U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

______________

FORM 10-KSB/A

______________

ý

ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF1934

For The Fiscal Year Ended December 31, 2005

 ̈

TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACTOF 1934

For the transition period from __________to __________.

Commission File No: 0-31497

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VIDEO WITHOUT BOUNDARIES, INC.

(Name of small business in its charter)

______________

|                                               |                                  
|---------------------------------------------- | ---------------------------------
|FLORIDA                                        | 65-1001686                       
|(State or other jurisdiction
of Incorporation) | (IRS Employer
Identification No.)

888 East Las Olas Blvd, Suite 710
Fort Lauderdale, Fl 33301

(Address of Principal Executive Offices)

(954) 527-7780

Issuers telephone number including area code)

Securities registered under Section 12(b) of the Exchange Act:

None

Securities registered under Section 12(g) of the Exchange Act:

Title of Class: Common

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities 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  ý    No   ̈

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B 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, as amended,  or any amendment to this Form 10-KSB, as amended.  ý

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

Issuers revenues for its most recent fiscal year ended December 31, 2005 were $181,462.

The aggregate market value of the voting and non-voting common equity held by non-affiliates as of January 31, 2006 was approximately $20,679,990.

The number of shares outstanding of each of the issuers common stock, as of January 31, 2006: 86,166,626 shares of common stock.

DOCUMENTS INCORPORATED BY REFERENCE

None









EXPLANATORY NOTE

Video Without Boundaries, Inc. (the Company) is filing this Amended Form 10-KSB (the Amended Form 10-KSB/A) to restate the Companys Annual Report on Form 10-KSB (the Original Form 10-KSB) for the period ended December 31, 2005 as originally filed with the Securities and Exchange Commission on April 10, 2006.



The restatement was undertaken to record the initial fair value of an embedded conversion option within a note payable and to record the change in the value during the current period and to reclassify a reduction in the provision for obsolete inventory and to properly account for all restricted stock and stock warrants issued to employees and third parties.







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VIDEO WITHOUT BOUNDARIES, INC.

FORM 10-KSB

TABLE OF CONTENTS



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|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|PART  I
4
ITEM 1.
DESCRIPTION OF BUSINESS
4
ITEM 2.
DESCRIPTION OF PROPERTY
11
ITEM 3.
LEGAL PROCEEDINGS
11
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
11
PART II
11
ITEM 5.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
12
ITEM 6.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
13
ITEM 7.
FINANCIAL STATEMENTS
16
ITEM 8.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
16
ITEM 8A.
CONTROLS AND PROCEDURES
16
ITEM 8B.
OTHER INFORMATION
16
PART III
16
ITEM 9.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
16
ITEM 10.
EXECUTIVE COMPENSATION
17
ITEM 11.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
17
ITEM 12.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
17
ITEM 13.
EXHIBITS AND REPORTS ON FORM 8-K
18
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
18
SIGNATURES
20
FINANCIAL STATEMENTS AND NOTES
F-1 through F-20



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FACTORS THAT MAY AFFECT FUTURE RESULTS

This report on Form 10-KSB, as amended, contains forward-looking statements within the meaning of and which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to be materially different from historical results or from any results expressed or implied by such forward-looking statements. Forward-looking statements generally are accompanied by words such as anticipates, belief, believes, estimates, expects, intends, plans and similar statements, and should be considered uncertain and forward-looking. Any forward-looking statements speak only as of the date on which such statement is made, are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecast in such forward-looking statements, whether as a result of new information, future events or otherwise. Factors that could cause our results to differ materially from the results discussed in such forward-looking statements include, without limitation: going-concern considerations; uncertain continued ability to meet our development and operational needs in view of our serious working capital shortage; no assurances of and uncertainty of future profitability; our plan to enter new, untested markets; our dependence on our management and the requirement of additional management in order to execute our operating plan; the uncertainty of the U.S. economic recovery and economic trends; the impact of competitive services and pricing; the Sarbanes Oxley Act has increased our legal, accounting and administrative costs; and many of such risk factors that are beyond our control. New factors emerge from time to time and it is not possible for management to predict all of such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. In light of these risks and uncertainties, there can be no assurance that the results anticipated in these forward-looking statements contained in this report will in fact occur. All forward-looking statements wherever they may appear are expressly qualified in their entirety by the cautionary statements in this section. We undertake no obligation to update any such forward-looking statements.



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PART I

ITEM 1.

DESCRIPTION OF BUSINESS

Corporate History

Video Without Boundaries, Inc., a Florida corporation (the Company, or we) is the result of a merger between a then existing public company and a private corporation in 1999. The Company developed as a single-source internet and streaming media product and solutions provider.

Since 2003, the Company has repositioned itself within the entertainment and home broadband marketplace as it continues to develop its MediaREADYTM product line. The Company now provides products and services in the converging digital media on demand, enhanced home entertainment and emerging interactive consumer electronics markets.

General

The Company is focused on home entertainment media products and solutions that enhance the consumer experience, while providing new revenue opportunities for online music and movie content providers. The Company has become a supplier of broadband products, services and content including its ability to deliver broadcast quality digital video and web interactivity at transfer rates as low as 56K.

The Company's goals are: 1) to become a developer/licenser, producer and distributor of interactive consumer electronics equipment; 2) establish itself as a software infrastructure player within the home entertainment media-on-demand marketplace; and 3) attempt to capture revenue and market share from services and products within the video on demand (IP) marketplace.

Broadband Media Marketplace



Nielsen//NetRatings, a global leader in Internet media and market research recently reported the following:



·

The number of active broadband users from home increased 28 percent year-over-year, from 74.3 million in February 2005 to 95.5 million in February 2006. Broadband composition among the U.S. active online population has seen vigorous growth during the past three years, increasing at least ten percentage points annually and hitting an all-time high of 68 percent for active Internet users in February 2006.

·

From February 2003 to February 2004, broadband composition grew twelve percentage points, from 33 percent to 45 percent. In February 2005, it increased another ten percentage points to 55 percent. This year, February saw broadband composition reach an all-time high of 68 percent, increasing an impressive 13 percentage points over the previous February.

·

Overall Internet penetration in the U.S. has stabilized over the past few years, reaching 74 percent at home in February 2006.

·

World broadband market grows with almost 10 percent and the number of broadband subscribers in the third quarter soared to over 187.8 million with more than 15.6 million new subscribers since the second quarter of 2005. Asia-Pacific, with 5.55 million, followed by Europe, has been the biggest regions in terms of nominal subscriber gain followed by the Americas and Middle East- Africa. At the same time the region has registered the lowest relative quarterly gain compared to the other regions. Europe, with nearly 5.5 million net gains or 10.5 percent quarterly growth, is the second largest broadband market in the world.

Similar research in the industry also points out that over 50% of broadband customers are installing in-home networks as a means for sharing high speed data connections, files and resources. With this mass adoption of broadband connectivity and in-home networking technology, consumers have the ability to access a wide range of digital media over the internet and move that media around our homes. The world is moving away from the storefront delivery of media to a new all-digital distribution system. Consumers are becoming acclimated to the benefits and quality of digital media goods and on-line digital media. In addition, PCs, digital cameras, USB storage devices, MP3 players, CDs and DVDs are all broadly accepted consumer devices that are changing the way consumers view media. Consumers no longer store their pictures, videos or audio files on tapes or other antiquated storage mechanisms.



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The acceptance of digital media and storage options, coupled with new digital distribution (IP) methods, is resulting in new convergence devices being introduced to consumers that allow for:

·

Universal Playback and storage of all digital media rented and purchased by the consumer

·

Consumers to have on-demand or immediate access to all digital media purchased & available for rental.

·

All forms of digital media to be played on all traditional audio/video equipment within the home, but also on relatively new, increasingly portable equipment (laptops, MP3 players)

As a result of the above, consumer interaction with media is changing in significant ways. Supporting and exploiting this new consumer behavior requires:

·

Simple to use devices that conform to existing consumer behavior and media needs

·

Conceptual bridge between the home PC and the living room environment

·

Robust Digital Rights Management (DRM) solution to support secure IP media delivery



PRINCIPAL PRODUCTS

MediaREADYTMDigital Media Centers

MediaREADYTM4000

The MediaREADYTM 4000, retail price $449, connects to the home user’s TV, stereo, home network and internet to bring the best of what digital media can be into a single device. As the medium of media delivery is shifting from tangible products to electronic media, new capabilities are required from the essential entertainment devices in the consumer’s living rooms. The MediaREADYTM 4000 is a product that was designed to provide for the consumer’s changing needs. The MediaREADYTM 4000 comes with support for an essential suite of TV-centric media applications to help create an easy to navigate environment for controlling a consumer’s entertainment choices. In addition, the product serves as an upgradeable platform that allows consumers to constantly update the features and content to ensure their ability to enjoy this product well into the future.

MediaREADYTM 4000 Highlights

·

Media Jukebox - burn and manage music, movies and pictures on the MediaREADYTM hard drive, any PC connected to the same home network or connected peripherals (ex. digital cameras, external storage devices)

·

Rip CDs onto the MediaREADYTM 4000 - Provides easy access to a consumer’s music collection from the TV screen, creates play lists of favorite songs

·

Present your pictures on the TV - Transfer pictures from digital camera to be displayed on the TV, transfer pictures from a consumers PC to be displayed on the TV, create slideshows to auto-play while music plays at the same time

·

Play music and video from PC on the TV - Access all the pictures, music and video stored on the PC from the TV

·

Download and stream full-Screen DVD quality video and music over the Internet on ones TV

·

High speed internet browsing with TV-centric website portal to provide the best surfing experience on the TV

·

Enhanced DVD/CD Player with 5.1 Digital Surround

·

Create and manage multiple email accounts

·

TV-friendly games of all genres and skill levels



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·

Simple to use Karaoke feature to sing along with ones entire music collection or access new content on demand

·

Wireless Keyboard and Remote Controls both with trackball mouse built in for easy navigation

·

Unmatched level of connectivity for USB, 1394, Component or composite video peripherals

·

Remotely upgradeable to ensure the latest applications, services and content are kept current and competitive

MediaREADYTM5000

The MediaREADYTM 5000, suggested retail price $699, allows users to customize viewing by recording shows on a built-in computer hard drive or DVD recorder. Made popular by TiVo, the concept of time shifting television is gaining mass acceptance. The functionality of this unit is, however, unmatched in the industry. Users can access digital media files on the units internal drive, any PC or on the same in-home network, connected peripheral devices. In addition, the unit brings on-demand content, e-mail, internet browser, games, and MP3/CD/DVD/MPEG-1/MPEG-2/MPEG-4 playback to any connected television.

Portable Media Centers

MediaREADYTMFlyboy

In December 2004, the Company announced the development of the MediaREADYTM Flyboy, an ultra-slim portable MPEG4 media player and recorder. This portable device allows the user to record up to 40 hours of video, store over 100,000 digital pictures, or hold over 6,000 songs on its 20 GB hard drive while enjoying it all on the move. The Flyboy has a pleasant to watch 3.5 inch LCD screen with built-in speakers. The internal USB 2.0 hard drive allows Flyboy to receive files from another MediaREADYTM unit or a PC. The Company is focused on delivering portable media technology in combination with the MediaREADYTM line allowing consumers to take their media on the go.

MediaREADYTM Flyboy Features:

·

MPEG4 Video Player/Recorder - record up to 40 hours of video on Flyboy and watch it on 3.5 inch LCD screen or connect it to a TV for convenient playback. Supports Real One player.

·

MP3 Player - hold up to 370 hours (6,000 songs) of MP3 music. You can transfer your entire MP3 collection in no time at all via USB 2.0 connection.

·

Digital Picture Storage - store over 100,000 digital pictures (1600x1200 pixels). View pictures on the LCD screen. Includes 3x zoom functionality.

·

Digital Voice Recorder - records meeting notes, to do list or a jam session with the Flyboys built-in microphone.

·

Data Storage Centre - when connected to other MediaREADYTM devices or a PC, the Flyboy is an external hard drive for transporting and storing data files.

·

Built-In Speaker and Earphone output - whether you want to entertain your neighbours or keep it private, the Flyboy lets you plug in your earphones or crank it up over your built-in speakers.

The MediaREADYTM Flyboy has been shipping commercially since June 2005.



MediaREADYTMCoPilot



The Company introduced a new portable named CoPilot into the US retail market in Decemnber 2005. The new flash-based MPEG-4 portable retails for under $200 and features AV input recording allowing for easy connection to DVD Player, VCRs, cable and satellite set-top boxes for simple recording of TV and movies. Additional "pluses" includes video playback and recording on its 512MB flash drive. The unit memory is also expandable via its SD card slot enabling the CoPilot to store more than 5 hours of video at 320 x 240 @ 30f/s



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resolution. The CoPilot also supports MP3, WAV, and WMA formats and Line In Audio for simple playback and recording of music.



Other Features include:

·

Internal microphone for voice recording

·

Photo viewing

·

Video output for playback of video onto TV

·

Games

·

Calendar

·

Clock

·

Built-in speakers

·

FM radio

Future Products

OEM Licensing

To architect and build this new breed of device requires a skill-set in both hardware and software that most Consumer Electronics (CE) and Personal Computer (PC) makers do not possess. The management of aftermarket media/application deployment is going to require a technological and networking understanding beyond most of todays manufacturers. Some of the largest CE companies in the world are building teams to try to better understand and manage this opportunity (per recent Panasonic and Sony press releases). Others will simply buy the capability in from outside organizations or by acquisition. In both the CE and PC media centre markets, hardware designs, software and networking solutions like this are traditionally licensed or acquired by the manufacturer.

