   | -              |   |                | -        |   |  |                | 1,355      |   |                        | -        |   |  |                        | 1,355     
|Office & General Expenses                   |   | 27,613         |   |                | 21,293   |   |  |                | 38,827     |   |                        | 40,625   |   |  |                        | 83,273    
|Payroll & Consulting                        |   | 355,476        |   |                | 69,244   |   |  |                | 501,803    |   |                        | 112,286  |   |  |                        | 806,135   
|Postage and Courier                         |   | 12,534         |   |                | -        |   |  |                | 18,589     |   |                        | -        |   |  |                        | 18,589    
|Product Delivery & Development              |   | 34,493         |   |                | 11,567   |   |  |                | 55,909     |   |                        | 15,345   |   |  |                        | 104,650   
|Rent and Utilities                          |   | 19,115         |   |                | 6,680    |   |  |                | 26,289     |   |                        | 7,080    |   |  |                        | 46,000    
|Royalties                                   |   | -              |   |                | -        |   |  |                | -          |   |                        | -        |   |  |                        | 125,000   
|Sponsorship                                 |   | 20,000         |   |                | -        |   |  |                | 20,000     |   |                        | -        |   |  |                        | 20,000    
|Telecommunications                          |   | 15,280         |   |                | 3,514    |   |  |                | 19,600     |   |                        | 6,893    |   |  |                        | 31,906    
|Transfer Agent and Filing Fees              |   | 1,523          |   |                | -        |   |  |                | 3,223      |   |                        | -        |   |  |                        | 5,797     
|Travel                                      |   | 56,539         |   |                | -        |   |  |                | 123,085    |   |                        | -        |   |  |                        | 181,533   
|Warehousing                                 |   | 5,551          |   |                | -        |   |  |                | 7,427      |   |                        | -        |   |  |                        | 9,276     
|                                           
|Total Expenses                              |   | 961,283        |   |                | 123,483  |   |  |                | 1,602,056  |   |                        | 194,488  |   |  |                        | 2,271,142 
|                                           
|Net Income before Taxes                     |   | (633,238       | ) |                | (123,483 | ) |  |                | (1,210,755 | ) |                        | (194,488 | ) |  |                        | (1,829,450
|                                           
|Provision for Income Taxes:                 |   |                |   |                |          |   |  |                |            |   |                        |          |   |  |                        |           
|Income Tax                                  |   | -              |   |                | -        |   |  |                | -          |   |                        | -        |   |  |                        | -         
|                                           
|Net Income (Loss)                           | $ | (633,238       | ) | $              | (123,483 | ) |  | $              | (1,210,755 | ) | $                      | (194,488 | ) |  | $                      | (1,829,450
|                                           
|                                           
|Basic and Diluted Earnings Per Common Share | $ | (0.03          | ) | $              | (0.62    | ) |  | $              | (0.05      | ) | $                      | (1.77    | ) |  | $                      | (0.13     
|                                           
|Weighted Average number of Common Shares    |   |                |   |                |          |   |  |                |            |   |                        |          |   |  |                        |           
|used in per share
      calculations        |   | 23,976,209     |   |                | 200,495  |   |  |                | 22,444,643 |   |                        | 109,707  |   |  |                        | 13,937,410

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

F-2

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

|                                           | Number     |   |   | $0.001    |  |   | Additional      |   |   | Accumulated |   |   | Shareholders' |  
|------------------------------------------ | ---------- | - | - | --------- |  | - | --------------- | - | - | ----------- | - | - | ------------- | -
|                                           | of Shares  |   |   | Par Value |  |   | 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 transaction | -          |   |   | -         |  |   | -               |   |   | (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 for consulting services      | 200,000    |   | $ | 200       |  | $ | 202,636         |   | $ | -           |   | $ | 202,836       |  
|Shares issued for payment of debt          | 266,667    |   |   | 267       |  |   | 399,733         |   |   | -           |   |   | 400,000       |  
|Shares issued for cash                     | 183,333    |   |   | 183       |  |   | 274,817         |   |   | -           |   |   | 275,000       |  
|                                          
|Shares issued to acquire Inventory and     |            |   |   |           |  |   |                 |   |   |             |   |   |               |  
|business operations of MDK Sports          | 4,000,000  |   |   | 4,000     |  |   | 3,011,279       |   |   | -           |   |   | 3,015,279     |  
|                                           |            |   |   |           |  |   |                 |   |   |             |   |   |               |  
|Net Income (Loss)                          | -          |   |   | -         |  |   | -               |   |   | (577,517    | ) |   | (577,517      | )
|                                           |            |   |   |           |  |   |                 |   |   |             |   |   |               |  
|Balance March 31, 2004                     | 24,020,000 |   |   | 24,020    |  |   | 4,747,718       |   |   | (1,216,212  | ) |   | 3,555,526     |  
|                                          
|Shares issued for consulting services      | 290,000    |   |   | 290       |  |   | 471,949         |   |   | -           |   |   | 472,239       |  
|Stock Based Compensation                   | -          |   |   | -         |  |   | 77,400          |   |   | -           |   |   | 77,400        |  
|                                           |            |   |   |           |  |   |                 |   |   |             |   |   |               |  
|Net Income (Loss)                          | -          |   |   | -         |  |   | -               |   |   | (633,238    | ) |   | (633,238      | )
|                                           |            |   |   |           |  |   |                 |   |   |             |   |   |               |  
|Balance June 30, 2004                      | 24,310,000 |   | $ | 24,310    |  | $ | 5,297,067       |   | $ | (1,849,450  | ) | $ | 3,471,927     |  

The accompanying notes are integral part of consolidated financial
  statements.

F-3

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IMAGE INNOVATIONS HOLDINGS INC.(A development stage enterprise)Interim Consolidated Statement of Cash Flows
  (Unaudited)

