UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

[X]  ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
     1934

                   For the fiscal year ended December 31, 2006

                                       OR

[_]  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

     For the transition period from _______________________ to _____________

                        Commission file number 333-86873

                               HOME DIRECTOR, INC.
               ---------------------------------------------------
                 (Name of small business issuer in its charter)

           Delaware                                         52-2143430
 ------------------------------                           ---------------
(State or other jurisdiction of                          (I.R.S. Employer
incorporation or organization)                           Identification No.)

             1475 S. Bascom Avenue #210, Campbell, California 95008
             -------------------------------------------------------
               (Address of principal executive offices) (Zip Code)

                    Issuer's telephone number: (408) 559-3100

Securities registered under Section 12(b) of the Exchange Act: None Securities
registered under Section 12(g) of the Exchange Act: Common Stock, par value
$0.01 per share

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

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]

State issuer's revenues for its most recent fiscal year. $87,829

State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days. (See definition of affiliate in Rule
12b-2 of the Exchange Act.) approximately $6,239,000*

*As of April 30, 2007. Solely for purposes of this calculation, all directors
and executive officers of the registrant and all stockholders beneficially
owning more than 5% of the registrant's common stock are considered to be
affiliates.

(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date. 13,983,060 as of April 30, 2007

Transitional Small Business Disclosure Format (Check one): Yes [ ]; No [X]

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement, which will be filed in
accordance with Rule 14a-101 of the Exchange Act, are hereby incorporated by
reference into Items 10 & 11 of Part III of this Form 10-KSB.


<PAGE>



                               HOME DIRECTOR, INC.
                                   FORM 10-KSB
                                TABLE OF CONTENTS


                                                                          PAGE
                                                                          ----
                                     PART I
Item 1.  Description of Business..............................................4
Item 2.  Description of Property..............................................8
Item 3.  Legal Proceedings....................................................8
Item 4.  Submission of Matters to a Vote of Security Holders..................9

                                     PART II
Item 5.  Market for the Registrant's Common Stock and Related
         Stockholder Matters..................................................9
Item 6.  Selected Financial Data.............................................11
Item 7.  Management's Discussion and Analysis or Plan of Operation...........13
Item 8.  Financial Statements................................................22
Item 9.  Changes in and Disagreements with Accountants on Accounting
         and Financial Disclosure............................................22
Item 9A. Controls and Procedures.............................................22

                                    PART III
Item 10. Directors, Executive Officers, Promoters and Control Persons;
         Compliance With Section 16(a) of the Exchange Act...................23
Item 11. Executive Compensation..............................................24
Item 12. Security Ownership of Certain Beneficial Owners and Management
         and Related Stockholder Matters.....................................25
Item 13. Certain Relationships and Related Transactions......................25
Item 14. Exhibits............................................................26
Item 15. Principal Accountant fees and services..............................28

Signatures...................................................................29
Consolidated Financial Statements...........................................F-1



<PAGE>

CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS
This document contains "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements are subject
to risks and uncertainties and are based on the beliefs and assumptions of
management of Home Director, based on information currently available to
management. The use of words such as "believes," "expects," "anticipates,"
"intends," "plans," "estimates," "should," "likely" or similar expressions,
indicates a forward-looking statement. Forward-looking statements are not
guarantees of performance. They involve risks, uncertainties and assumptions.
Future results may differ materially from those expressed in the forward-looking
statements. Many of the factors that will determine these results are beyond the
ability of Home Director to control or predict. Stockholders are cautioned not
to put undue reliance on any forward-looking statements. For those statements,
Home Director claims the protection of the safe harbor for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995.
For a discussion of some of the factors that may cause actual results to differ
materially from those suggested by the forward-looking statements, please read
carefully the information under "Cautionary Statements" beginning on page 18.
The identification in this document of factors that may affect future
performance and the accuracy of forward-looking statements is meant to be
illustrative and by no means exhaustive. All forward-looking statements should
be evaluated with the understanding of their inherent uncertainty.






                                       3
<PAGE>
                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

RECENT DEVELOPMENTS
On September 28, 2005, Home Director, Inc. (the "Company" or "HDI") and its
direct subsidiary Home Director Technologies, Inc. ("HDT") and its indirect
subsidiary Digital Interiors, Inc. ("DII")(collectively, "the Companies") filed
voluntary petitions for relief under Chapter 11 of the United States Bankruptcy
Code (the "Bankruptcy Code")in U.S. Bankruptcy Court for the Northern District
of California, Oakland Division (the Bankruptcy Court") (Case No. 05-45812,
05-45814 and 05-45815, respectively). On June 26, 2006, the Companies filed with
the Bankruptcy Court a Second Amended Joint Plan of Reorganization, dated June
26, 2006 and Second Amended Disclosure Statement, dated June 26, 2006 (the
"Disclosure Statement"). The Bankruptcy Court approved the Disclosure Statement
by that certain Order Approving Disclosure Statement, Fixing Time for Filing
Acceptances or Rejections of Plan and Setting Hearing on Confirmation entered on
June 27, 2006. Thereafter, on October 9, 2006, the Companies filed a Seconded
Amended Joint Plan of Reorganization dated June 26, 2006 (As
Modified)("Reorganization Plan"). On October 12, 2006, the Bankruptcy Court
entered an Order Confirming Chapter 11 Plan. Pursuant to the provisions of
Bankruptcy Code Section 1127(a), the Companies made material changes and
modifications to the Reorganization Plan after Bankruptcy Court approval of the
terms of the Disclosure Statement; in the event of a conflict between the terms
and provisions of the Disclosure Statement and the Reorganization Plan, the
terms of the Reorganization Plan prevail.

The following summarizes the classification and treatment of claims and
interests as provided by the Reorganization Plan. This summary of the
Reorganization Plan and Disclosure Statement does not purport to be complete and
is qualified in its entirety by reference to the Reorganization Plan and the
Disclosure Statement. The Reorganization Plan provides for different treatment
for different classes of Claims and equity interests in accordance with the
Bankruptcy Code. Under the Reorganization Plan, other than Administrative Claims
and Tax Claims, which are unclassified, most Claims against or Interests in the
Companies are impaired. Reference should be made to the Disclosure Statement and
to the Reorganization Plan for a complete description of the classifications and
treatment of Claims and Interests. On October 23, 2006 (the "Effective Date" of
the Reorganization Plan), the currently outstanding shares of the Company's
common stock were cancelled without any distribution to be made to the holders
of such shares. As of the Effective Date, the authorized common stock of the
Company will consist of 40,000,000 shares New Common Stock, par value $0.01 per
share. Pursuant to the Reorganization Plan, an aggregate of 7,250,000 shares of
New Common Stock shall be issued and distributed as follows: approximately
6,500,000 shares of New Common Stock to HMDR Investors (or its assignees), which
will represent approximately 90% of the New Common Stock of the Company, and
approximately 750,000 shares of New Common Stock to Holders of Allowed Class 3
Claims, which shall represent approximately 10% of the New Common Stock of the
Company.

Acquisitions
On December 28, 2006, the Company acquired substantially all the assets and
assumed certain liabilities of Destiny Networks, Inc. pursuant to the terms of
an Asset Purchase Agreement, dated December 28, 2006, among Home Director,
Destiny Networks and Brent Bilger, Executive Officer and Stockholder of Destiny
Networks. For accounting purposes, the acquisition is determined to be January
1, 2007.

On March 7, 2007, the Company's wholly-owned subsidiary, Home Director
Acquisition Corporation, acquired substantially all the assets and assumed
certain liabilities of Novus Technologies, Inc. pursuant to the terms of an
Asset Purchase Agreement, dated February 28, 2007, among Home Director, Novus
Technologies and Mike Springer, Executive Officer and Stockholder of Novus
Technologies. For accounting purposes, the acquisition is determined to be March
1, 2007.

Private Placement
On February 15, 2007, the Company entered into an agreement to engage Trenwith
Securities, LLC as the Company's exclusive investment banking agent to arrange
and negotiate a $25 million private placement of securities to be issued by the
Company and any of its subsidiaries.

HISTORY
Netword was formed on February 18, 1999 as a Delaware corporation. Netword's
operations never generated material revenues and it ceased all marketing
activity in February 2002.
                                        4


<PAGE>



On December 19, 2002, we acquired all of the stock of Home Director
Technologies, Inc. (formerly Home Director, Inc. and referred to in this report
as "HDT") in a merger of Netword's special purpose subsidiary into HDT.
Immediately before the merger, we completed a one-for-40 reverse split of our
outstanding Common Stock. As a result of the merger, HDT became our wholly-owned
subsidiary, we changed our name from Netword, Inc. to Home Director, Inc., and
the business of HDT became our only business. When we refer to "Netword" in this
report, we are referring to the Company as it existed before the merger, and
when we refer to "the merger," we are referring to the merger in which we
acquired HDT.

HDT was incorporated in Delaware on October 13, 1999 under the name Home
Director, Inc. It commenced operations on December 8, 1999, subsequent to
acquiring the assets of and assuming certain liabilities of IBM Corporation's
Home Director business unit. HDT acquired Digital Interiors, Inc. ("DI"), an
installer of home networking products, on January 25, 2001 and acquired certain
assets from Los Gatos Home Theatre, also an installer of home networking
products, on May 14, 2001.

Our executive offices are located at 1475 S. Bascom Avenue #210, Campbell,
California 95008. Our telephone number is (408) 559-3100 and our web site
address is www.homedirector.com.

BUSINESS
We design, manufacture and sell home networking and entertainment solutions that
can interconnect security systems, audio systems, video services, televisions,
utilities, personal computers and the Internet. Our products are marketed
primarily for installation in new homes. Customers for our home networking
systems include some of the largest home builders and developers in the United
States, including KB Homes, Richmond America, DR Horton, Lennar and Arvida.
Through our relationships and marketing arrangements with these and other home
builders, we have direct access to home buyers that we use to facilitate
additional sales of our products while the buyers are in the process of
selecting options for their new homes. Our products have been sold to over
60,000 home owners in the United States and Canada.

Our home networking solutions are intended to function as the electronic
foundation for linked access to third-party services and technologies, including
those that are currently available and those that may be offered in the future.
Within a "connected" or "networked" home, our proprietary Network Connection
Center can be used to interconnect a number of devices, appliances or gateways
so they can be centrally controlled. With a properly featured Home Director
system, a home owner can listen to music from speakers throughout the home, play
different music in different areas of the home, view and manage digital
photographs on television, network a number of computers within the home,
remotely view other areas of the home, change or reconfigure telecommunications
options within the home, and perform a variety of other automated functions.

We believe that as information and telecommunications technology continue to
develop and electronic access to entertainment and other content becomes
increasingly a staple of contemporary culture, a home networking infrastructure
that offers central and distributed access to information sources located
throughout the home will become a virtually standard new-home feature. Based on
this expectation, we have targeted the new home construction market and
positioned our business to provide a cost-effective and flexible infrastructure
option for the average new home buyer.


INDUSTRY OVERVIEW AND MARKET OPPORTUNITY

Target Market
The new home construction industry offers the principal market for Home
Director's products and services. An average of more than 1.5 million new homes
(including residential apartment units) have been built in the United States
during each of the past 10 years (Source: United States Bureau of the Census.)
Based on our own experience, we believe that only a relatively small number of
these new homes were built with electronic networking capabilities but that the
percentage of new homes incorporating these capabilities has been increasing.

Industry Evolution
The market for solutions that will facilitate the distribution and control of
data and entertainment within the home is relatively new and we believe is still
in an early stage of evolution. This market appears to be driven by a number of
recent trends, including the following:

                                        5


<PAGE>


     o    a demand for video, audio and voice capabilities throughout the home
          rather than in a single location;

     o    the growing number of households with multiple personal computers and
          Internet capabilities;

     o    the rise in the number of people who work from home;

     o    the increase in the availability of "last mile" high speed bandwidth,
          via cable modem, DSL and satellite;

     o    the proliferation of new technology and digital applications;

     o    the expectation that devices and technology will perform multiple
          functions; and

     o    the decreasing cost of relatively sophisticated home networking and
          entertainment solutions.

OUR SOLUTION
In our effort to exploit this evolving market, and by contrast to the many
small-scale local businesses that offer limited low-tech network functions, we
offer scaleable and upgradeable technology, established distribution channels,
and, in areas served by installation partners, a single-source for products and
professional sales and service. We believe we address prospective obsolescence
by providing a structured wiring infrastructure that handles multiple mediums,
is scaleable and can be functionally upgraded by means of hardware and software.
Our home networking solutions can be controlled from inside the home or remotely
from web-access devices. To meet a broad range of demand from entry level to
custom homes, we employ standardized base packages or modules with a menu of
functional add-ons or upgrades to provide a range of performance capabilities
responsive to the individual consumer's budget and needs.

Our home networking solutions enable shared high-speed Internet access, linked
computer peripherals, centrally controlled home security systems, distributed
entertainment content and other services and capabilities. These solutions allow
home owners to access information and entertainment in any room in the home and
centrally control their security, energy and lighting. We couple our networking
hardware with scaleable and upgradeable proprietary software that delivers
functionality and an intuitive user interface. Devices connected into our system
can be controlled by both wired and wireless web-access devices.

OUR PRODUCTS AND SERVICES
Our home networking solution consists of structured wiring and proprietary
hardware and software. This solution is based on our proprietary communications
device, called the Network Connection Center. The Network Connection Center is a
hardware installation offered in several configurations which houses structured
wiring terminals and, in conjunction with applications software, connects and
coordinates all of the networked applications and devices within the home. The
structured wiring infrastructure can be scaled to high or low capacity levels in
accordance with specific builder or consumer requirements. The Network
Connection Center can support a variety of hardware and software products.
Typically, the price to consumers of a complete, installed home networking
solution ranges from $1,500 to $4,000, plus the cost of peripheral components
and systems.

SALES AND MARKETING STRATEGY
We currently target our products and services primarily to the new home market.
Our systems involve in-wall construction activities and are therefore inherently
more expensive and inconvenient to install in existing residences than in new
homes under construction. To reach the new-home market, we concentrate our
marketing efforts on creating and enhancing relationships with home builders and
developers who have direct access to purchasers of new homes at the very time
when they are making decisions regarding the design, function and financing of
their new homes. We recognize an additional potentially huge market for network
retro fitting of existing homes and businesses. We believe that custom
retrofitting of existing homes currently represents a relatively insignificant
segment of the overall market for home networking systems. We believe, however,
that the development of this segment of the market must await the further
development and improvement of existing wireless technologies which will make
retro fitting economically feasible on a broader scale.

Our "Intelligent Home Marketing Program" standardizes and streamlines sales,
design and customer support for our networking solutions. Using each
participating builder's blueprints for a home development project, we or a
partner recommend the most appropriate standard packages and application modules
for potential buyers, including standard voice, video, data, security and home
management features consistent with the overall designs contemplated by the
blueprints. We display our products and systems in the builder's showroom or
model, where a sales representative is available to consult with each home buyer
at the same time the buyer is selecting other home options, such as cabinets,
carpeting and tile.

                                        6

<PAGE>
We currently have joint marketing relationships with home builders and
developers in Texas and, subject to demand and the availability of capital, plan
to establish similar relationships with builders in new geographic areas. In our
existing relationships, we try to obtain the builder's or developer's commitment
to purchase and include a home networking package in all of the housing units
within a new-home development. We have also partnered with installation
companies and providers of Fiber to the Home and cable infrastructure for entire
communities to offer our products as part of their offering to an entire
community. With this commitment, we are assured of a revenue stream from each
home sale in the development, based on the package selected by the builder, and
further revenue from sales of add-ons, upgrades and application modules selected
by individual home buyers.

The Company's home networking solutions are flexible enough to accommodate
builders' requirements for virtually all levels of housing units, including
production, semi-custom and custom homes. Builders of production and semi-custom
homes provide high-volume deployment of our infrastructure products. Builders of
custom homes provide early deployment of new technology in high-end home
solutions and tend to yield useful feedback for future product and service
offerings.

We believe that we will be able to maintain and increase our alliances with
builders and developers for a number of reasons, including the following:

     (1)  Turnkey Solution - we provide a single-source, home networking
          solution;
     (2)  Competitive Advantage - we afford our allied builders and developers a
          differentiated and technically-advanced product that distinguishes
          their business from their competitors; and
     (3)  Increased Revenues - Builders and developers generate additional
          revenue from sales of our products. They buy our systems and include
          them in the total cost of the homes they sell.

Notwithstanding the foregoing, we acknowledge that the housing industry faces
certain risks. The housing industry is cyclical and seasonal, and we expect that
our revenues from new residential installations will be affected by the factors
that affect the housing industry, both generally and in the specific areas where
our systems are sold. These factors include: (1) changes in economic conditions,
interest rates and employment levels; (2) consumer confidence and income; (3)
the availability and cost of mortgage financing; and (4) demand for housing.

