**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-QSB**





[X]
            QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934




For
      the
      quarterly period ended **September
      30, 2005**





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




For
      the
      Transition Period from ________ to ________





Commission
      File No. **0-15949**





**INTERNATIONAL
      MICROCOMPUTER SOFTWARE,
      INC****.**


(Name
      of
      Small business issuer in its charter)








**CALIFORNIA**
            **94-2862863**(State
                or other jurisdiction of incorporation or organization)
            (I.R.S.
                Employer Identification No.)**100
                ROWLAND WAY, NOVATO, CALIFORNIA**
            **94945**(Address
                of principal executive offices)
            (Zip
                code)**(415)
                878-4000**Issuer's
                telephone number




Check
        whether the issuer (1) filed all reports required to be filed by Section
        13 or
        15(d) of the Exchange Act during the past 12 months (or for such shorter
        period
        that the registrant was required to file such reports), and (2) has been
        subject
        to such filing requirements for the past 90 days.
 YES  [X] NO  [  ]
 
 Indicate
        by check mark whether the registrant is a shell company (as defined in rule
        12b-2 of the Exchange Act). YES  [ 
        ] NO  [X]
 
  As
        of **** October
        31, 2005, 29,830,877 **** shares
        of
        Issuer’s common stock, no par value, were outstanding.
 
 Transitional
        Small Business Disclosure Format: YES  [ 
        ] NO  [X]
 
 
 **INTERNATIONAL
        MICROCOMPUTER SOFTWARE, INC.**
 **AND
        SUBSIDIARIES**
 
 **Table
        of Contents**
 
 **PART
                    I - FINANCIAL INFORMATION**
                **3**ITEM
                    1- CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                3CONDENSED
                    CONSOLIDATED BALANCE SHEETS
                3CONDENSED
                    CONSOLIDATED STATEMENTS OF OPERATIONS AND
                    COMPREHENSIVE INCOME / (LOSS)
                4CONDENSED
                    CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                5CONDENSED
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                6NOTES
                    TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                7ITEM
                    2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                    CONDITION AND RESULTS OF OPERATIONS
                15ITEM
                    3- CONTROLS AND PROCEDURES
                30**PART
                    II - OTHER INFORMATION**
                **31**ITEM
                    1- LEGAL PROCEEDINGS
                31ITEM
                    2- UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
                    PROCEEDS
                31ITEM
                    3- DEFAULTS UPON SENIOR SECURITIES
                32ITEM
                    4- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
                32ITEM
                    5- OTHER INFORMATION
                32ITEM
                    6- EXHIBITS
                32**SIGNATURES**
                **33****INDEX
                    TO EXHIBITS:**
                **34**
 2
 **PART
        I - FINANCIAL INFORMATION**
  **Item1-
        Condensed Consolidated Financial Statements**
 **INTERNATIONAL
        MICROCOMPUTER SOFTWARE, INC. AND SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED BALANCE SHEETS**
 (In
        thousands, except share amounts)
 **September
                    30, 2005**
                
                **June
                    30,**
                  **2005****Unaudited****ASSETS**Current
                    assets:Cash
                    and cash equivalents
                
                
                $9,887
                
                
                $4,347Available-for-sale
                    securities
                
                
                1,524
                
                
                -Trading
                    securities
                
                
                -
                
                
                714Receivables,
                    less allowances for doubtful accounts, discounts and returns
                    of $437 as of
                  September
                    30, 2005 and $626 as of June 30, 2005.
                
                
                1,554
                
                
                773Inventories,
                    net
                
                
                834
                
                
                758Receivables,
                    other (related to discontinued operations)
                
                
                -
                
                
                2,000Receivables,
                    other
                
                
                -
                
                
                30Other
                    current assets
                
                
                989
                
                
                530Assets
                    related to discontinued operations
                
                
                -
                
                
                12,231**Total
                    current assets**
                
                
                **14,788**
                
                
                **21,383****Fixed
                    assets, net**
                
                
                **373**
                
                
                **377**Intangible
                    assetsCapitalized
                    software, net
                
                
                434
                
                
                494Domain
                    names and brands, net
                
                
                2,101
                
                
                1,574Distribution
                    rights and proprietary plans, net
                
                
                789
                
                
                170Capitalized
                    customer lists, agreements and relationships
                
                
                1,424
                
                
                326Goodwill
                
                
                3,665
                
                
                2,090Trademarks
                
                
                21
                
                
                1**Total
                    intangible assets**
                
                
                **8,434**
                
                
                **4,655****Other
                    long term assets**
                
                
                **8**
                
                
                **-****Total
                    assets**
                
                
                **$23,603**
                
                
                **$26,415****LIABILITIES
                    AND SHAREHOLDERS' EQUITY**Current
                    liabilities:Short
                    term debt
                
                
                1,713
                
                
                2,764Trade
                    accounts payable
                
                
                1,600
                
                
                2,245Accrued
                    and other liabilities
                
                
                1,907
                
                
                1,871Liabilities
                    related to discontinued operations
                
                
                -
                
                
                1,037Deferred
                    revenues
                
                
                62
                
                
                38**Total
                    current liabilities**
                
                
                **5,282**
                
                
                **7,955**Long-term
                    debt and other obligations
                
                
                200
                
                
                230**Total
                    liabilities**
                
                
                **5,482**
                
                
                **8,185**Shareholders'
                    equityCommon
                    stock, no par value; 300,000,000 authorized; 29,713,760 issued
                    and
                    outstanding as
                  of
                    September 30, 2005 and 28,796,886 issued and outstanding as of
                    June 30,
                    2005.
                
                
                44,839
                
                
                43,663Accumulated
                    deficit
                
                
                (27,282
                )
                
                (25,331
                )Accumulated
                    other comprehensive income (loss)
                
                
                564
                
                
                (102
                )**Total
                    shareholders' equity**
                
                
                **18,121**
                
                
                **18,230****Total
                    liabilities and shareholders' equity**
                
                
                **$23,603**
                
                
                **$26,415**
 See
        Notes
        to Condensed Consolidated Financial Statements
 3
 **INTERNATIONALMICROCOMPUTER
        SOFTWARE, INC. AND
        SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF OPERATIONS** **and COMPREHENSIVE INCOME / (LOSS** **)**
 (In
        thousands, except per share amounts)
 **(Unaudited)**
 **Three
                    months ended September 30,****2005**
                
                **2004**Net
                    revenues
                
                
                $3,965
                
                
                $3,135Product
                    costs
                
                
                1,455
                
                
                1,021**Gross
                    margin**
                
                
                **2,510**
                
                
                **2,114****Costs
                    and expenses**Sales
                    and marketing
                
                
                1,531
                
                
                1,350General
                    and administrative
                
                
                1,425
                
                
                859Research
                    and development
                
                
                435
                
                
                469**Total
                    operating expenses**
                
                
                **3,391**
                
                
                **2,678****Operating
                    loss**
                
                
                **(881**
                **)**
                
                **(564**
                **)****Other
                    income and (expense)**Interest
                    and other, net
                
                
                (69
                )
                
                6Realized
                    / unrealized loss on marketable securities
                
                
                (158
                )
                
                (50
                )**Loss
                    before income tax**
                
                
                **(1,108**
                **)**
                
                **(608**
                **)**Income
                    tax provision
                
                
                -
                
                
                (5
                )**Loss
                    from continuing operations**
                
                
                **(1,108**
                **)**
                
                **(613**
                **)**Income
                    from discontinued operations, net of income tax
                
                
                -
                
                
                285Gain
                    (loss) from the sale of discontinued operations, net of income
                    tax
                
                
                (843
                )
                
                53**Net
                    loss**
                
                
                **($1,951**
                **)**
                
                **($275**
                **)**Other
                    comprehensive income (loss)Unrealized
                    gain on restricted securities
                
                
                478
                
                
                -Foreign
                    currency translation adjustments
                
                
                188
                
                
                (10
                )**Comprehensive
                    loss**
                
                
                **($1,285**
                **)**
                
                **($285**
                **)****Basic
                    earnings (loss) per share**Loss
                    from continuing operations
                
                
                ($0.04
                )
                
                ($0.02
                )Income
                    from discontinued operations, net of income tax
                
                
                $0.00
                
                
                $0.01Income
                    (loss) from the sale of discontinued operations, net of income
                    tax
                
                
                ($0.03
                )
                
                $0.00Net
                    loss
                
                
                ($0.07
                )
                
                ($0.01
                )**Diluted
                    earnings (loss) per share**Loss
                    from continuing operations
                
                
                ($0.04
                )
                
                ($0.02
                )Income
                    from discontinued operations, net of income tax
                
                
                $0.00
                
                
                $0.01Income
                    (loss) from the sale of discontinued operations, net of income
                    tax
                
                
                ($0.03
                )
                
                $0.00Net
                    loss
                
                
                ($0.07
                )
                
                ($0.01
                )Shares
                    used in computing basic earnings (loss) per share
                
                
                29,689
                
                
                26,462Shares
                    used in computing diluted earnings (loss) per share
                
                
                29,689
                
                
                26,462
  See
        Notes
        to Condensed Consolidated Financial Statements
 4
 **INTERNATIONALMICROCOMPUTER
        SOFTWARE, INC. AND
        SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY**
 Three
        Months ended September 30, 2005
 (In
        thousands, except share amounts)
 **(Unaudited)**
  **Common
                  Stock****Shares**
              
              **Amount**
              
              **Accumulated
                  deficit**
              
              **Accumulated
                  other comprehensive income (loss)**
              
              **Total****Balance
                  at July 1, 2005**
              
              **28,796,886**
              
              **$43,663**
              
              **($25,331)**
              
              **($102)**
              
              **$18,230**Issuance
                  of common stock related to:Stock
                  options exercised
              
              
              70,291
              
              
              63
              
              
              
              
              
              
              
              
              63Acquisitions
              
              
              826,583
              
              
              1,021
              
              
              
              
              
              
              
              
              1,021Finder's
                  fee related to acquisition
              
              
              20,000
              
              
              25
              
              
              
              
              
              
              
              
              25Issuance
                  of warrants related to:Procurement
                  of short-term debt
              
              
              
              
              
              68
              
              
              
              
              
              
              
              
              68Issuance
                  of stock options
              
              
              
              
              
              1
              
              
              
              
              
              
              
              
              1Variable
                  accounting adjustment
              
              
              
              
              
              (2
              )
              
              
              
              
              
              
              
              (2
              )Net
                  loss
              
              
              
              
              
              
              
              
              (1,951
              )
              
              
              
              
              (1,951
              )Unrealized
                  gain on restricted securities
              
              
              
              
              
              
              
              
              
              
              
              478
              
              
              478Foreign
                  currency translation adjustment, net of income tax
              
              
              
              
              
              
              
              
              
              
              
              188
              
              
              188**Balance
                  at September 30, 2005**
              
              
              **29,713,760**
              
              
              **$44,839**
              
              
              **($27,282**
              **)**
              
              **$564**
              
              
              **$18,121**
 
 See
        Notes
        to Condensed Consolidated Financial Statements
 5
 **INTERNATIONALMICROCOMPUTER
        SOFTWARE, INC. AND
        SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF CASH FLOWS**
 (In
        thousands)
 (Unaudited)
  **Three
                    months ended September 30,****2005**
                
                **2004****Cash
                    flows from operating activities:****Net
                    cash provided by (used in) operating activities**
                
                **($394)**
                
                **$1,643****Cash
                    flows from investing activities:**Proceeds
                    from sale of discontinued operations
                
                9,304Proceeds
                    from sale of product line
                
                -
                
                250Acquisition
                    of subsidiaries
                
                (1,807)
                
                (30)Acquisition
                    of software development and trademarks
                
                -
                
                (92)Purchases
                    of equipment and software
                
                (20)
                
                (27)Transfer
                    cash to escrow for Jupitermedia
                
                
                -
                
                
                (499
                )Other
                
                
                (8
                )
                
                -Cash
                    used in discontinued operations in investing activities
                
                
                -
                
                
                (46
                )**Net
                    cash provided by (used in) investing activities**
                
                
                **7,469**
                
                
                **(444**
                **)****Cash
                    flows from financing activities:**Proceeds
                    from borrowings
                
                
                850
                
                
                400Repayments
                    of notes
                
                
                (2,935
                )
                
                (1,040
                )Proceeds
                    from warrants and options exercised
                
                
                63
                
                
                65Cash
                    used in discontinued operations in financing activities
                
                
                -
                
                
                (20
                )**Net
                    cash used in financing activities**
                
                
                **(2,022**
                **)**
                
                **(595**
                **)****Effect
                    of exchange rate change on cash and cash equivalents**
                
                
                9
                
                
                (10
                )**Unrealized
                    gain on available-for-sale securities**
                
                
                478
                
                
                -**Net
                    increase in cash and cash equivalents**
                
                
                5,540
                
                
                594**Cash
                    and cash equivalents at beginning of period**
                
                
                4,347
                
                
                3,212**Cash
                    and cash equivalents at end of the period**
                
                
                **$9,887**
                
                
                **$3,806**
   **Three
                    months ended September 30,****2005**
                
                **2004****SUPPLEMENTAL
                    DISCLOSURE OF CASH FLOW INFORMATION**Interest
                    paid
                
                
                55
                
                
                57**SUPPLEMENTAL
                    DISCLOSURE OF NON-CASH FINANCING ACTIVITIES**Notes
                    payable incurred in conjunction with acquisitions
                
                
                1,000
                
                
                440Capital
                    stock issued in conjunction with settlement of debt
                
                
                -
                
                
                1,034Capital
                    stock issued in conjunction with acquisitions
                
                
                1,046
                
                
                503Warrants
                    issued in conjunction with short-term debt
                
                
                68
                
                
                -
 See
        Notes
        to Condensed Consolidated Financial Statements
 6
 **INTERNATIONALMICROCOMPUTER
        SOFTWARE, INC. AND
        SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 
 **1.**
              **Basis
                  of Presentation**
 
 The
        interim condensed consolidated financial statements have been prepared from
        the
        records of International Microcomputer Software, Inc., a California corporation,
        and Subsidiaries ("we" or the “Company”) without audit. All significant
        inter-company balances and transactions have been eliminated in consolidation.
        In the opinion of management, all adjustments, which consist of only normal
        recurring adjustments, to present fairly the financial position at September
        30,
        2005 and the results of operations and cash flows for the three months ended September
        30 ,
        2005
        and 2004, have been made. The interim condensed consolidated financial
        statements should be read in conjunction with the consolidated financial
        statements and notes thereto contained in our Annual Report on Form 10-KSB,
        as
        amended, for the fiscal year ended June 30, 2005. The results of operations
        for
        the three months ended September
        30 ,
        2005
        are not necessarily indicative of the results to be expected for any other
        interim period or for the full year.
 
