U.S.
      SECURITIES AND EXCHANGE COMMISSION


Washington,
      D.C. 20549





**FORM
      10-KSB**





x
            ANNUAL
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
                OF 1934


For
      the
      year ended December 31, 2006





o
            TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
                OF 1934


For
      the
      transition period from _________ to _________








Commission
      File Number: 000-51022





**INTERACTIVE
      TELEVISION NETWORKS, INC.**


(Name
      of
      small business issuer in its charter)





**Nevada**
              (State
                or other jurisdiction of
              incorporation
                or organization)
            **98-0372720**
              (I.R.S.
                Employer
              Identification
                No.)**23241
                Ventura Blvd., Suite 101**
              **Woodland
                Hills, California**
              (Address
                of principal executive offices)
            **91364**
              (Zip
                Code)





Issuer’s
      Telephone Number **:
      (866) 988-4988**





Securities
      registered pursuant to Section 12(b) of the Act: None





Securities
      registered pursuant to Section 12(g) of the Act: Common Stock, $.001 par
      value





Check
      whether the issuer (1) filed all reports required to be filed by
      Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past
      12 months (or for such shorter period that the registrant was required to file
      such reports), and (2) has been subject to such filing requirements for the
      past 90 days.


Yes
x
      No o





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





Issuer’s
      revenues for its most recent year: $1,045,494





The
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates computed by reference to the price at which the common equity
      was
      sold, or the average bid and asked price of such common equity, as of March
      31,
      2007 was approximately $.05 based on the closing sales price reported by the
      OTC
      Bulletin Board on such date.  There
      were 32,573,098 shares of the Company’s common stock outstanding on April
      19, 2007.





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





Transitional
      Small Business Disclosure Format (check one): YES o NO x





DOCUMENTS
      INCORPORATED BY REFERENCE: None.














**TABLE
      OF CONTENTS**




**Part
                I**1.
            Description
                of Business
            12.
            Description
                of Property
            123.
            Legal
                Proceedings
            124.
            Submission
                of Matters to a Vote of Security Holders
            12**Part
                II**5.
            Market
                for Common Equity and Related Stockholder Matters and Small
                Business
              Issuer
                Purchases of Equity Securities
            136.
            Management’s
                Discussion and Analysis or Plan of Operation
            147.
            Financial
                Statements
            328.
            Changes
                In and Disagreements With Accountants on Accounting and Financial
                Disclosure
            328A.
            Controls
                and Procedures
            328B.
            Other
                Information
            32**Part
                III**9.
            Directors
                and Executive Officers of the Registrant
            3310.
            Executive
                Compensation
            3411.
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            3912.
            Certain
                Relationships and Related Transactions
            4213.
            Exhibits
            4314.
            Principal
                Accountant Fees and Services
            46







**Introductory
      Comment**




Throughout
      this Annual Report on Form 10-KSB, the terms “we,” “us,” “our,” and “our
      company” refer to Interactive Television Networks, Inc., a Nevada corporation,
      and, unless the context indicates otherwise, also includes our wholly-owned
      subsidiaries, ITVN, Inc. and ITVN Europe S.A.




**Forward
      Looking Statements**




The
      Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for
      forward-looking statements. This
      annual report contains forward-looking statements within the meaning of the
      federal securities laws. These include statements about our expectations,
      beliefs, intentions or strategies for the future, which we indicate by words
      or
      phrases such as “anticipate,” “expect,” “intend,” “plan,” “will,” “we believe,”
“the company believes,” “management believes” and similar language. The
      forward-looking statements are based on our current expectations and are subject
      to certain risks, uncertainties and assumptions, including those set forth
      in
      the discussion under “Description of Business” and “Management’s Discussion and
      Analysis or Plan of Operation - Factors that May Affect Future Results and
      Market Price of Our Stock.” Our actual results may differ materially from
      results anticipated in these forward-looking statements. We base our
      forward-looking statements on information currently available to us, and we
      assume no obligation to update them. For a discussion of some of the factors
      that may cause actual results to differ materially from those suggested by
      the
      forward-looking statements, please read carefully the information under
“Management’s Discussion and Analysis or Plan of Operation  -
      Factors
      that May Affect Future Results and Market Price of Our Stock.”




**PART
      I**




**ITEM
      1. DESCRIPTION OF BUSINESS.**




**Company
      Overview**




Interactive
      Television Networks, Inc., through our wholly owned subsidiaries, ITVN, Inc.
      and
      ITVN Europe S.A., is engaged in the business of developing, marketing,
      transmitting, and managing television programming over the Internet to
      subscribers who own one of our television set-top boxes. Our technology enables
      us to deliver virtually unlimited channels of live and pre-recorded streaming
      television video and audio content that is tailored for, and targeted to,
      specific audiences as well as the public in general. We have established and,
      since April 2005 have been operating, a proprietary, subscription based network
      of television programming, video on-demand services, and audio services that
      we
      refer to as our “ITVN Service.” Our principal executive offices are located at
      23241 Ventura Boulevard, Suite 101, Woodland Hills, California 91364 and our
      telephone number at that address is ((866) 988-4988. We maintain a website
      at
      www.itvn.com. Information contained on our website does not constitute part
      of
      this report. Our stock is quoted on the OTC Bulletin Board under the symbol
      of
      ITTV.




This
      company, Interactive Television Networks, Inc., was originally incorporated
      under the laws of Nevada and was formerly known as Radium Ventures, Inc. Prior
      to June 2005, Radium Ventures had unsuccessfully tried to operate an internet
      document editing service from Vancouver, Canada. On June 3, 2005, Radium
      Ventures completed a merger in which Radium Ventures, through its wholly-owned
      subsidiary, acquired all of the outstanding shares of ITVN, Inc. In the merger,
      the former stockholders of ITVN, Inc. received 22,117,550 shares of our common
      stock. As a result of the merger, ITVN, Inc. became a wholly owned subsidiary
      of
      Radium Ventures. Following the merger, Radium Ventures changed its name to
      “Interactive Television Networks, Inc.,” replaced its officers and directors
      with those of ITVN, Inc., immediately ceased its internet based document editing
      operations, and moved its offices to Southern California. We currently do not
      plan to conduct any business other than the business, described above, that
      ITVN, Inc. has conducted since its organization. Accordingly, since our prior
      operating results as an Internet document editing business are not indicative
      of, and have no relevance to, our current or future operations or to our
      financial statement, all financial information contained in the enclosed
      financial statements for the periods prior to the Merger are those of
      ITVN.




1




Although
      we acquired ITVN, Inc. in the merger, for accounting purposes, the merger was
      accounted for as a reverse merger since the stockholders of ITVN, Inc. acquired
      a majority of the issued and outstanding shares of our common stock, and the
      directors and executive officers of ITVN, Inc. became our directors and
      executive officers. Accordingly, the financial statements attached as Item
      7 in
      Part II above, and the description of our results of operations and financial
      condition, reflect (i) the operations of ITVN, Inc. alone prior to the merger,
      and (ii) the combined results of this company and ITVN, Inc. since the merger.
      No goodwill was recorded as a result of the merger.




**Revised
      Business Plan/Financial Considerations/Strategic
      Alternatives**




As
      indicated below in this Annual Report, our goal is to become
      a
      leading provider of subscription based, television programming networks
      distributed over the Internet directly to subscribers’ televisions. Until
      recently, our plan was to establish a pay broadcast network of television
      programming providing both general appeal programming targeted at both
      mainstream audiences as well as niche programming targeted at smaller audience
      segments. Our strategy for achieving our goals was to (i) build the physical
      infrastructure for collecting, storing and distributing our programming over
      the
      Internet, (ii) assemble a critical mass of mainstream and niche television
      programming, and (iii) to market these content television networks.




In
      order
      to implement our business plan and attract name brand content providers, we
      invested heavily in establishing our computer servers, video capture equipment,
      satellite reception equipment, and other systems for collecting, converting,
      storing and distributing programming over the Internet. In addition, we have
      also assembled a large and diverse collection of programming to appeal to both
      general audiences and to targeted niche markets. We believe that we have
      succeeded in fully developing our infrastructure for content collection and
      distribution, and our current capabilities are sufficient to meet all of the
      needs of our business plan. We also have had success in assembling a wide
      variety of both mainstream and niche market programming, including for example
      a
      wide variety of mainstream motion pictures (through (i) our Silver Screen
      channel of classic movies, (ii) our two agreements with Starz Entertainment
      Group LLC under which Starz granted to us the rights to offer 15 Starz and
      Encore channels and up to 150 on demand movies per month to our subscribers,
      and
      (iii) our agreement with NBC Universal to make Universal Pictures’ movies
      available to our subscribers), both mainstream and niche sports programming
      (consisting of the Setanta Sports programming featuring European soccer and
      worldwide rugby programming and a lacrosse channel,a karaoke channel, a
      live radio channel, a music video channel, and adult programming.




In
      order
      to fund our operations, including the purchase of set-top boxes, the purchase
      and installation of our programming collection and distribution facilities,
      and
      the various fees related to acquiring some of our programming content, we have
      to date raised a total of $10,350,000 of debt and equity financing. The
      financing that we have obtained includes $4,000,000 from the sale of a 17%
      Secured Convertible Debenture, the issuance of the $1,000,000 of a 16% Secured
      Convertible Debenture, the issuance of the $2,500,000 Variable Rate Secured
      Convertible Debentures, the issuance of an $850,000 Secured Convertible
      Debenture, the sale of $2,000,000 Series A Convertible Preferred Stock and
      various loans extended to us by third party institutions and by certain of
      our
      founders.




During
      the past year, most of our attention was directed at completing the physical
      infrastructure of our service, acquiring broadcast content, and raising
      necessary funds. As a small company, we did not have the financial and other
      resources to adequately market our ITVN Service. In addition, after we started
      to roll out our programming, we learned that our subscribers were less willing
      to subscribe for our mainstream ITVN Services than they were to subscribe for
      our niche programming (such as our European soccer channel, our karaoke channel,
      and our adult entertainment programming). As a result, revenues generated from
      operations have during the past two years been substantially below the amounts
      that our internal forecasts and budgets had anticipated. Currently, revenues
      generated from our operations are not sufficient to fund our working capital
      needs and we are unable to pay all of our accrued obligations. For example,
      MLB
      Advanced Media recently notified us that our agreement for the distribution
      of
      major league baseball as an ITVN Service has been terminated due to our
      inability to make payments. In addition, our current level of operations is
      not
      sufficient to enable us to make all debt service payments required under the
      debentures we sold and under the other loans that we obtained.




2




We
      believe that we have successfully demonstrated the technical and commercial
      viability of delivering paid subscriber based programming over the Internet.
      We
      have, however, recognized that in order to survive and succeed, our business
      plan needs to be revised and that we need additional funding to continue to
      operate until our revised plan becomes self-sustaining. We believe that the
      primary focus of our Internet delivered programming should be redirected to
      the
      niche markets because (i) niche programming acquisition costs are significantly
      lower than the acquisition costs of mainstream programming, (ii) competition
      in
      the niche markets is lower, (iii) profit margins in the niche programming
      markets are higher, and (iv) niche programming subscriber loyalty is much
      higher. For example, we have noticed that our subscriber retention rates for
      our
      European soccer and or adult programming is much higher than for our mainstream
      programming and that the subscriber acquisition cost is significantly lower
      than
      for mainstream programming. Competition for delivering motion pictures over
      the
      Internet to households is increasing rapidly, and numerous large, well funded
      companies are rolling out services for delivering motion pictures to be viewed
      at home. For example, Wal-Mart now offers downloadable motion pictures, Apple’s
      ITV product is scheduled to be launched later this year, Amazon and TiVo have
      announced an alliance to offer movies through Amazon’s online video store, and
      Netflix is testing a service to show its movies over the Internet (rather than
      its DVD-by-mail service). Accordingly, our current plan is to expand our niche
      programming.




While
      we
      believe that our revised business plan can become a successful business, we
      currently do not have the financial ability to operate until our subscriber
      base
      increases to a level that can sustain our operations. During the past year,
      our
      management has attempted to raise additional debt or equity funding in order
      to
      obtain the necessary working capital to fund the revised business plan. In
      addition, management has been forced to consider other alternatives to maintain
      the viability of our company, including strategic partnerships with other
      companies in the IPTV business, the sale of our ITVN programming and networks
      to
      independent IPTV providers or other on-line content providers, and the possible
      sale of some or all of this company’s assets. To date, we have not entered into
      any agreements for additional funding or for any alternative business
      transaction, and no assurance can be given that we will be able to raise
      additional funds or enter into any other agreement. If we are unable to raise
      funds or enter into a strategic partnership/sale agreement, we will have to
      substantially further reduce our operations and possibly cease our operations.
      See, “Risk Factors,” and “Management’s Analysis and Plan of Operations—Liquidity
      and Capital Resources.”




**Technology
      Overview.**




Currently,
      virtually all television content is delivered either through traditional
      over-the-air television broadcasts, through cable networks, or via satellite
      to
      home satellite dishes. These delivery systems are expensive to establish and
      expensive to operate. Recently, due to improvements in the Internet and the
      increasing domestic use of high-speed (or “broadband”) Internet connections, it
      is now possible to deliver television content over the Internet. This
      technology, known as Internet Protocol Television (or IPTV), enables us to
      deliver video content that is similar in quality to other currently existing
      television broadcasting systems. Because our IPTV television programming is
      delivered from our computer servers over the Internet using existing cable
      networks and telephone lines, we do not need to establish, maintain and operate
      television broadcast towers, satellites or cable networks. As a result, our
      costs of distribution and operation are significantly lower than for all
      traditional television services. In addition, because the IPTV technology uses
      a
      two-way digital broadcast signal ,
      the use
      of IPTV enables us to deliver video content with many more features than other
      one directional television broadcasts and
      allows our subscribers to access our network of video channels, subscription
      services, and movies on demand .
      Our
      services also offer the television industry a platform for advertisers, content
      delivery and audience measurement research




Our
      Set-Top Box.




3




We
      have
      developed, and had manufactured, a set-top box that receives and decodes video
      delivered over the Internet in Internet protocol form (in packets) and converts
      that data into standard television signals. As a result, our set-top box enables
      viewers to receive high quality video and audio channels over the Internet
      and
      to view that video content on their televisions without the need for a personal
      computer. The set-top box was designed to our specifications and must be
      installed by subscribers of our service in order to be able to view our ITVN
      Services on their televisions.




Our
      proprietary set-top box consists mainly of (i) hardware containing a graphics
      card and software, and (ii) connection ports to audio/video components and
      the
      broadband connection. The hardware board has a web browser in one graphics
      mode
      and software that drives the media players. The box can use JavaScript and
      HTML
      to retrieve video images off an Internet server and delivers them onto the
      television screen. The set-top box also allows the use of a remote control
      to
      control navigation, and settings on the box. Our ITVN set-top box can be set
      for
      U.S. television standards (NTSC) or the European standard
      (PAL/SECAM).




To
      receive and view the virtually unlimited number of television channels that
      can
      be delivered over the Internet, a subscriber to our service needs only a
      broadband Internet connection of 500kbps or better, a television, and our
      set-top box. The set-top box is plugged into a home television (in the same
      manner a user plugs a DVD or VCR into the television) and is then connected
      at
      the other end to a high-speed Internet connection, typically a Cable Modem
      or a
      DSL Modem. The set-top box, which is about the size of a paperback book,
      automatically determines each viewer’s connection to the Internet and optimizes
      the quality of the video broadcast to the user. The set-top box operates through
      the use of a remote control that is similar to the standard remote control
      used
      with televisions.




In
      addition to converting video data delivered over the Internet into standard
      television signals shown on the subscriber’s television, our set-top box
      controls all of the on-screen menus and viewer options. The set-top box also
      limits a user’s access to our network and library of video content to only those
      persons who have paid for that service. Accordingly, while our video is streamed
      worldwide over the Internet, only subscribers who have active accounts with
      us
      are able to access that video content. Our ITVN set-top box is based on a
      special-purpose, “system on a chip” digital audio/video decoder, and all of the
      audio video decoder and decryption engines are programmable. Accordingly, we
      can
      modify, replace and upgrade the features of the set-top box software remotely.




The
      capabilities of our set-top box, and of IPTV in general, enable us to provide
      the following forms of video and audio content (and other forms of data) to
      our
      subscribers and enable us to interact with our viewers as follows:




We
      can
“broadcast” video programs (live or pre-recorded) to all of our subscribers on a
      24/7 basis in the manner similar to traditional television broadcasts.




We
      can
      establish programming channels or networks that are targeted to specific
      audiences. The ability to selectively target viewers is sometimes referred
      to as
“narrowcasting.” Because of the low cost of establishing, operating and
      delivering video content using IPTV, it is now possible to create television
      programming and channels for small, niche markets. Accordingly, for example,
      we
      are able to establish and operate a sports channel dedicated to the sport of
      lacrosse. Unlike traditional television programming that has to reach a large
      target audience to justify the high costs of the operation, we can establish
      and
      profitably operate video channels for target groups that traditional television,
      cable or even satellite programmers have not targeted.




Video
      can
      be shown in a linear fashion in the same manner as television networks currently
      broadcast their television programming. In other words, the television programs
      are shown at pre-set times and the viewer can view the programming only at
      the
      scheduled times. However, our service also allows a viewer to watch programs
      at
      the pre-set times or any other time that is convenient for them as discussed
      below.




Video
      can
      also be shown “on demand.” Because the Internet establishes a separate video
      channel for each viewer, each viewer can select a pre-recorded program at any
      time and view that program at any time. Because the video is delivered when
      requested, much as an Internet page is delivered when the URL link is selected,
      the on-demand program can be rewound, paused, or replayed in the same manner
      that viewers today use their VCR.




4




We
      have
      the technical capability to precisely track the viewing habits and location
      of
      our viewers. Accordingly, if we implement this function with the authorization
      of our subscribers, we will be able to more precisely target advertising to
      specific, individual viewers or viewer groups.




Our
      set-top box and back office technology provide us with great flexibility in
      establishing pricing options for our subscribers. For example, we can set up
      plans to charge our subscribers a flat fee for monthly, weekly or daily access
      to our services. We can also charge our subscribers on a per-channel basis,
      on a
      pay-per-view basis, or based on the amount of viewing time of the subscriber.




Because
      we can determine and track the program that was viewed by any particular viewer
      as well as the length of time that the viewer viewed any program, our digital
      rights management system allows us to pay our content providers based on the
      number of times and length of time their content is viewed.




**Strategy.**




Our
      goal
      is to become a leading provider of vertically integrated subscription based,
      television programming networks that are distributed over the Internet directly
      to the television. Our plan is to establish a virtual pay broadcast network
      of
      television programming. Until recently, our goal was to target both broad
      audiences as well as small, underserved niche markets. However, our recently
      revised goal is to establish proprietary, branded networks of personalized
      television and audio content aimed at niche or underserved audiences. By
      targeting niche programming markets, we believe that we are able to establish
      numerous new programming networks because there is a large quantity of
      programming from niche sources that is of interest to consumers but cannot
      be
      effectively delivered over traditional television delivery platforms due to
      cost
      or time constraints. We believe that the combination of our technology and
      the
      growth of broadband internet access will allow us to aggregate such content
      and
      deliver it on a subscription basis to a consumer audience willing to pay for
      such content. Such niche, or “narrow-cast” markets have the following
      benefits:




·
            *Low
                cost of content*.
                Content pertaining to niche markets is readily obtainable at highly
                advantageous revenue sharing terms with minimum
                guarantees.


·
            *High
                margin*.
                Such content in not available over compete platforms and, as such,
                we can
                charge a premium for this service.


·
            *Low
                churn*.
                Based on our experience, subscribers to niche content are typically
                committed consumers of such programming and are more likely to remain
                long
                term subscribers.


·
            *Low
                cost of marketing*.
                Consumers of niche content tend to be easily identified as they are
                often
                members of small on-line communities or consumers of specialized
                media.
                These on-line communities and specialized media have a low cost of
                advertising associated with communicating to their community and
                are
                interested in revenue sharing
                arrangements.





We
      already carry a number of niche networks including Karaoke, European soccer,
      classic movies, and adult entertainment. We intend to expand these niche
      networks to include ethnic programming, based both on VOD and place-shifting
      of
      foreign networks, as well as subject specific content including faith-based
      programming, specialty sports such a boxing, as well as a military
      network.




By
      avoiding the costs and risks associated with the creation of original
      programming and by the use of a low cost delivery platform we believe that
      we
      can minimize the financial risks associated with traditional television
      platforms. Our experience to date, while limited, has proven the practicality
      of
      our technology and we have entered into a number of agreements and negotiations
      with niche content owners who want to avail themselves of our platform to
      monetize content assets that cannot be readily distributed over traditional
      television platforms.




5




Finally
      we believe that there is a market for our technology and services outside the
      United States and we intend to continue to develop our distribution and content
      relationships in Europe, Asia and throughout the rest of the world.




Our
      goal
      is to generate revenue from (i) recurring monthly subscription fees; (ii)
      pay-per-view fees; (iii) sales of set top boxes; and (iv) the wholesale of
      our
      ITVN networks to independent IPTV providers or other content providers.
      Depending on the services that we eventually offer over our networks, we may
      also attempt to insert demographically targeted advertising into the content
      channels and charge advertisers for that advertising. We believe that, unlike
      traditional broadcasting, our service over the Internet is exempt from many
      of
      the regulations imposed by the Federal Communications Commission on broadcast
      television providers. As a result, we believe that we may be able to advertise
      consumer products which are prohibited from advertising on traditional
      television networks. We may also attempt to enable e-commerce functions and
      may
      derive revenue from transactions over our networks. Lastly, we may explore
      possible uses of our technology within the closed circuit or Virtual Private
      Network (VPN) market for the delivery of content to bars, restaurants and
      professional organizations.




We
      believe that the primary factor limiting the implementation of our strategy
      is
      our ability to obtain additional funding. If we are unable to obtain additional
      funding, we will have to abandon the strategy described above, limit our
      operations to a few of the networks that we currently carry, further reduce
      our
      operations, and possibly cease our operations and/or sell our entire business.
      In addition, unless we obtain additional funding, we will have to renegotiate
      our outstanding indebtedness, or lose our assets through a foreclosure of the
      outstanding secured loans.




**Our
      ITVN Service.**




Since
      April 2005 we have been operating, proprietary, subscription based networks
      of
      television programming, video on-demand services, and audio services that we
      refer to as our “ITVN Service.” The ITVN Service is only available to our
      currently active subscriber base. Our goal is to offer a large selection of
      video and audio programming to our subscribers. The video and audio services
      that we have available to our subscribers is continuously growing, and we plan
      to introduce a number of additional channels and features in the near
      future.




The
      ITVN
      Service that is currently available to our subscribers consists of the
      following:




Setanta
      Sports, a network of live European soccer matches and worldwide rugby
      programming.




The
      “Silver Screen Network” including 12 “linear” 24/7 classic movie channels and a
      video “on demand” library of over 1,500 titles.




Pulse,
      a
      bundled network of over 5,000 music videos updated weekly composed of “linear”
channels and video on demand (“VOD”) functionality.




XTV
      Networks, a subscription adult content network featuring 70 channels of content,
      an interactive library, and over 20,000 pay-per-view titles.




A
      number
      of “linear” 24/7 channels including lifestyle networks currently carried over
      traditional television platforms.




Internet
      radio. This audio only channel enables our subscribers to listen to thousands
      of
      radio stations that are currently broadcasting over the Internet.




In
      addition, subject to obtaining necessary funding, we are currently completing
      arrangements to provide the following later in 2007: (i) live television feeds
      and VOD services from a number of branded movie networks; and (ii) television
      news programming from major, non-English speaking countries aimed at the foreign
      language immigrant population in the United States. Initially, for example,
      we
      expect to offer new television broadcasts from Europe, Russia and the
      Ukraine.




6




Although
      it is our intention to develop and offer some or all of the foregoing services,
      and possibly others, we can give no assurance that we will be able to develop
      these services or that we will determine that the services are commercially
      feasible.




Effective
      November 15, 2006, we entered into an affiliation agreement with MLB Advanced
      Media, L.P. pursuant to which we were granted the limited right to distribute,
      as part of our ITVN Service, certain U.S. Major League Baseball programming.
      We
      never implemented the Major League Baseball programming, and in January 2007
      received a notice of termination from MLB Advanced Media, L.P. terminating
      our
      agreement.




Effective
      November 9, 2006, we entered into an agreement with NBC Universal to make
      Universal Pictures movies available to ITVN subscribers through our proprietary
      and award-winning IPTV set-top box. We never implemented the Universal
      programming, and expect to receive a notice of termination from NBC Universal
      terminating this agreement.




To
      access
      the ITVN Service, consumers need to purchase an ITVN set-top box. These set-top
      boxes can be purchased directly from us through our website or from authorized
      resellers. The recommended retail price as of March 18, 2006 for a set-top
      box
      was $99.95.




Our
      operations are currently conducted from our 8,000 square foot facilities located
      in Woodland Hills, California. At those facilities, we house computer servers
      and video capture equipment. In addition, we maintain our inventory of set-top
      boxes at this facility and ship those set-top boxes from there to our
      subscribers. The ITVN Service content is also stored and distributed over the
      Internet for U.S. markets from the specially designed fault tolerant data center
      of AboveNet Communications, Inc. in San Jose, California. We also house numerous
      computer servers and video capture equipment in secure areas that we rent at
      AboveNet’s San Jose facility. Additionally, we have satellite dishes at the
      AboveNet facility utilized to receive real time content feeds. The AboveNet
      facility connects directly to the Internet backbone at a speed of several
      Gigabits per second. We estimate that the AboveNet arrangement currently is
      able
      to provide sufficient bandwidth for 100,000 concurrent users of our ITVN
      Service.




The
      backbone of our targeted ITVN Service is our technical platform, known as our
      ITVN Media Management Software. The ITVN Media Management Software is our
      innovative cost-effective method, based upon our proprietary code, which
      organizes, manages, delivers and monitors the operations of Internet channels
      for channel owners, advertisers and sponsors, and viewers.




**Research
      and Development**




We
      devote
      a significant portion of our resources to research and development on our
      hardware, software and product services. During the years ended December 31,
      2006 and 2005, we incurred approximately $217,000 and $139,000, respectively,
      of
      costs related to research and development. Our success in designing, developing
      and manufacturing new or enhanced products will depend on a variety of factors,
      including the identification of products addressing market demand, timely design
      and development, and effective manufacturing and assembly processes. Because
      of
      the complex nature of the field in which our research is focused, we cannot
      ensure that our research and development efforts will result in new products,
      or
      that our newly developed products will achieve market acceptance. Our failure
      to
      successfully develop and introduce new products could harm our business and
      operating results.




**Manufacturing**




We
      currently rely on two contract manufacturers located in China to manufacture
      our
      products and to perform partial assembly and product testing. We believe that
      outsourcing our manufacturing enables us to conserve working capital, better
      adjust manufacturing volumes to meet changes in demand and quickly deliver
      products .




7




**Marketing
      and Sales**




The
      following are the four principal distribution channels for our ITVN Service
      and
      our ITVN set-top box.




Wholesale
      Distribution




We
      have
      entered into a distribution relationship with the O’Rourke Sales Company. With
      over 40 years of distribution success and nine fulfillment facilities
      strategically located across the United States, O’Rourke Sales Company services
      a network of independent retailers and home AV installers with a wide array
      of
      electronic products. We have granted O’Rourke Sales Company the exclusive right
      to distribute the ITVN set-top box to independent retailers in the U.S. with
      sales of under $5 million annually as well as to satellite and home audio visual
      installers. Under our agreement with O’Rourke Sales Company, we sell our set-top
      box to O’Rourke Sales Company at favored wholesale prices. O’Rourke Sales
      Company also receives a percentage of subscription revenues collected from
      subscribers who purchase ITVN set-top boxes distributed by them.




On-line/e-tail
      Distribution; Direct and Joint Marketing




We
      market
      our ITVN set-top box and our ITVN Services directly to end consumers through
      our
“itvn.com” website and a variety of other URL’s dedicated to our various
      networks. We take orders from consumers on these websites and fulfill from
      our
      facility in Woodland Hills, California. Marketing for these URL’s in done on
      both a direct basis and an affiliate basis.




On
      an
      affiliate basis we have over 200 independent web marketing firms who place
      banner advertising and deliver opt-in newsletters promoting our ITVN Service
      and
      our various networks. In return for sales generated through these leads, which
      can be tracked on-line, these marketing firms receive a sign-up bonus as well
      as
      a percentage of revenues generated from subscribers over the lifetime of their
      subscription.




Retail
      Distribution




We
      are in
      the process of exploring distribution through large mainstream electronic
      product retailers. We have received some interest from a number of these
      retailers and we believe our current content when supplemented with the
      additional mainstream content we are in the process of launching will appeal
      to
      a larger population of the general public.




International
      Distribution




During
      the last three months of the year ended December 31, 2005, we signed
      distribution agreements in Asia and Europe.  As part of this effort both
      our Asian and European distributors have made significant capital commitments
      both for ITVN set-top boxes as well as the installation of servers and other
      hardware necessary to support a number of our networks in Europe. Over $800,000
      has been committed by these two partners. Our Asian distributor launched their
      marketing program in January 2006.




**Competition**




Because
      IPTV technology is a new and still developing technology, to our knowledge,
      competition in the IPTV television programming market currently consists of
      numerous established and new companies. To our knowledge, however, none of
      these
      competitors has yet established either brand recognition or secured a large
      subscriber base. Accordingly, we currently compete with a number of similarly
      situated early stage companies in the IPTV market and with a growing number
      of
      competing technologies that permit programming content to be downloaded from
      the
      Internet for use with home televisions. However, a number of large, established
      companies, such as AT&T and Verizon, have publicly announced that they are
      developing, and intend to offer IPTV products and services in the near future.
      We will, therefore, also compete with numerous new competitors that are
      developing new and competing products and services. We expect competition to
      increase as additional network operators, including telecom service providers,
      begin deploying video services and the deployment of digital television, HDTV,
      personalized content and video-over-IP progresses.




