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

                                 AMENDMENT NO. 2
                                       TO
                                    FORM 10-Q
(Mark One)
[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2005

                                       OR

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 For the transition period from _______ to ________


                        COMMISSION FILE NUMBER: 000-27267
                              I/OMAGIC CORPORATION
             (Exact Name of Registrant as Specified in Its Charter)

            Nevada                                       33-0773180
-------------------------------             ------------------------------------
(State or Other Jurisdiction of             (I.R.S. Employer Identification No.)
Incorporation or Organization)

    4 Marconi, Irvine, CA                                  92618
  --------------------------                           ------------
(Address of principal executive offices)                (Zip Code)

                                 (949) 707-4800
                                 --------------
              (Registrant's telephone number, including Area Code)

                                 Not Applicable
              ----------------------------------------------------
              (Former name, former address and former fiscal year,
                          if changed since last report)

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

         Indicate by check whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [ X ]

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

         The number of shares of the registrant's common stock, $.001 par value
per share, outstanding as of January 30, 2006 was 4,531,572.



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                                PRELIMINARY NOTE

         This Amendment No. 2 to Form 10-Q (this "Amendment No. 2") is filed by
I/OMagic Corporation, a Nevada corporation (hereinafter the "Company" or the
"Registrant"), to amend Amendment No. 1 to Form 10-Q filed by the Registrant
(File No. 000-27267) on July 5, 2005, with respect to the Registrant's
disclosures in Item 4 - Controls and Procedures set forth in such Amendment No.
1. The Registrant has filed this Amendment No. 2 to amend and restate in its
entirety Item 4 - Controls and Procedures, as set forth below:

ITEM 4. CONTROLS AND PROCEDURES

         EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

         We conducted an evaluation, with the participation of our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures, as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended, or the Exchange Act, as of March 31, 2005, to ensure that information
required to be disclosed by us in the reports filed or submitted by us under the
Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the Securities Exchange Commission's rules and forms,
including to ensure that information required to be disclosed by us in the
reports filed or submitted by us under the Exchange Act is accumulated and
communicated to our management, including our principal executive and principal
financial officers, or persons performing similar functions, as appropriate to
allow timely decisions regarding required disclosure. Based on that evaluation,
our Chief Executive Officer and Chief Financial Officer have concluded that as
of March 31, 2005, our disclosure controls and procedures were not effective at
the reasonable assurance level due to the material weaknesses described below.

         In light of the material weaknesses described below, we performed
additional analysis and other post-closing procedures to ensure our consolidated
financial statements were prepared in accordance with generally accepted
accounting principles. Accordingly, we believe that the consolidated financial
statements included in this report fairly present, in all material respects, our
financial condition, results of operations and cash flows for the periods
presented.

         A material weakness is a control deficiency (within the meaning of the
Public Company Accounting Oversight Board (PCAOB) Auditing Standard No. 2) or
combination of control deficiencies, that results in more than a remote
likelihood that a material misstatement of the annual or interim financial
statements will not be prevented or detected. Management has identified the
following four material weaknesses which have caused management to conclude
that, as of March 31, 2005, our disclosure controls and procedures were not
effective at the reasonable assurance level:

         1. In conjunction with preparing our Form 10-K for the period ended
December 31, 2004 and our registration statement on Form S-1, and after
receiving comments from the Staff of the Securities and Exchange Commission
relating to our registration statement on Form S-1, management reviewed, in the
first quarter of 2005, our revenue recognition methodologies as they relate to
sales incentives and product returns. As a result of this review, management
concluded, in the first quarter of 2005, that our controls over the selection
and monitoring of appropriate assumptions and factors affecting the recording of
revenue and the related sales incentives and product returns were not in
accordance with generally accepted accounting principles and that our revenue
for the years ended December 31, 2003 and 2002 and for each of the quarterly
periods in the years ended December 31, 2003 and 2002, and through the nine
months ended September 30, 2004, had been misstated. Based upon this conclusion,
our Audit Committee and senior management decided, in the second quarter of
2005, to restate our financial statements as of and for the years ended December
31, 2003 and 2002 and for each of the quarterly periods in the years ended
December 31, 2003 and 2002, and through the nine months ended September 30,
2004, to reflect the corrections in our revenue recognition methodologies.


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         Management evaluated, in the second quarter of 2005 and as of March 31,
2005, the impact of this restatement on our assessment of our disclosure
controls and procedures and concluded, in the second quarter of 2005 and as of
March 31, 2005, that the control deficiency that resulted in the incorrect
recording of revenue and the related sales incentives and product returns
represented a material weakness.