In July 2004, we announced our plans to license the MediaREADYTM 4000, MediaREADYTM 5000, and the MediaREADYTM Module to consumer electronics manufacturers interested in deploying a variety of competitive broadband-enabled devices. All of our MediaREADYTM products are tightly integrated hardware designs which provide broadband media capabilities, fast time-to-market and recurring revenue opportunities for licensees. The MediaREADYTM Module is a low-cost small footprint module designed to empower television sets and other consumer electronics devices with a wide range of broadband media applications. As our products are groundbreaking and today unrivalled at the retail level, we are receiving interest from other consumer electronics companies in licensing our solutions. Licensing fees are one-time in nature and book only when a new device is deployed.

Again in line with our “provide the industry model”, OEM licensing of our MediaREADYTM products will expand our content consumer base as well as increase the economies of scale for producing our MediaREADYTM product line. Several discussions with major branded OEMs have already taken place and we are in the early stages of forming these relationships.

MediaREADYTMDelivery Network (MRDN)

While the sale of our hardware will constitute the bulk of our near-term revenue, we expect direct sales and sales commissions from third-party licensees to grow as licensed devices may be deployed.  Direct sales and commissions from aftermarket consumer purchases over our MRDN generated over the life of the device.  We expect that as the installed base grows, non-license fee revenues will rapidly eclipse our base licensing revenue. Most general system and OS patches are expected to be free to the end-user, but we will offer enhanced bundled upgrades at least once a quarter at prices ranging from 5 - 50 per unit (games packs, advanced photo managers, ITV applications, etc.)

Demand for the Companys products has been such that a number of content providers have agreed to provide content to the Company for distribution to deployed products. The provision of this content to the Companys customers is highly profitable and further enhances the products offered. The Company is planning to launch a pilot of our Media on Demand service mid 2006 on deployed MediaREADYTM 4000 and MediaREADYTM 5000 units. The pilot’s goals are as follows:

·

To deliver DVD quality movies direct to MediaREADYTM devices



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·

To provide subscription based Media on Demand - music & video delivery services

·

Determine technology and financial requirements for large-scale deployment of our MediaREADYTM Delivery Network (MRDN) for broader product support in late 2006

The Company has partnered with a variety of companies involved with distribution of media over the IP channel. These consist of three categories:

·

Online media distributors

·

Niche and independent content owners

·

Major studio and label content owners.

Online Media Distributors:Rhapsody, Napster, iTunes, Movielink and CinemaNow are all examples of online businesses that utilize the Internet to distribute content on behalf of the content owner.  The MediaREADYTM products are compatible with all of these services, and in the short-term, selected services will be made available on all units.  The Company is currently negotiating “bounty” fees for each service, so that for every new MediaREADYTM subscriber, both the Company and the licensee receive either a one time or residual royalty on all media sales of each service.  These services will increase consumer satisfaction levels of compatibility with main-stream digital media service. Other examples of announced content partners within this market are: Blastro.com (music videos); King Biscuit (music and video); Live365 (internet radio); and Ingrooves (specialty music distributor).

Niche and Independent Content Owners: The introduction of high speed data access to the masses has fueled a surge in development of a new breed of online content. Individually produced movies, TV shows, news, music, etc. are proliferating throughout the internet. VLogs, streaming TV stations, and the introduction of video search engines by Google and Yahoo further feed the phenomenon. People are now watching the Internet and expressing a desire for a means to have this content also delivered on their televisions.  The Company has made significant progress in getting early commitments from independent and select major studio/label contacts to utilize their content. As the MediaREADYTM products are launched through retailers, the Company will pursue other independent content providers.

Major Studio and Label Content Owners: The company has met with representatives from all major studios and labels regarding this opportunity. In addition, we have been negotiating with a major distributor who has IP distribution rights from six of the major movie studios as well as major record labels and clearing houses for online distribution of music services.

Sales and Marketing

The Company plans to promote itself by direct sales efforts using telephone sales, conventional media advertising, and Internet marketing. These advertisements will be targeted at small, medium, and large business customers as well as retail consumers who are likely to respond to specific ads or visit specific web sites to make a purchase.

The Company employs three inside and outside sales people to help customers and to prospect business from various forms of lead generation. The Company may also engage independent sales agents in various geographic areas as well as product dealers and resellers.

Our marketing strategy is to promote and enhance our brand by participating in targeted industry conferences and seminars, as well as engaging in a public relations campaign. This strategy is designed to strengthen our brand name and generate new clients by increasing the awareness of our brand with high quality comprehensive converging digital media on demand, enhanced home entertainment and emerging interactive consumer electronics companies. The extent of the sales and marketing of our products and services is dependent on the Companys continued ability to raise capital and grow revenues, of which no assurances are given.

The Company believes that establishing and maintaining a good reputation and name recognition is critical for attracting and expanding our customer base. We also believe that the importance of product acceptance and market validation will increase due to the growth in the converging digital media on demand, enhanced home entertainment and emerging interactive consumer electronics markets. If the various product markets and customers



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do not perceive our products and services to be effective or of high quality, our brand name and reputation could be materially and adversely affected.

Sources and Availability of Raw Materials

The Company utilizes an outsourcing product development model. Therefore, many of the products materials and components are provided as assemblies by the Companys suppliers. Most of those suppliers are in Asia and procurement is either contract-development based or by purchase order.

The MediaREADYTM media center products, while architected by the Company, are designed and manufactured for the Company under contract with original design and manufacturing partners. Components such as the main board, enclosure, and peripheral boards are outsource designed and produced uniquely for the Company. Integrated circuits and other components used in the design of such electronic assemblies are primarily off-the-shelf silicon from industry providers such as Sigman Designs, Via Technology, Philips, Samsung, Hitachi, and Texas Instruments. Other components of these products, eg. power supply, hard drive, and DVD/CD drives are industry standard components from companies providing the personal computer industry. Mechanical components are designed and produced by original design and manufacturing partners in Asia as well.

The mix between Company specific components and off-the-shelf components is a result of finding the optimal trade off between what is available in the market place and what the Company must create in order to have the most marketable products. This result is very much part and parcel of the Companys outsourced model advantage.

Customers

The Company continues to focus on long-term relationships with clients that will range from retail consumers to small, medium, and large business customers. Agreements and purchase orders that may be entered into in connection with product sales are generally on an order by order basis. If our clients terminate purchase orders or if the Company is unable to enter into new engagements or sell its new products and services, our business, financial condition and results of operations could be materially and adversely affected. In addition, because a proportion of the Companys expenses is relatively fixed, a variation in the number of products sold can cause significant variations in operating results from quarter to quarter.

The Companys product sales will vary in size; therefore, a customer that accounts for a significant portion of the Companys revenues in one period may not generate a similar amount of revenue in subsequent periods.  Based upon recent informal discussions with various prospective customers, the Company does not currently believe that it will derive a significant portion of its revenues from a limited number of clients in the near term. However, we can not assure that this will be the case and in such an event, any cancellation, deferral, or significant reduction in future orders could have a material adverse affect on the Companys business, financial condition, and results of operations.

Competition

Broadband Media Device Competition

Industry: Product Line Example

PC Manufacturers: Multimedia PC Media Station

·

Form factor (design), connectivity and usability are not living room & stereo/TV friendly

·

Designed for early adopter market

·

Expensive (averaging $2,000)

Networking/Wireless Approach: Media Receiver

·

Requires PC and extensive PC proficiency from the user

·

Expensive (averaging $849)

Consumer Electronics Manufacturers: Media Server

·

Expensive (averaging $7442)



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Many of the Companys competitors have longer operating histories, larger client bases, longer relationships with clients, greater brand or name recognition and significantly greater financial, technical, marketing and public relations resources. Several of these competitors may provide or intend to provide a broader range of products and services than the Company. Furthermore, greater resources may enable a competitor to respond more quickly to new or emerging technologies and changes in customer requirements and to devote greater resources to the development, promotion and sale of its products and services than we can. In addition, competition may intensify in the converging digital media on demand, enhanced home entertainment and emerging interactive consumer electronics markets by major companies which could have an adverse on the Company.

While as of December 31, 2005, the Company had no portion of the converging digital media on demand, enhanced home entertainment and emerging interactive consumer electronics market due to its development and testing of products for distribution launch in the United States, we have recently entered the retail market on a limited basis through a limited number of distributors. There can be no assurances that we will be able to further penetrate retail markets in the future because of the need for the Company to raise additional capital to fund its sales and marketing efforts.

Trademarks

As of December 31, 2005, the Company had submitted the following marks for listing on the trademark registry:

MediaREADYTM

FlyBoyTM



Governmental Approvals

The Companys MediaREADYTM set top boxes are required to pass radiation emission testing as per applicable Federal Communications Commission requirements.  The Company uses the services of a full service importer that handles the logistics of importing the products which includes the emissions testing.

Research and Development

The Company expended research and development costs of $7,231, $5,304 and $40,000 for the years ended December 31, 2005, 2004 and 2003, respectively.

Other Developments



Graphics Distribution:  On August 11, 2004 (with an effective date of June 1, 2004) the Company entered into a stock purchase agreement with the sole shareholder of a privately-held company engaged in the business of selling and distributing electrical products. The principal terms of the agreement provide for the Company to acquire all of the issued and outstanding shares of the acquired entity for a purchase price of $1,500,000 plus the issuance of 1,000,000 restricted common stock shares in the acquiring entity. Additional consideration included in this stock purchase agreement require the Company to collateralize an existing line of credit in the amount of $2,500,000 as well as retain the services of the selling shareholder, pursuant to a consulting agreement dated August 11, 2004, for a term consistent with the fulfillment of the stock purchase agreement. The Company, at time of closing, gave its initial deposit of $350,000, but has defaulted on the remaining balance due and is also in default of the collateralization provision. Management has written off the deposit of $350,000 and is actively negotiating with the seller to resolve this matter. Management anticipates, but can not assure, that a settlement will be forthcoming and that the Company loss will consist of its forfeited deposit.

CAC Media:  The Company reviewed the investment in CAC Media for possible impairment and provided fully for a decline in value of $0, $865,000 and $93,000 at December 31, 2005, 2004 and 2003, respectively.



On December 3, 2005, the Company and a stockholder/creditor entered into an agreement which amended a prior agreement concerning the terms and conditions attached to the conversion of outstanding debt into restricted or free trading stock of the Company. The original agreement conveyed upon the stockholder the right to convert amounts owed to him at a price of one ($.01) cent per share without restrictions as to time periods. Based upon the terms and conditions of the amended agreement, the stockholder, effective with the period commencing July 1, 2005, has conversion rights as follows: for the third calendar quarter of 2005, the conversion of debt to stock shall be at twenty (20%) percent of the then closing price on the date of conversion; for all subsequent periods this conversion formula shall be at forty (40%) percent of the then closing price of the stock on the date of conversion. In



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addition, effective December 3, 2005, the stockholder shall be limited in respect to the amount of outstanding debt he will be permitted to convert in any calendar quarter. This limitation has been set at three (3%) percent of the total outstanding stock of the Company.

As of December 31, 2005, the Company had cash and negative net working capital of $1,097 and ($7,060,316), respectively.  The Company believes that its current working capital and cash generated from operations will not be sufficient to meet the Companys cash requirements for the next twelve months without the ability to obtain profitable operations and/or obtain additional financing. If the Company is not successful in generating sufficient cash flows from operations or in raising additional capital when required in sufficient amounts and on acceptable terms, these failures could have a material adverse effect on the Companys business, results of operations and financial condition. If additional funds are raised through the issuance of equity securities, the percentage ownership of the Companys then-current stockholders would be diluted. Our independent public accountant has included as a footnote in their report on our financial statements, stating that certain factors raise substantial doubt about our ability to continue as a going concern.

There can be no assurance that the Company will be able to raise any required capital necessary to achieve its targeted growth rates and future continuance on favorable terms or at all.



Employees

As of December 31, 2005 the Company employed a total of eight persons on a full-time and part-time basis. In addition the Company had consulting agreements with three outside individuals or firms for sales and marketing, technical consulting, and public relations. Our personnel are not subject to any collective bargaining agreements and Company has not experienced any work stoppages. The Company believes that its labor relations are satisfactory.

ITEM 2.

DESCRIPTION OF PROPERTY

The Companys corporate office is located at 888 East Las Olas Blvd, Suite 710, Fort Lauderdale, FL 33301. Pursuant to a written lease, as amended, the Company leases 2,689 square feet at approximately $70,000 per annum. Such lease, as amended, expires May 31, 2007.

ITEM 3.

LEGAL PROCEEDINGS

The Company is not a party to and none of our property is subject to any pending or threatened legal proceeding. In addition, no director, officer or affiliate of the Company and no owner of record or beneficial owner of more than 5.0% of the securities of the Company or any associate of any such director, officer or security holder is a party adverse to the Company or has a material interest adverse to the Company in reference to pending litigation.