|                                                       | Three Months   |            | Three Months   |      |          |                | Six Months |                  | Period From |                        |                  | Period From |                       
|------------------------------------------------------ | -------------- | ---------- | -------------- | ---- | -------- | -------------- | ---------- | ---------------- | ----------- | ---------------------- | ---------------- | ----------- | ----------------------
|                                                       | Ended June 30, |            | Ended June 30, |      |          | Ended June 30, |            | January 14, 2003 |             |                        | January 14, 2003 |            
|                                                       |                | 2004       |                | 2003 |          |                |            | 2004             |             | to
      June 30, 2003 |                  |             | to
      June 30, 2004
|                                                      
|Operating Activities:                                  |                |            |                |      |          |                |            |                  |             |                        |                  |             |                       
|Net Income (Loss)                                      |                | (633,238   | )              | $    | (123,483 | )              |            | $                | (1,210,755  | )                      | $                | (194,488    | )                     
|Adjustments to reconcile net loss to net cash          |                |            |                |      |          |                |            |                  |             |                        |                  |             |                       
|provided (used) to operating activities:               |                |            |                |      |          |                |            |                  |             |                        |                  |             |                       
|Depreciation                                           |                | 2,409      |                |      | 151      |                |            |                  | 3,622       |                        |                  | 154         |                       
|Stock Based Compensation                               |                | 77,400     |                |      | -        |                |            |                  | 77,400      |                        |                  | -           |                       
|Stock Issued for Corporate
      Development Services  |                | 472,239    |                |      | -        |                |            |                  | 675,075     |                        |                  | -           |                       
|Change
      in non-cash working capital               |                | (1,106,219 | )              |      | (115,762 | )              |            |                  | (1,096,611  | )                      |                  | (134,511    | )                     
|                                                      
|Total Adjustments                                      |                | (554,171   | )              |      | (115,611 | )              |            |                  | (340,514    | )                      |                  | (134,357    | )                     
|                                                      
|Net cash provided/(used) in operating activities       |                | (1,187,409 | )              |      | (239,094 | )              |            |                  | (1,551,269  | )                      |                  | (328,845    | )                     
|                                                      
|                                                      
|Investing Activities:                                  |                |            |                |      |          |                |            |                  |             |                        |                  |             |                       
|Equipment purchases                                    |                | (12,812    | )              |      | (2,913   | )              |            |                  | (53,617     | )                      |                  | (4,635      | )                     
|                                                      
|Net Cash Used in Investing Activities                  |                | (12,812    | )              |      | (2,913   | )              |            |                  | (53,617     | )                      |                  | (4,635      | )                     
|                                                      
|                                                      
|Financing Activities:                                  |                |            |                |      |          |                |            |                  |             |                        |                  |             |                       
|Proceeds from H.E Capital Demand Loan                  |                | 327,963    |                |      | 247,921  |                |            |                  | 327,963     |                        |                  | 351,840     |                       
|Proceeds from Promissory Note                          |                | 800,000    |                |      | -        |                |            |                  | 800,000     |                        |                  | -           |                       
|Advances Payable                                       |                | -          |                |      | 14,623   |                |            |                  | -           |                        |                  | 14,623      |                       
|Proceeds from Issuance of Stock                        |                | -          |                |      | -        |                |            |                  | 275,000     |                        |                  | 1,000       |                       
|                                                      
|Net Cash Provided for Financing Activities             |                | 1,127,963  |                |      | 262,544  |                |            |                  | 1,402,963   |                        |                  | 367,463     |                       
|                                                      
|Net Increase (Decrease) in Cash                        |                | (72,258    | )              |      | 20,537   |                |            |                  | (201,923    | )                      |                  | 33,983      |                       
|                                                      
|Cash Balance, Beginning of Period                      |                | 143,446    |                |      | 13,446   |                |            |                  | 273,111     |                        |                  | -           |                       
|                                                      
|Cash Balance, End of Period                            | $              | 71,188     |                | $    | 33,983   |                |            | $                | 71,188      |                        | $                | 33,983      |                       
|                                                      
|                                                      
|Supplemental Disclosures:                              |                |            |                |      |          |                |            |                  |             |                        |                  |             |                       
|Cash Paid for interest                                 | $              | 14,667     |                | $    | -        |                |            | $                | 14,667      |                        | $                | -           |                       
|Cash Paid for income taxes                             | $              | -          |                | $    | -        |                |            | $                | -           |                        | $                | -           |                       
|Non-cash transactions                                  |                |            |                |      |          |                |            |                  |             |                        |                  |             |                       
|Stock Based Compensation                               | $              | 77,400     |                | $    | -        |                |            | $                | 77,400      |                        | $                | -           |                       
|Stock Issued for Corporate Development Services        | $              | 472,239    |                | $    | -        |                |            | $                | 675,075     |                        | $                | -           |                       
|Stock Issued to Acquire Assets and Operations of MDK   | $              | -          |                | $    | -        |                |            | $                | 3,015,279   |                        | $                | -           |                       
|Stock Issued for Repayment of H.E. Capital Demand Loan | $              | -          |                | $    | -        |                |            | $                | 400,000     |                        | $                | -           |                       

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

F-4

---

IMAGE INNOVATIONS HOLDINGS INC.(A development stage enterprise) 
  Notes to Consolidated Financial Statements
  (Unaudited)

As at June 30, 2004

|1. | Development Stage Enterprise                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   | 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 continuation of the Company is dependent
        upon achieving a profitable level of operations as well as maintaining
        existing long-term financing. Management plans to raise equity capital
        to finance the operations and capital requirements of the Company. The
        Company has committed all of its net working capital as at June 30, 2004
        to complete the development of the Company's business plan. While the
        Company is expending its best efforts to achieve the above plans, there
        is no assurance that any such activity will generate funds that will be
        available to sustain operations.
|  
|2. | Basis of preparation and presentation:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   | The consolidated unaudited interim financial statements
        of the Company as of June 30, 2004 and for the three and six months ended
        June 30, 2004, included herein have been prepared in accordance with the
        instructions for Form 10QSB under the Securities Exchange Act of 1934,
        as amended, and Article 10 of Regulation S-X under the Securities Act
        of 1933, as amended. The December 31, 2003 Consolidated Balance Sheet
        was derived from audited financial statements, and does not include all
        disclosures required by generally accepted accounting principles in the
        United States. Certain information and note disclosures normally included
        in financial statements prepared in accordance with generally accepted
        accounting principles have been condensed or omitted pursuant to such
        rules and regulations relating to interim consolidated financial statements.                                                                                                              
|  
|   | 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 June 30, 2004, and the results of
        their operations for the three and six months ended June 20, 2004 and
        2003 and from inception (January 14, 2003) to June 30, 2004, and their
        cash flows for the three and six months ended June 30, 2004 and 2003 and
        from inception (January 14, 2003) to June 30, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|   | 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 as of December 31,
        2003 and related notes included in the Company's Form 10-KSB filed with
        the Securities and Exchange Commission.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|   | The accompanying consolidated financial statements
        have been prepared to reflect the legal acquisition on June 30, 2003 of
        Image Innovations Inc. ("Image") by Image Innovations Holdings Inc. formerly
        Busanda Explorations Inc. ("Image Holdings") (the "Acquisition"). The
        consolidated financial statements of Image Holdings give effect to the
        Acquisition under which the shareholders of Image exchanged all of their
        common shares of Image for common shares of Image Holdings.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

F-5

---

IMAGE INNOVATIONS HOLDINGS INC.(A development stage enterprise) 
  Notes to Consolidated Financial Statements (Unaudited)