The housing market is subject to various risks, including overbuilding, delays
in construction schedules, changes in government regulations, increases in
interest rates and energy costs and increases in real estate taxes and other
local government fees. The home building industry has, from time to time,
experienced fluctuating lumber prices and supply, limited availability of
suitable land and construction funds as well as serious shortages of labor and
materials. Our business could be adversely affected by these factors or by other
factors, such as adverse weather conditions and natural disasters, including
hurricanes, tornadoes, droughts, floods and brushfires, which delay or prevent
home building activities.

MANUFACTURING
Our employees design the hardware and software components that are offered as
options within our Network Connection Centers. We currently manufacture our
Network Connection Centers and other products at our own facility in Opelika,
Alabama (see discussion regarding acquisition of Novus Technologies above in
RECENT DEVELOPMENTS.) Hardware components are manufactured to our specifications
by several third party suppliers in the United States and abroad. We are not
currently dependent upon any single supplier, and we believe that alternative
manufacturing sources would be readily available without material delay in the
event of the interruption of supplies from any of our current sources.

INTELLECTUAL PROPERTY
We own or have rights to use proprietary technology that we believe afford us a
current competitive advantage. This technology is not, however, fully protected
from infringement by competitors or from their introduction of non-infringing
technologies. Previously we filed and intend to continue to file patent
applications on various technologies in the United States and we believe that we
have obtained six patents and have six patents pending. Nevertheless, we
acknowledge that we may not be able to obtain additional patents, and our
existing patents or any additional patents we obtain could


                                        7


<PAGE>
subsequently be invalidated for any of a variety of reasons. Even with patented
technology, existing United States laws afford only limited intellectual
property protection. Furthermore, the enforcement and defense of patents can be
extremely costly and divert management and other resources from productive
activity. Therefore, we also rely on a combination of trade secrets, copyright
and trademark law, nondisclosure agreements and technical measures to protect
our proprietary technology. Even these steps, however, may not be adequate to
deter misappropriation, and our proprietary position remains subject to the risk
that our competitors will independently develop non-infringing technologies that
are substantially equivalent or superior to our technologies. Even to the extent
we obtain patent protection, we remain subject to the risk that third parties
will assert infringement claims against us. Such claims could result in costly
litigation or require us to redesign infringing products or obtain a license to
use the intellectual property of third parties. Such licenses might not be
available on reasonable terms or at all. Any infringement claims resolved
against us could adversely affect their ability to continue in their business.

COMPETITION
Our competitors are rapidly changing. They currently include domestic and
foreign manufacturers of competitive products and local and regional systems
integrators who piece together and install products and services from disparate
hardware, software and residential gateway providers. Other competitors are
businesses that offer various aspects of home networking using a home's existing
electrical wiring or wireless home networking for data connectivity. In the
production and marketing of hardware for networking installations, our principal
competitors include LeGrand, Leviton, Honeywell and GE.

RESEARCH AND DEVELOPMENT
Our expenses related to research and development activities were approximately
$584,000 in 2006 and $82,000 in 2005.

EMPLOYEES
As of May 14, 2007, we had approximately 36 full-time employees. None of our
employees is covered by a collective bargaining agreement, nor have we
experienced any work stoppages. We believe that our relations with our employees
are good.

ITEM 2. DESCRIPTION OF PROPERTY
Our corporate headquarters are located in Campbell, California. The Campbell
facility has approximately 3,200 square feet. Our sublease for the facility
expires in 2008 and requires average monthly lease payments of approximately
$6,400. We expect that we will need to seek additional corporate office space in
or around Campbell during 2007. Based on the current market for office space in
the area, we do not anticipate any difficulties in identifying and leasing
sufficient space for our needs on appropriate terms in the foreseeable future.

Upon our acquisition of Novus Technologies in March 2007, we assumed a lease for
a manufacturing facility in Opelika, Alabama. Our lease for that facility
expires in 2012 and requires average monthly lease payments of $10,000. We
anticipate that this facility will fulfill our requirements for the foreseeable
future and we will not need to seek additional manufacturing space at least
through calendar year 2007.

ITEM 3. LEGAL PROCEEDINGS
On September 28, 2005, we and our direct subsidiary Home Director Technologies,
Inc. ("HDT") and our indirect subsidiary Digital Interiors, Inc.
("DI")(collectively, "the Companies") filed voluntary petitions for relief under
Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code")in U.S.
Bankruptcy Court for the Northern District of California, Oakland Division (the
Bankruptcy Court") (Case No. 05-45812, 05-45814 and 05-45815, respectively). On
June 26, 2006, the Companies filed with the Bankruptcy Court a Second Amended
Joint Plan of Reorganization, dated June 26, 2006 and Second Amended Disclosure
Statement, dated June 26, 2006 (the "Disclosure Statement"). The Bankruptcy
Court approved the Disclosure Statement by that certain Order Approving
Disclosure Statement, Fixing Time for Filing Acceptances or Rejections of Plan
and Setting Hearing on Confirmation entered on June 27, 2006. Thereafter, on
October 9, 2006, the Companies filed a Seconded Amended Joint Plan of
Reorganization dated June 26, 2006 (As Modified)("Reorganization Plan"). On
October 12, 2006, the Bankruptcy Court entered an Order Confirming Chapter 11
Plan. Pursuant to the provisions of Bankruptcy Code Section 1127(a), the
Companies made material changes and modifications to the Reorganization Plan
after Bankruptcy Court approval of the terms of the Disclosure Statement; in the
event of a conflict between the terms and provisions of the Disclosure Statement
and the Reorganization Plan, the terms of the Reorganization Plan prevail.

                                        8


<PAGE>
The following summarizes the classification and treatment of claims and
interests as provided by the Reorganization Plan. This summary of the
Reorganization Plan and Disclosure Statement does not purport to be complete and
is qualified in its entirety by reference to the Reorganization Plan and the
Disclosure Statement. The Reorganization Plan provides for different treatment
for different classes of Claims and equity interests in accordance with the
Bankruptcy Code. Under the Reorganization Plan, other than Administrative Claims
and Tax Claims, which are unclassified, most Claims against or Interests in the
Companies are impaired. Reference should be made to the Disclosure Statement and
to the Reorganization Plan for a complete description of the classifications and
treatment of Claims and Interests. On October 23, 2006 (the "Effective Date" of
the Reorganization Plan), the currently outstanding shares of our common stock
were cancelled without any distribution to be made to the holders of such
shares. As of the Effective Date, our authorized common stock will consist of
40,000,000 shares New Common Stock, par value $0.01 per share. Pursuant to the
Reorganization Plan, an aggregate of 7,250,000 shares of New Common Stock shall
be issued and distributed as follows: approximately 6,500,000 shares of New
Common Stock to HMDR Investors (or its assignees), which will represent
approximately 90% of our New Common Stock, and approximately 750,000 shares of
New Common Stock to Holders of Allowed Class 3 Claims, which shall represent
approximately 10% of our New Common Stock.

We have received written notice from a third party alleging breach of contract
and violation of trademark law in connection with the use of the "Home Director"
trademark. We have taken what we believe is appropriate remedial action and do
not believe that there is any remaining basis for a claim by the third party,
nor has the third party taken further action to pursue its claim. Nevertheless,
it is possible that the third party will initiate legal action seeking damages
and/or injunctive relief against us. If any such litigation should be resolved
adversely, we could be compelled to pay damages and/or royalties to the third
party for its use of the Home Director name and/or limit or discontinue its use
as a trademark.

We are subject to various legal proceedings and claims, which have arisen in the
ordinary course of its business and have not been fully adjudicated. It is not
possible at this time for us to predict with any certainty the outcome of such
litigation. However, management is of the opinion, based upon information
presently available, that it is unlikely that any such liability, to the extent
not provided for through insurance or otherwise, would be material in relation
to our consolidated financial position or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.

                                     PART II

ITEM 5: MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION
Our Common Stock was quoted on the OTC Bulletin Board under the symbol "HMDR".
In February 2007, we were delisted from the OTC Bulletin Board and, as of April
30, 2007, our common stock is not being traded in a public trading market. We
anticipate receiving a new symbol and being traded on the pink sheets in the
second or third quarter of 2007. The following approximate high and low bid
information for the Common Stock is as reported by the OTC Bulletin Board. The
prices stated represent inter-dealer quotations, which do not include retail
mark-ups, mark-downs or commissions. Such prices do not necessarily represent
actual transactions.

As of April 30, 2007, there were approximately 165 holders of record of our
Common Stock.

                                                  High             Low
                                                  ----             ---
2005
First quarter                                         *                *
Second quarter                                   $0.030           $0.005
Third quarter                                     0.006            0.003
Fourth quarter                                    0.006            0.001

2006
First quarter                                     0.008            0.001
Second quarter                                    0.003            0.001
Third quarter                                     0.010            0.001
Fourth quarter                                    0.019            0.006

*Information not readily available.

                                        9

<PAGE>

DIVIDENDS
We have not paid any cash dividends on our Common Stock and do not anticipate
declaring or paying any cash dividends in the foreseeable future. The holders of
our Common Stock are entitled to dividends when and if declared by our board of
directors from legally available funds.

EQUITY COMPENSATION PLANS
The following table contains information about the shares of Common Stock
underlying options granted under our Stock Option Plan (the Plan) that were
outstanding as of December 31, 2006. It does not include options granted after
December 31, 2006.
<TABLE>
<CAPTION>
                                                                                 Number of securities
                                                                                  remaining  available
                                      Number of securities   Weighted-average     for future issuance
                                         to be issued         exercise price    under equity compensation
                                       upon exercise of      of outstanding    plans (excluding securities
                                      outstanding options*       options        reflected in first column)*
                                      --------------------   ---------------   ----------------------------
<S>                                          <C>                  <C>                   <C>
Equity compensation plans approved          3,460,363             $0.54                   --
by stockholders

Equity compensation plans not                    --                 --                    --
approved by stockholders

               Total                        3,460,363             $0.54                   --
</TABLE>

*We have reserved a total of 2,500,000 shares of common stock for issuance under
our Plan. Effective October 24, 2006, we entered into an agreement with certain
of our officers under which the officers agreed not to exercise options to
purchase an aggregate of 960,363 shares of common stock until such time, if
ever, as we amend our certificate of incorporation to increase the shares of
common stock reserved for the Plan to a number that is sufficient to permit
exercise of all of the outstanding options to acquire shares of our commons
stock.

UNREGISTERED SALES OF SECURITIES
During the past three years, we have issued options to purchase shares of our
Common Stock from time to time under our Amended and Restated Stock Option Plan.
The exercise prices of such options are equal to the fair market value of our
Common Stock on the respective grant dates. The stock option grants were exempt
from registration pursuant to Section 4(2) of the Securities Act, since they
were made to a small number of informed persons who were provided with all
information relevant to their investment decisions. In addition, pursuant to the
merger, we assumed all outstanding options under HDT's Stock Incentive Plan
(subject to necessary adjustments to reflect the exchange ratio under the merger
agreement), which were granted by HDT without registration pursuant to the
exemption from registration available under Rule 701 under the Securities Act.
We plan to register under the Securities Act the offering of Common Stock
pursuant to all options granted or which may be granted under our Amended and
Restated Stock Option Plan.


                                       10


<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

Due to adoption of fresh start accounting, as of October 31, 2006, and the
requirements of SOP 90-7, the financial results for November 1, 2006 to December
31, 2006 have been separately presented under the heading "Reorganized Company."
<TABLE>
<CAPTION>

                      SELECTED CONSOLIDATED FINANCIAL DATA
                             OF HOME DIRECTOR, INC.

                                                 Reorganized     Predecessor     Predecessor
                                                   Company         Company         Company
                                                 November 1 -    January 1 -     January 1 -
                                                 December 31,    October 31,     December 31,
                                                 ------------    ------------    ------------
                                                     2006           2006             2005
                                                     ----           ----             ----
<S>                                              <C>             <C>             <C>
Statement of operations:
Revenue                                          $     40,400    $     47,429    $    851,777
Costs and expenses:
Cost of sales                                         111,687          40,171         717,828
General and administrative                          1,877,446       1,216,094       1,761,174
Sales and marketing                                   344,392         429,352         504,756
Research and development                              490,629          92,884          82,377
Depreciation and amortization                             742           1,899             337
                                                 ------------    ------------    ------------
Total costs and expenses                            2,824,896       1,780,400       3,066,472
                                                 ------------    ------------    ------------

Loss from operations                               (2,784,495)     (1,732,971)     (2,214,695)
Other income (expense):
Interest and other income                             (91,098)        127,847           1,923
Interest and other expense                            (27,724)        (88,720)         (6,121)
                                                 ------------    ------------    ------------
Net other income (expense)                           (118,822)         39,127          (4,198)
                                                 ------------    ------------    ------------
                                                   (2,903,318)     (1,693,843)     (2,218,893)

Loss on disposal of business unit                          --              --        (559,521)
                                                 ------------    ------------    ------------

Net loss                                         $ (2,903,318)   $ (1,693,843)   $ (2,778,414)
                                                 ============    ============    ============

Net loss per common share - basic and diluted:
Shares used in computing basic and diluted
net loss per common share                          10,266,667 *    16,035,715      16,035,715
                                                 ============    ============    ============

Loss per share                                   $      (0.28)   $      (0.11)   $      (0.17)
                                                 ============    ============    ============
</TABLE>

*    The certificates for these shares of common stock are not issued as of
     December 31, 2006 (see Note 2)



                                       11


<PAGE>


                                              Reorganized     Predecessor
                                                Company         Company
                                              December 31,    December 31,
                                                 2006            2005
                                             -------------    ------------
Balance sheet data:
Cash and cash equivalents                    $     2,822      $     8,853
Accounts receivable                               27,629           90,814
Inventory                                         55,331               --
Other current assets                             326,841           17,304
Total current assets                             412,623          116,971
Property and equipment, net                       14,095            8,268
Total assets                                     426,718          125,238
Accounts payable and accrued expenses          1,540,585          928,160
Debtor in possession loan                             --          516,758
Bankruptcy obligations - short term              643,570        5,762,205
Convertible notes payable                        250,000               --
Total current liabilities                      2,434,155        7,207,123
Bankruptcy obligations - long term             1,716,968               --
Total liabilities                              4,151,123        7,207,123
Total shareholders' equity (deficit)          (3,724,405)      (7,081,885)

<TABLE>
<CAPTION>

                                                  Reorganized     Predecessor     Predecessor
                                                    Company         Company         Company
                                                  November 1 -    January 1 -     January 1 -
                                                  December 31,    October 31,     December 31,
                                                  ------------    ------------    ------------
                                                      2006           2006             2005
                                                      ----           ----             ----
<S>                                               <C>            <C>            <C>
Other financial data:
Cash flows from operating activities:
Net loss                                          $(2,903,318)   $(1,693,843)   $(2,778,414)
Adjustments to reconcile net loss to net cash
   used in operating activities:
Depreciation and amortization                             742          1,898            337
Loss on disposal of assets                                 --             --        469,475
Expense from issuance of stock to employees and
 service providers                                  1,629,000             --             --
Expense from grant of stock options                    33,429             --             --
Changes in operating assets and liabilities:
Accounts receivable                                   (25,680)        88,864        159,186
Inventories                                           (53,564)        (1,767)       566,370
Other current assets                                 (192,091)      (117,446)        84,855
Accounts payable and accrued expenses                 593,920         18,505        928,161
Bankruptcy obligations (short and long term),
 net of reductions in accounts payable and
 accrued expenses, notes payable and deferred
 liabilities - long term (2005)                        (3,311)            --        446,876
                                                  -----------    -----------    -----------

Net cash used in operating activities                (920,873)    (1,703,789)      (123,154)
                                                  -----------    -----------    -----------
Net cash used in investing activities                  (3,899)        (4,568)        (8,605)
                                                  -----------    -----------    -----------
Net cash provided by financing activities             250,000      2,377,098         76,864
                                                  -----------    -----------    -----------
</TABLE>


                                       12


<PAGE>


ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION OVERVIEW
Our revenues consist primarily of revenues from the sale of home networking
products. Home networking hardware is sold primarily to distributors for use by
integrators who install the hardware in homes throughout the United States and
Canada. Also, thru February 2005, when we sold certain assets of our
installation services subsidiary and ceased all installation services
activities, we provided installation services, primarily to the new home
construction market, in California, Florida, Colorado and Texas.

Research and development expenses consist primarily of salaries and related
personnel expenses, subcontracted research expenses, and technology license
expenses. As of December 31, 2006, all research and development costs had been
expensed as incurred. We believe that continued investment in research and
development is critical to attaining our strategic objectives.

General and administrative expenses consist primarily of expenses for executive,
finance and administrative personnel, professional fees, and other general
corporate expenses. As we add personnel and incur additional costs related to
the growth of our business, general and administrative expenses will also
increase.