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of the security holders of the Company during the fourth quarter of the fiscal year which ended December 31, 2005.



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PART II

ITEM 5.

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

As of January 17, 2006, the Companys common stock resumed trading on the OTC electronic bulletin board under the symbol VDWB.  From December 2004, the Companys common stock had traded on the pink sheets under symbol VDWB.  The Companys common stock moved to the pink sheets as a result of the Company not being deemed current with its annual report filing with the SEC due to the auditors report for 2003 not being prepared by an auditor registered with the Public Company Accounting Oversight Board (PCAOB). There was no trading in the Companys common stock prior to May 2000. The following table shows the quarterly high and low bid prices for the calendar year 2005 as reported by the National Quotations Bureau Incorporated. These prices reflect inter-dealer quotations without adjustments for retail markup, markdown or commission, and do not necessarily represent actual transactions.

|     |  |                |  |       |  |      
|---- |  | -------------- |  | ----- |  | -----
|Year |  | Period         |  | High  |  | Low  
|2005 |  | First Quarter  |  | $0.84 |  | $0.38
|     |  | Second Quarter |  | $0.77 |  | $0.35
|     |  | Third Quarter  |  | $0.53 |  | $0.28
|     |  | Fourth Quarter |  | $0.36 |  | $0.20

As of December 31, 2005, there were approximately 180 holders of record of the Companys common stock. Holders of the Companys common stock are entitled to dividends when, as and if declared by the Board of Directors out of funds legally available therefore. The Company does not anticipate the declaration or payment of any dividends in the foreseeable future.

The Company intends to retain earnings, if any, to finance the development and expansion of its business. Future dividend policy will be subject to the discretion of the Board of Directors and will be contingent upon future earnings, if any, the Companys financial condition, capital requirements, general business conditions and other factors. Therefore, there can be no assurance that any dividends of any kind will ever be paid.

All of the securities described below were sold pursuant to Section 4(2) under the Securities Act of 1933, as amended (the Securities Act), based upon the limited number of offerees, their relationship to the Company, the number of shares offered, the size of the offering, and the manner of such offering.

During 2003 the Company issued convertible debentures in the amounts of $482,000. The debentures mature 90 days after issuance, with interest accruing at the rate of 12% per annum.   The issuances entitled the holder of each debenture to have the right at anytime before maturity, to convert the principal and accrued interest into shares of restricted common stock at 50% of the bid price of the stock.  During 2003 the holders converted their debentures and associated interest and finance expense into stock amounting to $755,920.

In 2004 the Company issued 150,000 shares of its restricted common stock for services rendered, pursuant to an employment agreement with the Chief Technology Officer, valued at prices ranging from $.35 to $.50 per share. The Company also converted debt due to shareholders into 34,399,879 shares of restricted common stock, sold 3,500,000 shares of restricted common stock to investors, and cancelled 379,500 shares of restricted common stock.

On November 1, 2004 the Company increased its authorized common stock from 50 million to 100 million shares.

In 2005 the Company issued 100,000 shares of its restricted common stock for services rendered, pursuant to an employment agreement with the Chief Technology Officer, valued at prices ranging $0.24 to $0.34 per share.  The Company also converted debt due to shareholders into 32,100,000 shares of restricted common stock, and sold 600,000 shares of restricted common stock to investors.

The Companys transfer agent is Interwest Transfer Co., Inc., which is located at 1981 East 4800 South, Suite 100, Salt Lake City, UT 84117 with telephone number (801) 272-9294.





12



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ITEM 6.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This report on Form 10-KSB, as amended,  contains forward-looking statements within the meaning of and which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to be materially different from historical results or from any results expressed or implied by such forward-looking statements. Forward-looking statements generally are accompanied by words such as anticipates, belief, believes, estimates, expects, intends, plans and similar statements, and should be considered uncertain and forward-looking. Any forward-looking statements speak only as of the date on which such statement is made, are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecast in such forward-looking statements, whether as a result of new information, future events or otherwise. Factors that could cause our results to differ materially from the results discussed in such forward-looking statements include, without limitation: going-concern considerations; uncertain continued ability to meet our development and operational needs in view of our serious working capital shortage; no assurances of and uncertainty of future profitability; our plan to enter new, untested markets; our dependence on our management and the requirement of additional management in order to execute our operating plan; the uncertainty of the U.S. economic recovery and economic trends; the impact of competitive services and pricing; the Sarbanes Oxley Act has increased our legal, accounting and administrative costs; and many of such risk factors that are beyond our control. New factors emerge from time to time and it is not possible for management to predict all of such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. In light of these risks and uncertainties, there can be no assurance that the results anticipated in these forward-looking statements contained in this report will in fact occur. All forward-looking statements wherever they may appear are expressly qualified in their entirety by the cautionary statements in this section. We undertake no obligation to update any such forward-looking statements.

The following is a discussion of the financial condition and results of operations of the Company for the year ended December 31, 2005 and significant factors that could affect our prospective financial condition and results of operations. You should read this discussion in conjunction with the financial statements, including the notes thereto, of the Company included elsewhere in this Form 10-KSB, as amended.  Historical results may not be indicative of future performance.

OVERVIEW

The Company is developing new products and services in regard to its media convergence business within the home entertainment marketplace. All major PC, consumer electronics, and set-top box manufactures have added streaming media players within their products to capitalize on the growth of broadband connections and streaming content offered over the Internet. With more than 10 million broadband households and nearly 35 million broadband-enabled screens, the Company is attempting to capitalize on the growth of this market through its professional services division and potential new partnerships and business ventures.

The Company has repositioned itself within the entertainment and home broadband marketplace. The Companys goals are: 1) to become a developer/licenser, producer and distributor of interactive consumer electronics equipment; 2) establish itself as a software infrastructure player within the home entertainment media-on-demand marketplace; and 3) attempt to capture revenue and market share from services and products within the video on demand (IP) marketplace.

Quarter-to-quarter fluctuations in margins: The Companys operating results and quarter-to-quarter margins may fluctuate in the future as a result of many factors, some of which are beyond the Companys control. Historically, the Companys quarterly margins have been impacted by:

·

the number of client purchase orders completed

·

seasonality

·

the number of days during the quarter

·

marketing and business development expenses

·

pricing changes

·

economic conditions generally or in the information technology products and services markets



13



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The Company expects these trends to continue.

The Companys MediaREADYTM products are the first consumer electronic products to achieve the long-awaited promise of convergent home entertainment. All MediaREADYTM units have the ability to connect PCs wirelessly to home entertainment stereo and TV systems, linking all digital media content stored on PCs to its onboard hard drive. The products leverage the power of VIA Technologies EPIA processing, a breakthrough product offering low power consumption, quiet operation, and high-bandwidth connectivity options including IEE1394, USB2.0, S-Video, RCA TV-Out (NTSC and PAL), 10/100 Ethernet and wireless PCMCIA card support, enabling MediaREADYTM units to download, play, and manage digital movies, music and pictures from the Internet, or from a home networked PC. The recently announced MediaREADYTM 5000 also adds the ability to record live TV and burn DVDs. Similar in size to a standard DVD player, the MediaREADYTM products retail between $449-$899.

RESULTS OF OPERATIONS

Year Ended December 31, 2005 Compared to Year Ended December 31, 2004.

Revenues

Net revenues are comprised of product and services revenues, net of returns and allowances. For the year ended December 31, 2005, revenues were $181,462 compared to $14,167 for the year ended December 31, 2004, representing an increase of $167,295 or 1,180%. The increase in net sales was a result of initial orders of our MediaREADYTM products.

Gross Profit

Gross Profit for the year ended December 31, 2005 was $21,915 compared to a loss of $4,862 for the year ended December 31, 2004.  The increase in gross profit was a result of initial product orders.

General and Administrative

General and administrative expense includes personnel costs, administrative expenses, general office expenses, advertising costs, and professional fees. General and administrative expenses for the year ended December 31, 2005 were $1,959,051 compared to $1,377,172 for the year ended December 31, 2004, representing an increase of $581,879 or 42.2%. The primary increase in general and administrative expenses was due to increases in payroll expenses.

Cash flows from operating activities

Net cash used in operating activities for the year ended December 31, 2005 was $2,130,666 compared to $1,227,579 for the year ended December 31, 2004. The increase in cash used in operating activities was primarily attributable to increase in inventory and a decrease in accruals.

Cash flows from financing  activities

Net cash provided by financing activities for the year ended December 31, 2005 was $2,047,468 compared to $2,582,936 for the year ended December 31, 2004.  The decrease in cash provided by financing activities resulted from a decrease in cash received from stock issuances to third parties. .

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2005, the Company had cash and negative net working capital of $1,097 and ($7,060,316), respectively.  The Company believes that its current working capital and cash generated from operations will not be sufficient to meet the Companys cash requirements for the next twelve months.  If the Company is not successful in generating sufficient cash flows from operations or in raising additional capital when required in sufficient amounts and on acceptable terms, these failures could have a material adverse effect on the Companys business, results of operations and financial condition. If additional funds are raised through the issuance of equity securities, the percentage ownership of the Companys then-current stockholders would be diluted. Our independent public accountant has included as a footnote in their report on our financial statements, stating that certain factors raise substantial doubt about our ability to continue as a going concern.

There can be no assurance that the Company will be able to raise any required capital necessary to achieve its targeted growth rates and future continuance on favorable terms or at all.



14



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On December 3, 2005, the Company and a stockholder/creditor entered into an agreement which amended a prior agreement concerning the terms and conditions attached to the conversion of outstanding debt into restricted or free trading stock of the Company. The original agreement conveyed upon the stockholder the right to convert amounts owed to him at a price of one ($.01) cent per share without restrictions as to time periods. Based upon the terms and conditions of the amended agreement, the stockholder, effective with the period commencing July 1, 2005, will have conversion rights as follows; for the third calendar quarter of 2005 the conversion of debt to stock shall be at twenty (20%) percent of the then closing price on the date of conversion; for all subsequent periods this conversion formula shall be at forty (40%) percent of the then closing price of the stock on the date of conversion. In addition, effective December 3, 2005, the stockholder shall be limited in respect to the amount of outstanding debt he will be permitted to convert in any calendar quarter. This limitation has been set at three (3%) percent of the total outstanding stock of the Company.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Revenue Recognition

Sales are recorded after receipt of a written purchase order by the buyer, the issue of a written sales agreement by the Company that requires the signatures of the authorized representatives of the Company and its customer which is binding, and shipment of the product to the customer (when title and risks and rewards of ownership have passed), or when services are rendered to third-parties, in accordance with SAB 104.



Consignment sales are not initially recognized because the Company considers that it still retains the risks and rewards of ownership. Revenue is not recognized until an actual sale occurs to a third-party.

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 amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenue and expenses during the reported period. Actual results could differ from those estimates.

Inventory

Inventory is valued using the first-in, first-out method of accounting and is stated at the lower of cost or net realizable value and consists solely of finished goods.  The Company outsources the manufacture of its products for sale and accordingly excludes any general and administrative costs from inventory.  The Company records inventory provisions for obsolete and slow-moving items.

Property and Equipment

Property and equipment is recorded at cost, net of accumulated depreciation, which is provided for by a charge to operations over the estimated useful life of the assets using the straight-line method. The useful life of the assets is 3-4 years.

Expenditures that extend the useful life of the respective assets are capitalized and depreciated over the lives of the respective assets. Maintenance, repairs and other expenses that do not extend their useful life are expensed as incurred.

Financial Instruments

The Companys financial instruments are cash, accounts receivable, accounts payable, accrued expenses, accrued compensation, and notes payable. The recorded values of cash, accounts receivable, loans receivable, accounts payable, accrued expenses, and accrued compensation approximates their fair values based on their short-term nature. The fair value of notes payable is based on current rates at which the Company could borrow funds with similar remaining maturities, and the carrying amount approximates fair value.

Income Taxes

The Company follows Statement of Financial Accounting Standards No. 109 Accounting for Income Taxes (SFAS No. 109). Under the asset and liability method of SFAS No. 109, deferred tax assets and liabilities are



15



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recognized for the future tax consequences attributed to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax base. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under SFAS No. 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. If it is more likely than not that some portion of a deferred tax asset will not be realized, a valuation allowance is recognized.



Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of accounts receivable. The Company believes that it is not exposed to any significant credit risk on accounts receivable.

ITEM 7.

FINANCIAL STATEMENTS

The Companys financial statements and the notes thereto appear on pages F-1 through F-20 of this report.

ITEM 8.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

This information was previously disclosed in a Form 8-K filed with the Commission by the Company on July 27, 2005.

ITEM 8A.

CONTROLS AND PROCEDURES

The Companys principal executive, financial and accounting officer evaluated the effectiveness of the design and operation of the Companys disclosure controls and procedures as of the end of the period covered by this annual report. Based on the evaluation, such person concluded at that time that the Companys disclosure controls and procedures as of the end of the period covered by this annual report have been designed and are functioning effectively to provide reasonable assurance that the information required to be disclosed by the Company in reports filed under the Securities Exchange Act of 1934, is recorded, processed, summarized and reported within the time period specified in the SECs rules and forms. There have been no changes in our internal controls or in other factors that could significantly affect internal controls that occurred during the fiscal year ending December 31, 2005.  The Company believes that a control system, no matter how well designed and operated, cannot provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

ITEM 8B.