As at June 30, 2004

|   | Notwithstanding its legal form,
        the Acquisition has been accounted for as a reverse takeover, as the former
        shareholders of Image own in aggregate approximately 55% of the common
        shares of Image Holdings, and so are now the majority shareholders of
        Image Holdings. Also, as Image Holdings was an inactive company 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
        8 Common Stock). The net monetary liabilities of Image Holdings acquired
        by Image have been charged to the accumulated deficit.
      Image Innovations Sports & Entertainment Inc. ("Image
        Sports") was incorporated under the laws of the State of Delaware on January
        20, 2004 for the purpose to promote and carry on any lawful business for
        which a corporation may be incorporated under the laws of the State of
        Delaware. Image Sports has a total of 1,500 authorized common shares with
        no par value and has 1,000 common shares issued and outstanding as of
        June 30, 2004. Image Sports is a wholly owned subsidiary of Image Holdings.
      As required under reverse takeover accounting, these
        financial statements have been issued under the name of Image Holdings
        and reflect the share capital structure of Image Holdings. However, they
        reflect the financial statements of Image and account for the Acquisition
        as an acquisition of Image Holdings by Image. The consolidated financial
        statements therefore include:
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  
|   | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  
|   | (c)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  
|3. | Acquisition of a Business
      Image Sports acquired the inventory and celebrity image
        memorabilia business carried on by MDK Sports & Entertainment Inc.
        ("MDK Sports"). The acquisition of assets was completed pursuant to an
        asset purchase agreement dated March 4, 2004 between Image Innovations
        Holdings, Image Sports and MDK Sports. As consideration of the sale, transfer
        and assignment of the assets by MDK Sports to Image Sports, Image Innovations
        Holdings issued to MDK Sports an aggregate of 4,000,000 restricted shares
        of Image Innovation Holdings common stock on closing.
      Image Sports has also agreed to deliver to MDK Sports
        the following additional shares of Image Innovations Holdings 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:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

F-6

---

IMAGE INNOVATIONS HOLDINGS INC.(A development stage enterprise) 
  Notes to Consolidated Financial Statements 
  (Unaudited)

As at June 30, 2004

| | (a) | an aggregate of 2,500,000 shares of Image
        Innovations Holdings 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 Image
        Innovations Holdings 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.

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   | Image Sports has acquired the complete inventory
        of MDK Sports consisting of over 22,000 pieces of collectible sports memorabilia
        and fine art. Image Sports also acquired all contracts and business arrangements
        that MDK Sports had with artists and sport celebrities. The management
        of MDK Sports have become employees of Image Sports with the objective
        of ensuring that the distribution channels developed by MDK Sports survives
        the acquisition and is expanded to enhance the distribution of the other
        subsidiaries in the Image Group of Companies.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|4. | Summary of Significant Accounting Policies:
      Organization
      Image Holdings was incorporated under the laws of the
        State of Nevada on March 3, 1998 for the purpose to promote and carry
        on any lawful business for which a corporation may be incorporated under
        the laws of the State of Nevada.
      Prior to the Acquisition Image Holdings, then Busanda
        Explorations Inc., 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. Image Holdings had no other business.
        Image Holdings was therefore an inactive company with nominal net non-monetary
        assets, the shares of which were and continue to be publicly traded on
        the OTC Bulletin Board.
      Image was incorporated under the laws of the State of
        Delaware on January 14, 2003 for the purpose to promote and carry on any
        lawful business for which a corporation may be incorporated under the
        laws of the State of Delaware. Image has a total of 1,500 authorized common
        shares with no par value and has 1,000 common shares issued and outstanding
        as of June 30, 2003.
      Image has been established to become a recognized player
        in the field of promotional licensing and branding. Image's goal is to
        add value to a wide variety of relatively low cost, but desirable or essential
        products, by endorsing them with the brand logos of sports teams and/or
        household trademarks.

F-7

---

IMAGE INNOVATIONS HOLDINGS INC.(A development stage enterprise) 
  Notes to Consolidated Financial Statements 
  (Unaudited)

As at June 30, 2004

| | Image Innovations Sports & Entertainment Inc. was incorporated
        under the laws of the State of Delaware on January 20, 2004 for the purpose
        to promote and carry on any lawful business for which a corporation may
        be incorporated under the laws of the State of Delaware. Image Sports
        has a total of 1,500 authorized common shares with no par value and has
        1,000 common shares issued and outstanding as of June 30, 2004. Image
        Sports is a wholly owned subsidiary of Image Holdings.
      Equipment
      Equipment is recorded at cost. The company provides for amortization
        using the straight-line method at rates designed to amortize the cost
        of the equipment over its estimated useful lives. The rates are as follows:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                         |        
| | ----------------------- | -------
| | Furniture and equipment | 6 years
| | Computer equipment      | 4 years
| | Computer software       | 2 years

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Inventory
      Inventory is valued at the lower of cost and net realizable
        value and is determined on the first-in, first-out method.
      Accounting Method
      The Company's financial statements are prepared using
        the accrual method of accounting. Revenues are recognized when earned
        and expenses when incurred. Fixed assets are stated at cost.
      Depreciation and amortization using the straight-line
        method for financial reporting purposes and accelerated methods for income
        tax purposes.
      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. The unrealized translation gains and loses are accumulated
        in a separate component of stockholders' equity. Translation exchange
        gains and losses are reflected in net earnings.
      Earnings per Common Share
      The Company adopted Financial Accounting Standards (SFAS)
        No. 128, "Earnings Per Share," which simplifies the computation of earnings
        per share requiring the restatement of all prior periods. Basic earnings
        per share are computed on the basis of the weighted average number of
        common shares outstanding during each year.

F-8

---

IMAGE INNOVATIONS HOLDINGS INC.(A development stage enterprise) 
  Notes to Consolidated Financial Statements 
  (Unaudited)

As at June 30, 2004

| | Diluted earnings per share are computed on the basis of the weighted
        average number of common shares and dilutive securities outstanding. Dilutive
        securities having an anti-dilutive effect on diluted earnings per share
        are excluded from the calculation.
      Stock based Compensation
      The Company applies the intrinsic value-based method of accounting prescribed
        by Accounting Principles Board ("APB") Opinion No. 25, "Accounting for
        Stock Issued to Employees", and related interpretations to account for
        its employee stock option plans. Under this method, compensation expense
        is recorded on the vesting date only if the current market price of the
        underlying stock exceeds the exercise price at the date of grant. SFAS
        No.123, "Accounting for Stock-Based Compensation", established accounting
        and disclosure requirements using a fair value-based method of accounting
        for stock-based employee compensation plans. As allowed by SFAS No. 123,
        the Company has elected to continue to apply the intrinsic value-based
        method of accounting described above, and has adopted the disclosure requirements
        of SFAS No. 123 for employee stock option grants. Option grants to non-employees
        will be recognized at their fair value as the services are provided and
        the options earned.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|   |                               |         |  |              |  |                | 
|-- | ----------------------------- | ------- |  | ------------ |  | -------------- | 
|5. | Equipment                     |         |  |              |  |                | 
|   |                               |         |  | Accumulated  |  |                | 
|   |                               |         |  | Amortization |  |                | 
|   |                               | Cost    |  |              |  | Net book Value | 
|   |                               |         |  |              |  |                | 
|   | Furniture and
      equipment | $45,278 |  | $1,139       |  | $44,139        | 
|   |                               |         |  |              |  |                | 
|   | Warehouse Equipment           | 6,000   |  | -            |  | 6,000          | 
|   |                               |         |  |              |  |                | 
|   | Computer equipment            | 12,208  |  | 2,016        |  | 6,981          | 
|   |                               |         |  |              |  |                | 
|   | Computer software             | 8,789   |  | 1,808        |  | 6,981          | 
|   |                               |         |  |              |  |                | 
|   |                               | $72,275 |  | $4,963       |  | $67,312        | 

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   | A total of $3,622 has been recognized as depreciation expense for the
      six months ended June 30, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|6. | Promissory Note
      A promissory note was issued to a third party on April
        27, 2004 and is due on October 27, 2004. The note bears interest monthly
        at the rate of 10% per annum in monthly instalments 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 instalments of $12,000 commencing on September 27,
        2004. The promissory note provides that the principle amount may be prepaid
        in whole or in part at any time without notice or penalty.

