**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**







**FORM
      10-K**








(Mark
      One)





**x**  **ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(D)**


**OF
      THE SECURITIES EXCHANGE ACT OF 1934**





For
      the
      fiscal year ended: **December 31, 2006**





OR





**o**  **TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(D)**


**OF
      THE SECURITIES EXCHANGE ACT OF 1934**





For
      the
      transition period from _____ to _____.





Commission
      file number **0-26809**







**SMARTVIDEO
      TECHNOLOGIES, INC.**


(Exact
      Name of Registrant as Specified in Its Charter)





**Delaware**
            **91-1962104**(State
                or Other Jurisdiction of Incorporation of Organization)
            (I.R.S.
                Employer Identification No.)





**3505
                Koger Boulevard, Suite 400**
              **Duluth,
                Georgia**
            **30096**(Address
                of Principal Executive Offices)
            (Zip
                Code)





Registrant's
      Telephone Number, Including Area Code: **(770)
      279-3100**








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





Securities
      registered pursuant to Section 12(g) of the Act: **Common
      Stock, $0.001 par value**








Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act.


Yes o  No x





Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Act.


Yes o  No x


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


Yes x  No o





Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained, to the best
      of registrant's knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10K or any amendments to
      this
      Form 10-K. x





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and larger accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one):





Large
      accelerated filer o Accelerated
      filer o Non-accelerated
      filer x





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).


Yes o  No x




The
      aggregate market value of voting common stock held by non-affiliates of the
      issuer as of June 30, 2006 was approximately $52,254,773 (computed based on
      the
      closing sale price of the common stock as reported on the OTC Bulletin Board
      at
      $ 1.40 per
      share as of such date).




As
      of the
      close of business on March 27, 2007, 53,667,284 shares of the registrant’s
      common stock were outstanding.





Documents
      Incorporated by Reference: None.




-2-







**Table
                of Contents**
            PagePART
                IItem
                1.
            Business
            5Item
                1A
            Risk
                Factors
            9Item
                1B
            Unresolved
                Staff Comments
            18Item
                2.
            Properties
            19Item
                3.
            Legal
                Proceedings
            19Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            22PART
                IIItem
                5.
            Market
                for the Registrant's Common Equity, Related Stockholder Matters and
                Issuer
                Purchases of Equity Securities
            23Item
                6.
            Selected
                Financial Data
            27Item
                7.
            Management's
                Discussion and Analysis of Financial Condition and Results of
                Operations
            28Item
                7A.
            Quantitative
                and Qualitative Disclosures about Market Risk
            34Item
                8.
            Financial
                Statements and Supplementary Data
            34Item
                9.
            Changes
                in and Disagreements with Accountants on Accounting and Financial
                Disclosure
            34Item
                9A.
            Controls
                and Procedures
            35Item
                9B
            Other
                Information
            35PART
                IIIItem
                10.
            Directors;
                Executive Officers and Corporate Governance
            36Item
                11.
            Executive
                Compensation
            39Item
                12.
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            49Item
                13.
            Certain
                Relationships and Related Transactions, and Director
                Independence
            51Item
                14
            Principal
                Accountant Fees and Services
            51PART
                IVItem
                15.
            Exhibits
                and Financial Statement Schedules
            53Signatures
            60CONSOLIDATED
                BALANCE SHEETS
            F-3CONSOLIDATED
                STATEMENTS OF OPERATIONS
            F-4CONSOLIDATED
                STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
            F-5CONSOLIDATED
                STATEMENTS OF CASH FLOWS
            F-6NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS
            F-7




-3-





*Unless
      the context otherwise requires, all references to “SmartVideo,”
“uVuMobile* TM***,*** **”**the
      “Company,” “we,” “us” or “our” refers to SmartVideo Technologies, Inc. and its
      subsidiary. References in this report to annual financial data for SmartVideo
      refer to fiscal years ended December 31.




*General
      information about SmartVideo can be found at www.smartvideo.com. We make our
      annual report on Form 10-K, quarterly reports on Form 10-Q, current reports
      on
      Form 8-K and amendments to these reports filed or furnished pursuant to Section
      13 or 15(d) of the Securities Exchange Act of 1934 available free of charge
      on
      our website, as soon as reasonably practicable after they are electronically
      filed with the SEC. The information on our website is not incorporated into
      this
      report.*




**FORWARD-LOOKING
      STATEMENTS**




We
      caution readers that this report includes “forward-looking statements” as that
      term is used in the Private Securities Litigation Reform Act of 1995.
      Forward-looking statements are based on current expectations rather than
      historical facts and they are indicated by words or phrases such as
“anticipate,” “could,” “may,” “might,” “potential,” “predict,” “should,”
“estimate,” “expect,” “project,” “believe,” “intend,” “plan,” “envision,”
“continue,” “target,” “contemplate,” or “will” and similar words or phrases or
      comparable terminology. We have based such forward-looking statements on our
      current expectations, assumptions, estimates and projections. While we believe
      these expectations, assumptions, estimates and projections are reasonable,
      such
      forward-looking statements are only predictions and involve known and unknown
      risks and uncertainties, and other factors that may cause actual results,
      performance or achievements to be materially different from any future results,
      performance or achievements expressed or implied by such forward-looking
      statements, many of which are beyond our control. Some of the factors that
      could
      affect our financial performance, cause actual results to differ from our
      estimates, or underlie such forward-looking statements, are set forth below
      and
      in various places in this report, including under the headings Item 1A. “Risk
      Factors,” and Item 7 “Management’s Discussion and Analysis of Financial
      Condition and Results of Operations” in this report. These factors
      include:




·
              general
                  economic conditions;  ·
              significant
                  uncertainty inherent in the mobile entertainment services
                  industry;  ·
              we
                  face intense and increasing competition from the telecommunications
                  industry and the satellite and cable television industry; new competitors
                  are likely to emerge and new technologies may further increase
                  competition;  ·
              our
                  programming costs may increase beyond our current expectations
                  and we may
                  be unable to obtain or renew programming agreements on acceptable
                  terms or
                  at all;  ·
              we
                  are heavily dependent on complex information technologies and their
                  support infrastructures; weaknesses in our information technology
                  systems
                  could have an adverse impact on our business; we may have difficulty
                  attracting and retaining qualified personnel to maintain our information
                  technology infrastructure;  ·
              lack
                  of funding to continue our operations and our ability to obtain
                  future
                  financing or funds;  ·
              our
                  ability to successfully obtain a diverse customer base or retain
                  our
                  existing customers;  ·
              our
                  ability to protect our intellectual property through patents, trademarks,
                  copyrights and confidentiality
                  agreements;  ·
              our
                  ability to attract and retain a qualified employee
                  base;  ·
              our
                  ability to respond to new developments in technology and new applications
                  of existing technology before our
                  competitors;  ·
              our
                  ability to develop, maintain and enhance our strategic relationships
                  with
                  wireless carriers, Multi-Service Operators (MSO's), handset manufacturers
                  and distributors, key streaming media technology companies and
                  content
                  providers;  ·
              acquisitions,
                  business combinations, strategic partnerships, divestures, and
                  other
                  significant transactions may involve additional
                  uncertainties;




·
            our
                ability to maintain and execute a successful business strategy;
                and  ·
            we
                may face other risks described from time to time in periodic and
                current
                reports we file with the United States Securities and Exchange Commission
                (“SEC”).




You
      are
      cautioned not to place undue reliance on these forward-looking statements,
      which
      are valid only as of the date they were made. We undertake no obligation to
      update or revise any forward-looking statements to reflect new information
      or
      the occurrence of unanticipated events or otherwise.





-4-





**PART
      I**




**Item
      1.**  **Business**




SmartVideo
      Technologies, Inc. (hereinafter sometimes referred to as “SmartVideo,”
“uVuMobileTM,” the “Company,” “we,” “us,” or “our”) is a provider of video
      content distribution services and technology.





Incorporated
      in 1984, the Company acquired OVT, Inc., d/b/a SmartVideo, in November 2002
      and
      subsequently changed its name to SmartVideo Technologies, Inc. Although the
      core
      business of the Company has remained constant, the Company has changed its
      focus
      from distributing business-to-business services to the distribution of video
      content to consumers.




Since
      2002, the Company has been a provider of technology engaged in the aggregation
      and distribution of streaming video content to consumers connected to the public
      Internet. The Company has been in the business of purchasing the rights to
      video
      and television content and delivering that content to subscribers for a fee.
      Additionally, the Company also provides managed services for Internet
      network operators (carriers) and for major producers, owners and distributors
      of
      content. The Company intends to continue expanding its market opportunities
      by delivering video services to all forms of devices capable of receiving an
      Internet Protocol (IP) data stream and rendering that data stream into visible
      images on displays.




In
      January 2005, the Company launched its direct-to-consumer mobile video service
      providing its customers with access to high-quality video programming that
      is
      transmitted directly to SmartPhone cellular handsets and to Wi-Fi enabled PDA
      devices. In addition, the Company has developed Real Time Streaming
      Protocol (RTSP) and Java 2 Platform, Micro Edition (J2ME)
      compatibility.





During
      the fourth quarter of 2006, the Company expanded its product offerings to
      include a new suite of mobile technology and content solutions, bringing
      together a myriad of implementation choices, business models and marketing
      plans. The Company believes these new products will aid our customers that
      are
      seeking to capitalize on mobile technology opportunities. These new media
      services combine TV, radio, and other media platforms with user-friendly
      personalization, interactivity and targeted advertising.





**Our
      Business Strategy**




Our
      overall goal is to capitalize on the ever increasing demand by consumers for
      personalized and interactive entertainment in the mobile technology
      industry. In connection with this goal, the Company provides its clients
      with high-quality, interactive media solutions to mobilize their
      content **.** The
      initial target market includes media and entertainment companies, consumer
      and
      retail brands, portals and user oriented communities.




**Key
      Initiatives:**




In
      order
      to be successful with our business strategy, we are focusing on the following
      key initiatives:




***Increase
      Sales of our Products*** ** -
      We
      believe that improvement in the following areas will facilitate increased sales
      of our products: 1) Implementation of diverse and effective distribution
      programs; 2) Increasing our marketing resources and 3) Continuing to
      develop exciting new media solutions.




***Technology
      Leadership*** **-** We
      believe that technological leadership will play an important role in our ability
      to introduce services that are customer-friendly at a reduced **** cost. We
      intend to continue developing our core technology, with particular interest
      in
      new media services that combine TV, radio and other media with user-friendly
      personalization and interactivity.




***Expand
      the Number of Compatible Handsets*** **-** Our
      products and services are compatible with Microsoft Windows Mobile O/S, Symbian
      O/S, J2ME and Palm wireless handsets, representing about 30 % of the U.S. market
      and all Windows O/S PDA devices, which comprise about 85% of all PDA handsets.
      We intend to expand our market opportunity by expanding the compatibility of
      our
      products and services with additional handset types and operating
      systems.





**Key
      Strengths**




***Core
      Technology*** **-** We
      have
      developed a core technology platform that is optimized for the efficient
      utilization of Internet bandwidth in conjunction with streaming video. We
      believe that we deliver the highest quality video stream for any given Internet
      bandwidth utilized.





-5-


***Adaptability*** **-** We
      believe that we can develop custom applications to meet the requirements of
      a
      variety of application segments and integrate feature sets core to each of
      these
      platforms delivering comprehensive turnkey solutions for a variety of mobile
      applications.





***Compatibility*** **-** We **** believe
      that we have a technological infrastructure that is compatible with nearly
      all
      data network configurations, Wi-Fi data networks, and a significant number
      of
      handset models. We believe that our key technological strengths
      include:





***High-Quality
      Picture and Sound*** **-** We
      believe our programming provides customers with high quality video for a given
      bandwidth. We believe that our live linear video feed compares favorably to
      download-and-play technology, without the extended wait time for the download
      to
      complete. This reduced wait time and high quality provide a significant
      competitive advantage. We believe that quality is a key differentiation between
      our service and all competing services.





***Access
      to Global Media Companies*** **-** We
      formed a Board of Advisors in 2004, whose primary role is to advise us on the
      development of relationships with global media companies. Our Board of Advisors
      consists of leading current and past executives from media production and
      distribution companies .





**The
      Board of Advisors**





***Herman
      Rush*** ** -
      Former
      Chairman and Chief Executive Officer of Coca-Cola Telecommunications, former
      Chief Executive Officer of Columbia Picture Television Group, Executive Producer
      of the Montel Williams Show for seven years. Mr. Rush is a past Governor of
      the
      Board of Governors of the Television Academy of Arts and Sciences.




***Joseph
      Indelli*** - Former
      President of MTM (Mary Tyler More) Television Distribution Group, former
      President of Columbia Pictures TV Distribution, and former Senior Vice President
      of Metromedia Producers Corp.




***Peter
      Sealey*** ** -
      Founder
      and Chief Executive Officer of Los Altos Group. He spent 21 years at The
      Coca-Cola Company holding a variety of key positions including Chief Marketing
      Officer. Mr. Sealey has served as a management consultant to leading firms
      including Sony New Technologies, Anheuser-Busch, Visa U.S.A., UPS, Johnson
&
Johnson, Hewlett-Packard, Eastman Kodak and Nokia.




***James
      Rosenfield*** ** -
      Owner/President of JHR & Associates. He is the former Managing Director at
      Veronis Suhler & Associates Investment **** Bankers,
      past Chairman and Chief Executive Officer of John Blair Communications, and
      has
      held various senior management positions at CBS.




***Frederick
      Pierce*** ** -
      Former
      President of **** the
      American Broadcasting Companies including the acquisition, operation and
      creation of ESPN, Lifetime and Arts & Entertainment Networks. Mr. Pierce
      also served as President of ABC Television and Executive Vice President and
      President of ABC, Inc. He has also served on the board of directors of Capital
      Cities/ABC Inc.




***Robert
      L. Friedman*** ** -
      Former
      President of AMC Theatres Entertainment International. Prior to AMC, Mr.
      Friedman was President of Columbia Pictures Distribution and was also associated
      for 20 years in various executive positions at United Artists Corporation,
      including Executive Vice President of Distribution and Marketing.