OTHER INFORMATION

Not applicable.



PART III

ITEM 9.

DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.

The current executive officers, directors and significant employees of the Company are as follows:

The following are the Directors and Executive Officers of the Company. None of the Directors hold similar positions in any reporting company. The Directors named below will serve until the next annual meeting of the Companys stockholders. Thereafter, Directors will be elected for one-year terms at the annual stockholders meeting.

V. Jeffrey Harrell, age 40, is the Chairman of the Board, President, CEO, Principal Financial and Accounting Officer, and Secretary of the Company and has held these positions since December 1999. Mr. Harrell



16



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joined the Company from the financial services industry where he worked as Vice President and partner. Previously he worked as Director of IT and Cost Accountant for two major manufacturers.

The Company has not yet adopted a code of ethics due to the small size of the Company.  Should the Company materially increase in size, management intends to consider the need for a code of ethics.

The Company does not currently have an audit committee.  The entire Board of Directors is currently acting as the audit committee.  There is no audit committee financial expert, as such term is defined in rules and regulations of the SEC, currently serving on the Board of Directors.  However, our sole director believes that he has sufficient knowledge and experience to fulfill his duties and obligations with respect to audit committee functions of the Board.

ITEM 10.

EXECUTIVE COMPENSATION

The following table represents salaries paid to the Companys corporate officer:

|                                 |  |      |  |        |       
|-------------------------------- |  | ---- |  | ------ | ------
|Name and Position                |  | Year |  | Salary
|Harrell, V. Jeffrey              |  | 2005 |  | $      | 69,750
|CEO, President,                  |  | 2004 |  | $      | 39,750
|Chairman of the Board, Secretary |  | 2003 |  | $      | 32,250

The director was not compensated for any Board of Directors meetings.

The following table represents salaries paid to non-officer/executive employees pursuant to Item 402(a)(2)(iii):

|                         |  |            |  |      |  |        |        
|------------------------ |  | ---------- |  | ---- |  | ------ | -------
|Name and Position        |  | Start Date |  | Year |  | Salary
|Glatt, Terry             |  | 04/2004    |  | 2004 |  | $      | 89,307 
|Chief Technology Officer |  |            |  | 2005 |  | $      | 202,149
|                         |  |            |  |      |  |        |        
|Novak, David             |  | 08/2004    |  | 2004 |  | $      | 42,225 
|EVP-Sales and Marketing  |  |            |  | 2005 |  | $      | 150,000

ITEM 11.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

As of January 31, 2006, the Company had 86,166,626 shares of its common stock issued and outstanding. The following table sets forth, as of December 31, 2005, the beneficial ownership of the Companys common stock (i) by the only persons who are known by the Company to own beneficially more than 5% of the Companys common stock; (ii) by each director of the Company; and (iii) by all directors and officers as a group.

|       |  |                                       |  |             |  |           
|------ |  | ------------------------------------- |  | ----------- |  | ----------
|Class  |  | Name and Address of Owner             |  | # of Shares |  | % of Class
|Common |  | V. Jeffrey Harrell                    |  | 1,523,440   |  | 2%        
|       |  | PO Box 30057
Ft. Lauderdale, FL 33303 |  |             |  |           



ITEM 12.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The director named above will serve until the next annual meeting of the Companys stockholders. Thereafter, directors will be elected for one year terms at the annual stockholders meeting. Officers will hold their positions at the pleasure of the board of directors, absent any employment agreement, of which none currently exists. There is no arrangement or understanding between any of the directors or officers of the Company and any other person pursuant to which any director or officer was or is to be selected as a director or officer.



During 2005 and 2004 the Company expensed $200,000 in each year for the salary of the President. At December 31, 2005 a total of $528,964 for the period January 1, 2002 through December 31, 2005 was unpaid and has been accrued.



17



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ITEM 13.

EXHIBITS AND REPORTS ON FORM 8-K

(a)

The Exhibits listed below are filed as part of this annual report.

|            |  |                                                                                                                                                                                                                                                                        
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                            
|3.1         |  | Articles of Incorporation (incorporated by reference from Registration Statement on Form 10SB filed with the Securities and Exchange Commission under File No. 0-31497 filed 09/11/00)                                                                                 
|3.2         |  | Amended Articles of Incorporation (incorporated by reference from Registration Statement on Form 10SB filed with the Securities and Exchange Commission under File No. 0-31497 filed 09/11/00)                                                                         
|3.3         |  | Bylaws (incorporated by reference from Registration Statement on Form 10SB filed with the Securities and Exchange Commission under File No. 0-31497 filed 09/11/00)                                                                                                    
|10.1        |  | Office Lease (incorporated by reference from Registration Statement on Form 10SB Amendment #1 filed with the Securities and Exchange Commission under File No. 0-31497 filed 11/06/00)                                                                                 
|10.2        |  | Office Lease (incorporated by reference from Registration Statement on Form 10SB Amendment #1 filed with the Securities and Exchange Commission under File No. 0-31497 filed 11/06/00)                                                                                 
|10.3        |  | Office Lease (incorporated by reference from Annual Report filed with the Securities and Exchange Commission under File No. 0-31497 filed 06/28/02)                                                                                                                    
|10.4        |  | Office Lease (incorporated by reference from Annual Report filed with the Securities and Exchange Commission under File No. 0-31497 filed 06/28/02)                                                                                                                    
|10.5        |  | Office Lease (incorporated by reference from Quarterly Report filed with the Securities and Exchange Commission under File No. 0-31497 filed 05/15/03)                                                                                                                 
|10.6        |  | Lease Extention and Amendment Agreement between The Las Olas Company, Inc. and Video Without Boundaries, Inc. dated June 1, 2005 (incorporated by reference from Annual Report filed with the Securities and Exchange Commission under File No. 0-31497 filed 12/06/05)
|10.10       |  | Executive Employment Contract - Pete Fisher (incorporated by reference from Registration Statement on Form 10SB Amendment #1 filed with the Securities and Exchange Commission under File No. 0-31497 filed 11/06/00)                                                  
|10.11       |  | Executive Employment Contract - Jonathan Silverstein (incorporated by reference from Registration Statement on Form 10SB Amendment #1 filed with the Securities and Exchange Commission under File No. 0-31497 filed 11/06/00)                                         
|10.12       |  | Executive Employment Contract with Terry Glatt dated April 2, 2004 (incorporated by reference from Annual Report filed with the Securities and Exchange Commission under File No. 0-31497 filed 12/06/05)                                                              
|10.13       |  | Executive Employment Contract with David Novak dated August 15, 2004 (incorporated by reference from Annual Report filed with the Securities and Exchange Commission under File No. 0-31497 filed 12/06/05)                                                            
|10.14       |  | Debt Conversion Agreement with David Aubel dated December 3, 2005 (incorporated by reference from Annual Report filed with the Securities and Exchange Commission under File No. 0-31497 filed 12/06/05)                                                               
|31.1        |  | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                
|32.1        |  | Certification Pursuant to 18 USC Section 1350, Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                           

ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

Each of the following have served as the Companys Principal Accountant:

1)

Norman Stumacher, PA

2)

Berkovits, Lago & Company, LLP

3)

Baum & Company, PA

Their fees billed to the Company for the past two fiscal years are set forth below:

|                   |  |      |        |      |   |       
|------------------ |  | ---- | ------ | ---- | - | ------
|                   |  | 2005 |        | 2004
|Audit Fees         |  | $    | 50,000 |      | $ | 48,950
|Audit-Related Fees |  | $    |       |      | $ |      
|Tax Fees           |  | $    |       |      | $ |      
|All Other Fees     |  | $    |       |      | $ | 7,618 
|                   |  | $    | 50,000 |      | $ | 56,568



18



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Audit Fees

Includes fees for professional services for the audit of our annual financial statements, for the reviews of the financial statements included in each of our quarterly reports on Form 10-QSB.

Audit-Related Fees

Includes fees for assurance and related services related to the performance of the audit or review of financial statements.

Tax Fees

Includes fees for services rendered for tax compliance, advice, and planning.

All Other Fees

Includes time and procedures related to change in independent accountants and research and assistance provided to the Company.

As of December 31, 2005, the Company did not have an Audit Committee and the Companys President and CEO pre-approved all fees of the Principal Accountant.



19



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SIGNATURES

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

| |                                |                                            
| | ------------------------------ | -------------------------------------------
| | VIDEO WITHOUT BOUNDARIES, INC.
| | By                             | /s/ V. JEFFREYHARRELL                      
| |                                | V. Jeffrey Harrell,
Chief Executive Officer

December 13, 2007

In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

|                      |  |                                                                                                                    |  |                  
|--------------------- |  | ------------------------------------------------------------------------------------------------------------------ |  | -----------------
|Signature             |  | Title                                                                                                              |  | Date             
|/s/ V. JEFFREYHARRELL |  | Chief Executive Officer,                                                                                           |  | December 13, 2007
|V. Jeffrey Harrell    |  | President, Principal Executive, Financial and Accounting Officer, Secretary and Chairman of the Board of Directors |  |                  



20



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VIDEO WITHOUT BOUNDARIES, INC.

FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2005, 2004, AND 2003

CONTENTS

|                                   |  |           
|---------------------------------- |  | ----------
|                                   |  | Page      
|Reports of Public Accounting Firm  |  | F-2       
|Financial Statements:              |  |           
|Balance Sheets                     |  | F-3       
|Statements of Operations           |  | F-4       
|Statement of Stockholders Deficit |  | F-5       
|Statements of Cash Flows           |  | F-6       
|Notes to Financial Statements      |  | F-8 - F-20





F-1



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BAUM & COMPANY, P.A.

Certified Public Accountants

1515 University Drive  Suite 226

Coral Springs, Florida 33071





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANT FIRM





Board of Directors

Video Without Boundaries, Inc.

888 E Las Olas Blvd, Suite 710

Fort Lauderdale, FL 33301



We have audited the accompanying balance sheets of Video Without Boundaries, Inc. as of December 31, 2005 and 2004 and the related statements of operations, stockholders' deficit, and cash flows for each of the years ended December 31, 2005 and 2004.  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 audits.



We conducted our audits 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 audits provide a reasonable basis for our opinion.



In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Video Without Boundaries, Inc. as of December 31, 2005 and 2004, and the results of its operations and its cash flows for the years then ended, 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.  As discussed in Note 4 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern.  Managements plans in regards to these manners are also described in Note 4.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.







/s/ Baum & Company, PA

Coral Springs, Florida
April 10, 2006, except for Note 3  as to which the date is May 1, 2007







F-2



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VIDEO WITHOUT BOUNDARIES, INC.

BALANCE SHEETS

DECEMBER 31

|                                                                                                                                                                  |  |          |             |          |   |            |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------- | ----------- | -------- | - | ---------- | -
|                                                                                                                                                                  |  | 2005     |             | 2004     |  
|                                                                                                                                                                  |  | Restated |             | Restated |  
|ASSETS                                                                                                                                                            |  |          |             |          |   |            |  
|Current assets:                                                                                                                                                   |  |          |             |          |   |            |  
|Cash and cash equivalents                                                                                                                                         |  | $        | 1,097       |          | $ | 79,765     |  
|Accounts receivable, net of allowance for doubtful accounts of
$6,000 and $-0- at 2005 and 2004, respectively                                                     |  |          | 14,664      |          |   | 9,605      |  
|Inventory, net                                                                                                                                                    |  |          | 288,889     |          |   | 61,747     |  
|Prepayments and other current assets                                                                                                                              |  |          | 67,753      |          |   | 106,107    |  
|Total current assets                                                                                                                                              |  |          | 372,403     |          |   | 257,224    |  
|                                                                                                                                                                  |  |          |             |          |   |            |  
|Property and equipment, net                                                                                                                                       |  |          | 21,070      |          |   | 176,741    |  
|Other assets:                                                                                                                                                     |  |          |             |          |   |            |  
|Investments (at cost), net of allowance for decline in value of $1,308,000 and $93,000 in 2005 and 2004, respectively                                             |  |          |            |          |   |           |  
|Deposits                                                                                                                                                          |  |          | 12,000      |          |   | 12,000     |  
|Total other assets                                                                                                                                                |  |          | 12,000      |          |   | 12,000     |  
|                                                                                                                                                                  |  |          |             |          |   |            |  
|Total assets                                                                                                                                                      |  | $        | 405,473     |          | $ | 445,965    |  
|LIABILITIES AND STOCKHOLDERS DEFICIT                                                                                                                             |  |          |             |          |   |            |  
|Current liabilities:                                                                                                                                              |  |          |             |          |   |            |  
|Cash overdraft                                                                                                                                                    |  | $        | 49,498      |          | $ |           |  
|Accounts payable - trade                                                                                                                                          |  |          | 81,972      |          |   | 44,239     |  
|Accrued compensation                                                                                                                                              |  |          | 528,964     |          |   | 399,725    |  
|Other accruals                                                                                                                                                    |  |          | 60,260      |          |   | 190,998    |  
|Convertible note payable  - related party                                                                                                                         |  |          | 2,684,810   |          |   | 2,088,145  |  
|Derivative liability                                                                                                                                              |  |          | 4,027,215   |          |   |           |  
|Loans payable - shareholder                                                                                                                                       |  |          |            |          |   | 24,427     |  
|Total current liabilities                                                                                                                                         |  |          | 7,432,719   |          |   | 2,747,534  |  
|Stockholders deficit:                                                                                                                                            |  |          |             |          |   |            |  
|Preferred stock - $.001 par value, 5,000,000 shares authorized,
-0- shares issued and outstanding at December 31, 2005 and 2004, respectively                     |  |          |            |          |   |           |  
|Common stock - $.001 par value,100,000,000 shares authorized, 86,166,626 and 53,119,126 shares issued and outstanding at December 31, 2005 and 2004, respectively |  |          | 86,167      |          |   | 53,119     |  
|Additional paid-in capital                                                                                                                                        |  |          | 6,905,469   |          |   | 5,061,819  |  
|Accumulated deficit                                                                                                                                               |  |          | (13,831,382 | )        |   | (7,169,007 | )
|                                                                                                                                                                  |  |          | (6,839,746  | )        |   | (2,054,069 | )
|Stock subscription receivable                                                                                                                                     |  |          |            |          |   | (60,000    | )
|Treasury stock - at cost                                                                                                                                          |  |          | (187,500    | )        |   | (187,500   | )
|Total stockholders deficit                                                                                                                                       |  |          | (7,027,246  | )        |   | (2,301,569 | )
|Total liabilities and stockholders deficit                                                                                                                       |  | $        | 405,473     |          | $ | 445,965    |  



The accompanying notes are an integral part of these financial statements.