F-9

---

IMAGE INNOVATIONS HOLDINGS INC.(A development stage enterprise) 
  Notes to Consolidated Financial Statements 
  (Unaudited)

As at June 30, 2004

|7. | Demand Loan H. E. Capital S. A.                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   | The Company has been dependent upon H.E.
        Capital S.A. ("H.E Capital"), a related party in order to fund the business
        of Image to date. H.E. Capital has agreed to advance funds to Image in
        order to finance the start-up of our business operations pursuant to a
        loan agreement between H.E. Capital and Image.                                                                                                                                                
|  
|   | 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.
|  
|   | H.E. Capital had advanced to Image a total
        of $336,897 as of June 30, 2004. The loans are secured by a general security
        agreement granted by Image against all of its assets. There is no assurance
        that H.E. Capital will advance additional amounts in order to fund the
        business of Image.                                                                                                                                                                    
|  
|8. | Common Stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|   | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|   | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|   | (c)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

F-10

---

IMAGE INNOVATIONS HOLDINGS INC.(A development stage enterprise) 
  Notes to Consolidated Financial Statements 
  (Unaudited)

As at June 30, 2004

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

| |                                  | Number of |  | Weighted       | 
| | -------------------------------- | --------- |  | -------------- | 
| |                                  | options   |  | average        | 
| |                                  |           |  | exercise price | 
| | Outstanding, beginning of period | -         |  | -              | 
| | Granted                          | 1,450,000 |  | $1.48          | 
| | Exercised                        | -         |  | -              | 
| | Forfeited                        | -         |  | -              | 
| | Outstanding, end
      of period | 1,450,000 |  | $1.48          | 



|    | As at June 30, 2004, 483,333 of the outstanding stock purchase options
      have vested.                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(d) | Restricted Shares issued to third parties for services rendered and for
      settlement of debt are valued at 80% of the average trading price of the
      shares over the previous 30 days from the date of the related agreements
      to issue the shares.
|   
|(e) | The fair value of each option granted was estimated on the grant date
      using the Black-Scholes option-pricing model with the following assumptions:                                                                                                        
|   

| |  | Dividend rate           | 0.00%    
| |  | ----------------------- | ---------
| |  | Risk free interest rate | 3.18%    
| |  | Expected life           | 1.5 years
| |  | Expected volatility     | 50%      

The company issued 1,450,000 options
  during the period of which 483,333 had vested as at June 30, 2004. Using these
  assumptions the estimated fair value of each option granted ranges from $0.32
  to $1.00 producing a total estimated fair value of $244,973. The company's accounting
  policy recognizes the intrinsic value of options granted with a strike price
  below the market value of the stock on the date the option was granted. As a
  result the Company recorded a stock option compensation expense of $77,400.
  The difference between the total estimated fair value

F-11

---

IMAGE INNOVATIONS HOLDINGS INC.(A development stage enterprise) 
  Notes to Consolidated Financial Statements 
  (Unaudited)

As at June 30, 2004

and the expense recorded by the Company was $167,573. This difference was
    not recorded by the Company. Had the stock option compensation been recorded the pro-forma results are
    as follows:


| |                                    | Three months   |          |   | Six months     |           
| | ---------------------------------- | -------------- | -------- | - | -------------- | ----------
| |                                    | ended June 30, |          |   | ended June 30, |           
| |                                    | 2004           |          |   | 2004           |           
|
| | Net loss for the period            | $              | (633,238 | ) | $              | (1,210,755
| | Stock option compensation          |                | 167,573  |   |                | 167,573   
|
| | Proforma loss for
      the period | $              | (800,811 | ) | $              | (1,378,328
|
| | Proforma loss per
      share      | $              | (0.03    | ) | $              | (0.06     



|   | As at March 31, 2004 no options had vested
        and no options were granted during the 2003 fiscal year.
|-- | -----------------------------------------------------------------------------------------------------------
|  
|9. | Commitments                                                                                                
|  
|   | (a)                                                                                                        
|  
|   |                                                                                                            
|  
|   |                                                                                                            
|  
|   |                                                                                                            

F-12

---

IMAGE INNOVATIONS HOLDINGS INC.(A development stage enterprise) 
  Notes to Consolidated Financial Statements 
  (Unaudited)

As at June 30, 2004

Image has entered into a license agreement with ABC Sports
    the broadcast network of Monday Night Football, Super Bowl XXXVII, the National
    Basketball Association, the Bowl Championship Series, the National Hockey
    League, World Cup soccer, figure skating, professional golf, Indy Racing League
    and Formula One. The License secured will be for the development and marketing
    of officially licensed fiber optic apparel products in the United States and
    Canada for Monday Night Football, ABC Sports, ABC Wide World of Sports and
    ABC's Bowl Championship Series. The ABC Sports license expires on September
    30, 2005. Image Innovations has entered into a retail license agreement
    with MLB Properties, for the license to use Major league Baseball trademarks,
    service marks, copyright, and trade dress. Under the terms of the agreement
    Image Innovations will manufacture and distribute alkaline batteries, keychain
    flashlights, cell phone holders and flashing spinning toy 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 | $189,000 | 
| | ---- | -------- | 
| | 2005 | 118,000  | 
| | 2006 | 20,000   | 

|(b) | Lease commitments -Image entered into a
        lease commencing April 1, 2004 for a five year term for office space.
        The annual payments under this lease for the next five years are as follows:
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   

| | 2004 | $55,174 | 
| | ---- | ------- | 
| | 2005 | 66,000  | 
| | 2006 | 66,000  | 
| | 2007 | 66,000  | 
| | 2008 | 66,000  | 

Image Sports has entered into a lease
  commencing January 1, 2004 for a seven year term for office space. The payments
  under this lease for the next five years are $18,000 per year.