RECENT DEVELOPMENTS
On September 28, 2005, we and our direct subsidiary Home Director Technologies,
Inc.
("HDT") and our indirect subsidiary Digital Interiors, Inc. ("DI")(collectively,
"the Companies") filed voluntary petitions for relief under Chapter 11 of the
United States Bankruptcy Code (the "Bankruptcy Code")in U.S. Bankruptcy Court
for the Northern District of California, Oakland Division (the Bankruptcy
Court") (Case No. 05-45812, 05-45814 and 05-45815, respectively). On June 26,
2006, we filed with the Bankruptcy Court a Second Amended Joint Plan of
Reorganization, dated June 26, 2006 and Second Amended Disclosure Statement,
dated June 26, 2006 (the "Disclosure Statement"). The Bankruptcy Court approved
the Disclosure Statement by that certain Order Approving Disclosure Statement,
Fixing Time for Filing Acceptances or Rejections of Plan and Setting Hearing on
Confirmation entered on June 27, 2006. Thereafter, on October 9, 2006, we filed
a Seconded Amended Joint Plan of Reorganization dated June 26, 2006 (As
Modified) ("Reorganization Plan"). On October 12, 2006, the Bankruptcy Court
entered an Order Confirming Chapter 11 Plan. Pursuant to the provisions of
Bankruptcy Code Section 1127(a), we made material changes and modifications to
the Reorganization Plan after Bankruptcy Court approval of the terms of the
Disclosure Statement; in the event of a conflict between the terms and
provisions of the Disclosure Statement and the Reorganization Plan, the terms of
the Reorganization Plan prevail.

The following summarizes the classification and treatment of claims and
interests as provided by the Reorganization Plan. This summary of the
Reorganization Plan and Disclosure Statement does not purport to be complete and
is qualified in its entirety by reference to the Reorganization Plan and the
Disclosure Statement. The Reorganization Plan provides for different treatment
for different classes of Claims and equity interests in accordance with the
Bankruptcy Code. Under the Reorganization Plan, other than Administrative Claims
and Tax Claims, which are unclassified, most Claims against or Interests in us
are impaired. Reference should be made to the Disclosure Statement and to the
Reorganization Plan for a complete description of the classifications and
treatment of Claims and Interests. On October 23, 2006 (the "Effective Date" of
the Reorganization Plan), the currently outstanding shares of our common stock
were cancelled without any distribution to be made to the holders of such
shares. As of the Effective Date, our authorized common stock will consist of
40,000,000 shares New Common Stock, par value $0.01 per share. Pursuant to the
Reorganization Plan, an aggregate of 7,250,000 shares of New Common Stock shall
be issued and distributed as follows: approximately 6,500,000 shares of New
Common Stock to HMDR Investors (or its assignees), which will represent
approximately 90% of our New Common Stock, and approximately 750,000 shares of
New Common Stock to Holders of Allowed Class 3 Claims, which shall represent
approximately 10% of our New Common Stock.

CRITICAL ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Significant estimates include the allowance for doubtful
accounts and the allowance for obsolete and slow-moving inventory. Actual
results can differ from those estimates.


                                       13
<PAGE>
Cash and Cash Equivalents
We consider all highly liquid investments purchased with an original or
remaining maturity of less than three months at the date of purchase to be cash
equivalents.

Inventories
Inventories consist of finished goods and are stated at the lower of cost or
market. Cost is determined by the weighted average costing method. We provide an
allowance for excess and obsolete inventory and inventory where the market value
is lower than cost. The following table represents the major components of
inventory at December 31, 2006.

                                                         2006
                                                       -------
Finished goods                                         $    --
Components                                              55,331
Less:  Allowance for obsolescence                           --
                                                       -------
                                                       $55,331
                                                       =======

Fair Value of Financial Instruments
Carrying amounts of certain of our financial instruments, including cash and
cash equivalents, accounts receivable and accrued liabilities approximate fair
value because of their short maturities.

Credit Risk, Significant Customers and Concentrations
Financial instruments that potentially subject us to credit risk consist
principally of accounts receivable and cash investments. Receivables are
unsecured. We provide an allowance for doubtful accounts equal to the estimated
losses expected to be incurred in the collection of accounts receivable. There
were no such allowances recorded as of December 31, 2006.

Cash and cash equivalents consist of cash deposits, money market funds and
highly rated commercial paper held at banks. Deposits held at banks may at times
exceed the amount of insurance provided. Generally, these deposits may be
redeemed upon demand and therefore bear minimal risk.

Loss Per Share
In accordance with SFAS 128, basic and diluted net loss per common share has
been computed using the weighted-average number of shares of common stock
outstanding during the period. Although we had no issued or outstanding common
stock as of December 31, 2006, we had 10,266,667 common shares issuable as of
that date and we included those shares issuable as of December 31, 2006 in the
basic and diluted net per common share calculations. The effect of options to
purchase 3,460,363 shares of our common stock outstanding during 2006, was not
included in the computation of diluted net income per share because their effect
would be antidilutive. The effect of warrants to purchase 125,000 shares of our
common stock outstanding during 2006, was not included in the computation of
diluted net income per share because their effect would be antidilutive.

Revenue Recognition
Our revenues consist primarily of sales of home networking products. We
generally recognize product revenue when persuasive evidence of an arrangement
exists, delivery has occurred, the fee is fixed or determinable, and
collectibility is reasonably assured. We accrue for sales returns, rebate
programs and warranty costs based on its experience.

Property and Equipment
Property and equipment is recorded at cost and depreciated using the
straight-line method over their estimated useful lives which generally range
from two to five years. Property and equipment includes certain equipment under
capital leases. These items are depreciated over the shorter of the lease period
or the estimated useful life of the equipment.

Intangible Assets
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible
Assets," which is required to be applied for fiscal years beginning after
December 15, 2001. We have adopted SFAS 142 as of January 1, 2002. SFAS 142
eliminates the amortization of goodwill and certain other intangible assets. It
also requires us to complete a test for impairment of these assets annually, as
well as a transitional goodwill impairment test within six months from the date
of adoption. There is no remaining goodwill or other intangible assets as of
December 31, 2006.


                                       14
<PAGE>

Income Taxes
We account for income taxes using the liability method which requires the
recognition of deferred tax assets or liabilities for the temporary differences
between the financial reporting and tax bases of our assets and liabilities and
for tax carryforwards at enacted statutory rates in effect for the years in
which the differences are expected to reverse. The effect on deferred taxes of a
change in tax rates is recognized in income in the period that includes the
enactment date. In addition, valuation allowances are established when necessary
to reduce deferred tax assets to the amounts expected to be realized. We have
not recorded any income tax expense or benefit as a result of its available net
operating loss carryforwards, which are fully reserved by a valuation allowance.
The Tax Reform Act of 1986 contains provisions that limit the ability to utilize
net operating loss carryforwards in the case of certain events including
significant changes in ownership interests. We have not completely evaluated
whether we have undergone an ownership change pursuant to this act as a result
of the Reorganization Plan but we believe that an ownership will likely be
deemed to have occurred. If such ownership changes are found to exist, the net
operating loss carryforwards could be significantly limited.

Accounting for Stock-Based Compensation
In December 2004, the FASB issued SFAS No.123 (revised 2004), "Share-Based
Payment". Statement 123(R) will provide investors and other users of financial
statements with more complete and neutral financial information by requiring
that the compensation cost relating to share-based payment transactions be
recognized in financial statements. That cost will be measured based on the fair
value of the equity or liability instruments issued. Statement 123(R) covers a
wide range of share-based compensation arrangements including share options,
restricted share plans, performance-based awards, share appreciation rights, and
employee share purchase plans. Statement 123(R) replaces FASB Statement No. 123,
Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees. Statement 123, as originally issued in
1995, established as preferable a fair-value-based method of accounting for
share-based payment transactions with employees. However, that Statement
permitted entities the option of continuing to apply the guidance in Opinion 25,
as long as the footnotes to financial statements disclosed what net income would
have been had the preferable fair-value-based method been used. Public entities
(other than those filing as small business issuers) will be required to apply
Statement 123(R) as the first interim or annual reporting period that begins
after June 15, 2005. See Note 9 of our financial statements for expenses related
to options granted in the year ended December 31, 2006.

RESULTS OF OPERATIONS

In February 2005, we sold certain assets of our installation services
subsidiary, Digital Interiors, and ceased all installation service activities.
In April 2005, we reduced our operations related to the sale of home networking
products and ultimately, as discussed below, filed a voluntary petition for
relief under Chapter 11 of the Bankruptcy Code. We continued to operate to
liquidate and collect assets, sell assets and maintain critical customer and
vendor relationships.

On September 28, 2005, we and our direct subsidiary Home Director Technologies,
Inc. ("HDT") and our indirect subsidiary Digital Interiors, Inc.
("DI")(collectively, "the Companies") filed voluntary petitions for relief under
Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code")in U.S.
Bankruptcy Court for the Northern District of California, Oakland Division (the
Bankruptcy Court") (Case No. 05-45812, 05-45814 and 05-45815, respectively). On
June 26, 2006, we filed with the Bankruptcy Court a Second Amended Joint Plan of
Reorganization, dated June 26, 2006 and Second Amended Disclosure Statement,
dated June 26, 2006 (the "Disclosure Statement"). The Bankruptcy Court approved
the Disclosure Statement by that certain Order Approving Disclosure Statement,
Fixing Time for Filing Acceptances or Rejections of Plan and Setting Hearing on
Confirmation entered on June 27, 2006. Thereafter, on October 9, 2006, we filed
a Seconded Amended Joint Plan of Reorganization dated June 26, 2006 (As
Modified)("Reorganization Plan"). On October 12, 2006, the Bankruptcy Court
entered an Order Confirming Chapter 11 Plan. Pursuant to the provisions of
Bankruptcy Code Section 1127(a), we made material changes and modifications to
the Reorganization Plan after Bankruptcy Court approval of the terms of the
Disclosure Statement; in the event of a conflict between the terms and
provisions of the Disclosure Statement and the Reorganization Plan, the terms of
the Reorganization Plan prevail.

In 2006, we increased our research & development activities and developed a new
family of Network Connection Centers and other home networking products with
broader functionality and lower cost of production than our previous products.

                                       15
<PAGE>

Years Ended December 31, 2006 and 2005
The following comparisons, as well as those for 2005 as compared to 2004, are
based on financial information presented in Item 6 "Selected Financial Data." As
a consequence of the Reorganization occurring as of October 31, 2006, the
financial results for the twelve (12) months ended December 31, 2006 have been
separately presented under the heading "Predecessor Company" for the period of
January 1, 2006 to October 31, 2006 and "Reorganized Company" for the period of
November 1, 2006 to December 31, 2006. For discussion purposes below, the
periods January 1, 2006 to October 31, 2006 and November 1, 2006 to December 31,
2006 have been added together to compare to the twelve (12) months ended
December 31, 2005.

Our revenues are derived primarily from the sale of home networking products.
Revenues were approximately $88,000 in 2006, compared to approximately $852,000
in 2005, a decrease of 90%. The reduction was primarily attributable to reduced
installation services sales in 2006 (from approximately $685,000 in 2005 to none
in 2006) due to the sale of certain assets of our installation services
subsidiary and cessation of all installation service activities in February
2005. Sales of home networking products also decreased in 2006 (from
approximately $167,000 in 2005 to approximately $88,000 in 2006) as we reduced
our operations in April 2005, as noted above. Although we have limited ability
to project future revenues from hardware sales, since shipments are generally
made in the same month orders are received, we expect our revenues to grow in
2007, both organically and as a result of the acquisition of Novus Technologies
completed in March 2007.

Total costs and expenses were approximately $4.6 million in 2006 as compared to
approximately $3.1 million in 2005, an increase of 33%. Our expenses
significantly increased in 2006 as compared to 2005, primarily due to increased
number of personnel, personnel related expenses (we had 35 employees as of
December 31, 2006 as compared to six as of December 31, 2005) and R&D consulting
expenses: general & administrative (increased by approximately $1.3 million),
research & development (increased by approximately $501,000) and sales &
marketing (increased by approximately $269,000), offset in part by a reduction
in cost of sales (approximately $566,000) related to the sale of certain assets
of our installation services subsidiary and cessation of our installation
services activities. We believe that increased research & development, sales &
marketing and general & administrative expenses, which began in 2006, resulting
primarily from hiring additional engineering personnel, sales and support
personnel and executive personnel are required to improve and broaden our
product offerings and sell them to our customers. From time-to-time, we may also
incur additional professional fees and other costs in connection with possible
future attempts to expand our product offerings and increase our revenues
through organic growth and acquisitions. In addition, we expect our general &
administrative expenses to increase as a result of the corporate governance,
outside audits and other activities that are related, generally, to being a
publicly-traded company.

In 2005, we recorded a loss on disposal of business unit (the sale of certain
assets of our installation services subsidiary - Digital Interiors) of
approximately $560,000 which represents the difference between the proceeds from
the sale less the net book value of the assets (primarily inventory and
vehicles) sold. There were no similar charges recorded in 2006.

Our net loss in 2006 was approximately $4.6 million, as compared to a net loss
of approximately $2.8 million in 2005. The increased net loss was primarily
attributable to:

     o    a net increase of approximately $2.1 million of research &
          development, sales & marketing and general & administrative expenses
          in 2006 as compared to 2005 primarily due to increased number of
          personnel, personnel related costs and consulting fees;
     o    a net decrease of approximately $198,000 of gross profit (the
          difference between revenues and cost of sales) in 2006 as compared to
          2005 primarily due to reduced revenues in 2006; and,
     o    the fact that we had no loss on disposal of business unit in 2006
          while we had a charge of approximately $560,000 in 2005.

Years Ended December 31, 2005 and 2004
Our revenues are derived from the sale of home networking products and services.
Revenues were approximately $852,000 in 2005, compared to approximately $7.9
million in 2004, a decrease of 89%. The reduction was primarily attributable to
reduced installation services sales in 2005 (from approximately $6.3 million in
2004 to approximately $685,000 in 2005) due to the sale of certain assets of our
installation services subsidiary and cessation of all installation service
activities in February 2005. Sales of home networking products also decreased in
2005 (from approximately $1.6 million in 2004 to approximately $167,000 in 2005)
as we reduced our operations in April 2005, as noted above. Although we have
limited ability to project future revenues from hardware sales since shipments
are generally made in the same month orders are received, our revenues began to
grow in 2007, after the confirmation of our Reorganization Plan.

                                       16


<PAGE>

Total costs and expenses were approximately $3.1 million in 2005, compared to
approximately $23.4 million in 2004, a decrease of 87%. The decrease in 2004 was
primarily attributable to the reduction in cost of sales (approximately $7.6
million) related to the sale of certain assets of our installation services
subsidiary and cessation of our installation services and the non-recurring
nature of the charges recorded for impairment of intangible assets
(approximately $5.9 million) in 2004 that did not recur in 2005. All other
expenses were also significantly decreased in 2005 as compared to 2004,
primarily due to reduced number of personnel and personnel related expenses (we
had six employees as of December 31, 2005 as compared to over 100 as of December
31, 2004): sales & marketing (decreased by approximately $3 million), general &
administrative (decreased by approximately $2.7 million), research & development
(decreased by approximately $843,000) and depreciation & amortization (decreased
by approximately $291,000.) Although our expenses were significantly reduced in
2005, due to the reduction of our operations related to our Reorganization Plan,
we believe that we may have increased future research & development, sales &
marketing and general & administrative expenses, beginning in 2006, resulting
primarily from hiring additional engineering personnel, sales and support
personnel and executive personnel as we plan to improve and broaden our product
offerings and "re-start" after the confirmation of our Reorganization Plan in
October 2006. From time-to-time, we may incur additional professional fees and
other costs in connection with possible future attempts to expand our product
offerings.

In 2005, we recorded a loss on disposal of business unit (the sale of certain
assets of our installation services subsidiary - Digital Interiors) of
approximately $560,000 which represents the difference between the proceeds from
the sale less the net book value of the assets (primarily inventory and
vehicles) sold. There were no similar charges recorded in 2004.

Our net loss in 2005 was approximately $2.8 million, as compared to a net loss
of approximately $15.7 million in 2004. The decrease in loss was primarily
attributable to:

     o    the fact that we had no impairment of intangible assets in 2005 while
          we had a charge of approximately $5.9 million from the impairment of
          intangible assets in 2004;
     o    a net decrease of approximately $6.6 million of research &
          development, sales & marketing and general & administrative expenses
          in 2005 as compared to 2004 primarily due to decreased number of
          personnel and personnel related costs;
     o    a net increase of approximately $606,000 of gross profit (the
          difference between revenues and cost of sales) in 2005 as compared to
          2004 primarily due to reversal of certain revenues in 2004; and,
     o    the fact that we had no loss on disposal of business unit in 2004
          while we had a charge of approximately $560,000 in 2005.