8




There
      currently are a number of other companies that deliver video content for home
      viewing over the Internet using various technologies which, indirectly, compete
      with our IPTV Service. Many of these other companies still deliver their content
      to the consumer’s computer, rather than directly to the television, which
      content can then be viewed on the television. Many of these companies do not
      have the ability to offer live television where the content is delivered
      virtually instantaneously and, rather, require a significant wait before content
      can be viewed. Some of these companies that already offer, or have announced
      Internet content services that compete with our ITVN Services include the
      following:




--Apple
      Inc’s iTunes store, Wal-Mart’s new movie download service, and Movielink movie
      download service, offer U.S. customers an extensive selection of movies, foreign
      films and other content.




--DaveTV,
      self described as the distributor of DAVE Networks which utilizes the latest
      matrix distribution technology to deliver music, video and other information
      assets to consumers, corporate customers, and commercial customers.




--Akimbo,
      a licensor of special-interest programs from a variety of video providers
      distributed via broadband connections to televisions. Consumers must have an
      Akimbo Player to receive the Akimbo Service, a home network and a broadband
      internet connection in their homes. Using the Akimbo Guide, viewers choose
      their
      programming, which is downloaded to the Akimbo Player for later viewing
      (downloading times vary but can be longer than 2 hours). Unlike our ITVN
      Service, Akimbo does not provide for instant content on-demand.




--Vongo,
      the subscription movie service of Starz Entertainment Media Group that allows
      downloaded movies to be viewed on televisions using Microsoft’s Xbox
      360.




--Netflix
      is now showing movies and television episodes over the Internet to subscribers
      using its recently announced “Watch Now” feature. This system however is limited
      to viewing on a computer.




--Amazon
      and TiVo have announced an alliance that permits customers to use their
      televisions to watch movies and television episodes purchased through Amazon’s
      new on-line video store, Unbox.




--ShifTV
      Inc., a Toronto broadcaster of ethnic and niche programming through the
      Internet.




--JumpTV
      Inc., a Toronto broadcaster of ethnic and niche programming through the
      Internet.




Most
      of
      the foregoing entities offer movies and television programs that can be
      downloaded over the Internet, which products indirectly compete with our movie
      offerings. However, the movie download services do not directly compete with
      us
      in our niche markets. Accordingly, we have shifted our emphasis from offering
      motion pictures in direct competition to some of the forgoing entities to the
      niche markets that only few IPTV companies have addressed.




To
      a
      larger extent, we also compete with existing television delivery systems and
      programming. Cable and satellite network providers have also developed
      video-on-demand (or VOD) systems that compete with our service. However,
      traditional providers are unwilling to unbundle their content services in order
      to make a wide range of content available to consumers. In contrast, our
      networks and service focus on variety and a large selection of unbundled
      programming.




9




Although
      our service provides content from a number of different categories catering
      to a
      diverse set of interests, our adult entertainment offerings currently represent
      our largest subscriber base. The online adult internet industry is highly
      competitive and highly fragmented given the relatively low barriers to entry.
      The leading adult internet companies, whose adult content can be delivered
      over
      the Internet for viewing through home computers, also compete with our service.
      We believe that the primary competitive factors in the on-demand adult content
      industry include the quality of content, technology, pricing, and the selection
      of content. Because of the large and diverse selection of adult oriented content
      available to our subscribers on our XTV network, we believe that we have a
      competitive advantage in this market.




**Intellectual
      Property Rights**




The
      ITVN
      set-top box was designed and developed by us. We also have designed and
      developed parts of our Media Management Software and the software that operates
      parts of our set-top box. However, we have not filed for any patents or
      registered copyrights relating to any of our products or technologies and do
      not
      have any current plans to do so. We currently rely on a combination of trade
      secret, nondisclosure and other contractual agreements, as well as existing
      copyright and trademark laws to protect our intellectual property. We require
      all personnel and outside contractors to execute agreements to keep secret
      and
      confidential our proprietary technology. Since IPTV technology is generally
      known, and since much of the technology contained in our set-top box is based
      on
      computer products generally available, we do not currently own any proprietary
      technology that will prevent others from developing similar set-top box
      technologies that will directly compete with our technologies.




In
      addition, we do not own the video content that we distribute over our ITVN
      Service network. As a third-party deliverer of proprietary video content, we
      rely on our video content providers to own or obtain all necessary rights to
      the
      video content that we deliver through our network.




**Government
      Regulation**




Few
      existing laws or regulations specifically apply to the Internet, other than
      laws
      and regulations generally applicable to businesses. Certain United States export
      controls and import controls of other countries may apply to our products.
      Many
      laws and regulations, however, are pending and may be adopted in the United
      States, individual states and local jurisdictions and other countries with
      respect to the Internet. These laws may relate to many areas that impact our
      business, including content issues (such as obscenity, indecency and
      defamation), copyright and other intellectual property rights, digital rights
      management, encryption, caching of content by server products, personal privacy,
      taxation, e-mail, sweepstakes, promotions, network and information security
      and
      the convergence of traditional communication services with Internet
      communications, including the future availability of broadband transmission
      capability and wireless networks. These types of regulations are likely to
      differ between countries and other political and geographic divisions. It is
      likely that other countries and political organizations will impose or favor
      more and different regulation than that which has been proposed in the United
      States, thus furthering the complexity of regulation. In addition, state and
      local governments may impose regulations in addition to, inconsistent with,
      or
      stricter than federal regulations. The adoption of such laws or regulations,
      and
      uncertainties associated with their validity, interpretation, applicability
      and
      enforcement may affect the available distribution channels and costs associated
      with our services, and may affect the growth of the Internet. Such laws or
      regulations may harm our business. Our services may also become subject to
      investigation and regulation of foreign data protection and e-commerce
      authorities, including those in the European Union. Such activities could result
      in additional costs for us to comply with such regulation.




We
      do not
      know for certain how existing laws governing issues such as property ownership,
      copyright and other intellectual property issues, digital rights management,
      taxation, gambling, security, illegal or obscene content, retransmission of
      media, and personal privacy and data protection apply to the Internet. The
      vast
      majority of such laws were adopted before the advent of the Internet and related
      technologies and do not address the unique issues associated with the Internet
      and related technologies. Most of the laws that relate to the Internet have
      not
      yet been interpreted. In addition to potential legislation from local, state,
      federal, and foreign governments, labor guild agreements and other laws and
      regulations that impose fees, royalties or unanticipated payments regarding
      the
      distribution of media over the Internet may directly or indirectly affect our
      business. While we and our customers may be directly affected by such
      agreements, we are not a party to such agreements and have little ability to
      influence the degree to which such agreements favor or disfavor Internet
      distribution or our business. Changes to or the interpretation of these laws
      and
      the entry into such industry agreements could:




·
            limit
                the growth of the Internet;




10




·
            create
                uncertainty in the marketplace that could reduce demand for our services;




·
            increase
                our cost of doing business;




·
            expose
                us to increased litigation risk, substantial defense costs and significant
                liabilities associated with content available on the ITVN Service;
                or




·
            decrease
                the rate of growth of our user
                base.




The
      Digital Millennium Copyright Act (DMCA) includes statutory licenses for the
      performance of sound recordings and for the making of recordings to facilitate
      transmissions. Under these statutory licenses, we and third party channel owners
      may be required to pay licensing fees for digital sound recordings we deliver
      in
      original and archived programming and through retransmissions of radio
      broadcasts. The DMCA does not specify the rate and terms of the licenses, which
      are determined by arbitration proceedings, known as CARP proceedings, supervised
      by the United States Copyright Office. Past CARP proceedings have resulted
      in
      proposed rates for statutory webcasting that were significantly in excess of
      rates requested by webcasters. CARP proceedings relating to music subscription
      and non-subscription services offering music programming that qualify for
      various licenses under U.S. copyright law are pending. We cannot predict the
      outcome of these CARP proceedings and may elect instead to directly license
      music content for our subscription and/or non-subscription services, either
      alone or in concert with other affected companies. Such licenses may only apply
      to music performed in the United States, and the availability of corresponding
      licenses for international performances is unclear. Therefore, our ability
      to
      find rights holders and negotiate appropriate licenses is uncertain. We and
      third party channel owners may be affected by these rates, which may negatively
      impact our revenues. Depending on the rates and terms adopted for the statutory
      licenses, our business could be harmed both by increasing our own cost of doing
      business, as well as by increasing the cost of doing business for third party
      channel owners.




The
      Child
      Online Protection Act and the Child Online Privacy Protection Act impose civil
      and criminal penalties on persons distributing material harmful to minors (e.g.,
      obscene material) over the Internet to persons under the age of 17, or
      collecting personal information from children under the age of 13. Although
      our
      ITVN Service has parental locks that can be used to prevent underage minors
      from
      viewing the adult oriented channels, and although we do not knowingly distribute
      harmful materials to minors or collect personal information from children under
      the age of 13, the manner in which these acts may be interpreted and enforced
      cannot be fully determined, and future legislation similar to these acts could
      subject us to potential liability if we were deemed to be non-compliant with
      such rules and regulations, which in turn could harm our business.




There
      are
      a large number of legislative proposals before the United States Congress and
      various state legislatures regarding intellectual property, digital rights
      management, copy protection requirements, privacy, email marketing and security
      issues related to our business. It is not possible to predict whether or when
      such legislation may be adopted, and certain proposals, if adopted, could
      materially and adversely affect our business.




11




**Employees**




As
      of
      March 31, 2007, we had 23 full-time employees and 3 contract/part-time
      employees, of which 5 are engaged in management and administrative functions,
      5
      are engaged in customer service and shipping functions, 7 are engaged in sales
      and marketing functions, and 9 are engaged in technology functions. Our
      employees are not represented by a labor organization or covered by a collective
      bargaining agreement.




**ITEM
      2. DESCRIPTION OF PROPERTY.**




Our
      operational center consists of an 8,000 square foot facility located in Woodland
      Hills, California that we lease on a month to month basis. Our operational
      center houses our executive offices, customer service facilities, sales and
      marketing department, computer servers, video capture equipment and our
      shipping/inventory facilities. We currently pay $10,265 per month for this
      facility.




In
      September 2006, we opened an office in Alameda, California primarily for the
      purpose of research and development on our set-top boxes. The office is leased
      under a month-to-month lease at a cost of $1,635 per month.




In
      January 2006, we opened a small executive office in Irvine, California. The
      office is leased under a month-to-month lease at a cost of approximately $200
      per month.




We
      believe that our facilities are adequate for our currently anticipated needs,
      and we expect that additional facilities will be available on reasonable terms
      in other geographic locations to the extent we add new offices.




**ITEM
      3. LEGAL PROCEEDINGS.**




On
      January 22, 2007, David Koenig, Holio, Inc. and Holio.net (collectively, the
      “Koenig Plaintiffs”) filed a complaint against Interactive Television Networks,
      Inc. and XTV, Inc. in the Superior Court of the State of California, County
      of
      Orange. Mr. Koenig has previously represented to us that Holio, Inc. and
      Holio.net are entities that he controls. The Koenig Plaintiffs allege that
      (i)
      we owe Mr. Koenig $427,344, plus interest at a rate of 8% per annum ($53,482),
      under a promissory note we executed in favor of Mr. Koenig, (ii) Mr. Koenig
      is
      entitled to collect $120,000 from us for his litigation legal fees, (iii) we
      owe
      the Koenig Plaintiffs unspecified amounts under a written licensing and
      distribution agreement and under a written content licensing agreement, and
      (iv)
      we have breached our oral consulting agreement with Mr. Koenig and, therefore,
      we owe him no less than $40,000 plus reimbursements of $6,148. The complaint
      also requests that the court order us to delete from our ITVN Service all of
      the
      content provided to us by the Koenig Plaintiffs and that we cease and desist
      from further offering their content to our customers. We believe that most
      of
      the claims made by the Koenig Plaintiffs are without merit and that we have
      valid counterclaims against the Koenig Plaintiffs. We intend to vigorously
      contest the claims made by the Koenig Plaintiffs.




We
      may
      occasionally become subject to legal proceedings and claims that arise in the
      ordinary course of our business. It is impossible for us to predict with any
      certainty the outcome of pending disputes, and we cannot predict whether any
      liability arising from pending claims and litigation will be material in
      relation to our consolidated financial position or results of
      operations.




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




During
      the quarter ended December 31, 2006, we were scheduled to hold our 2006 annual
      meeting of stockholders at 10:00
      a.m. on Friday, December 14, 2006. At the annual meeting, the stockholders
      were
      asked to act upon the election of our directors, the approval of our 2005 Equity
      Incentive Plan, and the ratification of our appointment of independent
      accountants. The annual meeting was not held because we did not have holders
      of
      sufficient number of shares present at the meeting to constitute a quorum.
      The
      meeting will be re-scheduled, but no new meeting date has yet been
      announced.




12




**PART
      II**




**ITEM
      5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS****AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY
      SECURITIES.**




**Market
      Information**




Our
      common stock has been traded on the OTC Bulletin Board over-the-counter market
      since August 2005 under the symbol “ITTV.” Prior thereto, our common stock was
      listed on the OTC Bulletin Board over-the-counter market under the symbol
“RDIU.” RDIU was the symbol used by this company under its previous name, Radium
      Ventures, Inc. (“Radium”).




To
      our
      knowledge, there was limited or no trading in our common stock prior to the
      merger with ITVN, Inc. on June 3, 2005. Accordingly, the following table only
      sets forth the high and low bid information for our common stock for the periods
      indicated since the merger. The following price information reflects
      inter-dealer prices, without retail mark-up, mark-down or commission and may
      not
      represent actual transactions:




**Quarter
                Ending**
            
            **High**
            
            **Low****Fiscal
                2005**June
                30, 2005(1)
            
            $
            4.50
            
            $
            3.00September
                30, 2005
            
            $
            4.60
            
            $
            4.00December
                31, 2005
            
            $
            7.00
            
            $
            4.10




**Quarter
                  Ending**
              
              **High**
              
              **Low****Fiscal
                  2006**March
                  31, 2006
              
              $
              4.75
              
              $
              4.00June
                  30, 2006
              
              $
              4.30
              
              $
              2.25September
                  30, 2006
              
              $
              4.12
              
              $
              2.05December
                  31, 2006
              
              $
              2.70
              
              $
              0.60





(1)  To
      our
      knowledge, trading activity first commenced during the calendar quarter ended
      June 30, 2005.




Our
      common stock will be offered in amounts, at prices, and on terms to be
      determined in light of market conditions at the time of sale. The shares may
      be
      sold directly by the selling stockholders in the open market at prevailing
      prices or in individually negotiated transactions, through agents, underwriters,
      or dealers. We will not control or determine the price at which the shares
      are
      sold.




**Holders**




As
      of
      December 31, 2006 there were 81 holders of record of our common stock. The
      number of record holders was determined from the records of the transfer agent
      and does not include beneficial owners of common stock whose shares are held
      in
      the names of various security brokers, dealers, and registered clearing
      agencies.




**Dividends**




We
      have
      not paid any dividends on our common stock to date and do not anticipate that
      we
      will be paying dividends in the foreseeable future. Any payment of cash
      dividends on our common stock in the future will be dependent upon the amount
      of
      funds legally available, our earnings, if any, our financial condition, our
      anticipated capital requirements and other factors that the Board of Directors
      may think are relevant. We are, however, prohibited from paying any dividends
      to
      our stockholders under the terms of our outstanding debentures and will not
      be
      able to make any dividend payments until the debentures are retired.
      Accordingly, we will not be able to make any dividend payments in the
      foreseeable future, and any earnings we may generate will be used to finance
      the
      development and expansion of our business.




13




**Repurchase
      of Securities**




We
      did
      not repurchase any of our common shares during fiscal year 2006.




**Recent
      Sales of Unregistered Securities**




We
      did
      not sell any unregistered shares during the fiscal year ended December 31,
      2006
      other than sales disclosed in our previously filed Forms 10-QSB and Forms
      8-K.




**ITEM
      6. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION**




This
      annual report contains forward-looking statements within the meaning of the
      federal securities laws. These include statements about our expectations,
      beliefs, intentions or strategies for the future, which we indicate by words
      or
      phrases such as “anticipate,” “expect,” “intend,” “plan,” “will,” “we believe,”
“the Company believes,” “management believes” and similar language. The
      forward-looking statements are based on our current expectations and are subject
      to certain risks, uncertainties and assumptions, including those set forth
      below
      in the discussion under “Risks Related to our Business.” Our actual results may
      differ materially from results anticipated in these forward-looking statements.
      We base our forward-looking statements on information currently available to
      us,
      and we assume no obligation to update them.




**Overview**




On
      June
      3, 2005, we completed a merger in which ITVN, Inc. (“ITVN”), the company through
      which we currently carry out all of our business operations, became our
      wholly-owned subsidiary. At the time of the merger, we had virtually no assets
      or liabilities (prior to the merger we had engaged in Internet document editing
      business). In connection with the merger, we changed our name to “Interactive
      Television Networks, Inc.,” replaced our officers and directors with those of
      ITVN, ceased our Internet document editing business and
      moved
      our offices to Southern California. We currently do not plan to conduct any
      business other than the business, described above, that ITVN has conducted
      since
      its organization.




Although
      we acquired ITVN in the merger, for accounting purposes, the merger was
      accounted for as a reverse merger since the stockholders of ITVN acquired a
      majority of the issued and outstanding shares of our common stock, and the
      directors and executive officers of ITVN became our directors and executive
      officers. Accordingly, the financial statements contained in this Annual Report,
      and the description of our results of operations and financial condition,
      reflect (i) the operations of ITVN alone prior to the merger, and (ii) the
      combined results of this company and ITVN since the merger. No goodwill was
      recorded as a result of the merger.




**Critical
      Accounting Policies**




Management’s
      discussion and analysis of our financial condition and results of operations
      are
      based on our consolidated financial statements, which have been prepared in
      accordance with accounting principles generally accepted in the United States.
      The preparation of these financial statements requires management to make
      estimates and judgments that affect the reported amounts of assets, liabilities,
      revenues and expenses, and related disclosures of contingent assets and
      liabilities. On an ongoing basis, management evaluates its estimates, including
      those related to impairment of long-lived assets, including finite lived
      intangible assets, accrued liabilities and certain expenses. We base our
      estimates on historical experience and on various other assumptions that we
      believe to be reasonable under the circumstances, the results of which form
      the
      basis for making judgments about the carrying values of assets and liabilities
      that are not readily apparent from other sources. Actual results may differ
      materially from these estimates under different assumptions or
      conditions.




14




Our
      significant accounting policies are summarized in Note 2 to ITVN’s audited
      financial statements for the year ended December 31, 2006 included in Item
      7. We
      believe the following critical accounting policies affect our more significant
      judgments and estimates used in the preparation of our consolidated financial
      statements:




*Valuation
      of Inventory*




We
      value
      our inventory of ITVN set-top boxes at the lower of cost or net realizable
      value
      with cost determined on the first-in, first-out method. We perform a detailed
      assessment of inventory at each balance sheet date, which includes a review
      of,
      among other factors, demand requirements and market conditions. Based on this
      analysis, we record adjustments, when appropriate, to reflect inventory at
      lower
      of cost or net realizable value. As of December 31, 2006 and 2005, inventory
      was
      determined to be valued at greater than net realizable value and accordingly
      was
      written down to reflect it’s current market value. Although we make every effort
      to ensure the accuracy of our forecasts of product demand and pricing
      assumptions, any significant unanticipated changes in demand or technological
      developments would significantly impact the value of our inventory and our
      reported operating results. In the future, if we find that our estimates are
      too
      optimistic and determine that our inventory needs to be written down, we will
      be
      required to recognize such costs in our cost of revenue at the time of such
      determination. Conversely, if we then find our estimates are too pessimistic
      and
      we subsequently sell product that has previously been written down, our gross
      margin in that period will be favorably impacted.




Accounting
      for Conversion Features and Warrants Issued with Convertible Debt




Our
      derivative financial instruments consist of embedded derivatives related to
      the
      issuance of $8.35 million of convertible debentures. These embedded derivatives
      include the conversion feature and the detachable warrants. The debt is not
      considered conventional as defined in EITF 05-2, “The Meaning of Conventional
      Convertible Debt Instruments” in issue No. 00-19. The accounting treatment of
      derivative financial instruments requires that we record the derivatives and
      related warrants at their fair values and record them at fair value as of each
      subsequent balance sheet date. Any change in fair value is recorded as
      non-operating, non-cash income or expense at each reporting date. If the fair
      value of our common stock is higher at a subsequent balance sheet date, the
      derivatives will be deemed to have a higher fair value and we will be required
      to record a non-operating, non-cash charge. If the fair value of our common
      stock is lower at a subsequent balance sheet date, the derivatives will be
      deemed to have a lower fair value and we will be required to record
      non-operating, non-cash income. The derivatives were valued by an independent
      financial valuation advisory firm and were classified in the consolidated
      balance sheets as long-term liabilities.




*New
      Accounting Pronouncements*




On
      December 16, 2004, the FASB issued FASB Statement No. 123 (revised 2004),
      Share-Based Payment, which is a revision of FASB Statement No. 123, Accounting
      for Stock Based compensation. Statement No. 123(R) (hereafter referred to as
      “SFAS 123R”) supersedes APB Opinion No. 25, Accounting for Stock Issued to
      Employees, and amends FASB Statement No. 95, Statement of Cash Flows. 
During December 2005, we adopted an equity incentive plan, the “2005 Equity
      Incentive Plan,” and accordingly, on January 1, 2006 we adopted SFAS 123R
      and our consolidated financial statements as of and for the year ended December
      31, 2006 reflect the impact of SFAS 123RThe 2005 Equity Incentive Plan required
      shareholder approval prior to December 2006. Such approval did not transpire
      and
      accordingly, all options under the plan were cancelled and the 2005 Equity
      Incentive Plan was terminated. Prior to the termination of the 2005 Equity
      Incentive Plan, the
      Company recorded stock-based compensation expense of $953,272, which increased
      the loss from operations and net loss by $953,272 for the year ended December
      31, 2006.   The impact on basic and fully diluted net loss per common share
      for the year ended December 31, 2006 was $0.04. Generally, the approach in
      SFAS
      123R is similar to the approach described in Statement No. 123. However, SFAS
      123R requires all share-based payments to employees, including grants of
      employee stock options, to be recognized in the income statement based upon
      their fair values. Pro forma disclosure is no longer an alternative. In April
      2005, the Securities and Exchange Commission announced the adoption of a new
      rule that amends the effective date of SFAS 123R. We have adopted the "modified
      prospective" method in which compensation cost is recognized beginning with
      the
      effective date (a) based on the requirements of SFAS 123R for all share-based
      payments granted after the effective date; and (b) based on the requirements
      of
      Statement 123 for all awards granted to employees prior to the effective date
      of
      SFAS 123R that remain unvested on the effective date. See Note 14—Stock-Based
      Compensation of the consolidated financial statements for further
      information.




15




**Recent
      Accounting Pronouncements**





In
      September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
      No. 157, Fair Value Measurements.  SFAS No. 157 defines fair value,
      establishes a framework for measuring fair value in GAAP, and expands
      disclosures about fair value measurements.  This statement is effective for
      financial statements issued for fiscal years beginning after November 15,
      2007.  Management is currently evaluating the impact SFAS No. 157 will have
      on our financial position, results of operations, and cash flows.




In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities - including an amendment of FASB
      statement No. 115.” This Statement permits all entities to choose, at specified
      election dates, to measure eligible items at fair value (the “fair value
      option”). A business entity shall report unrealized gains and losses on items
      for which the fair value option has been elected in earnings (or another
      performance indicator if the business entity does not report earnings) at each
      subsequent reporting date. Upfront costs and fees related to items for which
      the
      fair value option is elected shall be recognized in earnings as incurred and
      not
      deferred. If an entity elects the fair value option for a held-to-maturity
      or
      available-for-sale security in conjunction with the adoption of this Statement,
      that security shall be reported as a trading security under Statement 115,
      but
      the accounting for a transfer to the trading category under paragraph 15(b)
      of
      Statement 115 does not apply. Electing the fair value option for an existing
      held-to-maturity security will not call into question the intent of an entity
      to
      hold other debt securities to maturity in the future. This statement is
      effective as of the first fiscal year that begins after November 15, 2007.
      We
      are currently analyzing the effects of SFAS 159 but does not expect its
      implementation will have a significant impact on the Company's financial
      condition or results of operations.





In
      July
      2006, the FASB issued FASB Interpretation (“FIN”) No. 48 Accounting for
      Uncertainly in Income Taxes - An Interpretation of FASB Statement No. 109. 
FIN 48 prescribes detailed guidance for the financial statement recognition,
      measurement, and disclosure of uncertain tax positions recognized in an
      enterprise’s financial statements in accordance with SFAS No. 109, Accounting
      for Income Taxes.  Tax positions must meet a more-likely-than-not
      recognition threshold at the effective date to be recognized upon the adoption
      of FIN 48 and in subsequent periods.  FIN 48 will be effective for fiscal
      years beginning after December 15, 2006, and the provisions of FIN 48 will
      be
      applied to all positions upon the adoption of the Interpretation.  The
      cumulative effect of this applying the provisions of this Interpretation will
      be
      reported as an adjustment to the opening balance of retained earnings for that
      fiscal year.  Management is currently evaluating the impact of FIN 48 on
      the financial statements but does not believe that its adoption will have a
      material effect on our financial position, results of operations, or cash
      flows.


16


In
      September 2006, the SEC issued Staff Accounting Bulletin No. 108,
      Considering the Effects of Prior Year Misstatements when quantifying
      Misstatements in Current Year Financial Statements (“SAB 108”).
      SAB 108 requires companies to evaluate the materiality of identified
      unadjusted errors on each financial statement and related financial statement
      disclosure using both the rollover approach and the iron curtain approach,
      as
      those terms are defined in SAB 108. The rollover approach quantifies
      misstatements based on the amount of the error in the current year financial
      statement, whereas the iron curtain approach quantifies misstatements based
      on
      the effects of correcting the misstatement existing in the balance sheet at
      the
      end of the current year, irrespective of the misstatement’s year(s) of origin.
      Financial statements would require adjustment when either approach results
      in
      quantifying a misstatement that is material. Correcting prior year financial
      statements for immaterial errors would not require previously filed reports
      to
      be amended. If a company determines that an adjustment to prior year financial
      statements is required upon adoption of SAB 108 and does not elect to
      restate its previous financial statements, then it must recognize the cumulative
      effect of applying SAB 108 in fiscal 2006 beginning balances of the
      affected assets and liabilities with a corresponding adjustment to the fiscal
      2006 opening balance in retained earnings. SAB 108 is effective for interim
      periods of the first fiscal year ending after November 15, 2006, and will
      be adopted by us in the first quarter of 2007. We do not expect the adoption
      of
      this interpretation to have an impact on our financial position or results
      of
      operations.




**Results
      of Operations**




**Comparison
      of the Year ended December 31, 2006 to the Year ended December 31,
      2005.**




We
      formally launched our ITVN Services in April 2005. During the year ended
      December 31, 2005, we generated only limited sales from operations and were
      still primarily engaged in developing our products and establishing our
      business .
      It was
      not until the quarter ended September 30, 2005 that we began to show growth
      in
      our customer subscription base and subscription revenues primarily due to
      subscription growth from our affiliate distribution channel. Accordingly, a
      comparison of the partial fiscal year ended December 31, 2005 to the full fiscal
      year ended December 31, 2006 may not provide a meaningful comparison of our
      operations.




Net
      revenues .
      Net
      service and hardware revenues for the years ended December 31, 2006 and 2005
      as
      a percentage of net revenues are listed below.




**Year
                Ended**
              **December
                31, 2006**
            
            **Year
                Ended**
              **December
                31, 2005**Service
                revenues
            
            $
            768,606
            
            
            74
            %
            $
            265,932
            
            
            35
            %Hardware
                revenues
            
            
            276,888
            
            
            26
            %
            
            501,595
            
            
            65
            %Net
                revenues
            
            $
            1,045,494
            
            
            100
            %
            $
            767,527
            
            
            100
            %





Service
      revenues represent revenues received from subscriptions for the use of the
      ITVN
      services. Service revenues for the year ended December 31, 2006 increased 189%,
      or $503,000 over the service revenues for the year ended December 31,
      2005.  We
      officially launched our ITVN Services, and formally commenced marketing our
      products in April 2005. Service revenues are based on the number of subscribers
      to the ITVN Services. Since the service was only launched in April 2005, the
      number of subscribers during the 2005 fiscal year was small and, as such,
      service revenues were lower during this period. Service revenues for the 2006
      fiscal year ended reflect subscription proceeds from an increased number of
      subscribers to our ITVN Service. Consumer demand for the ITVN products and
      services increased due to the general availability of our products and services,
      the support of an affiliate distribution channel, and increased consumer
      awareness of ITVN. Based on our recent growth in subscription revenues,
      particularly for some of our niche programming networks, we anticipate that
      we
      will have continued service revenue growth in the 2007 fiscal year.




17




Hardware
      revenues, net of allowance for sales returns, reflect sales of the set-top
      boxes
      necessary for our subscribers to access our ITVN Service. The decrease in
      hardware revenues, however, only reflects a decrease in revenues received from
      the sale of our set-top boxes, not a decrease in the number of set-top boxes
      in
      use with our subscribers. Since the ITVN Service can only be accessed through
      an
      ITVN set-top box, hardware distribution is a necessary pre-requisite to
      receiving subsequent revenues from ITVN Service subscribers. Since our goal
      was
      to increase the number of set-top boxes in use, our initial plan was to sell
      our
      set-top boxes at a price that approximated our cost of the boxes. In August
      2006, in order to determine whether we could significantly increase our
      subscriber base and increase our monthly service revenues, we initiated, on
      a
      test basis, a new marketing strategy in the United States in which we provide
      a
      free set-top box to all subscribers who sign a 12-month subscription. While
      we
      believe that eliminating the up-front payment that subscribers have to make
      for
      the set-top box will increase the number of long-term subscribers, this
      marketing strategy has reduced the revenues we previously derived from hardware
      sales. As a result, hardware sales revenues, as a percentage of total sales,
      were significantly larger during the 2005 fiscal year than during the 2006
      fiscal year. Hardware revenues for the year ended December 31, 2006 decreased
      45% or $225,000 over the hardware revenues for the year ended December 31,
      2005.
      Hardware revenues during the 2005 fiscal year consisted primarily of 6,000
      set-top boxes sold to a distributor for resale purposes, while sales of set-top
      boxes for the 2006 fiscal year included both sales to individual subscribers
      and
      the sale of 1,000 ITVN-enabled set-top boxes to a distributor for resale
      purposes. If we continue the current marketing strategy of not charging U.S.
      subscribers for the set-top boxes, we believe the percent of hardware revenues
      compared to overall revenues will continue to decline.