***James
      D. Tate*** **-** Mr. Tate
      is a well known business and civic leader in South Florida and is Co-owner
      and
      CEO of Bongo Apparel and TKO Apparel, Co-owner of Tate Realty and Co-owner
      and
      President of Tate Development Corp. He has served on numerous boards both past
      and present and has received numerous prestigious business and civic
      awards.





***Robert
      Rubin*** ** -
      Mr.
      Rubin is CEO of Topp Group, Inc., a holding company that has created several
      wireless telecommunications business. He is also a managing partner of Apex
      Capital Corp. Mr. Rubin is the former President and founder of Litestream
      Technologies, a joint venture between Rubin and TECO Energy, former President
      of
      Strategic Technologies, a subsidiary of Lennar Corp., both NYSE companies,
      and
      former President and member of the Board of Directors of Peoples Telephone
      Company. Mr. Rubin is also a CPA and an attorney having specialized in M&A
      and securities transactions.





-6-


**Product
      Offerings**




Our
      principal business is characterized by the following product
      offerings:




***Mobile
      Video Hosting Services*** **-** The
      Company has developed one of the leading Mobile Content Delivery Networks (CDNs)
      in the digital media delivery services industry. We believe that no other CDN
      can match our performance in delivering high quality digital media over wireless
      networks. The Company's mobile hosting and streaming solutions enable the
      distribution of content to mobile users on any carrier network and to multiple
      types of compatible devices. In addition to providing content management,
      encoding, hosting, streaming and reporting services for Live, Simulated Live
      or
      Video on Demand (VoD), we also provide the following value added
      services:


·
              Multiple
                  Billing Services - includes credit card, carrier direct bill and
                  carrier
                  pSMS·
              Advertising
                  Support - includes ad serving in streams, support of integration
                  with
                  mobile networks·
              Client
                  Application Development - standard and custom application
                  support·
              Content
                  Services - The Company can sub-license to customers unique and
                  compelling
                  content packages




***Mobile
      Marketing Solutions*** **-** The
      Company provides a complete suite of mobile marketing services which includes
      a
      Short Message Services (SMS) platform. At the core of our offering is the SMS
      Campaign Management Platform (CMP) which enables the Company to build and deploy
      a myriad of custom SMS applications rapidly to meet customer requirements.
      Our
      SMS platform is robust, easy to use and provides our messaging customers with
      an
“in-house” campaign manager to create promotions and messaging.




***Mobilecasting*** **-** The
      Company is in the process of developing and intends to market an innovative
      interactive mobile platform for the next generation of digital radio.
      We plan to combine innovative ground-breaking technology with content
      to create an interactive radio service for mobile data devices. The Company
      believes that this product will help revolutionize the radio industry, bringing
      what we believe to be some of the best terrestrial radio content combined with
      advanced mobile application features to wireless users.





More
      specifically, one of the applications, uVuRadioTM, which is currently in BETA
      testing in certain markets is an interactive digital media solution that
      integrates local and syndicated terrestrial and Internet radio programming
      with
      IP communications and the rich media capabilities of mobile devices, delivering
      an exciting user experience that we believe will extend radio far beyond
      broadcast audio into a fully mobile and interactive multi-media experience.
      For
      example, the application unites the mobile community through the use of IM
      and
      chat, and allows for two way communication between talent and the listener
      for
      polling and instant feedback. Using this technology, uVuRadioTM users will
      also be able to use a “buy” button from inside the application to perform
      m-commerce transactions through carriers and other sales channels.





***Mobile
      Media Solutions*** **-** The
      Company provides a comprehensive turnkey solution for a variety of mobile
      applications delivering client and browser based applications across all major
      mobile platforms which include J2ME, BREW, Windows Mobile, Palm and WAP/xHTML.
      The Company can develop applications to meet the requirements of a variety
      of
      application segments and integrate feature sets core to each of these segments
      including:


·
                Multimedia**-**pictures, music movies, interactive text messaging,
                      etc.·
                Commerce**-**mobile shopping, location based services, cross-promotional
                      marketing,
                      etc.·
                Communications**-**mobile IM, mobile e-mail
                      etc.


***smarTVideoTM
      Mobile TV*** **-** The
      Company provides its customers with access to high-quality streaming video
      programming that is transmitted directly to its customers' Microsoft Windows
      O/S, Symbian O/S J2ME, and Palm wireless handsets and to Wi-Fi enabled PDA
      devices.





**Subscription
      Figures**




As
      of
      December 31, 2006, the Company had approximately 5,100 subscribers for all
      of
      its smartTVideoTM mobile TV subscription packages. In addition, the Company had
      approximately 40,000 subscribers with 10 wireless carriers utilizing the Vibe
      and Spin applications which are included in the Company's mobile video hosting
      services.




-7-


**Competition**




The
      mobile entertainment industry is early in its development cycle, with each
      competitor offering distinctive services and distinctive business models. Our
      competition includes companies that offer video, audio, interactive programming,
      telephony, data and other entertainment services, including cable television,
      wireless companies, Direct-to-Home (DTH) companies, Regional Bell Operating
      Companies (RBOCs) and companies that are developing new technologies. Many
      of
      our competitors have access to substantially greater financial and marketing
      resources than we have. However, we believe that the quality and variety of
      video, audio, interactive programming, access to service, customer service
      and
      price are the key elements for gaining and maintaining market
      share.




***Wireless
      Carriers*** **-** We
      face substantial competition in the mobile video industry from cellular
      telephone companies. Most cellular carriers have a large, established customer
      base, and many have significant investments in companies that provide
      programming content. It is unclear whether a carrier developed and deployed
      product will be a long-term player in this market, or whether the carrier will
      co-brand and adopt the services of a content aggregator who provides a high
      value-added service and delivery infrastructure.




***Content
      Aggregators*** **-** We
      encounter competition in the mobile video industry from third-party content
      aggregators. These content aggregators perform services similar to us. However,
      such companies presently do not deliver the high-quality video image that we
      do
      on 2.5g cellular networks.





**Governmental
      Regulation**




At
      this
      time, our service is not subject to any governmental regulation; however, in
      the
      future, we may be subject to U.S. government regulation, primarily by the FCC
      and, to a certain extent, by Congress, other federal agencies, state and local
      authorities and the International Telecommunications Union (ITU), a specialized
      agency of the United Nations within which governments and the private sector
      coordinate global telecommunications networks and services. Depending upon
      the
      circumstances, noncompliance with legislation or regulations promulgated by
      these entities could result in the suspension or revocation of our licenses
      or
      registrations, the termination or loss of contracts or the imposition of
      contractual damages, civil fines or criminal penalties.




**Employees**




As
      of
      March 8, 2007, we had 20 full time employees. We believe that our employee
      relations are good. None of our employees are represented by labor
      unions.





**Segment
      Reporting**




The
      Company has been operated and evaluated by management as a single operations
      segment in accordance with the provisions of Statement of Financial Accounting
      Standards (“SFAS”) No. 131 - “Disclosures about Segments of an Enterprise and
      Related Information.”





**Seasonality
      and Backlog**




Our
      business is not subject to significant seasonal fluctuations. There are no
      material backlogs in our business.





**Recent
      Developments**





In
      January 2007, the Company announced its intent to seek stockholder approval
      to
      change the name of the Company to uVumobile, Inc. to better reflect the
      corporate brand and new products. More specifically, the Company is developing
      a
      new suite of products and platforms, which are expected to include backend
      media
      hosting, application development, mobile marketing, messaging, content
      aggregation, billing, advertising and other services directed towards the mobile
      business-to-business market. On February 14, 2007, the Company initiated this
      process by distributing a consent solicitation statement to its stockholders
      seeking consent to amend its Certificate of Incorporation to effect the name
      change.





On
      February 28, 2007, our Board of Directors determined that it would be advisable
      to retain a financial advisor to assist the Company in evaluating various
      strategic alternatives, including recapitalization, sale of stock, merger or
      asset disposition possibilities, all with the goal of maximizing stockholder
      value. On March 21, 2007, after reviewing several candidates, the Board of
      Directors of the Company unanimously approved the engagement of Daniels &
Associates as the Company's exclusive investment banker, financial advisor,
      and
      Consultant for these purposes.





On
      March
      9, 2007, we commenced an Offer to Amend and Exchange certain of our outstanding
      warrants. The offer provides holders of certain warrants the opportunity to
      amend and exercise any or all of their warrants for a significantly reduced
      exercise price by either paying the exercise price in cash or by tendering
      a
      specified number of warrants for each share of common stock being purchased.
      Unless extended, the offer expires at midnight, Eastern Time, on April 6,
      2007.





-8-


**Item
      1A.**  **Risk
      Factors**





*You
      should carefully consider the risks described below before making an investment
      decision. The risks described below are not the only ones facing our company.
      Additional risks not presently known to us or that we currently believe are
      immaterial may also impair our business operations. Our business could be harmed
      by any of these risks. The trading price of our common stock could decline
      due
      to any of these risks and you may lose all or part of your investment. In
      assessing these risks, you should also refer to the other information contained
      in this report, including our consolidated financial statements and related
      notes.*





**Our
      independent auditor’s report contained a going concern qualifier and we continue
      to experience losses from operations.**





The
      report of our independent registered public accounting firm for the fiscal
      year
      ended December 31, 2006, contains an explanatory paragraph which states that
      we
      have suffered recurring losses from operations and a working capital deficiency
      that raise substantial doubt about our ability to continue as a going concern.
      We have incurred substantial net losses of $6,792,930, $19,740,274 and
      $24,488,876 for the years ended December 31, 2004, 2005 and 2006,
      respectively.





At
      December 31, 2006, we had an accumulated deficit of $64,442,632, a working
      capital deficit of $5,154,106, a loss from operations of $24,748,391 and cash
      flows used in operations of $11,077,782. Our ability to continue our operations
      is contingent upon obtaining additional financing and attaining profitable
      operations.





We
      used
      the proceeds received from private placements conducted in March, November
      and
      December 2005, and July 2006 for the acquisition of programming rights,
      marketing and sales initiatives, and further improvements to our technology,
      as
      well as to increase staffing levels to support these marketing and technology
      efforts, all of which will adversely affect operating results until revenues
      from sales of our services reach a level at which operating costs can be
      supported. In our efforts to strengthen our marketing and sales initiatives
      of
      the distribution of our services, it is critical that we obtain distribution
      partners in order to begin generating revenues.





Cash
      flows generated from operating activities during the twelve months ended
      December 31, 2006 were not sufficient to offset our operating expenditures.
      Based on the information currently available regarding our proposed plans and
      assumptions relating to operations, we anticipate that the net proceeds from
      our
      last financing in 2006, together with projected cash flow from operations,
      will
      not be sufficient to meet our cash requirements for working capital and capital
      expenditures beyond the second quarter of 2007. As a result, it will be
      necessary for us to secure additional financing to support our operations.
      There
      can be no assurance that we will be able to obtain such financing on acceptable
      terms, or at all. If adequate funds are not available or not available on
      acceptable terms, the Company will be unable to continue as a going concern.
      We
      currently have no firm commitments for any additional capital.





-9-





**We
      have a limited operating history and insufficient revenue to generate positive
      cash flows from our operations.**





We
      formally launched our Internet based products and services in 2003. To date,
      we
      have earned only minimal revenue from these services and the revenue is
      presently insufficient to generate positive cash flows from our operations.
      Additionally, the income potential of our business and from our markets is
      unproven. Because of the emerging nature of the mobile entertainment industry,
      our executives have limited experience in it. As a young company operating
      in an
      emerging market, we face risks and uncertainties relating to our ability to
      implement our business plan successfully. Our future revenues and success depend
      significantly upon acceptance of our mobile entertainment services and the
      mobile entertainment industry as a whole. Our future revenues and success also
      depend on the development of revenue growth from our services. Our ability
      to
      successfully introduce new services and the expected benefits to be obtained
      from these new services may be adversely affected by a number of factors, such
      as unforeseen costs and expenses, technological changes, economic downturns,
      and
      competitive factors or other events beyond our control. We incurred
      operating losses in fiscal 2006, expect to do so in fiscal 2007 and cannot
      be assured that we will successfully market any services, or operate profitably
      in the future.





**Our
      quarterly financial results will continue to fluctuate making it difficult
      to
      forecast our operating results.**




Our
      quarterly operating results have fluctuated in the past and we expect our
      revenues and operating results may vary significantly from quarter-to-quarter
      due to a number of factors, many of which are beyond our control,
      including:




·
            variability
                in demand and usage for our product and
                services;




·
            market
                acceptance of new and existing services offered by us, our competitors
                and
                potential competitors; and




·
            governmental
                regulations affecting the use of the Internet, including regulations
                concerning intellectual property rights and security
                features.




Our
      current and future levels of expenditures are based primarily on our growth
      plans and estimates of expected future revenues. Such expenditures are primarily
      fixed in the short-term and our sales cycle can be lengthy. Accordingly, we
      may
      not be able to adjust spending or generate new revenue sources timely to
      compensate for any shortfall in revenues. If our operating results fall below
      the expectation of investors, our stock price will likely decline significantly.
      In addition, potential fluctuations in our operating results could lead to
      fluctuations in the market price for our common stock.




**Since
      we expect to continue incurring net losses, we may not be able to implement
      our
      business strategy and the price of our stock may decline.**




As
      of
      December 31, 2006, we had an accumulated deficit of $64,442,632. We have
      incurred net losses quarterly from inception through December 31, 2006, and
      we
      expect to continue to incur net losses for the foreseeable future.




Accordingly,
      our ability to operate our business and implement our business strategy may
      be
      hampered by negative cash flows in the future, and the value of our stock may
      decline as a result. Our capital requirements may vary materially from those
      currently planned if, for example, we incur unforeseen capital expenditures
      or
      unforeseen operating expenses or make investments to maintain our competitive
      position. If this is the case, we may have to delay or abandon some or all
      of
      our development plans or otherwise forego market opportunities. We will need
      to
      generate significant additional revenues to be profitable in the future and
      we
      may not generate sufficient revenues to be profitable on either a quarterly
      or
      annual basis in the future. To address the risks and uncertainties facing our
      business strategy, we must, among other things:




-10-




·
            achieve
                broad customer adoption and acceptance of our products and
                services;




·
            successfully
                raise additional capital in the
                future;




·
            successfully
                integrate, leverage and expand our sales
                force;




·
            successfully
                scale our current operations;




·
            implement
                and execute our business and marketing
                strategies;




·
            address
                intellectual property rights issues that affect our
                business;




·
            develop
                and maintain strategic relationships to enhance the development and
                marketing of our existing and new products and services;
                and




·
            respond
                to competitive developments in the mobile entertainment services
                industry.