F-3



---

VIDEO WITHOUT BOUNDARIES, INC.

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003



|                                                                      |  |          |            |          |   |            |   |   |            |  
|--------------------------------------------------------------------- |  | -------- | ---------- | -------- | - | ---------- | - | - | ---------- | -
|                                                                      |  | 2005     |            | 2004     |   | 2003       |  
|                                                                      |  | Restated |            | Restated |   | Restated   |  
|                                                                      |  |          |            |          |   |            |   |   |            |  
|Sales                                                                 |  | $        | 181,462    |          | $ | 14,167     |   | $ | 1,770      |  
|Cost of sales                                                         |  |          | 159,547    |          |   | 19,029     |   |   | 1,046      |  
|Gross profit (loss)                                                   |  |          | 21,915     |          |   | (4,862     | ) |   | 724        |  
|Operating expenses:                                                   |  |          |            |          |   |            |   |   |            |  
|Selling, general and administrative                                   |  |          | 1,959,051  |          |   | 1,377,172  |   |   | 936,153    |  
|Provision for obsolete inventory                                      |  |          | 96,297     |          |   |           |   |   |           |  
|Depreciation                                                          |  |          | 178,141    |          |   | 210,925    |   |   | 234,527    |  
|Research and development                                              |  |          | 7,231      |          |   | 5,304      |   |   | 40,000     |  
|Loss due to decline in value of investments                           |  |          |           |          |   | 1,215,000  |   |   | 93,000     |  
|Fair value of convertible securities                                  |  |          | 52,000     |          |   | 69,000     |   |   |           |  
|Fair value of equity instruments                                      |  |          | 149,250    |          |   | 124,850    |   |   |           |  
|Derivative expense                                                    |  |          | 8,145,471  |          |   |           |   |   |           |  
|Change in fair value of derivative liability                          |  |          | (6,833,413 | )        |   |           |   |   |           |  
|Bad debt expense                                                      |  |          | 6,000      |          |   |           |   |   |           |  
|Total operating expenses                                              |  |          | 3,760,028  |          |   | 3,002,251  |   |   | 1,303,680  |  
|                                                                      |  |          |            |          |   |            |   |   |            |  
|Operating loss                                                        |  |          | (3,738,113 | )        |   | (3,007,113 | ) |   | (1,302,956 | )
|                                                                      |  |          |            |          |   |            |   |   |            |  
|Other expense:                                                        |  |          |            |          |   |            |   |   |            |  
|Interest expense  related party                                      |  |          | (2,924,262 | )        |   | (105,698   | ) |   | (51,775    | )
|Interest and financing expense                                        |  |          |           |          |   |           |   |   | (515,521   | )
|                                                                      |  |          |            |          |   |            |   |   |            |  
|Total other expense                                                   |  |          | (2,924,262 | )        |   | (105,698   | ) |   | (567,296   | )
|                                                                      |  |          |            |          |   |            |   |   |            |  
|Net loss                                                              |  | $        | (6,662,375 | )        | $ | (3,112,811 | ) | $ | (1,870,252 | )
|Basic loss per share                                                  |  | $        | (0.10      | )        | $ | (0.10      | ) | $ | (0.47      | )
|Weighted-average number of shares used in
computing per share amounts |  |          | 64,084,737 |          |   | 31,552,205 |   |   | 3,996,667  |  





The accompanying notes are an integral part of these financial statements.



F-4



---

VIDEO WITHOUT BOUNDARIES, INC.

STATEMENTS OF STOCKHOLDERS DEFICIT

FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003



|                                                                     |  |            |   |   |        |   |                            |           |                     |   |                               |   |                |         |       |   |          |   |   |            |  
|-------------------------------------------------------------------- |  | ---------- | - | - | ------ | - | -------------------------- | --------- | ------------------- | - | ----------------------------- | - | -------------- | ------- | ----- | - | -------- | - | - | ---------- | -
|                                                                     |  |            |   |   |        |   | Additional
Paid-In
Capital |           | Accumulated
Deficit |   | Stock
Subscription
Receivable |   | Treasury
Stock |         | Total |  
|Common Stock                                                        
|Shares                                                               |  | Amount    
|                                                                     |  |            |   |   |        |   | Restated                   |           | Restated            |   |                               |   |                |         |       |   |          |   |  
|                                                                     |  |            |   |   |        |   |                            |           |                     |   |                               |   |                |         |       |   |          |   |   |            |  
|Balance December 31, 2002                                            |  | 119,087    |   | $ | 119    |   | $                          | 1,519,138 |                     | $ | (2,185,944                    | ) | $              |        |       | $ |         |   | $ | (666,687   | )
|Stock issued for services                                            |  | 885,000    |   |   | 885    |   |                            | 249,115   |                     |   |                              |   |                |        |       |   |         |   |   | 250,000    |  
|Stock issued for development of software                             |  | 200,000    |   |   | 200    |   |                            | 159,800   |                     |   |                              |   |                |        |       |   |         |   |   | 160,000    |  
|Stock issued for convertible debentures and related accrued interest |  | 949,660    |   |   | 950    |   |                            | 754,970   |                     |   |                              |   |                |        |       |   |         |   |   | 755,920    |  
|Notes payable to stockholders contributed as capital                |  | 12,795,000 |   |   | 12,795 |   |                            | 220,156   |                     |   |                              |   |                |        |       |   |         |   |   | 232,951    |  
|Stock issued for purchase of web portal                              |  | 500,000    |   |   | 500    |   |                            | 249,500   |                     |   |                              |   |                |        |       |   |         |   |   | 250,000    |  
|Net loss for the year                                                |  |           |   |   |       |   |                            |          |                     |   | (1,870,252                    | ) |                |        |       |   |         |   |   | (1,870,252 | )
|Balance December 31, 2003                                            |  | 15,448,747 |   |   | 15,449 |   |                            | 3,152,679 |                     |   | (4,056,196                    | ) |                |        |       |   |         |   |   | (888,068   | )
|Stock cancelled for services
issued                                  |  | (50,000    | ) |   | (50    | ) |                            | (4,950    | )                   |   |                              |   |                |        |       |   |         |   |   | (5,000     | )
|Notes payable to stockholders
converted to capital                  |  | 34,399,879 |   |   | 34,399 |   |                            | 629,361   |                     |   |                              |   |                |        |       |   |         |   |   | 663,760    |  
|Stock cancelled                                                      |  | (329,500   | ) |   | (329   | ) |                            | (164,471  | )                   |   |                              |   |                |        |       |   |         |   |   | (164,800   | )
|Stock issued for cash                                                |  | 3,500,000  |   |   | 3,500  |   |                            | 1,255,500 |                     |   |                              |   |                | (60,000 | )     |   |         |   |   | 1,199,000  |  
|Stock issued under employment
agreement                              |  | 150,000    |   |   | 150    |   |                            | 124,700   |                     |   |                              |   |                |        |       |   |         |   |   | 124,850    |  
|Fair value of stock warrants                                         |  |           |   |   |       |   |                            | 69,000    |                     |   |                              |   |                |        |       |   |         |   |   | 69,000     |  
|Purchase of treasury stock                                           |  |           |   |   |       |   |                            |          |                     |   |                              |   |                |        |       |   | (187,500 | ) |   | (187,500   | )
|Net loss for the year                                                |  |           |   |   |       |   |                            |          |                     |   | (3,112,811                    | ) |                |        |       |   |         |   |   | (3,112,811 | )
|Balance December 31, 2004                                            |  | 53,119,126 |   |   | 53,119 |   |                            | 5,061,819 |                     |   | (7,169,007                    | ) |                | (60,000 | )     |   | (187,500 | ) |   | (2,301,569 | )
|Stock issued for services                                            |  | 247,500    |   |   | 248    |   |                            | 71,352    |                     |   |                              |   |                |        |       |   |         |   |   | 71,600     |  
|Stock issued for cash                                                |  | 600,000    |   |   | 600    |   |                            | 132,248   |                     |   |                              |   |                | 60,000  |       |   |         |   |   | 192,848    |  
|Notes payable to stockholders
converted to capital                  |  | 32,100,000 |   |   | 32,100 |   |                            | 1,438,900 |                     |   |                              |   |                |        |       |   |         |   |   | 1,471,000  |  
|Stock issued under employment
agreement                              |  | 100,000    |   |   | 100    |   |                            | 149,150   |                     |   |                              |   |                |        |       |   |         |   |   | 149,250    |  
|Fair value of stock warrants                                         |  |           |   |   |       |   |                            | 52,000    |                     |   |                              |   |                |        |       |   |         |   |   | 52,000     |  
|Net loss for the year                                                |  |           |   |   |       |   |                            |          |                     |   | (6,662,375                    | ) |                |        |       |   |         |   |   | (6,662,375 | )
|Balance December 31, 2005                                            |  | 86,166,626 |   | $ | 86,167 |   | $                          | 6,905,469 |                     | $ | (13,831,382                   | ) | $              |        |       | $ | (187,500 | ) | $ | (7,027,246 | )





The accompanying notes are an integral part of these financial statements.



F-5



---

VIDEO WITHOUT BOUNDARIES

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003



|                                                                            |  |          |            |          |   |            |   |   |            |  
|--------------------------------------------------------------------------- |  | -------- | ---------- | -------- | - | ---------- | - | - | ---------- | -
|                                                                            |  | 2005     |            | 2004     |   | 2003       |  
|                                                                            |  | Restated |            | Restated |   | Restated   |  
|Cash flows from operating activities:                                       |  |          |            |          |   |            |   |   |            |  
|Net loss                                                                    |  | $        | (6,662,375 | )        | $ | (3,112,811 | ) | $ | (1,870,252 | )
|Adjustments to reconcile net loss to net cash used in operating activities: |  |          |            |          |   |            |   |   |            |  
|Depreciation                                                                |  |          | 178,141    |          |   | 210,925    |   |   | 234,527    |  
|Interest on debentures converted to stock                                   |  |          |           |          |   |           |   |   | 14,460     |  
|Interest and discount accretion on convertible debentures                   |  |          |           |          |   |           |   |   | 496,460    |  
|Interest on convertible note payable  related party                        |  |          | 2,924,262  |          |   | 105,698    |   |   | 51,775     |  
|Allowance for doubtful accounts                                             |  |          | 6,000      |          |   |           |   |   |           |  
|Provision for obsolete inventory                                            |  |          | 96,297     |          |   |           |   |   |           |  
|Loss due to decline in value of investments                                 |  |          |           |          |   | 1,215,000  |   |   | 93,000     |  
|Stock issued for services and compensation                                  |  |          | 71,600     |          |   | (5,000     | ) |   | 250,000    |  
|Stock warrants issued under employment agreement                            |  |          | 52,000     |          |   | 69,000     |   |   |           |  
|Stock issued under employment agreement                                     |  |          | 149,250    |          |   | 124,850    |   |   |           |  
|Derivative expense                                                          |  |          | 8,145,471  |          |   |           |   |   |           |  
|Change in fair value of derivative liability                                |  |          | (6,833,413 | )        |   |           |   |   |           |  
|Change in assets and liabilities                                            |  |          |            |          |   |            |   |   |            |  
|(Increase) decrease in accounts receivable                                  |  |          | (11,059    | )        |   | (9,605     | ) |   | 621        |  
|(Increase) in inventories                                                   |  |          | (323,439   | )        |   | (58,497    | ) |   | (3,250     | )
|(Increase) decrease in other current assets                                 |  |          | 38,354     |          |   | (106,107   | ) |   | (1,850     | )
|(Increase) in deposits                                                      |  |          |           |          |   | (10,150    | ) |   |           |  
|Increase (decrease) in accounts payable                                     |  |          | 37,733     |          |   | (2,880     | ) |   | 139,388    |  
|Increase (decrease) in other accruals                                       |  |          | (130,738   | )        |   | 190,998    |   |   |           |  
|Increase in accrued compensation                                            |  |          | 131,250    |          |   | 161,000    |   |   | 117,750    |  
|Net cash used in operating activities                                       |  |          | (2,130,666 | )        |   | (1,227,579 | ) |   | (477,371   | )
|                                                                            |  |          |            |          |   |            |   |   |            |  
|Cash flows from investing activities:                                       |  |          |            |          |   |            |   |   |            |  
|Purchases of stock in closely-held corporations                            |  |          |           |          |   | (1,215,000 | ) |   | (93,000    | )
|Purchases of property, plant and equipment                                  |  |          | (22,470    | )        |   | (60,612    | ) |   | (246,860   | )
|Net cash used in investing activities                                       |  |          | (22,470    | )        |   | (1,275,612 | ) |   | (339,860   | )
|                                                                            |  |          |            |          |   |            |   |   |            |  
|Cash flows from financing activities:                                       |  |          |            |          |   |            |   |   |            |  
|Proceeds from convertible note payable  related party                      |  |          | 1,966,323  |          |   | 1,424,529  |   |   | 620,884    |  
|Repayment of convertible note payable  related party                       |  |          | (100,000   | )        |   |           |   |   | (43,373    | )
|Proceeds from issue of debentures                                           |  |          |           |          |   |           |   |   | 245,000    |  
|Proceeds from short-term debt                                               |  |          | 49,498     |          |   |           |   |   | 2,693      |  
|Repayment of short-term debt                                                |  |          |           |          |   | (2,693     | ) |   |           |  
|Repayment of shareholder loans                                              |  |          | (34,201    | )        |   |           |   |   |           |  
|Payment of notes payable                                                    |  |          |           |          |   | (37,900    | ) |   | (20,000    | )
|Collection of stock subscription                                            |  |          | 60,000     |          |   |           |   |   |           |  
|Proceeds from issuance of stock                                             |  |          | 132,848    |          |   | 1,199,000  |   |   |           |  
|Net cash provided by financing activities                                   |  |          | 2,074,468  |          |   | 2,582,936  |   |   | 805,204    |  
|                                                                            |  |          |            |          |   |            |   |   |            |  
|Net increase (decrease) in cash and cash equivalents                        |  |          | (78,668    | )        |   | 79,745     |   |   | (12,027    | )
|                                                                            |  |          |            |          |   |            |   |   |            |  
|Cash and cash equivalents at beginning of year                              |  |          | 79,765     |          |   | 20         |   |   | 12,047     |  
|Cash and cash equivalents at end of year                                    |  | $        | 1,097      |          | $ | 79,765     |   | $ | 20         |  
|                                                                            |  |          |            |          |   |            |   |   |            |  
|                                                                            |  |          |            |          |   |            |   |   |            |  
|                                                                            |  |          |            |          |   |            |   |   |            |  