Cost
      of Goods Sold .
      The net
      cost of our ITVN Service and our ITVN enabled set-top box sales revenues for
      the
      years ended December 31, 2006 and 2005 as a percentage of cost of goods sold
      are
      listed below:




**Year
                Ended**
              **December
                31, 2006**
            
            **Year
                Ended**
              **December
                31, 2005**Cost
                of service revenues
            
            $
            258,613
            
            
            15
            %
            $
            93,123
            
            
            6
            %Cost
                of hardware revenues
              Loss
                on content agreement
            
            
            325,285
              666,667
            
            
            19
              38
            %
              %
            
            1,141,403
              -
            
            
            71
              -
            %
              %Inventory
                impairment
            
            
            370,582
            
            
            21
            %
            
            316,660
            
            
            19
            %Depreciation
                on capitalized inventory
            
            
            130,911
            
            
            7
            %
            
            65,492
            
            
            4
            %Cost
                of goods sold
            
            $
            1,752,058
            
            
            100
            %
            $
            1,616,678
            
            
            100
            %





Cost
      of
      service revenues consist primarily of fees paid to content providers,
      telecommunication and network expenses, customer service fees and other expenses
      related to providing the ITVN Service. Therefore, since we pay our content
      providers a percentage of the fees we receive from our subscribers, the cost
      of
      service revenues will increase in future periods as the number of subscribers
      continues to increase.




Cost
      of
      hardware revenues include all product costs associated with the ITVN-enabled
      set-top boxes we distribute and sell including freight costs. Our proprietary
      ITVN-enabled set-top boxes are manufactured for us by third party contract
      manufacturers. Until August 2006, we sold our set-top box hardware to
      subscribers at a low price primarily as a means to grow our subscriber base
      and
      our monthly service revenues; however, we do not intend to generate significant
      gross margins, if any, from these hardware sales. As described above, in August
      2006, we commenced a new marketing strategy in which we gave subscribers a
      free
      ITVN proprietary set-top box if the subscribers entered into a 12-month
      subscription agreement. The cost of the set-top boxes that are given to
      subscribers for free is capitalized and depreciated over the expected useful
      life of the set-top box. We believe that by eliminating low margin hardware
      sales we will be able to increase the amount of long-term, higher margin
      services revenues in future periods.




Loss
      on
      content agreement relates to our agreement with NBC Universal. We have never
      implemented the Universal programming, and expect to receive a notice of
      termination from NBC Universal terminating this agreement. Accordingly, the
      investment that had been made in the project was expensed at December 31,
      2006.




18




Inventory
      impairment results from a detailed assessment of inventory performed at each
      balance sheet date, which includes a review of, among other factors, demand
      requirements and market conditions. Based on this analysis, we record
      adjustments, when appropriate, to reflect inventory at the lower of cost or
      net
      realizable value. As of December 31, 2006 and 2005, inventory was determined
      to
      be valued at greater than net realizable value and, we recognized inventory
      impairment charges of $370,582 and $316,660, respectively, to reflect the
      decrease of our inventory to its current market value. Depreciation on
      capitalized inventory represents depreciation on ITVN-enabled set-top boxes
      that
      we gave to a certain number of subscribers at no cost as a marketing promotion.
      In the event that these subscribers cancel the service, they are required to
      return the ITVN-enabled set-top box. We have retained a collections agency
      to
      collect the $99.95 that the customers agreed to pay if they do not return the
      ITVN-enabled set-top box. We capitalized the cost of the ITVN-enabled set-top
      boxes that were given away during this promotion. Depreciation relating to
      these
      boxes is calculated over their estimated useful lives.




Operating
      Expenses .
      Operating expenses for the years ended December 31, 2006 and December 31, 2005
      as a percentage of operating expenses are listed below:




**Year
                Ended**
              **December
                31, 2006**
            
            **Year
                Ended**
              **December
                31, 2005**Salaries
            
            $
            1,863,354
            
            
            25
            %
            $
            1,022,381
            
            
            27
            %Professional
                fees
            
            
            1,424,262
            
            
            19
            %
            
            1,110,380
            
            
            30
            %Sales
                and marketing
            
            
            318,786
            
            
            4
            %
            
            355,730
            
            
            10
            %Depreciation
                and amortization
            
            
            861,178
            
            
            11
            %
            
            366,372
            
            
            10
            %Stock
                based compensation
            
            
            953,272
            
            
            13
            %
            
            -
            
            
            0
            %General
                and administrative
            
            
            2,109,019
            
            
            28
            %
            
            883,303
            
            
            23
            %Operating
                Expenses
            
            $
            7,529,871
            
            
            100
            %
            $
            3,738,166
            
            
            100
            %




Salaries
      expense for the year ended December 31, 2006 increased approximately $841,000
      or
      82% compared to the year ended December 31, 2005 due to the larger number of
      employees retained by the company in 2006 compared to the number of employees
      retained during 2005. As of December 31, 2006, we had 23 full-time employees
      and
      3 contractors, compared to 18 full-time employees and 4 contractors as of
      December 31, 2005. Because of our recent change in our business plan and our
      need to adjust our level of operations based on our lack of funds, our future
      salary expenses are currently not foreseeable.




Professional
      fees consist primarily of financial, technical, and marketing consulting fees,
      as well as financial, audit, legal and public relations fees. For the year
      ended
      December 31, 2006 professional fees increased approximately $314,000 or 28%
      compared to the year ended December 31, 2005. We expect that our professional
      expenses will continue to be significant due to the costs of being a public
      company, including the costs we expect to incur to comply with the
      Sarbanes-Oxley Act of 2002 and due to the additional technical and marketing
      consulting fees that we continue to incur in connection with increasing our
      subscriber base and increasing the amount of programming that we are making
      available to our customers




Sales
      and
      marketing expenses consist primarily of fees paid for the affiliate program,
      Internet and other media advertising, special promotions, trade shows, and
      the
      production of marketing related items. During the year ended December 31, 2005,
      we participated in a major trade show to publicly introduce our products and
      services prior to our official launch in April 2005. As a result of the
      significant cost of the 2005 trade show coupled with managements focus in 2006
      on obtaining new programming content, sales and marketing expenses for the
      2005
      fiscal year exceeded the sales and marketing expenses for the 2006 fiscal year
      by approximately $37,000 or 10%.




19




Depreciation
      and amortization of fixed assets and intangible assets is provided using the
      straight-line method over the estimated useful lives of the assets. Minor
      replacements, maintenance and repairs are charged to current operations.
      Depreciation and amortization for the year ended December 31, 2006 increased
      approximately $495,000 or 135% compared to the year ended December 31, 2004
      due
      primarily to the acquisition of additional hardware and software to support
      our
      business. A substantial amount of hardware was acquired during the 2006 fiscal
      year as a result of obtaining new content for two new networks. Most of these
      costs were related to the infrastructure build out to support the Starz/Encore
      launch of 15 live channels and 150 movies on demand at any time. As we move
      towards servicing more profitable and attractive niche markets we expect to
      be
      able to use this infrastructure to support such networks at little or no
      additional cost.




General
      and administrative expenses consist primarily of travel, internet connection,
      bad debt expense, insurance and facility costs as well as individual equipment
      and software purchases below our threshold to capitalize. General and
      administrative expenses for the year ended December 31, 2006 increased
      approximately $1,226,000 or 139% compared to the year ended December 31, 2005,
      due primarily to the purchase of miscellaneous computer equipment and software
      to support the ITVN-Service, providing health insurance to employees beginning
      January 1, 2006, the settlement of a lawsuit in August 2006, increases in
      travel, entertainment, rent and utilities expenses and increases in internet
      connection fees related to the increase in subscribers and the addition of
      satellites as a means to receive new content and real-time content.




As
      a
      result of the significant increases in operating expenses, primarily the
      increases in salaries and general and administrative expenses, we incurred
      a
      loss from operations during the year ended December 31, 2006 of approximately
      $8,236,000, compared to a loss from operations of approximately $4,587,000
      for
      the year ended December 31, 2005




In
      addition to our operating loss of $8,236,000 during the year ended December
      31,
      2006, we incurred interest expense, net of interest income, of approximately,
      $1,218,000. For the year ended December 31, 2005, we recorded interest expense
      of $392,000 related primarily to interest and fees on notes payable and a letter
      of credit. Interest expense has significantly increased in 2006 because we
      issued $8,745,320 of convertible notes payable between October 2005 and December
      2006.




The
      net
      losses that we have incurred during the years ended December 31, 2006 and 2005
      have, however, been materially distorted by non-cash accounting adjustments
      related primarily to our derivative instruments. The net effect of these
      accounting adjustments has been to decrease our loss from operations of
      $8,236,435 to a net loss of $7,277,318 for the year ended December 31, 2006
      and
      to increase the net loss from operations of $4,587,317 to a net loss of
      $6,187,063 for the year ended December 31, 2005.The major components of the
      accounting adjustments are as follows:




**Year
                Ended**
            
            **Year
                Ended****December
                31, 2006**
            
            **December
                31, 2005**Interest
                expense-derivative instruments
            
            $
            (20,422,347
            )
            $
            (1,031,150
            )Amortization
                of debt discount
            
            
            (1,801,974
            )
            
            (185,195
            )Change
                in fair value of derivative instruments
            
            
            28,152,748
            
            
            6,335$
            5,928,427
            
            $
            (1,210,010
            )




“Interest
      expense - derivative instruments”  consists
      primarily of non-cash, accounting expense recognized as a result of the
      derivative liabilities recorded during the years ended December 31, 2006 and
      2005 in connection with our convertible notes payable and warrants. Proceeds
      received from the $8,310,905 of outstanding convertible notes payable were
      first
      allocated to the fair value of the freestanding warrants and then to the fair
      value of the bifurcated embedded derivative instruments included in the
      convertible notes payable. The total fair value of the warrants plus the
      embedded derivatives was greater than the amount of the convertible notes
      payable. As such, we recorded an expense of approximately $20,422,000 and
      $1,031,000 for the years ended December 31, 2006 and 2005, respectively,
      representing the difference between the total fair value of the warrants plus
      the embedded derivatives and the amount of each convertible note payable.
      Additionally, during the years ended December 31, 2006 and 2005 approximately
      $1,802,000 and $185,000, respectively, of the convertible notes payable debt
      discount was amortized.  Since the trading price of our common stock has
      decreased, we have recognized an approximate $28 million increase in the value
      of the derivative instruments for financial accounting purposes. Included
      in these adjustments is the effect of our issuance of common stock at $0.75
      per
      share which resulted in reductions to the conversion prices of the convertible
      note payable, as well as the exercise price of the related warrants. As a
      result, our net loss was increased by $1,784,000.As a result of
      these derivative-based financial statement adjustments that do not reflect
      our
      actual operations, during the past two fiscal years our GAAP net income has
      fluctuated significantly from our actual operating losses.




20




In
      connection with the sale of the Series A Convertible Preferred Stock during
      the
      year ended December 31, 2005, a dividend was recognized totaling $11,766,091.
      The consideration that we received for the shares of the Series A Convertible
      Preferred Stock consisted of cash and securities of another company. The
      dividend represents the difference between (i) the total cash proceeds plus
      the
      market value of the other securities that we received and (ii) the market value
      of the Series A Convertible Preferred Stock and warrants that we sold. The
      Series A Convertible Preferred Stock dividend is deducted from the net loss
      to
      determine the net loss attributable to common stockholders at December 31,
      2005




**Liquidity
      and Capital Resources**




To
      date,
      we have financed our operations and met our capital expenditure requirements
      primarily from the proceeds received from the sale of shares of both our common
      stock and Series A Convertible Preferred Stock, the issuance of the $4,000,000
      17% Secured Convertible Debenture, the issuance of the $1,000,000 16% Secured
      Convertible Debenture, the issuance of the $2,500,000 Variable Rate Secured
      Convertible Debentures, the issuance of an $850,000 Secured Convertible
      Debenture, loans extended to us by third party institutions and by certain
      of
      our founders and, to a lesser extent, from revenues generated from our
      operations. Revenues from operations are subject to the amount and timing of
      cash received from customers for hardware purchases and cash received from
      monthly subscriptions.




Our
      near-term goal is to generate revenues from the on-going monthly subscription
      fees paid by the subscribers for our ITVN Service. Until recently, we also
      intended to supplement our revenues through sales of our proprietary set-top
      boxes. However, in August 2006, we began offering a new subscription package
      in
      which the subscriber receives a free set-top box in exchange for a 12-month
      subscription term in an effort to increase the number of subscribers and to
      generate higher margin service revenues. Accordingly, until we implement our
      other proposed revenue initiatives (such as advertising revenues from our ITVN
      Service), subscriptions will be our major source of cash from operations. Since
      our ITVN Service was launched in April 2005, we have not yet sold or otherwise
      distributed enough set-top boxes, and therefore also do not have sufficient
      subscribers, to fund our on-going operations from monthly subscription revenues.
      Since our ITVN Service can only be used by subscribers through our proprietary
      set-top box, we need to distribute our ITVN-enabled set-top boxes to subscribers
      in order to increase our subscriber base. To date, we have purchased
      approximately 25,000 set-top boxes. While we expect the number of subscribers
      and our monthly subscription revenues to increase, we do not expect our
      subscription revenues to generate sufficient revenues to fund our on-going
      operating expenses in the near future. Accordingly, we will continue to be
      dependent on the receipt of funds generated from the sale of debt and equity
      securities to fund our operating capital needs. No assurance can be given that
      we will continue to be able to raise capital from these sources.




Currently,
      our operating expenses substantially exceed our gross profits, resulting in
      significant negative cash flow from operations. In addition, we currently have
      significant debt service obligations that further negatively effects our
      liquidity. As of December 31, 2006 we were obligated to pay interest on
      $4,352,130 and $1,043,190 of outstanding 17% and 16% Secured Convertible
      Debentures, respectively on a quarterly basis. Interest on both the 17% and
      16%
      Secured Convertible Debentures is payable in cash, except that we may, in our
      sole discretion, pay up to 50% of the amount of interest payable on any interest
      payment date by issuing additional debentures in accordance with the same terms
      as the 17% and 16% Secured Convertible Debentures. As permitted by the 17%
      Secured Convertible Debentures we have paid one-half of the January 31, April
      30, July 31, October 31, 2006 and January 31, 2007 interest payments that had
      accrued under the 17% Secured Convertible Debenture by issuing additional 17%
      Secured Convertible Debentures (having an aggregate face amount of $445,386).
      As
      permitted by the 16% Secured Convertible Debenture we have paid one-half of
      the
      July 31, October 31, 2006 and January 31, 2007 interest payments by issuing
      additional 16% Convertible Debentures (having an aggregate face amount of
      $64,240). Whereas the optional Interest Debentures were issued as required
      for
      the January 31, 2007 interest payments, the cash portion of the interest due
      was
      not paid and remains recorded as Interest Payable at April 15, 2007. As a
      result, the 17% and 16% Secured Convertible Debentures are in default and
      accordingly, the debentures and related derivative financial instruments are
      classified as current liabilities in the financial statements included in Item
      7, herein. We will be required to make monthly principal payments of $222,222
      and $55,555 under the 17% and 16% Secured Convertible Debentures commencing
      in
      May 2007 and November 2007, respectively, and continuing until the debentures
      are repaid in full.




21




On
      June
      20, 2006, we issued Variable Rate Secured Convertible Debentures for $2,500,000.
      Approximately $1,000,000 of the net proceeds we received from the sale of the
      Variable Rate Secured Convertible Debentures has been used to acquire additional
      equipment needed to receive, store and/or deliver additional video channels
      introduced during the current fiscal year. The balance of the net proceeds
      have
      been used to fund our working capital requirements. The Variable Rate Secured
      Convertible Debentures accrue interest on the aggregate unconverted and then
      outstanding principal amount of the debentures at the rate per annum equal
      to
      the greater of (i) 15% or (ii) LIBOR for the applicable interest period plus
      5.0%. Interest is payable quarterly in arrears on the first day of each January,
      April, July, and October, commencing on July 1, 2006. Subject to our
      satisfaction of certain conditions, interest is payable, at our option, in
      cash
      or shares of common stock valued at 90% of the average of the daily volume
      weighted average price of our common stock (“VWAP”) for the 20 consecutive
      trading days ending on the trading day that is immediately prior to the
      applicable interest payment date. Since November 1, 2006, we have been obligated
      to make monthly principal payments of $125,000 under the Variable Rate Secured
      Convertible Debentures. The monthly payments of principal also may, at our
      option, be paid in cash or in shares of our common stock. If we elect to make
      any principal payment in shares of our common stock, the shares of common stock
      will be valued at a price equal to the lesser of (i) the conversion price then
      in effect (initially $2.00, subject to anti-dilution adjustments) and (ii)
      90%
      of the average of the VWAPs for 20 consecutive trading days. As of December
      31,
      2006, we have issued 388,269 shares of our common stock as payment of a
      total of $497,893 of principal and interest under the Variable Rate Secured
      Convertible Debentures. We have recently held discussions with the holders
      of
      the Variable Rate Secured Convertible Debentures regarding restructuring the
      periodic payments (in both cash and stock) due under these debentures. To date,
      no agreement has been reached with the holders of our defaulted debentures,
      and
      no assurance can be given that we will be able to reach an agreement with the
      debenture holders regarding any revision to the terms of the debentures.




In
      December 2006 we executed a secured convertible debenture for $850,000. The
      debenture evidenced a loan made to us in November 2006 by the holder of the
      17%
      debentures and the 16% debentures and is secured by substantially all of our
      personal property. Additionally, 4,500,000 shares of our common stock have
      been
      pledged by various shareholders as security. The debenture was due in January
      2007 but has not been paid. Accordingly, we are currently in default under
      that
      loan. The loan states that interest will accrue at a rate of 5% per month.




Our
      obligations under both the foregoing 17% debentures and the 16% debentures
      are
      secured by a security agreement, pursuant to which we granted to the holder
      of
      those debentures a first priority security interest in all of this company’s
      personal property assets. In addition, we have granted the holders of the
      Variable Rate Secured Convertible Debentures a second priority lien on our
      assets. Currently, we are not in compliance with certain of the covenants and
      provisions of the foregoing debentures and have not made all required interest
      payments. Accordingly, the holders of our outstanding debentures have the right
      to accelerate the repayment of their debentures and, if we do not fully repay
      those obligations, to foreclose on our assets. To date, the holders of the
      debentures have not declared a default under the debentures and have not
      accelerated their loans. However, we have no agreement with our debenture
      holders regarding the waiver or deferral of any of our obligations to the
      debenture holders, and the debenture holders may foreclose on our assets at
      any
      time.




22




As
      indicated above, our operations currently do not generate sufficient cash to
      fund either our cash working capital/operating needs or our debt service
      obligations. In addition, the funds we currently have on hand are not sufficient
      to fund all of our anticipated working capital needs through the end of the
      second quarter of 2007. Since we do not project that our monthly subscription
      revenues will be sufficient to fund all of our working capital needs by the
      end
      of the first quarter of 2007, we will have to obtain additional funds from
      either loans from affiliates or third parties, loans from unrelated parties
      or
      from additional sales of our securities. Under the current covenants on some
      of
      our outstanding debentures, any proceeds raised from the sale of our debt/equity
      securities, at the option of the holder, will have to be used to repay all
      of
      the 16% Convertible Debenture and up to half of the 17% Convertible Debenture.
      Accordingly, because of the foregoing terms of the debentures, and our current
      default under those debentures, our ability to raise additional capital to
      fund
      our anticipated working capital needs is severely limited. We do not have any
      written commitments from any affiliates or any third parties for additional
      loans. We cannot assure you that additional financing will be available to
      us,
      on a timely basis, or at all, to enable us to continue to operate our business.
      Furthermore, if we raise additional funds through the issuance of equity or
      equity-linked debt securities, the terms of such securities may be unfavorable
      to our existing stockholders, those securities may have rights, preferences
      or
      privileges senior to the rights of our common stock, and our stockholders may
      experience dilution.




The
      following table summarizes our cash flow activities during the year ended
      December 31, 2006:




**Year
                Ended December 31, 2006**Net
                cash used in operating activities
            
            $
            5,684,498Net
                cash used in investing activities
            
            $
            1,124,815Net
                cash provided by financing activities
            
            $
            5,428,350





Cash
      flows used in operating activities for the year ended December 31, 2006 largely
      reflect the operating losses that we incurred in connection with establishing
      and growing our business and operations. Our financial statement net loss for
      the year ended December 31, 2006 exceeded our cash flows used in operating
      activities due in large part to non-cash charges resulting from (i) $1,802,000
      of debt discount amortization and $20,422,000 of embedded derivates (which
      were
      offset by a $28,153,000 of the change in the fair value of such instruments
      that
      were recognized in connection with the issuance of our 17% and 16% Secured
      Convertible Debentures and Variable Rate Secured Convertible Debenture
      debentures) (ii) $992,000 of depreciation and amortization, and (iii) $953,000
      of non-cash expenses for stock based compensation. During the year ended
      December 31, 2006, the effect of the non-cash charges was partially offset
      by
      the sale of ITVN enabled set-top boxes and payments received from retailers
      on
      account. Cash flows used in investing activities for the year ended December
      31,
      2006 consisted primarily of $1,140,000 of fixed assets, principally satellite
      dishes, encoding servers and computer equipment, which we purchased to support
      an anticipated increase in our business and operations. Cash flows provided
      by
      financing activities for the year ended December 31, 2006 represented the
      proceeds from the issuance of the $1,000,000 16% Secured Convertible Debentures,
      the $2,500,000 of Variable Rate Secured Convertible Debentures and the $850,000
      Secured Convertible Debenture.




23




The
      following is a summary of our contractual cash obligations as of March 30,
      2007:


**Contractual
                  Obligations**
              
              **Total**
              
              **2007**
              
              **2008**
              
              **2009
                  and Thereafter**Related
                  party notes payable
              
              $
              956,593
              
              $
              956,593
              
              $
              -
              
              $
              -17%
                  Debentures (1)
              
              $
              4,352,130
              
              $
              4,352,130
              
              $
              -
              
              $
              -16%
                  Debenture (1)
              
              $
              1,043,190
              
              $
              1,043,190
              
              $
              -
              
              $
              -17%
                  Debenture issued 1-31-07 (1)
              
              $
              93,256
              
              $
              93,256
              
              $
              -
              
              $
              -16%
                  Debenture issued 1-31-07 (1)
              
              $
              21,050
              
              $
              21,050
              
              $
              -
              
              $
              -Variable
                  rate debentures
                Secured
                  convertible debenture
              
              $
                $
              2,069,325
                850,000
              
              $
                $
              1,319,325
                850,000
              
              $
                $
              750,000
                -
              
              $
                $
              -
                -


(1)
      The
      17% and 16% Debentures are in default of certain of their debt covenants and
      accordingly, the outstanding contractual obligation is show due in
      2007.




As
      part
      of our ongoing business, we generally do not engage in transactions that
      generate relationships with unconsolidated entities or financial partnerships,
      such as entities often referred to as structured finance or special purpose
      entities. Accordingly, our operating results, financial condition, and cash
      flows are not generally subject to off-balance sheet risks associated with
      these
      types of arrangements. We did not have any material off-balance sheet
      arrangements at December 31, 2006.




We
      do not
      believe that inflation has had a material impact on our business or
      operations.




FACTORS
      THAT MAY AFFECT OUR BUSINESS AND OUR FUTURE RESULTS




We
      face a
      number of substantial risks. Our business, financial condition, results of
      operations and stock price could be harmed by any of these risks. The following
      factors should be considered in connection with the other information contained
      in this Annual Report on Form 10-KSB.




Risks
      Related To Our Business




**We
      have limited working capital and must raise additional capital in order to
      continue to operate.**




As
      of
      December 31, 2006, we had
      stockholders' deficit of $7,334,380. Our operating expenses for fiscal 2006
      were
      $5,700,000, excluding non-cash expenses such as depreciation, amortization
      and
      stock based compensation expenses. In addition, we incurred a gross loss during
      fiscal 2006 of $707,000 and incurred a total of $1,228,000 of interest expense
      during fiscal 2006. Although our subscription revenues and hardware sales have
      recently increased, our operating revenues are not sufficient to fund our
      operating expenses and are not expected to increase sufficiently in the near
      term to fund the foregoing operating deficits. The limited amount of cash
      available to us as of the date of the filing of this Annual Report is not
      sufficient to fund our anticipated operating needs for more than a few months.
      Accordingly, in order to continue to operate, we must obtain additional funding
      from debt or equity offerings, strategic partnerships or the sale of some of
      our
      assets. To fund our future operations we will need substantial additional debt
      or equity financing, for which we currently have no commitments or arrangement.
      We cannot assure you that any additional financing will be available to us
      in
      the future or, even if it is available that it will be on terms acceptable
      to
      us. If we raise additional funds by selling stock, the ownership of our existing
      stockholders will be diluted. Any inability to obtain required financing would
      have a material adverse effect on our business, results of operations and
      financial condition. In the event that we do not obtain all of the funds
      required to operate our business in the near future, we will have to reduce
      our
      operations to a level that can be supported by our limited cash flow, abandon
      certain business plans, or even terminate our operations
      altogether.




24




**We
      are currently in default under our outstanding secured debentures and could
      be
      subject to foreclosure actions at any time. The debentures are secured by liens
      on all of our assets. If any foreclosure actions are initiated, we could lose
      our entire our business, and our stockholders would lose their entire
      investment.**




We
      currently have outstanding debentures that, as of December 31, 2006, had an
      outstanding principal balance of $8,310,905. All of the foregoing debentures
      are
      secured by security interests on all of our assets. We currently are technically
      in default under our outstanding debentures. Accordingly, the holder of any
      of
      the debentures could at any time declare a default under the debentures,
      accelerate the maturity dates of the debentures, and thereafter commence
      foreclosure proceedings. In the event of a foreclosure proceeding, all of our
      assets would be seized to satisfy our obligations to the debenture holders,
      which would cause our operations to be sold and would result in a loss of each
      stockholders investment in this company. To date, none of the debenture holders
      has declared a default. However, we have not entered into any forbearance or
      agreements with the debenture holders under which the holders have agreed not
      to
      declare a default and foreclose. Therefore, a foreclosure could be initiated
      at
      any time.




**The
      default under our outstanding debentures limits our ability to raise capital
      or
      to enter into strategic partnerships or disposition transactions. Any funds
      received by us in a third party strategic partnership or asset disposition
      transaction would first be allocated to the debenture holders, which may not
      leave any such funds available for the stockholders.**




Because
      we need additional funding to continue our operations and to fund our business
      plan, we need to raise additional debt or equity funding. However, because
      we
      are in default under our debentures and, therefore, could lose our assets in
      a
      foreclosure at any time, investors and lenders are reluctant to provide us
      with
      additional funding. Any additional funding would require us to renegotiate
      and
      restructure the terms of our currently outstanding debentures. No assurance
      can
      be given that the holders of the debentures would agree to restructure the
      terms
      of their debentures, or if they did agree, that such revised terms would be
      satisfactory to any new funding source. Furthermore, we have been exploring
      entering into alternative transactions with third parties in order to maintain
      value for our stockholders, our debenture holders and our other creditors.
      However, any strategic partnership or disposition transaction will also depend
      upon our ability to satisfy our debenture holders. Should we enter into any
      transaction with a third party regarding a strategic partnership or a sale
      or
      other disposition of some or all of our assets, because our assets are subject
      to liens in favor of the debenture holders, any proceeds received in such a
      transaction would first have to be applied to satisfy our debentures. Depending
      on the proceeds we receive from any third party transaction, little or no
      proceeds may be available to the other creditors of this company or to the
      stockholders.




**We
      are an early-stage company subject to all of the risks and uncertainties of
      a
      new business.**




We
      should
      be evaluated as an early-stage company, subject to all of the risks and
      uncertainties normally associated with a new companies. We did not commercially
      launch our ITVN Services until April 2005, and have only generated a total
      of
      $1,813,000 of revenues since then. As an early-stage company, we expect to
      incur
      significant operating losses. Based on our internal projections, we do not
      expect that our monthly sales and subscription revenues will be able to pay
      all
      of our projected operating expenses until we have distributed all of the 25,000
      set-top boxes that we have purchased to monthly paying customers. No assurance
      can be given that we will ever have sufficient continuous subscribers or that
      we
      will generate revenues sufficient for us to become profitable.




**Our
      auditors have issued a going concern opinion because of doubts about our ability
      to continue as an operating concern.**




Our
      auditors have included a going concern opinion on our financial statements
      because we have not generated
      sufficient cash flows to meet our obligations and sustain our operations. If
      we
      are unable to continue as a going concern, you could lose your entire investment
      in us.




25






**Many
      very large and well-funded companies have announced that they are entering
      into
      various aspects of the IPTV market that we serve or that they are offering
      products that indirectly compete with our services. These companies will be
      able
      to offer products and technologies that will directly compete with our products
      and technology.**




Although
      IPTV is still a relatively new and developing technology, numerous world class
      companies have announced their intention to enter into various aspects of
      delivering movies and television programming over the Internet using IPTV
      technology (the technology that we use in delivering our ITVN Services) or
      other
      download devices that are currently on the market. The companies that have
      announced IPTV technologies include U.S and European telecommunications
      companies (such Verizon, AT&T, Bellsouth, France Telecom, Deutsche Telekom),
      set-top box manufacturers (such as Linksys-KiSS, a division of Cisco Systems,
      Motorola, Scientific-Atlanta, Tatung Co. and Thomson), and software companies
      (such as Microsoft). Companies that have announced movie download services
      for
      watching movies at home include Apple Inc. (iTunes), Starz Entertainment Media
      Group (Vongo), Netflix, Wal-Mart, Amazon and TiVo. There currently are a number
      of companies worldwide that have already deployed IPTV services, although most
      of those companies, like our company, still only have a relatively small number
      of subscribers. As a result, we expect that competition for subscribers and
      competition among IPTV delivery services and Internet movie delivery services
      will dramatically increase in the very near future. As a small, early-stage
      company, it is uncertain if and how we will be able to compete with the new
      competitors and products that are being announced and deployed. While we believe
      that we currently have a competitive advantage because we are already offering
      an operational service and because we offer a large library of programming,
      we
      cannot give any assurance that we will in fact be able to successfully compete
      with the existing or new competitors in this new and evolving marketplace.
      Although we do not believe that video content delivered to home computers
      directly competes with our 1`ITVN Services (which delivers video content
      directly to home television sets), a number of hybrid technologies have recently
      been introduced that transfer Internet content to television sets. For example,
      TiVo, Inc. has introduced a new feature that allows subscribers to download
      videos off the Web to their televisions, and AT&T has launched its Homezone
      service that combines satellite TV with Web-based movie content for television
      viewing. These other technologies may also compete with our ITVN Services and
      could reduce the potential market for our IPTV-based system.