We
      may
      not be successful in achieving any or all of these business objectives in a
      cost-effective manner, if at all, and the failure to achieve these could have
      a
      serious adverse impact on our business, results of operations and financial
      position. Each of these objectives may require significant additional
      expenditures on our part. Even if we ultimately do achieve profitability, we
      may
      not be able to sustain or increase profitability on a quarterly or annual
      basis.





**Our
      failure to respond to rapid changes in technology and its applications and
      intense competition in the mobile entertainment services industry products
      could
      make our services obsolete.**




The
      mobile entertainment services industry is subject to rapid and substantial
      technological development and product innovations. To be successful, we must
      respond to new developments in technology, new applications of existing
      technology and new treatment methods. Our response may be stymied if we require,
      but cannot secure, rights to essential third-party intellectual property. We
      compete against numerous companies offering alternative systems to ours, some
      of
      which have greater financial, marketing and technical resources to utilize
      in
      pursuing technological development. Our financial condition and operating
      results could be adversely affected if our mobile entertainment services fail
      to
      compete favorably with these technological developments, or if we fail to be
      responsive in a timely and effective manner to competitors’ new services or
      price strategies.




**Our
      success is dependent on the performance and retention of our executive officers,
      consultants and key employees.**





Our
      business and operations are substantially dependent on the performance of our
      executive officers and key employees, including David Ross, William Loughman,
      Tony Novia, Tom Parrish, Scott Hughes and Ronald A. Warren, all of whom have
      worked together for only a relatively short period of time. We do not maintain
      “key person” life insurance on any of our executive officers. The loss of one or
      several executives could seriously harm our business. Any reorganization or
      reduction in the size of our employee base could harm our ability to attract
      and
      retain other valuable employees critical to the success of our
      business.




**Our
      mobile entertainment services and any of our future services may fail to gain
      market acceptance, which would adversely affect our competitive
      position.**




We
      have
      not conducted any independent studies with regard to the feasibility of our
      proposed business plan, present and future business prospects and capital
      requirements. We have generated limited commercial distribution for our mobile
      entertainment services. Our services may fail to gain market acceptance and
      our
      infrastructure to enable such expansion is still limited. Even if adequate
      financing is available and our services are ready for market, we cannot be
      certain that our services will find sufficient acceptance in the marketplace
      to
      fulfill our long and short-term goals. Failure of our services to achieve market
      acceptance would have a material adverse effect on our business, financial
      condition and results of operations.




-11-





**We
      depend on a limited number of customers and distribution channels for a majority
      of our revenues so the loss of, or delay in payment from, one or a small number
      of customers or distribution channel partners could have a significant impact
      on
      our revenues and operating results.**




During
      2006, two of our customers accounted for approximately 8% of our revenues.
      During 2006, we experienced a shift from a business-to-business model to a
      subscription-based model reducing much of our reliance on revenues from related
      parties. We are in the process of developing relationships with distribution
      channel partners to increase the size of our customer base. We cannot
      successfully accomplish our business objectives by relying solely on our
      existing customer base. If we are unsuccessful in increasing and broadening
      our
      customer base, our ability to maintain and grow our business will
      suffer.




**Average
      selling prices of our products and services may decrease, which may harm our
      gross margins.**





The
      average selling prices of our products and services may be lower than expected
      as a result of competitive pricing pressures and promotional programs. We expect
      to experience pricing pressure and anticipate that the average selling prices
      and gross margins for our products may decrease over product life cycles. We
      may
      not be successful in developing and introducing on a timely basis new products
      with enhanced features and services that can be sold at higher gross
      margins.




**We
      may face third-party intellectual property infringement claims and other related
      claims that could severely impact our business.**




It
      may be
      alleged that we are liable to third-parties for certain legal matters relating
      to video, music, software, and other content that we encode, distribute, or
      make
      available to our customers if, among other things:




·
            the
                content or the performance of our services violates third-party copyright,
                trademark, or other intellectual property
                rights;




·
            our
                customers violate the intellectual property rights of others by providing
                content to us or by having us perform digital media services;
                or




·
            content
                that we encode or otherwise handle for our customers is deemed obscene,
                indecent, or defamatory.




Any
      alleged liability could damage our business by damaging our reputation,
      requiring us to incur legal costs in defense, exposing us to awards of damages
      and costs and diverting management’s attention, all which could have an adverse
      effect on our business, results of operations and financial condition. Our
      customers generally agree to hold us harmless from claims arising from their
      failure to have the right to encode or distribute multimedia software and other
      content given to us for that purpose. However, in some cases we may not be
      able
      to obtain such agreements or customers may contest this responsibility or not
      have sufficient resources to defend claims. In addition, we have limited
      insurance coverage for claims of this nature and may not be able to cover losses
      above our insurance coverage limits.




Because
      we host, stream and deploy audio and video content on or from our websites
      for
      customers and provide services related to digital media content, we face
      potential liability or alleged liability for negligence, infringement of
      copyright, patent, or trademark rights, defamation, indecency and other claims
      based on the nature and content of the materials. Claims of this nature have
      been brought and sometimes successfully made against content distributors.
      In
      addition, we could be exposed to liability with respect to the unauthorized
      duplication of content or unauthorized use of other parties’ proprietary
      technology. Any imposition of liability that is not covered by insurance or
      is
      in excess of insurance coverage or any alleged liability could harm our
      business.





-12-





We
      cannot
      be certain that third-parties will not claim infringement by us with respect
      to
      past, current, or future technologies. We expect that participants in our
      markets will be increasingly subject to infringement claims as the number of
      services and competitors in our industry segment grows. In addition, these
      risks
      are difficult to quantify in light of the continuously evolving nature of laws
      and regulations governing the Internet. Any claim relating to proprietary
      rights, whether meritorious or not, could be time-consuming, result in costly
      litigation, cause service upgrade delays or require us to enter into royalty
      or
      licensing agreements, and we cannot be sure that we will have adequate insurance
      coverage or that royalty or licensing agreements will be made available on
      terms
      acceptable to us or at all.





**We
      cannot be certain that we will be able to protect our intellectual property,
      which could harm our business.**




Our
      intellectual property is critical to our business, and we seek to protect our
      intellectual property through copyrights, trademarks, patents, trade secrets,
      confidentiality provisions in our customer, supplier, potential investors,
      and
      strategic relationship agreements, nondisclosure agreements with third-parties,
      and invention assignment agreements with our employees and contractors. We
      cannot be certain that measures we take to protect our intellectual property
      will be successful or that third-parties will not develop alternative solutions
      that do not infringe upon our intellectual property.




Further,
      we plan to offer our mobile entertainment services and applications to customers
      worldwide including customers in foreign countries that may offer less
      protection for our intellectual property than the United States. Our failure
      to
      protect against misappropriation of our intellectual property, or claims that
      we
      are infringing the intellectual property of third-parties could have a negative
      effect on our business, results of operations and financial
      condition.




**We
      will rely on strategic relationships to promote our services and for access
      to
      licensed technology; if we fail to develop, maintain or enhance these
      relationships, our ability to serve our customers and develop new services
      and
      applications could be harmed.**




Our
      ability to provide our services to users of multiple technologies and platforms
      depends significantly on our ability to develop, maintain or enhance our
      strategic relationships with wireless carriers, handset distributors, key
      streaming media technology companies and content providers. We will rely on
      these relationships for licensed technology and content. Obtaining comprehensive
      multimedia content licenses is challenging, as doing so may require us to obtain
      copyright licenses with various third-parties in the fragmented multimedia
      recording and publishing industries. These copyrights often address differing
      activities related to the delivery of digital media, including reproduction
      and
      performance, some of which may require separate licensing arrangements from
      various rights holders such as publishers, content providers, artists and record
      labels. The effort to obtain the necessary rights by such third-parties is
      often
      significant, and could disrupt, delay, or prevent us from executing our business
      plans. Because of the large number of potential parties from which we must
      obtain licenses, we may never be able to obtain a sufficient number of licenses
      to allow us to provide services that will meet our customers’
expectations.




Due
      to
      the evolving nature of our industry, we will need to develop additional
      relationships to adapt to changing technologies and standards and to work with
      newly emerging companies with whom we do not have pre-existing relationships.
      We
      cannot be certain that we will be successful in developing new relationships
      or
      that our partners will view these relationships as significant to their own
      business, or that our partners will continue their commitment to us in the
      future. If we are unable to maintain or enhance these relationships, we may
      have
      difficulty strengthening our technology development and increasing the adoption
      of our brand and services.




-13-





**Competition
      may decrease our market share, revenues, and gross
      margins.**




We
      face
      intense and increasing competition in the multimedia broadcast market. If we
      do
      not compete effectively or if we experience reduced market share from increased
      competition, our business will be harmed. In addition, the more successful
      we
      are in the emerging market for multimedia broadcast services, the more
      competitors are likely to emerge. We believe that the principal competitive
      factors in our market include:




·
            service
                functionality, quality and
                performance;




·
            ease
                of use, reliability and security of
                services;




·
            establishing
                a significant base of customers and distribution
                partners;




·
            ability
                to introduce new services to the market in a timely
                manner;




·
            customer
                service and support; and




·
            pricing.




Although
      we do not currently compete against any one entity with respect to all aspects
      of multimedia broadcast products and services, there are various competitors
      that provide various products and services in the following
      categories:




·
            collaboration,
                which provides for document and application sharing as well as user
                interactivity,




·
            live
                video and streaming multimedia,




·
            hosted
                services,




·
            training,
                which provides e-learning applications,
                and




·
            on-premise
                software.




There
      are
      a number of companies, such as Verizon, Sprint and MobiTV, that provide
      outsourced digital media services. As the multimedia broadcast market continues
      to develop, we expect to see increased competition from traditional
      telecommunication service providers or resellers of those services. We also
      face
      competition from the in-house encoding services, streaming networks and content
      management systems and encoding services.




All
      of
      our competitors have substantially more capital, longer operating histories,
      greater brand recognition, larger customer bases and significantly greater
      financial, technical and marketing resources than we do. These competitors
      may
      also engage in more extensive development of their technologies, adopt more
      aggressive pricing policies and establish more comprehensive marketing and
      advertising campaigns than we can. Our competitors may develop products and
      service offerings that we do not offer or that are more sophisticated or more
      cost effective than our own. For these and other reasons, our competitors’
products and services may achieve greater acceptance in the marketplace than
      our
      own, limiting our ability to gain market share and customer loyalty and to
      generate sufficient revenues to achieve a profitable level of operations. Our
      failure to adequately address any of the above factors could harm our business
      and operating results.





-14-





**Our
      industry is experiencing consolidation that may intensify
      competition.**




The
      multimedia broadcast services industries are undergoing substantial change
      that
      has resulted in increasing consolidation and a proliferation of strategic
      transactions. Many companies in these industries have been going out of business
      or are being acquired by larger entities. As a result, we are increasingly
      competing with larger competitors that have substantially greater resources
      than
      we do. We expect this consolidation and strategic partnering to continue.
      Acquisitions or strategic relationships could harm us in a number of ways.
      For
      example:




·
            competitors
                could acquire or enter into relationships with companies with which
                we
                have strategic relationships and discontinue our relationship, resulting
                in the loss of distribution opportunities for our products and services
                or
                the loss of certain enhancements or value-added features to our products
                and services;




·
            competitors
                could obtain exclusive access to desirable multimedia content and
                prevent
                that content from being available in certain formats, thus decreasing
                the
                use of our products and services to distribute and experience the
                content
                that audiences most desire, and hurting our ability to attract
                customers;




·
            a
                competitor could be acquired by a party with significant resources
                and
                experience that could increase the ability of the competitor to compete
                with our products and services; and




·
            other
                companies with related interests could combine to form new, formidable
                competition, which could preclude us from obtaining access to certain
                markets or content, or which could dramatically change the market
                for our
                products and services.




Any
      of
      these results could put us at a competitive disadvantage that could cause us
      to
      lose customers, revenue and market share. They could also force us to expend
      greater resources to meet the competitive threat, which could also harm our
      operating results.




**If
      we fail to enhance our existing services and product applications or develop
      and
      introduce new multimedia broadcast services, applications and features in a
      timely manner to meet changing customer requirements and emerging industry
      trends or standards, our ability to grow our business will
      suffer.**




The
      market for multimedia broadcast service solutions is characterized by rapidly
      changing technologies and short product life cycles. These market
      characteristics are heightened by the emerging nature of the Internet and the
      continuing trend of companies from many industries to offer Internet-based
      applications and services. The widespread adoption of the new Internet,
      networking, streaming media, or telecommunications technologies or other
      technological changes could require us to incur substantial expenditures to
      modify or adapt our operating practices or infrastructure. Our future success
      will depend in large part upon our ability to:




·
            identify
                and respond to emerging technological trends in the
                market;




·
            enhance
                our products by adding innovative features that differentiate our
                digital
                media services and applications from those of our
                competitors;




·
            acquire
                and license leading technologies;




·
            bring
                multimedia broadcast services and applications to market and scale
                our
                business on a timely basis at competitive prices;
                and




·
            respond
                effectively to new technological changes or new product announcements
                by
                others.




-15-





We
      will not be competitive unless we continually introduce new services and
      applications or enhancements to existing services and applications that meet
      evolving industry standards and customer needs. In the future, we may not be
      able to address effectively the compatibility and operability issues that arise
      as a result of technological changes and evolving industry standards. The
      technical innovations required for us to remain competitive are inherently
      complex, require long development schedules and are dependent in some cases
      on
      sole source suppliers. We will be required to continue to invest in research
      and
      development in order to attempt to maintain and enhance our existing
      technologies and products, but we may not have the funds available to do so.
      Even if we have sufficient funds, these investments may not serve the needs
      of
      customers or be compatible with changing technological requirements or
      standards. Most development expenses must be incurred before the technical
      feasibility or commercial viability of new or enhanced services and applications
      can be ascertained. Revenue from future services and applications or
      enhancements to services and applications may not be sufficient to recover
      the
      associated development costs.




