| Delaware                                                                | 87-0398271                                    |
|-------------------------------------------------------------------------|-----------------------------------------------|
| (State      or Other Jurisdictionof      Incorporation or Organization) | (I.R.S.      EmployerIdentification      No.) |

| Large accelerated    filer |  ̈ |   | Accelerated      filer         |  ̈ |
|----------------------------|--------|--------|--------------------------------|--------|
| Non-accelerated      filer |  ̈ |   | Smaller      reporting company | x      |

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|             |                                                                                                                         |   | Page   |   |
|------------------|------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|
|             | PART      I                                                                                                                  |   |   |   |
|             |                                                                                                                         |   |   |   |
| Item      1.     | Description      of Business                                                                                                 |   |   | 3      |   |
|             |                                                                                                                         |   |   |   |   |
| Item      1A.    | Risk      Factors                                                                                                            |   |   | 11     |   |
|             |                                                                                                                         |   |   |   |   |
| Item      1B.    | Unresolved      Staff Comments                                                                                               |   |   | 17     |   |
|             |                                                                                                                         |   |   |   |   |
| Item      2.     | Properties                                                                                                                   |   |   | 18     |   |
|             |                                                                                                                         |   |   |   |   |
| Item      3.     | Legal      Proceedings                                                                                                       |   |   | 18     |   |
|             |                                                                                                                         |   |   |   |   |
| Item      4.     | Submission      of Matters to a Vote of Security Holders                                                                     |   |   | 18     |   |
|             |                                                                                                                         |   |   |   |   |
|             | PART      II                                                                                                                 |   |   |   |   |
|             |                                                                                                                         |   |   |   |   |
| Item      5.     | Market      for Registrant’s Common Equity, Related Stockholder Matters and Issuer      Purchases of Equity Securities |   |   | 19     |   |
|             |                                                                                                                         |   |   |   |   |
| Item      6.     | Selected      Financial Data                                                                                                 |   |   | 21     |   |
|             |                                                                                                                         |   |   |   |   |
| Item      7.     | Management’s      Discussion and Analysis of Financial Condition and Results of      Operations                        |   |   | 22     |   |
|             |                                                                                                                         |   |   |   |   |
| Item      7A.    | Quantitative      and Qualitative Disclosures About Market Risk                                                              |   |   | 34     |   |
|             |                                                                                                                         |   |   |   |   |
| Item      8.     | Financial      Statements and Supplementary Data                                                                             |   |   | 34     |   |
|             |                                                                                                                         |   |   |   |   |
| Item      9.     | Changes      in and Disagreements with Accountants on Accounting and Financial      Disclosure                               |   |   | 34     |   |
|             |                                                                                                                         |   |   |   |   |
| Item      9A(T). | Controls      and Procedures                                                                                                 |   |   | 34     |   |
|             |                                                                                                                         |   |   |   |   |
| Item      9B.    | Other      Information                                                                                                       |   |   | 35     |   |
|             |                                                                                                                         |   |   |   |   |
|             | PART      III                                                                                                                |   |   |   |   |
|             |                                                                                                                         |   |   |   |   |
| Item      10.    | Directors,      Executive Officers and Corporate Governance                                                                  |   |   | 35     |   |
|             |                                                                                                                         |   |   |   |   |
| Item      11.    | Executive      Compensation                                                                                                  |   |   | 37     |   |
|             |                                                                                                                         |   |   |   |   |
| Item      12.    | Security      Ownership of Certain Beneficial Owners and Management and Related      Stockholder      Matters                |   |   | 40     |   |
|             |                                                                                                                         |   |   |   |   |
| Item      13.    | Certain      Relationships and Related Transactions, and Director      Independence                                          |   |   | 42     |   |
|             |                                                                                                                         |   |   |   |   |
| Item      14.    | Principal      Accountant Fees and Services                                                                                  |   |   | 44     |   |
|             |                                                                                                                         |   |   |   |   |
|             | PART      IV                                                                                                                 |   |   |   |   |
|             |                                                                                                                         |   |   |   |   |
| Item      15.    | Exhibits      and Financial Statement Schedules                                                                              |   |   | 45     |   |
|             |                                                                                                                         |   |   |   |   |
|             | Signatures                                                                                                                   |   |   | 49     |   |

**2**

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**3**

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**4**

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|   | · | Peer-to-peer      Distribution - the distribution of audio or video files over the      Internet for listening or viewing on mobile devices and personal      computers; |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Online      Advertising; |
|--------|--------|--------------------------|

|   | · | Viral Marketing -      marketing and advertising techniques that use pre-existing social networks      to produce increases in brand awareness through self-replicating viral      processes. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**5**

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**6**

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|   | · | Advertising Agencies with      China operations, including Dentsu, Ogilvy, and Universal      McCann; |
|--------|--------|-------------------------------------------------------------------------------------------------------|

|   | · | Media Planners, such as      MindShare China and Zenith; |
|--------|--------|----------------------------------------------------------|

|   | · | Large Brands, such as      Nike, Proctor & Gamble, LG, Samsung, Lenovo, Starbucks, and      Levi’s; |
|--------|--------|---------------------------------------------------------------------------------------------------------------|

|   | · | Premium Advertisers and      Content Owners, including advertising agencies like WPP, Omnicom      and Interpublic; content owners with their own advertising, such as NBC,      CBS, ABC and The New York Times; and infomercial creators, like QVC and      Williams Group; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Independent producers,      artists, designers and filmmakers who own untapped content;      and |
|--------|--------|--------------------------------------------------------------------------------------------------|

|   | · | Advertising Networks,      including Advertising.com, ValueClick, ClickBooth, CJ.com and      Zedo. |
|--------|--------|-----------------------------------------------------------------------------------------------------|

**7**

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|   | · | Almost      all of these sites are comparable to YouTube:  content is mostly user      generated (UGC), along with illegal clips from movies and TV, with      relatively little or no licensedcontent |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Advertising      is limited to smaller domestic brands, as mainstream advertisers are      reluctant to risk brand affiliation with unknown or illegal      content |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | This      group is similar to US portals such as Yahoo! and include but do not focus      on video |
|--------|--------|----------------------------------------------------------------------------------------------------|

|   | · | These      portals are highly popular as search engines and carry feeds from major      news and entertainment sources |
|--------|--------|------------------------------------------------------------------------------------------------------------------------|

|   | · | These      sites have large advertising sales staffs with established relationships      to ad agencies |
|--------|--------|---------------------------------------------------------------------------------------------------------|

**8**

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|   | · | The      China Youth League |
|--------|--------|-----------------------------|

|   | · | The      Ministry of Public Security |
|--------|--------|--------------------------------------|

|   | · | The      PRC State Administration of Radio, Film and  Television |
|--------|--------|------------------------------------------------------------------|

|   | · | The      Movie and Television Network Center of China Youth  League |
|--------|--------|---------------------------------------------------------------------|

|   | · | The      Telecommunication Administrative Bureau of Beijing,  China |
|--------|--------|---------------------------------------------------------------------|

**9**

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**10**

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**11**

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|   | · | Power      loss, transmission cable cuts and other telecommunication      failures; |
|--------|--------|-------------------------------------------------------------------------------------|

|   | · | Damage      or interruption caused by fire, earthquake, and other natural      disasters; |
|--------|--------|-------------------------------------------------------------------------------------------|

|   | · | Computer      viruses or software defects; |
|--------|--------|--------------------------------------------|

|   | · | Physical      or electronic break-ins, sabotage, intentional acts of vandalism,      terrorist attacks and other events beyond our  control. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------|

**12**

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**13**

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|   | · | Establishing      and maintaining broad market acceptance of our products and converting      that acceptance into direct and indirect sources of    revenue; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Establishing      and maintaining our brand name; |
|--------|--------|---------------------------------------------------|

|   | · | Timely      and successfully developing newproducts; |
|--------|--------|------------------------------------------------------|

|   | · | Developing      and maintaining strategic relationships to enhance the distribution of our      products. |
|--------|--------|-----------------------------------------------------------------------------------------------------------|

**14**

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**15**

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**16**

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|   | · | That      a broker or dealer approve a person’s account for transactions in penny      stocks; and |
|--------|--------|----------------------------------------------------------------------------------------------------------|

|   | · | The      broker or dealer receive from the investor a written agreement to the      transaction, setting forth the identity and quantity of the penny stock to      be purchased. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Obtain      financial information and investment experience objectives of the person;      and |
|--------|--------|------------------------------------------------------------------------------------------------|

|   | · | Make      a reasonable determination that the transactions in penny stocks are      suitable for that person and the person has sufficient knowledge and      experience in financial matters to be capable of evaluating the risks of      transactions in penny stocks. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Sets      forth the basis on which the broker or dealer made the suitability      determination; and |
|--------|--------|------------------------------------------------------------------------------------------------------|

|   | · | That      the broker or dealer received a signed, written agreement from the      investor prior to the transaction. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------|