**The
      success of our business depends on the growth of our content library, the growth
      of our subscriber base, and negotiations of favorable pricing terms with content
      providers.**




Although
      we have significantly increased the amount of programming that is now available
      to our subscribers (including the 15
      recently launched Starz and Encore channels, the 150 on demand movies per month,
      the new Setanta sports channel, music videos, radio broadcasts, and classic
      movies), our ITVN Services currently only appeal to viewers who are interested
      in those channels and not to the much larger audience that we believe will
      be
      interested in our products and services when our business plan is fully
      implemented. Having only a limited number of channels available at this time
      limits the reach of our marketing and sales efforts. Our strategy depends on
      expanding the content available using our set-top boxes, which in turn depends
      on our relationships with production and distribution companies that control
      content. We will need to develop and maintain such relationships as we expand
      our business to provide additional content. There can be no assurance, however,
      that we will be able to develop and maintain such relationships. If we are
      unable to increase the amount and variety of programming we obtain from content
      providers, we may be forced to change our strategy, which could have a material
      adverse effect on the results of our operations, or to abandon the media
      delivery business despite our investment in infrastructure supporting such
      a
      business.




**We
      have only had limited product sales to date, and we can give no assurance that
      our products and services will be accepted by the market.**




We
      launched the sale of our set-top boxes in April 2005. Although our set-top
      boxes
      and network have functioned satisfactorily to date, no assurance can be given
      that our ITVN set-top boxes and the IPTV video programming that can be accessed
      through the set-top boxes will work satisfactorily in large scale commercial
      usage. Any unanticipated problems with our set-top boxes, or the ability to
      deliver high resolution video programming, would limit our ability to market
      our
      products and services. Because we have only been offering our products and
      services since April 2005, we do not have sufficient market data to predict
      whether our products and services will be accepted by the IPTV or
      video-on-demand markets, or whether any subscribers of our services will
      continue to subscribe to our services. Our current business model is based
      on
      maintaining a base of on-going monthly subscribers. Because the majority of
      our
      subscribers were obtained over the past twelve months, we have a limited history
      from which we can predict the success of our business model. Accordingly, we
      have limited experience in selling our ITVN set-top boxes and providing our
      services on which to base any prediction about our future operations and
      viability.




26




**If
      we are unable to compete effectively with other forms of entertainment, we
      will
      not be able to increase subscriber revenue.**




We
      face
      general competition from other forms of entertainment, including sporting and
      cultural events, other television networks, feature films and other programming.
      Our ability to compete depends on many factors, most of which are outside of
      our
      control. These factors include the quality and appeal of our competitors'
      content, the technology utilized by our competitors, the effectiveness of their
      sales and marketing efforts and the attractiveness of their product offerings.
      Our existing competitors, as well as potential new competitors, may have
      significantly greater financial, technical and marketing resources than we
      do.
      This may allow them to devote greater resources than we can to the development
      and promotion of their product offerings. These competitors may also engage
      in
      more extensive technology research and development and adopt more aggressive
      pricing policies for their content. Additionally, increased competition could
      result in price reductions and lower margins which could negatively impact
      our
      financial results.




**We
      may be liable for the content we make available on the
      Internet.**




Because
      we deliver adult programming as part of our ITVN Service, we may be subject
      to
      obscenity or other legal claims by third parties. Our business, financial
      condition and operating results could be harmed if we were found liable for
      this
      content. Implementing measures to reduce our exposure to this liability may
      require us to take steps that would substantially limit the attractiveness
      of
      our ITVN Service and/or its availability in various geographic areas, which
      would negatively impact our ability to generate revenue. Furthermore, we may
      not
      have insurance that adequately protects us against all of these types of
      claims.




**Increased
      government regulation on the distribution of adult oriented content could impede
      our ability to expand our business.**




We
      currently are not aware of any Federal or state laws or regulations that limit
      the delivery of adult oriented entertainment over the Internet. In fact,
      accessing adult oriented materials has been one of the major uses of the
      Internet and a driving force behind consumer adoption of new technologies.
      However, new laws or regulations, or the new application of existing laws could
      prevent us from making our adult oriented content available in various
      jurisdictions or could otherwise restrict some of our operations in a manner
      that would have a material adverse effect on our business, financial condition
      and operating results. These new laws or regulations may relate to liability
      for
      information retrieved from or transmitted over the Internet, taxation, user
      privacy and other matters relating to our products and services. Moreover,
      the
      application to the Internet of existing laws governing issues such as
      intellectual property ownership and infringement, pornography, obscenity, libel,
      employment and personal privacy is uncertain and developing.




The
      current administration in Washington D.C. has publicly announced that it intends
      to restrict matters deemed to be obscene, including adult entertainment. Efforts
      by the current administration to limit the delivery of adult content over the
      Internet could result in increased government regulation of the adult portion
      of
      our business and limit that portion of our operations. It is not possible for
      us
      to predict what new governmental regulations we may be subject to in the
      future.




27




**Because
      we carry an adult oriented channel, we may become subject to negative publicity,
      lawsuits or boycotts by opponents of adult entertainment, all of which could
      adversely affect our operating performance.**




Because
      we offer a channel of adult video content, we could become a target of negative
      publicity, lawsuits or boycotts by one or more advocacy groups who oppose the
      distribution of material they believe to be obscene. These groups have, in
      the
      past, mounted negative publicity campaigns, filed lawsuits and encouraged
      boycotts against other companies whose businesses involve adult entertainment.
      The costs of defending against any such negative publicity, lawsuits or boycotts
      could be significant, could hurt our finances and could discourage investors
      from investing in our publicly traded securities. As a provider of adult
      entertainment, we cannot assure you that we may not become a target in the
      future.




**We
      need to effectively manage our growth and the execution of our business plan.
      Any failure to do so would negatively impact our results.**




To
      manage
      operations effectively, we must constantly improve our operational, financial
      and other management processes and systems. Our success also depends largely
      on
      our ability to maintain high levels of employee utilization, to manage our
      costs
      and administrative expenses, and otherwise to execute on our business plan.
      We
      need to develop our new technology business in a cost-efficient manner and
      expand our base of subscribers to effectively implement our business strategies.
      There are no assurances that we can effectively and efficiently manage this
      growth. Any inability to do so could increase our expenses and negatively impact
      our results of operations.




**Because
      we have no proprietary technology that could act as an absolute barrier to
      entry, other companies can and do provide similar video delivery services that
      directly compete with our ITVN Service.**




The
      set-top box that we sell or otherwise provide to our subscribers for access
      to
      our video library was developed based on existing technologies and on commonly
      available components. Although we believe that certain aspects of the set-top
      box may be protected by trade secret laws, we do not own any patents on the
      set-top boxes or the technologies used to make or operate them. Accordingly,
      competitors can develop, and have developed set-top boxes or other IPTV
      technologies that provide Internet video delivery services that are comparable
      or better than the ITVN Service that we provide. To our knowledge, at least
      two
      major telecommunications companies are developing their own set-top box that
      is
      expected to have at least the same functionality as ours. Although the set-top
      boxes of other companies will not be able to access our channels or view our
      video content, these other set-top boxes will directly compete with us for
      customers based on price, quality of service, and the selection of video
      programming.




**New
      technological advances may render our equipment and our ITVN Service
      uneconomical or obsolete.**




Delivery
      of video content over the Internet by use of IPTV or related technologies is
      a
      new and rapidly developing market. As a development-stage company that is
      competing in a market that is undergoing rapid technological changes, we face
      the risk that our technology will become obsolete or that consumer demands
      will
      change to favor alternative or improved technologies. A number of major, well
      funded companies are developing technologies that deliver video content over
      the
      Internet, and the products that these companies offer may be cheaper and/or
      be
      more advanced than our ITVN Service. No assurance can be given that we will
      be
      able to adapt to new technological changes or to the new technologically
      advanced products others may offer. Unless we can upgrade our system to conform
      to technological change, our ITVN Service may become obsolete.




28




**RISKS
      RELATED TO OUR COMMON STOCK**




**Our
      stock is thinly traded, so you may be unable to sell your shares at or near
      the
      quoted bid prices if you need to sell a significant number of your
      shares.**




The
      shares of our common stock are thinly-traded on the OTC Bulletin Board, meaning
      that the number of persons interested in purchasing our common shares at or
      near
      bid prices at any given time may be relatively small or non-existent. This
      situation is attributable to a number of factors, including the fact that we
      are
      a small company which is relatively unknown to stock analysts, stock brokers,
      institutional investors and others in the investment community that generate
      or
      influence sales volume, and that even if we came to the attention of such
      persons, they tend to be risk-averse and would be reluctant to follow an
      unproven, early stage company such as ours or purchase or recommend the purchase
      of our shares until such time as we became more seasoned and viable. As a
      consequence, there may be periods of several days or more when trading activity
      in our shares is minimal or non-existent, as compared to a seasoned issuer
      which
      has a large and steady volume of trading activity that will generally support
      continuous sales without an adverse effect on share price. We cannot give you
      any assurance that a broader or more active public trading market for our common
      shares will develop or be sustained, or that current trading levels will be
      sustained. Due to these conditions, we can give you no assurance that you will
      be able to sell your shares at or near bid prices or at all if you need money
      or
      otherwise desire to liquidate your shares.




**Because
      we** **currently
      have outstanding convertible debentures and warrants with embedded derivatives,
      we will have to record non-operating, non-cash expenses or income based on
      fluctuations in our stock price, which accounting adjustments could distort
      our
      balance sheet, income statement and stockholders’ equity
      (deficit).**




Because
      we have outstanding securities that have embedded derivatives related to them,
      we will have to record either income or loss in our financial statements on
      each
      date that we issue our financial statements depending on the trading price
      of
      our stock on the balance sheet date, the trading volatility of our stock and
      other factors. The accounting treatment of derivative financial instruments
      requires that we record the Debentures, the 16% Secured Convertible Debenture
      and the 17% Secured Convertible Debenture and related warrants at their fair
      values as of each balance sheet date. Therefore, when we issue either our
      quarterly or annual financial statements, any change in fair value of the
      derivatives is recorded as non-operating, non-cash income or expense at each
      reporting date and the amount of liabilities reflected on our balance sheet
      related to the embedded derivate is either increased or decreased. For example,
      if the trading price of our common stock is higher on a subsequent balance
      sheet
      date, the derivatives will be deemed to have a higher fair value and we will
      be
      required to record a non-operating, non-cash charge on our financial statements.
      Accordingly, if the price of our stock price is higher, we will have to reduce
      our financial statement income (or increase the amount of our net loss) as
      a
      result of the required accounting adjustment. Conversely, if the price of our
      common stock is lower at a subsequent balance sheet date, we will be required
      to
      record non-operating, non-cash income, which will increase our net income (or
      reduce our net loss). Depending on the size of the stock price fluctuations,
      these accounting adjustments may be significant if the price of our common
      stock
      fluctuates significantly. The financial statement adjustments related to our
      outstanding derivates could negatively impact an investor’s understanding of our
      financial results and condition.




**You
      may have difficulty selling our shares because they are deemed “penny
      stocks”.**




Since
      our
      common stock is not listed on the Nasdaq Stock Market, if the trading price
      of
      our common stock remains below $5.00 per share, trading in our common stock
      will
      be subject to the requirements of certain rules promulgated under the Securities
      Exchange Act of 1934, as amended (the “Exchange Act”), which require additional
      disclosure by broker-dealers in connection with any trades involving a stock
      defined as a penny stock (generally, any non-Nasdaq equity security that has
      a
      market price of less than $5.00 per share, subject to certain
      exceptions) and a
      two business day “cooling off period” before brokers and dealers can effect
      transactions in penny stocks. Such rules require the delivery, prior to any
      penny stock transaction, of a disclosure schedule explaining the penny stock
      market and the risks associated therewith and impose various sales practice
      requirements on broker-dealers who sell penny stocks to persons other than
      established customers and accredited investors (generally defined as an investor
      with a net worth in excess of $1,000,000 or annual income exceeding $200,000
      individually or $300,000 together with a spouse). For these types of
      transactions, the broker-dealer must make a special suitability determination
      for the purchaser and have received the purchaser’s written consent to the
      transaction prior to the sale. The broker-dealer also must disclose the
      commissions payable to the broker-dealer, current bid and offer quotations
      for
      the penny stock and, if the broker-dealer is the sole market-maker, the
      broker-dealer must disclose this fact and the broker-dealer’s presumed control
      over the market. Such information must be provided to the customer orally or
      in
      writing before or with the written confirmation of trade sent to the customer.
      Monthly statements must be sent disclosing recent price information for the
      penny stock held in the account and information on the limited market in penny
      stocks. The additional burdens imposed upon broker-dealers by such requirements
      could discourage broker-dealers from effecting transactions in our common stock,
      which could severely limit the market liquidity of the common stock and the
      ability of holders of the common stock to sell their shares.




29




**Anti-takeover
      provisions in our articles of incorporation could affect the value of our
      stock.**




Our
      Articles of Incorporation contains certain provisions that could be an
      impediment to a non-negotiated change in control. In particular, without
      stockholder approval we can issue up to 1,666,667 shares of preferred stock
      with
      rights and preferences determined by our Board of Directors. These provisions
      could make a hostile takeover or other non-negotiated change in control
      difficult, so that stockholders would not be able to receive a premium for
      their
      common stock.




**Potential
      issuance of additional common and preferred stock could dilute existing
      stockholders.**




We
      are
      authorized to issue up to 75,000,000 shares of common stock. To the extent
      of
      such authorization, our Board of Directors has the ability, without seeking
      stockholder approval, to issue additional shares of common stock in the future
      for such consideration as the Board of Directors may consider sufficient. The
      issuance of additional common stock in the future will reduce the proportionate
      ownership and voting power of the common stock offered hereby. We are also
      authorized to issue up to 5,000,000 shares of preferred stock, of which
      3,333,333 have been designated as the Series A Preferred. The Board of Directors
      has right to establish the rights and preferences of the remaining 1,666,667
      shares of preferred stock, which designation of new series of preferred stock
      may be made without stockholder approval, and could create additional securities
      which would have dividend and liquidation preferences over the common stock
      offered hereby. Preferred stockholders could adversely affect the rights of
      holders of common stock by:




·
            exercising
                voting, redemption and conversion rights to the detriment of the
                holders
                of common stock;




·
            receiving
                preferences over the holders of common stock in the event of our
                dissolution or liquidation;




·
            delaying,
                deferring or preventing a change in control of our company;
                and




·
            discouraging
                bids for our common stock.




**Our
      existing directors and officers hold a substantial amount of our common stock
      and may be able to prevent other stockholders from influencing significant
      corporate decisions.**




As
      of
      December 31, 2006, our directors and executive officers beneficially owned
      approximately 30% of our outstanding common stock. These stockholders, if they
      act together, may be able to influence the outcome of matters requiring approval
      of the stockholders, including the election of our directors and other corporate
      actions such as:




·
            our
                merger with or into another company;




30




·
            a
                sale of substantially all of our assets; and




·
            amendments
                to our articles of incorporation.




The
      decisions of these stockholders may conflict with our interests or those of
      our
      other stockholders.




**Substantial
      number of shares have become eligible for public re-sale, the sales of which
      could cause our stock price to fall.**




As
      of
      April 16, 2006, we had outstanding 29,398,494 shares of common stock. Of all
      of
      the currently issued and outstanding shares, only 6,025,520
      shares have either been registered for resale or are otherwise freely tradable.
      However, as a result of the registration of the shares underlying our currently
      outstanding Series A Convertible Preferred Stock and related outstanding
      warrants, our currently outstanding 17% Secured Convertible Debentures and
      related outstanding warrants, our currently outstanding 16% Secured Convertible
      Debentures and related outstanding warrants, our currently outstanding $850,000
      Secured Convertible Debenture and our currently outstanding $2,500,000 Variable
      Rate Secured Convertible Debentures and related outstanding warrants, a total
      of 18,551,089 additional shares of our common stock could be issued and
      would immediately be able to be freely sold on the market. During the past
      year,
      however, the average daily trading volume of our shares has been extremely
      low,
      and there have been many days in which no shares were traded at all.
      Accordingly, issuance and the sudden sale of 18,551,089 additional freely
      trading shares, or the perception that such shares will or could come onto
      the
      market, could have an adverse affect on the trading price of the stock. In
      addition, most of the currently unregistered outstanding shares are
      eligible, subject to applicable volume restrictions for public resale under
      Rule 144. Therefore, the number of shares eligible for public re-sale on the
      OTC
      Bulletin Board could significantly increase if and when the currently eligible
      Rule 144 shares are sold by the holders of those restricted shares. No
      prediction can be made regarding the effect that sales (or possible sales)
      of
      the shares that were registered in the three currently effective registration
      statements, or the shares that are currently subject to sale under Rule 144,
      will have on the market prices prevailing from time to time. Even if all of
      the
      shares that become available for resale are not sold at the time that they
      are
      eligible for re-sale, the possibility that a substantial number of shares of
      common stock may be sold in the public market may itself adversely affect
      prevailing market prices for our common stock and could impair our ability
      to
      raise capital through the sale of our equity securities.




**The
      market price of our stock may be adversely affected by market
      volatility.**




The
      market price of our common stock is likely to be volatile and could fluctuate
      widely in response to many factors, including:




·
            announcements
                by us or our competitors;




·
            announcements
                of technological innovations by us or our
                competitors;




·
            announcements
                of new products or new contracts by us or our
                competitors;




·
            actual
                or anticipated variations in our operating
                results;




·
            changes
                in financial estimates by securities analysts and whether our earnings
                meet or exceed such estimates;




·
            conditions
                and trends in the Internet, entertainment or other
                industries;




31




·
            general
                economic, political and market conditions and other factors;
                and




·
            the
                occurrence of any of the risks described in this Quarterly
                Report.




**ITEM
      7. FINANCIAL STATEMENTS.**




The
      consolidated financial statements and the reports and notes, which are attached
      hereto beginning at page F-1, are incorporated herein by reference.




**ITEM
      8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE.**




Not
      applicable.




**ITEM
      8A. CONTROLS AND PROCEDURES**




We
      maintain disclosure controls and procedures that are designed to ensure that
      information required to be disclosed in our Exchange Act reports is recorded,
      processed, summarized and reported within the time periods specified in the
      Securities and Exchange Commission’s rules and forms and that such information
      is accumulated and communicated to this company’s management, including our
      Chief Executive Officer and Chief Financial Officer, as appropriate, to allow
      for timely decisions regarding required disclosure. In designing and evaluating
      the disclosure controls and procedures, management recognizes that any controls
      and procedures, no matter how well designed and operated, can provide only
      reasonable assurance of achieving the desired control objectives, and management
      is required to apply its judgment in evaluating the cost-benefit relationship
      of
      possible controls and procedures.




As
      required by Securities and Exchange Commission Rule 13a-15(b), we carried out
      an
      evaluation, under the supervision and with the participation of the Company’s
      management, including our Chief Executive Officer and the Company’s Chief
      Financial Officer, of the effectiveness of the design and operation of our
      disclosure controls and procedures as of the end of the quarter covered by
      this
      report. Based on the foregoing, our Chief Executive Officer and Chief Financial
      Officer concluded that our disclosure controls and procedures are effective
      to
      ensure the information required to be disclosed in our reports filed or
      submitted under the Exchange Act is timely recorded, processed and reported
      within the time periods specified in the Securities and Exchange Commission
      rules and forms.




There
      has
      been no change in our internal control over financial reporting during our
      most
      recent fiscal quarter that has materially affected, or is reasonably likely
      to
      materially affect, our internal control over financial reporting.




**ITEM
      8B. OTHER INFORMATION**




None.




32





**PART
      III**




**ITEM
      9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT**




**Directors
      and Executive Officers**




The
      following table sets forth the name, age and position held by each of our
      executive officers and directors as of March 31, 2007 Directors are elected
      for
      a period of one year and thereafter serve until the next annual meeting at
      which
      their successors are duly elected by the stockholders.




**Name**
            
            **Age**
            
            **Position**Charles
                Prast
            
            41
            
            Chief
                Executive Officer, Interim Chief Financial Officer, Secretary and
                DirectorMichael
                Martinez
            
            41
            
            President
                and DirectorJoseph
                J. Scotti(1)
            
            48
            
            Director,
                Executive Vice-President of ProgrammingGeoffrey
                Brown(1)
            
            60
            
            DirectorJohn
                Wirt(1)
            
            43
            
            Director







(1)  Member
      of
      our Audit Committee.





**Business
      Experience and Directorships**




The
      following describes the backgrounds of current directors and the key members
      of
      our management team. All of our officers and directors also currently hold
      the
      same offices with ITVN, Inc., our operating subsidiary.




Michael
      Martinez, President. Mr. Martinez is a founder of ITVN and has served as its
      President since its incorporation in December 2003. Mr. Martinez became the
      President of this company on June 3, 2005 after this company acquired ITVN.
      Since 2003, Mr. Martinez has also been operating his real estate investment
      business. From 1999 to 2002, he was the Executive Vice President of Sales and
      Marketing for Cais Internet, Inc. From 1997 to 1999, he was the Vice President
      of Alternate Sales Channels for Telepacific, Inc. From 1993 to 1997, Mr.
      Martinez owned and operated CyberLink Technologies, Inc. Mr. Martinez founded
      Coast to Coast Communications, Inc. in 1989 which he sold to LA Cellular in
      1993.




Charles
      Prast, Chief Executive Officer, Interim Chief Financial Officer, Secretary.
      Mr.
      Prast became our Chief Executive Officer effective June 3, 2005.  Upon the
      resignation of our prior Chief Financial Officer and Secretary in February
      2007,
      Mr. Prast assumed the position of interim Chief Financial Officer until a
      full-time replacement Chief Financial Officer is hired. Mr. Prast served as
      a
      consultant to ITVN from April 2005 until his appointment as our Chief Executive
      Officer.  From October 2004 until March 2005, Mr. Prast served as a
      consultant to Interactive Brand Development, Inc.  From May 2002 until
      November 2003, Mr. Prast was the President and Chief Executive Officer of
      Private Media Group, Inc.  Before joining Private Media, Mr. Prast was a
      senior corporate financier for a number of leading investment banks in the
      US
      and Europe including Commerzbank Securities, ING-Barings Furman Selz, NatWest
      Markets and Drexel Burnham Lambert.  Mr. Prast received a B.A. degree from
      Bates College in 1987.




Joseph
      J.
      Scotti joined our Board of Directors on August 1, 2005. Effective January 1,
      2006, Mr. Scotti was engaged as our Executive Vice-President of Programming.
      Mr.
      Scotti has been the President of Global Media Television, an independent
      television and film distributor, since December 2001. Previously, from December
      1999 to November 2001, Mr. Scotti was President of Fremantle Media’s (formerly
      Pearson Television) North American Distribution Division, a leading producer
      and
      distributor of television and films. Prior thereto, from 1995 to 1999, Mr.
      Scotti served as Executive Vice President for All-American Television, a
      publicly traded film and television production company and distributor. Mr.
      Scotti is a graduate of Fairleigh Dickinson University with a Bachelor of
      Science in Business Management.




33




Geoffrey
      Brown joined our Board of Directors on August 1, 2005. Mr. Brown currently
      is
      the Chairman of Gusto Games Ltd., a U.K. videogames development company he
      co-founded in September 2003 that is based in Bloxham, England. Mr. Brown is
      also a director of the following companies: Interactive Licensing Management,
      a
      licensing agency based in the United Kingdom specializing in licensing
      properties aimed at the videogame industry; Langdell Brown Associates, an agency
      specializing in licensing videogames for use in movies and movies for use in
      videogames, which Mr. Brown co-founded in Los Angeles; International Sports
      Multimedia, which Mr. Brown co-founded in 1992 to manage the official licensing
      of the Olympics to videogame formats; JDP Software which Mr. Brown
      co-founded in 2005 to publish licensed applications software in the U.K. and
      Europe; and XPLORE!, which Mr. Brown founded in 2004, a DVD production company
      currently acquiring properties to be featured in its innovative DVD technology.
      From 1997 to 2003, Mr. Brown was Chairman and Chief Executive Officer of Kaboom
      Studios Ltd., a holding company which Mr. Brown founded, and which was comprised
      of game development companies.




John
      Wirt
      joined our Board of Directors on August 1, 2005. Mr. Wirt is currently the
      Assistant General Counsel of Don King Productions, Inc. and has been the
      Assistant General Counsel since 1996. Before joining Don King Productions,
      Inc.,
      Mr. Wirt was employed in private practice as an attorney in Chicago, Illinois,
      from 1989 through 1996. Mr. Wirt received his Bachelor of Arts in Philosophy,
      Politics and Economics from Knox College, Galesburg, Illinois, and his Juris
      Doctor degree from the University of Illinois, Champaign, in 1989. Mr. Wirt
      is
      also a Certified Public Accountant.




**Audit
      Committee**




In
      November 2005, our Board of Directors established an Audit Committee. The Board
      of Directors has instructed the Audit Committee to meet periodically with the
      company’s management and independent accountants to, among other things, review
      the results of the annual audit and quarterly reviews and discuss the financial
      statements, recommend to the Board the independent accountants to be retained,
      and receive and consider the accountants’ comments as to controls, adequacy of
      staff and management performance and procedures in connection with audit and
      financial controls. The Audit Committee is also authorized to review related
      party transactions for potential conflicts of interest. The Audit Committee
      is
      composed of Mr. Brown, Mr. Scotti and Mr. Wirt. Mr. Brown and Mr. Wirt are
      each
      non-employee directors. However, Mr. Scotti accepted the position as our
      Executive Vice President of Programming in January 2006 and, accordingly, no
      longer is an “independent” member of the Audit Committee. Mr. Scotti has agreed
      to resign his position on the Audit Committee at the request of the Board
      Directors. John Wirt has been designated as the “audit committee financial
      expert” as defined under Item 401(h)(2) of Regulation S-K of the
      Securities Exchange Act of 1934, as amended. The Audit Committee operates under
      a formal charter that governs its duties and conduct.




**ITEM
      10. EXECUTIVE COMPENSATION.**




**Compensation
      of Executive Officers**




The
      following table summarizes compensation paid, or earned by (i) all individuals
      who served as our Chief Executive Officer during the fiscal year ended December
      31, 2006, (ii) all individuals who served as our Chief Financial Officer during
      the fiscal year ended December 31, 2006, and (iii) the three most highly
      compensated executive officers who served on December 31, 2006 and whose annual
      compensation exceeded $100,000 for the fiscal year ended December 31, 2006
      (the
      foregoing individuals are herein collectively referred to as the “Named
      Executive Officers”).




**SUMMARY
      COMPENSATION TABLE**


**Name
                  and Principal Position**
              
              **Year**
              
              **Salary**
                **($)**
              
              **Bonus**
                **($)**
              
              **Stock
                  Awards**
                **($)**
              
              **Option**
                **Awards**
                **($)(2)**
              
              **Non-Equity
                  Incentive Plan Compensation ($)**
              
              **All
                  Other Compensation**
                **($)(1)**
              
              **Total**
                **($)**Charles
                  Prast, Chief Executive Officer, President
              
              
              2006
              
              
              240,000
              
              
              —
              
              
              —
              
              
              
              (3)
              
              —
              
              
              21,336
              
              
              261,336Michael
                  Martinez, President
              
              
              2006
              
              
              240,000
              
              
              —
              
              
              —
              
              
              
              (3)
              
              —
              
              
              3,833
              
              
              240,000Murray
                  Williams, Chief Financial Officer(4)
              
              
              2006
              
              
              240,000
              
              
              —
              
              
              —
              
              
              
              (3)
              
              —
              
              
              10,871
              
              
              250,871Joseph
                  J. Scotti, Executive Vice-President of Programming
              
              
              2006
              
              
              172,500
              
              
              —
              
              
              —
              
              
              
              (3)
              
              —
              
              
              14,281
              
              
              186,781







(1)
            Amounts
                primarily represent medical insurance premiums and payments for automobile
                and electronic communication device
                expenses.




34




(2)
            This
                column represents the dollar amount recognized for financial statement
                reporting purposes with respect to the 2006 fiscal year for the fair
                value
                of stock options granted to the named executive, in 2006 as well
                as prior
                fiscal years, in accordance with SFAS 123R. Pursuant to SEC rules,
                the
                amounts shown exclude the impact of estimated forfeitures related
                to
                service-based vesting conditions. For additional information on the
                valuation assumptions with respect to the 2006 grants, refer to
                Note 9 of our financial statements in this Annual Report. These
                amounts reflect our accounting expense for these awards, and do not
                correspond to the actual value that will be recognized by the named
                executive from these awards.




(3)
            The
                Named Executive Officers were granted stock options in January 2006
                to
                purchase shares at a price of $4.44 per share, which options were
                contingent upon obtaining stockholder approval for the 2005 Equity
                Incentive Plan during 2006. We did not obtain stockholder approval
                for the
                plan in 2006. Accordingly, under the terms of the 2005 Equity Incentive
                Plan, all options granted there under prior to such time were
                automatically cancelled in December 2006, and no options were in
                outstanding under the plan on December 31,
                2006.




(4)
            Mr.
                Williams served as Chief Financial Officer during 2006 but resigned
                in
                February 2007.




**Stock
      Option Grants/Outstanding Equity Awards at Fiscal Year-End**




We
      did
      not grant any options to any of our officers or directors until 2006. In January
      2006, we granted to each of our Named Executive Officers and Directors a stock
      option to purchase shares at a price of $4.44 per share. The foregoing grant
      of
      options was contingent upon obtaining stockholder approval for the 2005 Equity
      Incentive Plan during 2006. We did not obtain stockholder approval for the
      2005
      Equity Incentive Plan in 2006. Accordingly, under the terms of the 2005 Equity
      Incentive Plan, all options granted to the Named Executive Officers and to
      the
      members of the Board of Directors during 2006 were automatically cancelled
      in
      December 2006.