LIQUIDITY AND CAPITAL RESOURCES
Historically, our operations have never been self-sustaining, and we have
financed our continuing operations through a series of private offerings of debt
and equity and by obtaining advances under loan agreements. We cannot predict
when, if ever, our business will produce sufficient cash to reduce or eliminate
our dependence on external financing as our primary source of working capital.
As discussed above, on September 28, 2005, we and our subsidiaries, HDT and DI
filed voluntary petitions for relief under Chapter 11 of the United States
Bankruptcy Code. The financial statements do not reflect the results of these
proceedings.

Cash
As of December 31, 2006, we had cash, cash equivalents, investments and interest
receivable totaling approximately $3,000. Net cash used in 2006 totaled
approximately $6,000. Of that amount approximately $2.9 million was used to fund
the cash operating loss, offset in part by net proceeds from the Debtor in
Possession (DIP) loans (approximately $2.4 million) and proceeds from
convertible notes ($250,000.)

Net cash used in operating activities was approximately $2.6 million for 2006
and approximately $123,000 for 2005. Net cash used for both periods in operating
activities was primarily for funding of operating losses.

Net cash used in investing activities was approximately $8,000 for 2006 and
approximately $9,000 for 2005. Cash was used in investing activities during 2006
and 2005 primarily to purchase property and equipment.

                                       17

<PAGE>


Net cash provided by financing activities was approximately $2.6 million for
2006 and approximately $77,000 for 2005. Net cash provided by financing
activities during 2006 resulted primarily from net proceeds from DIP loans and
the proceeds from the issuance of convertible notes and net cash provided by
financing activities during 2005 resulted primarily from net proceeds from DIP
loans offset in part by cash used to repay bank loans.

Going Concern Considerations
As a result of our losses from operations and dependence upon financing
operations through a series of private offerings of debt and equity our
independent auditors have included an explanatory paragraph in their report on
the accompanying financial statements indicating there is substantial doubt
about our ability to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.

OFF BALANCE SHEET ARRANGEMENTS We have no off balance sheet arrangements.

CAUTIONARY STATEMENTS
AN INVESTMENT IN OUR COMMON STOCK IS RISKY. PROSPECTIVE PURCHASERS SHOULD
CAREFULLY CONSIDER THE FOLLOWING RISKS, AS WELL AS THE OTHER INFORMATION
CONTAINED IN THIS REPORT. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCURS, IT
WOULD HARM OUR BUSINESS. IN THAT CASE, THE TRADING PRICE OF OUR COMMON STOCK
COULD DECLINE. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY ONES
FACING US. ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN TO US OR THAT
WE CURRENTLY SEE AS IMMATERIAL, MAY ALSO HARM OUR BUSINESS.
THE REPORT OF OUR INDEPENDENT AUDITORS ON OUR FINANCIAL STATEMENTS CONTAINS AN
EXPLANATORY PARAGRAPH ON OUR ABILITY TO CONTINUE AS A GOING CONCERN.

The report of our independent auditors contains an explanatory paragraph raising
substantial doubt about our ability to continue as a going concern because of
our operating losses and our dependence upon financing our operations through a
series of private offerings of debt and equity securities. Our financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

WE HAVE A HISTORY OF OPERATING LOSSES AND MAY NEVER BE PROFITABLE.
We have incurred significant quarterly and annual operating losses in every
fiscal period since our inception, and we may continue to incur quarterly and
annual operating losses in the future. There is no assurance that we will ever
be profitable. Our ability to achieve profitability will depend upon a number of
factors, including, but not limited to, whether we:

     o    have financing available for working capital, product development and
          sales and marketing efforts;
     o    develop new products for existing and new markets;
     o    maintain sales prices, achieve higher sales volume and achieve
          manufacturing efficiencies in order to maintain or improve our gross
          margins;
     o    control our operating expenses;
     o    expand the distribution network for our products; and
     o    withstand competition in our marketplace.

OUR ACTIVITIES REQUIRE ADDITIONAL FINANCING, WHICH MAY NOT BE OBTAINABLE.
Our financial resources are limited and the amount of funding that we will
require to develop, commercialize and manufacture our products, develop
distribution channels and expand our business is highly uncertain. We may also
need to raise additional capital to fund expansion of our business by way of
strategic acquisitions. We plan to seek additional financing which may include
the issuance of debt or equity securities and commercial borrowing. If
additional funds are raised through the issuance of equity or convertible debt
securities, the percentage ownership of current stockholders will be reduced and
stockholders may experience further dilution if such securities have rights,
preferences and privileges senior to those of existing stockholders. There can
be no assurance that we will be able to obtain any such capital on acceptable
terms, if at all. If we are unable to obtain necessary working capital, we may
not be able to fund our expansion, take advantage of acquisition opportunities,
develop or enhance products, respond to competitive pressures and may be
compelled to cease operations.

ALTHOUGH WE HAVE SIGNED AN AGREEMENT FOR A PRIVATE PLACEMENT OF SECURITIES,
THERE IS NO ASSURANCE THAT WE WILL OBTAIN ANY PROCEEDS
On February 15, 2007, we entered an agreement to engage Trenwith Securities, LLC
as our exclusive placement of securities to be issued by us and any of our
subsidiaries. If we are unable to obtain necessary working capital, we may not
be able to fund our expansion, take advantage of acquisition opportunities,
develop or enhance products, respond to competitive pressures and may be
compelled to cease operations.investment banking agent to arrange and negotiate
a $25 million private


                                       18
<PAGE>


OUR COMMON STOCK IS CURRENTLY NOT TRADED ON A PUBLIC MARKET, LIQUIDITY ON THE
OTC BULLETIN BOARD IS LIMITED, AND WE MAY BE UNABLE TO OBTAIN LISTING OF OUR
COMMON STOCK ON A MORE LIQUID MARKET, IF AT ALL.
Although we have recently provided all requested materials so that a market
maker can apply for a ticker symbol for us, there can be no assurance that we
will receive such symbol so that we can be traded on the Pink Sheets.
Historically, our Common Stock has been quoted on the OTC Bulletin Board, which
provides significantly less liquidity than a securities exchange (such as the
American or New York Stock Exchange) or an automated quotation system (such as
the Nasdaq National or SmallCap Market). There is uncertainty that we will ever
be accepted for a listing on an automated quotation system or securities
exchange.

OUR COMMON STOCK HAS BEEN THINLY TRADED, AND THE PUBLIC MARKET MAY PROVIDE
LITTLE OR NO LIQUIDITY FOR HOLDERS OF OUR COMMON STOCK.
Purchasers of shares of our Common Stock may find it difficult to resell their
shares at prices quoted in the market or at all. Due to the historically low
trading price of our Common Stock, many brokerage firms may be unwilling to
effect transactions in our Common Stock, particularly because low-priced
securities are subject to an SEC rule that imposes additional sales practice
requirements on broker-dealers who sell low-priced securities (generally those
below $5.00 per share). We cannot predict when or whether investor interest in
our Common Stock might lead to an increase in its market price or the
development of a more active trading market or how liquid that market might
become.

OUR STOCK PRICE MAY BE PARTICULARLY VOLATILE, WHICH COULD RESULT IN SUBSTANTIAL
LOSSES FOR PURCHASERS OF OUR COMMON STOCK.
The historical, relative illiquidity of trading in our Common Stock makes it
particularly susceptible to price volatility which could cause purchasers of our
Common Stock to incur substantial losses. Among factors that could cause
significant fluctuation in the market price of our Common Stock are the
following:

     o    an increase in the volume of public resales of our Common Stock;
     o    changes in market valuations of similar companies;
     o    announcements by us or our competitors of new or enhanced products,
          technologies or services or significant contracts, acquisitions,
          strategic relationships, joint ventures or capital commitments;
     o    regulatory developments;
     o    additions or departures of key personnel; and
     o    deviations in our results of operations from the estimates of
          securities analysts.

BLANK CHECK PREFERRED
Our board of directors has the authority to issue shares of preferred stock and
to determine the price, rights, preferences, privileges and restrictions,
including voting rights, of such stock without further shareholder approval. The
rights of the holders of common stock could be subjected to, and may be
adversely affected by, the rights of holders of any preferred stock that may be
issued in the future. Issuance of additional shares of preferred stock could
have the effect of delaying, deferring or preventing a change in control of us.

WE DEPEND HEAVILY ON OUR SENIOR MANAGEMENT WHO MAY BE DIFFICULT TO REPLACE.
We believe that our future success depends to a significant degree on the
skills, experience and efforts of Michael Liddle, our Chief Executive Officer.
Any executives would be difficult to replace. While they have incentives to
remain with the Company, there is no assurance that any executive will not elect
to terminate his services to us at any time.

IMPROVEMENT IN OUR BUSINESS DEPENDS ON OUR ABILITY TO INCREASE CONSUMER DEMAND
FOR OUR PRODUCTS AND SERVICES AND HOME BUILDER PARTICIPATION IN OUR MARKETING
PROGRAMS.
Unless and until otherwise motivated by consumer demand, additional home
builders may be unwilling to introduce or bear the costs of offering our systems
to new home purchasers. Adverse events or economic or other conditions affecting
markets for new homes, potential delays in product development, product and
service flaws, changes in technology and the availability of competitive
products are among a number of factors that could limit home builder and
consumer demand for our products and services.


                                       19
<PAGE>

IF OUR NAME DOES NOT ACHIEVE AND MAINTAIN BROAD MARKET RECOGNITION, WE MAY FAIL
TO MAINTAIN OR INCREASE OUR MARKET SHARE.
We believe that brand recognition is important to our marketing efforts and we
have spent substantial amounts to promote our name. These efforts and
expenditures may not have achieved their objective or, even if our brand becomes
more generally known, may not result in a recovery of advertising and
promotional expenses or in any significant market penetration or increase in
revenues.

A THIRD PARTY HAS ASSERTED THAT OUR USE OF THE HOME DIRECTOR NAME IN CONNECTION
WITH THE MARKETING OF CERTAIN OF OUR PRODUCTS VIOLATES CERTAIN TRADEMARK AND
CONTRACTUAL RESTRICTIONS. IF THIS CLAIM WERE TO BE RESOLVED ADVERSELY, WE COULD
BE COMPELLED TO PAY ROYALTIES OR DAMAGES AND/OR LIMIT OR DISCONTINUE USE OF THE
NAME AS A TRADEMARK.
We have received written notice from a third party alleging breach of contract
and violation of trademark law in connection with the use of the "Home Director"
trademark. We have taken what we believe is appropriate remedial action and do
not believe that there is any remaining basis for a claim by the third party,
nor has the third party taken further action to pursue its claim. Nevertheless,
it is possible that the third party will initiate legal action seeking damages
and/or injunctive relief against us. If any such litigation should be resolved
adversely, we could be compelled to pay damages and/or royalties to the third
party for its use of the Home Director name and/or limit or discontinue its use
as a trademark. Any significant limitations on our use of the Home Director name
could adversely impact our marketing program and our efforts to establish brand
recognition.

WE ARE DEPENDENT ON OUR RELATIONSHIPS WITH A LIMITED NUMBER OF HOME BUILDERS IN
LIMITED GEOGRAPHICAL AREAS FOR A MATERIAL PORTION OF OUR REVENUES.
Our penetration of the new home market represents a small percentage of all new
homes constructed by the home builders that we have relationships with. Loss or
reduction of demand or increased pricing pressure from any of these builders
could adversely affect our revenues and our ability to achieve profitability.

OUR BUSINESS IS TIED TO THE NEW HOUSING MARKET, WHICH IS INHERENTLY CYCLICAL,
SEASONAL AND SUBJECT TO CONTINUING UNCERTAINTIES.
Our business is directly related to the level of housing starts. The housing
industry is cyclical, and our revenues will be affected by factors that affect
the housing industry, both generally and in the limited areas where we operate.
The home building market is also seasonal in many areas of the United States. As
a result of all or any of these factors, our revenues and operating results may
fluctuate from period to period.

REGULATORY CONSTRAINTS ON THE HOME CONSTRUCTION INDUSTRY MAY NEGATIVELY AFFECT
OUR BUSINESS.
The home construction industry is subject to various local, state and federal
laws and regulations. Sales of our products may be adversely affected by
periodic delays in homebuilding projects for a variety of regulatory reasons,
including factors relating to local and regional environmental and
infrastructure conditions and tax and assessment issues which may delay or halt
construction or increase the costs of home development and decrease potential
sales of our products.

THE MARKET IN WHICH WE OPERATE IS HIGHLY COMPETITIVE AND SUBJECT TO RAPID
TECHNOLOGICAL AND OTHER CHANGES.
The market for home technology products is highly competitive and subject to
rapid technological and other changes. Historically, price competition has
adversely affected our revenues and margins. We expect competition to increase
and to continue to exert downward pressure on our margins. Many of our current
and potential competitors have significantly greater financial, technical,
marketing and other resources and significantly greater name and brand
recognition than we have. Many of them also have well-established relationships
with current and potential distributors of our products. All or any of these
factors may limit or prevent any further development of our business and our
ability to achieve profitability. We believe that in order to remain
competitive, we will need to respond to frequent and rapid changes in technology
and industry standards affecting the market for our products. For a variety of
reasons, including lack of financial, technological and proprietary resources,
we may fail to recognize or be unable to respond to these changes in a timely or
cost-effective manner. We may also encounter capabilities or technologies
developed by others that render our products obsolete or not competitive.

OUR NETWORKING HARDWARE AND SOFTWARE PRODUCTS MAY, FROM TIME TO TIME, SUFFER
FROM DESIGN OR MANUFACTURING DEFECTS WHICH COULD ADVERSELY AFFECT OUR REPUTATION
AND BUSINESS.
Our networking and entertainment products are complex. Errors by us or our
suppliers could result in software, design or manufacturing defects that could
be difficult to detect and correct. Any such defects could adversely impact
market interest in or demand for our products and our reputation, credibility
and relationships with home builders, current and prospective distributors and
consumers. Despite our efforts and testing, our products (including new products
and enhancements) may be susceptible to flaws or performance degradation, which
could result in:

                                       20
<PAGE>

     o    loss of or delay in revenue;
     o    loss of market share;
     o    failure to achieve market acceptance;
     o    adverse publicity;
     o    diversion of development resources;
     o    claims against us by customers; or
     o    injury to our reputation.

WE MAY BE EXPOSED TO SIGNIFICANT COSTS OF DEFENSE AND DAMAGES IN LITIGATION
STEMMING FROM PRODUCT LIABILITY AND RELATED CLAIMS.
In spite of our best efforts, we may become subject to claims that give rise to
litigation resulting from the installation of our products in a consumer's
premises. While we carry insurance that we believe is adequate to cover our
potential exposure in these matters, the possibility exists that we may become
subject to claims in amounts or for reasons that are outside the scope of our
insurance coverage. Litigation involving personal injury or loss of life could
lead to awards of enormous sums, which could exceed our insurance coverage and
force us to liquidate or seek bankruptcy protection.

OUR TECHNOLOGY, WHETHER OR NOT PATENTED, MAY BE VULNERABLE TO MISAPPROPRIATION
BY OUR COMPETITORS AND THE EFFECTS OF COMPETITIVE, NON-INFRINGING TECHNOLOGY.
We own or have rights to use proprietary technology that we believe affords us a
current competitive advantage. This technology is not, however, fully protected
from infringement by competitors or from their introduction of non-infringing
technologies. Our patent rights and the additional steps we have taken to
protect our intellectual property may not be adequate to deter misappropriation,
and our proprietary position remains subject to the risk that our competitors
will independently develop non-infringing technologies that are substantially
equivalent or superior to our technologies.

WE MAY BE SUBJECT TO THE COSTS AND RISKS OF CLAIMS FOR PATENT AND/OR TRADEMARK
INFRINGEMENT ASSERTED AGAINST US BY OTHERS.
We remain subject to the risk that third parties will assert infringement claims
against us that will result in costly litigation, require us to redesign
infringing products or obtain a license to use the intellectual property of
third parties. Such licenses may not be available on reasonable terms or at all.
Any intellectual property claims resolved against us (including the
trademark-related claim against us for use of the Home Director name) could
adversely affect our ability to continue in business.

OUR ABILITY TO OPERATE AND COMPETE EFFECTIVELY REQUIRES THAT WE HIRE AND RETAIN
SKILLED TECHNICAL PERSONNEL, WHO, FROM TIME TO TIME, HAVE BEEN IN SHORT SUPPLY
AND MAY BE UNAVAILABLE TO US WHEN WE NEED THEM.
Our business requires us to be able to continuously attract, train, motivate and
retain highly skilled employees, particularly engineers and other senior
technical personnel. Our failure to attract and retain the highly trained
technical personnel who are integral to our sales, development and service teams
may limit the rate at which we can generate sales and develop new products or
product enhancements. Our inability to attract and retain the individuals we
need could adversely impact our business and our ability to achieve
profitability.