         2. We did not maintain documentation supporting certain inventory
reserves and did not analyze our inventory reserve account on a timely basis.
Management evaluated, in the second quarter of 2005 and as of March 31, 2005,
the impact of our inventory accounting practices on our assessment of our
disclosure controls and procedures and concluded, in the second quarter of 2005
and as of March 31, 2005, that the control deficiency that resulted in the
failure to maintain documentation supporting certain inventory reserves and the
failure to analyze our inventory reserve account on a timely basis represented a
material weakness. This control deficiency did not result in a material
misstatement of our consolidated financial statements.

         3. As a result of our restatement of prior periods' financial results,
as discussed above, we were unable to meet our requirements to timely file our
Form 10-K for the year ended December 31, 2004 and our Form 10-Q for the quarter
ended March 31, 2005. Management evaluated, in the second quarter of 2005 and as
of March 31, 2005, the impact of our inability to timely file periodic reports
with the Securities and Exchange Commission on our assessment of our disclosure
controls and procedures and concluded, in the second quarter of 2005 and as of
March 31, 2005, that the control deficiency that resulted in the inability to
timely make these filings represented a material weakness.

         4. We did not maintain a sufficient complement of finance and
accounting personnel with adequate depth and skill in the application of
generally accepted accounting principles with respect to: (i) revenue
recognition, specifically relating to sales incentives and product returns, and
(ii) inventory reserves, specifically relating to maintenance of documentary
support of certain inventory reserves and the timeliness and frequency of our
analysis of our inventory reserve account. In addition, we did not maintain a
sufficient complement of finance and accounting personnel to handle the matters
necessary to timely file our Form 10-K for the year ended December 31, 2004 and
our Form 10-Q for the quarter ended March 31, 2005. Management evaluated, in the
second quarter of 2005 and as of March 31, 2005, the impact of our lack of
sufficient finance and accounting personnel on our assessment of our disclosure
controls and procedures and concluded, in the second quarter of 2005 and as of
March 31, 2005, that the control deficiency that resulted in our lack of
sufficient personnel represented a material weakness.

         To address these material weaknesses, management performed additional
analyses and other procedures to ensure that the financial statements included
herein fairly present, in all material respects, our financial position, results
of operations and cash flows for the periods presented.

         REMEDIATION OF MATERIAL WEAKNESSES

         To remediate the material weaknesses in our disclosure controls and
procedures identified above, we have done the following subsequent to December
31, 2004, in the periods specified below, which correspond to the four material
weaknesses identified above:

         1. We have revised our revenue recognition methodology as it relates to
sales incentives. We previously accounted for sales incentives by reducing gross
sales at the time sales incentives were offered to our retailers. Upon further
examination of our accounting methodology for sales incentives, and a
quantitative analysis of our historical sales incentives, we determined that we


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made an error in our application of the relevant accounting principles under
SFAS 48, as interpreted under Topic 13, and determined that we should have
estimated and recorded sales incentives at the time our products were sold.
Under SFAS 48, as interpreted under Topic 13, the eventual sales price must be
fixed or determinable before revenue can be recognized. Due to the nature and
extent of our sales incentive history, we should have been assessing our revenue
recognition criteria to determine whether we were able to effectively estimate
or determine our eventual sales price. We have determined the effect of the
correction on our previously issued financial statements and have restated our
financial statements for the years ended December 31, 2002 and 2003. Beginning
with the quarter ended December 31, 2004, we recorded an estimate of sales
incentives based on our actual sales incentive rates over a trailing twelve
month period, adjusted for any known variations, which we charged to operations
and offset against gross sales at the time products were sold with a
corresponding accrual for our estimated sales incentive liability. This accrual
- our sales incentive reserve - is to be reduced by deductions on future
payments taken by our retailers relating to actual sales incentives. The
revision of our revenue recognition methodology as it relates to sales
incentives was completed in the second quarter of 2005. We began using this new
methodology for the quarter ended December 31, 2004 and all periods included in
this report now reflect this change. In addition, this methodology applies to
all periods subsequent to December 31, 2004.