 **2.**
              **Use
                  of Estimates**
  Our
        condensed consolidated financial statements are prepared in accordance with
        accounting principles generally accepted in the United States (“GAAP”). These
        accounting principles require us to make certain estimates, judgments and
        assumptions. We believe that the estimates, judgments and assumptions upon
        which
        we rely are reasonable based upon information available to us at the time
        that
        these estimates, judgments and assumptions are made. These estimates, judgments
        and assumptions can affect the reported amounts of assets and liabilities
        as of
        the date of our condensed consolidated financial statements as well as the
        reported amounts of revenues and expenses during the periods presented. Our
        condensed consolidated financial statements would be affected to the extent
        there are material differences between these estimates and actual results.
        In
        many cases, the accounting treatment of a particular transaction is specifically
        dictated by GAAP and does not require management’s judgment in its application.
        There are also areas in which management’s judgment in selecting any available
        alternative would not produce a materially different result.
  **3.**
              **Reclassifications**
  Reclassifications
        have been made to the amounts reported for the quarter ended September 30,
        2004
        to conform to the current quarter’s presentation. The amounts reported for the
        quarter ended September 30, 2004, present the assets, liabilities and results
        of
        operations for Allume Systems, Inc. (“Allume”) as discontinued operations due to
        the sale of Allume to Smith Micro Software Inc. (“Smith Micro”) on July 1,
        2005.
  Also,
        the
        amounts reported for the quarter ended September 30, 2004 include the assets,
        liabilities and results of operations for Keynomics, Inc. (“Keynomics”) as
        discontinued operations due to the sale of Keynomics on July 29,
        2004.
  **4.**
              **Discontinued
                  Operations**
 
 **Gain
        (loss) from the sale of discontinued operations, net of income
        tax** ****
 
 **Quarter
        ended September 30, 2005: Sale of Allume**
 
 On
        July
        1, 2005, we sold all of the issued and outstanding capital stock of Allume
        to
        Smith Micro for an aggregate sales price of $12.8 million consisting of $11.0
        million cash and 397,547 unregistered shares of Smith Micro’s common stock,
        having a market value (based on the five-trading-day average price of Smith
        Micro’s common stock surrounding the date the business combination was
        announced) of $1.8 million. At closing, a portion of the proceeds from the
        sale
        was deposited in an indemnity escrow, which included $1.25 million in cash
        and
        170,378 shares of Smith Micro’s common stock having a closing date market value
        of $784,000, to secure certain representations and warranties included in
        our
        stock purchase agreement with Smith Micro. As of September 30, 2005, Smith
        Micro
        has agreed to release $126,000 of the escrowed cash. As of the date of this
        filing, we have replaced the shares of Smith Micro common stock in escrow
        with
        cash, as permitted by the escrow agreement.
 7
 As
        a
        result of this sale, we have categorized the assets, liabilities and operations
        of Allume as discontinued operations for the quarter ended September 30,
        2004
        and in the quarter ended September 30, 2005 we recorded a loss on the sale
        of
        discontinued operations of $843,000. This loss calculation does not include
        the
        cash and the value of the Smith Micro common stock held in escrow and is
        subject
        to change in future reporting periods depending upon the value of consideration
        released from escrow in the future.
 
 **Quarter
        ended September 30, 2004: Sale of Keynomics**
 
 In
        July
        2004, we sold the assets and customer related liabilities of our wholly owned
        subsidiary Keynomics, Inc. We evaluated the Keynomics business segment and
        its
        long-term prospects during the quarter ended June 30, 2004 and with our focus
        on
        direct marketing and the on-line distribution of utilities and precision
        design
        content, we determined that Keynomics no longer represented a strategic fit
        for
        our company. The $53,000 gain from the sale of discontinued operations for
        the
        three months ended September 30, 2004 relates to the sale of Keynomics on
        July
        1, 2004 and represents the excess of the total consideration received over
        its
        net carrying value.
 
 **Income
        from discontinued operations, net of income tax**
 
 Income
        from discontinued operations totaling $285,000 for the three months ended
        September 30, 2004 represents the pre-tax net income from the Allume operations
        of $290,000 offset by the net loss from the Keynomics operations of $5,000.
        Allume’s net revenues were $2.5 million and Keynomics net revenues were $68,000
        for the quarter ended September 30, 2004.
  **5.**
              **Acquisition
                  of Weinmaster Homes,
                  Ltd.**
 
 On
        July,
        1, 2005, Houseplans, Inc. (“Houseplans”), our wholly owned subsidiary,
        consummated the acquisition of all of the issued and outstanding stock of
        Weinmaster Homes, Ltd. (“WHL”), pursuant to a Stock Purchase Agreement, between
        WHL, Bruce and Janice Weinmaster and Houseplans.
 
 The
        preliminary purchase price of approximately $4.2 million was comprised as
        follows:
  (In
                  millions)
 **Description**
              
              **Amount**Fair
                  value of 826,583 shares of our common stock
              
              
              $
                  1.0Cash
              
              
              2.0Promissory
                  note
              
              
              1.0Costs
                  incurred to consummate the acquisition
              
              
              0.2**Total**
              
              
              **$
                  4.2**
 
 The
        fair
        value of our common stock was determined based on 826,583 shares issued to
        Bruce
        Weinmaster and priced based on the five-trading-day average price of our
        common
        stock surrounding the date the business combination was announced. The
        preliminary purchase price may increase if we incur additional costs related
        to
        this acquisition in future periods. The first $250,000 installment to pay
        down
        the promissory note was made on July 1, 2005 reducing our outstanding debt
        related to this acquisition as of September 30, 2005 to $750,000 plus accrued
        interest. Costs incurred to consummate the acquisition include legal and
        accounting fees and finder’s fees paid in cash and through the issuance of
        20,000 shares of our common stock.
 
 The
        allocation of the preliminary purchase price to the assets acquired and
        liabilities assumed based on their preliminary estimated fair values was
        as
        follows:
 8
 (In
                  millions)
 **Description**
              
              **Amounts**
                **(unaudited)**Cash
                  acquired
              
              
              $0.3Other
                  tangible assets acquired
              
              
              0.1Amortizable
                  intangible assets:Domain
                  names
              
              
              0.6Designer
                  agreements / relationships
              
              
              0.8Broker
                  agreements / relationships
              
              
              0.3Proprietary
                  plans
              
              
              0.6Customer
                  lists
              
              
              0.1Goodwill
              
              
              1.5Liabilities
                  assumed
              
              
              (0.1
              )**Total**
              
              
              **$4.2**
 
 The
        allocation of the purchase price was determined based on a valuation of assets
        acquired and liabilities assumed determined with the assistance of an
        independent appraisal. This allocation was based on the estimated fair value
        of
        these assets determined by the independent appraisal. The fair values and
        the
        allocation may change as we gather information on the fair value of acquired
        assets and liabilities and its tax effect.
 
 The
        assets will be amortized or depreciated over a period of years shown on the
        following table:
  **Description**
              **Estimated
                  remaining life (years)**Tangible
                  assets:Office
                  equipment
              3
                  -
                  5Computer
                  equipment
              3Amortizable
                  intangible assets:Domain
                  names
              5Designer
                  agreements / relationships
              5Broker
                  agreements / relationships
              5Proprietary
                  plans
              15Customer
                  lists
              3
 
 Goodwill
        in the amount of $1.5 million represents the excess of the purchase price
        over
        the fair value of the net tangible and intangible assets acquired, and is
        not
        deductible for tax purposes. Goodwill will not be amortized and will be tested
        for impairment at least annually.
 
 This
        transaction was not deemed to be a material business combination; therefore,
        no
        pro forma results are required under the Statement of Financial Accounting
        Standards No. 141.
 
 The
        following attributes of the combination of the WHL and Houseplans businesses
        were considered significant factors to the establishment of the purchase
        price,
        resulting in the recognition of goodwill:
 
 WHL
        is
        the operator of the #2 Google ranked globalHouseplans.com website as well
        as the
        Canadian focused Weinmaster.com. WHL, one of the leading marketers of stock
        house plans in Canada, has operated its plans business in the United States
        and
        Canada for more than twenty-five years, and is one of the leading innovators
        in
        the market. In addition to more than 14,800 plans available to customers,
        which
        includes over 500 proprietary Weinmaster plans, WHL has an impressive array
        of
        content and tools to help homeowners and their builders economically build
        their
        dream homes. Potential operating synergies are anticipated to arise and are
        more
        likely to include sales growth from joint marketing programs, utilization
        of
        best practices developed in each organization, shared content and reduced
        common
        product development costs and limited reductions in administrative
        costs.
 
 **6.**
              **Plan
                  of merger with
                  AccessMedia**
 
 On
        August
        8, 2005, AccessMedia Networks, Inc. (“AccessMedia”), a Delaware corporation,
        AccessMedia’s stockholders, ACCM Acquisition Corp., a Delaware corporation and
        our wholly owned subsidiary (“Merger Sub”) and we, entered into an agreement and
        plan of merger (“Agreement”), under which Merger Sub will be merged with and
        into AccessMedia, with AccessMedia continuing after the merger as the surviving
        corporation and our wholly-owned subsidiary.
 9
 Under
          the
          Agreement, we will issue 25 million shares of our common stock to AccessMedia’s
          stockholders at the closing of this transaction, representing approximately
          45%
          of our outstanding stock at such time. Following the closing, we may issue
          up to
          46 million additional shares of our common stock to AccessMedia’s stockholders
          if AccessMedia achieves certain revenue goals prior to December 31, 2008
          (subject to certain extensions as provided in the Agreement). The closing
          of the
          transaction is anticipated to occur in the first calendar quarter of 2006.
          Prior
          to the closing, we intend to change our name to Broadcaster, Inc. and
          reincorporate in the state of Delaware.
  The
        Agreement has been approved by both AccessMedia’s and our Boards of Directors,
        and the transactions contemplated thereby are subject to customary closing
        conditions.
 
 Concurrently
        with the execution of the Agreement, we entered into a joint operating
        agreement, under which we agreed to loan AccessMedia up to $3.0 million prior
        to
        the closing of the merger pursuant to a joint operating plan and an operating
        budget to be delivered to a joint operating committee comprised of
        representatives of AccessMedia and our company. In addition, we agreed to
        fund
        up to $7.0 million of net working capital needs of the surviving entity if
        certain operating milestones are achieved, as outlined in the joint operating
        agreement. AccessMedia has not yet requested funding under this
        arrangement.
 
 **7.**
              **Fair
                  Value of Financial
                  Instruments**
 
 The
        fair
        value of cash and cash equivalents, trade receivables, trade payables and
        debt
        approximates carrying value due to the short maturity of such instruments.
 
 As
        discussed in note 4 above, we currently have $1.25 million of cash and $0.8
        million of Smith Micro common stock in escrow of which $0.13 million has
        been
        agreed to be released from escrow. Our cash and cash equivalents and marketable
        securities do not reflect the amounts that remain in escrow. As
        of the
        date of this filing, we have replaced the shares of Smith Micro common stock
        in
        escrow with cash, as permitted by the escrow agreement.
 
 As
        of
        September 30, 2005 we had $1.5 million classified as available-for-sale
        securities and at June 30, 2005 we had $0.7 million classified as trading
        securities on our condensed consolidated balance sheets representing the
        market
        value of our investment portfolio. The
        fair
        value of marketable securities is based upon quoted market prices. The
        marketable securities as of September 30, 2005 represents the fair value
        of the
        un-escrowed common stock of Smith Micro received for the sale of Allume,
        as
        discussed in footnote 4 above.
 