WE HAVE PREVIOUSLY ISSUED A SUBSTANTIAL NUMBER OF OPTIONS AND WARRANTS WHICH
REMAIN OUTSTANDING. THE EXISTENCE OF SUCH OPTIONS AND WARRANTS MAY HAVE A
DEPRESSING EFFECT ON THE MARKET PRICE OF OUR COMMON STOCK AND IMPAIR OUR ABILITY
TO RAISE ADDITIONAL CAPITAL, WHILE ANY EXERCISE OF SUCH OPTIONS AND WARRANTS
WILL DILUTE THE INTERESTS OF THE HOLDERS OF OUTSTANDING COMMON STOCK.
As of December 31, 2006, there are outstanding options and warrants to purchase
approximately 3,585,363 shares of Common Stock at exercise prices ranging from
$0.54 to $1.00 per share, as compared to a total of only 10,266,667 shares of
Common Stock outstanding as of that same date. Such options and warrants will
likely be exercised, if at all, only at times when the exercise or strike price
thereunder is lower than the market price of our Common Stock. The existence of
these options and warrants may have a depressing effect on the market price of
our Common Stock and may impair our ability to raise additional capital through
sales of our Common Stock or adversely affect the terms of any such sales. The
exercise of such options and warrants (including by cashless exercise, where
permitted) may result in dilution of the relative interests of holders of our
Common Stock in our stockholders equity and earnings, if any.

                                       21


<PAGE>
ITEM 8. FINANCIAL STATEMENTS
Our consolidated financial statements, the notes thereto and the report of the
independent public accountants thereon are included in this report commencing at
page F-1 and are incorporated herein by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On April 7, 2005, Mahoney Cohen & Company, CPA, P.C. ("Mahoney Cohen"), resigned
as our independent registered public accounting firm. The audit reports issued
by Mahoney Cohen on our consolidated financial statements for the years ended
December 31, 2003 and 2002 did not contain an adverse opinion or a disclaimer of
opinion, nor were they modified as to uncertainty, audit scope, or accounting
principles, except that the report on our consolidated financial statements for
the year ended December 31, 2003 contained an explanatory paragraph raising
substantial doubt about our ability to continue as a going concern.

In connection with its audits of our financial statements for the years ended
December 31, 2003 and 2002 and during the interim period from January 1, 2004
through the date of Mahoney Cohen's resignation as our auditors, there were no
disagreements between us and Mahoney Cohen on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of Mahoney
Cohen, would have caused it to make reference to the subject matter of the
disagreement in connection with its report on our consolidated financial
statements and there were no reportable events as described in Item
304(a)(1)(iv) of Regulation S-B.

We provided Mahoney Cohen with a copy of the statements contained in our Form
8-K, dated January 25, 2007, and requested that Mahoney Cohen furnish us with a
letter addressed to the Securities and Exchange Commission stating whether
Mahoney Cohen agrees with such statements, and if not, stating in which respects
it does not agree. A copy of Mahoney Cohen's letter, filed as exhibit 16.1 to
Form 8-K, dated January 25, 2007, is incorporated by reference.

ITEM 9A. CONTROLS AND PROCEDURES.
CEO and CFO Certifications. Attached as exhibits to this annual report are the
certifications of the CEO and the CFO required by Rules 13a-15 and 15d-15 the
Securities Exchange Act of 1934 (the "Certifications"). This section of the
annual report contains the information concerning the evaluation of Disclosure
controls and changes to Internal Controls over Financial Reporting referred to
in the Certifications and this information should be read in conjunction with
the Certifications for a more complete understanding of the topics presented.

Disclosure Controls. Disclosure Controls are procedures that are designed for
the purpose of ensuring that information required to be disclosed in our reports
filed under the Securities Exchange Act of 1934 (such as this annual report), is
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms.

Internal Controls over Financial Reporting. Internal Controls over Financial
Reporting means a process designed by, or under the supervision of, our
principal executive and principal financial officers, or persons performing
similar functions, and effected by our 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 accounting principles generally accepted in the
United States of America ("GAAP"), and includes those policies and procedures
that:

     --   pertain to the maintenance of records that in reasonable detail
          accurately and fairly reflect the transactions and dispositions of our
          assets;
     --   provide reasonable assurance our transactions are recorded as
          necessary to permit preparation of financial statements in accordance
          with GAAP, and that our receipts and expenditures are being made only
          in accordance with authorizations of our management and directors; and
     --   provide reasonable assurance regarding prevention or timely detection
          of unauthorized acquisition, use or disposition of our assets that
          could have a material effect on our consolidated financial statements.

Limitations on the Effectiveness of Controls. Our management, including the CEO
and CFO, do not expect that our Disclosure Controls or Internal Controls over
Financial Reporting will prevent all errors and all fraud. A control system, no
matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. Because
of the limitations in all control systems, no evaluation of our controls can
provide absolute assurance that all control issues and instances of fraud, if
any, have been detected. Further, the design of any control system is based in
part upon certain assumptions about the likelihood of future events, and there
can be no assurance that any design will succeed in achieving its stated goals
under all potential future conditions. Because of these inherent limitations in
a cost-effective control system, misstatements due to error or fraud may occur
and not be detected.

                                       22

<PAGE>

In connection with the audit of our Consolidated Financial Statements for the
fiscal year ended December 31, 2006, our independent registered public
accounting firm informed us that we had significant deficiency constituting
material weaknesses as defined by the standards of the Public Company Accounting
Oversight Board, which had been identified in connection with the audit of our
Consolidated Financial Statements for the fiscal year ended December 31, 2006.

The significant deficiency in internal control identified consisted of
inadequate segregation of duties affecting initiating, recording and processing
financial data.

Based on the evaluation, which disclosed a deficiency in the segregation of
financial duties, our CEO and CFO (who is the principal accounting officer)
concluded that our disclosure controls and procedures were effective as of the
end of the period covered by this report.

We have taken, and will continue to take, steps to address the specific problems
identified by the auditors including, but not limited to, emphasizing
enhancement of the segregation of duties based on the limited resources we have,
and, where practical, we will continue to assess the cost versus benefit of
adding additional resources that would mitigate the situation. Our CEO and CFO
will monitor our accounting policies to assure proper accounting on an ongoing
basis.

Changes to Internal Controls over Financial Reporting. In accordance with the
SEC's requirements, the CEO and CFO note that, during the fiscal year ended
December 31, 2006, there have been no significant changes in Internal Controls
over Financial Reporting or in other factors that have affected or are
reasonably likely to materially affect Internal Controls over Financial
Reporting, including any corrective actions with regard to significant
deficiencies and material weaknesses.

Conclusions regarding Disclosure Controls. Based upon the required evaluation of
Disclosure Controls, the CEO and CFO have concluded, as of December 31, 2006,
that, subject to the limitations noted above, the Company's Disclosure Controls
are effective to provide reasonable assurance that material information relating
to Home Director and its consolidated subsidiaries is made known to management,
including the CEO and CFO.

                                    PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
In compliance with Section 16(a) of the Exchange Act, as of April 30, 2007, our
executive officers, directors and key employees, their positions and age are as
follows:


     Name                    Age             Position
     ----                    ---             --------
Michael D. Liddle             40             Chairman of the Board of Directors
                                             & Chief Executive Officer
A. Stone Douglass             59             Member, Board of Directors
Mark Stiving                  46             President
Daryl Stemm                   47             Chief Financial Officer, Principal
                                             Accounting Officer & Secretary
Brent Bilger                  49             Chief Marketing Officer

Michael D. Liddle - CEO of Home Director since 2004, Mr. Liddle is an industry
veteran with more than 22 years of experience in all aspects of operations and
finance. Prior to his current position, he ran a consulting practice for nearly
10 years advising early stage technology companies and venture capital firms. In
that capacity, he wrote business plans, formed management teams, raised funds,
acted as interim management and built strategic partnerships with major
corporations. His clients covered a broad 20spectrum of technology and included
ShareWave, one of the first companies to distribute content from the internet to
a set-top box, and a pioneer in wireless technology (sold to Cirrus Logic) and
Alantro Communication (sold to Texas Instruments) a founder of the WiFi
standard. Mr. Liddle holds a Series 7 license as an investment banker and a B.A.
in Economics from the University of California, San Diego. He has served as a
director of numerous public and privately held companies.

                                       23

<PAGE>
A. Stone Douglass - Member, Board of Directors of Home Director since 2005, Mr.
Douglass has also been a managing director of Compass Partners, LLC since August
1996. Compass is a New York-based firm that specializes in reorganizations and
restructurings. Mr. Douglass has served as an officer and director of many of
the portfolio companies of Compass, including Piper Aircraft Corporation, Aria
Wireless Systems, Inc. and John Forsythe Company, and, most recently, Steakhouse
Partners. He received a B.S. in business from Fairleigh Dickinson University.

Mark Stiving - President of Home Director since 2006, Mr. Stiving is responsible
for the operations of the Company. He was President, CEO and a founder of
Destiny Networks, Inc., a home control and handsfree automation company that was
acquired by the Company in 2006. Prior to Destiny, he was a professor at the
Ohio State University where he shared his customer focus by teaching Marketing
Research and Pricing. Mr. Stiving's experience also includes 10 years of sales
in the automatic test equipment industry. He earned a B.S.E.E. from the Ohio
State University, an M.B.A. from Santa Clara University and a Ph.D. in Marketing
from the University of California, Berkeley.

Daryl Stemm - Mr. Stemm has been with Home Director since 2001, serving in
various accounting management positions. Prior to joining Home Director, he was
Director of Finance of Digital Interiors, Director of Finance and Administration
of Amazing Smart Card Technologies, and Chief Financial Officer and Controller
of Catalyst Semiconductor, Inc., a nonvolatile memory semiconductor company. He
received a B.A. in business economics from the University of California, Santa
Barbara.

Brent Bilger - Chief Marketing Officer of Home Director since 2006, Mr. Bilger
is responsible for the overall marketing strategy of the Company. He was Vice
President of Marketing and a founder of Destiny Networks, Inc., which was
acquired by the Company in 2006. Prior to Destiny, he was Vice President of
Marketing at MMC Networks, where he was responsible for setting company's
go-to-market strategy and was instrumental in creating the Network Processor
industry. Before, MMC, Mr. Bilger spent more than 7 years at Cisco Systems where
he was responsible for Cisco's product direction for telco's, cable companies
and Internet service providers. While at Cisco, he was responsible for defining
Cisco's core router product family. He was also a founding member of the Frame
Relay Forum, the SMDS Interest Group and the ATM Forum. Mr. Bilger holds a B.A.
and B.S. from Dartmouth College, a Bachelor of Engineering from the Thayer
School at Dartmouth College and a Master of Engineering degree from Cornell
University.

Other information with respect to directors, executive officers, promoters and
control persons; compliance with Section 16(a) of the Exchange Act and the other
information under this item is incorporated herein by reference to the proxy
statement for our 2004 annual meeting of stockholders.


ITEM 11. EXECUTIVE COMPENSATION

Information with respect to executive compensation is incorporated herein by
reference to the proxy statement for our 2007 annual meeting of stockholders.




                                       24


<PAGE>



ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The following table sets forth information known to us with respect to the
beneficial ownership of Common Stock held as of April 30, 2007, by (1) all
persons who are owners of 5% or more of our Common Stock, (2) each of our
executive officers and directors named in Item 9, and (3) all of our executive
officers and directors as a group.

Name and Address of Beneficial Owner    Number of Shares          Percentage
                                       Beneficially Owned     Beneficially Owned
------------------------------------   ------------------     ------------------
Destiny Networks, Inc.                     1,750,000                 12.5%
c/o Home Director, Inc.
1475 S. Bascom Avenue Suite 210
Campbell, CA   95008

Novus Technologies, Inc.                   1,635,558                 11.7%
c/o Home Director, Inc.
PO Box 2506
Opelika, AL   36801

Michael D. Liddle(1)                       1,561,431                 11.0%
c/o Home Director, Inc.
1475 S. Bascom Avenue Suite 210
Campbell, CA   95008

Daryl Stemm(2)                               734,650                  5.2%
c/o Home Director, Inc.
1475 S. Bascom Avenue Suite 210
Campbell, CA   95008

Brent Bilger(3)                              713,907                  5.0%
c/o Home Director, Inc.
1475 S. Bascom Avenue Suite 210
Campbell, CA   95008

Mark Stiving(4)                              431,735                  3.0%
c/o Home Director, Inc.
1475 S. Bascom Avenue Suite 210
Campbell, CA   95008

A. Stone Douglass                            333,333                  2.4%
c/o Home Director, Inc.
1475 S. Bascom Avenue Suite 210
Campbell, CA   95008

Executive officers and directors
as a group (5 persons)                     3,775,056                 25.1%

(1)       Includes 261,212 shares of Common Stock issuable upon exercise of
          options held by Mr. Liddle that are exercisable within 60 days. Does
          not include 424,243 shares of Common Stock that are issuable upon
          exercise of options held by Mr. Liddle that are not exercisable within
          60 days.
(2)       Includes 225,808 shares of Common Stock issuable upon exercise of
          options held by Mr. Stemm that are exercisable within 60 days. Does
          not include 382,828 shares of Common Stock that are issuable upon
          exercise of options held by Mr. Stemm that are not exercisable within
          60 days.
(3)       Includes 240,607 shares of Common Stock issuable upon exercise of
          options held by Mr. Bilger that are exercisable within 60 days. Does
          not include 212,121 shares of Common Stock that are issuable upon
          exercise of options held by Mr. Liddle that are not exercisable within
          60 days.
(4)       Includes 308,435 shares of Common Stock issuable upon exercise of
          options held by Mr. Stiving and his spouse that are exercisable within
          60 days. Does not include 449,520 shares of Common Stock that are
          issuable upon exercise of options held by Mr. Stiving and his spouse
          that are not exercisable within 60 days.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information below sets forth transactions in the last two years between the
Company and an officer, director, 5% stockholder or any of their immediate
family members.

Related Party Payables
During February 2005, Daryl Stemm, the Company's chief financial officer made a
series of loans to the Company in the aggregate principal amount of $159,833. In
September 2005, these loans were converted to Bankruptcy Obligations.

We issued 600,000 common shares, fair value of $0.54 per share, as consideration
for consulting and other services rendered to the Company. 250,000 of the shares
were issued to A. Stone Douglass, as his sole compensation for services provided
to us in his capacity as Chief Restructuring Officer and Director of the
Company. 350,000 of the shares were issued to Brent Bilger (our Chief Marketing
Officer), as assignee of Destiny Networks, Inc., as consideration for R&D
consulting services provided to us.


                                       25

<PAGE>

Debtor in Possession Loans
In 2006, the spouse of Mark Stiving (the Company's president), Brent Bilger (the
Company's chief marketing officer) and A. Stone Douglass (member of the
Company's board of directors) purchased $200,000 aggregate units of Home
Director Investors, LLC (the "DIP Lender"), as part of a Secured Super Priority
Debtor in Possession Credit Agreement between the DIP Lender and the Company
totaling approximately $2,894,000. In October 2006, pursuant to the
Reorganization Plan, the entire $200,000 principal amount of the notes purchased
by these officers and directors was automatically converted into units and
subsequently 329,933 shares of the Company's common stock.

Acquisitions
On December 28, 2006, the Company acquired substantially all the assets and
assumed certain liabilities of Destiny Networks, Inc. pursuant to the terms of
an Asset Purchase Agreement, dated December 28, 2006, among Home Director,
Destiny Networks and Brent Bilger, Executive Officer and Stockholder of Destiny
Networks.

The purchase price for the acquired Destiny Networks assets was (a) 1,750,000
shares of the Company's common stock issuable upon completion of the
acquisition; (b) $5,000,000 payable upon the achievement of certain milestones
on or before December 31, 2007; (c) 1,500,000 shares of the Company's common
stock issuable upon the achievement of certain milestones on or before December
31, 2007; and (d) 250,000 shares of the Company's common stock issuable upon the
one year anniversary of completion of the acquisition, subject to withholding in
satisfaction of any indemnity obligations arising under the Asset Purchase
Agreement. The consideration payable pursuant to the Asset Purchase Agreement
was determined through arms-length negotiations between the parties.

The Company has agreed to assume certain liabilities of Destiny Networks,
including, but not limited to, certain accounts payable and obligations under
assumed contracts.

Mark Stiving, the President of the Company, is a director, executive officer and
stockholder of Destiny Networks. Brent Bilger, the Chief Marketing Officer of
the Company, is also a director, executive officer and stockholder of Destiny
Networks.

On March 7, 2007, the Company's wholly-owned subsidiary, Home Director
Acquisition Corporation, acquired substantially all the assets and assumed
certain liabilities of Novus Technologies, Inc. pursuant to the terms of an
Asset Purchase Agreement, dated February 28, 2007, among Home Director, Novus
Technologies and Mike Springer, Executive Officer and Stockholder of Novus
Technologies.