**17**

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**18**

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| ITEM      5. | Market      for Registrant’s Common Equity, Related Stockholder Matters and Issuer      Purchases of Equity Securities |
|--------------|------------------------------------------------------------------------------------------------------------------------------|

|                      |              | Common Stock Price |   |
|---------------------------|-------------------|--------------------|--------|
|                      |              | High               |   |   | Low |   |
| 2008                      |              |               |   |   |   |   |   |   |
| First      Quarter Ended  | March      31     |               | $      | 0.06 |   |   | $ | 0.06 |   |
| Second      Quarter Ended | June      30      |               | $      | 0.10 |   |   | $ | 0.10 |   |
| Third      Quarter Ended  | September      30 |               | $      | 0.09 |   |   | $ | 0.09 |   |
| Fourth      Quarter Ended | December      31  |               | $      | 0.15 |   |   | $ | 0.15 |   |
|                      |              |               |   |   |   |   |   |   |   |
| 2007                      |              |               |   |   |   |   |   |   |
| First      Quarter Ended  | March      31     |               | $      | 0.19 |   |   | $ | 0.08 |   |
| Second      Quarter Ended | June      30      |               | $      | 0.18 |   |   | $ | 0.08 |   |
| Third      Quarter Ended  | September      30 |               | $      | 0.15 |   |   | $ | 0.09 |   |
| Fourth      Quarter Ended | December      31  |               | $      | 0.12 |   |   | $ | 0.05 |   |

**19**

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**20**

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**21**

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**22**

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**23**

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|   | 1) | Targeted      niche marketing into campuses |
|--------|----|---------------------------------------------|

|   | 2) | Standard      digital media buys on our Koobeeportal |
|--------|----|------------------------------------------------------|

|   | 3) | In-show      ad inventory |
|--------|----|---------------------------|

|   | 4) | Creative      ad placements and overlays |
|--------|----|------------------------------------------|

|   | 5) | Channel      sponsorship and brandedcontent |
|--------|----|---------------------------------------------|

|   | 6) | Competitive      CPMs and building priceless lifetimeloyalty |
|--------|----|--------------------------------------------------------------|

|  | 7) | Event      sponsorship |
|--|----|------------------------|

|  | 8) | Mobile      media and text campaigns |
|--|----|--------------------------------------|

**24**

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**25**

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**26**

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**27**

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**28**

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|               |   | Year      Ended   |          |
|--------------------|--------|-------------------|---------------|
|               |   | December      31, |          |   | December      31, |   |
| Revenue            |   | 2008              |          |   | 2007 |   |
| Sales              |   | $                 | 107,000       |   |   | $ | 557,365 |   |
| Other      Income  |   |              |  148,189 |   |   |   |    35,000 |   |
| Total      revenue |   | $                 | 255,189       |   |   | $ | 592,365 |   |

**29**

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**30**

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**31**

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| Operating Lease Payments |   | MinimumPayments |
|--------------------------|--------|-----------------|
| 2009                     |   |            |               249,155 |
| 2010                     |   |            |               239,566 |
| 2011                     |   |            |                 82,757 |
| 2012                     |   |            |                 63,508 |
| Total          |   | $               |            634,986 |

**32**

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**33**

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**34**

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| Name                   |   | Age    |   | Position                               |
|------------------------|--------|--------|--------|----------------------------------------|
|                   |   |   |   |                                   |
| Jay      Rifkin        |   | 53     |   | Chief      Executive Officer, Director |
| William      B. Horne  |   | 40     |   | Director                               |
| Alice      M. Campbell |   | 58     |   | Director                               |
| Alan      Morelli      |   | 47     |   | Director                               |
| David      M. Kaye     |   | 54     |   | Director                               |

**35**

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**36**

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**37**

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| Name      and Principal Position | Year   |   | Salary($)(2) |    |   | Bonus      ($) |   |   | StockAwards      ($) |   |   | OptionAwards      ($) (3) |   |   | Non-EquityIncentive      PlanCompensation($) |   |   | NonqualifiedDeferredCompensationEarnings      ($) |   |   | All      Other Compensation      ($) |   |   | Total  |   |
|----------------------------------|--------|--------|--------------|---------|--------|----------------|--------|--------|----------------------|--------|--------|---------------------------|--------|--------|----------------------------------------------|--------|--------|---------------------------------------------------|--------|--------|--------------------------------------|--------|--------|--------|--------|
|                             |   |   |         |    |   |           |   |   |                 |   |   |                      |   |   |                                         |   |   |                                              |   |   |                                 |   |   |   |   |
| Jay      Rifkin, (1)             | 2008   |   | $            | 165,000 |   |           | $      | 0      |                 |   | $      | 0                         |   |   | $                                            | 0      |   |                                              | $      | 0      |                                 |   | $      | 0      |   |   | $ | 0 |   |   | $ | 165,000 |   |
| President      and               | 2007   |   | $            | 165,000 |   |           | $      | 0      |                 |   | $      | 0                         |   |   | $                                            | 0      |   |                                              | $      | 0      |                                 |   | $      | 0      |   |   | $ | 0 |   |   | $ | 165,000 |   |
| Chief      Executive Officer     |   |   |         |    |   |           |   |   |                 |   |   |                      |   |   |                                         |   |   |                                              |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |

|  | (1) | Mr.      Rifkin was appointed President on September 30, 2005, and Chief Executive      Officer and director nominee on December 29,  2005. |
|--|-----|---------------------------------------------------------------------------------------------------------------------------------------------|

|  | (2) | Consists      of      accrued salary for 2008 and 2007, none of which has been paid as of      December 31, 2008. |
|--|-----|-------------------------------------------------------------------------------------------------------------------|

|   | (3) | Represents      the      dollar amount recognized for financial reporting purposes of stock options      awarded in 2008, 2007 and 2006 computed in accordance with SFAS      123(R). |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|            |   | Options Awards                                    |
|-----------------|--------|---------------------------------------------------|
|            |   | No. of SecuritiesUnderlyingUnexercisedOptions (#) |   |   | No. of SecuritiesUnderlyingUnexercisedOptions (#) |   |   | OptionExercise Price |   | OptionExpiration |
| Name            |   | Exercisable                                       |   |   | Unexercisable |   |   | ($) |   | Date |
|            |   |                                              |   |   |   |   |   |   |   |   |   |   |   |
| Jay      Rifkin |   |                                              | 4,400,000 |   |   |   | 0 |   |   | $ | 0.85 |   | 9/30/2015 |
|            |   |                                              | 75,000 |   |   |   | 75,000 |   |   | $ | 0.20 |   | 11/8/2016 |

**38**

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| Name                   |   | Fees Earned orPaid in Cash ($) |   |   | StockAwards ($) |   |   | Option Awards ($) (1) |   |   | All OtherCompensation ($) |   |   | Total ($) |   |
|------------------------|--------|--------------------------------|--------|--------|-----------------|--------|--------|----------------------------|--------|--------|---------------------------|--------|--------|-----------|--------|
| Alan      Morelli      |   |                           | 0      |   |            |   | 0      |                       |   |   | 0                         |   |   |      | 0      |   |   |   | 0 |   |
| Alice      M. Campbell |   |                           | 0      |   |            |   | 0      |                       |   |   | 0                         |   |   |      | 0      |   |   |   | 0 |   |
| David      M. Kaye     |   |                           | 0      |   |            |   | 0      |                       |   |   | 0                         |   |   |      | 0      |   |   |   | 0 |   |
| William      B. Horne  |   |                           | 0      |   |            |   | 0      |                       |   |   | 0                         |   |   |      | 0      |   |   |   | 0 |   |

| (1) | Represents      the dollar amount recognized for financial reporting purposes of stock      options awarded in 2008 computed in accordance with Financial Accounting      Standards 123R. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**39**