As
      of
      December 31, 2006, none of our Named Executive Officers or directors owned
      any
      stock options or held any other form of equity awards.




**Compensation
      of Directors**




During
      the fiscal year ended December 31, 2006, our directors were entitled to a cash
      fee equal to $5,000 for each fiscal quarter during which such individual was
      a
      member of our Board of Directors. Because of our limited financial resources,
      we
      were not able to make all required $5,000 quarterly payments. The following
      table sets forth information concerning the compensation earned or paid to
      each
      of our directors during 2006 for their services rendered as
      directors.




35




**DIRECTOR
      COMPENSATION FOR FISCAL YEAR 2006**




**Name**
            
            **Fees
                Earned or Paid in Cash**
              **($)**
            
            **Option
                Awards ($)**(2)
            
            **Non-Equity
                Incentive Plan Compensation ($)**
            
            **All
                Other Compensation**
              **($)**
            
            **Total**
              **($)**Charles
                Prast
            
            $
            10,000
            (1)
            
            
            (2)
            
            —
            
            
            —
            
            $
            10,000Michael
                Martinez
            
            $
            10,000
            (1)
            
            
            (2)
            
            —
            
            
            —
            
            $
            10,000Geoffrey
                Brown
            
            $
            10,000
            (1)
            
            
            (2)
            
            —
            
            
            —
            
            $
            10,000John
                Wirt
            
            $
            10,000
            (1)
            
            
            (2)
            
            —
            
            
            —
            
            $
            10,000Joseph
              Scotti
            
            $
            10,000
            (1)
            
            
            (2)
            
            —
            
            
            —
            
            $
            10,000Murray
                Williams(3)
            
            $
            10,000
            (1)
            
            
            (2)
            
            —
            
            
            —
            
            $
            10,000





(1)
            Each
                director earned $20,000 during 2006 ($5,000 per fiscal quarter).
                However,
                we only paid the directors $10,000 during 2006; the remaining balance
                is
                still outstanding and owing to the
                directors.




(2)
            In
                January 2006, Mr. Brown and Mr. Wirt were granted stock options to
                purchase 50,000 shares and Mr. Prast, Mr. Martinez and Mr. Williams
                were
                granted stock options to purchase 200,000 shares at a price of $4.44
                per
                share. These options were contingent upon obtaining stockholder approval
                for the 2005 Equity Incentive Plan during 2006. We did not obtain
                stockholder approval for the plan in 2006. Accordingly, under the
                terms of
                the 2005 Equity Incentive Plan, all options granted to the Board
                of
                Directors during 2006 were automatically cancelled in December 2006.
                Accordingly, no Director owned any stock options as of December 31,
                2006.




(3)
            Mr.
                Williams served as Chief Financial Officer during 2006 but resigned
                in
                February 2007.




**Employment
      Agreements/Post-Employment Compensation**




Effective
      June 3, 2005, we entered into employment agreements with Charles Prast, our
      Chief Executive Officer, Michael Martinez, our President, and Murray Williams,
      our Chief Financial Officer. All three agreements are substantially the same,
      except as described below. All of the employment agreements have a term of
      three
      years, which terms will automatically be extended for an additional year unless
      either party provides notice of termination 60 days before the end of the
      three-year term. If any of the employment agreements are terminated by us for
      any reason other than for “cause,” the agreements provide that the terminated
      officer will continue to receive his salary until the earlier of (i) 12 months
      from the date of termination, or (ii) the expiration of the term of his
      agreement. Under the employment agreements, each of the three executive officers
      will receive an annual salary of $240,000. Each officer is also entitled to
      a
      bonus, the amount of which shall be determined in its discretion by our Board
      of
      Directors, payable at the end of each calendar year if we have positive EBITDA
      for that calendar year. Under the employment agreements, each officer is
      entitled to eight weeks of vacation during each year of employment. As a signing
      bonus, we issued 581,767 shares of our common stock to Mr. Prast and 250,000
      shares to Mr. Williams. The shares were valued at $0.10 per share. Under the
      employment agreements of Mr. Prast and Mr. Williams, we agreed to "piggy-back"
      registration rights, under which we agreed to include their shares in the next
      registration statement that we file with the Securities and Exchange Commission.




Effective
      January 1, 2006, we entered into an employment agreement with Joseph Scotti,
      our
      new Executive Vice President of Programming. Under the employment agreement,
      we
      have agreed to pay Mr. Scotti an annual salary of $172,500, plus a bonus of
      $2,500 for each approved new network that is launched as part of our ITVN
      Service. Forty percent (40%) of this bonus may be paid in shares of common
      stock
      valued at a 15% discount to the volume weighted average price of our common
      stock during the calendar quarter in which the launch or launches of such new
      networks occur. Under the employment agreement, we also agreed to grant Mr.
      Scotti options to purchase 200,000 shares of our common stock. The options
      have
      an exercise price of $4.44 per share, the fair market value on the date of
      grant. One-half of the options vested immediately upon grant, and the other
      half
      will vest on January 1, 2007. Once vested, the options may be exercised at
      any
      time within three years of the date of vesting. The agreement has an initial
      terms of 18 months and will automatically be extended for an additional 12-month
      period unless notice is given by either party at least 30 days prior to the
      extension date.




36




**2007
      Equity Incentive Plan**




In
      December 2005, we adopted an equity incentive plan, the “2005 Equity Incentive
      Plan,” pursuant to which we are authorized to grant stock options, restricted
      stock and stock appreciation rights to purchase up to 3,000,000 shares of common
      stock to our key employees, officers, directors, consultants and other agents
      and advisors. Pursuant to the terms of the 2005 Equity Incentive Plan, the
      plan
      had to be approved by our stockholders within 12 months of the date of adoption.
      We did not obtain stockholder approval of the plan within the foregoing 12-month
      period. Accordingly, all options previously granted under that plan
      automatically were terminated. The 2005 Equity Incentive Plan was formally
      terminated in March 2007 by the Board and replaced by a new 2007 Equity
      Incentive Plan (the “2007 Plan”).




The
      2007
      Plan authorizes the granting of the following types of awards to persons who
      are
      employees or directors of Interactive Television Networks, Inc. or its
      subsidiaries or who are consultants or advisers to such entities:




·
            “Incentive
                stock options” that are intended to satisfy the requirements of
                Section 422 of the Internal Revenue Code of 1986, as amended, and the
                regulations thereunder;




·
            “Non-qualified
                stock options” that are not intended to be incentive options; and




·
            Shares
                of common stock that are subject to specified restrictions.




Subject
      to the adjustment provisions of the 2007 Plan that are applicable in the event
      of a stock dividend, stock split, reverse stock split or similar transaction,
      up
      to 3,000,000 shares of common stock may be issued under the 2007 Plan and no
      person shall be granted awards under the 2007 Plan during any twelve-month
      period that cover more than 750,000 shares of common stock.




The
      2007
      Plan is administered by our Board of Directors or a committee of the Board
      of
      Directors, which determines the persons to whom awards will be granted, the
      type
      of award to be granted, the number of awards to be granted and the specific
      terms of each grant, including the vesting thereof, subject to the provisions
      of
      the plan.




The
      2007
      Plan provides that the exercise price of each stock option may not be less
      than
      the fair market value of our common stock on the date of grant (or 110% of
      the
      fair market value in the case of incentive stock options granted to a person
      holding more than 10% of our outstanding common stock).




The
      plan
      also permits the committee to grant freestanding stock appreciation rights
      or in
      tandem with option awards. The grant price of a stock appreciation right shall
      be no less than the fair market value of a share on the date of grant of the
      stock appreciation right. No stock appreciation right shall be exercisable
      later
      than the tenth anniversary of its grant. Upon the exercise of a stock
      appreciation right, a participant shall be entitled to receive common stock
      at a
      fair market value equal to the benefit to be received by the exercise (although
      we may agree to pay the benefit in cash or a combination of cash and
      stock).




The
      plan
      also provides us with the ability to grant or sell shares of common stock that
      are subject to certain transferability, forfeiture, repurchase or other
      restrictions. The type of restriction, the number of shares of restricted stock
      granted and other such provisions shall be determined by the committee.




37




Unless
      otherwise determined by the committee, awards granted under the 2007 Plan are
      not transferable other than by will or by the laws of descent and
      distribution.




The
      2007
      Plan provides that, except as set forth in an individual award agreement, upon
      the occurrence of a corporate transaction all unvested options and stock
      appreciation rights shall automatically vest and thereafter remain exercisable
      for the lesser of the remaining term of the option or stock appreciation right,
      or 18 months after the consummation of the corporate transaction. A “corporate
      transaction” means (i) a merger or consolidation of the company with or into
      another corporation or entity (other than a merger with a wholly-owned
      subsidiary); (ii) a sale of all or substantially all of the assets of the
      company; or (iii) a purchase or other acquisition of more than 50% of the
      outstanding stock of the company by one person or by more than one person acting
      in concert.




The
      committee may alter, amend or terminate the plan in any respect at any time,
      but
      no alteration, amendment or termination will adversely affect in any material
      way any award previously granted under the plan, without the written consent
      of
      the participant holding such award.




**Certain
      Federal Income Tax Consequences**




**Non-Qualified
      Stock Options**




There
      will be no federal income tax consequences to either Interactive Television
      Networks, Inc. or the participant upon the grant of a non-qualified stock option
      if the exercise price is not less than the fair market value of our common
      stock
      on the date of the option grant. However, the participant will realize ordinary
      income on the exercise of the non-qualified stock option in an amount equal
      to
      the excess of the fair market value of the common stock acquired upon the
      exercise of such option over the exercise price, and Interactive Television
      Networks, Inc. will receive a corresponding deduction. The gain, if any,
      realized upon the subsequent disposition by the participant of the common stock
      will constitute short-term or long-term capital gain, depending on the
      participant’s holding period.




**Incentive
      Stock Options**




There
      will be no federal income tax consequences to either Interactive Television
      Networks, Inc. or the participant upon the grant of an incentive stock option.
      Upon exercise of the option, the excess of the fair market value of the stock
      over the exercise price (the “spread”) will be added to the alternative minimum
      tax base of the participant unless a disqualifying disposition is made in the
      year of exercise. A disqualifying disposition is the sale of the stock prior
      to
      the expiration of two years from the date of grant and one year from the date
      of
      exercise. If the shares of common stock are disposed of in a disqualifying
      disposition, the participant will realize taxable ordinary income in an amount
      equal to the spread at the time of exercise, and we will be entitled to a
      federal income tax deduction equal to such amount. If the participant sells
      the
      shares of common stock after the specified periods, the gain or loss on the
      sale
      of the shares will be long-term capital gain or loss and we will not be entitled
      to a federal income tax deduction.




**Restricted
      Stock**




Unless
      a
      participant makes an election under Section 83(b) of the Internal Revenue Code
      to accelerate recognition of the income to the date of grant, a participant
      receiving a restricted stock award will not recognize income, and we will not
      be
      allowed a tax deduction, at the time the award is granted. As and when the
      restrictions lapse, the participant will recognize ordinary income equal to
      the
      fair market value of the common stock no longer subject to restrictions, and
      we
      will be entitled to a corresponding tax deduction at that time.




**Section 162(m)
      of the Internal Revenue Code**




Pursuant
      to Section 162(m) of the Internal Revenue Code, we may not deduct
      compensation in excess of $1,000,000 paid to each of its chief executive officer
      and the four next most highly compensated executive officers subject to certain
      exceptions. The 2007 Plan is designed to comply with an exception from the
      limitation of Section 162(m) as to options granted under that
      Plan.




38




**New
      2007 Plan Option Grants**




On
      March
      3, 2007, our Board of Directors granted options to purchase 2,000,000 shares,
      of
      which options to purchase 100,000 shares were granted to our five directors,
      options to purchase 750,000 shares were granted to Mr. Martinez, our President,
      options to purchase 350,000 shares were granted to Mr. Prast, our Chief
      Executive Officer, and options to purchase 400,000 shares were granted to our
      employees. The exercise price of the foregoing options was $0.15 per
      share.




**Code
      of Ethics**




We
      have
      adopted a Code of Business Conduct and Ethics that applies to our principal
      executive officer, principal financial officer, and principal accounting officer
      or controller. You can obtain a copy of the Code, without charge, by writing
      to
      our Corporate Secretary at Interactive Television Networks, Inc., 23241 Ventura Blvd., Suite 101 Woodland
      Hills, California 91364.




**ITEM
      11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS.**




The
      following table sets forth certain information regarding beneficial ownership
      of
      our common stock as of April 16, 2007 (a) by each person known by us to own
      beneficially 5% or more of any class of our common stock, (b) by our Named
      Executive Officers and our directors and (c) by all executive officers and
      directors of this company as a group. As of April 16, 2007 there
      were 29,398,494 shares of our common stock issued and outstanding. Unless
      otherwise noted, we believe that all persons named in the table have sole voting
      and investment power with respect to all the shares beneficially owned by
      them .




Name
                and Address of Beneficial Owner (1)
            
            Shares
                Beneficially Owned (2)
            
            Percentage
                of ClassCharles
                Prast
            
            
            1,031,767
            
            
            3.46
            %Michael
                Martinez
            
            
            5,753,118
            
            
            19.02
            %Murray
                Williams
            
            
            581,767
            
            
            1.98
            %Geoff
                Brown
            
            
            100,000
            (9)
            
            *Joseph
                J. Scotti
            
            
            300,000
            (9)
            
            1.01John
                Wirt
            
            
            100,000
            (9)
            
            *David
                Koenig
            
            
            5,253,118
            
            
            17.87
            %XTV
                Investments LLC(3)
              2200
                SW 10thStreet, Deerfield Beach, Florida 33442
            
            
            4,147,082
            
            14.11%Mercator
                Momentum Fund, LP(4)
              555
                South Flower Street, Suite 4500
              Los
                Angeles, CA 90071
            
            
            778,574
            (5)
            
            2.61
            %Mercator
                Momentum Fund III, LP(4)
              555
                South Flower Street, Suite 4500
              Los
                Angeles, CA 90071
            
            
            835,664
            (6)
            
            2.80
            %Monarch
                Pointe Fund, Ltd(4).
              c/o
                Bank of Ireland Securities Services, Ltd.
              Mayer
                Street Lower
              Dublin
                1, Republic of Ireland
            
            
            3,419,350
            (7)
            
            11.19
            %Pentagon
                Bernini Fund, Ltd.
              c/o
                Pentagon Capital Management Plc.
              88
                Baker Street
              London,
                England W1U 6TQ
            
            
            4,754,813
            (8)
            
            9.99
            %All
                executive officers and directors as a group (5 persons)
            
            
            7,284,885
            
            
            23.35
            %




*
            Less
                than 1%.




(1)
            Unless
                otherwise indicated, the address of each of the persons shown is
                c/o
                Interactive Television Networks, Inc., 23241 Ventura Boulevard, Suite
                101,
                Woodland Hills, California 91364.




39




(2)
            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 subject to options,
                warrants
                and convertible securities currently exercisable or convertible,
                or
                exercisable or convertible within 60 days, are deemed outstanding,
                including for purposes of computing the percentage ownership of the
                person
                holding such option, warrant or convertible security, but not for
                purposes
                of computing the percentage of any other
                holder.




(3)
            XTV
                Investments LLC is a subsidiary of Interactive Brands Development,
                Inc.




(4)
            Does
                not include certain shares of common stock issuable upon the conversion
                of
                the non-voting shares of Series A Preferred Stock and/or upon the
                exercise
                of warrants owned by any of Mercator Momentum Fund, LP, Mercator
                Momentum
                Fund III, LP and Monarch Pointe Fund, Ltd. The terms of the Series
                A
                Preferred Stock and the warrants do not permit the Series A Preferred
                Stock to be converted or the warrants to be exercised if, following
                the
                conversion, any of Mercator Momentum Fund, Mercator Momentum Fund
                III,
                Monarch Pointe Fund or M.A.G. Capital, LLC would beneficially own
                more
                than 9.99% of our outstanding common stock. M.A.G. Capital, LLC is
                the
                general partner of each of Mercator Momentum Fund, L.P. and Mercator
                Momentum Fund III, L.P., and controls the investments of Monarch
                Pointe
                Fund, Ltd. Since M.A.G Capital, LLC beneficially owns more than 9.99%,
                certain of the shares of the Series A Preferred Stock are not currently
                convertible, and certain of the shares of common stock issuable upon
                the
                exercise of the warrant have been included here.




(5)
            Includes
                (i) 356,135 shares of common stock, (ii) a currently exercisable
                right to
                purchase 211,220 shares of common stock from Michael Martinez and
                (iii) a
                currently exercisable right to purchase 211,219 shares of common
                stock
                from David Koenig. The shares listed in this table do not include
                any
                shares of common stock underlying the Series A Preferred Stock or
                the
                warrants issued in conjunction with the Series A Preferred Stock.
                Mercator
                Momentum Fund, LP also owns 2,945,580 shares of common stock issuable
                upon
                conversion of their 589,116 shares of Series A Preferred Stock ,
                and
                46,835 shares of common stock issuable upon the exercise of the warrants
                issued in conjunction with the Series A Preferred Stock .




40




(6)
            Includes
                (i) 428,835 shares of common stock, (ii) a currently exercisable
                right to
                purchase 203,414 shares of common stock from Michael Martinez and
                (iii) a
                currently exercisable right to purchase 203,415 shares of common
                stock
                from David Koenig. The shares listed in this table do not include
                any
                shares of common stock underlying the Series A Preferred Stock or
                the
                warrants issued in conjunction with the Series A Preferred Stock.
                Mercator
                Momentum Fund III, LP also owns 3,503,400 shares of common stock
                issuable
                upon conversion of their 700,680 shares of Series A Preferred Stock,
                and
                55,704 shares of common stock issuable upon the exercise of the warrants
                issued in conjunction with the Series A Preferred
                Stock.




(7)
            Includes
                (i) 2,248,618 shares of common stock, (ii) a currently exercisable
                right
                to purchase 585,366 shares of common stock from Michael Martinez
                and (iii)
                a currently exercisable right to purchase 585,366 shares of common
                stock
                from David Koenig. The shares listed in this table do not include
                any
                shares of common stock underlying the Series A Preferred Stock or
                the
                warrants issued in conjunction with the Series A Preferred Stock.
                Monarch
                Pointe Fund Ltd. also owns 10,217,685 shares of common stock issuable
                upon
                conversion of their 2,043,537 shares of Series A Preferred Stock
                , and (v)
                162,461 shares of common stock issuable upon the exercise of the
                warrants
                issued in conjunction with the Series A Preferred
                Stock.




(8)
            Consists
                of (i) 2,754,813 shares of common stock issuable upon the conversion
                of
                the ten outstanding Debentures, and (ii) 2,000,000 shares of common
                stock
                issuable upon the exercise of the Warrant. Under the Debenture, we
                have
                the right, exercisable at our option, to issue additional Debentures
                to
                Pentagon Bernini Fund, Ltd. as payment for interest that accrues
                under the
                Debenture. The documentation governing the terms of the Debenture
                and the
                Warrant contains provisions prohibiting any conversion of the Debenture
                or
                exercise of the Warrant that would result in Pentagon Bernini Fund,
                Ltd.
                owning beneficially more than 9.99% of the outstanding shares of
                our
                common stock as determined under Section 13(d) of the Securities
                Exchange
                Act of 1934. As a result of these provisions, that entity does not
                have beneficial ownership in excess of 9.99% of the outstanding shares
                of
                our common stock. The shares listed in this table do not include
                any
                shares of common stock underlying any Debentures that we may issue
                to
                Pentagon Bernini Fund, Ltd. in lieu of interest Pentagon Bernini
                Fund may
                earn under the Debentures. The conversion price of the Debentures
                and the
                exercise of the Warrant may be reduced under certain circumstances.
                The
                number of shares listed in this table does not take into effect any
                reduction of the conversion or exercise
                prices.




(9)
            Represents
                shares issuable under currently exercisable stock
                options.




**Compliance
      With Section 16(a) of the Exchange Act**




Section
      16(a) of the Securities Exchange Act of 1934 requires our executive officers
      and
      directors, and persons who own more than 10% of a registered class of our equity
      securities, to file reports of ownership and changes in ownership with the
      Securities and Exchange Commission (“SEC”). Executive officers, directors and
      greater than 10% stockholders are required by SEC regulations to furnish us
      with
      copies of all Section 16(a) forms they file. Based on our review of the copies
      of reporting forms received by us and other information provided to us by our
      officers and directors, we believe that during its most recent year ended
      December 31, 2006, that our officers and directors failed to file a Form 4
      in
      connection with stock options granted to them in January 2006 under the 2005
      Equity Incentive Plan (which options were subsequently automatically terminated
      in December 2006). As a result of the automatic termination in December 2005
      of
      the options granted to the officers and directors, none of the options subject
      to the foregoing Form 4 filing requirements was outstanding on December 31,
      2006.




41


**Equity
        Compensation Plan Information**
  The
        following table provides information as of December 31, 2006 with respect
        to
        securities that may be issued under our equity compensation plan.


Plan
                Category
            
            Number
                of securities to be issued upon exercise of outstanding options,
                warrants
                and rights
            
            Weighted-average
                exercise price of outstanding options, warrants and rights
            
            Number
                of securities remaining available for future issuance under equity
                compensation plans (excluding securities reflected in column
                (a))(a)
            
            (b)
            
            (c)Equity
                compensation plans approved by security holders
            
            
            -0-
            
            
            —
            
            
            —Equity
                compensation plans not approved by security holders
            
            
            -0-
            
            
            —
            
            
            —Total
            
            
            -0-
            
            
            —
            
            
            —





Our
      Board
      of Directors adopted our 2005 Equity Incentive Plan in December 2005. On January
      31, 2006, we granted options to purchase a total of 1,340,000 shares of common
      stock under our 2005 Equity Incentive Plan to our employees and our directors.
      The exercise price of all of these options was $4.44 per share, the market
      price
      on the date of grant. On June 21, 2006, we granted options to purchase a total
      of 140,000 shares of common stock under our 2005 Equity Incentive Plan to an
      employee and to a consultant of the company. Under the 2005 Equity Incentive
      Plan, all of the foregoing option grants were conditioned upon the plan being
      submitted to, and approved by our stockholders. The 2005 Equity Incentive Plan
      was not approved by our stockholders in 2006. Accordingly, under the terms
      of
      the plan, all options granted automatically terminated, and no options were
      outstanding as of December 31, 2006. The 2005 Equity Incentive Plan has been
      terminated by our Board of Directors.




On
      March
      3, 2007, our Board of Directors adopted a new 2007 Equity Incentive Plan
      pursuant to which the Board is authorized to issue options to purchase an
      aggregate of 3,000,000 shares. On March 3, 2007, the Board granted options
      to
      purchase 2,000,000 shares, of which options to purchase 100,000 shares were
      granted to our five directors, options to purchase 750,000 shares were granted
      to Mr. Martinez, our President, options to purchase 350,000 shares were granted
      to Mr. Prast, our Chief Executive Officer, and options to purchase 400,000
      shares were granted to our employees. The exercise price of the foregoing
      options was $0.15 per share. In connection with the grant of these options
      on
      March 3, 2007, the Board of Directors determined that the exercise price was
      not
      less than the fair market value of the common stock on the date of grant. In
      making this determination, the Board of Directors determined that the market
      price of the common stock on that date did not reflect the fair market value
      of
      the common stock because of extremely limited and volatile trading, and instead
      considered such factors as this company’s stockholders’ deficit, operating
      losses, prospective earning power, status regarding its outstanding debentures,
      the economic outlook in the corporation’s industry and its position in the
      industry.




**ITEM
      12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.**




**Transactions
      Between Us and Our Affiliates**




Michael
      Martinez is a co-founder of ITVN and the President of both ITVN and Interactive
      Television Networks, Inc. To help fund this company’s short-term working capital
      needs, Mr. Martinez has, from time to time, made payments on behalf of this
      company for equipment purchases, software purchases, salaries, consulting fees,
      supplies and various other general expenses. These payments on behalf of the
      company, which to date have totaled in excess of $700,000, are treated as
      short-term, interest-free unsecured accounts payable of the company and are
      typically repaid when we have cash available. Mr. Martinez has also made direct
      cash loans to the company, which loans amounted to $529,249 as of December
      31,
      2006. The loans are evidenced by a note that bears interest at a rate of 8%
      beginning on July 1, 2005 and are due on demand. In December 2005, Mr. Martinez
      began to provide his services to ITVN through a consulting firm that he owns.
      As
      such, Mr. Martinez no longer accrues a salary from ITVN. Since then, all fees
      owed for services provided by Mr. Martinez have been paid to the consulting
      firm. The consulting firm was paid $210,000 in fiscal 2006.




42




In
      March
      2007, Mr. Martinez purchased 1,250 set-top boxes from us at $120.00 per box.
      Our
      usual retail price for these set-top boxes is $99.95. The purchase was made
      in
      accordance with our standard sales policies that we offer to all third party
      purchasers of the set-top boxes. In the event that Mr. Martinez re-sells these
      set-top boxes, all users of the boxes would have to become subscribers of our
      ITVN Service, and Mr. Martinez would not have any interest in such subscription
      revenues.




David
      Koenig is a co-founder of ITVN and was the Chief Technology Officer of that
      subsidiary. To help fund this company’s short-term working capital needs, Mr.
      Koenig has, from time to time, made payments on behalf of this company for
      equipment purchases, software purchases, salaries, consulting fees, supplies
      and
      various other general expenses. These payments on behalf of the company, which
      to date have totaled in excess of $300,000, are treated as short-term,
      interest-free unsecured loans to the company and are typically repaid when
      we
      have cash available. Mr. Koenig has also made direct cash loans to the company,
      which loans amounted to $427,344 as of December 31, 2006. The loans are
      evidenced by a promissory note that bears interest at a rate of 8% beginning
      on
      July 1, 2005 and is due on demand. In January 2006, Mr. Koenig began to provide
      services to ITVN through a consulting firm that he owns. As such, Mr. Koenig
      no
      longer accrues a salary from ITVN. Since then, all fees owed for services
      provided by Mr. Koenig have been paid to his consulting firm. Mr. Koenig’s
      consulting firm was paid $77,872 in 2006. David Koenig also is the owner of
      a
      majority interest in Holio.net, LLC and Holio.net, Inc., a provider of content
      (collectively, “Holio.net”). Holio.net is one of the numerous content providers
      that currently provides content to ITVN for distribution to ITVN’s customers.
      The terms under which Holio.net provides the content to ITVN are the same as
      the
      terms between ITVN and all of the other ITVN content providers. Holio.net has
      accrued a total of $78,599 for its content through December 31, 2006. The total
      amount that we have paid to Holio.net for its content through December 31,
      2006
      is $56,881.




**ITEM
      13. EXHIBITS.**




The
      following exhibits are filed as part of this report:




Exhibit
              Number
            
            Description2.1
            
            Agreement
                and Plan of Reorganization, dated as of May 27, 2005, with between Radium
                Ventures, Inc., Radium Ventures Acquisition, Inc., Shane Whittle
                and James
                Scott-Moncrieff, and Interactive Television Networks, Inc.
                (1)3.1
            
            Articles
                of Incorporation (2)3.2
            
            Certificate
                of Amendment to the Articles of Incorporation (3)3.3
            
            Bylaws
                (3)3.4
            
            Amendment
                to Bylaws (4)4.1
            
            Form
                of Stock Certificate (3)4.2
            
            Form
                of Warrant to Purchase Common Stock of Interactive Television Networks,
                Inc. (5)




43




4.3
            
            Certificate
                Of Designation Of Preferences And Rights Of Series A Convertible
                Preferred
                Stock (8)4.4
            
            Form
                of Warrant to Purchase Common Stock of Interactive Television Networks,
                Inc. issued to the Purchasers (8)4.5
            
            Subscription
                Agreement, dated December 21, 2005, by and among Interactive Television
                Networks, Inc. andthe
                Purchasers (8)4.6
            
            Amendment
                to Certificate Of Designation Of Preferences And Rights Of Series
                A
                Convertible Preferred Stock (13)10.1
            
            Form
                of Securities Purchase Agreement, dated as of October 20, 2005, by
                and
                among Interactive Television Networks, Inc. andPentagon
                Bernini Fund, Ltd. (5)10.2
            
            Form
                of Registration Rights Agreement, dated as of October 20, 2005, by
                and
                among Interactive Television Networks, Inc. andPentagon
                Bernini Fund, Ltd. (5)10.3
            
            Form
                of Security Agreement, dated as of October 20, 2005, by and among
                Interactive Television Networks, Inc. andPentagon
                Bernini Fund, Ltd. (5)10.4
            
            Form
                of 17% Secured Convertible Debenture, dated October 20, 2005, by
                and among
                Interactive Television Networks, Inc. and Pentagon Bernini Fund,
                Ltd.
                (5)10.5
            
            Form
                of Executive Employment Agreement entered into as of June 3, 2005
                between
                Radium Ventures, Inc and Charles Prast (6)10.6
            
            Form
                of Executive Employment Agreement entered into as of June 3, 2005
                between
                Radium Ventures, Inc and Murray Williams(6)10.7
            
            Promissory
                Note, between Interactive Television Networks, Inc. and David Koenig.
                (7)10.8
            
            Promissory
                Note, between Interactive Television Networks, Inc. and Michael Martinez.
                (7)10.9
            
            2005
                Equity Incentive Plan (7)10.10
            
            Form
                of Indemnification Agreement entered into between Interactive Television
                Networks, Inc. and its directors and certain officers.
                (7)10.11
            
            Lease
                between Interactive Television Networks, Inc. and Falcon Financial
                Building, dated June 1, 2005 regarding Woodland Hills, California
                facility. (7)10.12
            
            Consulting
                Agreement, dated April 19, 2006, between M&A Business Consulting, Inc.
                and Interactive Television Networks, Inc. for the services of Michael
                Martinez (9)10.13
            
            Form
                of 16% Secured Convertible Debenture, dated April 18, 2006, by and
                among
                Interactive Television Networks, Inc. and Pentagon Bernini Fund,
                Ltd.
                (10)10.14
            
            Subscription
                Agreement, dated December 21, 2005, by and among Interactive Television
                Networks, Inc. and the purchasers of Series A Convertible Preferred
                Stock
                (8)10.15
            
            Form
                of Security Purchase Agreement, dated as of June 19, 2006, by and
                among
                Interactive Television Networks, Inc.
                (11)




44




10.16
            
            Form
                of Variable Rate Secured Convertible Debentures due June 19,
                2008(11)10.17
            
            Form
                of Security Agreement, dated June 19, 2005 issued by Interactive
                Television Networks, Inc. (11)10.18
            
            Form
                of Subsidiary Guarantee, dated June 19, 2006, issued by ITVN, Inc.
                (11)10.19
            
            Form
                of Registration Rights Agreement, dated as of June 19, 2006, by and
                among
                the Company and the Purchasers named therein (12)10.20
            
            Subscription
                Agreement, dated December 14, 2006, by and among Interactive Television
                Networks, Inc. andthe
                Preferred Stock Holders(13)10.21
            
            Registration
                Rights Agreement, dated December 14, 2006, by and among Interactive
                Television Networks, Inc. andthe
                Preferred Stock Holders(13)14.1
            
            Code
                of Ethics (7)21.1
            
            List
                of Subsidiaries (7)23.1
            
            Consent
                of Lopez, Blevins, Bork & Associates, LLP, independent auditors31.1
            
            Certification
                of Principal Executive Officer and Interim Chief Financial Officer
                Pursuant to Section 302 of the Sarbanes-Oxley Act of
                200232.1
            
            Certification
                of Principal Executive Officer and Interim Chief Financial Officer
                Pursuant to 18 U.S.C. Section 1350







(1)
            Previously
                filed as an exhibit to the Company’s Current Report on Form 8-K on June 3,
                2005, which exhibit is hereby incorporated herein by reference.