The purchase price for the acquired Novus Technologies assets was (a) 1,260,558
shares of the Company's common stock issuable upon completion of the
acquisition; (b) $628,883.85 convertible promissory note; and (c) 375,000 shares
of the Company's common stock issuable to an Escrow Fund upon completion of the
acquisition, subject to withholding in satisfaction of any indemnity obligations
arising under the Asset Purchase Agreement. The consideration payable pursuant
to the Asset Purchase Agreement was determined through arms-length negotiations
between the parties.


The Company has agreed to assume certain liabilities of Novus Technologies,
including, but not limited to, certain accounts payable and obligations under
assumed contracts.


Mike Springer, the Vice President-Sales of the Company, is also a director,
executive officer and stockholder of Novus Technologies.


ITEM 14. EXHIBITS, LIST AND REPORTS ON FORM 8-K

(a)  The following documents are filed as part of this report:

1.   Financial Statements--see the consolidated financial statements commencing
     at page F-1 of this report.
2.   Financial Statement Schedules. None

3.   The following exhibits are filed with this document:

2.1       Debtors' Second Amended Joint Plan of Reorganization, dated June 26,
          2006 (as modified) *****
2.2       Second Amended Joint Disclosure Statement, dated June 26, 2006 *****
3.1       Certificate of Incorporation of Netword, Inc. ++
3.2       First Certificate of Amendment to the Certificate of Incorporation of
          Netword, Inc.***
3.3       Restated Certificate of Incorporation of Home Director, Inc.***
3.4       Bylaws of Home Director, Inc., as amended and restated on March 3,
          2004. +++++
3.5       Certificate of Merger merging Webspeak Acquisition Corp. with and into
          Home Director, Inc.***
4.1       Form of Warrant to purchase shares of Common Stock of Netword, Inc.
          issued to members of
4.31      Stock Option Plan of Home Director, Inc., as amended through October
          1, 2002****
4.32      Form of Award Letter for Optionees. ++
4.36      Form of warrant to purchase shares of Common Stock of Home Director,
          Inc. issued to investors in December 2003 and January 2004. +++++
4.37      Form of warrants to purchase shares of Common Stock of Home Director,
          Inc. issued to Spencer Trask Ventures, Inc. in December 2003 and
          January 2004. +++++

                                       26
<PAGE>

9.1       Voting Agreement, dated as of April 30, 2002, among Netword, Inc.,
          Spencer Trask Intellectual Capital Company LLC, Spencer Trask
          Ventures, Inc., Cisco Systems, Inc., Motorola, Inc., Donald Witmer,
          Robert Wise and Daryl Stemm.*
9.2       Stockholders Agreement, dated as of July 16, 2002, among Home
          Director, Inc., Netword, Inc., Spencer Trask Investment Partners, LLC,
          Spencer Trask Intellectual Capital Company LLC, Spencer Trask
          Ventures, Inc., Motorola, Inc., Cisco Systems, Inc., Donald Witmer,
          Daryl Stemm, Kent M. Klineman, Jordan Klineman, Justine Klineman,
          Michael Wise, Batya Wise, David Wise, Gidon Wise, Joseph S. Reiss,
          Gary and Lynn Gettenberg as joint tenants, The Lawrence Charitable
          Trust, Klondike Resources, Inc., the Jesurum Family Limited
          Partnership and Stilwell Holding LLC.*
9.3       Letter Agreement, dated as of April 30, 2002, among Netword, Inc.,
          Spencer Trask Investment Partners, LLC, Spencer Trask Intellectual
          Capital Company, LLC, Spencer Trask Ventures, Inc., Donald B. Witmer,
          Robert Wise and Daryl Stemm.*
10.5      Sublease Agreement, dated July 23, 2002, among Adaptec, Inc., Home
          Director, Inc. and Shea Center Livermore, LLC.****
10.6      Lease Agreement, dated as of April 19, 2000, by and between Southport
          Business Park Limited Partnership and Home Director, Inc., as
          amended.****
10.7      Placement Agency Agreement, dated April 10, 2002, by and between Home
          Director, Inc. and Spencer Trask Ventures, Inc. ****
10.10     Placement Agency Agreement, dated as of November 10, 2003, by and
          between Spencer Trask Ventures, Inc. and Home Director, Inc. +++++
10.13     Form of Subscription Agreements to purchase shares of Common Stock
          and Warrants to purchase shares of Common Stock between Home Director,
          Inc. and the several purchasers of its equity units sold on December
          9, 2003, December 19, 2003 and January 21, 2004. +++++
10.14     Form of Registration Rights Agreement between Home Director, Inc. and
          the several purchasers of its equity units sold on December 9, 2003,
          December 19, 2003 and January 21, 2004. +++++
10.15     Employment Agreement, dated as of December 31, 2003, by and between
          Home Director, Inc. and Michael Liddle. +++++
10.19     Employment Agreement, dated as of October 23, 2006, by and between
          Home Director, Inc. and Michael Liddle. *******
16.1      Letter of Mahoney Cohen & Company, P.C., to the Securities and
          Exchange Commission, dated January 25, 2007 ******
21        List of subsidiaries of Home Director, Inc.****
31.1      Certification of the Chief Executive Officer pursuant to Section 302
          of the Sarbanes-Oxley Act of 2002. (Filed herewith)
31.2      Certification of the Chief Financial Officer and Secretary pursuant to
          Section 302 of the Sarbanes-Oxley Act of 2002. (Filed herewith)
32.1      Certification of the Chief Executive Officer pursuant to 18 U.S.C.
          Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
          Act of 2002. (Filed herewith)
32.2      Certification of the Chief Financial Officer and Secretary pursuant to
          18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
          Sarbanes-Oxley Act of 2002. (Filed herewith)

+       Exhibits that pre-date the merger on December 19, 2002 and refer to Home
Director, Inc. are references to Home Director Technologies, Inc., now a
wholly-owned subsidiary of the registrant (See Exhibit 21), and exhibits that
pre-date the merger and refer to Netword, Inc. are references to Home Director,
Inc., the registrant.
++      Incorporated by reference to the corresponding exhibit previously filed
as an exhibit to Netword's registration statement on Form SB-1 (Reg. No.
333-86873) filed with the Securities and Exchange Commission on September 9,
1999.
*       Incorporated by reference to the corresponding exhibit previously filed
as an exhibit to Netword's Registration Statement on Form S-4 (Reg. No.
333-86873), filed with the Securities and Exchange Commission on August 2, 2002.
**      Incorporated by reference to the corresponding exhibit previously filed
as an exhibit to Amendment No. 1 to Netword's Registration Statement on Form
S-4, filed with the Securities and Exchange Commission on October 28, 2002.
***     Incorporated by reference to the corresponding exhibit previously filed
as an exhibit to Home Director's report on Form 8-K, filed with the Securities
and Exchange Commission on December 20, 2002.
****    Incorporated by reference to the corresponding exhibit previously
filed as an exhibit to Home Director's report on Form 10-KSB for the fiscal year
ended December 31, 2002, filed with the Securities and Exchange Commission on
March 31, 2003.
*****   Incorporated by reference to the corresponding exhibit previously
filed as an exhibit to Home Director's report on Form 8-K, filed with the
Securities and Exchange Commission on October 27, 2006.
******   Incorporated by reference to the corresponding exhibit previously
filed as an exhibit to Home Director's report on Form 8-K, filed with the
Securities and Exchange Commission on January 25, 2007.


                                       27
<PAGE>
*******  Incorporated by reference to the corresponding exhibit previously filed
as an exhibit to Home Director's report on Form 10-KSB for the fiscal year ended
December 31, 2004, filed with the Securities and Exchange Commission on June 12,
2007.
+++      Incorporated by reference to the corresponding exhibit previously filed
as an exhibit to Home Director's report on Form 10-QSB for the fiscal quarter
ended June 30, 2003, filed with the Securities and Exchange Commission on August
19, 2003.
++++      Incorporated by reference to the corresponding exhibit previously
filed as an exhibit to Home Director's report on Form 10-QSB for the fiscal
quarter ended September 30, 2003, filed with the Securities and Exchange
Commission on November 17, 2003.
+++++     Incorporated by reference to the corresponding exhibit filed
previously as an exhibit to Home Director's registration statement on Form SB-2,
filed with the Securities and Exchange Commission on March 8, 2004.

(b)  None.






ITEM 15. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The Company's independent registered auditors for the years ended December 31,
2006 and 2005 is Bedinger & Company ("Bedinger"). There were no audit or other
services provided by Bedinger in the years noted in the table as the audits and
other services were not rendered until 2007.

                  Description                            2006           2005
                                                        -----         ------
Audit fees                                              $  --         $   --
Audit related fees                                         --             --
Tax fees                                                   --             --
                                                        -----         ------
                   Total fees                           $  --         $   --
                                                        =====         ======

(1) All amounts reported include out-of-pocket expenses incurred with their
services.

                                       28


<PAGE>




SIGNATURES
In accordance with section 13 or 15(d) of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

 HOME DIRECTOR, INC.
(Registrant)

By: /s/ Michael D. Liddle
--------------------------------
Michael D. Liddle
Chairman, Board of Directors
and Chief Executive Officer
June 11, 2007


In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.


/s/ Michael D. Liddle
-------------------------
Michael D. Liddle
Chairman, Board of Directors and Chief Executive Officer
(Principal Executive Officer)
June 11, 2007

/s/ Daryl Stemm
-------------------------
Daryl Stemm
Chief Financial Officer and Secretary (Principal Financial
Officer and Principal Accounting Officer)
June 11, 2007

/s/ A. Stone Douglass
-------------------------
A. Stone Douglass
Member, Board of Directors
June 11, 2007

/s/ Mark Stiving
-------------------------
Mark Stiving
President
June 11, 2007




                                       29


<PAGE>

                               HOME DIRECTOR, INC.
                          Index to Financial Statements


                                                                            Page
                                                                            ----
Report of Independent Registered Public Accounting Firm                      F-1
Consolidated Balance Sheet of Reorganized Company as of
December 31, 2006                                                            F-2
Consolidated Statements of Operations
  Reorganized Company - for the period November 1, 2006
  to December 31, 2006                                                       F-3
  Predecessor Company - for the period January 1, 2006 to
  October 31, 2006                                                           F-3
Consolidated Statements of Changes in Shareholders' Equity
  Reorganized Company - for the period November 1, 2006 to
  December 31, 2006                                                          F-4
  Predecessor Company - for the period January 1, 2006 to
  October 31, 2006                                                           F-4
Consolidated Statements of Cash Flows
  Reorganized Company - for the period November 1, 2006 to
  December 31, 2006                                                          F-5
  Predecessor Company - for the period January 1, 2006 to
  October 31, 2006                                                           F-5
Notes to Consolidated Financial Statements                                   F-6


<PAGE>




             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


Board of Directors
Home Director, Inc.


We have audited the accompanying consolidated balance sheet of Home Director,
Inc. (Reorganized Company balance sheet), as of December 31, 2006, and the
related statements of operations, changes in stockholders' equity, and cash
flows for the period from November 1, 2006 to December 31, 2006 (Reorganized
Company operations) and the period from January 1, 2006 to October 31, 2006
(Predecessor Company operations). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provide a reasonable
basis for our opinion.

As discussed in Note 1 to the consolidated financial statements, on October 12,
2006, the Bankruptcy Court entered an order confirming the plan of
reorganization which became effective after the close of business on October 12,
2006. Accordingly, the accompanying financial statements have been prepared in
conformity with AICPA Statement of Position 90-7, Financial Reporting for
Entities in Reorganization Under the Bankruptcy Code, for the Reorganized
Company as a new entity with assets, liabilities, and a capital structure having
carrying values not comparable with prior periods as described in Note 3.

In our opinion, the Reorganized Company financial statements present fairly, in
all material respects, the financial position of the Company as of December 31,
2006, and the results of its operations and its cash flows for the period from
November 1, 2006 to December 31, 2006, in conformity with accounting principles
generally accepted in the United States of America. Further, in our opinion, the
Predecessor Company financial statements referred to above present fairly, in
all material respects, the results of its operations and its cash flows for the
period from January 1, 2006 to October 31, 2006 in conformity with accounting
principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. However, the Company has suffered
recurring losses from operations that raises substantial doubt about its ability
to continue as a going concern. Management plans in regards to these matters are
also described in Note 15. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.


/s/ Bedinger & Company
----------------------
Bedinger & Company
Certified Public Accountants
Concord, California
May 31, 2007
                                       F-1

<PAGE>

                               HOME DIRECTOR, INC.
                           Consolidated Balance Sheet

                                                                    Reorganized
                                                                      Company
                                                                    December 31,
                                                                       2006
                                                                    -----------

                                     ASSETS
Current assets:
Cash and cash equivalents                                           $     2,822
Accounts receivable                                                      27,629
Inventory                                                                55,331
Other current assets                                                    326,841
                                                                    -----------
                Total current assets                                    412,623

Property and equipment, net                                              14,095
                                                                    -----------
                                                                    $   426,718

                  LIABILITIES & SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses                               $ 1,540,585
Bankruptcy obligations - short term                                     643,570
Convertible notes payable                                               250,000
                                                                    -----------
             Total current liabilities                                2,434,155
Bankruptcy obligations - long term                                    1,716,968
                                                                    -----------
                 Total liabilities                                    4,151,123
                                                                    -----------
Commitments and contingencies (Note 14)
Shareholders' equity:
Preferred stock, $0.01 par value, Authorized                                 --
2,000,000 as of December 31, 2006; Issued and
outstanding - none
Common stock, $0.01 par value,  Authorized                                   --
40,000,000 as of December 31, 2006;  Issued and
outstanding - none
Common stock payable - 10,266,667 and no shares, as                     102,667
of December 31, 2006
Additional paid in capital                                             (923,754)
Accumulated deficit                                                  (2,903,318)
                                                                    -----------
        Total shareholders' equity (deficit)                         (3,724,405)
                                                                    -----------
                                                                    $   426,718
                                                                    ===========


                             See accompanying notes.
                                       F-2


<PAGE>



                               HOME DIRECTOR, INC.
                      Consolidated Statements of Operations


                                                   Reorganized     Predecessor
                                                     Company         Company
                                                   November 1 -    January 1 -
                                                   December 31,    October 31,
                                                   ------------    ------------
                                                       2006            2006
                                                       ----            ----

Revenue                                            $     40,400    $     47,429
Costs and expenses:
Cost of sales                                           111,687          40,171
General and administrative                            1,877,446       1,216,094
Sales and marketing                                     344,392         429,352
Research and development                                490,629          92,884
Depreciation and amortization                               742           1,899
                                                   ------------    ------------
Total costs and expenses                              2,824,896       1,780,400
                                                   ------------    ------------

Loss from operations                                 (2,784,495)     (1,732,971)
Other income (expense):
Interest and other income                               (91,098)        127,847
Interest and other expense                              (27,724)        (88,720)
                                                   ------------    ------------
Net other income (expense)                             (118,822)         39,127
                                                   ------------    ------------
                                                     (2,903,318)     (1,693,843)

Loss on disposal of business unit                            --              --
                                                   ------------    ------------

Net loss                                           $ (2,903,318)   $ (1,693,843)
                                                   ============    ============

Net loss per common share - basic and diluted:
Shares used in computing basic and diluted
  net loss per common share                          10,266,667 *    16,035,715
                                                   ============    ============

Loss per share                                     $      (0.28)   $      (0.11)
                                                   ============    ============

* The certificates for these shares of common
  stock are not issued as of December 31, 2006
  (see Note 2)

                             See accompanying notes.
                                       F-3


<PAGE>

<TABLE>
<CAPTION>

                               HOME DIRECTOR, INC.
      Consolidated Statements of Changes in Shareholders' Equity (Deficit)



                                               Common Stock            Additional
                                                                        Paid In      Accumulated   Shareholders'
                                            Shares       Amount         Capital        Deficit        Equity
Predecessor Company                     ------------  ------------    ------------  ------------   ------------
<S>                                       <C>              <C>          <C>          <C>             <C>
Balance at December 31, 2005              16,035,715       160,357      82,899,887   (90,142,129)    (7,081,885)

Retirement of all old common stock in
connection with reorganization           (16,035,715)     (160,357)        160,357            --             --
Fresh start accounting adjustments
including elimination of accumulated
deficit                                           --            --     (91,416,360)   91,835,972        419,612
Net loss                                          --            --              --    (1,693,843)    (1,693,844)

Reorganized Company
Issuance of new common stock in
connection with reorganization*            7,250,000        72,500       5,800,000            --      5,872,500

Issuance of common stock as
employee compensation*                     2,416,667        24,167       1,280,833            --      1,305,000

Issuance of common stock as
consideration for services*                  600,000         6,000         318,000            --        324,000

Expenses related to granting
of options to purchase common stock               --            --          33,429            --         33,429

Net loss                                          --            --              --    (2,903,318)    (2,903,318)
                                        ------------  ------------    ------------  ------------   ------------
Balance at December 31, 2006              10,266,667  $    102,667    $   (923,754) $ (2,903,318)  $ (3,724,405)
                                        ============  ============    ============  ============   ============
</TABLE>