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| Name of Beneficial Owner (1)                          |   | Common Stock  Beneficially Owned      (2) |        |       | Percentageof CommonStock (2) |   |
|---------------------------------------------------------------------------|--------|----------------------------------------------------------|-------------|------------|----------------------------------------|--------|
| Jay      Rifkin                                                           |   |                                                     | 97,517,563  |  (3)  |                                   |   | 64.12% |   |
| William      B. Horne                                                     |   |                                                     | 834,789     |  (4)  |                                   |   | 1.09% |   |
| Alice      M. Campbell                                                    |   |                                                     | 700,000     |  (5)  |                                   |   | 0.91% |   |
| Alan      Morelli                                                         |   |                                                     | 850,000     |  (6)  |                                   |   | 1.10% |   |
| David      M. Kaye                                                        |   |                                                     | 600,000     |  (7)  |                                   |   | 0.78% |   |
| Dennis      Pelino                                                        |   |                                                     | 36,852,777  |  (8)  |                                   |   | 46.22% |   |
| TWK      Holdings, LLC                                                    |   |                                                     | 12,000,000  |  (9)  |                                   |   | 13.62% |   |
| China      Youth Net Technology (Beijing) Co., Ltd.                       |   |                                                     | 71,020,000  |  (10) |                                   |   | 48.28% |   |
| All      named executive officers and directors as a group (5    persons) |   |                                                     | 100,502,352 |       |                                   |   | 64.83% |   |

| (1)    | Except      as otherwise indicated, the address of each beneficial owner is c/o China      Youth Media, Inc., 4143 Glencoe Avenue, Marina Del Rey, CA      90292.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|-----------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| (2)    | Applicable      percentage ownership is based on 76,078,439 shares of common stock      outstanding as of March 27, 2009 plus, for each stockholder, any      securities that stockholder has the right to acquire within 60 days of      March 27, 2009 pursuant to options, warrants, conversion privileges or      other rights. Beneficial ownership is determined in accordance with the      rules of the Securities and Exchange Commission and generally includes      voting or investment power with respect to securities. Shares of common      stock that a person has the right to acquire beneficial ownership of upon      the exercise or conversion of options, convertible stock, warrants or      other securities that are currently exercisable or convertible or that      will become exercisable or convertible within 60 days of March 27, 2009      are deemed to be beneficially owned by the person holding such securities      for the purpose of computing the percentage of ownership of such person,      but are not treated as outstanding for the purpose of computing the      percentage ownership of any otherperson. |

**40**

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| (3)     | Includes:      (a) 19,086,372 shares held by Rebel  Holdings, LLC ("Rebel Holdings")      of which Mr. Rifkin is the sole managing member; (b) 2,421,292 shares      which are directly held by Mr. Rifkin; (c) 1,666,666 shares issuable upon      conversion of a $150,000 principal amount convertible note held by Mojo      Music, Inc. of which Mr. Rifkin is the sole managing member, with a      conversion price of $0.09 per share; (d) 525,000 shares issuable upon      exercise of stock warrants with an exercise price of $0.09 per share; (e)      69,268,233 shares issuable upon conversion of a $2,078,047 principal      amount secured convertible note held by Rebel Holdings of which Mr. Rifkin      is the sole managing member, with a conversion price of $0.03 per share;      (f) 4,400,000 shares issuable upon exercise of stock options with an      exercise price of $0.85 per share, which stock options vest annually over      a period of three years from December 30, 2006; and (g) 150,000 shares      issuable upon exercise of stock options with an exercise price of $0.20      per share, which stock options vest annually over a period of three years      from November 8, 2007. Mr. Rifkin’s reported beneficial ownership does not      include certain shares of common stock issued and issuable      for which certain shareholders have granted Mr. Rifkin an irrevocable      proxy to vote for certain directors. |
|------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| (4)     | Includes      (a) 50,000 shares owned by Mr. Horne; (b) 400,000 shares issuable upon      exercise of stock options with an exercise price of $0.25 per share and an      expiration date 18 months from the date Mr. Horne’s services terminate;      (c) 150,000 shares issuable upon exercise of stock options with an      exercise price of $0.20 per share which stock options vest annually over a      period of four years from November 8, 2007; and (d) 234,789 shares      issuable upon conversion of a $5,000 principal demand promissory note and      interest accrued totaling approximately $813 and various other amounts      owed to Mr. Horne totaling approximately $1,231 with a conversion price of      $0.03 per share. Mr. Horne has granted Mr. Rifkin an irrevocable proxy to      vote the shares of common stock issuable upon exercise of such stock      options for certain directors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| (5)     | Represents      (a) 350,000 shares issuable upon exercise of stock options with an      exercise price of $0.25 per share and an expiration date 18 months from      the date Ms. Campbell’s services terminate; (b) 150,000 shares issuable      upon exercise of stock options with an exercise price of $0.20 per share      which stock options vest annually over a period of four years from      November 8, 2007; and (c) 200,000 shares issuable upon conversion of      amounts owed to Ms. Campbell as fees for services as the Audit Committee      Chairwoman totaling $6,000 with a conversion price of $0.03 per share. Ms.      Campbell has granted Mr. Rifkin an irrevocable proxy to vote the shares of      common stock issuable upon exercise of such stock options for certain      directors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| (6)     | Includes:      (a) options to purchase 350,000 shares of common stock with an exercise      price of $1.50 per share, which stock options vest annually over a period      of three years from March 26, 2006; (b) 250,000 shares issuable upon      exercise of warrants with an exercise price of $0.145 per share and an      expiration date of September 15, 2010, and (c) options to purchase 250,000      shares of common stock with an exercise price of $0.14 per share, which      stock options vest annually over a period of four years from August 8,      2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| (7)     | Includes      (a) options to purchase 350,000 shares of common stock with an exercise      price of $1.50 per share, which stock options vest annually over a period      of three years from March 26, 2006; and (b) options to purchase 250,000      shares issuable upon exercise of stock options with an exercise price of      $0.20 per share which stock options vest annually over a period of four      years from November 8, 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| (8)     | Includes                  (a) 10,000,000 shares which are directly held by Mr. Pelino; (b)                  7,000,000 shares which are held by New China Media LLC of which Mr.                  Pelino is the sole managing member; (c) 16,200,000 shares which are held                  by Year of the Golden Pig LLC (“YGP”) of which Mr. Pelino is the sole                  managing member; (d) 2,777,777 shares issuable upon conversion of a                  $250,000 principal amount of a convertible note held by YGP; and (e)                  875,000 shares issuable upon exercise of stock warrants with an exercise                  price of $0.09 per share.   The address for Dennis Pelino                  is 400 Alton Road Suite 3107, Miami Beach, FL 33129.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| (9)     | Represents                  12,000,000 shares issuable upon conversion of 12,000 shares of Series A                  Convertible Preferred Stock issued to TWK Holdings, LLC.  Its                  address is 3 Lorong Bukit Candan 3, Taman Impian Batu 4 1/2, Jalan IPOH,                  51100 KL, Malaysia.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| (10)    | Represents                  71,020,000 shares issuable upon conversion of 71,020 shares of Series A                  Convertible Preferred Stock issued to three designees of China Youth Net                  Technology (Beijing) Co., Ltd.  Its address is 16th/F, Changbao                  Plaza, 1 An Hua Bei Li, Guangqumennei Street, Chongwen District, Beijing,                  China.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |

**41**

----

|                                                            |   | Number of securities to beissued upon exercise ofoutstanding options,warrants and rights |      |   | Weighted averageexercise price ofoutstanding options,warrants and rights |   |   | Number of securities remainingavailable for future issuanceunder equity compensationplans (excluding securitiesreflected in column (a)) |   |
|-----------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------|-----------|--------|--------------------------------------------------------------------------------------------------------|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| Plan      category                                              |   | (a)                                                                                                                                        |      |   | (b)                                                                                                    |   |   | (c)                                                                                                                                                                                                      |   |
| Equity      compensation plans approved by security holders     |   |                                                                                                                                       | 6,983,333 |   |                                                                                                   | $      | 0.74   |                                                                                                                                                                                                     |   |   | 8,016,667 |   |
| Equity      compensation plans not approved by security holders |   |                                                                                                                                       | 550,000   |   |                                                                                                   | $      | 0.18   |                                                                                                                                                                                                     |   |   | -0- |   |
| Total                                                           |   |                                                                                                                                       | 7,533,333 |   |                                                                                                   | $      | 0.70   |                                                                                                                                                                                                     |   |   | 8,016,667 |   |