F-13

---

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") completed the acquisition
  of all of the issued and outstanding shares of Image Innovations Inc., a Delaware
  corporation ("Image Innovations") effective June 30, 2003. 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 or essential products, by endorsing them
  with the brand logos of sports teams and/ or other recognized trademarks. We
  have been involved in developing the business of Image Innovations since June
  30, 2003. We have been involved in developing the business of Image Sports &
  Entertainment since March 2004.

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 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 Innovations Sports & Entertainment Inc. ("Image
  Sports & Entertainment"), our wholly owned subsidiary, acquired all of the
  inventory, personal property and material contracts of the celebrity image memorabilia
  business carried by MDK Sports & Entertainment Inc. ("MDK Sports") during
  our first quarter of 2004. The acquisition of assets was completed pursuant
  to an asset purchase agreement dated March 4, 2004 between Image Innovations
  Holdings, Image Sports & Entertainment and MDK Sports (the "Asset Purchase
  Agreement"). As consideration of the sale, transfer and assignment of the assets
  by MDK Sports to Image Sports & Entertainment, we issued to MDK Sports an
  aggregate of 4,000,000 restricted shares of Image Innovation Holdings common
  stock on closing.

3

---

We have 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 Image
        Innovations Holdings 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 Image Innovations
        Holdings 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.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The inventory of MDK Sports acquired by Image Sports &
  Entertainment consists of over 22,000 pieces of collectible sports memorabilia
  and fine art. Image Sports & Entertainment also acquired all contracts and
  business arrangements that MDK Sports had with artists and sport celebrities.
  The management of MDK Sports have become consultants of Image Sports & Entertainment
  with the objective of ensuring that the distribution channels developed by MDK
  Sports survives the acquisition and is expanded to enhance the distribution
  of the other subsidiaries in the Image group of companies.

PLAN OF OPERATIONS

We anticipate that we will require approximately $6,800,000
  over the next twelve months in order to carry out the plan of operations for
  Image Innovations and Image Sports & Entertainment. This amount is comprised
  of the following amounts:

|1. | We anticipate that we will spend approximately $2,000,000
        to fund the acquisition of additional inventory for Image Innovations.
        We will also apply a portion of the proceeds of the sale of inventory
        sold to the acquisition of additional inventory for the Image Innovations
        business. We anticipate that sales of inventory will be used to satisfy
        the revenue commitments pursuant to our license arrangements for Image
        Innovations, subject to our achieving the necessary sales levels. 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 sales of products bearing the brand names we have licensed.                                                  
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. | We anticipate that we will spend approximately $1,500,000
        to to fund the acquisition of additional inventory of celebrity art creations
        for the business of Image Sports & Entertainment. We anticipate that
        we will maintain our inventory of sports memorabilia at the present level
        of approximately $2,800,000 as opportunities to acquire unique memorabilia
        present themselves. The celebrity art creations inventory include the
        cost of creating the celebrity art creations and the cost of paying celebrities
        to endorse the art creations that are created for Image Sports & Entertainment.
        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.
|  
|3. | We anticipate that we will require approximately
        $2,100,000 in additional working capital, excluding inventory, to primarily
        fund accounts receivables from our customers. We anticipate that we will
        be required to provide our customers approximately 45 days credit.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|4. | We will require $800,000 to repay a promissory note
        due on October 27, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

4

---

|5. | We require approximately $350,000 to complete the
        acquisition and refurbishing of our warehouse located in Tannersville,
        New York. $290,000 will be required to complete the purchase of the warehouse
        and we anticipate spending approximately $60,000 to complete the refurbishing
        of the warehouse. We anticipate that this facility will handle all of
        our inventory warehousing once acquired and refurbished.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|6. | We anticipate our overhead expenses which are currently
        approximately $250,000 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.                                                                                                         

Of the total amount of projected expenditures, we anticipate
  that approximately $4,000,000 of these expenses will be incurred over the next
  six month period, provided these expenses may be accelerated if we achieve the
  necessary financing. We are pursuing both debt and equity financing in order
  to raise $10,000,000 to proceed with the plan of operations for Image Innovations
  and Image Sports & Entertainment and to provide funding to accelerate the
  plan of operations of Image Sports & Entertainment. We have arranged financing
  with Coach Capital LLC and H.E Capital 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
  proceeds 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 advance further funds to us in order 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 and our business and financial condition will be adversely
  affected. Should we be unable to raise the $10,000,000 we would adjust the operations
  by reducing the inventory levels and delaying the refurbishing of the warehouse
  in accordance with available funding.

PRESENTATION OF FINANCIAL INFORMATION


As discussed above, we completed the acquisition of Image
  Innovations effective June 30, 2003. Under United States generally accepted
  accounting principles, 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 acquirer for accounting purposes, even though Image Innovations Holdings
  is the legal acquirer. Under United States generally accepted accounting principles,
  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.

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
  six months from January 1, 2004 to June 30, 2004 to our results of operations
  for the period from January 14, 2003, being the date of incorporation of Image
  Innovations, to June 30, 2003. While we have commenced earning revenues, we
  continue to be in the start-up phase of our operations. Our operating results
  for the six months and three months ended June 30, 2004 include the results
  of operations of our Image Sports & Entertainment business commencing in
  March 2004

5

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Revenues

Our revenues, costs of sales and gross margins for the six
  months and three months ended June 30, 2004 are summarized as follows:

|                                                                                                                                              | Three Months Ended
      June 30, 2004 | Three Months Ended
      June 30, 2004 | Six Months Ended June
      30, 2004 | Six Months Ended June
      30, 2004
|--------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------- | -------------------------------------- | ------------------------------------ | ------------------------------------
|                                                                                                                                              | ($)                                    | (%)                                    | ($)                                  | (%)                                 
|Revenues from Image   Sports & 
       Entertainment sports   memorabilia business                                                            | $712,575                               | 96.5%                                  | $886,690                             | 96.5%                               
|Revenues from Image   Innovations licensed 
       products business                                                                          | $25,783                                | 3%.5                                   | $32,636                              | 3.5%                                
|Total Revenues                                                                                                                                | $738,358                               | 100%                                   | $919,326                             | 100%                                
|Cost of Sales   attributable to Image 
       Sports &   Entertainment sports   memorabilia
      business                                    | $401,963                               | 98.0%                                  | $516,624                             | 97.8%                               
|Cost of Sales   attributable to Image 
       Innovations licensed   products business                                                        | $8,350                                 | 2.0%                                   | $11,401                              | 2.2%                                
|Total Cost of Sales                                                                                                                           | $410,313                               | 100%                                   | $528,025                             | 100%                                
|Gross Margins   attributable to Image 
       Sports &   Entertainment sports   memorabilia
      business                                    | $310,612                               | 94.7%                                  | $370,066                             | 94.6%                               
|Gross Margins   attributable to Image 
       Sports &   Entertainment sports   memorabilia 
       business, as a   percentage of   revenues | 43.6%                                  | N/A                                    | 41.7%                                | N/A                                 
|Gross Margins   attributable to Image 
       Innovations licensed   products business                                                        | $17,433                                | 5.3%                                   | $21,235                              | 5.4%                                
|Gross Margins   attributable to Image 
       Innovations licensed   products business, as   a
      percentage of   revenues                 | 67.6%                                  | N/A                                    | 65.1%                                | N/A                                 
|Total Gross Margin                                                                                                                            | $328,045                               | 100%                                   | $391,301                             | 100%                                

6

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The increase in revenues was primarily attributable to our
  Image Sports & Entertainment sports and entertainment memorabilia business
  which commenced in operations in March 2004. Sales attributable to our Image
  Sports & Entertainment memorabilia business included (i) sales from our
  Mark Martin celebrity fine art sports memorabilia created by our artist Carlo
  Beninati; (ii) sales from our Jack Nicklaus celebrity fine art sports memorabilia
  acquired for resale and (ii) sales of inventory acquired from MDK Sports.