**The
      technology underlying our services and applications is complex and may contain
      unknown defects that could harm our reputation, result in product liability
      or
      decrease market acceptance of our services and
      applications.**




The
      technology underlying our multimedia broadcast services and applications is
      complex and includes software that is internally developed and software licensed
      from third-parties. These software products may contain errors or defects,
      particularly when first introduced or when new versions or enhancements are
      released. We may not discover software defects that affect our current or new
      services and applications or enhancements until after they are sold.
      Furthermore, because our digital media services are designed to work in
      conjunction with various platforms and applications, we are susceptible to
      errors or defects in third-party applications that can result in a lower quality
      product for our customers. Because our customers depend on us for digital media
      management, any interruptions could:




·
            damage
                our reputation;




·
            cause
                our customers to initiate product liability suits against
                us;




·
            decrease
                our product development resources;




·
            cause
                us to lose revenues; and




·
            delay
                market acceptance of our digital media services and
                applications.




**Our
      business will suffer if our systems fail or our third-party facilities become
      unavailable.**




A
      reduction in the performance, reliability and availability of our systems and
      network infrastructure may harm our ability to distribute our products and
      services to our customers and other users, as well as harm our reputation and
      ability to attract and retain customers and content providers. Our systems
      and
      operations are susceptible to, and could be damaged or interrupted by, outages
      caused by fire, flood, power loss, telecommunications failure, Internet
      breakdown, earthquake and similar events. We may not have any redundancy in
      our
      Internet multimedia broadcasting facilities and therefore any damage or
      destruction to these would significantly harm our multimedia broadcasting
      business. Our systems are also subject to human error, security breaches, power
      losses, computer viruses, break-ins, “denial of service” attacks, sabotage,
      intentional acts of vandalism and tampering designed to disrupt our computer
      systems, Websites and network communications. This could lead to slower response
      times or system failures.





Our
      operations also depend on receipt of timely feeds from our content providers,
      and any failure or delay in the transmission or receipt of such feeds could
      disrupt our operations. We also depend on Web browsers, ISPs and online service
      providers to provide access over the Internet to our product and service
      offerings. Many of these providers have experienced significant outages or
      interruptions in the past, and could experience outages, delays and other
      difficulties due to system failures unrelated to our systems. These types of
      interruptions could continue or increase in the future.




-16-





Our
      digital distribution activities are managed by sophisticated software and
      computer systems. We must continually develop and update these systems over
      time
      as our business and business needs grow and change, these systems may not
      adequately reflect the current needs of our business. We may encounter delays
      in
      developing these systems, and the systems may contain undetected errors that
      could cause system failures. Any system error or failure that causes
      interruption in availability of products or content or an increase in response
      time could result in a loss of potential or existing business services,
      customers, users, advertisers or content providers. If we suffer sustained
      or
      repeated interruptions, our products, services and Websites could be less
      attractive to such entities or individuals and our business could be
      harmed.




Significant
      portions of our business are dependent on providing customers with efficient
      and
      reliable services to enable customers to broadcast content to large audiences
      on
      a live or on-demand basis. Our operations are dependent in part upon
      transmission capacity provided by third-party telecommunications network
      providers. Any failure of such network providers to provide the capacity we
      require may result in a reduction in, or interruption of, service to our
      customers. If we do not have access to third-party transmission capacity, we
      could lose customers and, if we are unable to obtain such capacity on terms
      commercially acceptable to us our business and operating results could
      suffer.





Our
      computer and communications infrastructure is located at a single leased
      facility in Atlanta, Georgia. We do not have fully redundant systems, and we
      may
      not have adequate business interruption insurance to compensate us for losses
      that may occur from a system outage. Despite our efforts, our network
      infrastructure and systems could be subject to service interruptions or damage
      and any resulting interruption of services could harm our business, operating
      results and reputation.




**Government
      regulation could adversely affect our business prospects.**




We
      do not
      know with certainty how existing laws governing issues such as property
      ownership, copyright and other intellectual property issues, taxation, illegal
      or obscene content, and retransmission of media, personal privacy and data
      protection will apply to the Internet or to the distribution of multimedia
      and
      other proprietary content over the Internet. Most of these laws were adopted
      before the advent of the Internet and related technologies and therefore do
      not
      address the unique issues associated with the Internet and related technologies.
      Depending on how these laws are developed and are interpreted by the judicial
      system, they could have the effect of:




·
            increasing
                our costs due to new or changes in tax
                legislation;




·
            limiting
                the growth of the Internet;




·
            creating
                uncertainty in the marketplace that could reduce demand for our products
                and services;




·
            limiting
                our access to new markets which may include countries and technology
                platforms;




·
            increasing
                our cost of doing business;





·
            exposing
                us to significant liabilities associated with content distributed
                or
                accessed through our products or services;
                or




·
            leading
                to increased product and applications development costs, or otherwise
                harming our business.




Specifically
      with respect to one aspect of copyright law, on October 28, 1998, the Digital
      Millennium Copyright Act (or “DMCA”) was enacted. The DMCA includes statutory
      licenses for the performance of sound recordings and for the making of
      recordings to facilitate transmissions. Under these statutory licenses,
      depending on our future business activities, we and our customers may be
      required to pay licensing fees in connection with digital sound recordings
      we
      deliver or our customers provide on their Website and through retransmissions
      of
      radio broadcasts and/or other audio content.





-17-


Because
      of this rapidly evolving and uncertain regulatory environment, both domestically
      and internationally, we cannot predict how existing or proposed laws and
      regulations might affect our business. In addition, these uncertainties make
      it
      difficult to ensure compliance with the laws and regulations governing digital
      music. These laws and regulations could harm us by subjecting us to liability
      or
      forcing us to change our business.





**Our
      stock price has been and continues to be volatile.**




The
      market price for our common stock could fluctuate due to various factors. These
      factors include:




·
            announcements
                regarding developments in our business, acquisitions and financing
                transactions;




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




·
            changes
                in government regulations;




·
            fluctuations
                in our quarterly and annual operating results;
                and




·
            general
                market conditions.




In
      addition, the stock markets have, in recent years, experienced significant
      price
      fluctuations. These fluctuations often have been unrelated to the operating
      performance of the specific companies whose stock is traded. Market
      fluctuations, as well as economic conditions, have adversely affected, and
      may
      continue to adversely affect, the market price of our common stock.




**We
      need to raise additional capital in the future, and if we are unable to secure
      adequate funds on terms acceptable to us, we will be unable to execute our
      business plan and current stockholders may experience significant
      dilution** .




As
      of
      December 31, 2006, we had approximately $3,696,000 in cash. We anticipate,
      based upon our proposed plans and assumptions relating to operations that the
      net proceeds of approximately $9 million from the closing of our most
      recent financing in July 2006, together with revenues generated from operations,
      will not be sufficient to meet our cash requirements for working capital and
      capital expenditures beyond the second quarter of 2007. There can be no
      assurance that we will be able to obtain additional financing on acceptable
      terms, or at all. If adequate funds are not available or are not available
      on
      acceptable terms, we may not be able to pursue our business objectives or remain
      in operation. This could seriously harm our business, results of operations
      and
      financial condition.




If
      we do
      not secure substantial additional funding to meet our capital needs through
      the
      incurrence of debt, we may have to issue additional shares of common stock
      or
      other securities convertible into shares of our common stock. If additional
      funds are raised through the issuance of equity or convertible debt securities,
      the percentage ownership of our current stockholders will be reduced and these
      securities may have rights and preferences superior to that of our current
      stockholders. If we raise capital through debt financing, we may be forced
      to
      accept restrictions affecting our liquidity, including restrictions on our
      ability to incur additional indebtedness or pay dividends.





**Item
      1B.**  **Unresolved
      Staff Comments**





Not
      applicable.




-18-





**Item
      2.**  **Properties**





We
      currently sub-lease approximately 25,000 square feet of office space at 3505
      Koger Boulevard, Suite 400, Duluth, GA 30096. The office space currently serves
      as our corporate headquarters located in Duluth, Georgia. We pay rent of
      approximately $23,000 per month on a two year sub-lease which was entered into
      in May 2005 and expires on August 31, 2007.





**Item
      3.  Legal Proceedings**





From
      time-to-time, we are a party to claims and legal proceedings arising in the
      ordinary course of business. Our management evaluates our exposure to these
      claims and proceedings individually and in the aggregate and allocates
      additional monies for potential losses on such litigation if it is possible
      to
      estimate the amount of loss and if the amount of the loss is
      probable.





On
      or
      about April 6, 2004, Rene Hamouth filed a Writ of Summons in the Supreme Court
      of British Columbia (Case No. SO41955) against us, our Chief Executive Officer
      and director, Richard E. Bennett, Jr. and our securities counsel, Edwards &
Angell, LLP, a predecessor to Edwards Angell Palmer & Dodge LLP, seeking an
      unspecified amount of damages and costs for alleged libel of Mr. Hamouth
      resulting from two letters to his stockbroker, First Associates Investments,
      Inc. We and the other defendants have made an appearance in the court through
      respective legal counsel. On June 29, 2004, Mr. Hamouth filed an Amended
      Statement of Claim with the court. On November 19, 2004, the Court of Appeal
      for
      British Columbia granted Edwards Angell Palmer & Dodge LLP the right to
      appeal a chambers judge's decision that the alleged libelous correspondence
      in
      question is covered by absolute privilege and granted a stay of the proceeding
      pending the outcome of the appeal. The appeal was heard in February 2005. On
      March 30, 2005, the court granted the appeal and dismissed the claim against
      Edwards Angell Palmer & Dodge LLP. Since the court's entry of judgment in
      the appeal and to our knowledge, Mr. Hamouth has taken no further steps to
      pursue his claims against us or Mr. Bennett. We intend to vigorously defend
      any
      further actions taken by Mr. Hamouth in this matter.





On
      or
      about April 22, 2004, we filed a complaint in the United States District Court,
      Northern District of Georgia (Case No. 1:04-CV-1123) against Rene Hamouth,
      seeking the recovery of all profits realized by Mr. Hamouth resulting from
      his
      alleged violations of Section 16(b) of the Securities Exchange Act of 1934
      (the
“Exchange Act”) relating to his purchases and sales of our common stock since
      approximately January 1, 2003. We are seeking damages in the amount of at least
      $151,428, interest on the amount of profits recovered and all other general
      and
      equitable relief to which we may be entitled. Since filing the complaint and
      serving Mr. Hamouth, Mr. Hamouth has filed an answer. The court has entered
      a
      scheduling order, approving the Joint Preliminary Planning Report and Discovery
      Plan. On March 16, 2005, we received notice that Mr. Hamouth's attorney in
      this
      matter has withdrawn from the case. On April 15, 2005, we filed a motion for
      summary judgment on this matter. The motion was unopposed. On October 5, 2005,
      the Court granted our motion and executed a judgment for us in the amount of
      $172,342.




On
      July
      5, 2004, the Company entered into a distribution agreement with Open Systems,
      Ltd. Certain issues arose regarding the terms of the agreement and the parties
      mutually agreed to terminate the contract. The parties have
      been engaged in the process of ending the relationship pursuant to the
      terms and conditions of a settlement agreement, which is anticipated to provide
      for a release of all actual or potential claims against the Company, its
      officers and directors. At December 31, 2006, there were no related
      accrued contingency losses .





On
      March
      9, 2005, SmartVideo Europe, Ltd., or SVEL, which is not an affiliate of ours,
      announced its intention to bring legal action in the form of a
      mediation/arbitration against us in regard to our alleged repudiation and breach
      of a distribution agreement between the parties, dated April 2, 2004, which
      involved certain rights to distribute certain of our products. The dispute
      includes claims of SVEL that we had anticipatorily breached our agreement with
      SVEL, thus allegedly inhibiting the development of SVEL's business utilizing
      our
      technology on an exclusive basis in 25 countries throughout the European Union.
      We contend that we had the right to terminate the agreement because of breaches
      by SVEL. On or about December 13, 2006, SVEL filed its Statement of Claim with
      the American Arbitration Association. The Company filed its response to the
      Statement of Claim on or about January 22, 2007. We intend to defend against
      the
      claim vigorously, although there can be no assurances that we will be
      successful.





-19-


On
      November 29, 2005, ProNetworkTV, Inc. filed a Complaint for Equitable Relief
      in
      the Superior County Court of Gwinnett County, State of Georgia, (Civil Action
      Number 05-A-13684-2) against OVT, Inc. seeking the recovery of late fees in
      the
      amount of $100,614 alleged to be owed pursuant to a Promissory Note executed
      by
      OVT, Inc. in favor of ProNetworkTV, Inc. in the principal amount of $325,000.
      ProNetworkTV, Inc. alleges that OVT, Inc. failed to make payments when due
      under
      the Promissory Note. As a result of the alleged failure to makes such payments,
      ProNetworkTV, Inc. alleges that late fees accrued under the Promissory Note.
      On
      March 26, 2006, the Company filed a Motion to Dismiss with the Court. On May
      8,
      2006, the Company's Motion to Dismiss was granted. On September 11, 2006,
      ProNetworkTV, Inc. filed a Complaint against the Company and OVT, Inc. in the
      Superior Court of Gwinnett County, State of Georgia (Civil Action Number
      06A-08430-5) seeking recovery of the same late fees referenced above, but this
      time in the amount of $105,261.54, which is alleged to be owed pursuant to
      the
      same Promissory Note referenced above. Further, the Complaint seeks a
      declaratory judgment that ProNetworkTV, Inc. is the owner of certain technology
      belonging to the Company, which is the subject of a services agreement between
      the parties. The Complaint also alleges that ProNetworkTV, Inc. is entitled
      to
      monetary damages arising out of the Company's alleged breach of the services
      agreement. On September 15, 2006, the Company reached a settlement agreement
      with ProNetworkTV, Inc. relating to this and certain other unrelated matters.
      Pursuant to the terms of the settlement agreement, both parties agreed, among
      other things, to provide mutual general releases of any existing alleged claims
      either party may have had as of the date of the settlement agreement, including,
      but not limited to, any claims relating to the promissory note that was the
      subject of this lawsuit. After reaching the September 15, 2006 agreement
      referenced above, ProNetworkTV, Inc. took the position that a “final” agreement
      had not, in fact, been reached. Currently, the parties are proceeding as they
      were prior to reaching the September 15, 2006 settlement agreement. The Company
      intends to defend against the claims vigorously, although there can be no
      assurances that the Company will be successful.