 **8.**
              **Intangible
                  Assets**
 
 **Software
        Development Costs and License Fees**
  Costs
        incurred in the initial design phase of software development are expensed
        as
        incurred in research and development. Once the point of technological
        feasibility is reached, direct production costs are capitalized in compliance
        with Statement of Financial Accounting Standards (“SFAS”) No. 86, *Accounting
        for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed.* We
        cease
        capitalizing computer software costs when the product is available for general
        release to customers. Costs associated with acquired completed software are
        capitalized.
  We
        amortize capitalized software development costs and visual content license
        fees
        on a product-by-product basis. The amortization for each product is the greater
        of the amount computed using (a) the ratio of current gross revenues to the
        total of current and anticipated future gross revenues for the product or
        (b)
        18, 36, or 60 months, depending on the product. We evaluate the net realizable
        value of each software product at each balance sheet date and record write-downs
        to net realizable value for any products for which the carrying value is
        in
        excess of the estimated net realizable value.
  **Other
        Intangible Assets**
 
 Other
        intangible assets other than goodwill represent Internet domain names, acquired
        customer lists and contracts, distribution rights and relationships, proprietary
        plans, trade names and trademarks. These assets are amortized using the
        straight-line method over the estimated useful lives, generally five to fifteen
        years.
 
 **Impairment
        of Long Lived Assets**
  We
        review
        long-lived assets and identifiable intangible assets for impairment whenever
        events or changes in circumstances indicate that the carrying amount of these
        assets may not be recoverable. We assess these assets for impairment based
        on
        estimated undiscounted future cash flows from these assets. If the carrying
        value of the assets exceeds the estimated future undiscounted cash flows,
        a loss
        is recorded for the excess of the asset’s carrying value over the fair value. We
        did not recognize any impairment loss for long-lived assets for the quarters
        ended September 30, 2005 and 2004.
 10
 **Goodwill**
  In
        accordance with SFAS No. 142, *Goodwill
        and Intangible Assets,* goodwill
        is assessed for impairment annually (in our first fiscal quarter) or more
        frequently if circumstances indicate impairment. We had goodwill in the amount
        of $3.7 million and $2.1 million as of September 30, 2005 and June 30, 2005,
        respectively, mainly related to the acquisitions we made in the internet
        content
        segment during the quarter ended September 30, 2005 and during the last two
        fiscal years ended June 30, 2005 and 2004. We have not recognized any impairment
        related to goodwill for the quarters ended September 30, 2005 and
        2004.
 
 **9.**
              **Debt**
 
 The
        following table details our outstanding debt as of September 30,
        2005:
 
 (In
        thousands)
 **As
                  of September 30, 2005****Short-term**Acquisition
                  related obligationsWeinmaster
              $
                  750Cardiff
                  Consultants, Ltd.
              107Short
                  term financing
              850Other
                  obligations
              6**Subtotal
                  short-term**
              **1,713****Long-term**Acquisition
                  related obligationsULTRYX
              169Cardiff
                  Consultants, Ltd.
              30Other
                  obligations
              1**Subtotal
                  long-term**
              **200****Grand
                  total**
              **$1,913**
 
 As
        discussed above in note 5, the purchase of WHL was financed by a $1.0 million
        promissory note of which $750,000 remains outstanding as of September 30,
        2005.
        Cardiff Consultants, Ltd. was owed non-interest bearing amounts with the
        final
        payment due September 2006, with $107,000 and $30,000 fair value classified
        as
        short term and long term debt, respectively.
 
 ULTRYX,
        Inc. was owed non-interest bearing amounts with the final payment due February
        2012, shown as $169,000 in long term debt.
 
 On
        July
        1, 2005 we borrowed $850,000 utilizing a 15% revolving note to a lender.
        In
        connection with the procurement of this revolving note, we issued 106,250
        warrants to purchase our common stock. These warrants were valued at $68,000
        using the Black-Scholes model. The issuance of these warrants resulted in
        the
        reduction of the value of our note by $68,000, which was amortized as interest
        expense over the life of the note. The balance including all accrued interest
        was due on September 30, 2005 and the payment was made by us on October 3,
        2005.
 
 As
        of
        June 30, 2005, we owed $2.0 million on a 4% secured promissory note to Monterey
        Bay Tech., Inc. (“MBYI”) with the final payment during May 2007. This note arose
        in connection with the acquisition of Allume from MBYI in April 2004. Also
        in
        connection with this transaction, MBYI also was owed $667,000, non-interest
        bearing and due in August 2005. Following the sale of Allume to Smith Micro
        in
        July 2005, we repaid the MYBI obligations. As of June 30, 2005, we recorded
        $94,000 and $61,000 in short-term and long-term debt, respectively, payable
        to
        Cardiff Consultants, Ltd., $168,000 in long-term debt to ULTRYX and $3,000
        and
        $1,000 in long-term and short-term debt for other obligations.
 11
 **10.**
              **Gain
                  / (loss) on Marketable
                  Securities**
 
 The
        following table details the realized and unrealized net loss on marketable
        securities that we recognized on our condensed consolidated statements of
        operations and comprehensive income/(loss) for the three months ended September
        30, 2005 and 2004, respectively:
 
 (In
        thousands)
 **Gain
                  (loss) on marketable securities for the three months ended September
                  30,
                  2005****Realized**
              
              **Unrealized**
              
              **Total****Description**
              
              
              
              Reversal
                  of unrealized gain / (loss) recognized in prior periods
              Unrealized
                  gain / (loss) for the quarter ended September 30, 2005
              
              Sub
                  total Unrealized gain / (loss)Other
                  stock in investment portfolio
              
              ($234)
              
              $90
              ($14)
              
              $76
              
              ($158)**Total**
              
              **($234)**
              
              **$90**
              **($14)**
              
              **$76**
              
              **($158)****Gain
                  (loss) on marketable securities for the three months ended September
                  30,
                  2004****Realized**
              
              **Unrealized**
              
              **Total****Description**
              
              
              
              Reversal
                  of unrealized gain / (loss) recognized in prior periods
              Unrealized
                  gain / (loss) for the quarter ended September 30, 2004
              
              Sub
                  total Unrealized gain / (loss)Jupitermedia
                  common stock
              
              $1,044
              
              ($1,047)
              $163
              
              ($884)
              
              $160Other
                  stock in investment portfolio
              
              (48)
              
              83
              (245)
              
              (162)
              
              (210)**Total**
              
              **$996**
              
              **($964)**
              **($82)**
              
              **($1,046)**
              
              **($50)**
 
 We
        also
        recognized an unrealized gain of $478,000 on our holdings of restricted common
        stock of Smith Micro, which is included in our condensed consolidated balance
        sheet as of September 30, 2005 as accumulated other comprehensive income
        (loss)
        in shareholders equity .
 
 **11.**
              **Marketable
                  Securities Activity-Cash
                  Effect**
 
 (In
        thousands)
 **Three
                  months ended September 30,****2005**
              
              **2004**Cash
                  transfers from brokerage account
              
              
              $558
              
              
              $1,504Purchases
              
              
              -
              
              
              1,257Proceeds
                  from sales of securities
              
              
              (531
              )
              
              (2,399
              )Realized
                  (gain) loss
              
              
              234
              
              
              (996
              )Unrealized
                  gain on trading securities
              
              
              (76
              )
              
              -Unrealized
                  (gain) loss on available-for-sale securities
              
              
              (478
              )
              
              1,046Increase
                  to cash held by brokerage firm
              
              
              531
              
              
              -Borrowings
                  from margin account
              
              
              -
              
              
              1,142Interest
                  and dividends earned
              
              
              (2
              )
              
              -Margin
                  interest paid
              
              
              -
              
              
              9**Total
                  activity**
              
              
              **$236**
              
              
              **$1,563**
 
 **12.**
              **Segment
                  Information**
  We
        have
        two reportable operating segments which are based on our product families
        that
        generate revenues and incur expenses related to the sale of our software
        and
        Internet content. All inter-company amounts are eliminated through
        consolidation. Certain general and administrative expenses are allocated
        among
        our different segments.
 12
 (In
        thousands)
 **Three
                  months ended September, 30 2005**
              
              **Three
                  months ended September, 30 2004****Software
                  Segment**
              
              **Internet
                  Content Segment**
              
              **Total**
              
              **Software
                  Segment**
              
              **Internet
                  Content Segment**
              
              **Total**Net
                  revenues
              
              
              $2,248
              
              
              $1,717
              
              
              **$3,965**
              
              
              $2,527
              
              
              $608
              
              
              **$3,135**Gross
                  margin
              
              
              1,467
              
              
              1,043
              
              
              **$2,510**
              
              
              1,791
              
              
              323
              
              
              **$2,114**Operating
                  loss
              
              
              (484
              )
              
              (397
              )
              
              **($881**
              **)**
              
              (456
              )
              
              (108
              )
              
              **($564**
              **)**Total
                  assets
              
              
              $11,056
              
              
              $12,547
              
              
              **$23,603**
              
              
              $25,804
              
              
              $2,775
              
              
              **$28,579**
  The
        following table details the breakdown of our net revenues and total assets
        by
        geographical location. The International column includes revenues relating
        to
        our Canadian, German and Australian wholly-owned subsidiaries, WHL, IMSI
        GmbH
        and IMSI Australia PTY Ltd, and sales derived from international distribution
        and republishing agreements we have in Europe (France, England), Asia (Japan
        and
        China) and Australia. The International column also includes the total assets
        held by our Canadian, German and Australian wholly-owned
        subsidiaries.
  (In
        thousands)
 **Three
                  months ended September, 30 2005**
              
              **Three
                  months ended September, 30 2004****Domestic**
              
              **International**
              
              **Total**
              
              **Domestic**
              
              **International**
              
              **Total**Net
                  revenues
              
              
              $2,837
              
              
              $1,128
              
              
              **$3,965**
              
              
              $2,655
              
              
              $480
              
              
              **$3,135**Total
                  assets
              
              
              $18,380
              
              
              $5,223
              
              
              **$23,603**
              
              
              $28,040
              
              
              $539
              
              
              **$28,579**
 
 **13.**
              **Earnings
                  per Share - Potentially Dilutive
                  Securities**
  Basic
        earnings per share are computed using the weighted average number of common
        shares outstanding during the period. Diluted earnings per share are computed
        using the weighted average number of common and potentially dilutive securities
        outstanding during the period. Potentially dilutive securities consist of
        the
        incremental common shares issuable upon on exercise of stock options and
        warrants (using the treasury stock method). Potentially dilutive securities
        are
        excluded from the computation if their effect is anti-dilutive. The following
        table summarizes the weighted average shares outstanding:
  (In
        thousands)
 **Three
                  months ended September 30,****2005**
              
              **2004****Basic
                  weighte****d
                  average shares ou****tstanding**
              
              **29,689**
              
              **26,462**Total
                  stock options outstanding
              
              
              4,427
              
              
              3,158Less:
                  anti dilutive stock options due to loss
              
              
              (4,427
              )
              
              (3,158
              )Total
                  warrants outstanding
              
              
              6,504
              
              
              6,888Less:
                  anti dilutive warrants due to loss
              
              
              (6,504
              )
              
              (6,888
              )**Diluted
                  weighted average shares outstanding**
              
              
              **29,689**
              
              
              **26,462**
 
 **14.**
              **Stock
                  Based Awards**
 
 SFAS
        No.
        148, *Accounting
        for Stock-Based Compensation-Transition and Disclosure, an Amendment of FASB
        Statement No. 123,* amends
        the disclosure requirements of SFAS No. 123, *Accounting
        for Stock-Based Compensation* (“SFAS
        123”), to require more prominent disclosures in both annual and interim
        financial statements regarding the method of accounting for stock-based employee
        compensation and the effect of the method used on reported results.
 
 We
        account for stock-based compensation plans in accordance with Accounting
        Principles Board (“APB”) Opinion No. 25, *Accounting
        for Stock Issued to Employees* ,
        under
        which no compensation cost is recognized in the financial statements for
        employee stock arrangements when grants are made at fair market value. The
        Company has adopted the disclosure only provisions of SFAS 123.
 
 Beginning
        on July 1, 2006, we will adopt the accounting treatment required by SFAS
        123
        (revised 2004) which will require us to measure all employee stock-based
        compensation awards using a fair value method and record such expense in
        our
        consolidated financial statements.
 13
 Under
        variable plan accounting, we recognize a charge equal to the per share change
        in
        the share value until the underlying options expire or are exercised. During
        the
        three months ended September 30, 2005 and 2004, we recognized an expense
        of $24
        and a benefit of $6,699 respectively related to variable awards.
  Had
        compensation cost for the stock-based compensation plans been determined
        based
        upon the fair value at grant dates for awards under those plans consistent
        with
        the method prescribed by SFAS 123, net loss would have been increased to
        the pro
        forma amounts indicated below. The pro forma consolidated financial information
        should be read in conjunction with the related historical information and
        is not
        necessarily indicative of actual results.
  (In
        thousands, except per share amounts)
 **Three
                  months ended September 30,****2005**
              
              **2004****Net
                  loss, as reported**
              
              
              **($1,951**
              **)**
              
              **($275**
              **)**Intrinsic
                  compensation charge recorded under APB 25
              
              
              1
              
              
              8Pro
                  Forma compensation charge under SFAS 123, net of tax
              
              
              (78
              )
              
              (212
              )**Pro
                  Forma net loss**
              
              
              **($2,028**
              **)**
              
              **($479**
              **)**Earnings
                  Per Share:Basic—as
                  reported
              
              
              ($0.07
              )
              
              ($0.01
              )Basic—pro
                  forma
              
              
              ($0.07
              )
              
              ($0.02
              )Diluted—as
                  reported
              
              
              ($0.07
              )
              
              ($0.01
              )Diluted—pro
                  forma
              
              
              ($0.07
              )
              
              ($0.02
              )
  The
        fair
        value of each option granted was estimated on the date of the grant using
        the
        Black-Scholes option-pricing model using the following weighted average
        assumptions:
  **Three
                  months ended September 30,****2005**
              
              **2004**Risk-free
                  interest rates
              
              
              4.2
              %
              
              4.1
              %Expected
                  dividend yields
              
              
              -
              
              
              -Expected
                  volatility
              
              
              75
              %
              
              55
              %Expected
                  option life (in years)
              
              
              10
              
              
              10
  The
        weighted average fair values as of the grant date for grants made during
        the
        quarters ended September 30, 2005 and 2004 were $1.14 and $0.80,
        respectively.
  14
 **Item2-
        Management's Discussion and Analysis of Financial
        Condition and Results of Operations**
 
 **Overview**
  The
        following Management’s Discussion and Analysis of Financial Condition and
        Results of Operations (“MD&A”) is intended to provide readers with an
        understanding of the Company. The following are included in our MD&A:
  •
              Overview;
 •
              Significant
                  Trends and Developments in Our
                  Business;
 •
              How
                  We Generate Revenue;
 •
              Recent
                  Events;
 •
              Forward
                  Looking Statement;
 •
              Results
                  of Operations;
 •
              Liquidity
                  and Capital Resources;
 •
              Critical
                  Accounting Policies; and
 •
              Risk
                  Factors.
 