**42**

----

**43**

----

**44**

----

| ExhibitNumber |   | Description                                                                                                                                                                                                                                                                                                                                    |
|---------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|          |   |                                                                                                                                                                                                                                                                                                                                           |
| 2.1           |   | Stock      Purchase Agreement dated as of December 20, 2005 among Digicorp, Rebel      Crew Films, Inc., Rebel Holdings, LLC and Cesar Chatel (Incorporated by      reference to the Company’s Form 8-K filed with the Securities and Exchange      Commission on December 21, 2005)                                                     |
|          |   |                                                                                                                                                                                                                                                                                                                                           |
| 2.2           |   | Letter      Agreement dated December 20, 2005 among Digicorp, Rebel Crew Films, Inc.,      Rebel Holdings, LLC and Cesar Chatel (Incorporated by reference to the      Company’s Form 8-K filed with the Securities and Exchange Commission on      December 21, 2005)                                                                   |
|          |   |                                                                                                                                                                                                                                                                                                                                           |
| 2.3           |   | Purchaser      and Company Disclosure Schedules to Stock Purchase Agreement dated as of      December 20, 2005 among Digicorp, Rebel Crew Films, Inc., Rebel Holdings,      LLC and Cesar Chatel (Incorporated by reference to the Company’s Form 8-K      filed with the Securities and Exchange Commission on January 5,      2006)    |
|          |   |                                                                                                                                                                                                                                                                                                                                           |
| 3.1           |   | Articles      of Incorporation (Utah) (Incorporated by reference to the Company’s      registration statement on Form 10-SB (File No. 000-33067) filed with the      Securities and Exchange Commission on August 9, 2001)                                                                                                               |
|          |   |                                                                                                                                                                                                                                                                                                                                           |
| 3.2           |   | Certificate      of Incorporation of Digicorp, Inc. (Delaware) (Incorporated by reference      to the Company’s quarterly report on Form 10-QSB for the quarter ended      September 30, 2006, filed with the Securities and Exchange Commission on      December 13, 2006)                                                              |
|          |   |                                                                                                                                                                                                                                                                                                                                           |
| 3.3           |   | State      of Utah Articles of Merger of Digicorp, a Utah corporation, into Digicorp,      Inc., a Delaware corporation (Incorporated by reference to the Company’s      quarterly report on Form 10-QSB for the quarter ended September 30, 2006,      filed with the Securities and Exchange Commission on December 13,      2006)     |
|          |   |                                                                                                                                                                                                                                                                                                                                           |
| 3.4           |   | State      of Delaware Articles of Merger of Digicorp, a Utah corporation, into      Digicorp, Inc., a Delaware corporation (Incorporated by reference to the      Company’s quarterly report on Form 10-QSB for the quarter ended September      30, 2006, filed with the Securities and Exchange Commission on December      13, 2006) |

**45**

----

| 3.5    |   | Certificate      of Designation filed with the State of Delaware on May 23, 2008,      authorizing our Series A Convertible Preferred Stock consisting of 500,000      shares, each of $.001 par value (Incorporated by reference to the      Company's Form 8-K filed with the Securities and Exchange Commission on      June 4, 2008)                                                                                                                                                                                                                                                                                                                                                      |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 3.6    |   | Certificate      of Amendment to our Certificate of Incorporation filed with the Secretary      of State of Delaware effective as of October 16, 2008 authorizing the      increase of the number of our authorized shares of Common Stock, par value      $.001 per share, from 60,000,000 to 500,000,000 and the number of our      authorized shares of Preferred Stock, par value $.001 per share, from      1,000,000 to 2,000,000, and our name change from “Digicorp, Inc.” to      “China Youth Media, Inc.” (Incorporated by reference to the Company's Form      8-K filed with the Securities and Exchange Commission on October 16,      2008)  |
| 3.7    |   | Bylaws      (Incorporated by reference to the Company’s registration statement on Form      10-SB (File No. 000-33067) filed with the Securities and Exchange      Commission on August 9, 2001)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 3.8    |   | Amendment      No. 1 to Bylaws (Incorporated by reference to the Company’s Form 8-K filed      with the Securities and Exchange Commission on July 21,    2005)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.1    |   | Secured      Convertible Note due December 19, 2010 in the principal amount of      $556,306.53 issued to Rebel Crew Holdings, LLC (Incorporated by reference      to the Company’s Form 8-K filed with the Securities and Exchange      Commission on January 5, 2006)                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.2    |   | Promissory      Note due June 30, 2006 in the principal amount of $73,000 issued to Jay      Rifkin (Incorporated by reference to the Company’s Form 8-K filed with the      Securities and Exchange Commission on January 5, 2006)                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.3    |   | Revolving      Line of Credit dated and effective as of March 23, 2006 by and between      Ault Glazer Bodnar Acquisition Fund LLC and Digicorp (Incorporated by      reference to the Company’s Form 8-K filed with the Securities and Exchange      Commission on April 10, 2006)                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.4    |   | Form      of Demand Promissory Note issued at various times by Digicorp to Jay      Rifkin for loans made by Jay Rifkin from July 2006 to date (Incorporated      by reference to the Company’s annual report on Form 10-KSB for the fiscal      year end December 31, 2006 filed with the Securities and Exchange      Commission on April 17, 2007).                                                                                                                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.5    |   | Demand      Promissory Note in the principal amount of $5,000 issued July 13, 2006 to      William Horne (Incorporated by reference to the Company’s quarterly report      on Form 10-QSB for the quarter ended June 30, 2006, filed with the      Securities and Exchange Commission on August 21, 2006)                                                                                                                                                                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 9.1    |   | Voting      Agreement dated December 29, 2005 by and among Jay Rifkin and the      stockholders of Digicorp listed on the signature pages thereto      (Incorporated by reference to the Company’s Form 8-K filed with the      Securities and Exchange Commission on January 5, 2006)                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.1   |   | Securities      Purchase Agreement dated December 29, 2005 by and among Rebel Holdings,      LLC and Digicorp (Incorporated by reference to the Company’s Form 8-K      filed with the Securities and Exchange Commission on January 5,      2006)                                                                                                                                                                                                                                                                                                                                                                                                                                      |

**46**

----

| 10.2   |   | Assignment      Agreement dated December 29, 2005 by and among Rebel Holdings, LLC,      Digicorp and Rebel Crew Films, Inc. (Incorporated by reference to the      Company’s Form 8-K filed with the Securities and Exchange Commission on      January 5, 2006)                                                                                                                                                                     |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.3   |   | Security      Agreement dated December 29, 2005 by and among Digicorp and Rebel Crew      Holdings, LLC (Incorporated by reference to the Company’s Form 8-K filed      with the Securities and Exchange Commission on January 5,      2006)                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.4   |   | Digicorp      Stock Option and Restricted Stock Plan (Incorporated by reference to the      Company’s Form 8-K filed with the Securities and Exchange Commission on      December 22, 2005)                                                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.5   |   | Employment      Agreement effective as of September 30, 2005 by and between Digicorp and      Jay Rifkin (Incorporated by reference to the Company’s Form 8-K filed with      the Securities and Exchange Commission on January 5,  2006)                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.6   |   | Standard      Industrial/Commercial Multi-Tenant Lease dated July 18, 2005 between The      Welk Group, Inc. and Rebel Crew Films, Inc. (Incorporated by reference to      the Company’s Form 8-K filed with the Securities and Exchange Commission      on January 5, 2006)                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.7   |   | Subscription      Agreement made as of April 20, 2006 by and between Digicorp and MLPF&S      Custodian, FBO William B. Horne, IRA ((Incorporated by reference to the      Company’s Form 8-K filed with the Securities and Exchange Commission on      April 24, 2006)                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.8   |   | Placement      Agreement dated April 26, 2006 between Digicorp and Ault Glazer Bodnar      Securities LLC (Incorporated by reference to the Company’s Form 8-K filed      with the Securities and Exchange Commission on April 27,    2006)                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.9   |   | Content      License Agreement dated June 2, 2008 by and between Digicorp, Inc. and New      China Media, LLC, YGP, LLC and TWK Holdings, LLC (Incorporated by      reference to the Company's Form 8-K filed with the Securities and Exchange      Commission on June 4, 2008)                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.10  |   | Supply      Agreement for Content dated May 31, 2008 by and between Youth Media (Hong      Kong) Limited, a subsidiary of the Company, Yes Television (Hong Kong)      Limited, and New China Media LLC (Incorporated by reference to the      Company's Form 8-K filed with the Securities and Exchange Commission on      June 4, 2008)                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.11  |   | Cooperation      Agreement effective as of June 10, 2008 by and between Youth Media (Hong      Kong) Limited, a subsidiary of the Company, China Youth Net Technology      (Beijing) Co., Ltd., China Youth Interactive Cultural Media (Beijing) Co.,      Ltd. and China Youth Net Advertising Co. Ltd. (Incorporated by reference      to the Company's Form 8-K filed with the Securities and Exchange      Commission on June 16, 2008) |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.12  |   | Loan      Consolidation and Amendment to Security Agreement dated as of September      10, 2008 among Digicorp, Inc., Rebel Holdings, LLC and Jay Rifkin      (Incorporated by reference to the Company's Form 8-K filed with the      Securities and Exchange Commission on September 19,  2008)                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.13  |   | Secured      Convertible Consolidated Promissory Note between Digicorp, Inc. and Rebel      Holdings, LLC, dated September 10, 2008 (Incorporated by reference to the      Company's Form 8-K filed with the Securities and Exchange Commission on      September 19, 2008).                                                                                                                                                                |