         We have revised our revenue recognition methodology as it relates to
product returns. We previously accounted for product returns using a method that
did not take into account the different return characteristics of categories of
similar products and also did not adequately take into account the variability
over time of product return rates. We conducted a quantitative analysis of our
historical product return data to determine moving averages of product return
rates by groupings of similar products. Following completion of this analysis,
we determined that we made an error in our method of estimating product returns.
As a result of this analysis, we determined that a more appropriate method would
be to apply an actual trailing 18-month return rate by product category against
actual gross sales for the period. We believe that using a trailing 18-month
return rate takes two key factors into consideration, specifically, an 18-month
return rate provides us with a sufficient period of time to establish recent
historical trends in product returns for each product category, and provides us
with a period of time that is short enough to account for recent technological
shifts in our product offerings in each product category. If an unusual
circumstance exists, such as a product category that has begun to show
materially different actual return rates as compared to life-to-date return
rates, we will make appropriate adjustments to our estimated return rates. We
have determined the effect of the correction on our previously issued financial
statements and have restated our financial statements for the years ended
December 31, 2002 and 2003. The revision of our revenue recognition methodology
as it relates to product returns was completed in the second quarter of 2005. We
began using this new methodology for the quarter ended December 31, 2004 and all
periods included in this report now reflect this change. In addition, this
methodology applies to all periods subsequent to December 31, 2004.

         Management believes that the remediation described in item 1
immediately above has remediated the corresponding material weakness also
described above. Management is unable, however, to estimate our capital or other
expenditures associated with this remediation.

         2. We have implemented additional review procedures over the selection
and monitoring of appropriate assumptions and factors affecting our inventory
reserves to ensure that inventory balances are reduced to their net realizable
values on a timely basis. We have also revised our methodology in relation to
slow-moving or obsolete inventory. Slow-moving inventory is comprised of
products that have not been sold within six months. Obsolete inventory is
comprised of products that are no longer compatible with current hardware or
software. We previously reviewed our slow-moving and obsolete inventory in
detail twice a year, during our June 30 and December 31 physical inventories, in
regards to our lower of cost or market valuations. Our inventory reviews for the
quarters ended March 31 and September 30 were less detailed. We have implemented
a new procedure that requires that our purchasing manager review slow-moving and
obsolete inventory in detail at the end of each quarter and propose any
necessary increases to our inventory reserve. The implementation of these review
procedures and the revision of our inventory accounting methodology was


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completed in the second quarter of 2005. We began using this new procedure and
revised methodology for the quarter ended December 31, 2004 and the financial
data for the quarter ended March 31, 2005 included in this report reflects this
change. This new procedure and revised methodology will apply to all subsequent
periods.

         Management believes that the remediation described in item 2
immediately above has remediated the corresponding material weakness also
described above. Management is unable, however, to estimate our capital or other
expenditures associated with this remediation.

         3. In connection with making the changes discussed above to our
disclosure controls and procedures, in addition to working with our independent
auditors, in the fourth quarter of 2004, we retained a third-party consultant,
who is an experienced partner of a registered public accounting firm
specializing in public company financial reporting, to advise us and our Audit
Committee regarding our financial reporting processes. We also engaged, in the
fourth quarter of 2004, another third-party accounting firm, other than our
independent auditors, to assist us with our financial reporting processes.
Additionally, in the third quarter of 2005, we created a new position--Corporate
Compliance Manager--to further assist us in timely making required filings with
the Securities and Exchange Commission and ensuring the accuracy of our
financial reporting and the effectiveness of our disclosure controls and
procedures. Commencing in the fourth quarter of 2005, we began employing the
services of professional placement agencies and are currently in the process of
filling this position with an appropriate candidate. In the third quarter of
2005, we further improved our ability to timely make required filings by
implementing additional automated reporting procedures with respect to product
returns and sales incentives through enhancements to our MIS financial reporting
system that expedite our internal reporting processes as well as periodic
reviews by our independent auditors. In addition, we allocated and continue to
allocate part of the time of certain company personnel with accounting
experience to assist us in generating reports and schedules necessary to timely
file our periodic reports. Prior to this time, these personnel focused their
time on other matters. We also intend, in 2005, to continue to implement
enhancements to our financial reporting processes, including increased training
of our finance and accounting staff regarding financial reporting requirements
and the evaluation and further implementation of automated procedures within our
MIS financial reporting system.

         Management expects that the remediation described in item 3 immediately
above will remediate the corresponding material weakness also described above by
December 31, 2005. Management estimates that it has paid the third-party
consultant approximately $37,000 in connection with his services and estimates
that it has paid the third-party accounting firm approximately $63,000 in
connection with its services. Management believes that a suitable candidate for
its new position--Corporate Compliance Manager--will have an annual salary of at
least $75,000, not including benefits and other costs of employment. Management
is unable, however, to estimate our capital or other expenditures associated
with the allocation of time of certain company personnel to assist us in
generating reports and schedules necessary to timely file our periodic reports
or our additional capital or other expenditures relating to higher fees paid to
our independent auditors in connection with their review of this remediation.