 We
        are a
        leading provider of stock house plans over the Internet with the largest
        selection of plans for consumers and builders. We also sell a variety of
        related
        content and services over the Internet. In addition, we are a developer and
        publisher of software solutions which we market and sell to individuals and
        small business users through an array of distribution channels. We are committed
        to being a leading provider of these applications and services to businesses
        and
        consumers .
 
 **Significant
        Trends and Developments in Our Business**
  Since
        the
        beginning of July 2004, we have acquired two house plans businesses Abbisoft
        House Plans Inc. (“Abbisoft”) and Weinmaster Homes Ltd. (“WHL”) to add to
        Houseplans. We sold subsidiaries Keynomics and Allume, which are software
        and
        productivity enhancement businesses now shown as discontinued operations.
        We
        show stronger growth, both organic and acquired, in the Houseplans business
        line. Our software businesses present a higher gross margin but show slower
        growth and negative growth comparisons in some periods. Both businesses have
        seasonality. Software is affected by the annual release cycle and Houseplans
        is
        correlated with the building season. We expect growth trends to continue,
        with
        the impact of any housing slowdown cushioned by our consumer-friendly business
        model. Expense levels are expected to continue near dollar current levels
        and
        increasing at less than the rate of revenue growth. Additional cost savings
        are
        expected to be implemented by management as opportunities arise.
  As
        combined, the businesses have not yet achieved breakeven with economies of
        scale. In order to achieve profitability, we will need to generate significantly
        higher revenue and continue to manage our expenses. Our ability to generate
        higher revenues and achieve profitability depends on many factors, including
        the
        demand for our products and services, the level of product and price
        competition, market acceptance of our new products, general economic conditions
        and the successful integration of Abbisoft and WHL. In this regard, we continue
        to invest in areas that we believe can accelerate revenue growth and to manage
        expenses to align our operations and cost structure with market conditions.
  Over
        the
        past twelve months we have completed several acquisitions aimed at growing
        our
        revenues and strengthening our financial results. Management believes that
        good
        value target companies, presenting a strategic fit with our current operations,
        are still present in the marketplace and that potential business combinations
        with these entities, such as our planned merger with AccessMedia, would help
        us
        increase shareholder value. If the AccessMedia transaction were not to occur,
        significant non-contingent transaction costs would appear as general and
        administrative expense in the period.
 
 **How
        We Generate Revenue**
  We
        lead
        the market for house plans sold over the Internet with the largest selection
        of
        plans for consumers and builders. We also sell a variety of related content
        and
        services over the Internet. Additionally, we develop, publish, market and
        sell a
        variety of software titles and services that are targeted to a wide array
        of
        users primarily for individuals and small businesses. To efficiently serve
        our
        customers and maximize our revenue opportunities, we have aligned our business
        along two segments as described below:
 15
 **Business
                  Segment**
              **Product
                  Family**
              **Product
                  Group**
              **Selected
                  Product Brand****Software**
              Precision
                  Design Software
              Professional
                  CAD Solutions
              *TurboCAD
                  Professional**TurboCADCAM**CADsymbols*Consumer
                  CAD Solutions
              *TurboCAD
                  Deluxe**DesignCAD**Instant
                  Series**FloorPlan*Business
                  Applications and Other Software
              Business
                  Solutions
              *FlowCharts
                  & More**FormTool**QuickStart**TurboProject*Graphics
                  Solutions
              *Animations
                  & More**ClipArt
                  & More**HiJaak*Consumer
                  Solutions
              *EazyLanguage**Legacy
                  Family Tree**TurboTyping***Internet
                  Content**
              Home
                  Design
              Houseplans
              *Houseplans.com**Houseplanguys.com**Homeplanfinder.com**Globalhouseplans.com*
 
 Our
        ability to develop and distribute products and services and determine the
        optimum distribution channel for their maximum exposure is a competitive
        advantage that differentiates us from other players in the
        industry.
  Our
        market-leading house plans are physically delivered either by our organization
        or by our designer partners.
  Our
        software products are sold either as electronic software download (“ESD”) or as
        physical products. Our physical distribution network includes leading
        distributors and retailers in North America and worldwide.
  Our
        distribution methods are comprised of the following three major
        channels:
  ***Direct
        Marketing:*** ****
  We
        conduct postal and email direct mail campaigns to businesses and end users
        for
        our existing and new products in addition to upgrades of existing products,
        as
        well as third-party offers. These mailings generally offer a specially priced
        product, as well as complementary or enhanced products for additional fees.
        We
        also maintain e-commerce websites and employ a sales force internally and
        through strategic partnerships.
  ***Retail
        / Distribution:*** ****
  We
        are
        present in the retail software market through selected distributors and partners
        for a number of our products in order to reach a wider range of end users.
        Intense price competition along with the intermittent unfavorable retail
        conditions, including erosion of margins from competitive marketing and high
        rates of product returns, make this distribution channel increasingly
        challenging.
  ***Republishing
        / Original Equipment Manufacturers (“OEM”):*** ****
  We
        have
        republishing agreements domestically and internationally which typically
        include
        minimum guaranteed royalty payments.
 16
 **Recent
        Events**
 
 **The
        Weinmaster Homes, Ltd. (“WHL”) Acquisition**
 
 On
        July
        1, 2005, Houseplans, Inc, our wholly owned subsidiary, consummated the
        acquisition of all the stock of WHL, pursuant to a stock purchase agreement
        between WHL, Bruce and Janice Weinmaster and Houseplans, Inc. The purchase
        price
        of approximately $4.2 million consisted of $2.0 million in cash, $1.0 million
        in
        a promissory note, transaction costs of $0.2 million and $1.0 million (based
        on
        the five-trading-day average price of our common stock surrounding the date
        the
        business combination was announced) in our unregistered common stock, which
        we
        have committed to register with the SEC.
 
 **The
        Sale of Allume**
 
 On
        July
        1, 2005, we sold 100% of the issued and outstanding capital stock of Allume
        to
        Smith Micro for $11 million cash and 397,547 unregistered shares of its common
        stock, having a market value (based on the five-trading-day average price
        of
        Smith Micro’s common stock surrounding the date the business combination was
        announced) of $1.8 million. A portion of the purchase price, including $1.25
        million cash and shares of common stock having a closing date market value
        of
        $784,000 was deposited in an indemnity escrow to secure certain representations
        and warranties included in the Stock Purchase Agreement. As of the date of
        this
        filing, we have replaced the shares of Smith Micro common stock in escrow
        with
        cash, as permitted by the escrow agreement. As a result of this sale we recorded
        in the quarter ended September 30, 2005 a loss on the sale of discontinued
        operations of approximately $843,000. This loss calculation does not include
        the
        cash and the value of the Smith Micro’s common stock formerly held in escrow and
        is subject to change in future reporting periods depending upon the value
        of
        consideration released from escrow in the future.
 
 **Plan
        of Merger with AccessMedia**
 
 On
        August
        8, 2005, AccessMedia Networks, Inc. (“AccessMedia”), a Delaware corporation and
        the stockholders of AccessMedia, ACCM Acquisition Corp., a Delaware corporation
        and our wholly owned subsidiary (also referred to as Merger Sub), and we
        entered
        into an Agreement and Plan of Merger (“Agreement”), under which Merger Sub will
        be merged with and into AccessMedia, with AccessMedia continuing after the
        Merger as the surviving corporation and our wholly-owned subsidiary.
 
 Under
        the
        Agreement, we will issue 25 million shares of our common stock to AccessMedia’s
        stockholders at the closing, representing approximately 45% of our outstanding
        stock at such time. Following the closing, we may issue up to 46 million
        additional shares to AccessMedia’s stockholders if AccessMedia achieves certain
        revenue goals prior to December 31, 2008 (subject to certain extensions as
        provided in the Agreement). The closing of the transaction is anticipated
        to
        occur in the first calendar quarter of 2006. Concurrent with the closing,
        we
        intend to change our name to Broadcaster, Inc. and reincorporate in the state
        of
        Delaware.
 
 The
        Agreement has been approved by the both AccessMedia’s and our Boards of
        Directors, and the transactions contemplated thereby are subject to customary
        closing conditions.
 
 Concurrently
        with the execution of the Agreement, we entered into a Joint Operating
        Agreement, under which we agreed to loan AccessMedia up to $3.0 million prior
        to
        the closing of the Merger pursuant to a joint operating plan and an operating
        budget to be delivered to a joint operating committee comprised of
        representatives of our Company and AccessMedia. In addition, we agreed to
        fund
        up to $7.0 million of net working needs of the surviving entity if certain
        operating milestones are achieved. AccessMedia has not yet requested funding
        under this arrangement.
 
 **Forward
        Looking Statements**
  The
        following information should be read in conjunction with our consolidated
        financial statements and the notes thereto and in conjunction with Management’s
        Discussion and Analysis of Financial Condition and Results of Operations
        in our
        June 30, 2005 Form 10-KSB, as amended. This quarterly report on Form 10-QSB,
        and
        in particular this “Management’s Discussion and Analysis of Financial Condition
        and Results of Operations,” may contain forward-looking statements regarding
        future events or our future performance. These future events and future
        performance involve certain risks and uncertainties including those discussed
        in
        the “Factors That May Affect Future Operating Results” section of this Form
        10-QSB, as well as in our Fiscal 2005 Form 10-KSB, as amended, as filed with
        SEC. Actual events or our actual future results may differ materially from
        any
        forward-looking statements due to such risks and uncertainties. We assume
        no
        obligation to update these forward-looking statements to reflect actual results
        or changes in factors or assumptions affecting such forward-looking statements.
        This analysis is not intended to serve as a basis for projection of future
        events.
 17
 Our
        condensed consolidated financial statements are prepared in accordance with
        GAAP. These accounting principles require us to make certain estimates,
        judgments and assumptions. We believe that the estimates, judgments and
        assumptions upon which we rely are reasonable based upon information available
        to us at the time that these estimates, judgments and assumptions are made.
        These estimates, judgments and assumptions can affect the reported amounts
        of
        assets and liabilities as of the date of our condensed consolidated financial
        statements as well as the reported amounts of revenues and expenses during
        the
        periods presented. Our condensed consolidated financial statements would
        be
        affected to the extent there are material differences between these estimates
        and actual results. In many cases, the accounting treatment of a particular
        transaction is specifically dictated by GAAP and does not require management’s
        judgment in its application. There are also areas in which management’s judgment
        in selecting any available alternative would not produce a materially different
        result.
  **Results
        of Operations**
 
 The
        following table sets forth our results of operations for the three months
        ended
        September 30, 2005 and 2004 in absolute dollars and as a percentage of net
        revenues. It also details the changes from the prior fiscal year in absolute
        dollars and in percentages.
 