**47**

----

| 14.1   |   | Code      of Ethics (Incorporated by reference to the Company’s annual report on      Form 10-KSB for the fiscal year ended June 30, 2005, filed with the      Securities and Exchange Commission on September 28,  2005) |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                            |
| 21.1*  |   | Subsidiaries      of the Registrant                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                            |
| 31.1*  |   | Certification      by Chief Executive Officer, required by Rule 13a-14(a) or Rule 15d-14(a)      of the Exchange Act                                                                                                            |
|   |   |                                                                                                                                                                                                                            |
| 31.2*  |   | Certification      by Chief Financial Officer, required by Rule 13a-14(a) or Rule 15d-14(a)      of the Exchange Act                                                                                                            |
|   |   |                                                                                                                                                                                                                            |
| 32.1*  |   | Certification      by Chief Executive Officer, required by Rule 13a-14(b) or Rule 15d-14(b)      of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the      United States Code                                  |
|   |   |                                                                                                                                                                                                                            |
| 32.2*  |   | Certification      by Chief Financial Officer, required by Rule 13a-14(b) or Rule 15d-14(b)      of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the      United States Code                                  |

**48**

----

|                      |   | CHINA      YOUTH MEDIA, INC. |
|---------------------------|--------|------------------------------|
|                      |   |                         |
| Date:      April 10, 2009 | By:    | /s/      Jay Rifkin          |
|                      |   | Jay      Rifkin              |
|                      |   | Chief      Executive Officer |

| Signature                  |   | Title                                                                                                                                                |   | Date                |
|----------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|
|                       |   |                                                                                                                                                 |   |                |
| /s/      Jay Rifkin        |   |                                                                                                                                                 |   |                |
| Jay      Rifkin            |   | Chief      Executive Officer and Director      (Principal Executive Officer,      Principal Financial Officer      and Principal Accounting Officer) |   | April      10, 2009 |
|                       |   |                                                                                                                                                 |   |                |
| /s/      William B. Horne  |   |                                                                                                                                                 |   |                |
| William      B. Horne      |   | Director                                                                                                                                             |   | April      10, 2009 |
|                       |   |                                                                                                                                                 |   |                |
| /s/      Alice M. Campbell |   |                                                                                                                                                 |   |                |
| Alice      M. Campbell     |   | Director                                                                                                                                             |   | April      10, 2009 |
|                       |   |                                                                                                                                                 |   |                |
| /s/      Alan Morelli      |   |                                                                                                                                                 |   |                |
| Alan      Morelli          |   | Director                                                                                                                                             |   | April      10, 2009 |
|                       |   |                                                                                                                                                 |   |                |
| /s/      David M. Kaye     |   |                                                                                                                                                 |   |                |
| David      M. Kaye         |   | Director                                                                                                                                             |   | April      10, 2009 |
|                       |   |                                                                                                                                                 |   |                |

**49**

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| **China Youth Media, Inc.**           |
|---------------------------------------|
| **Consolidated Financial Statements** |
|                                       |
| **Table of Contents**                 |

|  |  |                                                         | Page  |
|--|--|---------------------------------------------------------|-------|
|  |  | Report of Independent Registered Public Accounting Firm | 51    |
|  |  |                                                         |       |
|  |  | Consolidated Balance Sheets                             | 52    |
|  |  | Consolidated Statements of Operations                   | 53    |
|  |  | Consolidated Statements of Cash Flows                   | 54    |
|  |  | Consolidated Statements of Stockholders’ Equity   | 55    |
|  |  |                                                         |       |
|  |  | Notes to the Consolidated Financial Statements          | 56-77 |

**50**

----

**REPORT OF INDEPENDENT  REGISTERED PUBLIC ACCOUNTING FIRM**

To the Board of Directors and Stockholders  Of China Youth Media, Inc.

We have audited the accompanying consolidated balance sheet of China Youth Media, Inc. (Company) as of December 31, 2008 and 2007, and the related consolidated  statement of income, stockholders’ equity (deficit), and cash flows for the two years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration  of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of China Youth Media, Inc. as of December 31, 2008 and 2007 and the results of their operations and their cash flows for the two years then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed further in Note 1, the Company has incurred significant losses.  The Company’s viability is dependent upon its ability to obtain future financing and the success of its future operations.  These factors raise substantial doubt about the  Company’s ability to continue as a going concern.  Management’s plan in regard to these matters is also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Tarvaran Askelson & Company, LLP

Laguna Niguel, CaliforniaApril 10, 2008

**51**

----

| CHINA YOUTH MEDIA, INC. |
|-------------------------|

----

|                                                                                                                                                                                                                     |   | December      31, |        |   | December      31, |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|-------------|--------|-------------------|--------|
|                                                                                                                                                                                                                     |   | 2008              |        |   | 2007              |        |
|                                                                                                                                                                                                                          |        |                   |             |        |                   |        |
| ASSETS                                                                                                                                                                                                                   |   |              |        |   |              |   |
|                                                                                                                                                                                                                     |   |              |        |   |              |   |
| CURRENT      ASSETS                                                                                                                                                                                                      |   |              |        |   |              |   |
|                                                                                                                                                                                                                     |   |              |        |   |              |   |
| Cash      and cash equivalents                                                                                                                                                                                           |   | $                 | 34,425      |   |              | $      | 5,600 |   |
| Accounts      receivable, net                                                                                                                                                                                            |   |              | 161,604     |   |              |   | 304,841 |   |
| Inventories                                                                                                                                                                                                              |   |              | —     |   |              |   | 15,436 |   |
| Other      current assets                                                                                                                                                                                                |   |              | 112,500     |   |              |   | 19,865 |   |
| TOTAL      CURRENT ASSETS                                                                                                                                                                                                |   |              | 308,529     |   |              |   | 345,742 |   |
|                                                                                                                                                                                                                     |   |              |        |   |              |   |   |   |
| Property      and equipment, net                                                                                                                                                                                         |   |              | 16,778      |   |              |   | 170,767 |   |
| Intangible      assets, net                                                                                                                                                                                              |   |              | 8,537,503   |   |              |   | 394,935 |   |
| Other      Assets                                                                                                                                                                                                        |   |              | 98,968      |   |              |   | — |   |
|                                                                                                                                                                                                                     |   |              |        |   |              |   |   |   |
| TOTAL      ASSETS                                                                                                                                                                                                        |   | $                 | 8,961,778   |   |              | $      | 911,444 |   |
|                                                                                                                                                                                                                     |   |              |        |   |              |   |   |   |
| LIABILITIES      AND STOCKHOLDERS' EQUITY (DEFICIT)                                                                                                                                                                      |   |              |        |   |              |   |   |   |
|                                                                                                                                                                                                                     |   |              |        |   |              |   |   |   |
| CURRENT      LIABILITIES                                                                                                                                                                                                 |   |              |        |   |              |   |   |   |
|                                                                                                                                                                                                                     |   |              |        |   |              |   |   |   |
| Accounts      payable                                                                                                                                                                                                    |   | $                 | 197,582     |   |              | $      | 342,842 |   |
| Accrued      liabilities                                                                                                                                                                                                 |   |              | 848,006     |   |              |   | 575,601 |   |
| Note      payable - related party                                                                                                                                                                                        |   |              | 5,000       |   |              |   | 1,068,000 |   |
| Deferred      revenue                                                                                                                                                                                                    |   |              | —     |   |              |   | 69,672 |   |
|                                                                                                                                                                                                                     |   |              |        |   |              |   |   |   |
| TOTAL      CURRENT LIABILITIES                                                                                                                                                                                           |   |              | 1,050,588   |   |              |   | 2,056,115 |   |
|                                                                                                                                                                                                                     |   |              |        |   |              |   |   |   |
| LONG      TERM LIABILITIES                                                                                                                                                                                               |   |              |        |   |              |   |   |   |
|                                                                                                                                                                                                                     |   |              |        |   |              |   |   |   |
| Convertible      notes payable - related party                                                                                                                                                                           |   |              | 2,228,047   |   |              |   | 556,307 |   |
| Convertible      note payable                                                                                                                                                                                            |   |              | 250,000     |   |              |   | — |   |
| Note      payable                                                                                                                                                                                                        |   |              | 100,000     |   |              |   |   |   |
| Debt      discount - beneficial conversion feature                                                                                                                                                                       |   |              | (207,489    | )      |              |   | (116,216 | ) |
|                                                                                                                                                                                                                     |   |              |        |   |              |   |   |   |
| TOTAL      LONG TERM LIABILITIES                                                                                                                                                                                         |   |              | 2,370,558   |   |              |   | 440,091 |   |
|                                                                                                                                                                                                                     |   |              |        |   |              |   |   |   |
| TOTAL      LIABILITIES                                                                                                                                                                                                   |   |              | 3,421,146   |   |              |   | 2,496,206 |   |
|                                                                                                                                                                                                                     |   |              |        |   |              |   |   |   |
| STOCKHOLDERS'      EQUITY (DEFICIT)                                                                                                                                                                                      |   |              |        |   |              |   |   |   |
|                                                                                                                                                                                                                     |   |              |        |   |              |   |   |   |
| Preferred      stock, $0.001 par value: 2,000,000 shares authorized;                                                                                                                                                     |   |              |        |   |              |   |   |   |
| Series      A Preferred Stock, $0.001 par value; 500,000 shares      authorized; 83,020 shares issued and outstanding at December 31,      2008; Zero shares issued and outstanding at December 31,      2007; |   |              | 83          |   |              |   | — |   |
| Common      stock, $0.001 par value: 500,000,000 shares authorized; 71,828,439      shares issued and outstanding at December 31, 2008; 39,545,104 shares      issued and outstanding at December 31, 2007;    |   |              | 71,828      |   |              |   | 39,545 |   |
| Paid-in      capital                                                                                                                                                                                                     |   |              | 16,313,219  |   |              |   | 6,243,079 |   |
| Accumulated      deficit                                                                                                                                                                                                 |   |              | (10,844,498 | )      |              |   | (7,867,386 | ) |
|                                                                                                                                                                                                                     |   |              |        |   |              |   |   |   |
| TOTAL      STOCKHOLDERS' EQUITY (DEFICIT)                                                                                                                                                                                |   |              | 5,540,632   |   |              |   | (1,584,762 | ) |
|                                                                                                                                                                                                                     |   |              |        |   |              |   |   |   |
| TOTAL      LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                                                                                                                                                                |   | $                 | 8,961,778   |   |              | $      | 911,444 |   |