The accompanying notes are an integral part of these financial statements.



F-6



---

VIDEO WITHOUT BOUNDARIES

STATEMENTS OF CASH FLOWS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003



|                                                                   |  |          |           |          |   |          |  |   |         | 
|------------------------------------------------------------------ |  | -------- | --------- | -------- | - | -------- |  | - | ------- | 
|                                                                   |  | 2005     |           | 2004     |   | 2003     | 
|                                                                   |  | Restated |           | Restated |   | Restated | 
|Supplemental disclosure of cash flow information                   |  |          |           |          |   |          |  |   |         | 
|Cash paid during the year for interest                             |  | $        |          |          | $ | 3,600    |  | $ |        | 
|Non-cash movements affecting investing and financing
transactions: |  |          |           |          |   |          |  |   |         | 
|Stock issued for convertible debentures                            |  | $        |          |          | $ |         |  | $ | 755,920 | 
|Stock issued for development of software                           |  | $        |          |          | $ |         |  | $ | 160,000 | 
|Notes payable to stockholders converted to capital                 |  | $        | 1,471,000 |          | $ | 663,760  |  | $ | 232,951 | 
|Stock issued for purchase of web portal                            |  | $        |          |          | $ |         |  | $ | 200,000 | 
|Web portal sold in exchange for treasury stock retired             |  | $        |          |          | $ | 187,500  |  | $ |        | 
|                                                                   |  |          |           |          |   |          |  |   |         | 
|                                                                   |  |          |           |          |   |          |  |   |         | 
|                                                                   |  |          |           |          |   |          |  |   |         | 
|                                                                   |  |          |           |          |   |          |  |   |         | 
|                                                                   |  |          |           |          |   |          |  |   |         | 







The accompanying notes are an integral part of these financial statements.



F-7



---

VIDEO WITHOUT BOUNDARIES, INC.

NOTES TO FINANCIAL STATEMENTS

NOTE 1 - BUSINESS DESCRIPTION

Video Without Boundaries, Inc. (the Company) is in the converging digital media on demand, enhanced home entertainment and emerging interactive consumer electronics markets.  The Company is focused on home entertainment media products and solutions that enhance the consumer experience, while providing new revenue opportunities for online music and movie content providers.  The Company is a supplier of broadband products, services and content, including its ability to deliver broadcast quality digital video and web interactivity at transfer rates as low as 56K.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The Company was incorporated in the State of Florida on March 19, 1999 under the name of ValuSALES.com, Inc.  The Company changed its name to Video Without Boundaries, Inc. on November 16, 2001.

Revenue Recognition

Sales are recorded after receipt of a written purchase order by the buyer, the issue of a written sales agreement by the Company that requires the signatures of the authorized representatives of the Company and its customer which is binding, and shipment of the product to the customer (when title and risks and rewards of ownership have passed), or when services are rendered to third-parties, in accordance with SAB 104.



Consignment sales are not initially recognized because the Company considers that it still retains the risks and rewards of ownership. Revenue is not recognized until an actual sale occurs to a third-party.

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 amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenue and expenses during the reported period. Actual results could differ from those estimates.

Inventory

Inventory is valued using the first-in, first-out method of accounting and is stated at the lower of cost or net realizable value and consists solely of finished goods.  The Company outsources the manufacture of its products for sale and accordingly excludes any general and administrative costs from inventory.  The Company records inventory provisions for obsolete and slow-moving items.



Accounts Receivable



The Company provides an allowance for doubtful accounts equal to the estimated uncollectible portion of accounts receivable. This estimate is based on the historical collection experience and a review of the current status of trade receivables. There is no set threshold amount or age for accounts receivable write-offs; any decision is made by senior management on an account by account basis. Receivables are generally considered for write-off after they have been outstanding for time periods in excess of ninety days.

Property and Equipment

Property and equipment is recorded at cost, net of accumulated depreciation, which is provided for by a charge to operations over the estimated useful life of the assets using the straight-line method. The useful life of the assets is 3-4 years.



F-8



---

Expenditures that extend the useful life of the respective assets are capitalized and depreciated over the lives of the respective assets. Maintenance, repairs and other expenses that do not extend their useful life are expensed as incurred.

Financial Instruments

The Companys financial instruments are cash, accounts receivable, accounts payable, accrued expenses, accrued compensation, and notes payable.  The recorded values of cash, accounts receivable, loans receivable, accounts payable, accrued expenses, and accrued compensation approximates their fair values based on their short-term nature.  The fair value of notes payable is based on current rates at which the Company could borrow funds with similar remaining maturities, and the carrying amount approximates fair value.

Income Taxes

The Company follows Statement of Financial Accounting Standards No. 109 Accounting for Income Taxes (SFAS No. 109). Under the asset and liability method of SFAS No. 109, deferred tax assets and liabilities are recognized for the future tax consequences attributed to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax base. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under SFAS No. 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. If it is more likely than not that some portion of a deferred tax asset will not be realized, a valuation allowance is recognized.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.



Shipping and Handling Costs



The Company defines shipping and handling costs as only those costs incurred for a third-party shipper to transport products to its customers. These costs are not material and are included under general and administrative expense within the Statementsof Operations.



Earnings Per Share



Basic per share results for all periods presented were computed based on the net earnings (loss) for the respective periods. The weighted average number of common shares outstanding during the period was used in the calculation of basic earnings per share. Common stock warrants and notes convertible to restricted common stock were not included in computing diluted earnings per share because their effects were antidilutive



Stock Based Compensation



The Company authorized restricted common stock and stock warrants to employees, shareholders and third parties. The expense for these equity-based incentives is based on their fair value at date of grant in accordance with SFAS No. 123R Share Based Payments. The fair value of each stock warrant granted is estimated on the date of grant using the Black Scholes pricing model. The pricing model requires assumptions such as the expected life of the stock warrant and the expected volatility of the Companys stock over the expected life, which significantly impact the assumed value. The Company uses historical data to determine these assumptions and if these assumptions change significantly for future grants, share-based compensation expense will fluctuate in future years. Fair value for stock issued was determined at the closing price as of the date of issuance.



Long-Lived Assets



The Company periodically evaluates the carrying value of long-lived assets to be held and used in the business, other than assets held for sale when events and circumstances warrant, generally in conjunction with the annual business planning cycle. If the carrying value of a long-lived asset is considered impaired, a loss is recognized based on the amount by which the carrying value exceeds the fair market value for assets to be held and



F-9



---

used. Fair market value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Long-lived assets to be disposed of other than by sale are considered held and used until disposed of.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of cash and accounts receivable. The Company believes that it is not exposed to any significant credit risk on accounts receivable.  At December 31, 2005 cash balances were not in excess of the federally insured limits.

NOTE 3  RESTATEMENT OF FINANCIAL STATEMENTS



The restatement of the 2003 year was undertaken due to the auditor not having been registered with the PCAOB at the time of the original Form 10-KSB filing on April 14, 2004.



The restatement in 2004 and 2005 were undertaken to properly account for all restricted common stock and stock warrants issued to employees (see note 15) and third parties and to record the fair value of an embedded conversion option within a note payable.



As a consequence of changes made the balance sheets and statements of operations, the statements of cash flows and changes in stockholders deficit have been restated accordingly.



The components of the restatement are explained in the notes below each table.



|                                           |  |          |            |                       |   |          |   |   |            |  
|------------------------------------------ |  | -------- | ---------- | --------------------- | - | -------- | - | - | ---------- | -
|                                           |  | As Filed |            | Adjustment
to
Restate |   | Restated |  
|                                           |  |          |            |                       |   |          |   |   |            |  
|Balance sheet data as at December 31, 2004 |  |          |            |                       |   |          |   |   |            |  
|Additional paid-in capital (a)             |  | $        | 4,935,219  |                       | $ | 126,600  |   | $ | 5,061,819  |  
|Accumulated deficit (b)                    |  |          | (7,042,407 | )                     |   | (126,600 | ) |   | (7,169,007 | )



(a) Additional paid-in capital

The Company has recorded the fair value of restricted common stock and stock warrants (see note 15) issued to employees under their employment agreements.

(b) Accumulated deficit

The Company has recognized and expensed the fair value of restricted common stock and stock warrants (see note 15) issued to employees under their employment agreements.



|                                           |  |          |            |                       |   |            |          |  |   |             |  
|------------------------------------------ |  | -------- | ---------- | --------------------- | - | ---------- | -------- |  | - | ----------- | -
|                                           |  | As Filed |            | Adjustment
to
Restate |   |            | Restated | 
|                                           |  |          |            |                       |   |            |          |  |   |             |  
|Balance sheet data as at December 31, 2005 |  |          |            |                       |   |            |          |  |   |             |  
|Derivative liability (a)                   |  | $        |           |                       | $ | 4,027,215  |          |  | $ | 4,027,215   |  
|Additional paid-in capital (b)             |  |          | 6,606,869  |                       |   | 298,600    |          |  |   | 6,905,469   |  
|Accumulated deficit (c)                    |  |          | (9,505,567 | )                     |   | (4,325,815 | )        |  |   | (13,831,382 | )



(a) Derivative liability

The Company has recognized the fair value of an embedded conversion option within the note.

(b) Additional paid-in capital

The Company has recorded the fair value of restricted common stock and stock warrants (see note 15) issued to employees under their employment agreements.



F-10



---



(c) Accumulated deficit



The Company has recognized and expensed the fair value of restricted common stock and stock warrants (see note 15) issued to employees under their employment agreements.



|                                                              |  |          |           |                       |   |          |   |   |         |  
|------------------------------------------------------------- |  | -------- | --------- | --------------------- | - | -------- | - | - | ------- | -
|                                                              |  | As Filed |           | Adjustment
to
Restate |   | Restated |  
|                                                              |  |          |           |                       |   |          |   |   |         |  
|Statement of operations for the year ended 
December 31, 2003 |  |          |           |                       |   |          |   |   |         |  
|Revenues (a)                                                  |  | $        | 190,770   |                       | $ | (189,000 | ) | $ | 1,770   |  
|Cost of sales (a)                                             |  |          | 176,046   |                       |   | (175,000 | ) |   | 1,046   |  
|Selling, general and administrative (f)                       |  |          | 1,277,027 |                       |   | (340,874 | ) |   | 936,153 |  
|Depreciation (b)                                              |  |          |          |                       |   | 234,527  |   |   | 234,527 |  
|Research and development (c)                                  |  |          |          |                       |   | 40,000   |   |   | 40,000  |  
|Loss due to decline in value of investments (d)               |  |          |          |                       |   | 93,000   |   |   | 93,000  |  
|Interest and finance expense (e)                              |  |          |          |                       |   | 567,296  |   |   | 567,296 |  
|Basic loss per share                                          |  |          | (0.32     | )                     |   | (0.15    | ) |   | (0.47   | )



(a) Revenues and cost of sales



The Company identified that ownership had not passed for products that had been booked as sales. The Company has reversed the entry of $189,000 to sales and $175,000 to cost of sales, respectively, for the year ended December 31, 2003



(b) Depreciation



The Company has booked depreciation on a web portal of $75,000 in order to write off this asset on a straight line basis over its useful life. Accordingly, depreciation expense has been increased by $75,000 for the year ended December 31, 2003.