 (In
        thousands)
 **Three
                  months ended September 30,****Change
                  from**
                **previous
                  year****2005**
              
              **2004****$**
              
              **As**
                **%
                  of**
                **sales**
              
              **$**
              
              **As**
                **%
                  of**
                **sales**
              
              **$**
                **Increase
                  / (decrease)**
              
              **%**Net
                  revenues
              
              
              $3,965
              
              
              100
              %
              
              $3,135
              
              
              100
              %
              
              $830
              
              
              26
              %Product
                  cost
              
              
              1,455
              
              
              37
              %
              
              1,021
              
              
              33
              %
              
              434
              
              
              43
              %**Gross
                  margin**
              
              
              **2,510**
              
              
              **63**
              **%**
              
              **2,114**
              
              
              **67**
              **%**
              
              **396**
              
              
              **19**
              **%**Operating
                  expensesSales
                  & marketing
              
              
              1,531
              
              
              39
              %
              
              1,350
              
              
              43
              %
              
              181
              
              
              13
              %General
                  & administrative
              
              
              1,425
              
              
              36
              %
              
              859
              
              
              27
              %
              
              566
              
              
              66
              %Research
                  & development
              
              
              435
              
              
              11
              %
              
              469
              
              
              15
              %
              
              (34
              )
              
              -7
              %**Total
                  operating expenses**
              
              
              **3,391**
              
              
              **86**
              **%**
              
              **2,678**
              
              
              **85**
              **%**
              
              **713**
              
              
              **27**
              **%****Operating
                  loss**
              
              
              **(881**
              **)**
              
              **-22**
              **%**
              
              **(564**
              **)**
              
              **-18**
              **%**
              
              **(317**
              **)**
              
              **56**
              **%**Other
                  income (expenses)Interest
                  and other, net
              
              
              (69
              )
              
              -2
              %
              
              6
              
              
              0
              %
              
              (75
              )
              
              -1250
              %Realized
                  / unrealized gain (loss) on
                marketable
                  securities
              
              
              (158
              )
              
              -4
              %
              
              (50
              )
              
              -2
              %
              
              (108
              )
              
              216
              %**Total
                  other loss**
              
              
              **(227**
              **)**
              
              **-6**
              **%**
              
              **(44**
              **)**
              
              **-1**
              **%**
              
              **(183**
              **)**
              
              **416**
              **%****Loss
                  before income tax**
              
              
              **(1,108**
              **)**
              
              **-28**
              **%**
              
              **(608**
              **)**
              
              **-19**
              **%**
              
              **(500**
              **)**
              
              **82**
              **%**Income
                  tax provision
              
              
              -
              
              
              0
              %
              
              (5
              )
              
              0
              %
              
              (5
              )
              
              100
              %**Loss
                  from continuing operations**
              
              
              **(1,108**
              **)**
              
              **-28**
              **%**
              
              **(613**
              **)**
              
              **-20**
              **%**
              
              **(495**
              **)**
              
              **81**
              **%**Income
                  from discontinued operations,
                net
                  of income tax
              
              
              -
              
              
              0
              %
              
              285
              
              
              9
              %
              
              (285
              )
              
              -100
              %Gain
                  (loss) from the sale of discontinued
                operations,
                  net of income tax
              
              
              (843
              )
              
              -21
              %
              
              53
              
              
              2
              %
              
              (896
              )
              
              -1691
              %**Net
                  Loss**
              
              
              **($1,951**
              **)**
              
              **-49**
              **%**
              
              **($275**
              **)**
              
              **-9**
              **%**
              
              **($1,676**
              **)**
              
              **609**
              **%**
 18
 **Net
        Revenues**
  The
        following illustrations of our revenue reflect the allocation of our products
        across our business segments and across the distribution channels as well
        as the
        breakdown of our net sales domestically and internationally for the quarters
        ended September 30, 2005 and 2004.
  (In
        thousands)
 **Three
                  months ended September 30, 2005****Software
                  Segment**
              **Internet
                  Content Segment**
              
              **Total**Net
                  revenues
              
              $2,246
              $1,719
              
              **$3,965**Channel
                  revenuesDirect
                  marketing
              
              1,039
              1,719
              
              **2,758**Retail
                  / distribution
              
              934
              0
              
              **934**Republishing
                  / OEM
              
              273
              0
              
              **273****Subtotal**
              
              **2,246**
              **1,719**
              
              **3,965**Domestic
                  revenues
              
              1,718
              1,119
              
              **2,837**International
                  revenues
              
              528
              600
              
              **1,128****Subtotal**
              
              **$2,246**
              **$1,719**
              
              **$3,965****Three
                  months ended September 30, 2004****Software
                  Segment**
              **Internet
                  Content Segment**
              
              **Total**Net
                  revenues
              
              $2,527
              $608
              
              **$3,135**Channel
                  revenuesDirect
                  marketing
              
              1,012
              608
              
              **1,620**Retail
                  / distribution
              
              1,058
              0
              
              **1,058**Republishing
                  / OEM
              
              457
              0
              
              **457****Subtotal**
              
              **2,527**
              **608**
              
              **3,135**Domestic
                  revenues
              
              2,047
              608
              
              **2,655**International
                  revenues
              
              480
              0
              
              **480****Subtotal**
              
              **$2,527**
              **$608**
              
              **$3,135**
  **Revenues
        by Business Segment**
  We
        have
        two business segments: Internet Content Segment and the Software Segment.
 
 **Internet
        Content Segment:** We
        introduced this segment upon the acquisition of Houseplans, Inc. completed
        during the quarter ended December 31, 2003. During the quarter ended September
        30, 2004, we completed the acquisition of Abbisoft House Plans, Inc. We
        continued to grow this segment to build a leading position in the sale of
        stock
        house plans online. During the quarter ended September 30, 2005, we completed
        the acquisition of Weinmaster Homes, Ltd., operator of globalHouseplans.com
        website as well as the Canadian-focused Weinmaster
        website .
 
 The
        Internet Content Segment is primarily comprised of a network of highly ranked
        websites hosting an extensive library of unique stock house plans and marketed
        under the Houseplans ,
        homeplanfinder, houseplanguys, globalHouseplans
        and Weinmaster websites.
        These websites are targeted to general contractors, consumers and designers.
 
 Revenues
        generated by this segment grew substantially during the quarter ended September
        30, 2005 as compared to the same period in the previous fiscal year. In addition
        to the revenues generated from our new acquisition in this segment, Weinmaster
        Homes, Ltd, which amounted to approximately $600,000 for the quarter ended
        September 30, 2005, the substantial revenue increase (83% year over year
        without
        WHL) for the Internet Content Segment highlights the organic growth of the
        underlying business. During the past few months, we were able to focus our
        direct marketing message, improve our websites, introduce new services and
        increase the number of units sold and the average selling price of our
        plans.
 19
 This
        increase in revenues should continue during future reporting periods as we
        focus
        on improving the branding and marketing of our main websites and as we continue
        to successfully integrate the businesses we acquired.
 **Software
        Segment:** The
        software segment is comprised of the precision design software, the business
        applications and other software product families.
 
 Within
        this business segment, revenues from the sale of the precision design software
        product family slightly increased but were not able to offset the decline
        in the
        sale of the business applications and other software product family resulting
        in
        an overall 11% decrease in the revenues derived from the software business
        during the quarter ended September 30, 2005 as compared to the same period
        from
        the previous fiscal year. Within this business, our estimates on reserves
        for
        bad debt and distributor returns are lower than at year end due to management’s
        evaluation of sales and accounts receivable quality.
  **Precision
        design software product family:** This
        product family which includes our flagship product, TurboCAD as well as other
        widely recognized brand names such FloorPlan, DesignCAD and the Instant Series
        had increased revenues during the quarter ended September 30, 2005 as compared
        to the same period from the previous fiscal year. Our improved direct marketing
        focus along with better retail channel penetration accounted for the majority
        of
        the revenue growth in this product family.
  **Business
        applications and other software product family:** This
        product family mainly includes third party product brands that we license
        from
        other software publishers and market to our client base along with certain
        software titles that we develop internally.
  The
        decline in sales in this product family during the quarter ended September
        30,
        2005 as compared to the same period from the previous fiscal year (57%) was
        mainly the result of the decline in the revenues generated from the sale
        of
        third party products (including titles published by Allume that we were able
        to
        cross sell to our customers during previous quarters prior to our divestiture
        of
        Allume on July 1, 2005). The decline in revenues from the sale of FormTool
        and
        Hijaak (two internally developed products whose current versions are nearing
        the
        end of their life cycles) also accounted for the decline in revenues in this
        product family for fiscal 2005 as compared to the previous fiscal
        year.
  **Revenues
        by Distribution Channel**
  Direct
        marketing accounted for the majority of our sales by distribution channel
        (70%).
        Revenues derived from the Internet Content Segment are exclusively sold through
        the direct marketing channel, therefore, the substantial increase in sales
        of
        the Internet Content Segment during the quarter ended September 30, 2005
        accounted for the substantial boost in sales through the direct marketing
        channel for the same period as compared to the same period from the previous
        fiscal year. Additionally, a substantial amount of our software segment sales
        were also fulfilled through our direct marketing channel where the more
        profitable Electronic Software Distribution (ESD) is the delivery method
        of
        choice.
  We
        are
        decreasing our focus on the retail / distribution channel as the unstable
        retail
        conditions, including erosion of margins due to competition and high rates
        of
        product returns continue to characterize the consumer software industry.
        The
        slight decline in revenues from the retail / distribution and from the
        republishing / OEM channels ($308,000) during the quarter ended September
        30,
        2005 as compared to the same period from the previous fiscal year reflects
        our
        increased focus on the direct marketing distribution channel. Revenues from
        republishing / OEM channel are mainly revenues derived from minimum guaranteed
        royalties agreements we have with domestic and international republishing
        partners.
  **Domestic
        and International Revenues**
  We
        distribute our products through our wholly owned Canadian, Australian and
        German
        subsidiaries and republishing partners in Europe and Asia. Historically,
        our
        international activities relate mainly to the software segment but, with
        the
        acquisition of Weinmaster Homes, Ltd. in July 2005, we are increasing our
        presence on the international markets for the Internet Content Segment. The
        sharp increase in our international revenues for the quarter ended September
        30,
        2005, both in absolute dollars and as a percentage of total sales, is mainly
        attributable to the revenues generated from our newly acquired Canadian
        subsidiary.
 
 Revenues
        from our German subsidiary grew to $296,000 during the quarter ended September
        30, 2005 from $222,000 for the same period in the previous fiscal year.
        Introduction of new versions and updates of our software titles, better
        acceptance of our products in the European markets and improved focus on
        the
        retail and direct marketing channels were mainly the reasons for the revenues
        derived from our German subsidiary.
 20
 Revenues
        from our Australian subsidiary are primarily derived from royalty payments
        from
        a third party publisher after we licensed the distribution rights of certain
        products in Australia during fiscal 2003. Revenue from our Australian subsidiary
        amounted to approximately $35,000 and $58,000 for the quarters ended September
        30, 2005 and 2004 respectively.
 
 Our
        international revenues may be affected by the risks customarily associated
        with
        international operations, including fluctuations of the U.S. dollar, increases
        in duty rates, exchange or price controls, longer collection cycles, government
        regulations, political instability and changes in international tax
        laws.
 
 **Product
        Costs** **and Gross Margin**
 
 Our
        consolidated gross margins decreased to 63% during the quarter ended September
        30, 2005 from 67% during the comparable period of the previous fiscal year.
        The
        growing share (“mix”) of the lower margin Internet Content Segment as a
        percentage of our total revenues was the primary reason for the decrease
        in our
        consolidated gross margins.
 
 We
        were
        able to significantly improve the gross margin of our Internet Content segment
        as we were successful in negotiating more competitive royalty rates with
        our
        vendors, increased our collection of proprietary royalty-free content and
        worked
        to integrate the acquisition we made in this segment. We believe that gross
        margins in the Internet Content Segment will continue to improve in the
        near-term as we continue our integration of WHL and as we leverage our leading
        position in the marketplace.
 
 Despite
        a
        consolidation in sales of the more profitable precision design software product
        family, gross margin of the Software Segment decreased 18% during the quarter
        ended September 30, 2005 as compared to the same period from the previous
        fiscal
        year. The products in the precision design software product family carry
        a lower
        cost as compared to products in the business applications and other software
        family as we own the majority of their underlying technology. The decrease
        in
        the Software Segment margins was mainly due to obsolete inventory write offs,
        increases in shipping costs and the effect of fixed costs. The margins achieved
        during the quarter ended September 30, 2005 in this segment may fluctuate
        during
        future reporting periods given the uncertain product lifecycle for some of
        our
        historically high margin products and depending on the success of the release
        of
        newer software versions. However, as we are able to shift sales mix by
        distribution channel toward the more profitable direct marketing channel,
        we
        should witness improvement in on our overall profit margin.
 
 In
        addition to the costs of CD-ROM duplication, printing of manuals, packaging
        and
        fulfillment, and royalties and license fees that we pay to third parties
        based
        on sales of published software and content, our product costs include costs
        associated with the return of products, such as refurbishment and the write
        down
        in value of returned goods.
 
 Our
        product costs also include the amortization of capitalized software, a component
        of our overall product costs. These amortization expenses amounted to $60,000
        and $110,000 for the quarters ended September 30, 2005 and 2004, respectively.
        As we continue to acquire businesses and product lines, we are likely to
        increase our basis in certain intangible assets, the amortization of which
        may
        negatively affect our gross margin in the future.
 
 **Sales
        and Marketing**
 
 Sales
        and
        marketing expenses for the Internet Content Segment increased during the
        quarter
        ended September 30, 2005 as compared to the same period from the previous
        fiscal
        year. This increase was mainly the result of the additional sales and marketing
        expenses related to our newly acquired business (WHL), the increased direct
        marketing expenses, especially relating to advertising necessary to increase
        the
        traffic to our websites and to the increased payroll and related expenses
        from
        additional headcount. Despite the increase in sales and marketing expenses
        for
        this segment during the quarter ended September 30, 2005 as compared to the
        same
        period from the previous fiscal year, we continue to integrate the acquisitions
        and we continue to implement savings and identify synergies among our business
        units.
 21
 The
        increase in sales and marketing expenses for the Internet Content Segment
        was in
        part offset by a decrease in sales and marketing expenses for the Software
        Segment during the quarter ended September 30, 2005 as compared to the same
        period from the previous fiscal year. The decrease in the sales and marketing
        expenses for the Software Segment was mainly the result of decreased consulting
        expenses, commissions paid to outside E-commerce partners and advertising
        expenses relating to the retail distribution channel.
 