----

**52**

----

| CHINA YOUTH MEDIA, INC. |
|-------------------------|

----

|                                              |   | Years      Ended  |       |
|---------------------------------------------------|--------|-------------------|------------|
|                                              |   | December      31, |       |   | December      31, |   |
|                                              |   | 2008              |       |   | 2007 |   |
|                                              |   |              |       |   |   |   |
|                                              |   |              |       |   |   |   |
| REVENUE                                           |   |              |       |   |   |   |
|                                              |   |              |       |   |   |   |   |   |
| Sales                                             |   | $                 | 106,898    |   |   | $ | 592,365 |   |
|                                              |   |              |       |   |   |   |   |   |
| Total      revenue                                |   |              | 106,898    |   |   |   | 592,365 |   |
|                                              |   |              |       |   |   |   |   |   |
| OPERATING      EXPENSES                           |   |              |       |   |   |   |   |   |
|                                              |   |              |       |   |   |   |   |   |
| Cost      of sales                                |   |              | 54,678     |   |   |   | 196,895 |   |
| Selling,      general and administrative expenses |   |              | 2,533,725  |   |   |   | 2,602,751 |   |
|                                              |   |              |       |   |   |   |   |   |
| Total      operating expenses                     |   |              | 2,588,403  |   |   |   | 2,799,646 |   |
|                                              |   |              |       |   |   |   |   |   |
| Operating      loss                               |   |              | (2,481,505 | ) |   |   | (2,207,281 | ) |
|                                              |   |              |       |   |   |   |   |   |
| Other      Income (expense)                       |   |              |       |   |   |   |   |   |
| Interest      expense                             |   |              | (274,332   | ) |   |   | (179,849 | ) |
| Rental      Income                                |   |              | 148,103    |   |   |   |   |   |
| Loss      on Abandonment                          |   |              | (130,317   | ) |   |   | — |   |
| Loss      on Impairment Goodwill                  |   |              | (132,200   | ) |   |   | — |   |
| Loss      on Impairment IP Holdings               |   |              | (106,861   | ) |   |   | — |   |
|                                              |   |              |       |   |   |   |   |   |
| Total      other income (expense)                 |   |              | (495,607   | ) |   |   | (179,849 | ) |
|                                              |   |              |       |   |   |   |   |   |
|                                              |   |              |       |   |   |   |   |   |
| LOSS      BEFORE INCOME TAXES                     |   |              | (2,977,112 | ) |   |   | (2,387,130 | ) |
|                                              |   |              |       |   |   |   |   |   |
| PROVISION      FOR INCOME TAXES                   |   |              | —    |   |   |   | 1,600 |   |
|                                              |   |              |       |   |   |   |   |   |
| NET      LOSS                                     |   | $                 | (2,977,112 | ) |   | $ | (2,388,730 | ) |
|                                              |   |              |       |   |   |   |   |   |
| BASIC      AND DILUTED NET LOSS PER COMMON SHARE  |   | $                 | (0.06      | ) |   | $ | (0.06 | ) |
|                                              |   |              |       |   |   |   |   |   |
| WEIGHTED      AVERAGE COMMON SHARES OUTSTANDING   |   |              | 49,254,577 |   |   |   | 38,573,023 |   |

----

**53**

----

| CHINA YOUTH MEDIA, INC. |
|-------------------------|

----

|                                                                                  |   | Years      Ended  |       |
|---------------------------------------------------------------------------------------|--------|-------------------|------------|
|                                                                                  |   | December      31, |       |   | December      31, |   |
|                                                                                  |   | 2008              |       |   | 2007 |   |
| Cash      flows from operating activities:                                            |   |              |       |   |   |   |
| Net      loss                                                                         |   | $                 | (2,977,112 | ) |   | $ | (2,388,730 | ) |
| Adjustments      to reconcile net loss to net cash used in operating      activities: |   |              |       |   |   |   |   |   |
| Loss      on Abandonment                                                              |   |              | 130,317    |   |   |   | — |   |
| Loss      on Impairment of Goodwill                                                   |   |              | 132,200    |   |   |   | — |   |
| Loss      on Impairment of IP Holdings                                                |   |              | 106,861    |   |   |   | — |   |
| Depreciation                                                                          |   |              | 27,202     |   |   |   | 85,854 |   |
| Amortization      of licenses                                                         |   |              | 820,182    |   |   |   | 144,845 |   |
| Amortization      of debt discount                                                    |   |              | 135,078    |   |   |   | 38,739 |   |
| Stock-based      compensation to employees and directors                              |   |              | 162,654    |   |   |   | 1,209,875 |   |
| Changes      in operating assets and liabilities:                                     |   |              |       |   |   |   |   |   |
| Accounts      receivable                                                              |   |              | 143,237    |   |   |   | (246,302 | ) |
| Inventories                                                                           |   |              | 15,436     |   |   |   | 35,269 |   |
| Other      assets                                                                     |   |              | 33,397     |   |   |   | 9,294 |   |
| Accounts      payable and accrued liabilities                                         |   |              | 413,885    |   |   |   | 262,562 |   |
| Deferred      revenue                                                                 |   |              | (69,672    | ) |   |   | — |   |
|                                                                                  |   |              |       |   |   |   |   |   |
| Net      cash used in operating activities                                            |   |              | (926,335   | ) |   |   | (848,594 | ) |
|                                                                                  |   |              |       |   |   |   |   |   |
| Cash      flows from investing activities:                                            |   |              |       |   |   |   |   |   |
|   Purchases      of licenses and developed content                          |   |              | —    |   |   |   | (12,000 | ) |
|   Purchases      of property and equipment                                  |   |              | (3,530     | ) |   |   | (2,766 | ) |
|   Purchases      of intangible assets                                       |   |              | (2,010     | ) |   |   | — |   |
|                                                                                  |   |              |       |   |   |   |   |   |
| Net      cash used in investing activities                                            |   |              | (5,540     | ) |   |   | (14,766 | ) |
|                                                                                  |   |              |       |   |   |   |   |   |
| Cash      flows from financing activities:                                            |   |              |       |   |   |   |   |   |
|   Proceeds      from issuance of common stock                               |   |              | 347,500    |   |   |   | 270,610 |   |
|   Proceeds      from issuance of preferred stock                            |   |              | 31,200     |   |   |   |   |   |
|   Proceeds      from issuance of convertible notes                          |   |              | 250,000    |   |   |   | — |   |
|   Proceeds      from issuance of convertible note related party             |   |              | 232,000    |   |   |   | — |   |
| Proceeds      from related party note                                                 |   |              | —    |   |   |   | 595,000 |   |
|   Proceeds      from note                                                   |   |              | 100,000    |   |   |   | — |   |
|                                                                                  |   |              |       |   |   |   |   |   |
| Net      cash provided by financing activities                                        |   |              | 960,700    |   |   |   | 865,610 |   |
|                                                                                  |   |              |       |   |   |   |   |   |
| Net      increase (decrease) in cash and cash equivalents                             |   |              | 28,825     |   |   |   | 2,250 |   |
|                                                                                  |   |              |       |   |   |   |   |   |
| Cash      and cash equivalents at beginning of period                                 |   |              | 5,600      |   |   |   | 3,350 |   |
|                                                                                  |   |              |       |   |   |   |   |   |
| Cash      and cash equivalents at end of period                                       |   | $                 | 34,425     |   |   | $ | 5,600 |   |
|                                                                                  |   |              |       |   |   |   |   |   |
| Supplemental      disclosures of cash flow information:                               |   |              |       |   |   |   |   |   |
|                                                                                  |   |              |       |   |   |   |   |   |
| Cash      paid for income taxes                                                       |   | $                 | —    |   |   | $ | 1,600 |   |
| Interest      paid                                                                    |   | $                 | —    |   |   | $ | — |   |
|                                                                                  |   |              |       |   |   |   |   |   |
| Non-cash      investing and financing activity:                                       |   |              |       |   |   |   |   |   |
|                                                                                  |   |              |       |   |   |   |   |   |
| Beneficial      conversion feature                                                    |   | $                 | 226,352    |   |   | $ | 50,000 |   |
| Acquisition      of intangible assets for stock                                       |   | $                 | 9,199,800  |   |   | $ | — |   |