* The certificates for these shares of
  common stock are not issued as of
  December 31, 2006 (see Note 2)


                             See accompanying notes.
                                       F-4


<PAGE>
                               HOME DIRECTOR, INC.
                      Consolidated Statements of Cash Flows


                                                     Reorganized    Predecessor
                                                       Company        Company
                                                     November 1 -   January 1 -
                                                     December 31,   October 31,
                                                         2006           2006
                                                     -----------    -----------
Cash flows from operating activities:
  Net loss                                           $(2,903,318)   $(1,693,843)
  Adjustments to reconcile net loss to net cash
used in operating activities:
  Depreciation and amortization                              742          1,898
  Loss on disposal of assets                                  --             --
  Expense from issuance of stock to employees
and service providers                                  1,629,000             --
  Expense from grant of stock options                     33,429             --
  Changes in operating assets and liabilities:
  Accounts receivable                                    (25,680)        88,864
  Inventories                                            (53,564)        (1,767)
  Other current assets                                  (192,091)      (117,446)
  Accounts payable and accrued expenses                  593,920         18,505
  Bankruptcy obligations (short and long
term), net of reductions in accounts payable and
accrued expenses, notes payable and deferred
liabilities - long term (2005)                            (3,311)            --
                                                     -----------    -----------
      Net cash used in operating activities             (920,873)    (1,703,789)
                                                     -----------    -----------
Cash flows from investing activities:
  Purchases of property and equipment                     (3,899)        (4,568)
                                                     -----------    -----------
      Net cash used in investing activities               (3,899)        (4,568)
                                                     -----------    -----------
Cash flows from financing activities:
  Net payment of bank borrowing                               --             --
  Net proceeds from Debtor in Possession lender               --      2,377,098
  Proceeds from convertible notes                        250,000             --
                                                     -----------    -----------
      Net cash provided by financing activities          250,000      2,377,098
                                                     -----------    -----------
Net increase (decrease) in cash and cash                (674,772)       668,741
equivalents
Cash and cash equivalents at beginning of period         677,594          8,853
                                                     -----------    -----------
Cash and cash equivalents at end of period           $     2,822    $   677,594
                                                     ===========    ===========


Supplemental Disclosure of Cash Flow Information
Cash paid during the year for:
  Interest                                           $        --    $        --
                                                     ===========    ===========
Significant non-cash transactions:



                             See accompanying notes.
                                       F-5


<PAGE>

                               HOME DIRECTOR, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 1 - Organization and Description of Business

The Company, which is headquartered in Campbell, California, commenced
operations on December 8, 1999, subsequent to acquiring the assets of and
assuming certain liabilities of IBM Corporation's Home Director business unit.
The Company operates in a single industry, the provision of infrastructure
components for home networking, and is engaged in the design, sale and
manufacturing of home networking products for the new home construction market.

Bankruptcy Proceedings
On September 28, 2005, the Company and its subsidiaries Home Director
Technologies, Inc. and Digital Interiors, Inc. (collectively, "the Companies")
filed voluntary petitions for relief under Chapter 11 of the United States
Bankruptcy Code (the "Bankruptcy Code") in U.S. Bankruptcy Court for the
Northern District of California (the "Bankruptcy Court") (case no. 05-45812,
05-45814 and 05-45819, respectively). The Companies have continued to manage
their properties and operate their business as debtor in possession under the
jurisdiction of the Bankruptcy Court and in accordance with the applicable
provisions of the Bankruptcy Code.

On June 26, 2006, the Companies filed with the Bankruptcy Court a Second Amended
Joint Plan of Reorganization, dated June 26, 2006 and a Second Amended
Disclosure Statement, dated June 26, 2006 (the "Disclosure Statement"). The
Bankruptcy Court approved the Disclosure Statement by that certain Order
Approving Disclosure Statement, Fixing Time for Filing Acceptances or Rejections
of Plan and Setting Hearing on Confirmation entered on June 27, 2006.
Thereafter, on October 9, 2006, the Companies filed a Second Amended Joint Plan
of Reorganization dated June 26, 2006 (As Modified) ("Reorganization Plan"). On
October 12, 2006, the Bankruptcy Court entered an Order Confirming Chapter 11
Plan. The effective date of the Reorganization Plan is October 23, 2006. For
accounting purposes, the effective date is determined to be October 31, 2006.

Note 2 - Summary of Significant Accounting Policies

Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Home
Director, Inc. and its wholly-owned subsidiaries, HDT and Digital Interiors. All
significant intercompany accounts and transactions have been eliminated in
consolidation.

Fresh Start Reporting and Basis of Presentation
The consolidated financial statements contained in this report reflect the
accounting principles set forth in Statement of Position 90-7, "Financial
Reporting by Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7").
This statement provides guidance for financial reporting by entities that have
filed voluntary petitions for relief under and have reorganized in accordance
with bankruptcy code. In accordance with fresh start reporting, the
reorganization value of the entity is to be determined and allocated to the
entity's assets in conformity with purchase accounting guidelines. All assets
and liabilities are to be recorded at their respective fair values. Adopting
fresh start reporting results in a new reporting entity with no beginning
retained earnings or deficit. SOP 90-7 further states that fresh start financial
statements prepared by entities emerging from bankruptcy will not be comparable
with those prepared before their plans were confirmed because they are, in
effect, those of a new entity. The effective date of the Company's emergence
from bankruptcy was October 23, 2006. For accounting purposes, the Company
adopted fresh start reporting in accordance with SOP 90-7 as of October 31, 2006
(See Note 3.)

All financial information prior to October 31, 2006 is presented as pertaining
to the Predecessor Company while all financial information presented as of and
after October 31, 2006 will be presented as pertaining to the Reorganized
Company. Accordingly, the Consolidated Statements of Operations and Consolidated
Statements of Cash Flows present information pertaining to both the Predecessor
Company and the Reorganized Company. The information presented in the
Consolidated Balance Sheets are for the Reorganized Company, at December 31,
2006.

                                      F-6

<PAGE>
                               HOME DIRECTOR, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 2 - Summary of Significant Accounting Policies (Continued)

Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Significant estimates include the allowance for doubtful
accounts and the allowance for obsolete and slow-moving inventory. Actual
results can differ from those estimates.

Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original
or remaining maturity of less than three months at the date of purchase to be
cash equivalents.

Inventories
Inventories consist of components and are stated at the lower of cost or market.
Cost is determined by the weighted average costing method. The following table
represents the major components of inventory at December 31, 2006.

                                                                           2006
                                                                         -------
Finished goods                                                           $    --
Components                                                                55,331
Less:  Allowance for obsolescence                                             --
                                                                         -------
                                                                         $55,331
                                                                         =======
Fair Value of Financial Instruments
Carrying amounts of certain of the Company's financial instruments, including
cash and cash equivalents, accounts receivable and accrued liabilities
approximate fair value because of their short maturities.

Credit Risk, Significant Customers and Concentrations
Financial instruments that potentially subject the Company to credit risk
consist principally of accounts receivable and cash investments. Receivables are
unsecured. The Company provides an allowance for doubtful accounts equal to the
estimated losses expected to be incurred in the collection of accounts
receivable. There were no such allowances recorded as of December 31, 2006.


Cash and cash equivalents consist of cash deposits, money market funds and
highly rated commercial paper held at banks. Deposits held at banks may at times
exceed the amount of insurance provided. Generally, these deposits may be
redeemed upon demand and therefore bear minimal risk.

As of December 31, 2006, three customers accounted for 91% and two customers
accounted for 55% of the accounts receivable balance and annual revenue,
respectively.

The Company is not currently dependent upon any single supplier and it believes
that alternative supply sources would be readily available without material
delay in the event of the interruption of supplies from any of its current
sources.

Loss Per Share
In accordance with SFAS 128, basic and diluted net loss per common share has
been computed using the weighted-average number of shares of common stock
outstanding during the period. Although the Company had no issued or outstanding
common stock as of December 31, 2006, it had 10,266,667 common shares issuable
as of that date and it included those shares issuable as of December 31, 2006 in
the basic and diluted net per common share calculations. The effect of options
to purchase 3,460,363 shares of the company's common stock outstanding during
2006, was not included in the computation of diluted net income per share
because their effect would be antidilutive. The effect of warrants to purchase
125,000 shares of the Company's common stock


                                       F-7


<PAGE>
                               HOME DIRECTOR, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 2 - Summary of Significant Accounting Policies (Continued)

outstanding during 2006, was not included in the computation of diluted net
income per share because their effect would be antidilutive.

Revenue Recognition
The Company's revenues consist primarily of sales of home networking products
and services. The Company generally recognizes product revenue when persuasive
evidence of an arrangement exists, delivery has occurred, the fee is fixed or
determinable, and collectibility is reasonably assured. The Company accrues for
sales returns, rebate programs and warranty costs based on its experience.

Property and Equipment
Property and equipment is recorded at cost and depreciated using the
straight-line method over their estimated useful lives which generally range
from two to five years. Property and equipment includes certain equipment under
capital leases. These items are depreciated over the shorter of the lease period
or the estimated useful life of the equipment.

Intangible Assets
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible
Assets," which is required to be applied for fiscal years beginning after
December 15, 2001. The Company has adopted SFAS 142 as of January 1, 2002. SFAS
142 eliminates the amortization of goodwill and certain other intangible assets.
It also requires the Company to complete a test for impairment of these assets
annually. The Company has no goodwill or other intangible assets as of December
31, 2006.

Research and Development Costs
Research and development costs are charged to operations as incurred.

Advertising Costs
The Company expenses advertising costs as incurred. The amount of advertising
expensed during the year ended December 31, 2006 was $26,240.

Shipping and handling costs
The Company's policy is to classify shipping and handling costs as part of cost
of goods sold in the statement of operations.

Income Taxes
The Company accounts for income taxes using the liability method which requires
the recognition of deferred tax assets or liabilities for the temporary
differences between the financial reporting and tax bases of the Company's
assets and liabilities and for tax carryforwards at enacted statutory rates in
effect for the years in which the differences are expected to reverse. The
effect on deferred taxes of a change in tax rates is recognized in income in the
period that includes the enactment date. In addition, valuation allowances are
established when necessary to reduce deferred tax assets to the amounts expected
to be realized. The Company has not recorded any income tax expense or benefit
as a result of its available net operating loss carryforwards, which are fully
reserved by a valuation allowance.

Accounting for Stock-Based Compensation
The Company has adopted the provisions of SFAS No. 123R, "Share-based Payment."
See Note 9 for expenses related to options granted during the period ended
December 31, 2006.

                                       F-8


<PAGE>
                               HOME DIRECTOR, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 2 - Summary of Significant Accounting Policies (Continued)

Recent Accounting Pronouncements

In February 2006, the FASB issued SFAS 155 "Accounting for Certain Hybrid
Financial Instruments, an amendment of FASB Statements No. 133" and in February
2006, the FASB issued SFAS 155 "Accounting for Certain Hybrid Financial
Instruments, an amendment of FASB Statements No. 133 and 140. This Statement
amends FASB Statements No. 133, Accounting for Derivative Instruments and
Hedging Activities, and No. 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities. This Statement resolves
issues addressed in Statement 133 Implementation Issue No. D1, Application of
statement 133 to Beneficial Interests in Securitized Financial Assets. This
Statement:

a. Permits fair value re-measurement for any hybrid financial instrument that
contains an embedded derivative that otherwise would require bifurcation;

b. Clarifies which interest-only strips and principal-only strips are not
subject to the requirements of Statement 133;

c. Establishes a requirement to evaluate interests in securitized financial
assets to identify interests that are freestanding derivatives or that are
hybrid financial instruments that contain an embedded derivative requiring
bifurcation;

d. Clarifies that concentrations of credit risk in the form of subordination are
not embedded derivatives; and

e. Amends Statement 140 to eliminate the prohibition on a qualifying
special-purpose entity from holding a derivative financial instrument that
pertains to a beneficial interest other than another derivative financial
instrument.

This Statement is effective for all financial instruments acquired or issued
after the beginning of an entity's first fiscal year that begins after September
15, 2006. The fair value election provided for in paragraph 4 of this Statement
may also be applied upon adoption of this Statement for hybrid financial
instruments that had been bifurcated under paragraph 12 of Statement 133 prior
to the adoption of this Statement. Earlier adoption is permitted as of the
beginning of an entity's fiscal year, provided the entity has not yet issued
financial statements, including financial statements for any interim period for
that fiscal year. Provisions of this Statement may be applied to instruments
that an entity holds at the date of adoption on an instrument-by-instrument
basis. The company is currently evaluating the effect that the adoption of SFAS
155 will have on its results of operations and financial condition and does not
expect it to have a material impact.

In March 2006, the FASB issued SFAS No. 156 ("FAS 156"), "Accounting for
Servicing of Financial Assets--An Amendment of FASB Statement No. 140." Among
other requirements, FAS 156 requires a company to recognize a servicing asset or
servicing liability when it undertakes an obligation to service a financial
asset by entering into a servicing contract under certain situations. Under FAS
156 an election can also be made for subsequent fair value measurement of
servicing assets and servicing liabilities by class, thus simplifying the
accounting and provide for income statement recognition of potential offsetting
changes in the fair value of servicing assets, servicing liabilities and related
derivative instruments. The Statement will be effective beginning the first
fiscal year that begins after September 15, 2006. The company is currently
evaluating the effect that the adoption of SFAS 156 will have on its results of
operations and financial condition and does not expect it to have a material
impact.

In September 2006, the FASB issued Statement of Financial Accounting Standards
No. 157, "Fair Value Measurements." The standard provides guidance for using
fair value to measure assets and liabilities. Under the standard, fair value
refers to the price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants in the market
in which the reporting entity transacts. The standard clarifies the principle
that fair value should be based on the assumptions market participants would use
when pricing the asset or liability. In support of this principle, the standard
establishes a fair value hierarchy that prioritizes the

                                       F-9

<PAGE>
                               HOME DIRECTOR, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 2 - Summary of Significant Accounting Policies (Continued)

information used to develop those assumptions. The Statement is effective for
financial statements issued for fiscal years beginning after November 15, 2007,
and interim periods within those fiscal years. The Company is currently
evaluating the Statement to determine what impact, if any, it will have on the
Company.

In September 2006, the FASB issued Statement of Financial Accounting Standards
No. 158, "Employers' Accounting for Defined Benefit Pension and Other
Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and
132(R)" ("SFAS 158"). This statement requires balance sheet recognition of the
funded status, which is the difference between the fair value of plan assets and
the benefit obligation, of pension and postretirement benefit plans as a net
asset or liability, with an offsetting adjustment to the accumulated other
comprehensive income in shareholders' equity. In addition, the measurement date,
the date at which plan assets and the benefit obligation are measured, is
required to be the company's fiscal year end. The Company currently is
evaluating the Statement to determine what impact, if any, it will have on the
Company.

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities-Including an amendment of FASB
Statement No. 115" ("SFAS 159"). SFAS 159 expands the use of fair value
accounting but does not affect existing standards which require assets or
liabilities to be carried at fair value. Under SFAS 159, a company may elect to
use fair value to measure accounts and loans receivable, available-for-sale and
held-to-maturity securities, equity method investments, accounts payable,
guarantees and issued debt. Other eligible items include firm commitments for
financial instruments that otherwise would not be recognized at inception and
non-cash warranty obligations where a warrantor is permitted to pay a third
party to provide the warranty goods or services. If the use of fair value is
elected, any upfront costs and fees related to the item must be recognized in
earnings and cannot be deferred, e.g., debt issue costs. The fair value election
is irrevocable and generally made on an instrument-by-instrument basis, even if
a company has similar instruments that it elects not to measure based on fair
value. At the adoption date, unrealized gains and losses on existing items for
which fair value has been elected are reported as a cumulative adjustment to
beginning retained earnings. Subsequent to the adoption of SFAS 159, changes in
fair value are recognized in earnings. SFAS 159 is effective for fiscal years
beginning after November 15, 2007 and is required to be adopted by the Company
in the first quarter of fiscal 2009. The Company is currently is determining
whether fair value accounting is appropriate for any of its eligible items and
cannot estimate the impact, if any, which SFAS 159 will have on its consolidated
results of operations and financial condition.