(2)
            Previously
                filed as an exhibit to the Company’s Registration Statement on Form SB-2,
                filed on July 19, 2002, which exhibit is hereby incorporated herein
                by
                reference.




(3)
            Incorporated
                by reference to the Company’s definitive Information Statement on Schedule
                14-C filed with the Securities and Exchange Commission on July 1,
                2005.




(4)
            Previously
                filed as an exhibit to the Company’s Current Report on Form 8-K on June
                15, 2005, which exhibit is hereby incorporated herein by reference.




(5)
            Previously
                filed as an exhibit to the Company’s Current Report on Form 8-K on October
                27, 2005, which exhibit is hereby incorporated herein by reference.




(6)
            Previously
                filed as an exhibit to an amendment to the Company’s Quarterly Report on
                Form 10-QSB on August 26, 2005, which exhibit is hereby incorporated
                herein by reference.




(7)
            Previously
                filed as an exhibit to the Company’s Registration Statement on Form SB-2,
                filed on December 19, 2005, and as amended on February 3, 2006, which
                exhibit is hereby incorporated herein by
                reference.




(8)
            Previously
                filed as an exhibit to the Company’s Current Report on Form 8-K on
                December 21, 2005, which exhibit is hereby incorporated herein by
                reference.




(9)
            Previously
                filed as an exhibit to the Company’s Current Report on Form 8-K on April
                21, 2006, which exhibit is hereby incorporated herein by
                reference.




45




(10)
            Previously
                filed as an exhibit to the Company’s Registration Statement on Form SB-2,
                filed on April 25, 2006, which exhibit is hereby incorporated herein
                by
                reference.




(11)
            Previously
                filed as an exhibit to the Company’s Current Report on Form 8-K on June
                19, 2006, which exhibit is hereby incorporated herein by
                reference.




(12)
            Previously
                filed as an exhibit to the Company’s Current Report on Form 8-K/A on July
                20, 2006, which exhibit is hereby incorporated herein by
                reference.




(13)
            Previously
                filed as an exhibit to the Company’s Current Report on Form 8-K on
                December 20, 2006, which exhibit is hereby incorporated herein by
                reference.




Stockholders
      of our company may obtain a copy of any exhibit referenced in this 10-KSB Annual
      Report by writing to: Secretary, Interactive Television Networks, Inc., 23241
      Ventura Boulevard, Suite 101, Woodland Hills, California 91364. The written
      request must specify the stockholder’s good faith representation that such
      stockholder is a stockholder of record of common stock of the company.




**ITEM
      14. PRINCIPAL ACCOUNTANT FEES AND SERVICES**




**Audit
      Fees**




The
      following is a summary of the fees billed to Interactive
      Television Networks, Inc. and Subsidiary for
      professional services rendered for the years ended December 31, 2006 and
      2005:


Fee
                  Category
              
              2006
              
              2005Audit
                  Fees
              
              $
              58,800
              
              $
              26,205Audit-Related
                  Fees
              
              
              39,148
              
              
              5,060Tax
                  Fees
              
              
              14,350
              
              
              8,555Total
                  Fees
              
              $
              121,979
              
              $
              39,820




*Audit
      Fees.* Consists
      of fees billed for professional services rendered by Lopez,
      Blevins, Bork & Associates, LLP for the
      audit of Interactive
      Television Networks, Inc.’s financial
      statements and review of the interim financial statements included in quarterly
      reports and services that are normally provided in connection with statutory
      and
      regulatory filings or engagements.




*Audit-Related
      Fees.* Consists
      of fees billed for assurance, derivative valuations, and related services
      that are reasonably related to the performance of the audit and review of Interactive
      Television Networks, Inc. ’s
      financial statements and are not reported under “Audit Fees.” These services
      include professional services requested by Interactive
      Television Networks, Inc. in
      connection with accounting consultations in connection with acquisitions and
      consultations concerning financial accounting and reporting standards.




*Tax
      Fees.* Consists
      of fees billed for professional services for tax compliance, tax advice and
      tax
      planning. These services include assistance regarding federal and state tax
      compliance and assistance with tax reporting.




46
 
  **FINANCIAL
        STATEMENTS**


**INDEPENDENT
        REGISTERED PUBLIC ACCOUNTING FIRM**
 
 To
        the
        Board of Directors
 Interactive
        Television Networks, Inc.
 
 We
        have
        audited the accompanying consolidated balance sheet of Interactive Television
        Networks, Inc. (the “Company”) as of December 31, 2006, and the related
        consolidated statements of operations, stockholders’ equity (deficit) and cash
        flows for each of the two years then ended. These financial statements are
        the
        responsibility of the Company’s management. Our responsibility is to express an
        opinion on these financial statements based on our audits.
 
 We
        conducted our audits in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether the financial
        statements are free of material misstatement. The Company is not required
        to
        have, nor were we engaged to perform, an audit of its internal control over
        financial reporting. Our audits included consideration of internal control
        over
        financial reporting as a basis for designing audit procedures that are
        appropriate in the circumstances, but not for the purpose of expressing an
        opinion on the effectiveness of the Company’s internal 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 financial statements, 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 Interactive
        Television Networks, Inc. as of December 31, 2006, and the results of operations
        and cash flows for each of the two years then ended, in conformity with
        accounting principles generally accepted in the United States of
        America.
 
 As
        discussed in Note 2 to the consolidated financial statements, the Company's
        recurring losses from operations and the need to raise additional financing
        in
        order to satisfy its vendors and other creditors and execute its business
        plan
        raise substantial doubt about its ability to continue as a going concern.
        Management's plans as to these matters are also described in Note 2. The
        2006
        consolidated financial statements do not include any adjustments that might
        result from the outcome of this uncertainty.
 
 LBB
&
        Associates Ltd., LLP
 Houston,
        Texas
 April
        10,
        2007
 
 F-1
  **Interactive
        Television Networks, Inc.**
 **Consolidated
        Balance Sheet** **December
          31, 2006**
  **Assets**Current
                  assetsCash
              
              $
              144,130Inventory,
                  net
              
              
              723,609Prepaids and
                  other
              
              
              115,473Investments
                  in marketable securities
              
              
              326,084Total
                  current assets
              
              
              1,309,296Capitalized
                  inventory, net
              
              
              291,279Fixed
                  assets, net
              
              
              1,025,686Intangible
                  assets, net
              
              
              324Deposits
              
              
              119,641**Total
                  Assets**
              
              $
              2,746,226**Liabilities
                  and Stockholders' Deficit**LiabilitiesCurrent
                  liabilitiesCurrent
                  maturities of convertible notes payable, net of discount
              
              $
              474,008Accounts
                  payable and accrued liabilities
              
              
              1,067,144Accounts
                  payable and accrued liabilities - related parties
              
              
              341,017Notes
                  payable - related parties
              
              
              956,593Current
                  maturities of derivative financial instruments
              
              
              6,432,071Total
                  current liabilities
              
              
              9,270,833Convertible
                  notes payable, net of current maturities and discount
              
              
              96,693Derivative
                  financial instruments, net of current maturities
              
              
              659,101Warrant
                  liability
              
              
              53,979**Total
                  Liabilities**
              
              
              10,080,606Commitments
                  and contingenciesStockholders'
                  deficit:Preferred
                  stock, $0.001 par value, 5,000,000 shares authorized, 3,333,333shares
                  of Series A convertible stock issued and outstanding
              
              
              3,333Common
                  stock, $0.001 par value, 75,000,000 shares authorized,25,514,159 issued
                  and outstanding
              
              
              25,514Additional
                  paid-in capital
              
              
              19,143,321Other
                  comprehensive deficit
              
              
              (947,636
              )Accumulated
                  deficit
              
              
              (25,558,912
              )**Total
                  Stockholders' Deficit**
              
              
              (7,334,380
              )**Total
                  Liabilities and Stockholders' Deficit**
              
              $
              2,746,226
  The
        accompanying notes are an integral part of these financial statements.
  F-2
 **Interactive
          Television Networks, Inc.**
 **Consolidated
          Statements of Operations**
 For
                    the years ended
                  December
                    31,2006
                
                2005RevenuesService
                    revenues
                
                $
                768,606
                
                $
                265,932Hardware
                    revenues
                
                
                276,888
                
                
                501,595Total
                    revenues
                
                
                1,045,494
                
                
                767,527Costs
                    of goods soldCost
                    of service revenues
                
                
                258,613
                
                
                93,122Cost
                    of hardware revenues
                
                
                325,285
                
                
                1,141,403Loss
                    on content agreement
                
                
                666,667
                
                
                -Inventory
                    impairment
                
                
                370,582
                
                
                316,660Depreciation
                    on capitalized inventory
                
                
                130,911
                
                
                65,493Total
                    costs of goods sold
                
                
                1,752,058
                
                
                1,616,678Gross
                    loss
                
                
                (706,564
                )
                
                (849,151
                )Operating
                    expensesSalaries
                
                
                1,863,354
                
                
                1,022,381Professional
                    fees
                
                
                1,424,262
                
                
                1,110,380Sales
                    and marketing
                
                
                318,786
                
                
                355,730Depreciation
                    and amortization
                
                
                861,178
                
                
                366,372Stock
                    based compensation
                
                
                953,272
                
                
                -General
                    and administrative
                
                
                2,109,019
                
                
                883,303Total
                    operating expenses
                
                
                7,529,871
                
                
                3,738,166Loss
                    from operations
                
                
                (8,236,435
                )
                
                (4,587,317
                )Other
                    income/(expenses)Interest
                    income
                
                
                9,716
                
                
                2,219Interest
                    expense
                
                
                (1,227,949
                )
                
                (391,955
                )Amortization
                    of debt discount
                
                
                (1,801,974
                )
                
                (185,195
                )Loss
                    on extinguishment of debt, net
                
                
                (3,751,077
                )
                
                -Interest
                    expense-derivative instruments
                
                
                (20,422,347
                )
                
                (1,031,150
                )Change
                    in fair value of derivative instruments
                
                
                28,152,748
                
                
                6,335Net
                    loss
                
                
                (7,277,318
                )
                
                (6,187,063
                )Dividends
                    on Series A convertible preferred stock
                
                
                -
                
                
                (11,766,091
                )Net
                    loss attributable to common stock holders
                
                
                (7,277,318
                )
                
                (17,953,154
                )Other
                    comprehensive lossesUnrealized
                    loss on marketable securities
                
                
                (947,636
                )
                
                -Comprehensive
                    loss
                
                $
                (8,224,954
                )
                $
                (17,953,154
                )Weighted
                    average number of commonshares
                    outstanding:Basic
                
                
                24,919,659
                
                
                23,719,885Fully
                    diluted
                
                
                24,919,659
                
                
                23,719,885Net
                    loss per common share:Basic
                
                $
                (0.29
                )
                $
                (0.76
                )Fully
                    diluted
                
                $
                (0.29
                )
                $
                (0.76
                )
  The
        accompanying notes are an integral part of these financial statements.
  F-3
  **Interactive
          Television Networks, Inc.** **Consolidated
            Statements of Cash Flows**
  For
                    the yearended
                    December 31,2006
                
                2005**CASH
                    FLOWS FROM OPERATING ACTIVITIES**Net
                    loss
                
                $
                (7,277,318
                )
                $
                (6,187,063
                )Adjustments
                    to reconcile net lossto
                    net cash used in operations:Depreciation
                    and amortization
                
                
                992,089
                
                
                431,865Bad
                    debt expense
                
                
                50,000
                
                
                -(Gain)
                    loss on disposal of fixed assets
                
                
                357
                
                
                (2,574
                )Inventory
                    impairment
                
                
                370,582
                
                
                316,660Write-down
                    of capitalized inventory
                
                
                -
                
                
                100,235Stock
                    based compensation expense
                
                
                953,272
                
                
                -Amortization
                    of debt discount
                
                
                1,801,974
                
                
                185,195Interest
                    expense - derivative instruments
                
                
                20,422,347
                
                
                1,031,150Change
                    in fair value of derivative instruments
                
                
                (28,152,748
                )
                
                (6,335
                )Loss
                    on extinguishment of debt, net
                
                
                3,751,077
                
                
                -Common
                    stock exchanged for services
                
                
                -
                
                
                88,177Changes
                    in assets and liabilitiesAccounts
                    receivable
                
                
                97,432
                
                
                (150,000
                )Inventory
                
                
                65,558
                
                
                (2,064,327
                )Shareholder
                    advances
                
                
                -
                
                
                210,713Prepaids and
                    other
                
                
                (59,332
                )
                
                576,427Deposits
                
                
                (64,474
                )
                
                (44,963
                )Accounts
                    payable and accrued liabilities
                
                
                1,308,168
                
                
                98,843Accounts
                    payable and accrued liabilities - related parties
                
                
                56,518
                
                
                231,511**CASH
                    FLOWS USED IN OPERATING ACTIVITIES**
                
                
                (5,684,498
                )
                
                (5,184,486
                )**CASH
                    FLOWS FROM INVESTING ACTIVITIES**Purchase
                    of fixed assets
                
                
                (1,139,901
                )
                
                (884,736
                )Proceeds
                    from disposal of fixed assets
                
                
                15,086
                
                
                31,240Purchase
                    of intangible assets
                
                
                -
                
                
                (3,888
                )**CASH
                    FLOWS USED IN INVESTING ACTIVITIES**
                
                
                (1,124,815
                )
                
                (857,384
                )**CASH
                    FLOWS FROM FINANCING ACTIVITIES**Proceeds
                    (payments) on related party notes
                
                
                (100,000
                )
                
                1,056,593Proceeds
                    from issuance of convertible notes payable
                
                
                4,350,000
                
                
                4,000,000Proceeds
                    from sale of common stock
                
                
                1,178,350
                
                
                -Proceeds
                    from sale of series A convertible stock
                
                
                -
                
                
                2,000,000**CASH
                    FLOWS PROVIDED BY FINANCING ACTIVITIES**
                
                
                5,428,350
                
                
                7,056,594**Net
                    cash increase (decrease) for year**
                
                
                (1,380,963
                )
                
                1,014,724**Cash
                    at beginning of year**
                
                
                1,525,093
                
                
                510,369**Cash
                    at end of year**
                
                $
                144,130
                
                $
                1,525,093**Supplemental
                    disclosures of cash flow information:**Interest
                    paid
                
                $
                460,617
                
                $
                222,891Income
                    taxes paid
                
                $
                2,400
                
                $
                -**Supplemental
                    disclosure of significant non-cash transactions:**Reclassification
                    of inventory to capitalized inventory
                
                $
                351,501
                
                $
                236,417Conversion
                    of convertible notes payable to common stock
                
                $
                110,300
                
                $
                -Issuance
                    of convertible debt in lieu of interest payments
                
                $
                395,320
                
                $
                -Issuance
                    of common stock in lieu of principle payments
                
                $
                325,420
                
                $
                -Issuance
                    of common stock in lieu of interest payments
                
                $
                153,484
                
                $
                -Issuance
                    of common stock as legal settlement
                
                $
                30,500
                
                $
                -Investment
                    in marketable securities
                
                $
                -
                
                $
                1,273,720Issuance
                    of common stock warrants with series A preferred stock
                
                $
                -
                
                $
                373,146
  The
        accompanying notes are an integral part of these financial statements.
  F-4
 **Interactive
          Television Networks, Inc.**
 **Consolidated
          Statements of Stockholders' Equity (Deficit)**
 For the years ended December
          31, 2006 and
          2005
 **Preferred
                    Stock**
                
                **Common
                    Stock**
                
                **Other
                    Comprehensive**
                
                **Additional**
                  **Paid-In**
                
                **Accumulated****Shares**
                
                **Amount**
                
                **Shares**
                
                **Amount**
                
                **Deficit**
                
                **Capital**
                
                **Deficit**
                
                **Total****Balance,****December
                    31, 2004**
                
                
                -
                
                $
                -
                
                
                22,117,550
                
                $
                22,118
                
                
                -
                
                $
                1,643,882
                
                $
                (328,440
                )
                $
                1,337,560Recapitalization
                
                
                -
                
                
                -
                
                
                1,882,450
                
                
                1,882
                
                
                -
                
                
                (1,882
                )
                
                -
                
                
                -Issuance
                    of common stock for
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                -services
                
                
                -
                
                
                -
                
                
                881,767
                
                
                882
                
                
                -
                
                
                87,295
                
                
                -
                
                
                88,177Issuance
                    of series A convertiblepreferred
                    stock and warrantsin
                    exchange for cash and investmentsin
                    marketable securities
                
                
                3,333,333
                
                
                3,333
                
                
                -
                
                
                -
                
                
                -
                
                
                14,663,332
                
                
                -
                
                
                14,666,665Series
                    A convertible preferred stockdividend
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (11,766,091
                )
                
                (11,766,091
                )Net
                    loss
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (6,187,063
                )
                
                (6,187,063
                )**Balance,****December
                    31, 2005**
                
                
                3,333,333
                
                
                3,333
                
                
                24,881,767
                
                
                24,882
                
                
                -
                
                
                16,392,627
                
                
                (18,281,594
                )
                
                (1,860,752
                )Net
                    loss
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (7,277,318
                )
                
                (7,277,318
                )Unrealized
                    loss on marketable securities
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (947,636
                )
                
                -
                
                
                -
                
                
                (947,636
                )Stock
                    based compensation
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                953,272
                
                
                -
                
                
                953,272Issuance
                    of stock for legal settlement
                
                
                -
                
                
                -
                
                
                10,000
                
                
                10
                
                
                -
                
                
                30,490
                
                
                -
                
                
                30,500Conversion
                    of debt to common stock
                
                
                -
                
                
                -
                
                
                45,000
                
                
                45
                
                
                -
                
                
                110,255
                
                
                -
                
                
                110,300Cancellation
                    of XTVI Shares
                
                
                -
                
                
                -
                
                
                (1,382,140
                )
                
                (1,382
                )
                
                -
                
                
                1,382
                
                
                -
                
                
                -Issuance
                    of stock in lieu of interest payment
                
                
                -
                
                
                -
                
                
                115,235
                
                
                115
                
                
                -
                
                
                153,369
                
                
                -
                
                
                153,484Issuance
                    of stock in lieu of principal payment
                
                
                -
                
                
                -
                
                
                273,034
                
                
                273
                
                
                -
                
                
                325,147
                
                
                -
                
                
                325,420Sale of
                    common stock
                
                
                -
                
                
                -
                
                
                1,571,263
                
                
                1,571
                
                
                -
                
                
                1,176,779
                
                
                -
                
                
                1,178,350**Balance,**
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                -**December
                    31, 2006**
                
                
                3,333,333
                
                $
                3,333
                
                
                25,514,159
                
                $
                25,514
                
                $
                (947,636
                )
                $
                19,143,321
                
                $
                (25,558,912
                )
                $
                (7,334,380
                )
  The accompanying notes are an integral part of these
        financial
        statements.
  
 F-5
 
  **Interactive
        Television Networks, Inc. and Subsidiaries**
 **Notes
        to Consolidated Financial Statements**
  **NOTE
        1 - NATURE OF OPERATIONS**
 
 Interactive
        Television Networks, Inc., a Nevada corporation formerly known as Radium
        Ventures, Inc., owns 100% of the issued and outstanding capital stock of
        ITVN,
        Inc., a Nevada corporation formerly known as XTV, Inc. and as Interactive
        Television Networks, Inc. ("ITVN"), a company that we acquired on June 3,
        2005
        in a merger (hereafter referred to as the “Merger”). All of this company's
        operations are currently conducted through ITVN. Unless the context indicates
        otherwise, references herein to “we,” “our,” or the "Company" during periods
        prior to June 3, 2005 refer solely to ITVN, while references to “we,” “our,” or
        the "Company" after June 3, 2005 refer to both Interactive Television Networks,
        Inc. and its subsidiaries; ITVN and ITVN Europe S.A. All references to "Radium"
        refer to Radium Ventures, Inc. on a stand-alone basis prior to June 3, 2005.
  ITVN
        creates and provides a service (the "ITVN Service") enabling subscribers
        to
        receive television content via the Internet and view the content on their
        television. The ITVN Service requires an ITVN-enabled set-top box which pulls
        pages off a web server and projects them onto the television screen, and
        a
        remote control which subscribers use to view a library of motion pictures
        and
        other video content on their television at any time "on demand." The Company
        is
        a vertically integrated provider of digital interactive content networks
        delivered to televisions over domestic broadband connections of 500kbps or
        better. A wide variety of content will be available to the users of the set-top
        box through the creation of branded networks. All content that is and will
        be
        distributed through the ITVN Service is and will be provided by the owners
        of
        that content. Subscribers will be provided with continuous access to a variety
        of motion pictures, music videos, foreign language news broadcasts and various
        other categories of content.
 
 **NOTE
        2 - SUMMARY OF ACCOUNTING PRINCIPLES**
 
 **Basis
        of Presentation**
  These
        consolidated financial statements have been prepared in accordance with
        accounting principles generally accepted in the United States of America.
        Certain prior period amounts have been reclassified to conform to the current
        period’s presentation. The significant accounting policies are set out
        below:
  **Business
        Concentrations and Credit Risk**
  Financial
        instruments that potentially subject the Company to a concentration of credit
        risk principally consist of cash, cash equivalents and trade receivables.
        The
        Company currently places its cash and cash equivalents with high quality
        financial institutions with high credit ratings. As part of its cash management
        process, the Company performs periodic evaluations of the relative credit
        ratings of these financial institutions. The Company has not experienced
        any
        credit losses on its cash or cash equivalents.
  F-6
 
 **Principles
        of Consolidation**
  The
        consolidated financial statements include the accounts of the Company and
        its
        wholly owned subsidiaries. All inter-company accounts and transactions have
        been
        eliminated in consolidation.
 
 **Use
        of Estimates**
 
 The
        preparation of financial statements in conformity with accounting principles
        generally accepted in the United States requires management to make estimates
        and assumptions that affect the reported amounts of assets and liabilities
        at
        the date of the balance sheet. The reported amounts of revenues and expenses
        during the reporting period may be affected by the estimates and assumptions
        we
        are required to make. Estimates that are critical to the accompanying
        consolidated financial statements include inventory obsolescence; the
        identification and valuation of derivative instruments; the amortization
        of
        discounts on convertible securities arising from warrants and bifurcated
        derivative instruments; the provision for losses on uncollectible accounts
        receivable; contingent liabilities and estimating depreciation
        of depreciable assets. Management bases its estimates and judgments on
        various factors that are believed to be reasonable under the circumstances,
        the
        results of which form the basis for making judgments about the carrying values
        of assets and liabilities that are not readily apparent from other sources.
        Actual results could differ from these estimates. Estimates and assumptions
        are
        reviewed periodically and the effects of revisions are reflected in the
        financial statements in the period they are determined to be
        necessary.
 
 **Inventory**
 
 Inventory
        consists of all costs paid to have the ITVN-enabled set-top boxes manufactured
        and shipped to our warehouse. Inventory is valued at the lower of cost
        (first-in, first-out) or net realizable value. We evaluate our inventory
        for
        excess and obsolescence on a regular basis. In preparing our evaluation we
        look
        at the expected demand for our product, as well as changes in technology,
        in
        order to determine whether or not a reserve is necessary to record the inventory
        at net realizable value.  We have reviewed our inventory as of December 31,
        2006 and determined that an impairment loss of $370,582 was
        required.
 
 **Investment
        in Marketable Securities**
 
 The
        securities that comprise the Company’s investment in marketable securities are
        classified as available-for-sale securities and reported at fair value, with
        unrealized gains and losses excluded from earnings and reported in a separate
        component of shareholders' equity.  Other-than-temporary declines in market
        value are recorded as impairment losses.
 
 **Fixed
        Assets**
 
 Property
        and equipment are stated on the basis of historical cost less accumulated
        depreciation. Depreciation is provided using the straight-line method over
        the
        useful lives of the assets which is estimated to be two years. Major
        improvements are capitalized, while minor replacements, maintenance and repairs
        are charged to current operations.
 
 Long-lived
        assets, including fixed assets and certain identifiable intangibles, are
        reviewed for impairment whenever events or changes in circumstances indicate
        that the carrying value of the assets in question may not be recoverable.
        We
        have reviewed our long-lived assets as of December 31, 2006, and determined
        that
        no impairment loss need be recognized.
 
 F-7
  **Intangible
        Assets**
  Intangible
        assets consist of rights to the Company’s domain names. The total expected
        future annual amortization related to these intangible assets is $324 for
        the
        year ended December 31, 2007.  Amortization for the years ended December
        31, 2006 and 2005 was $8,611 and $21,620, respectively.
  **Revenue
        Recognition**
 
 During
        the years ended December 31, 2005 and 2006 the Company generated service
        revenues from fees for providing the ITVN Service to subscribers. In addition,
        in order to enable its subscribers to obtain the ITVN Service, during the
        year
        ended December 31, 2005 the Company had a third party manufacture the ITVN
        enabled set-top boxes, which boxes the Company subsequently began to sell
        and
        distribute. This effort resulted in revenues from the sale of hardware products
        that enable the ITVN Service.
 
 Service
        Revenues .
        Included in service revenues are revenues from monthly fees for the ITVN
        Service
        and pay-per-view fees. Subscription revenues are recognized over the period
        benefited. Deferred revenues are recorded when cash has been collected, however
        the related service has not yet been provided.
 
 Hardware
        Revenues .
        The
        Company recognizes hardware revenues, net of allowance for sales returns,
        from
        the sales of its ITVN-enabled set-top boxes. Hardware revenues are recognized
        upon shipment to consumers or upon delivery to retail customers. Utilizing
        historical experience, the Company provides for an estimate of product returns
        and warranty obligations. The fees for shipping and handling paid by customers
        are recognized as hardware revenues. The costs associated with shipping and
        handling these set-top boxes are expensed as cost of goods sold.
 
 Allowance
        for Doubtful Accounts .
        The
        allowance for doubtful accounts is evaluated on a regular basis and adjusted
        based upon management's best estimate of probable losses inherent in
        receivables, based on historical experience. The allowance is determined
        by
        analyzing known uncollectible accounts, historical losses and changes in
        customer’s cycles and credit-worthiness. Amounts later determined and
        specifically identified to be uncollectible are charged and written off against
        this allowance.
 
 **Stock
        Based Compensation**
 
 Effective January 1,
        2006, the Company adopted SFAS No. 123 (revised),
        "Share-Based Payment" (SFAS 123(R)) utilizing the modified prospective approach.
        Prior to the adoption of SFAS 123(R) there were no stock-based compensation
        instruments issued or outstanding.
 
 F-8
 
 For
        all
        quarters beginning with the first quarter of 2006, compensation costs recognized
        will include compensation costs for all share-based payments granted based
        on
        the grant date fair value estimated in accordance with the provisions of
        SFAS
        123(R).
 
 **Sales
        and Marketing**
 
 Sales
        and
        marketing expenses consist primarily of media advertising, public relations
        activities, special promotions and trade shows. Such costs are expensed as
        incurred.
 
 **Research
        and Development**
 
 Research
        and development expenses consist primarily of employee salaries and consulting
        fees relating to the development of the ITVN enabled set-top box and ITVN
        services. Research and development costs are expensed as incurred and were
        $217,178 and $138,747, for the years ended December 31, 2006 and 2005,
        respectively, and are recorded as general and administrative in the accompanying
        financial statements.
 
 **Advertising**
  The
        Company expenses advertising costs as the services are provided. Advertising
        expenses were $170,291 and $170,306 for the years ended December 31, 2006
        and
        2005, respectively and are recorded as general and administrative in the
        accompanying financial statements.
 
 **Derivative
        Financial Instruments**
 
 We
        do not
        use derivative instruments to hedge exposures to cash flow, market, or foreign
        currency risks.
 
 We
        review
        the terms of convertible debt and equity instruments we issue to determine
        whether there are embedded derivative instruments, including the embedded
        conversion option, that are required to be bifurcated and accounted for
        separately as a derivative financial instrument. In circumstances where the
        convertible instrument contains more than one embedded derivative instrument,
        including the conversion option, that is required to be bifurcated, the
        bifurcated derivative instruments are accounted for as a single, compound
        derivative instrument. Also, in connection with the sale of convertible debt
        and
        equity instruments, we may issue freestanding options or warrants that may,
        depending on their terms, be accounted for as derivative instrument liabilities,
        rather than as equity. We may also issue options or warrants to non-employees
        in
        connection with consulting or other services they provide.
 