The Company has booked additional depreciation on computer hardware totaling $19,527 in order to write off this asset on a straight line basis over its useful life. Accordingly, depreciation expense has been increased by $19,527 for the year ended December 31, 2003.



Depreciation of $140,000 had been included within selling, general and administrative expenses and this has now been reclassed to a separate line item (see f).



(c) Research and development



Management reviewed the prepaid box tooling asset and determined that this meets the criterion of a research and development expense. Accordingly, the amount of $40,000 has been expensed to research and development in the year ended December 31, 2003.



(d) Loss due to decline in value of investments



The Company reviewed an investment in CAC Media for possible impairment and has decided to provide for a decline in value of $93,000 in the year ended December 31, 2003.



(e) Interest and finance expense



It was determined that interest had not been properly accrued on a convertible note payable  related party at the rate of 8% per annum, as stipulated in the relevant agreement. Accordingly, the Company has booked an additional $9,621 as interest expense for the year ended December 31, 2003.





F-11



---

Management determined that interest had to be recognized totaling $3,600 on a third party note. Accordingly, interest expense for the year ended December 31, 2003 was increased by $3,600.



The Company completed a review of all debenture documents relating to the issuance of convertible debentures which revealed that the Company had not properly accounted for the beneficial conversion feature contained within each debenture. Accordingly, the Company has booked a financing expense totaling $496,460 in the year ended December 31, 2003 to recognize the accretion of the debt discount which resulted from the beneficial conversion feature.



Interest expense of $60,033 had been included within selling, general and administrative expenses and this has now been reclassed to a separate line item (see f).



Management determined that accrued interest on debentures had been overstated by $2,418 and accordingly, reduced interest expense by $2,418 in the year ended December 31, 2003.



(f) Selling, general and administrative



Due to the inability of a shareholder to produce suitable documentation to support expenses totaling $22,720 paid on behalf of the Company the amount previously booked to selling, general and administrative expense in the year ended December 31, 2003 has been reversed.



Management has accrued the salary of the President which resulted in an increase in salary expense totaling $117,750 for the year ended December 31, 2003.



The Company had initially written off an investment in Cornerstone Entertainment totaling $210,871 in the year ended December 31, 2003. It was determined that this write off should have occurred in the year ended December 31, 2002. The error has now been corrected with a reduction in selling, general and administrative expense for the year ended December 31, 2003.



During its revision of the 2002 financial statements the Company wrote off a $25,000 receivable as a bad debt. This write off had initially taken place in 2003 and this write off has now been reversed and selling, general and administrative expense reduced by $25,000 in the year ended December 31, 2003.



Depreciation of $140,000 had been included with selling, general and administrative expense and this has now been reclassed to a separate line item (see b).



Interest expense of $60,033 had been included with selling, general and administrative expenses and this has now been reclassed to a separate line item (see e)



|                                                             |  |          |           |                       |   |          |   |   |           |  
|------------------------------------------------------------ |  | -------- | --------- | --------------------- | - | -------- | - | - | --------- | -
|                                                             |  | As Filed |           | Adjustment
to
Restate |   | Restated |  
|                                                             |  |          |           |                       |   |          |   |   |           |  
|Statement of operations for the year ended December 31, 2004 |  |          |           |                       |   |          |   |   |           |  
|Selling, general and administrative (a)                      |  | $        | 1,444,422 |                       | $ | (67,250  | ) | $ | 1,377,172 |  
|Fair value of convertible securities (b)                     |  |          |          |                       |   | 69,000   |   |   | 69,000    |  
|Fair value of equity instruments (c)                         |  |          |          |                       |   | 124,850  |   |   | 124,850   |  
|Basic loss per share                                         |  |          | (0.09     | )                     |   | (0.01    | ) |   | (0.10     | )



(a) Selling, general and administrative



The Company has reclassified the fair value of restricted common stock issued to an employee under an employment agreement to fair value of equity instruments.



F-12



---



(b) Fair value of convertible securities



The Company has expensed the estimated fair value of stock warrants (see note 15) issued to an employee under an employment agreement using the Black Scholes model.



(c) Fair value of equity instruments



The Company has expensed the fair value of restricted common stock issued to an employee under his employment agreement totaling $57,600.



The Company reclassified the fair value of restricted common stock issued to an employee under his employment agreement from selling, general and administrative expense totaling $67,250.



|                                                             |  |          |           |                       |   |            |   |   |            |  
|------------------------------------------------------------ |  | -------- | --------- | --------------------- | - | ---------- | - | - | ---------- | -
|                                                             |  | As Filed |           | Adjustment
to
Restate |   | Restated   |  
|                                                             |  |          |           |                       |   |            |   |   |            |  
|Statement of operations for the year ended December 31, 2005 |  |          |           |                       |   |            |   |   |            |  
|Selling, general and administrative (a)                      |  | $        | 1,988,301 |                       | $ | (29,250    | ) | $ | 1,959,051  |  
|Fair value of convertible securities (b)                     |  |          |          |                       |   | 52,000     |   |   | 52,000     |  
|Fair value of equity instruments  (c)                        |  |          |          |                       |   | 149,250    |   |   | 149,250    |  
|Derivative expense  (d)                                      |  |          |          |                       |   | 8,145,471  |   |   | 8,145,471  |  
|Change in fair value of derivative liability (e)             |  |          |          |                       |   | (6,833,413 | ) |   | (6,833,413 | )
|Interest and financing expense                               |  |          | 209,105   |                       |   | 2,715,157  |   |   | 2,924,262  |  
|Basic loss per share                                         |  |          | (0.03     | )                     |   | (0.07      | ) |   | (0.10      | )



(a) Selling, general and administrative



The Company has reclassified the fair value of restricted common stock issued to an employee under an employment agreement to fair value of equity instruments.



(b) Fair value of convertible securities



The Company has expensed the estimated fair value of stock warrants (see note 15) issued to an employee under an employment agreement using the Black Scholes model.



(c) Fair value of equity instruments



The Company has expensed the fair value of restricted common stock issued to an employee under an employment agreement totaling $120,000.



The Company reclassified the fair value of stock issued to an employee under an employment agreement from selling, general and administrative expense totaling $29,250



(d) Derivative expense



The Company expensed the initial fair value of an embedded conversion option within a note payable totaling $8,145,471 (see note 11).



(e) Change in fair value of derivative liability



The Company recognized the change in fair value over the initial expense of an embedded conversion option within a note payable totaling $6,833,413 (see note 11).



(f) The Company recognized the initial financing cost of an embedded conversion option within a note payable totaling $2,715,157.



F-13



---

NOTE 4 - GOING CONCERN

The accompanying financial statements have been prepared on a going concern basis. The Company has generated minimal revenue since its inception and has incurred net losses of approximately $13.8 million. The Companys ability to continue as a going concern is dependent upon its ability to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they become due, to fund possible acquisitions, and to generate profitable operations in the future. While the Company has sustained losses, certain current shareholders of the Company have committed to fund the operational needs of the Company. Additionally, management plans to continue to provide for its capital requirements by issuing additional equity securities and debt. Between the period January 1, 2006 through February 28, 2006 the Company has received approximately $295,000 as advances from a shareholder. The outcome of these matters cannot be predicted at this time and there are no assurances that if achieved, the Company will have sufficient funds to execute its business plan or generate positive operating results.

These matters, among others, raise substantial doubt about the ability of the Company to continue as a going concern. These financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going concern.

NOTE 5 - ACCOUNTS RECEIVABLE

Accounts receivable at December 31, 2005 and 2004 consisted of the following:

|                                     |  |      |        |      |   |      
|------------------------------------ |  | ---- | ------ | ---- | - | -----
|                                     |  | 2005 |        | 2004
|Trade receivables                    |  | $    | 20,664 |      | $ | 9,605
|Less allowance for doubtful accounts |  |      | (6,000 | )    |   |     
|                                     |  | $    | 14,664 |      | $ | 9,605

NOTE 6 - PREPAYMENTS AND OTHER ASSETS

Prepayments and other current assets at December 31, 2005 and 2004 consisted of the following:

|                                        |  |      |        |      |   |        
|--------------------------------------- |  | ---- | ------ | ---- | - | -------
|                                        |  | 2005 |        | 2004
|Advance deposit for manufacturing units |  | $    |       |      | $ | 100,000
|License deposits                        |  |      | 30,418 |      |   |       
|Prepayments                             |  |      | 28,051 |      |   |       
|Other                                   |  |      | 9,284  |      |   | 6,107  
|                                        |  | $    | 67,753 |      | $ | 106,107

NOTE 7 - INVENTORY

Inventory at December 31, 2005 and 2004 consisted of the following:



|                                 |  |      |         |      |   |       
|-------------------------------- |  | ---- | ------- | ---- | - | ------
|                                 |  | 2005 |         | 2004
|Finished goods                   |  | $    | 385,186 |      | $ | 61,747
|Provision for obsolete inventory |  |      | (96,297 | )    |   |      
|                                 |  | $    | 288,889 |      | $ | 61,747

NOTE 8 - ADVERTISING

The Company expenses advertising costs as incurred.  During the years ended December 31, 2005, 2004 and 2003, a total of $87,713 and $41,146 and $-0- was expensed, respectively,.



F-14



---

NOTE 9 - PROPERTY AND EQUIPMENT

Property and equipment consists of the following at December 31, 2005 and 2004  respectively:



|                              |  |      |          |      |   |          |  
|----------------------------- |  | ---- | -------- | ---- | - | -------- | -
|                              |  | 2005 |          | 2004 |  
|Computer equipment            |  | $    | 219,147  |      | $ | 197,376  |  
|Software                      |  |      | 361,861  |      |   | 361,163  |  
|Furniture and equipment       |  |      | 14,914   |      |   | 14,914   |  
|                              |  |      | 595,922  |      |   | 573,453  |  
|Less accumulated depreciation |  |      | (574,852 | )    |   | (396,712 | )
|                              |  | $    | 21,070   |      | $ | 176,741  |  

For the years ended December 31, 2005, 2004 and 2003, depreciation totaled $178,141, $210,925 and $234,527, respectively.

NOTE 10 - CONVERTIBLE NOTES PAYABLE  RELATED PARTY

The Company is obligated to a related party for $2,684,810 advanced to fund operations.  The notes are collateralized by the assets of the Company, bear interest at 8% per annum and are repayable on demand. During the years ended December 31, 2005, 2004 and 2003, the Company incurred interest on notes payable to related parties totaling $2,924,262, $105,698 and $51,775, respectively.

During the year ended December 31, 2004 a related party transferred 329,500 shares of his unrestricted common stock to two former shareholders. The terms of the transfer were that the 329,500 shares held by the two former shareholders in the Company would be cancelled. The proceeds of the amount originally paid for the stock by the two former shareholders totaling $164,800 has been transferred to the note payable account of the related party, at $0.50 per share. The related party, in accordance with an agreement signed with the Company on October 10, 2005, is entitled to convert this amount of $164,800 into shares at the rate stipulated in the agreement (see below).

On December 3, 2005, the Company and a related party entered into an agreement which amended a prior agreement concerning the terms and conditions attached to the conversion of outstanding debt into restricted or free trading stock of the Company. The original agreement conveyed upon the stockholder the right to convert amounts owed to him at a price of one ($.01) cent per share without restrictions as to time periods. Based upon the terms and conditions of the amended agreement, the related party, effective with the period commencing July 1, 2005, will have conversion rights as follows; for the third calendar quarter of 2005 the conversion of debt to stock shall be at twenty (20%) percent of the then closing price on the date of conversion; for all subsequent periods this conversion formula shall be at forty (40%) percent of the then closing price of the stock on the date of conversion. In addition, effective December 3, 2005, the related party shall be limited in respect to the amount of outstanding debt he will be permitted to convert in any one quarter. This limitation has been set at three (3%) percent of the total outstanding stock of the Company (see note 12).

NOTE 11  DERIVATIVE LIABILITY

A note payable with a related party contains an embedded conversion option which allows the holder to convert up to 9% of the Companys then issued and outstanding stock each quarter into restricted common shares at 40% of the closing price of the stock on the date of conversion (see note 10). The Company adopted the provisions of SFAS No.123R to compute the estimated fair value of  $4,027,215 at December 31, 2005, using the Black Scholes model. The following assumptions were made in estimating fair value:



|               |  |      
|-------------- |  | -----
|Risk-free rate |  | 4.45%
|Volatility     |  | 96%  





F-15



---

NOTE 12 - STOCKHOLDERS EQUITY

During the year ended December 31, 2003 the Company issued 885,000 shares of restricted common stock to third parties for services rendered for a total of $250,000 at $0.28 per share.