----

**54**

----

| CHINA YOUTH MEDIA, INC. |
|-------------------------|

----

|                                              |   |                     |    |   |              |   |    |    |       |   |        |   |   | Additional          |   |   |      |   |       | Total                 |       |
|---------------------------------------------------|--------|--------------------------|---------|--------|-------------------|--------|---------|---------|------------|--------|-------------|--------|--------|---------------------|--------|--------|-----------|--------|------------|-----------------------|------------|
|                                              |   | Preferred      Stock     |    |   | Common      Stock |   |    | Paid-In |       |   | Accumulated |   |   | Shareholders’ |   |
|                                              |   | Shares                   |    |   | Amount            |   |    | Shares  |       |   | Amount      |   |   | Capital             |   |   | Deficit   |   |       | Equity      (Deficit) |       |
|                                              |   |                     |    |   |              |   |    |    |       |   |        |   |   |                |   |   |           |   |       |                  |       |
| BALANCES,      December 31, 2006                  |   |      |    |   |         |   |    |    | 37,239,002 |   |        | $      | 37,239 |                |   | $      | 4,714,900 |   |       | $                     | (5,478,656 | ) |   | $ | (726,517 | ) |
|                                              |   |                     |    |   |              |   |    |    |       |   |        |   |   |                |   |   |      |   |       |                  |       |   |   |   |   |   |
| Issuance      of common stock                     |   |                     |    |   |              |   |    |    | 2,706,102  |   |        |   | 2,706  |                |   |   | 267,904   |   |       |                  |       |   |   |   | 270,610 |   |
|                                              |   |                     |    |   |              |   |    |    |       |   |        |   |   |                |   |   |      |   |       |                  |       |   |   |   |   |   |
| Beneficial      Conversion Interest               |   |                     |    |   |              |   |    |    |       |   |        |   |   |                |   |   | 50,000    |   |       |                  |       |   |   |   | 50,000 |   |
|                                              |   |                     |    |   |              |   |    |    |       |   |        |   |   |                |   |   |      |   |       |                  |       |   |   |   |   |   |
| Cancelation      of common stock                  |   |                     |    |   |              |   |    |    | (400,000   | )      |        |   | (400   | )                   |   |   | 400       |   |       |                  |       |   |   |   | — |   |
|                                              |   |                     |    |   |              |   |    |    |       |   |        |   |   |                |   |   |      |   |       |                  |       |   |   |   |   |   |
| Compensation      expense, stock option issuances |   |                     |    |   |              |   |    |    |       |   |        |   |   |                |   |   | 1,209,875 |   |       |                  |       |   |   |   | 1,209,875 |   |
|                                              |   |                     |    |   |              |   |    |    |       |   |        |   |   |                |   |   |      |   |       |                  |       |   |   |   |   |   |
| Net      loss                                     |   |                     |    |   |              |   |    |    |       |   |        |   |   |                |   |   |      |   |       |                  | (2,388,730 | ) |   |   | (2,388,730 | ) |
|                                              |   |                     |    |   |              |   |    |    |       |   |        |   |   |                |   |   |      |   |       |                  |       |   |   |   |   |   |
| BALANCES,      December 31, 2007                  |   |                     | — |   |              |   | — |    |       |   | 39,545,104  |   |   | $                   | 39,545 |   |      | $      | 6,243,079  |                  |       | $ | (7,867,386 | )        |   | $ | (1,584,762 | ) |
|                                              |   |                     |    |   |              |   |    |    |       |   |        |   |   |                |   |   |      |   |       |                  |       |   |   |   |   |   |   |   |
| Issuance      of preferred stock                  |   |                     | 83,020  |   |              |   | 83      |    |       |   |        |   |   |                |   |   |      |   | 9,211,717  |                  |       |   |   |   |   |   | 9,211,799 |   |
| Issuance      of common stock                     |   |                     |    |   |              |   |    |    |       |   | 32,283,335  |   |   |                | 32,283 |   |      |   | 469,417    |                  |       |   |   |   |   |   | 501,700 |   |
| Debt      Discount, net effect                    |   |                     |    |   |              |   |    |    |       |   |        |   |   |                |   |   |      |   | 226,352    |                  |       |   |   |   |   |   | 226,352 |   |
| Compensation      expense, stock option issuances |   |                     |    |   |              |   |    |    |       |   |        |   |   |                |   |   |      |   | 162,654    |                  |       |   |   |   |   |   | 162,654 |   |
|                                              |   |                     |    |   |              |   |    |    |       |   |        |   |   |                |   |   |      |   |       |                  |       |   |   |   |   |   |   |   |
| Net      loss                                     |   |                     |    |   |              |   |    |    |       |   |        |   |   |                |   |   |      |   |       |                  |       |   | (2,977,112 | ) |   |   | (2,977,112 | ) |
|                                              |   |                     |    |   |              |   |    |    |       |   |        |   |   |                |   |   |      |   |       |                  |       |   |   |   |   |   |   |   |
| BALANCES,      December 31, 2008                  |   |                     | 83,020  |   |              |   | 83      |    |       |   | 71,828,439  |   |   | $                   | 71,828 |   |      | $      | 16,313,219 |                  |       | $ | (10,844,498 | )   |   | $ | 5,540,632 |   |

----

**55**

----

**56**

----

**57**

----

**58**

----

**59**

----

**60**

----

**61**

----

**62**

----

**63**

----

| Property      and Equipment          |   | December      31, |    |
|--------------------------------------|--------|-------------------|---------|
|                                 |   | 2008              |    |   | 2007 |   |
| Computer      Software and Equipment |   | $                 | 33,846  |   |   | $ | 265,616 |   |
| Office      Furniture and Equipment  |   |              | 6,628   |   |   |   | 6,629 |   |
| Total      Property and Equipment    |   |              | 40,474  |   |   |   | 272,245 |   |
|                                 |   |              |    |   |   |   |   |   |
| Less:      Accumulated Depreciation  |   |              | (23,696 | ) |   |   | (101,478 | ) |
| Property      and Equipment, net     |   | $                 | 16,778  |   |   | $ | 170,767 |   |

**64**

----

| Intangible      Assets                |   | December      31, |      |
|---------------------------------------|--------|-------------------|-----------|
|                                  |   | 2008              |      |   | 2007 |   |
| China      IPTV & Mobile Licenses |   | $                 | 6,391,800 |   |   | $ | – |   |
| YesTV      China IPTV Rights          |   |              | 2,808,000 |   |   |   | – |   |
| Koobee                                |   |              | 2,010     |   |   |   | – |   |
| PerreoRadio      Assets               |   |              | 27,800    |   |   | $ | 160,000 |   |
| Licensed      and Developed Content   |   |              | 283,104   |   |   |   | 677,599 |   |
| Total      Intangible Assets          |   |              | 9,512,714 |   |   |   | 837,599 |   |
|                                  |   |              |      |   |   |   |   |   |
| Less:      Accumulated Amortization   |   |              | (975,211  | ) |   |   | (442,664 | ) |
| Intangible      Assets, net           |   | $                 | 8,537,503 |   |   | $ | 394,935 |   |