 When
        the
        risks and rewards of any embedded derivative instrument are not "clearly
        and
        closely" related to the risks and rewards of the host instrument, the embedded
        derivative instrument is generally required to be bifurcated and accounted
        for
        separately. If the convertible instrument is debt, or has debt-like
        characteristics, the risks and rewards associated with the embedded conversion
        option are not "clearly and closely" related to that debt host instrument.
        The
        conversion option has the risks and rewards associated with an equity
        instrument, not a debt instrument, because its value is related to the value
        of
        our common stock. Nonetheless, if the host instrument is considered to be
        "conventional convertible debt" (or "conventional convertible preferred stock"),
        bifurcation of the embedded conversion option is generally not required.
        However, if the instrument is not considered to be conventional convertible
        debt
        (or conventional convertible preferred stock), bifurcation of the embedded
        conversion option may be required in certain circumstances.
  F-9
 
 Certain
        instruments, including convertible debt and equity instruments and the
        freestanding options and warrants issued in connection with those convertible
        instruments, may be subject to registration rights agreements, which impose
        penalties for failure to register the underlying common stock by a defined
        date.
        If the convertible debt or equity instruments are not considered to be
        "conventional", then the existence of the potential cash penalties under
        the
        related registration rights agreement requires that the embedded conversion
        option be accounted for as a derivative instrument liability. Similarly,
        the
        potential cash penalties under the related registration rights agreement
        may
        require us to account for the freestanding options and warrants as derivative
        financial instrument liabilities, rather than as equity. In addition, when
        the
        ability to physically or net-share settle the conversion option or the exercise
        of the freestanding options or warrants is deemed to be not within the control
        of the company, the embedded conversion option or freestanding options or
        warrants may be required to be accounted for as a derivative financial
        instrument liability.
  Derivative
        financial instruments are initially measured at their fair value. For derivative
        financial instruments that are accounted for as liabilities, the derivative
        instrument is initially recorded at its fair value and is then re-valued
        at each
        reporting date, with changes in the fair value reported as charges or credits
        to
        income. For option-based derivative financial instruments, we use the
        Black-Scholes option pricing model to value the derivative
        instruments.
 
 If
        freestanding options or warrants were issued in connection with the issuance
        of
        convertible debt or equity instruments and will be accounted for as derivative
        instrument liabilities (rather than as equity), the total proceeds received
        are
        first allocated to the fair value of those freestanding instruments. If the
        freestanding options or warrants are to be accounted for as equity instruments,
        the proceeds are allocated between the convertible instrument and those
        derivative equity instruments, based on their relative fair values. When
        the
        convertible debt or equity instruments contain embedded derivative instruments
        that are to be bifurcated and accounted for as liabilities, the total proceeds
        allocated to the convertible host instruments are first allocated to the
        fair
        value of all the bifurcated derivative instruments. The remaining proceeds,
        if
        any, are then allocated to the convertible instruments themselves, usually
        resulting in those instruments being recorded at a discount from their face
        amount.
 
 To
        the
        extent that the fair values of the freestanding and/or bifurcated derivative
        instrument liabilities exceed the total proceeds received, an immediate charge
        to income is recognized, in order to initially record the derivative instrument
        liabilities at their fair value.
  F-10
 
 The
        discount from the face value of the convertible debt, together with the stated
        interest on the instrument, is amortized over the life of the instrument
        through
        periodic charges to income, usually using the effective interest method.
        When
        the instrument is convertible preferred stock, the dividends payable are
        recognized as they accrue and, together with the periodic amortization of
        the
        discount, are charged directly to retained earnings.
 
 The
        classification of derivative instruments, including whether such instruments
        should be recorded as liabilities or as equity, is re-assessed periodically,
        including at the end of each reporting period. If re-classification is required,
        the fair value of the derivative instrument, as of the determination date,
        is
        re-classified. Any previous charges or credits to income for changes in the
        fair
        value of the derivative instrument are not reversed. Derivative instrument
        liabilities are classified in the balance sheet as current or non-current
        based
        on whether or not net-cash settlement of the derivative instrument could
        be
        required within 12 months of the balance sheet date.
 
 **Registration
        Rights Agreements**
 
 In
        connection with the sale of debt or equity instruments, we may enter into
        Registration Rights Agreements. Generally, these agreements require us to
        file
        registration statements with the Securities and Exchange Commission to register
        common shares that may be issued on conversion of debt or preferred stock,
        to
        permit re-sale of common shares previously sold under an exemption from
        registration or to register common shares that may be issued on exercise
        of
        outstanding options or warrants.
 
 The
        agreements usually require us to pay penalties for any time delay in filing
        the
        required registration statements, or in the registration statements becoming
        effective, beyond dates specified in the agreement. These penalties are usually
        expressed as a fixed dollar amount, per day, until the default is cured and/or
        a
        reduction in the conversion price. We factor these potential penalties into
        our
        calculations when determining if embedded derivative liabilities are contained
        in the debt or equity instruments.
 
 **Net
        Loss per Common Share**
 
 Basic
        and
        diluted net loss per common share is calculated in accordance with SFAS No.
        128,
“Earnings Per Share.” Basic net loss per common share is computed by dividing
        net loss by the weighted average number of common shares outstanding for
        the
        year ended December 31, 2006 and 2005. The net loss attributable to common
        stockholders is calculated by deducting the Series A convertible preferred
        stock
        dividend from the net loss. Total shares issuable upon the exercise of options,
        warrants, preferred stock and the conversion of debt for the years ended
        December 31, 2006 and 2005 were 19,217,756 and 31,480,100,
        respectively.
 
 **Income
        Taxes**
 
 The
        Company accounts for income taxes in accordance with Statement of Financial
        Accounting Standards No. 109 “Accounting for Income Taxes.” Deferred income
        taxes reflect the net effect of (a) temporary difference between carrying
        amounts of assets and liabilities for financial purposes and the amounts
        used
        for income tax reporting purposes, and (b) net operating loss carryforwards.
        No
        net provision for refundable Federal income tax has been made in the
        accompanying statements of operation because no recoverable taxes were paid
        previously. Similarly, no deferred tax asset attributable to the net operating
        loss carryforward has been recognized.
 
 F-11
 
 **Fair
        Value of Financial Instruments**
 
 The
        carrying amounts of cash, accounts receivable, investment in marketable
        securities and accounts payable approximate fair value due to the short-term
        maturity of these investments. The fair value of the accounts payable - related
        parties is not determinable as they have no repayment terms.
 
 Management
        determines the appropriate classification of its investments in marketable
        securities at the time of purchase and reevaluates such determination at
        each
        balance sheet date. The fair value of substantially all securities is determined
        by quoted market prices. When appropriate, securities classified as
        available-for-sale are carried at fair value, with unrealized gains and losses,
        net of tax, reported in other comprehensive income.
 
 Because
        the Company’s currently outstanding convertible debentures are not publicly
        traded, the Company estimates the fair value of its outstanding convertible
        debentures based on the value of the common stock that the notes are convertible
        into. As of December 31, 2006, the convertible notes payable, face value
        of
        $7,555,320, was convertible into 11,615,427 shares of the Company’s common
        stock.
 
 Unless
        otherwise noted, it is management's opinion that the Company is not exposed
        to
        significant interest, currency or credit risks arising from these financial
        instruments. The fair value of these financial instruments approximates their
        carrying values, unless otherwise noted.
 
 **Concentration
        of Credit Risk**
 
 Financial
        instruments that potentially subject the Company to significant concentration
        of
        credit risk consist principally of cash and accounts receivable.
 
 The
        Company has cash balances in a single financial institution which, from time
        to
        time, exceed the federally insured limit of $100,000. No loss has been incurred
        related to this concentration of cash.
 
 **Going
        Concern Basis**
 
 For
        the
        years ended December 31, 2006 and 2005, the Company incurred net losses totaling
        $7,277,318 and $6,187,063, had net cash used in operating activities totaling
        $5,684,498 and $5,184,486; and had an accumulated deficit of $25,558,912
        as of
        December 31, 2006. If the Company is unable to generate sufficient cash flow
        from operations and/or continue to obtain financing to meet its working capital
        requirements, it may have to curtail its business sharply or cease business
        altogether.
 
 F-12
  The
        accompanying financial statements have been prepared assuming that the Company
        will continue as a going concern that contemplates the realization of assets
        and
        the satisfaction of liabilities in the normal course of business. However,
        the
        ability of the Company to continue as a going concern on a longer-term basis
        will be dependent upon the ability to generate sufficient cash flow from
        operations to meet its obligations on a timely basis, the ability to obtain
        additional financing, and the ability to ultimately attain profitability.
 
 Management
        plans to raise capital during 2007 and will review all available fund raising
        alternatives. Management is also considering a variety of potential partnership
        or strategic alliances to strengthen its financial position. While the Company
        has been successful in the past in raising capital, no assurance can be given
        that these sources of financing will continue to be available to the Company
        and/or that demand for the Company’s equity and debt instruments will be
        sufficient to meet its capital needs. The financial statements do not include
        any adjustments relating to the recoverability and classification of liabilities
        that might be necessary should the Company be unable to continue as a going
        concern.
  **Recent
        Accounting Pronouncements**
 
 In
        September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
        No. 157, Fair Value Measurements.  SFAS No. 157 defines fair value,
        establishes a framework for measuring fair value in GAAP, and expands
        disclosures about fair value measurements.  This statement is effective for
        financial statements issued for fiscal years beginning after November 15,
        2007.  Management is currently evaluating the impact SFAS No. 157 will have
        on the Company’s financial position, results of operations, and cash
        flows.
  In
        February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
        Financial Assets and Financial Liabilities - including an amendment of FASB
        statement No. 115.” This Statement permits all entities to choose, at specified
        election dates, to measure eligible items at fair value (the “fair value
        option”). A business entity shall report unrealized gains and losses on items
        for which the fair value option has been elected in earnings (or another
        performance indicator if the business entity does not report earnings) at
        each
        subsequent reporting date. Upfront costs and fees related to items for which
        the
        fair value option is elected shall be recognized in earnings as incurred
        and not
        deferred. If an entity elects the fair value option for a held-to-maturity
        or
        available-for-sale security in conjunction with the adoption of this Statement,
        that security shall be reported as a trading security under Statement 115,
        but
        the accounting for a transfer to the trading category under paragraph 15(b)
        of
        Statement 115 does not apply. Electing the fair value option for an existing
        held-to-maturity security will not call into question the intent of an entity
        to
        hold other debt securities to maturity in the future. This statement is
        effective as of the first fiscal year that begins after November 15, 2007.
        The
        Company is currently analyzing the effects of SFAS 159 but does not expect
        its
        implementation will have a significant impact on the Company's financial
        condition or results of operations.
 
 In
        July
        2006, the FASB issued FASB Interpretation (“FIN”) No. 48 Accounting for
        Uncertainty in Income Taxes - An Interpretation of FASB Statement No. 109. 
FIN 48 prescribes detailed guidance for the financial statement recognition,
        measurement, and disclosure of uncertain tax positions recognized in an
        enterprise’s financial statements in accordance with SFAS No. 109, Accounting
        for Income Taxes.  Tax positions must meet a more-likely-than-not
        recognition threshold at the effective date to be recognized upon the adoption
        of FIN 48 and in subsequent periods.  FIN 48 will be effective for fiscal
        years beginning after December 15, 2006, and the provisions of FIN 48 will
        be
        applied to all positions upon the adoption of the Interpretation.  The
        cumulative effect of this applying the provisions of this Interpretation
        will be
        reported as an adjustment to the opening balance of retained earnings for
        that
        fiscal year.  Management is currently evaluating the impact of FIN 48 on
        the financial statements but does not believe that its adoption will have
        a
        material effect on the Company’s financial position, results of operations, or
        cash flows.
 
 F-13
 
 In
        September 2006, the SEC issued Staff Accounting Bulletin No. 108,
        Considering the Effects of Prior Year Misstatements when quantifying
        Misstatements in Current Year Financial Statements (“SAB 108”).
        SAB 108 requires companies to evaluate the materiality of identified
        unadjusted errors on each financial statement and related financial statement
        disclosure using both the rollover approach and the iron curtain approach,
        as
        those terms are defined in SAB 108. The rollover approach quantifies
        misstatements based on the amount of the error in the current year financial
        statement, whereas the iron curtain approach quantifies misstatements based
        on
        the effects of correcting the misstatement existing in the balance sheet
        at the
        end of the current year, irrespective of the misstatement’s year(s) of origin.
        Financial statements would require adjustment when either approach results
        in
        quantifying a misstatement that is material. Correcting prior year financial
        statements for immaterial errors would not require previously filed reports
        to
        be amended. If a Company determines that an adjustment to prior year financial
        statements is required upon adoption of SAB 108 and does not elect to
        restate its previous financial statements, then it must recognize the cumulative
        effect of applying SAB 108 in fiscal 2006 beginning balances of the
        affected assets and liabilities with a corresponding adjustment to the fiscal
        2006 opening balance in retained earnings. SAB 108 is effective for interim
        periods of the first fiscal year ending after November 15, 2006, and will
        be adopted by the Company in the first quarter of 2007. The Company does
        not
        expect the adoption of this interpretation to have an impact on its financial
        position or results of operations.
 
 **NOTE
        3 - RELATED PARTY TRANSACTIONS**
 
 At
        December 31, 2006, there were accounts payable to related parties totaling
        $201,022. Such liabilities include expenditures made on behalf of the Company
        for travel, lodging, supplies and various other general expenses, as well
        as,
        salaries and/or consulting fees owed to the related parties. Portions of
        these
        liabilities were repaid subsequent to December 31, 2006.
 
 The
        Company has a content agreement with an entity partially owned by one of
        the
        founders of ITVN. Such entity is one of numerous companies that provide content
        to the Company to be distributed to the Company's customers. The related
        party
        earned $54,512 and $24,087 during the years ended December 31, 2006 and 2005,
        respectively. As of December 31, 2006, $21,718 had not been paid.
 
 The
        two
        founders of ITVN have loaned the Company a total of $1,056,593, of which
        $100,000 was repaid to one of the founders during the year ended December
        31,
        2006 leaving, a remaining balance of $956,593. The notes evidencing these
        loans
        bear interest at a rate of 8% beginning on July 1, 2005 and are due on demand.
        The Company recorded interest expense of $75,897 and $42,380 for the years
        ended
        December 31, 2006 and 2005, respectively, in connection with these related
        party
        notes payable of which $118,277 is payable at December 31, 2006
 
 F-14
 
 **NOTE
        4 - CAPITALIZED INVENTORY, NET**
 
 The
        Company offers various marketing promotions whereby, without charge,
        ITVN-enabled set-top boxes are given to various customers that sign up for
        the
        ITVN Service. The Company capitalizes the cost of the ITVN-enabled set-top
        boxes
        that are shipped to customers during these promotions. Depending on the
        promotion the customer signs up for, the customer is either required to return
        the ITVN-enabled set-top box to the Company if they cancel their service
        at any
        time, or if a one year service agreement is entered into, the set-top box
        must
        be returned if the customer cancels within the one year term of the service
        agreement. The Company routinely estimates the amount of capitalized inventory
        that may not be returned by customers that have canceled their service. As
        of
        December 31, 2006 approximately $100,000 had been reserved for such unreturned
        set-top boxes. We have retained a collection agency to collect the $99.95
        the
        customers agreed to pay if they do not return the ITVN-enabled set-top box.
        Depending on the marketing promotion, depreciation relating to these boxes
        is
        calculated over their estimated useful lives of two years or over the term
        of
        the one year service agreement. The Company recognized depreciation expense
        of
        $130,911 and $65,493 for the years ended December 31, 2006 and 2005,
        respectively. Accumulated depreciation at December 31, 2006 totaled
        $155,279.
 
 **NOTE
        5 - FIXED ASSETS, NET**
 
 Fixed
        assets, net at December 31, 2006 consist of the following:
 
 Computer
                  and office equipment
              
              $
              1,539,413Capitalized
                  software
              
              
              625,163Furniture
                  and fixtures
              
              
              55,470Hotel
                  set-top boxes
              
              
              10,300Total
                  fixed assets
              
              
              2,230,346Less:
                  accumulated depreciation
              
              
              (1,204,660
              )Fixed
                  assets, net
              
              $
              1,025,686
  Depreciation
        of fixed assets for the years ended December 31, 2006 and 2005 was $852,567
        and
        $344,752, respectively.
 
 **NOTE
        6 - INCOME TAXES**
  The
        provision for refundable Federal income tax consists of the
        following:
  Year
                  ended December 31,2006
              
              2005Refundable
                  Federal income tax attributable to current operations
              
              $
              2,500,000
              
              $
              1,400,000Less:
                  Change in valuation allowance
              
              
              (2,500,000
              )
              
              (1,400,000
              )Net
                  refundable amount
              
              $
              -
              
              $
              -
  F-15
 
 The
        cumulative tax effect at the expected rate of 34% of significant items
        comprising our net deferred tax amount at December 31, 2006 is as
        follows:
 
 Deferred
                  tax asset attributable to:Net
                  operating losses carried forward
              
              $
              4,000,000Less:
                  Valuation allowance
              
              
              (4,000,000
              )Net
                  deferred tax asset
              
              $
              -
  At
        December 31, 2006, the Company had an unused net operating loss carryover
        approximating $12,000,000 that is available to offset future taxable income;
        it
        expires beginning in 2024.
  **NOTE
        7 - CONVERTIBLE NOTES PAYABLE**
 
 Fund
        Debentures
  On
        October 24, 2005, the Company entered into a series of agreements, each of
        which
        is dated as of October 20, 2005, pursuant to which the Company sold to a
        fund
        (the “Fund”) (i) a three-year 17% Secured Convertible Debenture (the "17%
        Debenture") having an initial principal balance of $4,000,000, and
        (ii) five-year warrants (the "17% Warrants") at $3.00 per share to acquire
        1,000,000 shares of the Company’s common stock (the "17% Warrant Shares"). The
        foregoing sale of securities was completed on October 25, 2005. The aggregate
        purchase price of the securities sold in the private placement was $4,000,000.
  On
        April
        18, 2006, the Company sold to the Fund (i) a three-year 16% Secured
        Convertible Debenture (the "16% Debenture") having an initial principal balance
        of $1,000,000, and (ii) five-year warrants (the "16% Warrants") that
        currently entitle the holder to acquire 529,400 shares of the Company’s common
        stock at $3.00 per share. The foregoing sale of securities was completed
        on
        April 18, 2006. The aggregate purchase price of the securities sold in the
        private placement was $1,000,000.
 
 The
        17%
        Debenture and the 16% Debenture accrue interest at a rate of 17% and 16%
        per
        annum, respectively, until payment in full of the unconverted outstanding
        principal sum, together with all accrued and unpaid interest, has been made.
        Interest is payable quarterly in arrears on the last day of each January,
        April,
        July, and October (each such date, an "Interest Payment Date"), commencing
        on
        January 31, 2006 for the 17% Debenture and July 31, 2006 for the 16%
        Debenture. Interest is payable in cash, except that the Company may, in its
        sole
        discretion, pay up to 50% of the amount of interest payable on any Interest
        Payment Date by issuing additional debentures (“Interest Debentures”) in
        accordance with the same terms as the 17 % Debenture or 16% Debenture. As
        permitted by the 17% Debenture, we have paid one-half of the January 31,
        April
        30, July 31 and October 31, 2006 interest payments that had accrued under
        the
        17% Debenture by issuing four additional 17% Secured Convertible Debentures
        (in
        the face amounts of $92,220, $82,910, $85,700 and $91,300 respectively).
        As
        permitted by the 16% Debenture, we have paid one-half of the July 31 and
        October
        31, 2006 interest payments that had accrued under the 16% Debenture by issuing
        two additional 16% Secured Convertible Debentures (in the face amount of
        $23,020
        and $20,170, respectively). The 17% Debenture and 16% Debenture, along with
        the
        Interest Debentures are known collectively as the “Fund Debentures.” Whereas the
        optional Interest Debentures were issued as required for the January 31,
        2007
        interest payments, the cash portion of the interest due was not paid and
        remains
        recorded as Interest Payable at April 15, 2007. Accordingly, the holders
        of our
        outstanding debentures have the right to accelerate the repayment of their
        debentures and, if we do not fully repay those obligations, to foreclose
        on our
        assets. To date, the holders of the debentures have not declared a default
        under
        the debentures and have not accelerated their loans. However, we have no
        agreement with our debenture holders regarding the waiver or deferral of
        any of
        our obligations to the debenture holders, and the debenture holders may
        foreclose on our assets at any time. As the Company is in default of the
        Fund
        Debentures debt covenants and accordingly, the Fund Debentures and related
        derivative financial instruments (see Note 8 below) are classified as current
        liabilities in the accompanying financial statements.
  F-16
 
 The
        Company’s obligations under the Fund Debentures are secured by a Security
        Agreement, pursuant to which the Company granted a security interest in all
        of
        the Company’s personal property assets. In addition, the Company's obligations
        under the Fund Debentures are also secured by the pledge of 4,000,000
        shares of the Company’s common stock by various shareholders of the
        Company.
 
 The
        Fund
        Debentures are convertible into shares of the Company’s common stock (the
“Debenture Shares”) at any time at a conversion price of $2.00 per share. The
        conversion price may be adjusted in certain circumstances, such as if the
        Company issues shares below the then existing conversion price, pay a stock
        dividend, subdivide or combine outstanding shares of common stock in a greater
        or lesser number of shares, or take such other actions as would otherwise
        result
        in dilution. As a result of the issuance of shares in December 2006 at $0.75
        per
        share, the conversion price was reduced to $0.75. Additionally, in the event
        the
        Company fails to comply with its registration requirements (see below), we
        are
        required to pay a cash penalty. As
        a
        result, the secured convertible notes are not considered to be "conventional
        convertible debt, convertible into a fixed number of shares" as that term
        is
        used in EITF Issue 00-19 "Accounting for Derivative Financial Instruments
        Indexed to, and Potentially Settled In, a Company's Own Stock". The
        Fund
        Debentures may not be converted, if and to the extent such issuance of
        conversion shares would result in the Fund, together with any affiliate thereof,
        beneficially owning in excess of 9.99% of the then-issued and outstanding
        shares
        of Common Stock, including shares issuable upon conversion of the
        Debentures.
 
 The
        Company has the right to prepay the Fund Debentures without penalty, in whole
        or
        in part, at any time and from time to time upon not less than fifteen days
        prior written notice. In the event that the Company issues any additional
        debt
        or equity securities, at the election of the Fund, the Company may be required
        to first use 50% of such amounts to repay some or all of the 17% Debentures
        and
        then use 100% of the remaining net proceeds of such debt or equity securities
        to
        repay the 16% Debentures. On June 20, 2006 an additional $2,500,000 of debt
        was
        issued (see Variable Rate Debentures below). In order to entice the Fund
        to
        waive this repayment requirement, the Company issued a supplemental warrant
        for
        the 17% Debenture to the Fund to acquire 333,334 shares of common stock at
        an
        exercise price of $3.00 per share, expiring on October 20, 2010 (the“17%
        Supplemental Warrants”) and a supplemental warrant for the 16% Debenture to
        acquire 137,266 shares of common stock at an exercise price of $3.00 per
        share,
        expiring on April 18, 2011 (the“16% Supplemental Warrants”). The 17%
        Supplemental Warrants and 16% Supplemental Warrants have been included with
        the
        initial 17% Warrants and 16% Warrants, respectively, for financial statement
        reporting purposes.  As a result of the issuance of shares in December 2006
        at $0.75 per share, the exercise price of the 17% Warrants, 16% Warrants,
        17%
        Supplemental Warrants and 16% Supplemental Warrants was reduced to $2.93
        per
        share.
  F-17
  In
        connection with the sale and issuance of the 17% Debenture and 17% Warrants,
        the
        Company entered into a registration rights agreement (dated October 20, 2005,
        hereafter referred to as the “17% RRA”) pursuant to which the Company agreed to
        prepare and file, no later than the 60th day immediately following the date
        of
        the 17% RRA, a registration statement with the SEC covering the resale of
        the
        Debenture Shares related to the 17% Debenture and the 17% Warrant Shares.
        In
        February 2006, the Company filed with the SEC a Form SB-2 covering the resale
        of
        the Debenture Shares and the Warrant Shares thereby satisfying the 60-day
        filing
        requirement for the 17% Debenture. The registration statement was declared
        effective shortly thereafter by the SEC. The Company shall be subject to
        the
        payment of specified liquidated damages to the Fund as set forth in the
        Registration Rights Agreements if it is unable to maintain the effectiveness
        of
        the registration statement in the manner, and to the extent, specified in
        the
        17% RRA. In the event the effectiveness of the registration statement is
        not
        maintained in the manner required, the Company shall pay liquidated damages
        to
        the Fund equal to $1,000 for each day during which the event of default is
        not
        cured and the conversion price shall be reduced to $1.50 per share. A
        registration rights agreement was not entered into in connection with the
        sale
        and issuance of the 16% Debenture, however, on April 25, 2006 the Company
        filed
        with the SEC a Form SB-2 covering the resale of the Debenture Shares related
        to
        the 16% Debenture and 16% Warrant Shares and that registration statement
        was
        declared effective by the SEC shortly thereafter. The 17% Warrants and 16%
        Warrants were valued by an independent financial valuation advisory firm
        at an
        initial value of $2,207,982 and $810,089, respectively. Because
        of the potential penalties we may have to pay, should we not be able to maintain
        the effectiveness of the registration statement, these warrants have been
        recorded as derivative instrument liabilities, rather than as equity. These
        derivative instrument liabilities are adjusted to fair value at the end of
        each
        subsequent period, and any changes in the fair value are charged or credited
        to
        income in the period of change.
 
 Because
        the 17% Debenture and the 16% Debenture are not considered to be conventional
        convertible debt, the embedded conversion options in the secured convertible
        notes are subject to the requirements of EITF Issue 00-19. Because of the
        potential penalties we may have to pay should we not be able to maintain
        the
        effectiveness of the registration statement, together with the fact that
        the
        conversion price of the debt can be reduced, we are required by EITF Issue
        00-19
        to bifurcate the embedded conversion option and account for it as a derivative
        instrument liability. The most significant component of the compound derivative
        instruments is the embedded conversion option, which is valued and revalued
        by
        an independent financial valuation advisory firm. See Note 9.
 
 Variable
        Rate Debentures
 
 On
        June
        20, 2006, we completed a private placement of certain of our securities to
        four
        institutional funds (collectively, the “Selling Securityholders.”). The
        securities that the Selling Securityholders purchased for an aggregate purchase
        price of $2,500,000 consisted of the following: (i) Variable Rate Secured
        Convertible Debentures, due June 20, 2008, having a principal balance of
        $2,500,000 (the “Variable Rate Debentures ”),
        (ii)  five-year Series A Common Stock Purchase Warrants (the “ Series
        A
        Warrants ”)
        to
        purchase 1,250,000 shares of our common stock, and (iii) nine-month Series
        B
        Common Stock Purchase Warrants (“ Series
        B
        Warrants ”)
        to
        purchase (x) 1,250,000 shares of common stock and (y) additional Series A
        Warrants for the purchase of an additional 1,250,000 shares. **** The
        Variable Rate Debentures are convertible at a conversion price of $2.00,
        the
        Series A Warrants are exercisable at a price of $3.00 per share, and the
        Series
        B Warrants are exercisable at a price of $2.00 **.** As
        a
        result of the issuance of shares in December 2006 at $0.75 per share, the
        conversion price was reduced to $0.73, and the exercise price of the Series
        A
        Warrants was reduced to $2.91 per share and the Series B Warrants was reduced
        to
        $0.75 per share.
  The
        Variable Rate Debentures accrue interest on the aggregate unconverted and
        then
        outstanding principal amount at the rate per annum equal to the greater of
        (i)
        15% or (ii) LIBOR for the applicable interest period plus 5.0%. Interest
        for the
        year ended December 31, 2006 was calculated using the 15% rate. Interest
        is
        payable quarterly in arrears on the first day of each January, April, July,
        and
        October, commencing on October 1, 2006. Interest is payable, at our option,
        in
        cash or shares of common stock valued at 90% of the average of the daily
        volume
        weighted average price of our common stock (“VWAP”) for the 20 consecutive
        trading days ending on the trading day that is immediately prior to the
        applicable interest payment date. On November 27, 2006 and August 29, 2006
        the
        January 1, 2007 and October 1, 2006 interest payments were made via the issuance
        of 61,590 and 53,645 shares of common stock, respectively
  F-18
  Commencing
        on November 1, 2006 and continuing monthly thereafter until the Variable
        Rate
        Debentures have been repaid in full, we are obligated to make monthly principal
        payments of $125,000. The monthly payments of principal also may, at our
        option,
        be paid in cash or in shares of our common stock. If we elect to make any
        principal payment in shares of our common stock, the shares of common stock
        will
        be valued at a price equal to the lesser of (i) the conversion price then
        in
        effect (initially $2.00, subject to anti-dilution adjustments) and (ii) 90%
        of
        the average of the VWAPs for 20 consecutive trading days. Accordingly, we
        exercised our option to make the November and December 2006 principal payments
        by issuing shares of our common stock.
  The
        Variable Rate Debentures are convertible into shares of our common stock
        at any
        time at an initial conversion price of $2.00 per share. While the Debentures
        are
        outstanding, the initial conversion price is subject to (i) reduction to
        the
        lowest price at which we issue additional shares of common stock (other than
        certain exempt issuances, such as grants of employee stock options or securities
        issued in acquisitions or strategic transactions), or securities convertible
        into or exercisable for additional shares of common stock, and (ii) adjustment
        for future stock splits, reverse stock splits, mergers or reorganizations,
        and
        similar changes affecting common stock holders.  As a result of the
        issuance of shares in December 2006 at $0.75 per share, the conversion price
        was
        reduced to $0.75.  During August 2006, $90,000 of the Variable Rate
        Debentures was converted into 45,000 shares of common stock thereby reducing
        the
        outstanding Variable Rate Debentures to $2,410,000.
  The
        Variable Rate Debentures mature on June 20, 2008. However, commencing on
        December 20, 2006, if certain conditions are met, we have the right to redeem
        the Variable Rate Debentures for cash at a premium. The amount of the premium
        depends on the date on which we elect to redeem the Debentures. If we elect
        to
        redeem the Debentures prior to June 20, 2007, we will have to pay 115% of
        the
        principal amount of the Debenture then outstanding or, if the redemption
        occurs
        on or after June 20, 2007, we will have to pay 110% of the principal amount
        of
        the Debentures then outstanding.
 