         4. Management believes that the procedures we implemented in connection
with the restatement of our financial statements, and the circumstances
surrounding the restatement, have led to a greater depth of understanding by
management of revenue recognition principles. Management also believes that
these procedures, and the circumstances surrounding the restatement, have led to
improved and expedited financial reporting processes as a result of more
detailed and accurate recording of sales incentives and product returns as they
relate to revenue recognition. In addition, management believes that these
procedures, and the circumstances surrounding the restatement, have led to
improved and expedited financial reporting processes as a result of more
detailed and accurate recording of charges to our inventory reserve. Management
further believes that the involvement of the third-party consultant and the
third-party accounting firm, as discussed above, has led to improved procedures
and controls with respect to these matters. We also believe that the new
position of Corporate Compliance Manager, once it is filled with a suitable


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candidate, will contribute additional expertise to our team of finance and
accounting personnel. In addition, as noted above, we allocated and continue to
allocate part of the time of certain company personnel with accounting
experience to assist us in generating reports and schedules necessary to timely
file our periodic reports and we believe that this has assisted us, and will
continue to assist us, in timely filing our periodic reports.

         Management expects that the remediation described in item 4 immediately
above will remediate the corresponding material weakness also described above by
December 31, 2005. As noted above, management estimates that it has paid the
third-party consultant approximately $37,000 in connection with his services and
estimates that it has paid the third-party accounting firm approximately $63,000
in connection with its services. As also noted above, management believes that a
suitable candidate for its new position--Corporate Compliance Manager--will have
an annual salary of at least $75,000, not including benefits and other costs of
employment. Management is unable, however, to estimate our capital or other
expenditures associated with the allocation of time of certain company personnel
to assist us in generating reports and schedules necessary to timely file our
periodic reports or our additional capital or other expenditures related to
higher fees paid to our independent auditors in connection with their review of
this remediation.

         CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

         The changes noted above, specifically, the changes relating to our (i)
creation of the new position of Corporate Compliance Manager and our efforts to
locate a suitable candidate to fill this position; (ii) enhancements to our MIS
financial reporting system; (iii) allocation of existing personnel with
accounting experience to assist us in timely completing our periodic reports;
and (iv) plans and efforts to enhance our financial reporting processes, are the
only changes during our most recently completed fiscal quarter that have
materially affected or are reasonably likely to materially affect, our internal
control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act.

ITEM 6.  EXHIBITS

         Exhibit
         Number                   Description
         ------                   -----------

           10     GMAC Letter dated May 23, 2005 Amending Financial Covenant (1)

           31     Certifications Required by Rule 13a-14(a) of the Securities
                  Exchange Act of 1934, as amended, as Adopted Pursuant to
                  Section 302 of the Sarbanes-Oxley Act of 2002*

           32     Certifications of Chief Executive Officer and Chief Financial
                  Officer pursuant to 18 U.S.C. Section 1350, as Adopted
                  Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

         -----------------
         *        Filed herewith
         (1)      Filed as an exhibit to the Registrant's initial filing on May
                  27, 2005 of this quarterly report on Form 10-Q for the
                  quarterly period ended March 31, 2005 (File No. 0-27267)


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                                   SIGNATURES

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

                              I/OMAGIC CORPORATION


Dated: January 30, 2006        By:  /s/ Tony Shahbaz
                                    --------------------------------------------
                                    Tony Shahbaz, President and
                                    Chief Executive Officer
                                    (principal executive officer)

Dated: January 30, 2006        By:  /s/ Steve Gillings
                                    --------------------------------------------
                                    Steve Gillings, Chief Financial Officer
                                    (principal financial and accounting officer)


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                         EXHIBITS FILED WITH THIS REPORT

 Exhibit
 Number           Description
 ------           -----------

   31             Certifications Required by Rule 13a-14(a) of the Securities
                  Exchange Act of 1934, as amended, as Adopted Pursuant to
                  Section 302 of the Sarbanes-Oxley Act of 2002

   32             Certifications of Chief Executive Officer and Chief Financial
                  Officer pursuant to 18 U.S.C. Section 1350, as Adopted
                  Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002