On
      January 19, 2006, the Company received a letter on behalf of Mantra Films,
      Inc.
      demanding that the Company pay cash damages of $791,244 as a result of the
      Company's alleged breach of certain guarantee obligations under an agreement
      between Cell Phone Entertainment, LLC, Mantra Films, Inc. and the Company (as
      Guarantor), dated September 30, 2004. Mantra Films, Inc. alleges that Cell
      Phone
      Entertainment, LLC and the Company failed to make certain guaranteed minimum
      license payments due under the agreement. As a result of the alleged failure
      to
      make such minimum payments, Mantra Films, Inc. terminated the agreement. The
      $791,244 demand represents the entire contract amount, including both past
      due
      payments and future guaranteed license fees, totaling minimum payments due
      pursuant to the agreement of $900,000, which amount has been reduced by payments
      made and certain prepaid insurance premiums in the amount of $108,756. On June
      12, 2006, Mantra Films, Inc. filed suit against Cell Phone Entertainment, LLC
      and the Company in the Superior Court for the State of California, County of
      Los
      Angeles (Civil Action File NO. SC090022). Mantra Films, Inc.'s Complaint sets
      forth the same basic facts discussed above, as well as certain additional facts
      regarding the alleged failure of the Company to return certain property to
      Mantra Films, Inc. In its Complaint, Mantra Films, Inc. has asserted claims
      for
      breach of contract, conversion, unjust enrichment, specific recovery of personal
      property accounting and interference with prospective economic advantage. The
      Complaint seeks damages in the amount discussed above, in addition to certain
      unspecified damages to be proven at trial. On October 5, 2006, the Company
      filed
      a Motion to Compel Arbitration. A hearing on the Motion took place on December
      27, 2006 and at the hearing the Court ordered the case to arbitration. The
      parties agreed to mediate the case prior to commencing arbitration proceedings.
      On January 12, 2007, the mediation took place, but the parties were unable
      to
      come to a successful resolution of the matter. Thereafter, on February 15,
      2007,
      the Company and Cell Phone Entertainment, LLC entered into a settlement
      agreement with Mantra Films, Inc. and ROAR Productions (as a signatory to the
      contract at issue in the lawsuit filed by Mantra Films, Inc.). Pursuant to
      the
      terms of the settlement agreement, t he
      Company agreed to pay Mantra Films, Inc. the total sum of one hundred and fifty
      thousand dollars ($150,000), which sum is to be paid in eight (8) equal
      installments of $18,750, to be allocated between Mantra Films, Inc. and ROAR
      Productions as solely agreed to by and between Mantra Films, Inc. and ROAR
      Productions. Payment of the obligation is secured by a lien on certain assets
      of
      the Company in favor of Mantra Films, Inc. in the amount of one hundred and
      fifty thousand dollars ($150,000), which lien shall be released upon full and
      final payment under the agreement. Any breach of the payment obligations by
      the
      Company shall allow Mantra Films, Inc. to assert a claim in any proceeding
      in
      bankruptcy, reorganization, merger, sale, or an assignment for the benefit
      of
      creditors for the value of their claims in the Mantra Lawsuit in the amount
      of
      three hundred ninety-nine thousand ($399,000), less any payments that have
      been
      made, which amount includes a claim for any sums remaining due on the secured
      interest of one hundred fifty thousand ($150,000), and a claim as a general
      unsecured creditor for the balance of the three hundred ninety nine thousand
      ($399,000). In consideration of the foregoing, and once all required payments
      have been made, Mantra Films, Inc. and ROAR Productions agreed to give the
      Company and Cell Phone Entertainment, LLC, among other things, a dismissal
      with
      prejudice of the lawsuit, a non-disparagement clause and a confidentiality
      clause.





On
      or
      about January 18, 2006, Wilson W. Hendricks, III filed a Complaint in the County
      Court, Seventh Judicial Circuit, in and for St. John's County, Florida against
      the Company. Mr. Hendricks claimed damages in excess of $600,000 relating to
      lost wages and unreimbursed business expenses. In addition, he claimed the
      Company failed to issue 500,000 non-qualified stock options, to which he alleges
      he was entitled. Mr. Hendrick's main claims are that the he was wrongfully
      discharged from the Company and that the Company failed to grant him promised
      stock options. On June 22, 2006, the Court entered an Order requiring the
      parties mediate the case on or before October 31, 2006. The parties began the
      mediation process on August 29, 2006. On February 22, 2007, the Company and
      Mr.
      Hendricks agreed to the basic terms of a settlement which was memorialized
      in a
      settlement agreement dated March 7, 2007. Pursuant to the terms of the
      settlement agreement, the Company agreed to issue Mr. Hendricks 175,000 shares
      of the Company's common stock, and pay $10,000 for attorney’s fees and expenses
      (payable in two monthly installments), in exchange for, among other things,
      a
      dismissal with prejudice of the lawsuit. Among other items, the settlement
      agreement also includes mutual general releases, mutual non-disparagement
      clauses, a confidentiality clause and a “non-cooperation” clause on behalf of
      Mr. Hendricks.





-20-


On
      February 1, 2006 Jenkins & Gilchrest, LLP (“J&G”) filed suit against the
      Company in the United States District Court, Central District of California,
      Los
      Angeles Division (Case No: CV06-0620) alleging breach of contract as a result
      of
      the Company's alleged failure to pay fees and costs for professional services
      in
      the amount of $115,345. The Company failed to file a timely answer to the
      Complaint and therefore J&G filed a Motion for Default Judgment in the
      amount of $131,902, plus costs, with the Court. The Motion for Default Judgment
      was granted on March 22, 2006. On August 14, 2006, the Company entered into
      a
      settlement agreement with J&G, pursuant to which the Company has agreed to
      pay J&G $95,000 in exchange for a release of all claims by J&G. As of
      October 11, 2006, the Company has paid J&G the $95,000 due pursuant to the
      settlement agreement.




On
      or
      about July 18, 2006, Manhattan Investments, Inc. (“Manhattan”) filed a Complaint
      against the Company in the United States District Court, Northern District
      of
      California (Case No. C-06-4379), alleging that the Company has wrongfully
      refused to remove the restrictive legend on a stock certificate representing
      49,795 shares. The Complaint includes claims for breach of fiduciary and
      statutory duties, conversion and fraud, and seeks injunctive relief, as well
      as
      monetary damages. On October 2, 2006, the Company filed a Motion to Transfer
      for
      Improper Venue. The Motion was granted by the Court on November 13, 2006. The
      Company intends to vigorously defend against these claims, although there
      can be no assurances that the Company will be successful.




On
      or
      about October 20, 2006, Hamouth Family Trust (“Hamouth”) filed a Complaint
      against the Company in the Court of Chancery of the State of Delaware, in which
      Hamouth seeks declaratory and injunctive relief, as well as damages in an
      unspecified amount, related to the Company's alleged wrongful refusal to issue
      new stock certificates without restrictive legends for 800,000 shares of stock
      owned by Hamouth. The Company has filed an Answer to the Complaint and the
      discovery period has commenced. The Company intends to vigorously defend against
      these claims, although there can be no assurances that the Company will be
      successful.





On
      November 13, 2006, James A. Jones filed a Complaint in the U.S. District Court
      for the Northern District of Georgia against the Company and Richard E. Bennett,
      Jr., the Company's former President and Chief Executive Officer. Mr. Jones
      alleges a violation of Section 806 of the Corporate Criminal and Fraud
      Accountability Act of 2002, 18 U.S.C. § 1514 et. seq. (“Sarbanes Oxley”), and is
      seeking compensatory damages, back pay and reimbursement for lost wages,
      pension, insurance, and other employment benefits, front pay and reimbursement
      for lost wages, pension, insurance, and other employment benefits, and attorneys
      fees. Mr. Jones claims that he was unlawfully terminated in retaliation for
      investigating and opposing allegedly improper conduct by the Company and Mr.
      Bennett. The Company and Mr. Bennett filed their Answers to the Complaint on
      December 21, 2006. The discovery period has commenced. The Company and Mr.
      Bennett intend to vigorously defend against Mr. Jones' claim, although there
      can
      be no assurances that the Company and Mr. Bennett will be
      successful.





The
      Company was named as a defendant in four lawsuits brought by a total of eighteen
      investors in the United States District Court, Northern District of Georgia
      (Case No. 1:06- CV-0850-MHS filed on or about April 10, 2006, and Case Nos.
      1:06-CV-2388, 1:06-CV-2390, and 1:06-CV-2391 filed on or about October 6, 2006).
      The investors alleged, among other things, that the Company breached certain
      Registration Rights Agreements. The investors also claimed, among other things,
      that as a result of the Company's breach of the registration rights agreements
      they were denied certain rights they were allegedly owed under the agreements,
      and were inappropriately prevented from exercising warrants and selling shares
      during a specific period of time. In the aggregate, the investors claimed that
      as a result of the Company's actions they suffered damages in excess of $13
      million dollars. On January 11, 2007 the Company entered into a Settlement
      Agreement with these investors and certain other interested parties (the
“Claimants”). Pursuant to the terms of the Settlement Agreement, the Company
      issued 6,000,000 shares of the Company's common stock to the Claimants in
      exchange for the Claimants agreeing to release the Company and its owners,
      predecessors, successors, directors, officers, stockholders, employees,
      representatives, attorneys, subsidiaries and affiliates from all suits, claims,
      charges, liabilities and causes of action of any nature whatsoever which the
      Claimants had, have or may in the future have, arising out of any acts or events
      occurring up to and including the effective date of the Settlement Agreement.
      Among other items, the Claimants further agreed not to use confidential
      information against the Company in the future. The Settlement Agreement also
      contains mutual non-disparagement clauses.





On
      September 9, 2006 and February 14, 2007, respectively, the Company received
      correspondence from Epsom Investment Services, N.V. (“Epsom”) demanding
      repayment of an alleged outstanding Demand Loan made in 2002 from Epsom to
      Sharps Eliminations Technologies, Inc. (“Sharps”) in the amount of $50,000
      bearing interest at 5%. Epsom claims that the Company agreed to repay this
      loan
      on behalf of Sharps. The
      Company is still investigating this claim, but currently does not believe any
      such amounts are due and owing to Epsom.





-21-


On
      February 28, 2007, the Company filed
      a
      Complaint in the United States District Court, North District of Georgia (Case
      No. 1:07-CV-0503) against Leslie L. Croland, Esq., the Company’s former
      securities counsel, seeking the recovery of damages as a result of Mr. Croland’s
      professional negligence and breach of fiduciary duties to the Company. More
      specifically, the Company seeks to recover c ompensatory
      damages for, among other things, losses sustained and attorneys’ fees, costs,
      and expenses and liabilities incurred due to claims asserted by certain
      investors against the Company, as well as punitive damages, attorneys fees,
      costs of suit and any other relief the Court deems equitable and
      just.





Except
      as
      set forth above, we believe that there are no material litigation matters at
      the
      current time. Although the results of such litigation matters and claims cannot
      be predicted with certainty, we believe that the final outcome of such claims
      and proceedings will not have a material adverse impact on our financial
      position, liquidity, or results of operations.





**Item
      4.  Submission of Matters to a Vote of Security
      Holders**





No
      matters were submitted to a vote of our security holders during the fourth
      quarter of the fiscal year ended December 31, 2006.




-22-




**PART
      II**





**Item
      5.   Market for the Registrant's Common Equity, Related Stockholder
      Matters and Issuer Purchases of Equity Securities**





**Trading
      History**




Our
      common stock has been listed for trading on the National Association of
      Securities Dealers, Inc. Over-the-Counter Bulletin Board, or the OTC Bulletin
      Board, under the symbol “SMVD.OB” since January 7, 2003. The following is a
      summary of the high and low closing prices of our common stock on the OTC
      Bulletin Board during the periods presented. Such prices represent inter-dealer
      prices, without retail mark-up, mark down or commissions, and may not
      necessarily represent actual transactions. Trading in our common stock has
      not
      been extensive and such trades should not be characterized as constituting
      an
      active trading market.


**Closing
                  Sale Price****High**
              
              **Low****Year
                  Ending December 31, 2006**First
                  Quarter
              
              $
              5.80
              
              $
              1.80Second
                  Quarter
              
              $
              2.40
              
              $
              0.93Third
                  Quarter
              
              $
              1.50
              
              $
              0.94Fourth
                  Quarter
              
              $
              1.35
              
              $
              0.81**Year
                  Ending December 31, 2005**First
                  Quarter
              
              $
              5.82
              
              $
              2.95Second
                  Quarter
              
              $
              1.95
              
              $
              0.55Third
                  Quarter
              
              $
              7.08
              
              $
              0.95Fourth
                  Quarter
              
              $
              7.60
              
              $
              0.92





As
      of
      March 27, 2007, there were approximately 242 stockholders of record of the
      common stock (not including the number of persons or entities holding stock
      in
      nominee or street name through various brokerage firms).





-23-





**Dividends**




Since
      inception, we have not declared or paid any dividend on our common stock. We
      do
      not anticipate that any dividends will be declared or paid in the future on
      our
      common stock. The
      rights of holders of our common stock to receive dividends are subject to
      certain preferential rights of holders of our outstanding Series A-1 Preferred
      Stock to receive dividends.





**Equity
      Compensation Plan Information**




The
      following table provides information, as of December 31, 2006, with respect
      to
      options outstanding and available under the Company’s 2004 and 2005 Stock
      Incentive Plans, which are our only outstanding equity compensation plans other
      than an employee benefit plan meeting the qualification requirements of Section
      401(a) of the Internal Revenue Code. Both of our equity compensation plans
      were
      approved by our stockholders.