                                      F-10


<PAGE>
                               HOME DIRECTOR, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 3 - Reorganization and Fresh Start Reporting Adjustments

The Company adopted fresh start reporting as defined in SOP 90-7 upon its
emergence from bankruptcy on October 31, 2006. The following Condensed
Consolidated Balance Sheet illustrates the financial effect of implementing the
Company's Plan and adoption of fresh start reporting as if they had occurred on
October 31, 2006.
<TABLE>
<CAPTION>
                                                               Fresh Start
                               Predecessor    Reorganization    Reporting      Reorganized
                                 Company        Adjustments    Adjustments       Company
                               ------------    ------------    ------------    ------------
           Assets
           ------
<S>                            <C>             <C>             <C>             <C>
Total current assets           $    816,061    $         --    $         --    $    816,061
Property and equipment, net          10,938              --              --          10,938
                               ------------    ------------    ------------    ------------
                               $    826,999    $         --    $         --    $    826,999
                               ============    ============    ============    ============
Liabilities and Shareholders
     Equity (Deficit)
     ----------------
Accounts payable and accrued
  expenses                     $  1,157,747    $         --    $         --    $  1,157,747
                               ------------    ------------    ------------    ------------

Total current liabilities
  not subject to compromise       1,157,747              --              --       1,157,747
                               ------------    ------------    ------------    ------------

Liabilities subject to
  compromise-short term           8,643,363      (7,892,325)             --         751,038
Liabilities subject to
  compromise-long term                   --       1,716,968              --       1,716,968
                               ------------    ------------    ------------    ------------

Liabilities subject to
  compromise                      8,643,363      (6,175,357)             --       2,468,006
                               ------------    ------------    ------------    ------------

Total liabilities                 9,801,110      (6,175,357)             --       3,625,753
                               ------------    ------------    ------------    ------------
    Shareholders' equity
          (deficit)
          ---------
Common stock                        160,357         (88,857)(1)          --          72,500
Additional paid in capital       82,899,887       6,263,214 (2) (91,835,972)     (2,871,254)
Accumulated deficit             (92,034,355)             --      91,835,972 (3)          --
                               ------------    ------------    ------------    ------------
Total shareholders' equity
  (deficit)                      (8,974,111)      6,175,357              --      (2,798,754)
                               ------------    ------------    ------------    ------------

                               $    826,999              --              --    $    826,999
                               ============    ============    ============    ============
</TABLE>



(1)  Includes $160,357 for retirement of old common stock and issuance of
     $72,500 for new common stock issued in exchange for gain on compromise of
     liabilities.
(2)  Represents the "gain" from the elimination of pre-petition debt over the
     par value of the Company's common stock issued to the DIP lender and
     creditors as a result of the Reorganization Plan.
(3)  Elimination of accumulated deficit as required by fresh start accounting.


                                      F-11
<PAGE>

                               HOME DIRECTOR, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 3 - Reorganization and Fresh Start Reporting Adjustments (Continued)

The Condensed Consolidated Balance Sheet at December 31, 2006 reflects
adjustments outlined in the Company's Plan with respect to the conversion of
debt to equity. Under terms of the Plan, Home Director Investors LLC (the "DIP
Lender") agreed to convert its debt to equity and its assignees received a pro
rate share of 90% of the new common stock and holders of certain unsecured
claims received a pro rata share of 10% of the new common stock issued pursuant
to the Plan. Each holder of old common stock had its shares retired and received
no consideration. Bankruptcy obligations pursuant to the Plan and less payments
made of $92,232 for priority wage claims and $15,237 for other claims, as of
December 31, 2006, are summarized in the table below:





                                               Bankruptcy          Bankruptcy
                                               obligations-       obligations-
     Description                               short term          long term
     -----------                               ----------         ----------
General unsecured creditors                    $  206,130 *       $  150,000
Convenience class creditors                       100,000                 --
Priority wage claims                                1,538                 --
Priority tax claims**                             335,901          1,566,968
Other claims                                           --                 --
                                               ----------         ----------
                                               $  643,570         $1,716,968
                                               ==========         ==========

*    Includes $56,130 due as soon as practical and $150,000 due upon the first
     anniversary of the effective date of the Plan. **To be paid over a
     five-year period from the effective date of the Plan with interest payable
     at 8% per annum.

Note 4 - Property and Equipment At December 31, property and equipment consists
of:
                                                                      2006
                                                                    -------
Computer equipment and software                                     $ 9,990
Furniture and fixtures                                                7,083
                                                                    -------
                                                                     17,073
Less:  Accumulated depreciation and amortization                      2,978
                                                                    -------
                                                                    $14,095
                                                                    =======

The cost basis of assets acquired under capital leases at December 31, 2006 and
2005 was $-0- and $-0-, respectively. Depreciation and amortization expense for
the years ended December 31, 2006 was $2,641.


Note 5 - Other Current Assets At December 31, other current assets consists of:

                                                                     2006
                                                                   --------
Prepaid acquisition costs                                          $312,142
Prepaid insurance                                                    13,699
Other                                                                 1,000
                                                                   --------
                                                                   $326,841
                                                                   ========

Note 6 - Accounts Payable and Accrued Expenses At December 31, accounts payable
and accrued expenses consists of:

                                                                     2006
                                                                  ----------
Wages and other related payables                                  $  974,305
Trade payables                                                       566,280
                                                                  ----------
                                                                  $1,540,585
                                                                  ==========


                                      F-12
<PAGE>
                               HOME DIRECTOR, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 7 - Income Taxes
The Company had no income tax expense for the year ended December 31, 2006 due
to net losses. At December 31, 2006, the Company had federal and state net
operating loss carryforwards of approximately $88.0 million. The federal net
operating loss carryforwards expire beginning in the year 2020 and the state net
operating loss carryforwards begin to expire in 2016. The deferred tax asset of
$35.2 million relating primarily to differences between book and tax treatment
of net operating losses, was fully reserved as of December 31, 2006. The Company
has established a valuation allowance of $35.2 million for the year ended
December 31, 2006 to reduce the deferred tax assets due to the uncertainty
surrounding the realization of such assets. The Tax Reform Act of 1986 contains
provisions that limit the ability to utilize net operating loss carryforwards in
the case of certain events including significant changes in ownership interests.
The Company has not completely evaluated whether it has undergone an ownership
change pursuant to this act but believes that an ownership change will likely be
deemed to have occurred. If such ownership changes are found to exist, the net
operating loss carryforwards as reported below could be significantly limited.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's net deferred income taxes are as follows at December 31:

                                                                        2006
                                                                   ------------
Deferred tax assets:
Net operating loss carryforwards                                   $ 35,200,000
Other                                                                        --
                                                                   ------------
Deferred tax assets                                                  35,200,000
Less:  Valuation allowance                                          (35,200,000)
                                                                   ------------
Net deferred tax assets                                            $         --
                                                                   ============


Total tax expense for 2006 differs from the amount computed by applying the
federal statutory rate of 34% primarily due to the valuation allowance
established against net operating loss carryforwards. The Company's effective
tax rate was 0% for 2006. The increase in allowance was approximately $2.0
million for 2006.

Note 8 - Capital Stock
As of December 31, 2006, the Company has authorized 40.0 million shares of
common stock with a par value of $0.01. The Company also has authorized 2.0
million shares of preferred stock, which are undesignated, with a par value of
$0.01. During 2006, upon confirmation of its Plan of Reorganization, the Company
cancelled all 16,035,715 shares of issued and outstanding common stock; issued
7,250,000 common shares registered pursuant to Section 1145 of the Code, fair
value of $0.81 per share, to certain creditors of the Company in exchange for
compromise of their claims against the Company; and, issued 2,417,667 common
shares (unregistered), fair value of $0.54 per share, to certain employees for
services rendered to the Company. In addition, the Company issued 600,000 common
shares (unregistered), fair value of $0.54 per share, as consideration for
consulting and other services rendered to the Company. There were no preferred
stock transactions in 2006 or 2005.

Note 9 - Stock-Based Compensation
The Company has reserved a total of 2,500,000 shares of common stock for
issuance under its stock option plan (the "Plan"). The Plan permits the granting
of incentive stock options and non-qualified stock options. The terms of stock
option grants are determined by the Board of Directors. The Company's stock
options generally vest over three years and have a maximum life of ten years.
Separate from the Plan, the Company has granted stock options and warrants to
consultants as compensation for their consulting services.


                                      F-13


<PAGE>
                               HOME DIRECTOR, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 9 - Stock-Based Compensation (Continued)

The following summarizes the stock option activity for the years ended December
31, 2006:

                                                 Weighted-
                                                 Average
                                                 Options            Exercise
                                               Outstanding            Price
                                                  -------           --------
Balance at December 31, 2005                      790,117           $   1.46
Granted (exercise price = fair value            3,460,363               0.54
Exercised                                              --                 --
Cancelled                                         790,117               1.46
Balance at December 31, 2006                    3,460,363           $   0.54
                                                =========           ========

Effective October 24, 2006, the Company entered into an agreement with certain
of its officers under which such officers agreed not to exercise options and
warrants to purchase an aggregate of 960,363 shares of common stock until such
time, if ever, as the Company amends its certificate of incorporation to
increase its shares of common stock reserved for the Plan to a number that is
sufficient to permit exercise of all of its outstanding options to acquire
shares of its common stock. In exchange, the Company agreed to use its best
efforts to seek stockholder approval of such an amendment at its 2007 annual
stockholders meeting.

Selected information regarding stock options as of December 31, 2006 follows:

                                      Weighted-Average
Exercise Prices           Number of     Remaining Life      Number of Options
                  Options Remaining           in Years            Exercisable
---------------   -----------------   ----------------     ------------------
     $0.54                3,460,363               9.83                211,131
                          ---------                                   -------
                          3,460,363                                   211,131
                          =========                                   =======

During the period ended December 31, 2006, the Company recorded compensation
expense of $33,429 for the fair value of options granted to purchase the
Company's common stock. On October 24, 2006, options to purchase 3,440,363
shares of common stock at $0.54 per share (the fair market value of which were
$0.54 per share) were granted which vest ratably over 36 months and expire ten
years after grant. A fair value of $0.118 per share was calculated using the
Black-Scholes model using volatility of zero and a risk free interest rate of
8.25%. All options are assumed to be held to maturity as the option holders are
primarily employees who have remained with the Company throughout the
Reorganization period. The total expense related to these options is $407,321
and will be amortized ratably over 36 months. $22,629 for these options was
recorded as compensation expense in the period ended December 31, 2006. On
December 22, 2006, options to purchase 20,000 shares of common stock at $0.54
per share (the fair market value of which were $0.54 per share) were granted
which are fully vested upon grant and expire ten years after grant. A fair value
of $0.54 per share was calculated using the Black-Scholes model using volatility
of zero and a risk free interest rate of 8.25%. The total expense related to
these options is $10,800 and was recorded as compensation expense in the year
ended December 31, 2006.

Note 10 - Common Stock Reserved for Future Issuance
At December 31, 2006, the Company had reserved a total of 4,065,363 of its
authorized 40.0 million shares of common stock for future issuance as follows:

Outstanding common stock warrants                                        125,000
Possible future issuance of common stock warrants                        500,000
Outstanding stock options                                              3,460,363
Possible future issuance under stock option plans                             --
                                                                       ---------
                                                                       4,085,363
                                                                       =========


                                      F-14
<PAGE>
                               HOME DIRECTOR, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 11 - Leases
Future minimum payments under an operating lease at December 31, 2006 are as
follows:

     Year Ending                                           Operating Leases
     -----------                                           ----------------
         2007                                                        75,402
         2008                                                        51,264
                                                           ----------------
Total minimum payments                                     $        199,872
                                                           ================

Rent expense charged to operations during the year ended December 31, 2006 was
$82,322. There were no capital leases during the periods reported herein.

Note 12 - Related Party Transactions
In 2006, certain officers and directors (including the spouse of an officer)
purchased $200,000 aggregate units of Home Director Investors, LLC (the "DIP
Lender"), as part of a Secured Super Priority Debtor in Possession Credit
Agreement between the DIP Lender and the Company totaling approximately
$2,894,000. In October 2006, pursuant to the Reorganization Plan, the entire
$200,000 principal amount of the notes purchased by these officers and directors
was automatically converted into units for 329,933 shares of the Company's
common stock.

The Company issued 600,000 common shares, fair value of $0.54 per share, as
consideration for consulting and other services rendered to the Company (see
Note 8.) 250,000 of the shares were issued to A. Stone Douglass, as his sole
compensation for services provided to the Company in his capacity as Chief
Reorganization Officer and Director of the Company. 350,000 of the shares were
issued to Brent Bilger (Chief Marketing Officer of the Company), as assignee of
Destiny Networks, Inc., as consideration for R&D consulting services provided to
the Company.

Note 13 - Employee Benefit Plan
The Company has a 401(k) plan which covers substantially all employees.
Employees may elect to contribute up to 15% of eligible compensation during any
plan year subject to IRS limits. Matching contributions to the plan are made at
the discretion of the Board of Directors. For the years ended December 31, 2006
and 2005, the Company has not made any matching contributions to the 401(k)
plan.

Note 14 - Commitments and Contingencies
The Company is subject to various legal proceedings and claims, which have
arisen in the ordinary course of its business and have not been fully
adjudicated. It is not possible at this time for the Company to predict with any
certainty the outcome of such litigation. However, management is of the opinion,
based upon information presently available, that it is unlikely that any such
liability, to the extent not provided for through insurance or otherwise, would
be material in relation to the Company's consolidated financial position or
results of operations.

The Company has received written notice from a third party alleging breach of
contract and violation of trademark law in connection with the use of the "Home
Director" trademark. The Company has taken what it believes is appropriate
remedial action and does not believe that there is any remaining basis for a
claim by the third party, nor has the third party taken further action to pursue
its claim. Nevertheless, it is possible that the third party will initiate legal
action seeking damages and/or injunctive relief against the Company. If any such
litigation should be resolved adversely, the Company could be compelled to pay
damages and/or royalties to the third party for its use of the Home Director
name and/or limit or discontinue its use as a trademark.

Note 15 - Convertible Notes Payable

In December 2006, the Company commenced a private placement of convertible notes
payable (the "Note"), generating gross proceeds of $250,000 and issuance of
warrants to purchase 125,000 of the Company's common stock.

The Note bears interest at 10% per annum, interest payable quarterly in cash,
or, at the option of the Maker, by adding the interest otherwise then due to the
principal owing under the Note. The Note provides for full repayment principal
and interest ("Due Value") by December 22, 2007 unless previously converted to
equity securities of the Company. The Holder is entitled to convert said Note
upon the occurrence of a Conversion Triggering Event (a private offering or
series of related private offering of its equity

                                      F-15


<PAGE>



                               HOME DIRECTOR, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 15 - Convertible Notes Payable (continued)

securities (collectively, an "Offering") consisting of or convertible or
exercisable into shares of common stock, for aggregate cash consideration of not
less than $10 million) into that of securities that would have been issued and
sold to the Holder in the Offering as of the Conversion Date if the Holder had
purchased such shares in the Offering for the Due Value. The Company determined
that the Note was issued without a beneficial conversion feature ("BCF"), thus,
no discount has been applied to reduce the carry-value of the Note and no
non-cash amortization expense has been recorded related to a BCF.

The warrants are immediately exercisable at an exercise price of $1.00 per
shares and expire five years from issuance. The warrants do not meet the
requirements of and are not accounted for as permanent equity. The exercise
price of $1.00 is above the fair value of $0.54 per share of the underlying
shares of common stock. Thus, no discount has been applied to reduce the
carrying-value of the Note and no non-cash amortization expense has been
recorded related to the warrant.

During the period ended December 31, 2006, the Company recognized no interest
expense related to the Note.

Note 16 - Liquidity

Historically, the Company's operations have never been self-sustaining, and it
has financed its continuing operations through a series of private offerings of
debt and equity and by obtaining advances under loan agreements. The Company
cannot predict when, if ever, its business will produce sufficient cash to
reduce or eliminate its dependence on external financing as its primary source
of working capital. As a result of the recurring losses from operations,
dependence upon financing operations through a series of private offerings of
debt and equity and the uncertainty about the adequacy of funding, our
independent auditors have included an explanatory paragraph in their report on
the accompanying financial statements indicating there is substantial doubt
about the Company's ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

As discussed further in Note 3 the Company and its subsidiaries filed voluntary
petitions for relief under Chapter 11 of the Bankruptcy Code.

Note 17 - Subsequent Events

Acquisitions
On December 28, 2006, the Company acquired substantially all the assets and
assumed certain liabilities of Destiny Networks, Inc. pursuant to the terms of
an Asset Purchase Agreement, dated December 28, 2006, among Home Director,
Destiny Networks and Brent Bilger, Executive Officer and Stockholder of Destiny
Networks. For accounting purposes, the acquisition is determined to be January
1, 2007.

On March 7, 2007, the Company's wholly-owned subsidiary, Home Director
Acquisition Corporation, acquired substantially all the assets and assumed
certain liabilities of Novus Technologies, Inc. pursuant to the terms of an
Asset Purchase Agreement, dated February 28, 2007, among Home Director, Novus
Technologies and Mike Springer, Executive Officer and Stockholder of Novus
Technologies.

Private Placement
On February 15, 2007, the Company entered an agreement to engagement Trenwith
Securities, LLC as the Company's exclusive investment banking agent to arrange
and negotiate a $25 million private placement of securities to be issued by the
Company and any of its subsidiaries.

                                      F-16

<PAGE>