Our Image Innovations licensed products business continues
  to develop. As the distribution channels mature orders are being taken for delivery
  in the third quarter. Approximately $100,000 worth of orders were received before
  June 30, 2004 for delivery for the start of the NFL season in July and August.
  Image Innovations inventory at June 30, 2004 was $135,274 with approximately
  $600,000 in transit.

Gross Margins for our Image Sports & Entertainment business
  were $310,612 for the three months ending June 30. The Cost of Sales for Image
  Sports & Entertainment fine art memorabilia created by our artists include
  the cost of creating the original work of art, the appearance and signing fees
  paid to he celebrity and the cost limited edition reproductions, Any recurring
  monthly cost associated with retaining our artists are included in overheads.
  In addition to the fine art sports and entertainment memorabilia Image Sports
  & Entertainment maintains an inventory of sports and entertainment memorabilia
  for resale. This inventory consists of approximately $3,000,000 for sports and
  entertainment inventory acquired in the MDK Sports acquisition and additional
  sports and entertainment memorabilia items that we believe can be sold through
  our distribution channels at a profit.

Gross Margins for our Image Innovations business were $17,433
  for the three months ending June 30, 2004. Image Innovations develops its own
  products that are manufactured in China and shipped to our warehouse in Tannersville
  New York. The Cost of Sales for Image Innovations include 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 also included in cost of sales. The cost
  of developing the products are included in overheads.

Expenses


We incurred expenses totalling $1,529,061 during the six months
  ended June 30, 2004, compared to $194,448 for the period ended June 30, 2003.
  We incurred expenses totalling $884,766 during the three months ended June 30,
  2004, compared to $123,483 for the three months ended June 30, 2003. This increase
  in expenses reflects the expansion of our business operations through our start-up
  phase, costs associated with the acquisition completed by Image Sports &
  Entertainment and costs associated with the start-up of our Image Sports &
  Entertainment and Image Innovations businesses.

Our payroll and consulting expenses increased to $424,403
  during the six months ended June 30, 2004, compared to $112,286 during the period
  ended June 30, 2003. Our payroll and consulting expenses increased to $278,076
  during the three months ended June 30, 2004, compared to $69,244 during the
  three months ended June 30, 2003. These increases reflects the increase in our
  staff as our business operations have expanded. We presently have 18 full-time
  equivalent employees and consultant contractors. We anticipate converting our
  full-time equivalent consultant contractors to employees during our current
  fiscal year.

We incurred corporate development expenses in the amount of
  $619,843 during the six months ended June 30, 2004, of which $301,703 was incurred
  during the three months ended June 30, 2004. These development expenses were
  comprised primarily of consultant fees payable in connection with the acquisition
  by Image Sports & Entertainment of the assets acquired from MDK Sports.
  During the three months ending June 30, 2004 the Company contracted financial
  consultants to assist the company in developing financial information and business
  strategies with a total cost of $210,102. In addition to enhance the management
  team's depth and breadth of industry contacts, the Company established an advisory
  board consisting of well-know industry players. The Company entered into contracts
  with its advisory board members and incurred costs of $42,039. The majority
  of these expenses were paid through the issuance of restricted shares of our
  common stock. In addition Image Sports & Entertainment held a number of
  events to promote the company during the unveiling and signing of the sports
  and entertainment fine art memorabilia created by our artists incurring cost
  of $36,251.

We incurred product development expenses of $55,909 during
  the six months ended June 30, 2004, compared to $15,345 for the period ended
  June 30, 2003. We incurred product development expenses of

7

---

$34,493 during the three months ended June 30, 2004, compared
  to $11,567 for the three months ended June 30, 2003. These product development
  expenses were incurred in connection with the development of products under
  our license agreements. Product development expenses included expenses associated
  with the development of our Riddell football helmet radio, and other product
  development including; mould charges, artwork for custom packaging, clamshell
  development as well as the production of barcode decals for all the products.

We incurred travel expenses of $123,085 during the six months
  ended June 30, 2004, of which $56,539 was incurred during the three months ended
  June 30, 2004. These travel expenses were incurred in connection with the acquisition
  completed by Image Sports & Entertainment, negotiating our license agreements,
  attending three 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 the subject celebrity
  and our artists, and traveling to our offices in Tannersville, NY and New York,
  NY to ensure the smooth integration of our operations.

We anticipate that our operating expenses will continue to
  increase as we carry out our plan of operations for Image Innovations and Image
  Sports & Entertainment. These increased operating expenses will be incurred
  prior to our realizing revenues from sales of products by Image Innovations
  and Image Sports & Entertainment. In view of these factors, we continue
  to require financing in order to carry out our plan of operations.

Loss


We incurred a loss of $1,133,355 for the six months ended
  June 30, 2004, compared to a loss of $194,488 for the period ended June 30,
  2003. We incurred a loss of $555,838 for the three months ended June 30, 2004,
  compared to a loss of $123,483 for the three months ended June 30, 2003. Our
  increased 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 first quarter which resulted
  in expenses associated with the acquisition, but with minimal revenue attributable
  to this business during our first 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.

LIQUIDITY AND FINANCIAL CONDITION


We had cash of $71,188 as of June 30, 2004, compared to cash
  of $273,111 as of December 31, 2003. We had working capital of $3,404,615 as
  of June 30, 2004, compared to working capital of $222,611 as of December 31,
  2003. The increase in working capital is primarily attributable to the acquisition
  of the inventory assets of MDK Sports in March 2004, as described above under
  the heading "Image Sports & Entertainment".

Inventory


Our inventory increased to $3,292,629 as of June 30, 2004
  from $nil as of December 31, 2003 as a result of the acquisition of the inventory
  of MDK Sports, the creation of limited edition fine art sports and entertainment
  memorabilia and the acquisition of other sports and entertainment memorabilia
  for resale for our Image Sports

& Entertainment business, including the Mark Martin, Alex
  Rodriguez, and Jack Nicklaus fine art sports memorabilia products. Inventory
  acquired from MDK Sports included the collectible sports memorabilia and fine
  art inventory of MDK Sports. Image Innovations inventory at June 30, 2004 was
  $135,274 consisting of the products we developed and manufactured in China.