 Sales
        and
        marketing expenses consist primarily of salaries and benefits of sales and
        marketing personnel, commissions, advertising, printing and direct mail
        expenses. We continue to improve our focus on the direct marketing distribution
        channel and the ESD delivery method by improving our internal sales force
        and
        partnering with outside service providers of sales forces and E-commerce
        systems. Management believes that these investments in the distribution channels
        and the E-commerce platform will generate increased revenues going forward,
        and
        are an indication of our continuing commitment to our core
        products.
 
 **General
        and Administrative**
 
 Our
        general and administrative expenses consist primarily of salaries and benefits
        for employees in the legal, finance, accounting, human resources, information
        systems and operations departments, amortization expenses, fees to our
        professional advisors, rent and other general operating costs.
 
 The
        increase in our general and administrative expenses for the period ended
        September 30, 2005 as compared to the same period from the previous fiscal
        year
        is mainly attributable to severance pay accrued for an executive, increased
        payroll and related benefit expenses due to additional headcount, increased
        accounting fees, and real estate lease termination expenses relating to the
        Allume business we sold in July of 2005. A significant portion of lease expenses
        related to the Allume business was accrued as of our year ended June 30,
        2005.
        The accrual as of June 30, 2005 was based upon our decision to sublease the
        Allume facility. During the quarter ended September 30, 2005, we decided
        against
        subleasing the property and chose to incur a lease buy out option increasing
        our
        liability by about $25,000.
 
 The
        additional general and administrative expenses we incurred as a result of
        the
        Weinmaster Homes acquisition also accounted for the increase in general and
        administrative expenses relating to Internet Content Segment. During the
        quarter
        ended September 30, 2005, the Internet Content Segment assumed a larger share
        of
        common general and administrative expenses than for the previous comparable
        period. If the growth of this business continues to outpace Software, this
        shift
        will continue.
 
 Based
        on
        our eventual implementation of Sarbanes-Oxley Section 404, our general and
        administrative costs are likely to increase significantly.
 
 **Research
        and Development**
 
 Our
        research and development expenses consist primarily of salaries and benefits
        for
        research and development employees and payments to independent contractors,
        mainly our third party contract development teams in Russia with whom we
        continue to maintain a strong partnership at competitive costs.
 
 Our
        research and development expenses for the quarter ended September 30, 2005
        remained essentially flat as compared to the same period from the previous
        fiscal year. We continue a steady investment in research and development
        in the
        Software Segment. This is a reflection of our commitment to improving our
        existing core products and developing new titles, features and functionalities.
        Our management believes that product innovation and new technology integration
        is essential to proactively respond to the ever-evolving customer demands.
 
 The
        decrease in research and development expenses as a percentage of total sales
        and
        as compared to the same period from the previous fiscal year is the result
        of
        increased contribution of the Internet Content Segment to total revenues
        as this
        business segment carries little research and development expenses.
 22
 **Interest
        and Other, Net**
 
 Interest
        and other, net, include interest on debt instruments, foreign currency
        transaction gains and losses, and other non-recurring items. The following
        table
        summarizes the components of interest and other, net for the three months
        ended
        September 30, 2005 and 2004:
 
 (In
        thousands)
 **Three
                  months ended September 30,****Change
                  from previous year****2005**
              **2004****$**
              **$**
              
              **$
                  Increase /**
                **(Decrease)**
              **%**Interest
                  and other, netInterest
                  expense
              
              ($123)
              ($70)
              
              ($53)
              76%Interest
                  income
              
              48
              59
              
              (11)
              -19%Foreign
                  exchange gain
              
              6
              17
              
              (11)
              -65%**Total
                  interest and other, net**
              
              **($69)**
              **$6**
              
              **($75)**
              **N/A**
 
 **Gain
        / (Loss) on Marketable Securities**
  The
        following table details the realized and unrealized net loss on marketable
        securities that we recognized on our condensed consolidated statements of
        operations and comprehensive income/(loss) for the three months ended September
        30, 2005 and 2004, respectively:
 
 (In
        thousands)
 **Gain
                  (loss) on marketable securities for the three months ended September
                  30,
                  2005****Realized**
              
              **Unrealized**
              
              **Total****Description**
              
              
              
              Reversal
                  of unrealized gain / (loss) recognized in prior periods
              Unrealized
                  gain / (loss) for the quarter ended September 30, 2005
              
              Sub
                  total Unrealized gain / (loss)Other
                  stock in investment portfolio
              
              ($234)
              
              $90
              ($14)
              
              $76
              
              ($158)**Total**
              
              **($234)**
              
              **$90**
              **($14)**
              
              **$76**
              
              **($158)****Gain
                  (loss) on marketable securities for the three months ended September
                  30,
                  2004****Realized**
              
              **Unrealized**
              
              **Total****Description**
              
              
              
              Reversal
                  of unrealized gain / (loss) recognized in prior periods
              Unrealized
                  gain / (loss) for the quarter ended September 30, 2004
              
              Sub
                  total Unrealized gain / (loss)Jupitermedia
                  common stock
              
              $1,044
              
              ($1,047)
              $163
              
              ($884)
              
              $160Other
                  stock in investment portfolio
              
              (48)
              
              83
              (245)
              
              (162)
              
              (210)**Total**
              
              **$996**
              
              **($964)**
              **($82)**
              
              **($1,046)**
              
              **($50)**
 
 We
        also
        recognized an unrealized gain of $478,000 on our holdings of restricted common
        stock of Smith Micro, which is included in our condensed consolidated balance
        sheet as of September 30, 2005 as accumulated other comprehensive income
        (loss)
        in shareholders equity.
  **Provision
        for State and Federal Income Taxes** ****
 
 We
        recorded income tax expense of $0 and $5,000 for the quarters ended September
        30, 2005 and 2004, respectively. The tax expense for the quarter ended September
        30, 2004 represented state income taxes accrued where we have operations.
 23
 We
        have
        not recorded a tax benefit for domestic tax losses because of the uncertainty
        of
        realization. We adhere to SFAS No. 109, *Accounting
        for Income Taxes* ,
        which
        requires an asset and liability approach to financial accounting and reporting
        for income taxes. Valuation allowances are established when necessary to
        reduce
        deferred tax assets to the amount expected to be realized. Consistent with
        our
        past practice, we have recorded a full valuation allowance at September 30,
        2005
        as the realizeability of our net operating loss carry-forwards is not
        determinable.
 
 **Gain
        (loss) from Discontinued Operations**
 
 **Quarter
        ended September 30, 2005: Sale of Allume**
 
 On
        July
        1, 2005, we sold all of the issued and outstanding capital stock of Allume
        to
        Smith Micro for an aggregate sales price of $12.8 million consisting of $11.0
        million cash and 397,547 unregistered shares of Smith Micro’s common stock,
        having a market value (based on the five-trading-day average price of Smith
        Micro’s common stock surrounding the date the business combination was
        announced) of $1.8 million. At closing, a portion of the proceeds from the
        sale
        was deposited in an indemnity escrow, which included $1.25 million in cash
        and
        170,378 shares of Smith Micro’s common stock having a closing date market value
        of $784,000, to secure certain representations and warranties included in
        our
        stock purchase agreement with Smith Micro. As of September 30, 2005, Smith
        Micro
        has agreed to release $126,000 of the escrowed cash. As of the date of this
        filing, we have replaced the shares of Smith Micro common stock in escrow
        with
        cash, as permitted by the escrow agreement.
 
 As
        a
        result of this sale, we have categorized the assets, liabilities and operations
        of Allume as discontinued operations for the quarter ended September 30,
        2004
        and in the quarter ended September 30, 2005 we recorded a loss on the sale
        of
        discontinued operations of $843,000. This loss calculation does not include
        the
        cash and the value of the Smith Micro common stock formerly held in escrow
        and
        is subject to change in future reporting periods depending upon the value
        of
        consideration released from escrow in the future.
 
 **Quarter
        ended September 30, 2004: Sale of Keynomics**
 
 In
        July
        2004, we sold the assets and customer related liabilities of our wholly owned
        subsidiary Keynomics, Inc. We evaluated the Keynomics business segment and
        its
        long-term prospects during the quarter ended June 30, 2004 and with our focus
        on
        direct marketing and the on-line distribution of utilities and precision
        design
        content, we determined that Keynomics no longer represented a strategic fit
        for
        our company. The $53,000 gain from the sale of discontinued operations for
        the
        three months ended September 30, 2004 relates to the sale of Keynomics on
        July
        1, 2004 and represents the excess of the total consideration received over
        its
        net carrying value.
 
 **Income
        from Discontinued Operations, Net of Income Tax**
 
 Income
        from discontinued operations totaling $285,000 for the three months ended
        September 30, 2004 represents the pre-tax net income from the Allume operations
        of $290,000 offset by the net loss from the Keynomics operations of $5,000.
        Allume’s net revenues were $2.5 million and Keynomics net revenues were $68,000
        for the quarter ended September 30, 2004.
 
 **Liquidity
        and Capital Resources** ****
 
 As
        of
        September 30, 2005, we had $9,887,000 in cash and cash equivalents. This
        represents a $5,540,000 increase from the $4,347,000 balance as of June 30,
        2005. Working capital at September 30, 2005 was $9,506,000. This represents
        a
        decrease of $3,922,000 over the working capital at June 30, 2005 of $13,428,000.
  Our
        operating activities used net cash of $394,000 despite a net loss of $1,951,000
        for the quarter ended September 30, 2005. This compares to net cash generated
        from operations of $1,643,000 in the three months ended September 30, 2004.
        A
        non-cash loss on the sale of Allume in the amount of $843,000 along with
        non-cash depreciation and amortization expenses of $356,000 during the three
        months ended September 30, 2005 were the major items that helped reconcile
        the
        net loss to cash used by our operating activities.
 
 During
        the quarter ended September 30, 2005, we received a payment of $2.0 million
        from
        Jupitermedia representing the successful achievement of the third earn-out
        from
        the sale of ArtToday. This earn-out was contingent on ArtToday reaching certain
        revenue milestones. We had previously recorded during the quarter ended June
        30,
        2005 a gain of $2.0 million from the sale of discontinued operations
        representing the successful achievement of this third earn-out.
 24
 Also
        during the quarter ended September 30, 2005, we reduced our trade accounts
        payable balances and increased our accounts receivable.
 
 Our
        investing activities provided net cash of $7,469,000 during the three months
        ended September 30, 2005, as compared to net cash used of $444,000 during
        the
        comparable period from the previous fiscal year. The sale of Allume to Smith
        Micro on July 1, 2005 accounted for the majority of the cash we generated
        during
        the quarter ended September 30, 2005. At closing, a portion of the purchase
        price, including $1.25 million cash and shares of common stock having a closing
        date market value of $784,000 was deposited in an indemnity escrow to secure
        certain representations and warranties included in the stock purchase agreement.
        Subsequently, and as of the date of this filing, we have replaced the shares
        of
        Smith Micro common stock in escrow with cash as permitted by the escrow
        agreement. The funds still held in escrow, to the extent not required to
        fund
        indemnification obligation, will be available to us during future reporting
        periods. The cash we generated from the sale of Allume was partially used
        to
        finance the acquisition of Weinmaster Homes which we consummated in July
        2005.
        The divestiture and acquisition we completed in the quarter ended September
        30,
        2005 are consistent with our strategy to grow our Internet Content Segment
        with
        a focus on products and services that complement our direct marketing and
        online
        distribution strengths.
 
 Our
        financing activities consumed net cash of $2,022,000 for the three months
        ended
        September 30, 2005. This compares to $595,000 of net cash used by financing
        activities during the comparable period from the previous fiscal year. The
        cash
        used by our financing activities for the three months ended September 30,
        2005
        was primarily related to payments we made on notes relating to the acquisitions
        of Allume that we repaid in full after we sold Allume on July 1, 2005. This
        repayment of debt was in part offset by a short-term borrowing in the amount
        of
        $850,000 utilizing a 15% revolving note to a lender. The balance of this
        short-term financing including all accrued interest was due on September
        30,
        2005. Subsequent to quarter end, we repaid all amounts due under this note
        on
        October 3, 2005.
 
 Historically,
        we have financed our working capital and capital expenditure requirements
        primarily from short-term and long-term notes and bank borrowings, capitalized
        leases and sales of common stock. The sale of ArtToday to Jupitermedia in
        June
        2003 and the sale of Allume to Smith Micro in July 2005 provided us with
        additional sources of funds to support our growth strategy.
 
 To
        achieve our growth objectives, we are considering different strategies,
        including growth through mergers and/or acquisitions. As a result, we are
        evaluating and we will continue to evaluate other companies and businesses
        for
        potential synergies that would add value to our existing operations. The
        planned
        merger with AccessMedia is consistent with our growth strategy.
 
 We
        may
        seek, in the future, additional equity and/or debt financing to sustain our
        growth strategy. However, we believe that we have sufficient funds to support
        our operations at least for the next twelve months, based on our current
        cash
        position, equity sources and borrowing capacity. We believe that we will
        be able
        to obtain any additional financing required on competitive terms particularly
        if
        we are successful in improving our financial performance. In addition, we
        will
        continue to seek opportunities and discussions with third parties concerning
        the
        sale or license of certain product lines and/or the sale or license of a
        portion
        of our assets.
 
 The
        forecast period of time through which our financial resources will be adequate
        to support working capital and capital expenditure requirements is a
        forward-looking statement that involves risks and uncertainties, and actual
        results could vary. Furthermore, any additional equity financing may be dilutive
        to shareholders, and debt financing may involve restrictive
        covenants.
 