**Number
                  of Securities to be Issued Upon Exercise of Outstanding Options,
                  Warrants
                  and Rights**
              
              **Weighted-Average
                  Exercise Price of Outstanding Options, Warrants and Rights**
              
              **Number
                  of Securities Remaining Available for Future Issuance Under Equity
                  Compensation Plans (excluding securities reflected in Column
                  a)****(a)**
              
              **(b)**
              
              **(c)****Plan
                  Category**Equity
                  compensation plans approved by security holders
              
              
              9,030,000
              
              
              $1.80
              
              
              5,970,000Equity
                  compensation plans not approved by security holders
              
              
              —
              
              
              N/A
              
              
              —TOTAL
              
              
              9,030,000
              
              
              $1.80
              
              
              5,970,000





-24-




**Stock
      Performance Graph**





The
      graph
      below compares the cumulative total return on our common stock with the
      cumulative total return of the NASDAQ Composite Index, the Russell 2000 Index,
      the Russell MicroCap Index, the NASDAQ Telecommunications Index and the RDG
      Composite Index for the last five fiscal years (assuming the investment of
      $100
      in our common stock on November 26, 2002 and each index on October 31, 2002
      and
      the reinvestment of all dividends). The stockholder return shown on the graph
      below is not necessarily indicative of future performance, and the Company
      does
      not make or endorse any predictions as to future stockholder
      returns.











***Period
                Ending******Index***
            
            **10/31/02**
            
            **12/31/02**
            
            **12/31/03**
            
            **12/31/04**
            
            **12/31/05**
            
            **12/31/06**SmartVideo
                Technologies, Inc.
            
            
            100.00
            *
            
            136.49
            
            
            454.06
            
            
            446.03
            
            
            469.22
            
            
            76.72Russell
                2000
            
            
            100.00
            
            
            99.04
            
            
            141.75
            
            
            161.77
            
            
            162.73
            
            
            176.56NASDAQ
                Telecommunications
            
            
            100.00
            
            
            102.86
            
            
            151.46
            
            
            179.23
            
            
            187.39
            
            
            221.81NASDAQ
                Composite`
            
            
            100.00
            
            
            105.28
            
            
            175.15
            
            
            199.92
            
            
            205.05
            
            
            238.97Russell
                MicroCap
            
            
            100.00
            
            
            113.06
            
            
            203.29
            
            
            194.81
            
            
            184.65
            
            
            233.24RDG
                Internet Composite
            
            
            100.00
            
            
            102.45
            
            
            144.90
            
            
            160.73
            
            
            157.82
            
            
            174.98  **
      Investment in Company’s common stock based on closing price as of November 26,
      2002.*




-25-


**Sales
      of Unregistered Securities**





On
      June
      8, 2006, the Company entered into a settlement and release agreement
      (“Settlement Agreement”) with Enable Growth Partners, L.P. Pursuant to the terms
      of the Settlement Agreement, the Company agreed to issue 450,000 shares of
      the
      Company’s common stock to Enable, in exchange for Enable agreeing to release the
      Company and its directors, officers, shareholders, employees and agents from
      all
      suits, claims, charges, liabilities and causes of action arising out of,
      relating to, or in connection with Enable’s allegations set forth in the
      preceding paragraph. The closing price of the Company’s common stock on June 8,
      2006 was $1.44 per share. In order to compensate the Company for issuing the
      Shares to Enable, Richard E. Bennett, Jr., a director and Chief Executive
      Officer of the Company, has agreed to cause RB Family Holdings Ltd. (“RB”) to
      return 450,000 shares of the Company’s common stock owned by RB to the Company
      for cancellation. The Company issued the shares of common stock to Enable
      pursuant to the transactional exemption under Section 4(2) of the Securities
      Act.





On
      July
      17, 2006, the Company completed the private sale of its securities pursuant
      to
      the Securities Purchase Agreement (the “SPA”) dated as of July 7, 2006 among the
      Company and 74 accredited investors. Under the terms of the SPA, the Company
      received gross proceeds of $9,000,000 and issued to these investors a total
      of
      7,200,000 shares of common stock and five-year warrants exercisable at
      $2.50 per share to purchase up to 7,200,000 shares of common stock. This
      financing triggered the anti-dilution provision in warrants issued in a previous
      financing, thereby requiring the Company to issue additional warrants to
      purchase 6,553,663 shares of common stock at an exercise price of $1.25 per
      share. The securities issued were exempt from registration pursuant to Section
      4(2) of the Securities Act as a transaction not involving a public
      offering.





During
      the year ended December 31, 2006, the Company settled two outstanding vendor
      payables with unrelated third parties by issuing an aggregate of 434,916 shares
      of common stock having an aggregate fair value of $501,937. Fair value was
      determined based on the quoted closing trading price on the dates of settlement.
      The share prices on the dates of issuance ranged from $0.75 - $2.08 per share.
      Of the total shares issued, 100,000 shares valued at $208,000, were applied
      directly against a vendor payable in connection with the purchase of computer
      software. In addition the Company settled with a consultant by issuing 60,000
      shares of common stock for all amounts due and owing, issued 75,000 shares
      to a
      consultant for services rendered, and issued 199,916 shares in payment of
      services performed by a vendor. The
      securities issued were exempt from registration pursuant to Section 4(2) of
      the
      Securities Act as transactions not involving a public offering.





**Issuer
      Repurchases of Securities**





The
      Company did not repurchase any of its securities during the fourth quarter
      2006.


-26-





**Item
      6.**  **Selected
      Financial Data**





The
      selected historical financial information presented below is derived from our
      audited consolidated financial statements for the years ended December 31,
      2002,
      2003, 2004, 2005 and 2006.





The
      acquisition of all of the outstanding capital stock of OVT, Inc. on November
      26,
      2002, was treated for accounting purposes as a reverse acquisition, and the
      transaction has been accounted for as a recapitalization. We accounted for
      the
      acquisition using the purchase method of accounting. Therefore, the historical
      financial statements of the predecessor entity are reflected as our historical
      financial statements.





The
      data
      set forth below should be read in conjunction with the financial statements
      and
      accompanying notes incorporated by reference.





**Selected
      Historical Financial Data**


**2002**
              
              **2003**
              
              **2004**
              
              **2005**
              
              **2006****Income
                  Statement Data:**Total
                  revenue
              
              $
              2,750
              
              $
              63,451
              
              $
              118,733
              
              $
              197,257
              
              $
              800,231Total
                  operating expenses
              
              
              611,386
              
              
              3,242,754
              
              
              6,839,685
              
              
              19,021,511
              
              
              25,454,391Loss
                  from operations
              
              
              (689,476
              )
              
              (3,179,303
              )
              
              (6,720,952
              )
              
              (18,824,254
              )
              
              (24,748,990
              )Net
                  loss
              
              
              (689,476
              )
              
              (3,859,141
              )
              
              (6,792,930
              )
              
              (19,740,274
              )
              
              (24,488,876
              )Loss
                  per share
              
              
              (0.17
              )
              
              (0.51
              )
              
              (0.35
              )
              
              (0.76
              )
              
              (0.62
              )Weighted
                  average common shares used to compute basic and diluted net loss
                  per share
              
              
              4,127,243
              
              
              7,540,849
              
              
              19,208,345
              
              
              26,093,554
              
              
              40,285,528**Other
                  Financial Data:**Net
                  cash used in operating activities
              
              
              (184,850
              )
              
              (1,530,148
              )
              
              (2,451,531
              )
              
              (5,351,783
              )
              
              (11,077,782
              )Net
                  cash used in investing activities
              
              
              —
              
              
              (102,981
              )
              
              (189,191
              )
              
              (764,479
              )
              
              (1,472,439
              )Net
                  cash provided by financing activities
              
              
              177,838
              
              
              1,925,385
              
              
              2,730,316
              
              
              11,521,236
              
              
              10,454,236**Balance
                  Sheet Data:**Total
                  Assets
              
              $
              1,335,242
              
              $
              452,309
              
              $
              719,551
              
              $
              11,920,674
              
              $
              6,691,645


-27-




**Item
      7.**  **Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations**




This
      discussion presents management’s analysis of our results of operations and
      financial condition as of and for each of the years ended December 31, 2006,
      2005, and 2004, respectively. The discussion should be read in conjunction
      with
      our audited consolidated financial statements and the notes related thereto
      which appear elsewhere in this report.





**Overview**





SmartVideo
      Technologies, Inc. (hereinafter sometimes referred to as “SmartVideo,”
“uVuMobileTM”,” the “Company,” “we,” “us,” or “our”) is a provider of video
      content distribution services and technology.





Incorporated
      in 1984, the Company acquired OVT, Inc., d/b/a SmartVideo, in November 2002
      and
      subsequently changed its name to SmartVideo Technologies, Inc. Although the
      core business of the Company has remained constant, the Company has changed
      its
      focus from distributing business-to-business services to the distribution of
      video content to consumers.




Since
      2002, the Company has been a provider of technology engaged in the aggregation
      and distribution of streaming video content to consumers connected to the public
      Internet. The Company has been in the business of purchasing the rights to
      video
      and television content and delivering that content to subscribers for a fee.
      Additionally, the Company also provides managed services for Internet
      network operators (carriers) and for major producers, owners and distributors
      of
      content. The Company intends to continue expanding its market opportunities
      by
      delivering video services to all forms of devices capable of receiving an
      Internet Protocol (IP) data stream and rendering that data stream into visible
      images on displays.




In
      January 2005, the Company launched its direct-to-consumer mobile video service
      providing its customers with access to high-quality video programming that
      is
      transmitted directly to SmartPhone cellular handsets and to Wi-Fi enabled PDA
      devices. In addition, the Company has developed RTSP and J2ME
      compatibility.





During
      the fourth quarter of 2006, the Company expanded its product offerings to
      include a new suite of mobile technology and content solutions, bringing
      together a myriad of implementation choices, business models and marketing
      plans. The Company believes these new products will aid our customers seeking
      to
      capitalize on mobile technology opportunities. These new media services combine
      TV, radio, and other media platforms with user-friendly personalization,
      interactivity and targeted advertising.





**Recent
      Developments**




In
      January 2007, the Company announced its intent to seek stockholder approval
      to
      change the name of the Company to uVumobile, Inc. to better reflect the
      corporate brand and new products. More specifically, the Company is developing
      a
      new suite of products and platforms, which are expected to include backend
      media
      hosting, application development, mobile marketing, messaging, content
      aggregation, billing, advertising and other services directed towards the mobile
      business- to- business market. On February 14, 2007, the Company initiated
      this
      process by distributing a consent solicitation statement to its stockholders
      seeking consent to amend its Certificate of Incorporation to effect the name
      change.





On
      February 28, 2007, our Board of Directors determined that it would be advisable
      to retain a financial advisor to assist the Company in evaluating various
      strategic alternatives, including recapitalization, sale of stock, merger or
      asset disposition possibilities, all with the goal of maximizing stockholder
      value. On March 21, 2007, after reviewing several candidates, the Board of
      Directors of the Company unanimously approved the engagement of Daniels &
Associates as the Company's exclusive investment banker, financial advisor,
      and
      Consultant for these purposes.





On
      March
      9, 2007, we commenced an Offer to Amend and Exchange certain of our outstanding
      warrants. The offer provides holders of certain warrants the opportunity to
      amend and exercise any or all of their warrants for a significantly reduced
      exercise price by either paying the exercise price in cash or by tendering
      a
      specified number of warrants for each share of common stock being purchased.
      Unless extended, the offer expires at midnight, Eastern Time, on April 6,
      2007.





-28-


**Critical
      Accounting Policies and Estimates**




The
      Company relies on the use of estimates and makes assumptions that impact its
      financial condition and results. These estimates and assumptions are based
      on
      historical results and trends as well as the Company’s forecasts as to how
      results and trends might change in the future. While we believe that the
      estimates we use are reasonable, actual results could differ from those
      estimates.




We
      believe that the accounting policies described below are critical to
      understanding our business, results of operations and financial condition
      because they involve more significant judgments and estimates used in the
      preparation of our consolidated financial statements. An accounting policy
      is
      deemed to be critical if it requires an accounting estimate to be made based
      on
      assumptions about matters that are highly uncertain at the time the estimate
      is
      made, and any changes in the different estimates that could have been used
      in
      the accounting estimates that are reasonably likely to occur periodically could
      materially impact our consolidated financial statements. We have discussed
      the
      development, selection and application of our critical accounting policies
      with
      the Audit Committee of our Board of Directors, and our Audit Committee has
      reviewed our disclosure relating to our critical accounting policies in this
      “Management’s Discussion and Analysis.”





The
      Company’s most critical accounting policies and estimates that may materially
      impact the Company’s results of operations include:




***Revenue
      Recognition***





The
      accounting related to revenue recognition in the digital media and multimedia
      broadcast industry is complex and affected by interpretations of the rules
      and
      an understanding of various industry practices, both of which are dynamic in
      nature and subject to change. As a result, revenue recognition accounting rules
      require us to make significant judgments.




We
      typically provide services to our business-to-business customers under
      volume-based usage arrangements of our digital media and multimedia broadcast
      products and services. Under certain arrangements, our customers are subject
      to
      a base monthly fee or minimum monthly usage requirements in order to maintain
      their preferential negotiated rates. Revenue is recognized as earned upon the
      delivery of service to our subscription-based customers. This typically occurs
      when a digital media or multimedia broadcast is viewed. Many of our
      subscription-based customers access our programming through the purchase of
      a
      monthly, semi-annual, or daily subscription for our mobile entertainment
      services. Revenue from mobile advertising is recognized when the related
      services are performed. See Note 2(H) (Going Concern, Significant Accounting
      Policies and Risks and Uncertainties) to the consolidated financial statements
      included elsewhere in this report.





***Valuation
      and Recoverability of Long-Lived Assets***




See
      Note
      2(M) to the consolidated financial statements for the years ended December
      31,
      2006, 2005, and 2004 for a description of the valuation and recoverability
      of
      long-lived assets.





***Income
      Taxes***




Income
      taxes are accounted for using the liability method in accordance with SFAS
      No.
      109, *Accounting
      for Income Taxes* (SFAS
      109). Deferred tax assets and liabilities are recognized for the future tax
      consequences attributable to differences between the financial statement
      carrying amounts of existing assets and liabilities and their respective tax
      bases and operation loss and tax credit carry forwards. Deferred tax assets
      and
      liabilities are measured using enacted tax rates expected to apply to taxable
      income in the years in which those temporary differences are expected to be
      recovered or settled. The effect on deferred tax assets and liabilities of
      a
      change in tax rates is recognized in income in the period that includes the
      enactment date. We continue to record a valuation allowance for the full amount
      of deferred income taxes, which would otherwise be recorded for tax benefits
      related to operating loss carry forwards, as realization of such deferred tax
      assets cannot be determined to be more likely than not likely.