**65**

----

| Fiscal      Year Ended                   |      | Amortization |     |
|------------------------------------------|--------------------------|--------------|----------|
| December                        31, 2009 |                     | $            | (660,390 | ) |
| December                        31, 2010 |                     | $            | (660,390 | ) |
| December                        31, 2011 |                     | $            | (660,390 | ) |
| December                        31, 2012 |                     | $            | (660,390 | ) |

| Fiscal      Year Ended                   |      | Amortization |    |
|------------------------------------------|--------------------------|--------------|---------|
| December                        31, 2009 |                     | $            | (16,672 | ) |
| December                        31, 2010 |                     | $            | (10,286 | ) |
| December                        31, 2011 |                     | $            | (2,676  | ) |
| December                        31, 2012 |                     | $            | – |   |

| Deferred      Tax Asset                      |   | December      31, |       |
|----------------------------------------------|--------|-------------------|------------|
|                                         |   | 2008              |       |   | 2007 |   |
| Federal      Net Operating Loss Carryforward |   | $                 | 2,589,137  |   |   | $ | 1,      698,786 |   |
| State      Net Operating Loss Carryforward   |   |              | 671,575    |   |   |   | 441,109 |   |
| Stock      Based Compensation                |   |              | 2,650,593  |   |   |   | 2,      580,912 |   |
| Basis      difference in assets and other    |   |              | 117,810    |   |   |   | - |   |
| Deferred      Revenue                        |   |              | -          |   |   |   | 29,847 |   |
| Beneficial      Conversion Feature           |   |              | (88,888)   |   |   |   | (49,787 | ) |
|                                         |   |              |       |   |   |   |   |   |
| Total      Gross Deferred Tax Asset          |   |              | 5,940,226  |   |   |   | 4,700,867 |   |
| Less      Valuation Allowance                |   |              | (5,940,226 | ) |   |   | (4,700,867 | ) |
|                                         |   |              |       |   |   |   |   |   |
| Net      Deferred Tax Asset                  |   | $                 | -          |   |   | $ | - |   |

**66**

----

| Effective      Tax Rate                                       |   | December      31, |   |
|---------------------------------------------------------------|--------|-------------------|--------|
|                                                          |   | 2008              |   |   | 2007 |   |
| Federal      statutory tax rate                               |   |              | (34    | )% |   |   | (34 | )% |
| State      and local income taxes, net of federal tax benefit |   |              | 0.00   | % |   |   | 0.04 | % |
| Non      deductible items                                     |   |              | 0.08   | % |   |   | 0.05 | % |
| Valuation      allowance                                      |   |              | 33.94  | % |   |   | 33.97 | % |
|                                                          |   |              |   |   |   |   |   |   |
| Total      effective tax rate                                 |   |              | 0.02   | % |   |   | 0.06 | % |

**67**

----

| Accrued      Liabilities               |   | December      31, |    |
|----------------------------------------|--------|-------------------|---------|
|                                   |   | 2008              |    |   | 2007 |   |
| Obligations      on license agreements |   | $                 | 47,595  |   |   | $ | 47,595 |   |
| Accrued      salaries                  |   |              | 330,000 |   |   |   | 353,182 |   |
| Accrued      professional fees         |   |              | 90,000  |   |   |   | - |   |
| Interest                               |   |              | 77,016  |   |   |   | 127,414 |   |
| Deferred      rent expense             |   |              | 25,899  |   |   |   | - |   |
| Sublease      security deposits        |   |              | 32,000  |   |   |   | - |   |
| Accrued      vendor liabilities        |   |              | 200,082 |   |   |   | - |   |
| Other                                  |   |              | 45,414  |   |   |   | 47,410 |   |
|                                   |   | $                 | 848,006 |   |   | $ | 575,601 |   |

**68**

----

**69**

----

**70**

----

**71**

----

| Operating      Lease Payments |      | Minimum      Payments |    |
|-------------------------------|--------------------------|-----------------------|---------|
| 2009                          |                     | $                     | 249,155 |   |
| 2010                          |                     |                  | 239,566 |   |
| 2011                          |                     |                  | 82,757  |   |
| 2013                          |                     |                  | 63,508  |   |
| Total                         |                     | $                     | 634,986 |   |

**72**

----

|                         |   |                           |       |   | Outstanding Options   |   |
|------------------------------|--------|--------------------------------|------------|--------|-----------------------|--------|
|                         |   | SharesAvailable      for Grant |       |   | Number      of Shares |   |   | Weighted      Average      Exercise      Price |   |   | Weighted      Average Remaining      Contractual      Life (years) |   |   | Aggregate      Intrinsic      Value |   |
|                         |   |                           |       |   |                  |   |   |   |   |   |   |   |   |   |   |
| December      31, 2006       |   |                           | 5,279,167  |   |                  |   | 9,720,833 |   |   |   | 0.73 |   |   |   | 7.92 |   |   |   | - |   |
| Grants                       |   |                           | (1,570,000 | )      |                  |   | 1,570,000 |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Cancellations                |   |                           | 4,147,500  |   |                  |   | (4,147,500 | ) |   |   | 0.50 |   |   |   | 6.07 |   |   |   | - |   |
|                         |   |                           |       |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| December      31, 2007       |   |                           | 7,856,667  |   |                  |   | 7,143,333 |   |   |   | 0.73 |   |   |   | 7.95 |   |   |   | - |   |
| Grants                       |   |                           | (-         | )      |                  |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Cancellations                |   |                           | 160,000    |   |                  |   | (160,000 | ) |   |   | 0.14 |   |   |   | 8.91 |   |   |   | - |   |
|                         |   |                           |       |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| December      31, 2008       |   |                           | 8,016,667  |   |                  |   | 6,983,333 |   |   |   | 0.74 |   |   |   | 6.91 |   |   |   | - |   |
|                         |   |                           |       |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Options      exercisable at: |   |                           |       |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| December      31, 2006       |   |                           |       |   |                  |   | 4,204,167 |   |   |   | 0.58 |   |   |   | 6.51 |   |   |   | - |   |
| December      31, 2007       |   |                           |       |   |                  |   | 3,941,667 |   |   |   | 0.78 |   |   |   | 8.10 |   |   |   | - |   |
| December      31, 2008       |   |                           |       |   |                  |   | 6,383,333 |   |   |   | 0.80 |   |   |   | 6.80 |   |   |   | - |   |

| Nonvested      Shares               |   | Shares |       |   | Weighted      Average Grant Date      Fair Value |   |
|-------------------------------------|--------|--------|------------|--------|--------------------------------------------------|--------|
| Nonvested      at December 31, 2006 |   |   | 5,516,667  |   |                                             | $      | 0.78 |   |
| Granted                             |   |   | 1,570,000  |   |                                             |   | 0.11 |   |
| Vested                              |   |   | (2,112,500 | )      |                                             |   | 0.73 |   |
| Forfeited                           |   |   | (2,451,667 | )      |                                             |   | 0.53 |   |
| Nonvested      at December 31, 2007 |   |   | 2,522,500  |   |                                             | $      | 0.64 |   |
| Granted                             |   |   | -          |   |                                             |   | - |   |
| Vested                              |   |   | (1,968,750 | )      |                                             |   | 0.77 |   |
| Forfeited                           |   |   | (160,000   | )      |                                             |   | 0.13 |   |
| Nonvested      at December 31, 2008 |   |   | 393,750    |   |                                             | $      | 0.15 |   |

**73**

----

|                                                                     |   | Year      ended December 31, |                |
|--------------------------------------------------------------------------|--------|------------------------------|---------------------|
| Black Scholes Pricing Model Assumptions              |   | 2008                         |                |   | 2007 |   |
| Weighted      average risk free interest rate                            |   |                         | 3.92                | % |   |   | 4.27 | % |
| Weighted      average life (in years)                                    |   |                         | 4.44                |   |   |   | 5 |   |
| Volatility                                                               |   |                         | 138 - 155 | % |   |   | 138 - 155 | % |
| Expected      dividend yield                                             |   |                         | 0                   | % |   |   | 0 | % |
| Weighted      average grant-date fair value per share of options granted |   |                         | 0.65                |   |   |   | 0.56 |   |

**74**

----

**75**

----

| Exercise Price                      |   | Number Outstanding |      |   | Weighted Average Remaining Contractual Life (years) |   |   | Weighted Average Exercise Price |   |   | Number Exercisable |   |   | Weighted Average Exercise Price |      |
|-------------------------------------|--------|--------------------|-----------|--------|-----------------------------------------------------|--------|--------|---------------------------------|--------|--------|--------------------|--------|--------|---------------------------------|-----------|
| $  0.15                   |   |               | 250,000   |   |                                                |   | 0.26   |                            |   | $      | 0.02               |   |   |                            | 250,000   |   |   | $ | 0.02 |   |
| $  0.65                   |   |               | 300,000   |   |                                                |   | 0.27   |                            |   |   | 0.10               |   |   |                            | 300,000   |   |   |   | 0.10 |   |
| $  0.09                   |   |               | 875,000   |   |                                                |   | 2.09   |                            |   |   | 0.04               |   |   |                            | 875,000   |   |   |   | 0.04 |   |
| $  0.09                   |   |               | 525,000   |   |                                                |   | 1.28   |                            |   |   | 0.02               |   |   |                            | 525,000   |   |   |   | 0.02 |   |
| $  0.09 - $0.65 |   |               | 1,950,000 |   |                                                |   | 3.90   |                            |   | $      | 0.18               |   |   |                            | 1,950,000 |   |   | $ | 0.18 |   |

**76**

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**77**

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