Accounts Receivable


Our accounts receivable increased to $753,673 as of June 30,
  2004 from $nil as of December 31, 2003 as a result of sales completed during
  the first half of our fiscal year. Accounts receivable as of June 30, 2004 represented
  approximately 82% of sales during the first half of our fiscal year. The high
  ratio of accounts receivable to revenues reflects the sales by Image Sports
  & Entertainment made in late June following the signing of the Limited edition
  Mark Martin fine art prints on June 22,2004 and the acquisition
  of the Jack Nicklaus "Golfer of the Century" collection on June 24, 2004.

8

---

Cash Flows

We used cash of $1,551,269 in operating activities during the
  six months ended June 30, 2004, compared to $328,845 for the period ended June
  30, 2003.

Cash used in operating 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 proceeds of $275,000 during our first
  quarter; (ii) the advance by H.E. Capital of $327,963 during our second quarter
  and 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 and the
  assets and undertaking of its Image Sports & Entertainment and agreed not
  to grant any additional charges against such assets and undertaking without
  the prior written consent of Coach Capital LLC.

H.E. Capital


We have been largely dependent upon H.E. Capital S.A. ("H.E.
  Capital") in order to fund the business of Image Innovations to date. H.E. Capital
  originally agreed to advance up to $500,000 to Image Innovations in order to
  finance the start-up of our business operations pursuant to a loan agreement
  between H.E. Capital and Image Innovations dated January 14, 2003. We entered
  into an amendment to the loan agreement with H.E. Capital on November 5, 2003
  whereby H.E. Capital agreed to advance up to $1,000,000 under the terms of the
  loan agreement. The loans accrued interest at the rate of 9% per annum and were
  repayable upon demand. The loans were secured by a general security agreement
  granted by Image Innovations against all of its assets.

H.E. Capital advanced to Image Innovations a total of $1,075,704
  as of December 31, 2003. Of the amount advanced during 2003, an aggregate of
  $900,000 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. An amount of $175,704 was payable to H.E. Capital as of December
  31, 2003. H.E. Capital advanced additional funds to us as a loan during our
  first quarter. On March 25, 2004, we repaid the balance of $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.

H.E. Capital advanced an additional $327,963 during our second
  quarter of 2004. Our loan from H.E. Capital was outstanding in the amount of
  $336,897 as of June 30, 2004. The loan remains secured by the general security
  agreement granted by Image Innovations pursuant to our original loan agreement
  with H.E. Capital.

There is no assurance that H.E. Capital S.A. will advance
  any additional amounts to us in order to continue to fund our business.

Requirement of Additional Financing to fund Plan of Operations

We anticipate that we will require approximately $10,000,000
  over the next twelve months in order to carry out the plan of operations for
  Image Innovations and Image Sports & Entertainment, as described above under
  Plan of Operations. 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 Image Innovations and Image Sports & Entertainment 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.

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 twelve months.

9

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We do not have any arrangements in place for financings and
  there is no assurance that any financing will be achieved. If any financing
  is achieved, then it is anticipated that existing shareholders will suffer dilution.

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 changed 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 delivery to have occurred at the time of shipment. Revenue
  is recognized at shipment.

Inventory

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

Use of estimates


The preparation of financial statements in conformity with
  accounting principles generally accepted in the United States 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 as well as the reported amounts of revenues
  and expenses during the reporting period. Actual results could differ from those
  estimates. These estimates and assumptions relate to recording net revenue,
  collectibility of accounts receivable, and the realizability of other intangible
  assets, accruals, income taxes, inventory realization and other factors. Management
  has exercised reasonable judgment in deriving these estimates; however, actual
  results could differ from these estimates. Consequently, change in conditions
  could affect our estimates.

Fair value of financial instruments


We have various financial instruments, including cash, cash
  equivalents, accounts receivable, accounts payable and capitalized lease obligations.
  We believe the carrying values of our financial instruments approximate their
  values. The carrying amount of the short- and long-term debt approximates fair
  value at December 31, 2003 based on interest rates available to us and debt
  instruments with similar terms.

Stock-based compensation


We believe that stock-based compensation is a critical accounting
  policy that affects our financial condition and results of operations. Statement
  of Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based
  Compensation defines a fair-value based method of accounting for stock-based
  employee compensation plans and transactions in which an entity issues its equity
  instruments to acquire goods or services from non-employees, and encourages
  but does not require companies to record compensation cost for stock-based employee
  compensation plans at fair value. The Company has chosen to continue to account
  for employee stock-based compensation using the intrinsic value method prescribed
  in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
  Employees ("APB No. 25") and related interpretations.

Foreign Exchange

We conduct business primarily in United States. 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. The unrealized translation
  gains and loses are accumulated in a separate component of stockholders' equity
  Translation exchange gains and losses are reflected in net earnings.

10

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ITEM 3.         CONTROLS AND PROCEDURES.

As required by Rule 13a-15 under the Securities Exchange Act
  of 1934 (the "Exchange Act"), we carried out an evaluation of the effectiveness
  of the design and operation of our disclosure controls and procedures as of
  June 30, 2004, being the date of our most recently completed fiscal quarter.
  This evaluation was carried out under the supervision and with the participation
  of our Chief Executive Officer, Mr. Alain Kardos and Chief Financial Officer,
  Mr. Derick Sinclair. Based upon that evaluation, our Chief Executive Officer
  and Chief Financial Officer concluded that our disclosure controls and procedures
  are effective in timely alerting management to material information relating
  to us required to be included in our periodic SEC filings. There have been no
  significant changes in our internal controls or in other factors that could
  significantly affect internal controls subsequent to the date we carried out
  our evaluation.

Disclosure controls and procedures are controls and other
  procedures that are designed to ensure that information required to be disclosed
  in our reports filed or submitted under the Exchange Act is recorded, processed,
  summarized and reported, within the time periods specified in the Securities
  and Exchange Commission's rules and forms. Disclosure controls and procedures
  include, without limitation, controls and procedures designed to ensure that
  information required to be disclosed in our reports filed under the Exchange
  Act is accumulated and communicated to management, including our Chief Executive
  Officer and Chief Financial Officer, to allow timely decisions regarding required
  disclosure.

During our most recently completed fiscal quarter ended June
  30, 2004, there were no changes in our internal control over financial reporting
  that have materially affected, or are reasonably likely to affect, our internal
  control over financial reporting.