***Accounting
      for Stock-Based Compensation***




In
      December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment,” which
      replaces SFAS No. 123 and supersedes APB Opinion No. 25. Under SFAS No. 123(R),
      companies are required to measure the compensation costs of share-based
      compensation arrangements based on the grant-date fair value and recognize
      the
      costs in the financial statements over the period during which employees are
      required to provide services. Share-based compensation arrangements include
      stock options, restricted share plans, performance-based awards, share
      appreciation rights and employee share purchase plans. In March 2005, the SEC
      issued Staff Accounting Bulletin No. 107, or “SAB 107”. SAB 107 expresses views
      of the staff regarding the interaction between SFAS No. 123(R) and certain
      SEC
      rules and regulations and provides the staff's views regarding the valuation
      of
      share-based payment arrangements for public companies. SFAS No. 123(R) permits
      public companies to adopt its requirements using one of two methods. On
      April 14, 2005, the SEC adopted a new rule amending the compliance dates
      for SFAS No. 123R. Companies may elect to apply this statement either
      prospectively, or on a modified version of retrospective application under
      which
      financial statements for prior periods are adjusted on a basis consistent with
      the pro forma disclosures required for those periods under SFAS No. 123.
      Effective January 1, 2006, we have adopted SFAS No. 123(R) using the prospective
      method **.** See Note
      2(H) (Going Concern, Significant Accounting Policies and Risks and
      Uncertainties) to the consolidated financial statements included elsewhere
      in
      this report.





-29-


***Recent
      Accounting Pronouncements***




See
      Note
      2(T) to the consolidated financial statements for the years ended December
      31,
      2006, 2005, and 2004 for a description of the new accounting pronouncements
      and
      their impact on the Company.





**Results
      of Operations**





***Year
      Ended December 31, 2006 compared to Year Ended December 31,
      2005***





*Revenues*




Revenues
      for the year ended December 31, 2006 consisted primarily of a subscription
      based
      service delivering live and on-demand mobile entertainment services directly
      to
      consumers. Our revenues increased by approximately $600,000 for the year ended
      December 31, 2006 as compared to the same period in 2005. This increase is
      primarily attributable to our decision in 2005 to change our focus to a
      subscription-based model delivering mobile entertainment services direct to
      the
      consumer along with mobile advertising revenue and the implementation of custom
      applications.




*Broadcast
        rights*
  Broadcast
        right expenses for the year ended December 31, 2006 were approximately
        $4,355,000 as compared to $2,002,000 for the same period in 2005, an increase
        of
        117%. This increase is attributable to our decision to change our focus to
        a
        subscription based model delivering mobile entertainment services direct
        to the
        consumer. This amount also reflects the costs associated with acquiring the
        rights to deliver our mobile entertainment services. Additionally, the year
        ended December 31, 2006 includes an impairment charge of approximately
        $2,300,000.
 
 *Compensation
        and benefits*
  Our
        compensation and benefits expenses increased by approximately $966,000 (55%)
        for
        the year ended December 31, 2006 as compared to the same period in 2005.
        As our
        industry and Company continue to grow and develop, we are continuing to fill
        key
        positions that will enable us to leverage our future prospects and growth
        and
        rely less on the use of consultants for discrete projects.





-30-




*Consulting
      and professional fees*




Our
      consulting and professional fees increased by approximately $2,209,000
      (119%) ** for
      the
      year ended December 31, 2006 as compared to the same period in 2005. This
      increase in consulting fees for the year ended December 31, 2006 is primarily
      attributable to the consulting agreement with Growth Consultants LLC, who
      provides us with consulting services.





*Data
      Center*




Our
      data
      center expenses consist primarily of those items related to the maintenance
      of
      certain facilities and equipment at a third-party data center. The increase
      in
      data center expenses of approximately $219,000 (28%) for the year ended December
      31, 2006 when compared to 2005 is primarily due to an increase in the
      utilization of bandwidth and additional services provided by our third-party
      data center.





*Settlement
      Expense*





Settlement
      expense for the year ended December 31, 2006 decreased to $4,935,000, from
      $5,541,000 in 2005, a decrease of 11%.





*Stock-based
      Compensation*




For
      the
      year ended December 31, 2006, we have recorded approximately $5,039,000, as
      compared to $4,326,000 for the year ended December 31, 2005 in non-cash,
      stock-based compensation primarily related to the issuance of stock options
      to
      employees. The compensation expense has been determined using the Black-Scholes
      fair value method. The remainder of the non-cash, stock-based compensation
      is
      related to the amortization of the deferred portion of previous warrant grants.
      In the year ended December 31, 2006 the expense reflects the grant of stock
      options under FAS 123R.





*Depreciation
      and Amortization*




Depreciation
      and amortization expense for the year ended December 31, 2006 increased by
      approximately $322,000 when compared to the same period in 2005. This increase
      is primarily attributable to the deployment of additional equipment in the
      process of increasing the overall capacity and quality of our
      services.





*Selling,
      General and Administrative Expenses*




Selling,
      general and administrative expenses consist primarily of travel expenses related
      to the marketing of our products and services, lease payments related to the
      use
      of our corporate facilities, trade shows, and other general and administrative
      expenses. Our selling, general and administrative costs increased approximately
      $256,000 (10%) for the year ended December 31, 2006 when compared to the same
      period in 2005. This increase is attributable to additional staffing, call
      center costs, and SEC compliance costs.





-31-


*Interest
      Income (Expense)*




Interest
      income for the year ended December 31, 2006 of $260,114 included a reversal
      of a
      previously recorded interest expense in the amount of $53,000. Interest expense
      for the year ended December 31, 2005 was $916,020. A substantial portion of
      the
      interest expense in 2005 was attributed to the issuance of additional shares
      of
      common stock as additional consideration related to the rights of certain
      convertible debt holders in 2005.




***Year
      Ended December 31, 2005 compared to Year Ended December 31,
      2004***





*Revenues*




Revenues
      for the year ended December 31, 2005 consisted primarily of a subscription
      based
      service delivering live and on-demand mobile entertainment services directly
      to
      consumers. Our revenues increased by approximately $80,000 from $118,733 in
      2004
      to $197,257 in 2005. This increase is primarily attributable to our decision
      to
      change our focus to a subscription based model delivering mobile entertainment
      services direct-to-the-consumer.




*Broadcast
      rights*




Broadcast
      rights expenses for the year ended December 31, 2005, were approximately
      $2,002,000 (70%) as compared to $0 for the same period in 2004. This change
      is
      attributable to our decision to change our focus to a subscription based model
      delivering mobile entertainment services direct to the consumer. This amount
      reflects the costs, including amortization of $1,740,552 associated with
      acquiring the rights to deliver our mobile entertainment services.





*Compensation
      and benefits*




Our
      compensation and benefits expenses increased by approximately $722,000 for
      the
      year ended December 31, 2005, as compared to the same period in 2004. As our
      industry and Company continue to grow and develop, we are continuing to fill
      key
      positions that will enable us to leverage our future prospects and growth and
      relying less on the use of consultants for discrete projects.





*Consulting
      and professional fees*




Our
        consulting and professional fees increased by
        approximately $616,000 for the year ended December 31, 2005, as compared to
        the same period in 2004.




Our
      consulting fees decreased by approximately $616,000 for the year ended December
      31, 2005, when compared to 2004. We experienced a decrease in consulting fees
      in
      2005 primarily due to our ability during that period to fill key positions
      with
      full-time employees instead of continuing to utilize outside consultants.





Our
      professional fees increased approximately $1,232,000 for the year ended December
      31, 2005, when compared to the same period in 2004. This increase is primarily
      attributable to additional professional fees incurred that were associated
      with
      financing, the preparation of our registration statement related to the
      financing, costs associated with the arbitration with Mr. Richard Seifert and
      KC
      Adventures, Inc., and litigation associated with the contentious proxy
      solicitation.




*Data
      Center*




Our
      data
      center expenses consist primarily of those items related to the maintenance
      of
      certain facilities and equipment at a third-party data center. The increase
      in
      data center expenses of approximately $415,000 (116%) for the year ended
      December 31, 2005, when compared to 2004 is primarily due to an increase in
      the
      utilization of bandwidth and additional services provided by our third-party
      data center.




*Depreciation
      and Amortization*




Depreciation
      and amortization expense for the twelve months ended December 31, 2005,
      increased by approximately $231,000 (484%) when compared to the same period
      in
      2004. This increase is primarily attributable to the deployment of additional
      equipment in the process of increasing the overall capacity and quality of
      our
      services.





-32-


*Settlement
      Expense*




Our
      settlement expense increased by approximately $5,541,000, primarily as a result
      of the settlement on January 30, 2006, of a dispute relating to an advisory
      agreement with one of the Company’s consultants and also for the accrual of
      other loss contingencies. As a result of the settlement and other accruals,
      the
      Company recorded a liability in the approximate amount of $5,541,000 as of
      December 31, 2005.




*Stock-based
      Compensation*




For
      the
      twelve months ended December 31, 2005, we recorded approximately $4,326,000
      as
      compared to $3,119,000 in 2004 in non-cash, stock-based compensation expense
      related to the issuance of certain warrants as compensation paid to advisors.
      The compensation expense has been determined using the Black-Scholes fair value
      method. The remainder of the non-cash, stock-based compensation is related
      to
      the amortization of the deferred portion of previous warrant
      grants.





*Selling,
      General and Administrative Expenses*




Selling,
      general and administrative expenses consist primarily of travel expenses related
      to the marketing of our product and services, lease payments related to the
      use
      of our corporate facilities, trade shows, and other general and administrative
      expenses. The increase in selling, general and administrative expenses in 2005
      of approximately $1,449,000 when compared to 2004 is primarily due to costs
      associated with our participation in numerous trade shows and the extra costs
      attributable to our decision to develop a prominent presence in each of these
      events. Our focus is to create a presence in each of these events designed
      to
      extend and enhance the awareness of our brand, products and services to
      potential partners, distributors, and content owners. We have also incurred
      additional travel related and marketing costs associated with specialized
      consultants we have hired to assist us in this process.




*Interest
      Expense*




Interest
      expense for the twelve months ended December 31, 2005, was $916,020 as compared
      with $72,000 in 2004. Of this amount, $712,000 was attributable to the non-cash
      benefit conversion feature attributed to the issuance of warrants that were
      issued as additional consideration to certain convertible debt
      holders.




**Liquidity
      and Capital Resources and Going Concern**





We
      have
      incurred recurring losses and negative cash flows since inception. As of and
      for
      the year ended December 31, 2006, we had an accumulated deficit of $64,442,632,
      a consolidated net loss of $24,488,876 ****** and
      consolidated net cash flows used in operations of $11,077,782. As a result,
      our
      operations are not an adequate source of cash to fund future operations and
      these matters raise substantial doubt about our ability to continue as a going
      concern. To fund our cash requirements, we have relied on private placements
      of
      equity and loans from stockholders and other related entities. Although we
      closed on a $9.0 million equity financing on July 17, 2006, our ability to
      continue our operations is contingent upon obtaining additional financing and
      attaining profitable operations.





Cash
      flows generated from operating activities during the year ended December
      31, 2006 were not sufficient to offset our operating expenditures. Based on
      information available regarding our proposed plans and assumptions relating
      to
      operations, we anticipate that the net proceeds from our last financing in
      2006,
      together with projected cash flow from operations, will not be sufficient to
      meet our cash requirements for working capital and capital expenditures beyond
      June 2007. As a result, it will be necessary for us to secure additional
      financing to support our operations. There can be no assurance that we will
      be
      able to obtain such financing on acceptable terms, or at all. If adequate funds
      are not available or not available on acceptable terms, the Company will be
      unable to continue as a going concern. We currently have no firm commitments
      for
      any additional capital.





On
      March
      9, 2007, we commenced an Offer to Amend and Exchange certain of our outstanding
      warrants. The offer provides holders of certain warrants the opportunity to
      amend and exercise any or all of their warrants for a significantly reduced
      exercise price by either paying the exercise price in cash or by tendering
      a
      specified number of warrants for each share of common stock being purchased.
      If
      all of the warrant holders to whom our offer was extended elect to exercise
      their warrants at the reduced cash exercise price set forth in the offer, we
      will generate approximately $9 million in gross proceeds available for our
      use
      to fund our operations. Unless extended, the offer expires at midnight, Eastern
      Time, on April 6, 2007. There can be no assurances that our offer will be
      accepted by our warrant holders and, even if accepted, that they will exercise
      their warrants for cash.





-33-


**Contractual
      Obligations and Commercial Commitments**




**For
                  the Years Ended December 31, 2007-2011****Contractual
                  Obligations**
              
              **Total**
              
              **Less
                  Than 1 Year**
              
              **1-3
                  Years**
              
              **3-5
                  years**
              
              **More
                  Than 5 Years**Operating
                  Lease Obligations
              
              $
              185,332
              
              $
              185,332
              
              $
              —
              
              $
              —
              
              $
              —Capital
                  Lease Obligations
              
              
              194,344
              
              
              33,255
              
              
              75,589
              
              
              85,500
              
              
              —Broadcast
                  Rights
              
              
              3,434,576
              
              
              2,454,725
              
              
              943,386
              
              
              36,465
              
              
              —Total
              
              $
              3,814,252
              
              $
              2,673,312
              
              $
              1,018,975
              
              $
              121,965
              
              $
              —




**Item
      7A.  Quantitative And Qualitative Disclosures About Market
      Risk**





We
      do not
      believe that inflation or foreign currency fluctuations significantly affected
      our financial position and results of operations as of and for the fiscal year
      ended December 31, 2006. In addition, we are not party to any material market
      risk sensitive instruments.