 If
        an
        event of default occurs under the Variable Rate Debentures, the holders of
        the
        Variable Rate Debentures have the right to demand the redemption of the Variable
        Rate Debentures, which redemption is payable in cash. If we are required
        to make
        cash redemptions, the redemption price will be equal to the greater of (a)
        125%
        of the outstanding principal amount of the Variable Rate Debentures or (b)
        the
        outstanding principal amount of the Variable Rate Debentures, plus all accrued
        and unpaid interest thereon, divided by the conversion price and multiplied
        by
        the VWAP. In cases where the holders of the Variable Rate Debentures have
        the
        right to accelerate their redemption, the interest rate increases to the
        lesser
        of 18% per annum or the maximum rate permitted by law.
  F-19
  The
        Variable Rate Debentures are secured by a lien on substantially all of our
        assets.
 
 In
        connection with the sale and issuance of the Variable Rate Debentures and
        Warrants, the Company and the Selling Securityholders entered into a
        registration rights agreement (the “VRD RRA”), dated June 20, 2006 pursuant to
        which the Company agreed to prepare and file, no later than the 30th day
        immediately following the date of the VRD RRA, a “Shelf” Registration Statement
        covering the resale of 150% of the Registrable Securities on such Filing
        Date
        for an offering to be made on a continuous basis pursuant to Rule 415 (the
“VRD
        Shares”). On July 20, 2006 the Company filed with the SEC a Form SB-2 covering
        the resale of the VRD Shares thereby satisfying the 30-day filing requirement.
        The registration statement has since been declared effective by the SEC.
        The
        Company shall be subject to the payment of specified liquidated damages to
        the
        Selling Securityholders as set forth in the VRD RRA if it is unable to maintain
        the effectiveness of the registration statements in the manner, and to the
        extent, specified in the VRD RRA.
 
 The
        Series A Warrants and the Series B Warrants issued to the Selling
        Securityholders were valued by an independent financial valuation advisory
        firm
        at an initial value of $3,622,755 and $6,523,825, respectively. Because
        of the potential penalties we may have to pay the Selling Securityholders,
        should we not be able to maintain the effectiveness of the registration
        statement, these warrants have been recorded as derivative instrument
        liabilities, rather than as equity. These derivative instrument liabilities
        are
        adjusted to fair value at the end of each subsequent period, and any changes
        in
        the fair values are charged or credited to income in the period of
        change.
 
 Because
        the Variable Rate Debentures are not considered to be conventional convertible
        debt, the embedded conversion option in the secured convertible notes are
        subject to the requirements of EITF Issue 00-19. Because of the potential
        penalties we may have to pay the Selling Securityholders should we not be
        able
        to maintain the effectiveness of the registration statement, together with
        the
        fact that the conversion price of the debt can be reduced, we are required
        by
        EITF Issue 00-19 to bifurcate the embedded conversion option and account
        for it
        as a derivative instrument liability. The most significant component of the
        compound derivative instruments is the embedded conversion option, which
        is
        valued and revalued by an independent financial valuation advisory firm.
        See
        Note 9.
 
 Short-term
        Debenture
 
 On
        December 20, 2006, the Company entered into a series of agreements, each
        of
        which is dated as of November 30, 2006, pursuant to which the Company sold
        to a
        fund (the “Fund”) (i) a short-term Secured Convertible Debenture (the
        "Short-term Debenture") having an initial principal balance of $850,000,
        and
        (ii) five-year warrants (the "Short-term Warrants") to acquire 1,931,818
        shares of the Company’s common stock (the "Short-term Warrant Shares") at an
        exercise price of $2.00 per share. The Short-term Debenture is convertible
        at a
        conversion price of $2.00. As
        a
        result of the issuance of shares in December 2006 at $0.75 per share, the
        conversion price of the Short-term Debenture was reduced to $0.75 and the
        exercise price of the Short-term Warrants was reduced to $1.95. The
        Short-term Debenture matures on January 8, 2007 however, as of April 15,
        2007
        the debenture had not been paid and is considered in default.
  F-20
  The
        Short-term Debenture accrues interest at a rate of 5% per month until payment
        in
        full of the unconverted outstanding principal sum, together with all accrued
        and
        unpaid interest, has been made. Interest is payable upon maturity of the
        Short-term Debenture, in cash.
  The
        Company’s obligations under the Short-term Debenture are secured by a Security
        Agreement, pursuant to which the Company granted a security interest in all
        of
        the Company’s personal property assets. In addition, the Company's obligations
        under the Short-term Debenture are also secured by the pledge of 4,500,000
        shares of the Company’s common stock by various shareholders of the
        Company.
 The
          Short-term Warrants were valued by an independent financial valuation advisory
          firm at an initial value of $2,371,822. Because of the potential penalties
          we
          may have to pay the Selling Securityholders, should we not be able to maintain
          the effectiveness of the registration statement, these warrants have been
          recorded as derivative instruments liabilities, rather than as equity.
          These
          derivative instrument liabilities are adjusted to fair value at the end
          of each
          subsequent period, and any changes in the fair values are charged or credited
          to
          income in the period of change.
 
 Because
          the Short-term Debenture is not considered to be conventional convertible
          debt,
          the embedded conversion option in the secured convertible note is subject
          to the
          requirements of EITF Issue 00-19. Because of the potential penalties we
          may have
          to pay the Selling Securityholders should we not be able to maintain the
          effectiveness of the registration statement, together with the fact that
          the
          conversion price of the debt can be reduced, we are required by EITF Issue
          00-19
          to bifurcate the embedded conversion option and account for it as a derivative
          instrument liability. The most significant component of the compound derivative
          instruments is the embedded conversion option, which is valued and revalued
          by
          an independent financial valuation advisory firm. See Note 9.
 Loss
          on Extinguishment of Debt
 As
          a
          result of the Company’s reduction of its convertible debt share conversion
          prices during 2006, the net present value of the future cash flows of the
          debt instruments were changed by greater that 10% and, in accordance with
          EITF
          96-16, the debt was treated as extinguished and reissued. In conjunction
          with
          this extinguishment, the company has recognized a loss on extinguishment
          of
          $3,751,077 during 2006.
 
 Interest
        Expense - Derivative Instruments
 The
        proceeds received from the Fund Debentures, Variable Rate Debentures
        and Short-term Debenture, (collectively, the “Convertible Notes Payable”) were
        first allocated to the fair value of the freestanding warrants and then to
        the
        fair value of the bifurcated embedded derivative instruments included in
        the
        Convertible Notes Payable. The total fair value of the warrants plus the
        embedded derivatives was greater than the amount of the Convertible Notes
        Payable. As such, the Convertible Notes Payable were recorded at zero, a
        significant discount from their face amount. As a result, Interest
        expense-derivative instruments, representing the difference between the total
        fair value of the warrants plus the embedded derivatives and the amount of
        the
        Convertible Notes Payable, was charged as follows:
  For
                    the years ended
                  December
                    31,2006
                
                200517%
                    Debenture
                
                $
                3,397,055
                
                $
                1,031,15016%
                    Debenture
                
                
                3,359,516
                
                
                -Interest
                    Debentures
                
                
                675,814
                
                
                -Variable
                    Rate Debenture
                
                
                11,364,814
                
                
                -Short-term
                    Debenture
                
                
                1,625,148
                
                
                -Total
                    Interest Expense - Derivative Instruments
                
                $
                20,422,347
                
                $
                1,031,150
  The
        discounts on the Convertible Notes Payable and the Interest Debentures, together
        with the stated interest on such debentures and the discounts on the related
        Notes Payable are being amortized using an effective interest method over
        the
        term of the notes
  Maturities
 At
        December 31, 2006, the following long-term and current portions were outstanding
        under the Convertible Notes Payable. See Note 9 for information on the
        derivative instrument liabilities related to the warrants and the bifurcated
        embedded derivative instruments.
 
 F-21
 **Long-term
                  Portion**
              
              **Current
                  Portion**17%
                  secured convertible debenture, with monthly principal repayments
                  of
                  $222,222 starting May 1, 2007
              
              
              
              
              $
              4,000,000Less:
                  unamortized discount
              
              
              
              
              
              (3,980,789
              )Balance
              
              
              
              
              
              19,21117%
                  Interest Debenture dated January 31, 2006, with monthly principal
                  repayments of $5,123 starting August 1, 2007
              
              
              
              
              
              92,220Less:
                  unamortized discount
              
              
              
              
              
              (88,473
              )Balance
              
              
              
              
              
              3,74717%
                  Interest Debenture dated April 30, 2006, with monthly principal
                  repayments
                  of $4,606 starting November 1, 2007
              
              
              
              
              
              82,910Less:
                  unamortized discount
              
              
              
              
              
              (79,897
              )Balance
              
              
              
              
              
              3,01317%
                  Interest Debenture dated July 31, 2006, with monthly principal
                  repayments
                  of $4,761 starting February 1, 2008
              
              
              
              
              
              85,700Less:
                  unamortized discount
              
              
              
              
              
              (82,883
              )Balance
              
              
              
              
              
              2,81717%
                  Interest Debenture dated October 30, 2006, with monthly principal
                  repayments of $5,073 starting May 1, 2008
              
              
              
              
              
              91,300Less:
                  unamortized discount
              
              
              
              
              
              (88,645
              )Balance
              
              
              
              
              
              2,65516%
                  secured convertible debenture, with monthly principal repayments
                  of
                  $55,555 starting November 1, 2007
              
              
              
              
              
              1,000,000Less:
                  unamortized discount
              
              
              
              
              
              (995,519
              )Balance
              
              
              
              
              
              4,48116%
                  Interest Debenture dated July 31, 2006, with monthly principal
                  repayments
                  of $1,279 starting February 1, 2008
              
              
              
              
              
              23,020Less:
                  unamortized discount
              
              
              
              
              
              (22,263
              )Balance
              
              
              
              
              
              75716%
                  Interest Debenture dated October 30, 2006, with monthly principal
                  repayments of $1,121 starting May 1, 2008
              
              
              
              
              
              20,170Less:
                  unamortized discount
              
              
              
              
              
              (19,583
              )Balance
              
              
              
              
              
              587Variable
                  Rate Debentures, with monthly principal repayments of $125,000
                  starting
                  November 1, 2006
              
              $
              565,585
              
              
              1,500,000Less:
                  unamortized discount
              
              
              (468,892
              )
              
              (1,235,391
              )Balance
              
              
              96,693
              
              
              264,609Short-term
                  Debenture, due January 8, 2007
              
              
              
              
              
              850,000Less:
                  unamortized discount
              
              
              
              
              
              (677,869
              )Balance
              
              
              
              
              
              172,131Convertible
                  notes payable
              
              
              565,585
              
              
              7,745,320Less:
                  unamortized discount
              
              
              (468,892
              )
              
              (7,271,312
              )Convertible
                  notes payable, net
              
              $
              96,693
              
              $
              474,008
 F-22
 
 Principal
        repayments are as follows, for the years ended December 31:
  2007
              
              $
              4,093,0382008
              
              
              3,871,6642009
              
              
              346,2032010
              
              
              -Total
              
              $
              8,310,905
 
 **NOTE
        8 - CONVERTIBLE PREFERRED STOCK**
 
 On
        December 21, 2005, we completed the sale of (i) an aggregate of 3,333,333
        shares
        of our Series A Convertible Preferred Stock, which Series A Convertible
        Preferred Stock is convertible into shares of our common stock, and (ii)
        warrants to acquire up to a total of 265,000 shares of our common stock.
 
 In
        consideration for the foregoing shares of Series A Convertible Preferred
        Stock,
        the purchasers delivered to us (i) an aggregate of $2,000,000 in cash and
        (ii)
        certain securities of Interactive Brand Development, Inc. (“IBD”) that were
        owned by the purchasers. The IBD securities that were transferred to us
        consisted of (1) 57,914 shares of IBD’s Series D Convertible Preferred Stock,
        (2) 34,000 shares of IBD’s Series E Convertible Preferred Stock, and
        (3) 200,000 shares of restricted IBD common stock (collectively, the “IBD
        Securities”).
 
 F-23
  The
            number of shares into which one share of Series A Convertible Preferred
            Stock
            may be converted into is determined by dividing the Series A purchase
            price by
            the then existing conversion price. The initial conversion price per
            share for
            the Series A Preferred Stock was $3.75, subject to adjustment pursuant
            to the
            anti-dilution provisions of the shares. The Series A Convertible Preferred
            Stock
            may be converted at anytime at the conversion rate in effect at the time
            of
            conversion, provided, that a holder may at any given time convert only
            up to
            that number of shares of Series A Convertible Preferred Stock so that,
            upon
            conversion, the aggregate beneficial ownership of the Company’s common stock
            (calculated pursuant to Rule 13d-3 of the Securities Exchange Act of
            1934, as
            amended) of such holder and all persons affiliated with such holder is
            not more
            than 9.99% of the Company’s common stock then outstanding. The conversion price
            of $3.75 per share may be adjusted in certain circumstances such as if
            we
            subdivide or combine outstanding shares of common stock into a greater
            or lesser
            number of shares, or if we make or issue, or fix a record date for the
            determination of holders of common stock entitled to receive a dividend
            or other
            distribution payable in additional shares of common stock. In December
            2006, as
            part of the agreement with the holders of the Series A Convertible Preferred
            Stock to purchase additional securities, the initial conversion price
            was reduced to $0.75 per share.
 
 In
        connection with the sale of the Series A Convertible Preferred Stock, for
        no
        additional consideration, the investors received warrants to purchase a total
        of
        265,000 shares of common stock at $5.00 per share. The warrants expire in
        2010.
        The warrants issued were valued using the Black-Scholes option pricing model,
        at
        December 31, 2006 at $53,979. The principal assumptions used in the
        Black-Scholes computation were: 5-year term; fair market value of the underlying
        common stock at December 31, 2006 of $0.70 per share; a risk-free rate of
        return
        of 5.15%; dividend yield of zero percent; and a volatility of 90%. These
        warrants remain outstanding at December 31, 2006.
  **NOTE
        9 - DERIVATIVE FINANCIAL INSTRUMENTS**
 
 We
        hired
        an independent financial valuation advisory firm to value warrants and the
        embedded conversion option components of any bifurcated embedded derivative
        instruments that are recorded as derivative liabilities. See Note 7 related
        to embedded derivative instruments that have been bifurcated from our
        convertible notes payable.
 
 In
        valuing the warrants and the embedded conversion option components of the
        bifurcated embedded derivative instruments, on the date of valuation (the
        time
        they were issued and at December 31, 2006), we used the market price of our
        common stock, an expected dividend yield of 0% and the remaining period to
        the
        expiration date of the warrants or repayment date of the convertible debt
        instruments. All warrants and conversion options can be exercised by the
        holder
        at any time.
 
 Because
        of the limited historical trading period of our common stock, the expected
        volatility of our common stock over the remaining life of the warrants has
        been
        estimated at 140%. The risk-free rates of return used ranged from 4.69% to
        5.01%, based on constant maturity rates published by the U.S. Federal Reserve,
        applicable to the remaining life of the warrants.
 
 F-24
 
 Outstanding
        derivative liabilities related to common stock warrants and embedded derivative
        instruments are as follows
  Exercise
              
              Value
                    -
              
              Value
                    -Issue
              
              Expiry
              
              
              
              Price
              
              Issue
              
              December
                  31,Date
              
              Date
              
              Instrument
              
              Per
                  Share
              
              Date
              
              200610-20-
                  2005
              
              
              10-20-
                  2010
              
              
              17%
                  warrants issued to the Fund
              
              $
              2.93
              
              $
              2,207,982
              
              $
              718,60210-20-
                  2005
              
              
              10-01-
                  2008
              
              
              $4,000,000
                  convertible note payable
              
              $
              0.75
              
              $
              2,823,168
              
              $
              1,148,3211-31-
                  2006
              
              
              1-30-
                  2009
              
              
              $92,220
                  interest debenture
              
              $
              0.75
              
              $
              73,086
              
              $
              44,1504-30-
                  2006
              
              
              4-29-
                  2009
              
              
              $82,910
                  interest debenture
              
              $
              0.75
              
              $
              63,636
              
              $
              57,1667-31-
                  2006
              
              
              7-30-
                  2009
              
              
              $85,700
                  interest debenture
              
              $
              0.75
              
              $
              67,488
              
              $
              65,64810-31-
                  2006
              
              
              10-31-
                  2009
              
              
              $91,300
                  interest debenture
              
              $
              0.75
              
              $
              52,581
              
              $
              137,2034-18-
                  2006
              
              
              4-18
                  2011
              
              
              16%
                  warrants issued to the Fund
              
              $
              2.93
              
              $
              810,089
              
              $
              342,5654-18
                  2006
              
              
              4-17
                  2009
              
              
              $1,000,000
                  convertible note payable
              
              $
              0.75
              
              $
              1,340,278
              
              $
              466,6487-31-
                  2006
              
              
              7-30-
                  2009
              
              
              $23,020
                  interest debenture
              
              $
              0.75
              
              $
              23,476
              
              $
              30,68810-31-
                  2006
              
              
              10-31-
                  2009
              
              
              $20,170
                  interest debenture
              
              $
              0.75
              
              $
              18,941
              
              $
              43,6966-20-
                  2006
              
              
              6-20-
                  2011
              
              
              Series
                  A warrants issued to the Selling Securityholders
              
              $
              2.91
              
              $
              3,622,755
              
              $
              787,7226-20-
                  2006
              
              
              3-19
                  2007
              
              
              Series
                  B warrants issued to the Selling Securityholders
              
              $
              0.75
              
              $
              6,523,825
              
              $
              1,056,2096-20-
                  2005
              
              
              6-20-
                  2008
              
              
              $2,069,325
                  convertible note payable
              
              $
              0.75
              
              $
              3,580,384
              
              $
              551,70211-30-
                  2006
              
              
              1-8-
                  2007
              
              
              $850,000
                  convertible note payable
              
              $
              0.75
              
              $
              21,787
              
              $
              377,83211-30
                  2006
              
              
              11-30-
                  2011
              
              
              Short-term
                  warrants
              
              $
              1.95
              
              $
              2,371,822
              
              $
              1,263,020
 Total
                    derivative financial instruments
                
                $
                7,091,172Current
                    portion of derivative financial instruments
                
                
                (6,432,071
                )Long
                    term portion of derivative financial instruments
                
                $
                659,101
 F-25
  **NOTE
        10 - CAPITAL STOCK**
 
 Effective
        July 22, 2005, the Company increased its authorized capital stock from
        25,000,000 shares of common stock, with a par value of $0.001 per share to
        75,000,000 shares of common stock, with a par value of $0.001 per share and
        created a preferred class of stock consisting of 5,000,000 shares of preferred
        stock, with a par value of $0.001 per share. All shares of common stock have
        equal voting rights and, when validly issued and outstanding, are entitled
        to
        one non-cumulative vote per share in all matters to be voted upon by
        shareholders. The shares of common stock have no pre-emptive, subscription,
        conversion or redemption rights and may be issued only as fully paid and
        non-assessable shares. Holders of the common stock are entitled to equal
        ratable
        rights to dividends and distributions with respect to the common stock, as
        may
        be declared by the Board of Directors out of funds legally available. See
        Note 7
        for Series A Convertible Preferred Stock issued and outstanding.
 
 As
        of
        December 31, 2006, 25,514,159 shares of common stock were issued and
        outstanding. XTV Investments LLC (“XTVI”) paid $1,665,000 for 6,250 shares that
        were issued on March 16, 2005 as described below (such shares were converted
        into 4,147,082 shares in conjunction with the Merger).
 
 On
        March
        28, 2005, the Company entered into an Escrow and Marketing Agreement (the
        "E&M Agreement") with XTVI. Pursuant to the E&M Agreement, XTVI was
        granted the non-exclusive right to introduce the Company to certain potential
        customers who wish to purchase the Company's product and become subscribers.
        XTVI is entitled to receive and retain 1,382,140 shares of the Company’s common
        stock if XTVI delivers 20,000 qualified customers that buy the Company's
        set-top
        box and subscribe to the Company's services before April 30, 2006 and continue
        to be valid, paying subscribers for at least 180 days. As of November 1,
        2006,
        XTVI had delivered only one qualified customer to the Company. The sales
        goals
        were not achieved and all of the 1,382,140 shares have been
        cancelled.
  F-26
 
 In
        total,
        the ITVN pre-merger shares were converted into 22,117,550 shares of Radium
        in
        conjunction with the Merger representing approximately 89% of the Company.
        In
        addition to the foregoing, upon the closing of the Merger we issued 50,000
        shares to our financial advisor, hired a Chief Executive Officer who was
        granted
        581,767 shares and hired a Chief Financial Officer who was granted 250,000
        shares.
 
 During
        August 2006 one of the Variable Rate Debenture holders converted $90,000
        of its
        Variable Rate Debenture into 45,000 shares of common stock. In accordance
        with
        the Variable Rate Debenture agreement, the debt was converted at $2.00 per
        share
        resulting in a Gain on Extinguishment of Debt of $28,647.
  On
          December 14, 2006, the Company sold 933,333 shares of common stock to the
          holders of our Series A Convertible Preferred Stock at $0.75 per share.
          This
          transaction also resulted in a reduction in the conversion price of the
          Series A
          Convertible Preferred Stock as discussed in Note 8.
 
 On
          December 28, 2006, the Company raised additional funds by issuing 637,930
          shares
          of common stock to various third parties at $0.75 per share. Included with
          these
          shares were a like number of warrants to purchase shares of common stock
          at
          $0.75 per share. The warrants expire on December 28, 2001.
 During
          August 2006, the Company settled a lawsuit with a vendor for a total cash
          payment of $30,000 and the issuance of 10,000 shares of restricted stock
          of the
          Company.
 
 In
          accordance with the terms of the Variable Rate Debentures, the Company
          made
          principal and interest payments by issuing 273,034 and 115,235 shares of
          common
          stock, respectively, during the year ended December 31, 2006 to the Selling
          Securityholders.
 **NOTE
        11 - COMMITMENTS**
 
 Rent
        expense relating to office space occupied under a month to month lease agreement
        totaled $123,180 and $59,855 during the years ended December 31, 2006 and
        2005,
        respectively.
  On
        September 30, 2005, the Company entered into a distribution agreement with
        the
        O’Rourke Sales Company. O’Rourke Sales Company services a network of independent
        retailers and home AV installers with a wide array of electronic products.
        We
        have granted O’Rourke Sales Company the exclusive right to distribute the ITVN
        set-top box to independent retailers in the U.S. with sales of under $5 million
        annually as well as to satellite and home audio visual installers. Under
        our
        agreement with O’Rourke Sales Company, we have agreed to provide initial
        matching funds of $50,000 for promotional activities relating to the Company’s
        products and services and we will issue O’Rourke Sales Company 60,000 options to
        purchase our common stock at $3.00 per share. Additionally, O’Rourke Sales
        Company also receives a lifetime residual income based on 15% of subscription
        and pay-per-view revenues collected by the Company from XTV subscribers who
        purchase ITVN set-top boxes distributed by O’Rourke Sales Company.
  The
        Company had no other direct commitments as of December 31, 2006. As part
        of the
        original agreement with XTVI, XTVI caused one of its affiliates to enter
        into an
        equipment lease agreement to procure $317,024 of computer equipment to be
        used
        by the Company. The Company is not a party to the lease agreement and has
        made
        all the necessary lease payments through September 30, 2006. The agreement
        was
        signed on December 10, 2004 and is a 36-month lease beginning on January
        1, 2005
        with monthly lease payments of $9,426 plus monthly taxes of $778. The Company’s
        remaining 2007 indirect commitment under this lease approximates
        $158,000.
 
 **NOTE
        12- CONTINGENCIES**
  We
        may
        occasionally become subject to legal proceedings and claims that arise in
        the
        ordinary course of our business. It is impossible for us to predict with
        any
        certainty the outcome of pending disputes, and we cannot predict whether
        any
        liability arising from pending claims and litigation will be material in
        relation to our consolidated financial position or results of
        operations .
  F-27
  **NOTE
        13 - EQUITY INCENTIVE PLAN**
 
 During
        December 2005, we adopted the 2005 Equity Incentive Plan, the “Plan,” pursuant
        to which we are authorized to grant stock options, restricted stock and stock
        appreciation rights to purchase up to 3,000,000 shares of common stock to
        our
        key employees, officers, directors, consultants and other agents and advisors.
        The maximum number of options that may be granted in any fiscal year to any
        participant is 400,000.
  Options
        granted under The Plan generally vested within 2 years after grant and expired
        three years after the vest date.  Options generally became exercisable over
        a two-year period based on continued employment and generally vest annually
        over
        2 years, however in a few instances some of the options vested on the date
        of
        grant.
 
 The
        2005
        Equity Incentive Plan required shareholder approval prior to December 2006.
        Such
        approval did not transpire and accordingly, all options under the plan were
        cancelled and the 2005 Equity Incentive Plan was terminated.
 
 For
        the
        year ended December 31, 2006, the Company recorded stock-based compensation
        expense of $953,272 relating to the grant of 1,480,000 options under The
        Plan.
        No options were exercised prior to the December 2006 termination of The Plan
        and
        the associated cancellation of the options.
  The
        fair
        value of option grants was estimated during 2006 using the Black-Scholes
        option
        pricing model with the following assumptions:
 
 Variable
              
              AssumptionsExpected
                  dividend yield
              
              0.00Risk-free
                  interest rate
              
              4.36%
                  - 5.13%Expected
                  volatility
              
              31.485%
                  - 32.185%Expected
                  life (in years)
              
              3
                  -
                  5
  **NOTE
        14 - SUBSEQUENT EVENTS**
 
 On
        January 22, 2007, David Koenig, Holio, Inc. and Holio.net (collectively,
        the
“Koenig Plaintiffs”) filed a complaint against Interactive Television Networks,
        Inc. and XTV, Inc. in the Superior Court of the State of California, County
        of
        Orange. Mr. Koenig has previously represented to us that Holio, Inc. and
        Holio.net are entities that he controls. The Koenig Plaintiffs allege that
        (i)
        we owe Mr. Koenig $427,344, plus interest at a rate of 8% per annum ($53,482),
        under a promissory note we executed in favor of Mr. Koenig, (ii) Mr. Koenig
        is
        entitled to collect $120,000 from us for his litigation legal fees, (iii)
        we owe
        the Koenig Plaintiffs unspecified amounts under a written licensing and
        distribution agreement and under a written content licensing agreement, and
        (iv)
        we have breached our oral consulting agreement with Mr. Koenig and, therefore,
        we owe him no less than $40,000 plus reimbursements of $6,148. The complaint
        also requests that the court order us to delete from our ITVN Service all
        of the
        content provided to us by the Koenig Plaintiffs and that we cease and desist
        from further offering their content to our customers. We believe that most
        of
        the claims made by the Koenig Plaintiffs are without merit and that we have
        valid counterclaims against the Koenig Plaintiffs. We intend to vigorously
        contest the claims made by the Koenig Plaintiffs.
  On
        January 30, 2007, MLB Advanced Media, L.P. (“MLB”)
        notified the Company that their programming agreement was terminated due
        to
        noncompliance and demanded immediate payment of $450,000 plus applicable
        interest.  The
        Company recognizes a contract with MLB, but contends that they did not receive
        programming benefits from MLB under this contract during 2006, and that the
        amount that may eventually be owed under this agreement is (i) undeterminable
        at
        this time and (ii) will be tied to future services provided the Company by
        MLB.
        The Company intends to vigorously defend its position in resolving this dispute
        with MLB.Accordingly, no liability has been recorded in the
        accompanying consolidated financial statements.
  Subsequent
        to December 31, 2006 the Company made
        principal and interest payments on its Variable Rate Debentures by issuing
        6,726,327 and 332,611 shares of its common stock to the Selling
        SecurityHolders.
  F-28
 
 On
        January 31, 2007, as permitted by the 17% Debenture and the 16% Debenture,
        we
        paid one-half of the January 31, 2007 interest payments that had accrued
        under
        the debentures by issuing a 17% Debenture and a 16% Debenture in the face
        amount
        of $93,256 and $21,050, respectively (the “Interest Debentures”). We will be
        required to make monthly principal payments of $5,181 and $1,170, respectively,
        commencing in May 2008 and continuing until the Interest Debentures are repaid
        in full.
 
 On
        March
        3, 2007, we adopted an equity incentive plan, the “2007 Plan,” pursuant to which
        we are authorized to grant stock options intended to qualify as Incentive
        Stock
        Options, “ISO”, under Section 422 of the Internal Revenue Code of 1986, as
        amended, non-qualified options, restricted stock and stock appreciation rights
        to purchase up to 3,000,000 shares of common stock to our key employees,
        officers, directors, consultants and advisors, with the exception that ISOs
        may
        only be granted to employees of the Company and it’s affiliates, as defined in
        the 2007 Plan. The maximum number of options that may be granted in any fiscal
        year to any participant is 750,000. As of March 31, 2007, 2,000,000 options
        had
        been granted at $0.15 per share.
 During
          March 2007, one of the founders of the Company sold 1,500,000 shares of
          his
          common stock in ITVN for $150,000. The founder  subsequently entered into a
          transaction with the Company to acquire 1,250 set-top-boxes at $120 per
          box from
          the Company on a Sale or Return basis.
  During
          March 2007, the Company sold 2,500 of its
          set-top-boxes to a third party for $100 each.
 F-29
  **SIGNATURES**




Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act
      of 1934, the registrant has duly caused this report to be signed on its behalf
      by the undersigned, thereunto duly authorized.


INTERACTIVE
                TELEVISION NETWORKS, INC.Date: April 19, 2007
            By:
            /s/
                CHARLES PRASTCharles
                Prast,
              Chief
                Executive Officer and Director




Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons on behalf of the registrant and in the
      capacities and on the dates indicated.




Signature
            
            Title
            
            Date/s/CHARLES PRAST
              Charles
                Prast
            
            Chief
                Executive Officer (principal executive officer), Interim Chief Financial
                Officer (principal financial officer) and Director
            
            April
                19, 2007/s/
                MICHAEL MARTINEZ
              Michael
                Martinez
            
            President
                and Director
            
            April
                  19, 2007/s/
                GEOFFREY BROWN
              Geoffrey
                Brown
            
            Director
            
            April
                  19, 2007/s/
                JOSEPH J. SCOTTI
              Joseph
                J. Scotti
            
            Director
            
            April
                  19, 2007/s/
                JOHN WIRT
              John
                Wirt
            
            Director
            
            April
                  19, 2007