 Pursuant
        to a joint operating agreement with AccessMedia, we have committed to fund
        development expenses for AccessMedia pending the completion of our merger
        in an
        amount up to $3 million. The funding is subject to various conditions, including
        mutual agreement on an operating budget with AccessMedia. In addition, our
        merger agreement with AccessMedia provides that we will commit up to $7 million
        to fund AccessMedia’s working capital after the closing so long as AccessMedia
        achieves certain milestones. AccessMedia has not yet requested funding under
        this arrangement.
 25
 **Critical
        Accounting Policies**
 
 In
        accordance with SEC guidance, those material accounting policies that we
        believe
        are the most critical to an investor’s understanding of our financial results
        and condition have been expanded and are discussed below. Certain of these
        policies are particularly important to the portrayal of our financial position
        and results of operations and require the application of significant judgment
        by
        our management to determine the appropriate assumptions to be used in the
        determination of certain estimates.
 
 **Revenue
        Recognition**
  Revenue
        is recognized in accordance with American Institute of Certified Public
        Accountants Statement of Position (“SOP”) 97-2, *Software
        Revenue Recognition* ,
        and SOP
        98-9, *Modification
        of SOP 97-2, With Respect to Certain Transactions* .
        Revenue
        is recognized when persuasive evidence of an arrangement exists (generally
        a
        purchase order), product or service has been delivered, the fee is fixed
        and
        determinable, and collection of the resulting account is probable.
  ·
              Revenue
                  from packaged product sales to resellers and end users is recorded
                  at the
                  time of the sale net of estimated returns.
 ·
              Revenue
                  from sales to distributors is recognized when the product sells
                  through to
                  retailers or end users. Sales to distributors permit limited rights
                  of
                  return according to the terms of the
                  contract.
 ·
              For
                  software and content delivered via the Internet, revenue is recorded
                  when
                  the customer downloads the software, activates the subscription
                  account or
                  is shipped the content.
 ·
              Revenue
                  from post contract customer support (“PCS”) is recognized ratably over the
                  contract period.
 ·
              Subscription
                  revenue is recognized ratably over the contract period.
 ·
              We
                  use the residual method to recognize revenue when a license agreement
                  includes one or more elements to be delivered at a future
                  date.   If there is an undelivered element under the license
                  arrangement, we defer revenue based on vendor-specific objective
                  evidence
                  (“VSOE”) of the fair value of the undelivered element, as determined by
                  the price charged when the element is sold separately. If VSOE
                  of fair
                  value does not exist for all undelivered elements, we defer all
                  revenue
                  until sufficient evidence exists or all elements have been
                  delivered.
 ·
              Non-refundable
                  advanced payments received under license agreements with no defined
                  terms
                  are recognized as revenue when the customer accepts the delivered
                  software.
 ·
              Revenue
                  from software licensed to developers, including amounts in excess
                  of
                  non-refundable advanced payments, is recorded as the developers
                  ship
                  products containing the licensed software.
 ·
              Revenue
                  from minimum guaranteed royalties in republishing agreements is
                  recognized
                  ratably over the term of the agreement. Royalties in excess of
                  the
                  guaranteed minimums are recognized when collected.
 ·
              Revenue
                  from original equipment manufacturer (“OEM”) contracts is recognized upon
                  completion of our contractual
                  obligations.
  **Reserve
        for returns, price discounts and rebates**
  Reserves
        for returns, price discounts and rebates are estimated using historical
        averages, open return requests, channel inventories, recent product sell-through
        activity and market conditions. Our allowances for returns, price discounts
        and
        rebates are based upon management’s best judgment and estimates at the time of
        preparing the condensed consolidated financial statements. Reserves are
        subjective estimates of future activity that are subject to risks and
        uncertainties, which could cause actual results to differ materially from
        estimates.
  Our
        return policy generally allows our distributors to return purchased products
        primarily in exchange for new products or for credit towards future purchases
        as
        part of stock balancing programs. These returns are subject to certain
        limitations that may exist in the contract with an individual distributor
        governing, for example, aggregate return amounts, and the age, condition
        and
        packaging of returned product. Under certain circumstances, such as terminations
        or when a product is defective, distributors could receive a cash refund
        if
        returns exceed amounts owed.
 26
 **Inventories**
  Inventories
        are valued at the lower of cost or market and are accounted for on the first-in,
        first-out basis. Management performs periodic assessments to determine the
        existence of obsolete, slow moving and non-salable inventories, and records
        necessary provisions to reduce such inventories to net realizable value.
        As of
        September 30, 2005, approximately $264,000 of our inventory was held by certain
        of our distributors under consignment arrangements.
  **Software
        Development Costs and License Fees**
  Costs
        incurred in the initial design phase of software development are expensed
        as
        incurred in research and development. Once the point of technological
        feasibility is reached, direct production costs are capitalized in compliance
        with SFAS No. 86, *Accounting
        for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed.* We
        cease
        capitalizing computer software costs when the product is available for general
        release to customers. Costs associated with acquired completed software are
        capitalized.
  We
        amortize capitalized software development costs and visual content license
        fees
        on a product-by-product basis. The amortization for each product is the greater
        of the amount computed using (a) the ratio of current gross revenues to the
        total of current and anticipated future gross revenues for the product or
        (b)
        18, 36, or 60 months, depending on the product. We evaluate the net realizable
        value of each software product at each balance sheet date and record write-downs
        to net realizable value for any products for which the carrying value is
        in
        excess of the estimated net realizable value.
  **Impairment**
  Property,
        equipment, intangible and certain other long-lived assets are amortized over
        their useful lives. Useful lives are based on management’s estimates of the
        period that the assets will generate revenues. We account for the impairment
        and
        disposition of long-lived assets in accordance with SFAS 144, *Accounting
        for the Impairment or Disposal of Long-Lived Assets* .
        In
        accordance with SFAS 144, long-lived assets are reviewed for impairment whenever
        events or changes in circumstances indicate that the carrying value of an
        asset
        may not be recoverable. Recoverability of assets to be held and used is measured
        by comparison of the carrying amount of an asset to future net cash flows
        expected to be generated by the asset. If such assets are considered to be
        impaired, the impairment to be recognized is measured by the amount by which
        the
        carrying amount of the assets exceeds the fair value of the assets.
  In
        accordance with SFAS No. 142, *Goodwill
        and Intangible Assets,* goodwill
        is being assessed for impairment annually or more frequently if circumstances
        indicate impairment.
 
 **Factors
        That May Impact Future Operating Results**
 
 Set
        forth
        below and elsewhere in this report and in other documents we file with the
        SEC
        are risks and uncertainties that could cause actual results to differ materially
        from the results contemplated by the forward-looking statements contained
        in
        this report.
  **OUR
        OPERATING RESULTS MAY FLUCTUATE IN FUTURE PERIODS, WHICH MAY ADVERSELY AFFECT
        OUR STOCK PRICE**
  Our
        operating results have been in the past, and will continue to be, subject
        to
        quarterly and annual fluctuations as a result of numerous factors. These
        factors
        include:
  ·
              Fluctuations
                  in demand for our products and services, especially with respect
                  to
                  software and Internet businesses
 ·
              Our
                  ability to maintain appropriate inventory levels and purchase commitments
 ·
              Price
                  and product competition in the software and Internet house plans
                  businesses
 ·
              Overall
                  movement toward industry consolidation
 ·
              Variations
                  in sales channels, product costs, or mix of products sold
 ·
              The
                  timing, size, and mix of orders from customers
  27
 ·
              Fluctuations
                  in our gross margins
 ·
              Our
                  ability to achieve targeted cost reductions
 ·
              Actual
                  events, circumstances, outcomes, and amounts differing from judgments,
                  assumptions, and estimates used in determining the values of certain
                  assets (including the amounts of related valuation allowances),
                  liabilities, and other items reflected in our condensed consolidated
                  financial statements
 ·
              How
                  well we execute on our strategy and operating plans
 ·
              Changes
                  in accounting rules, such as recording expenses for employee stock
                  option
                  grants and changes in tax accounting principles
 ·
              Compliance
                  expense including the costs of procedures required for Sarbanes-Oxley
                  Section 404 reporting and the costs of procedure remediation, if
                  any.
 ·
              Merger
                  and acquisition activity.
  As
        a
        consequence, operating results for a particular future period are difficult
        to
        predict, and, therefore, prior results are not necessarily indicative of
        results
        to be expected in future periods. Any of the foregoing factors, or any other
        factors discussed elsewhere herein, could have a material adverse effect
        on our
        business, results of operations, and financial condition that could adversely
        affect our stock price.
 
 **OUR
        OPERATING RESULTS MAY BE ADVERSELY AFFECTED BY UNFAVORABLE ECONOMIC AND MARKET
        CONDITIONS**
 
 Our
        products are associated with demand for software products and building starts
        and negative trends in those and other areas could harm our business, operating
        results, or financial condition.
 
 **OUR
        REVENUE FOR A PARTICULAR PERIOD IS DIFFICULT TO PREDICT, AND A SHORTFALL
        IN
        REVENUE MAY HARM OUR OPERATING RESULTS**
 
 As
        a
        result of a variety of factors discussed in this report, our revenue for
        a
        particular quarter is difficult to predict. Our net sales may grow at a slower
        rate than in past periods, or may decline. Our ability to meet financial
        expectations could also be adversely affected by the timing and mix of
        individual sales.
 
 We
        plan
        our operating expense levels based primarily on forecasted revenue levels.
        These
        expenses and the impact of long-term commitments are relatively fixed in
        the
        short term. A shortfall in revenue could lead to operating results being
        below
        expectations because we may not be able to quickly reduce these fixed expenses
        in response to short-term business changes.
 
 **WE
        EXPECT GROSS MARGIN TO VARY OVER TIME, AND OUR RECENT LEVEL OF PRODUCT GROSS
        MARGIN MAY NOT BE SUSTAINABLE**
 
 Our
        product gross margins may not be sustainable and may be adversely affected
        by
        numerous factors, including:
 
 ·
              Changes
                  in customer, geographic, or product
                  mix
 ·
              Introduction
                  of new products
 ·
              Sales
                  discounts and other promotional factors in retail channels
 ·
              Increases
                  in material or labor input costs
 ·
              Obsolescence
                  charges
 ·
              Changes
                  in shipment volume
 ·
              Inventory
                  costs resulting from forecasting variances
 ·
              Increased
                  price competition
 ·
              Changes
                  in distribution channels
 ·
              How
                  well we execute on our strategy and operating
                  plans
 ·
              Inability
                  to achieve targeted cost reductions
 
 28
 **DISRUPTION
        OF OR CHANGES IN OUR DISTRIBUTION MODEL COULD HARM OUR SALES AND MARGINS**
 
 If
        we
        fail to manage distribution of our products and services properly, or if
        the
        economics of our distribution channels change, our revenue and gross margins
        could be adversely affected.
 
 A
        substantial portion of our software products are sold through our channel
        partners and the remainder is sold through direct sales. Our stock house
        plans
        and services are sold primarily with Internet marketing and distribution
        and the
        remainder are sold through call center or indirect sales. Changes in the
        effectiveness of these channels or the costs associated with these distribution
        methods could harm our business, operating results, or financial
        condition.
 
 **OUR
        BUSINESS SUBSTANTIALLY DEPENDS UPON THE CONTINUED GROWTH OF THE INTERNET
        AND
        INTERNET-BASED SYSTEMS**
 
 A
        substantial portion of our business and revenue depends on growth of the
        Internet and on the use of that as a sales and distribution mechanism. To
        the
        extent that the Internet does not support this activity whether through changes
        in its use, lowered reliability or other factors, we could experience material
        harm to our business, operating results, and financial condition.
 
 **CHANGES
        IN INDUSTRY STRUCTURE AND MARKET CONDITIONS COULD LEAD TO CHARGES RELATED
        TO
        DISCONTINUANCES OF CERTAIN OF OUR PRODUCTS OR BUSINESSES AND ASSET IMPAIRMENTS**
 
 In
        response to changes in industry and market conditions, we may be required
        to
        strategically realign our resources and consider restructuring, disposing
        of, or
        otherwise exiting businesses. Any decision to limit investment in or dispose
        of
        or otherwise exit businesses may result in the recording of special charges,
        such as inventory and technology-related write-offs, workforce reduction
        costs,
        charges relating to consolidation of excess facilities, or claims from third
        parties who were resellers or users of discontinued products. Our estimates
        with
        respect to the useful life or ultimate recoverability of our carrying basis
        of
        assets, including purchased intangible assets, could change as a result of
        such
        assessments and decisions. Additionally, we are required to perform goodwill
        impairment tests on an annual basis and between annual tests in certain
        circumstances, and future goodwill impairment tests may result in a charge
        to
        earnings.
 