The term "internal control over financial reporting" is defined
  as a process designed by, or under the supervision of, the registrant's principal
  executive and principal financial officers, or persons performing similar functions,
  and effected by the registrant's board of directors, management and other personnel,
  to provide reasonable assurance regarding the reliability of financial reporting
  and the preparation of financial statements for external purposes in accordance
  with generally accepted accounting principles and includes those policies and
  procedures that:

|(1) | Pertain to the maintenance of records that in reasonable
        detail accurately and fairly reflect the transactions and dispositions
        of the assets of the registrant;                                                                                                                                                                                                 
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) | Provide reasonable assurance that transactions are
        recorded as necessary to permit preparation of financial statements in
        accordance with generally accepted accounting principles, and that receipts
        and expenditures of the registrant are being made only in accordance with
        authorizations of management and directors of the registrant; and
|   
|(3) | Provide reasonable assurance regarding prevention
        or timely detection of unauthorized acquisition, use or disposition of
        the registrant's assets that could have a material effect on the financial
        statements.                                                                                                                                          

11

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PART II--OTHER INFORMATION

ITEM 1.         LEGAL
  PROCEEDINGS

We are not a party to any material legal proceedings and to
  our knowledge, no such proceedings are threatened or contemplated.

ITEM 2.         CHANGES
  IN SECURITIES AND USE OF PROCEEDS

We completed the following sales of our common stock without
  registration pursuant to the Securities Act of 1933 (the "1933 Act") during
  our fiscal quarter ended June 30, 2004:

|1. | On April 2, 2004, we issued 65,000 shares of our
        common stock pursuant to a consultant agreement with a consultant. The
        shares were issued in consideration of consultant services provided by
        the consultant. The shares were issued pursuant to Section 4(2) of the
        Securities Act of 1933. All securities issued were endorsed with a restrictive
        legend confirming that the securities could not be resold without registration
        under the Act or an applicable exemption from the registration requirements
        of the Act;                 
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. | On April 2, 2004, we issued 160,000 shares of our
        common stock pursuant to consultant agreements with members of our Advisory
        Board. The shares were issued in consideration of consultant services
        provided by the consultant. The shares were issued pursuant to Section
        4(2) of the Securities Act of 1933. All securities issued were endorsed
        with a restrictive legend confirming that the securities could not be
        resold without registration under the Act or an applicable exemption from
        the registration requirements of the Act;
|  
|3. | On June 8, 2004, we issued 50,000 shares of our
        common stock pursuant to a consultant agreement with a consultant. The
        shares were issued in consideration of consultant services provided by
        the consultant. The shares were issued pursuant to Section 4(2) of the
        Securities Act of 1933. All securities issued were endorsed with a restrictive
        legend confirming that the securities could not be resold without registration
        under the Act or an applicable exemption from the registration requirements
        of the Act;                  
|  
|4. | On June 8, 2004, we issued 25,000 shares of our
        common stock pursuant to a consultant agreement with a consultant. The
        shares were issued in consideration of consultant services provided by
        the consultant. The shares were issued pursuant to Section 4(2) of the
        Securities Act of 1933. All securities issued were endorsed with a restrictive
        legend confirming that the securities could not be resold without registration
        under the Act or an applicable exemption from the registration requirements
        of the Act;                  

ITEM 3.         DEFAULTS
  UPON SENIOR SECURITIES

None.

ITEM 4.         SUBMISSION
  OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to our security holders for a vote
  during the fiscal quarter ended June 30, 2004.

ITEM 5.         OTHER
  INFORMATION.

None.

12

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ITEM 6.         EXHIBITS AND REPORTS
  ON FORM 8-K EXHIBITS REQUIRED BY ITEM 601

|Exhibit Number |                                                                                                                                                                                                                 
|-------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|               |                                                                                                                                                                                                                 
|3.1            | Articles of Incorporation (1)                                                                                                                                                                                   
|               |                                                                                                                                                                                                                 
|3.2            | Bylaws (1)                                                                                                                                                                                                      
|               |                                                                                                                                                                                                                 
|3.3            | Certificate of Amendment to Articles
        of Incorporation (4)                                                                                                                                               
|               |                                                                                                                                                                                                                 
|10.1           | Offer Letter dated June 23, 2003 to
        the shareholders of Image Innovations Inc. to acquire all of the issued
        and outstanding shares of Image Innovations Inc., a Delaware corporation
        (2)
|               |                                                                                                                                                                                                                 
|10.2           | Loan Agreement dated January 14, 2003
        between H.E. Capital SA and Image Innovations Inc. (3)                                                                                                            
|               |                                                                                                                                                                                                                 
|10.3           | Amendment to Loan Agreement dated November
        5, 2003 between H.E. Capital SA and Image Innovations Inc. (4)                                                                                               
|               |                                                                                                                                                                                                                 
|10.4           | Asset Purchase Agreement dated March
        4, 2004 between Image Innovations Holdings Inc., Image Innovations Sports
        & Entertainment Inc. and MDK Sports & Entertainment Inc. (5)                     
|               |                                                                                                                                                                                                                 
|10.5           | Loan Agreement between the Company
        and Coach Capital LLC (6)                                                                                                                                            
|               |                                                                                                                                                                                                                 
|14.1           | Code of Ethics (5)                                                                                                                                                                                              
|               |                                                                                                                                                                                                                 
|31.1           | Certification
        of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
        Act of 2002 (7)                                                                                          
|               |                                                                                                                                                                                                                 
|31.2           | Certification
        of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
        Act of 2002 (7)                                                                                          
|               |                                                                                                                                                                                                                 
|32.1           | Certification
        of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
        pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (7)                                           
|               |                                                                                                                                                                                                                 
|32.2           | Certification
        of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
        pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (7)                                           

|    |                                                                                                                                                                                   
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Previously
        filed with the Securities and Exchange Commission as an exhibit to our
        Form 10-SB registration statement filed on December 6, 2002, as amended.        
|(2) | Previously filed with the Securities and Exchange
        Commission as an exhibit to our Current Report on Form 8-K filed on July
        11, 2003.                              
|(3) | Previously filed with the Securities and Exchange
        Commission as an exhibit to Amendment No. 2 to our Current Report on Form
        8-K originally filed on July 11, 2003.
|(4) | Previously filed as an Exhibit to our Quarterly
        Report on Form 10-QSB filed on November 14, 2003.                                                                         
|(5) | Previously filed as an Exhibit to our Annual Report
        on Form 10-KSB on April 14, 2004                                                                                      
|(6) | Previously filed as an Exhibit to our Current Report
        on Form 8-K filed on May 5, 2004                                                                                     
|(7) | Filed as an Exhibit to this Quarterly Report on
        Form 10-QSB.                                                                                                              
|    |                                                                                                                                                                                   

REPORTS ON FORM 8-K

During our fiscal quarter ended June 30, 2004, we filed a Current Report on Form 8-K on May 5, 2004 to disclose our loan agreement with Coach Capital LLC.

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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:July 9, 2004

|By: | /s/ Alain Kardos        | 
|--- | ----------------------- | 
|    | ALAIN KARDOS            | 
|    | Chief Executive Officer | 
|    | and Director            | 
|    |                         | 
|    |                         | 
|    |                         | 
|By: | /s/ Derick Sinclair     | 
|    | DERICK SINCLAIR         | 
|    | Chief Financial Officer | 
|    | and Director            | 

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