During the year ended December 31, 2003 the Company issued 200,000 shares of restricted common stock as payment for the development of software for a total of $160,000 at $0.80 per share.



During the year ended December 31, 2003 related parties converted $232,951 in notes payable into 12,795,000 shares of restricted common stock at an average price of $0.018 per share.



During the year ended December 31, 2003 debenture holders converted $755,920 in debentures into 949,660 shares of restricted common stock at $0.80 per share.



During the year ended December 31, 2003 the Company issued 500,000 shares of restricted common stock as payment for the purchase of a web portal for a total of $250,000 at $0.50 per share.



On November 1, 2004 the Company increased its authorized common stock from 50 million to 100 million shares.



During the year ended December 31, 2004 a related party converted $319,000 in notes payable into 31,899,879 shares of restricted common stock at $.01 per share (see note 10).



During the year ended December 31, 2004 a related party converted $344,760 in notes payable into 2,500,000 shares of restricted common stock at prices ranging $0.08 to $0.18 per share.



During the year ended December 31, 2004 the Company cancelled 329,500 shares of restricted common stock at $0.50 per share, for a total of $164,800. The amount due to the former stockholders was credited to the note payable account of a related party (see note 10).



During the year ended December 31, 2004 the Company cancelled 50,000 shares of restricted common stock issued to third parties for services rendered during October 2003 at $0.10 per share, for a total of $5,000.



During the year ended December 31, 2004 the Company issued 150,000 shares of restricted common stock to its Chief Technology Officer, under an employment agreement, at prices ranging $0.35 to $0.50 per share, for a total of $67,250 (see note 14).



During the year ended December 31, 2004 the Company recognized the fair market value of 120,000 shares of restricted common stock to be issued to an employee under an employment agreement and expensed a total of $57,600 at $0.48 per share. On April 11, 2007 the Company was released from all obligations under a service agreement (see note 14).



During the year ended December 31, 2004 the Company sold 3 million shares of restricted common stock to investors at prices ranging $0.25 to $0.60 per share, for a total of $1,100,000.



During the year ended December 31, 2004 the Company sold 500,000 shares of restricted common stock to one investor at $0.32 per share, for a total of $159,000, with a stock subscription receivable at December 31, 2004 totaling $60,000. This receivable was collected during the year ended December 31, 2005.



During the second quarter of 2004 the Company determined that a certain depreciable asset termed a Web Portal no longer was necessary for the long-term goals of the Company. As a result, on June 14, 2004, the Company completed a transaction with a major shareholder for the sale of its Web Portal in exchange for 500,000 shares of the Companys common stock. Both parties to the transaction agreed that the fair value of the asset approximated the net book value at the date of the sale or $187,500. The Companys receipt of the 500,000 shares



F-16



---

has been recorded as treasury stock. The Company, in 2003, had originally acquired this Web Portal from a third-party by issuing 500,000 shares of its common stock. This transaction, at the time, was valued at $300,000.



During the year ended December 31, 2004 the Company recognized the estimated fair market value of 100,000 stock warrants issued to an employee under an employment agreement, using the Black Scholes model and expensed a total of $69,000 at $0.69 per warrant share (see note 14) (see note 15).



During the year ended December 31, 2005 a related party converted $166,000 in notes payable into 16,600,000 shares of restricted common stock at $0.01 per share, and $1,305,000 in notes payable into 15,500,000 shares of restricted common stock at prices ranging $0.08 to $0.09 per share (see note 10).



During the year ended December 31, 2005 the Company issued 100,000 shares of restricted common stock to its Chief Technology Officer, under an employment agreement, at prices ranging $0.24 to $0.34 per share, for a total of $29,250 (see note 14).



During the year ended December 31, 2005 the Company sold 600,000 shares of restricted common stock to investors at prices ranging $0.21 to $0.22 per share, for a total of $132,848.



During the year ended December 31, 2005 the Company issued 247,500 shares of restricted common stock to third parties for services rendered at prices ranging $0.12 to $0.35 per share, for a total of $71,600.



During the year ended December 31, 2005 the Company recognized the fair market value of 300,000 shares of restricted common stock to be issued to an employee under an employment agreement and expensed a total of $120,000 at $0.40 per share (see note 14).  On April 11, 2007 the Company was released from all obligations under the employment agreement.



During the year ended December 31, 2005 the Company recognized the estimated fair market value of 100,000 stock warrants issued to an employee under an employment agreement, using the Black Scholes model  and expensed a total of $52,000 at $0.52 per warrant share (see note 14) (see note 15).

NOTE 13 - RELATED PARTIES



During the years ended December 31, 2005 and 2004, the Company expensed $200,000 in each year for the salary of the President. At December 31, 2005 a total of $528,964 for the period January 1, 2002 through December 31, 2005 was unpaid and has been accrued.



During the years ended December 31, 2005 and 2004, the Company expensed $142,823 and $103,386 respectively in overhead costs incurred and paid by related parties with a corresponding increase in amounts due for notes payable.



During the years ended December 31, 2005, 2004 and 2003 the Company expensed interest cost to a related party totaling $2,924,262, $105,698 and $51,775, respectively.



NOTE 14 - COMMITMENTS



On April 13, 2004 the Company entered into a thirteen month lease for approximately 2,689 square feet of office space in Fort Lauderdale, Florida. On June 1, 2005 the Company extended the lease term for one year until May 31, 2006 with a minimum annual rental of $59,903 per annum. On March 27, 2006 the Company negotiated another one year extension until May 31, 2007, with a minimum annual rental of $62,300 per annum. Additionally, the landlord is entitled to sales tax and its pro-rata share of all real estate taxes. Rent expense for the year ended December 31, 2005 totaled $89,233.





F-17



---

The following is a schedule of minimum future rentals on the operating lease:



|                         |   |       
|------------------------ | - | ------
|Year ending December 31, |   |       
|2006                     | $ | 59,810
|2007                     |   | 25,955
|                         | $ | 85,765



On April 2, 2004 the Company entered into a three year employment agreement with its Chief Technology Officer, with automatic one year extensions after the expiry of the initial term. The terms of the agreement calls for a minimum salary of $180,000 per annum. The agreement also provides for a signing on bonus of $50,000, a minimum annual bonus equal to the lesser of the base salary or 15% of the gross profit as agreed or determined in accordance with generally accepted accounting principles, and participation in other compensation plans and programs for the Companys senior executives. The agreement further calls for the issue of 100,000 shares of restricted common stock upon the signing of the agreement and a further 150,000 shares of restricted common stock shall be vested and delivered in fifty thousand share lots in three equal installments through the first year following the execution of the agreement. Under the agreement, 100,000 and 150,000 shares had been issued during the years ended December 31, 2005 and 2004, respectively (see note 12). At each anniversary of the effective date the Company shall issue the executive five-year warrants to purchase at least 100,000 shares of restricted common stock, with the exercise price being set within the 30 days prior to each anniversary (see note 15).



On August 15, 2004 the Company entered into a three year employment agreement with its Executive Vice-President  Sales and Marketing, with automatic one year extensions after the expiration of the initial term. The terms of the agreement calls for a minimum annual salary of $150,000 per annum. The agreement also provides for a minimum annual bonus of between 50% and 100% of base salary based on certain criterion to be agreed between the executive and the Company, and a further bonus of 2% of the gross profit of the Company as agreed or determined in accordance with generally accepted accounting principles. The agreement further calls for the issuance of 120,000 shares of restricted common stock upon signing of the agreement. At each anniversary of the effective date the Company shall issue the executive 300,000 shares of restricted common stock for the three year period of his employment (see note 12).



NOTE 15  CONVERTIBLE SECURITIES



At December 31, 2005 the Company had outstanding warrants to purchase 200,000 shares of restricted common stock, at an exercise price of $1.30 per warrant share (see note 14). The Company adopted the provisions of SFAS No. 123R to compute an estimated fair value of $121,000 for the stock warrants using the Black Scholes model at December 31, 2005 and reserved 200,000 shares for the exercise of the stock warrants. The following assumptions were made in estimating fair value:



|               |  |      
|-------------- |  | -----
|Risk-free rate |  | 4.45%
|Volatility     |  | 96%  



The following table summarizes the stock warrant activity:



|                                                         |  |                  | 
|-------------------------------------------------------- |  | ---------------- | 
|                                                         |  | Number
of
Shares | 
|                                                         |  |                  | 
|September 30, 2004                                       |  |                  | 
|Warrants granted (five year term expiring April 2, 2009) |  | 100,000          | 
|Warrants exercised                                       |  |                 | 
|                                                         |  |                  | 
|September 30, 2005                                       |  |                  | 
|Warrants granted (five year term expiring April 2, 2010) |  | 100,000          | 
|Warrants exercised                                       |  |                 | 
|                                                         |  | 200,000          | 
|                                                         |  |                  | 



F-18



---



| |  |  | 
| |  |  | 

NOTE 16 - INCOME TAXES

The provision for federal income taxes as of December 31, 2005, 2004 and 2003 consists of the following:



|                           |  |      |   |      |   |      |  |   |   | 
|-------------------------- |  | ---- | - | ---- | - | ---- |  | - | - | 
|                           |  | 2005 |   | 2004 |   | 2003 | 
|                           |  |      |   |      |   |      |  |   |   | 
|Current expense (benefit)  |  | $    |  |      | $ |     |  | $ |  | 
|Deferred expense (benefit) |  |      |  |      |   |     |  |   |  | 
|                           |  | $    |  |      | $ |     |  | $ |  | 

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant approximate components of the net deferred taxes, at December 2005, 2004 and 2003 are as follows:



|                                         |      |            |      |   |            |   |   |            |  
|---------------------------------------- | ---- | ---------- | ---- | - | ---------- | - | - | ---------- | -
|                                         | 2005 |            | 2004 |   | 2003       |  
|Deferred tax assets:                     |      |            |      |   |            |   |   |           
|Federal net operating loss carryforward  | $    | 2,700,000  |      | $ | 1,900,000  |   | $ | 1,200,000  |  
|State net operating loss carryforward    |      | 418,000    |      |   | 290,000    |   |   | 200,000    |  
|Provisions                               |      | 544,000    |      |   | 544,000    |   |   | 65,000     |  
|Timing difference  Accrued compensation |      | 209,000    |      |   | 158,000    |   |   | 94,000     |  
|                                         |      | 3,871,000  |      |   | 2,892,000  |   |   | 1,559,000  |  
|Valuation allowance                      |      | (3,871,000 | )    |   | (2,892,000 | ) |   | (1,559,000 | )
|                                         | $    |           |      | $ |           |   | $ |           |  



SFAS No. 109 requires a valuation allowance to reduce the deferred tax assets reported, if any, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Management has determined that a valuation allowance of $3,871,000, $2,892,000 and $1,559,000 at December 31, 2005, 2004 and 2003, respectively, is necessary to reduce the deferred tax assets to the amount that will more likely than not be realized. The change in the valuation allowance during the years ended December 31, 2005, 2004 and 2003 was $979,000, $1,333,000 and $766,000, respectively.

The Company has incurred net operating losses since inception. At December 31, 2005 the Company had a net operating loss carry forward for tax purposes amounting to approximately $7.6 million,. Tax losses will begin expiring in the year 2019, and may be limited in offsetting future taxable income in the event of owner shifts pursuant to IRC section 382.

The federal statutory tax rate reconciled to the effective tax rate during the years ended December 31, 2005, 2004 and 2003 is as follows:



|                                        |  |       |    |       |    |       |   
|--------------------------------------- |  | ----- | -- | ----- | -- | ----- | --
|                                        |  | 2005  |    | 2004  |    | 2003  |   
|                                        |  |       |    |       |    |       |   
|Tax at U.S. statutory rate              |  | (35.0 | %) | (35.0 | %) | (35.0 | %)
|State tax rate, net of federal benefits |  | (3.5  | %) | (3.5  | %) | (3.5  | %)
|Derivative liability expenses           |  | 23.0  | %  |      |    |      |   
|Other                                   |  | 0.5   | %  |      |    |      |   
|Change in valuation allowance           |  | 15.0  | %  | 38.5  | %  | 38.5  | % 
|Effective tax rate                      |  | 0.0   | %  | 0.0   | %  | 0.0   | % 





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NOTE 17  CONTINGENCIES

On August 11, 2004 (with an effective date of June 1, 2004) the Company entered into a stock purchase agreement with the sole shareholder of a privately-held company engaged in the business of selling and distributing electrical products. The principal terms of the agreement provide for the Company to acquire all of the issued and outstanding shares of the acquired entity for a purchase price of $1,500,000 plus the issuance of 1,000,000 restricted common stock shares in the acquiring entity. Additional consideration included in this stock purchase agreement require the Company to collateralize an existing line of credit in the amount of $2,500,000 as well as retain the services of the selling shareholder, pursuant to a consulting agreement dated August 11, 2004, for a term consistent with the fulfillment of the stock purchase agreement. The Company, at time of closing, gave its initial deposit of $350,000, but has defaulted on the remaining balance due and is also in default of the collateralization provision. Management has written off the deposit of $350,000 and is actively negotiating with the seller to resolve this matter. Management anticipates, but can not assure, that a settlement will be forthcoming and that the Company loss will consist of its forfeited deposit.





F-20