 **WE
        HAVE MADE AND EXPECT TO CONTINUE TO MAKE ACQUISITIONS THAT COULD DISRUPT
        OUR
        OPERATIONS AND HARM OUR OPERATING RESULTS**
 
 Our
        growth depends upon market growth, our ability to enhance our existing products,
        and our ability to introduce new products on a timely basis. We intend to
        continue to address the need to develop new products and enhance existing
        products through acquisitions of other companies, product lines, technologies,
        and personnel. Acquisitions involve numerous risks, including the following:
 
 ·
              Difficulties
                  in integrating the operations, technologies, products, and personnel
                  of
                  the acquired companies
 ·
              Diversion
                  of management’s attention from normal daily operations of the business
 ·
              Potential
                  difficulties in completing projects associated with in-process
                  research
                  and development
 ·
              Difficulties
                  in entering markets in which we have no or limited direct prior
                  experience
                  and where competitors in such markets have stronger market positions
 ·
              Initial
                  dependence on unfamiliar supply chains or relatively small supply
                  partners
 ·
              Insufficient
                  revenue to offset increased expenses associated with acquisitions
 ·
              The
                  potential loss of key employees of the acquired
                  companies
  Acquisitions
        may also cause us to:
  ·
              Issue
                  common stock that would dilute our current shareholders’ percentage
                  ownership
 ·
              Assume
                  liabilities
 ·
              Record
                  goodwill and non-amortizable intangible assets that will be subject
                  to
                  impairment testing on a regular basis and potential periodic impairment
                  charges
 ·
              Incur
                  amortization expenses related to certain intangible assets
 ·
              Incur
                  large and immediate write-offs and restructuring and other related
                  expenses
 ·
              Become
                  subject to intellectual property or other litigation
 
 29
 Mergers
        and acquisitions of high-technology companies are inherently risky, and no
        assurance can be given that our previous or future acquisitions will be
        successful and will not materially adversely affect our business, operating
        results, or financial condition. Failure to manage and successfully integrate
        acquisitions could materially harm our business, operating results, or financial
        condition.
 
 **OUR
        OPERATING RESULTS AND FUTURE PROSPECTS COULD BE MATERIALLY HARMED BY
        UNCERTAINTIES OR REGULATION OF THE INTERNET**
 
 Currently,
        few laws or regulations apply directly to access or commerce on the Internet.
        We
        could be materially adversely affected by regulation of the Internet and
        Internet commerce in any country where we operate. Such regulations could
        include matters such as sales taxes on Internet product sales, and access
        charges for Internet service providers. The adoption of regulation of the
        Internet and Internet commerce could decrease demand for our products and,
        at
        the same time, increase the cost of selling our products, which could have
        a
        material adverse effect on our business, operating results, and financial
        condition.
 
 While
        we
        do not anticipate regulation affecting software or stock house plans as
        products, this regulation could also harm our business, operating results,
        or
        financial condition.
  **FAILURE
        TO RETAIN AND RECRUIT KEY PERSONNEL WOULD HARM OUR ABILITY TO MEET KEY
        OBJECTIVES**
 
 Our
        success has always depended in large part on our ability to attract and retain
        highly skilled technical, managerial, sales, and marketing personnel. The
        loss
        of services of any of our key personnel, the inability to retain and attract
        qualified personnel in the future, or delays in hiring required personnel
        could
        make it difficult to meet key objectives and harm our business, operating
        results, or financial condition.
 
 **ADVERSE
        RESOLUTION OF LITIGATION MAY HARM OUR OPERATING RESULTS OR FINANCIAL CONDITION**
 
 We
        are a
        party to lawsuits in the normal course of our business. Litigation can be
        expensive, lengthy, and disruptive to normal business operations. Moreover,
        the
        results of complex legal proceedings are difficult to predict. An unfavorable
        resolution of a particular lawsuit could have a material adverse effect on
        our
        business, operating results, or financial condition. For additional information
        regarding certain of the lawsuits in which we are involved, see Item 1, “Legal
        Proceedings,” contained in Part II of this report.
 
 **OUR
        BUSINESS AND OPERATIONS ARE ESPECIALLY SUBJECT TO THE RISKS OF EARTHQUAKES,
        FLOODS, AND OTHER NATURAL CATASTROPHIC EVENTS**
 
 Our
        corporate headquarters is located Northern California, a region known for
        seismic activity. A significant natural disaster, such as an earthquake or
        a
        flood, could have a material adverse impact on our business, operating results,
        and financial condition.
 
 **OUR
        STOCK PRICE MAY BE VOLATILE**
 
 Our
        common stock may experience price volatility. This can be prompted by reported
        results, market conditions and/or general economic and political conditions,
        and
        these factors may materially adversely affect the market price of our common
        stock in the future.
  **Item3-
          Controls and Procedures**
 
 (a)
          Under
          the supervision and with the participation of our management, including
          our
          principal executive officer and principal financial officer, we conducted
          an
          evaluation of our disclosure controls and procedures (“Disclosure Controls”), as
          such term is defined under Rule
          13a-14(c) promulgated under the Securities Exchange Act of 1934, as amended
          (the
“Exchange Act”), as of September 30, 2005, the end of the period covered by this
          quarterly report. Based on their evaluation, our principal executive officer
          and
          principal financial officer concluded that our disclosure controls and
          procedures are effective.
 30
 (b)
        We
        have evaluated our accounting procedures and control processes in place as
        of
        September 30, 2005 r elated
        to material
        transactions to ensure they are recorded timely and accurate ly
        in the
        financial statements. There have been no significant changes in our internal
        controls or in other factors that could significantly affect these controls
        subsequent to the date of the
        eval uation
        referenced in paragraph (a) above.
  **PARTII
        - OTHER INFORMATION**
  **Item
        1- Legal Proceedings**
 
 From
        time
        to time, we may be involved in litigation relating to claims arising out
        of our
        operations in the normal course of business.
 
 We
        were
        named as one of a number of co-defendants in a suit filed in the State of
        New
        York by Xand Corporation who has asserted a claim in the amount of $270,000
        arising out of a contract with Allume Systems, Inc. which would apply to
        periods
        during our fiscal years 2004 through 2007. We believe under some circumstances,
        we may be contractually indemnified against some or all of the claim. We
        believe
        the claim is without merit and intend to defend the actions vigorously, if
        required. While we believe there is no legal basis for liability, due to
        the
        uncertainty surrounding the litigation process, we are unable to reasonably
        estimate a range of loss, if any, at this time.
 
 In
        addition, we are subject to legal proceedings, claims, and litigation arising
        in
        the ordinary course of business. While the outcome of these matters is currently
        not determinable, we do not expect that the ultimate costs to resolve these
        matters will have a material adverse effect on our consolidated financial
        position, results of operations, or cash flows.
  There
        are
        no proceedings in which any of our directors, officers or affiliates, or
        any
        registered or beneficial shareholder, is an adverse party or has a material
        interest adverse to our interest.
  **Item2-** **Unregistered
        Sales of Equity Securities and Use of Proceeds**
 
 During
        the quarter ended September 30, 2005, we sold the following securities in
        transactions not registered under the Securities Act of 1933:
 
 **Date**
                **Securities**
                **Issued**
              **Securities**
                **Title**
              **Issued
                  to**
              **Number
                  of Securities Issued**
              **Consideration**
                **(1)**
              **Footnotes****Common
                  Stock Issuances**July
                  1, 2005
              Common
                  Stock
              Bruce
                  and Janet Weinmaster
              826,583
              
              **(2)**July
                  1, 2005
              Common
                  Stock
              Dorothy
                  Westall
              20,000
              
              **(2)****Total
                  common stock issued**
              **846,583****Derivative
                  Securities Issuances**July
                  1, 2005
              Warrant
              Remington
                  Partners, Inc.
              39,594
              
              **(3)**July
                  1, 2005
              Warrant
              Waldman
                  Management Group Inc.
              16,664
              
              **(3)**July
                  1, 2005
              Warrant
              Joe
                  Abrams
              8,332
              
              **(3)**July
                  1, 2005
              Warrant
              Eisenberg
                  Family Investors, an IL prtnrshp
              8,332
              
              **(3)**July
                  1, 2005
              Warrant
              Mary
                  L. Stuckey
              4,166
              
              **(3)**July
                  1, 2005
              Warrant
              Jeanne
                  Hammers & Roger Hammers Trustees, Jeanne Hammers Trust 4/16/02
              4,166
              
              **(3)**July
                  1, 2005
              Warrant
              Casa
                  Madrona, Inc.
              4,166
              
              **(3)**July
                  1, 2005
              Warrant
              Warren
                  Yost and Gail Yost, Trustees, WP&GA Yost Trust UA DTD 3/9/88
              4,166
              
              **(3)**July
                  1, 2005
              Warrant
              Fast
                  Funding Profit Sharing Trust
              4,166
              
              **(3)**July
                  1, 2005
              Warrant
              Walter
                  Bilofsky
              4,166
              
              **(3)**July
                  1, 2005
              Warrant
              Lorraine
                  Lusted
              2,083
              
              **(3)**July
                  1, 2005
              Warrant
              Pensco
                  Trust fbo Vern Bueman IRA
              2,083
              
              **(3)**July
                  1, 2005
              Warrant
              Robert
                  Babbin
              2,083
              
              **(3)**July
                  1, 2005
              Warrant
              Stella
                  Rubin
              2,083
              
              **(3)****Total
                  warrants issued**
              **106,250**
 31
 (1)
        Consideration received in cash except where noted.
 (2)
        Stock
        issued pursuant to an acquisition agreement or amendment to an acquisition
        agreement for which no cash was received by us.
 (3 )
        Securities issued pursuant to a financing agreement for which no cash was
        received by us  (see
        note
        9 of our condensed consolidated financial statements as of September 30,
        2005
        appearing elsewhere in this document.)
  **Item3-
        Defaults upon Senior Securities**
 
 Not
        Applicable
  **Item4-
        Submission of Matters to a Vote of Security
        Holders**
 
 Not
        Applicable
  **Item5-
        Other Information**
 
 Not
        Applicable
  **Item6-
        Exhibits**
  **Financial
        Statements**
 
 The
        following condensed consolidated financial statements of International
        Microcomputer Software, Inc., and Subsidiaries are incorporated by reference
        in
        Part I, Item 1:
 
 Condensed
        Consolidated Balance Sheets at September 30, 2005 and June 30, 2005
 Condensed
        Consolidated Statements of Operations for the interim periods ended September
        30, 2005 and 2004
 Condensed
        Consolidated Statements of  Shareholders' Equity for the Quarter Ended
        September 30, 2005
 Condensed
        Consolidated Statements of Cash Flows for the Quarters Ended September 30,
        2005
        and 2004
 Notes
        to
        Condensed Consolidated Financial Statements
 
 **Exhibits**
  The
        following exhibits are filed as part of, or incorporated by reference into
        this
        Report:
  **Number**
              **Exhibit
                  Title**
              **Note**
              **Page****2.1**
              Agreement
                  and Plan of Merger dated as of August 8, 2005, by and among International
                  Microcomputer Software, Inc., ACCM Acquisition Corp., AccessMedia
                  Networks, Inc., and the stockholders of AccessMedia Networks,
                  Inc.
              **(1)****2.2**
              Joint
                  Operating Agreement dated as of August 8, 2005, between International
                  Microcomputer Software, Inc. and AccessMedia Networks,
                  Inc.
              **(1)****2.3**
              Stock
                  Purchase Agreement between International Microcomputer Software,
                  Inc. (the
                  Seller) and Smith Micro Software, Inc.
              **(2)****2.4**
              Weinmaster
                  Homes, Ltd. Stock Purchase Agreement, dated July 1, 2005, between
                  Weinmaster Homes, Ltd., Bruce Weinmaster & Janice Weinmaster and
                  International Microcomputer Software, Inc
              **(3)****3.01**
              Amended
                  and Restated Articles of Incorporation
              **(4)****3.02**
              Amended
                  and Restated Bylaws
              **(5)****31.1**
              Certification
                  of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
                  Act of 2002
              
              **Page
                  35****31.2**
              Certification
                  of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
                  Act of 2002
              
              **Page
                  36****32.1**
              Certification
                  of Chief Executive Officer & Chief Financial Officer Pursuant to
                  Section 906 of the Sarbanes-Oxley Act of 2002
              
              **Page
                  37**
 
 **Notes****(1)**
              Incorporated
                  by reference to exhibits to the Company's Current report on Form
                  8-K filed
                  on August 9, 2005**(2)**
              Incorporated
                  by reference to exhibits to the Company's Current report on Form
                  8-K filed
                  on July 7, 2005**(3)**
              Incorporated
                  by reference to exhibits to the Company's Current report on Form
                  8-K filed
                  on July 7, 2005**(4)**
              Incorporated
                  by reference to exhibits to the Company's registration statement
                  on Form
                  S-3 filed on September 22, 1993**(5)**
              Incorporated
                  by reference to exhibits to the Company's Current report on Form
                  8-K filed
                  on January 18, 2005
 32
 **SIGNATURES**
 
 Pursuant
        to the requirements 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.
 
 **INTERNATIONAL
        MICROCOMPUTER SOFTWARE, INC.**
 
 
 **Date:
        November 14, 2005**
 
 
 **By:
        /s/ Martin Wade, III**
 Martin
        Wade, III
 Director
        & Chief Executive Officer
 
  **By:
        /s/ Robert O’Callahan**
 Robert
        O’Callahan
 Chief
        Financial Officer (Principal Accounting Officer)
  33
 **INDEXTO
        EXHIBITS:**
 
  **Number**
              **Exhibit
                  Title**
              **Note**
              **Page****31.1**
              Certification
                  of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
                  Act of 2002
              
              **Page
                  35****31.2**
              Certification
                  of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
                  Act of 2002
              
              **Page
                  36****32.1**
              Certification
                  of Chief Executive Officer & Chief Financial Officer Pursuant to
                  Section 906 of the Sarbanes-Oxley Act of 2002
              
              **Page
                  37**
    34