**Item
      8.  Financial Statements and Supplementary Data**




**Selected
        Quarterly Financial Data (Unaudited)**
  **First
                  Quarter**
              
              **Second
                  Quarter**
              
              **Third
                  Quarter**
              
              **Fourth
                  Quarter**
              
              **Total**Year
                  ended December 31, 2006:Total
                  revenue
              
              $
              112,966
              
              $
              166,432
              
              $
              197,302
              
              $
              323,531
              
              $
              800,231Loss
                  from operations
              
              
              (3,431,211
              )
              
              (6,241,956
              )
              
              (4,284,023
              )
              
              (10,791,800
              )
              
              (24,748,990
              )Net
                  loss
              
              $
              (3,386,404
              )
              $
              (6,210,697
              )
              $
              (4,147,894
              )
              $
              (10,743,881
              )
              $
              (24,488,876
              )Year
                  ended December 31, 2005:Total
                  revenue
              
              $
              25,132
              
              $
              38,360
              
              $
              58,248
              
              $
              75,517
              
              $
              197,257Loss
                  from operations
              
              
              (2,020,338
              )
              
              (4,447,813
              )
              
              (3,992,767
              )
              
              (8,363,336
              )
              
              (18,824,254
              )Net
                  Loss
              
              $
              (2,218,558
              )
              $
              (4,440,183
              )
              $
              (4,044,926
              )
              $
              (9,036,607
              )
              $
              (19,740,274
              )





See
      pages
      F-1 through F-3 appearing at the end of this report.





**Item
      9. Changes In and Disagreements With Accountants On Accounting and Financial
      Disclosure**





Not
      applicable





-34-


**Item
      9A. Controls and Procedures**





Our
      chief
      executive officer and chief financial officer (the “Certifying Officers”) are
      responsible for establishing and maintaining disclosure controls and procedures
      for our Company and our subsidiary. Such officers have concluded (based upon
      their evaluation of these controls and procedures as of the end of the period
      covered by this report) that our disclosure controls and procedures are
      effective to ensure that information required to be disclosed by us in reports
      we file and submit under the Exchange Act is recorded,
      processed, summarized and reported as and when required .
      In
      addition, the Certifying Officers have concluded that our disclosure controls
      and procedures have been designed to ensure that information required to be
      disclosed in reports filed by us under the Exchange Act is accumulated and
      communicated to management, including our principal executive officers as
      appropriate, in a manner to allow timely decisions regarding the required
      disclosure.





There
      were no changes in our internal control over financial reporting (as defined
      in
      Rules 13a-15(f) and 15d-15(f) under the Exchange Act) identified in connection
      with the foregoing evaluation that occurred during the quarter ended December
      31, 2006, that have materially affected, or are reasonably likely to materially
      affect, our internal control over financial reporting.





Our
      management, including the Certifying Officers, do not expect that our disclosure
      controls or our internal controls will prevent all error and all fraud. A
      control system, no matter how well conceived and operated, can provide only
      reasonable, not absolute, assurance that the objectives of the control system
      are met. In addition, the design of a control system must reflect the fact
      that
      there are resource constraints, and the benefits of controls must be considered
      relative to their costs. Because of the inherent limitations in all control
      systems, no evaluation of controls can provide absolute assurance that all
      control issues and instances of fraud, if any, within a company have been
      detected. These inherent limitations include the realities that judgments in
      decision-making can be faulty, and that breakdowns can occur because of simple
      error or mistake. Additionally, controls can be circumvented by the individual
      acts of some persons, by collusion of two or more people or by management
      override of the control. The design of any systems of controls also is based
      in
      part upon certain assumptions about the likelihood of future events, and there
      can be no assurance that any design will succeed in achieving its stated goals
      under all potential future conditions. Because of these inherent limitations
      in
      a cost-effective control system, misstatements due to error or fraud may occur
      and not be detected.





**Item
      9B. Other Information**





Not
      applicable.





-35-





**Part
      III**





**Item
      10.**  **Directors,
      Executive Officers and Corporate Governance**





**Directors
      and Executive Officers**





The
      following sets forth certain biographical information concerning our current
      directors and executive officers:


**Name**
              
              **Position**
              
              **Age**John
                  E. Abdo
              
              Director
              
              63Michael
                  E. Criden
              
              Director,
                  Chairman of the Nominating Committee, Member of the Compensation
                  Committee, Member of the Audit Committee
              
              47William
                  J. Loughman
              
              Chief
                  Financial Officer
              
              51David
                  R. Ross
              
              President
                  and Interim Chief Executive Officer
              
              56Glenn
                  H. Singer
              
              Director,
                  Chairman of the Board, Chairman of the Audit Committee, Member
                  of the
                  Compensation Committee, Member of the Nominating Committee
              
              47Justin
                  A. Stanley, Jr.
              
              Director,
                  Chairman of the Compensation Committee, Member of the Audit Committee,
                  Member of the Nominating Committee
              
              58David
                  Oros
              
              Director
              
              46Ronald
                  A. Warren
              
              Corporate
                  Secretary, Vice President of Investor Relations and Corporate
                  Communications
              
              52


**John
      E. Abdo**became a
      Director of the Company in August 2006 and is President of Abdo Companies,
      Inc.,
      a construction, development, and property management firm in South Florida
      he
      started in 1968. He serves on several boards of directors including BankAtlantic
      Bancorp, Inc., BFC Financial, Levitt Corp., and Bluegreen Corp. (all NYSE
      companies) as well as Benihana Inc. (a member of NASDAQ).




**Michael
      E. Criden** has been
      a director of the Company since November 2005. From 1994 to the present Mr.
      Criden has been a partner with Hanzman & Criden, P.A., a South Florida law
      firm that devotes much of its practice to class action and complex commercial
      litigation. Mr. Criden has been a practicing attorney for the past 18 years.
      Mr.
      Criden received a Bachelor of Science degree from Florida International
      University in 1984 and obtained a doctorate of jurisprudence with honors from
      the University of Miami in 1987.




**William
      J. Loughman** has been
      the Company's Vice President of Finance since March 2006 and became Chief
      Financial Officer of the Company on August 28, 2006. Mr. Loughman joined
      SmartVideo with over 25 years of finance and operations experience, primarily
      in
      the telecommunications industry. Prior to joining SmartVideo, he was with
      AirGate PCS as Vice President and Chief Financial Officer from July 2004 to
      March 2005. From April 1998 to December 2003 he was with o2wireless Solutions
      where he held various positions including President and Chief Executive Officer,
      Chief Operating Officer and Chief Financial Officer. He has also held various
      financial and operations positions with AT&T Wireless from 1996 to 1998,
      Motorola from 1993 to 1996, Bell Atlantic from 1988 to 1993, and Cellular One
      from 1985-1988. Mr. Loughman earned his B.B.A. degree from Iona College and
      M.B.A from Manhattan College.




**David
      R. Ross** was
      elected President on February 28, 2006 and appointed Interim CEO on August
      25,
      2006. From October 1994 to February 2006, Mr. Ross served in various
      capacities at Clear Channel Communications, Inc., a diversified media company
      involved in radio broadcasting, outdoor advertising and live entertainment.
      From
      October 2003 to February 2006, Mr. Ross served as a Regional Vice-President
      and
      was responsible for managing a division of Clear Channel consisting of 25 radio
      properties grossing in excess of $82 million annually.




-36-


**Glenn
      H. Singer** has been
      a director of the Company since November 2005 and has been the Chairman of
      the
      Board since December 7, 2005. From 1997 to the present, Mr. Singer has been
      a
      private investor in numerous ventures and is currently the Mayor of the town
      of
      Golden Beach located in South Florida. From 1991 to 1997, Mr. Singer was a
      co-founder and Executive Vice-President of National Business Solutions, Inc.,
      a
      professional employer organization that was sold to Paychex, Inc., a provider
      of
      payroll, human resource and benefits solutions, in 1996. Mr. Singer is a
      graduate of Florida State University and is a CPA.




**Justin
      A. Stanley, Jr.** has been
      a director of the Company since July 2005. Mr. Stanley **** is
      currently a Managing Principal and the Chief Financial Officer of The Staubach
      Company, Midwest Division, positions he has held since October 2000. He has
      over
      15 years experience in real estate finance, development, and property
      management. Between 1997 and 2000, he served as Chief Financial Officer and
      principal of McCaffery Interests, Inc., a real estate development company
      primarily specializing in retail development. While at McCaffery, the Company
      developed and/or redeveloped projects with a combined cost of over $400 million.
      Before joining the real estate industry, Mr. Stanley spent one-year trading
      at
      the Chicago Mercantile Exchange and eight years at Arthur Andersen & Co. in
      the audit division. He is a graduate of Dartmouth College, received an M.B.A.
      from the University of Chicago and is a CPA. Mr. Stanley is also on the board
      of
      The Children's Care Foundation and the Chicago Platform Tennis Charities,
      Inc. ****





**David Oros** has been
      a leader in the successful development of high-technology businesses for more
      than 25 years and has raised more than $2.5 billion in six public offerings.
      Currently Mr. Oros is the chairman of NEXCEN Brands (Nasdaq: NEXC), formally
      Aether Holdings, Inc., a company he founded in 1996. Mr. Oros is also a founding
      partner of Global Domain Partners, LLC, a managed futures company that uses
      advanced optimization modeling as a predictive tool for worldwide markets,
      currencies and commodities. Mr. Oros has been recognized as a leader and
      visionary in the wireless communications industry. His many awards and honors
      include acknowledgement as the Ernst & Young Entrepreneur of the Year;
      Mobile Computing Magazine's Person of the Year for 2000, and the KPMG High
      Tech
      Entrepreneur of the year. He holds Bachelor of Science degrees in mathematics
      and physics from the University of Maryland at Baltimore County and currently
      serves on the Boards of Directors for Broadwing Corp., the University of
      Maryland School of Nursing and Baltimore's Port Discovery Children's
      Museum.





**Ronald
      A. Warren** joined
      SmartVideo in December 2003 as Vice President of Investor Relations and
      Corporate Communications and was elected as Secretary of the Corporation in
      September 2004. Mr. Warren is a senior level communications professional with
      a
      broad background in financial, technical and regulatory issues. His experience
      includes communications for high growth publicly held companies, national and
      multicultural audiences. He is a published author of “How to Create a Successful
      Annual Report” and a frequent guest speaker at national and local industry
      events. Prior to joining SmartVideo, from 2002 to 2003, Mr. Warren was Director
      of Investor Relations and Corporate Communications at Beazer Homes USA, Inc.
      From 1994 to 2002, Mr. Warren was Director of Investor Relations, Corporate
      Communications and Assistant Secretary of Theragenics Corporation. Mr. Warren
      is
      an active member of the National Investor Relations Institute (NIRI) and served
      as the Atlanta Chapter President from 2002 to 2003.





-37-




**Key
      Employees**




**Tracy
      Caswell** ,
      38,
      became General Counsel to the Company in July 2006. Prior to joining SmartVideo,
      from October 2005 until July 2006, Ms. Caswell was with Thompson Hine, LLP
      representing clients in a variety of general business matters. From September
      2000 to May 2005, Ms. Caswell served as General Counsel and Corporate Secretary
      for Theragenics Corporation, a NYSE listed company. In this position, Ms.
      Caswell was responsible for all aspects of high-level legal counseling to the
      Company's officers, executives and board of directors. She received a B.A.
      in
      Psychology from the University of Tennessee in 1992 and her J.D., *Cum
      Laude* , from
      California Western School of Law in 1995.





**Scott
      Hughes** ,
      38,
      Chief Technology Officer, joined SmartVideoTM in March 2001 and is responsible
      for product design, scope, and development of our services, including the
      development of multiple new video and rich media communications services and
      supporting architecture. From 1996 to 2001, Mr. Hughes was Director of Network
      and Security Consulting Services at Redmond Technology Partners, a Seattle-based
      consulting group, whose clients included Microsoft, Infospace, VoiceStream
      and
      Western Wireless. Mr. Hughes has held various management and technology
      positions with Comnet Cellular/Verizon, BellSouth and Turner Entertainment
      Group's Worldwide Information Technology Services.





**Tony
      Novia** ***,*** 47,
      joined the Company in June 2006 as Senior Vice President - Content &
Distribution. Prior to joining the Company, Mr. Novia served as the
      International Vice President at Universal Motown Records Group from 2003. Mr.
      Novia was the Senior Vice President at Radio & Records from 1993 to 2003.
      Mr. Novia graduated from the University of Miami School of Communications and
      obtained an M.A. from Grahm Jr. College.




**Tom
      Parrish** ,
      44, joined the Company in July 2006 as Senior Vice President - Business
      Development. Prior to joining the Company, Mr. Parrish was VP of Business
      Development and Content at Mobliss, Inc. He served in this capacity from 2003.
      Mr. Parrish was at AT&T Wireless Services from 1996 to 2003 and held a
      variety of product development, marketing and management positions during his
      tenure there. Mr. Parrish graduated Cum Laude with a B.A. in Economics from
      Washington University and obtained an M.B.A. in Marketing/MIS from the
      University of Colorado.





**Compliance
      With Section 16(A) Of The Securities Exchange Act Of 1934**





Section
      16(a) of the Exchange Act requires the Company's executive officers, directors
      and 10% stockholders to file reports regarding initial ownership and changes
      in
      ownership with the Securities and Exchange Commission and any exchange upon
      which the Company’s securities are listed. Executive officers, directors and 10%
      stockholders are required by Securities and Exchange Commission regulations
      to
      furnish the Company with copies of all Section 16(a) forms they file. The
      Company's information regarding compliance with Section 16(a) is based solely
      on
      a review of the copies of such reports furnished to the Company by the Company's
      executive officers, directors and 10% stockholders. The Company believes that,
      during the fiscal year ending December 31, 2006, all of its executive officers,
      directors and 10% stockholders complied with all applicable Section 16(a) filing
      requirements.





**Code
      of Conduct**





The
      Board
      has approved and we have adopted a Code of Business Conduct and Ethics,
      applicable to all of our directors, officers and employees. This Code is
      available on our website, www.smartvideo.com and
      www.uvumobile.com. The Board, or a committee of independent members, is
      responsible for reviewing and approving or rejecting all requested waivers
      to
      the Code, as such waivers may apply to any of our executive officers or
      directors. Any waivers will be disclosed on our website.





**Board
      Committees**





The
      Board
      currently has, and appoints members to, three standing committees: the Audit
      Committee, the Compensation Committee and the Nominating Committee. Each member
      of these committees is independent as defined by applicable NASDAQ and SEC
      rules. The current members of the committees are identified below:




-38-


**Director**
            
            **Audit**
            
            **Compensation**
            
            **Nominating**Glenn
                Singer (Chair)
            
            X
                (Chair)
            
            X
            
            XJohn
                E. Abdo
            
            X
            
            X
                (Chair)Michael
                Criden
            
            
            
            X
            
            X
                (Chair)David
                OrosJustin
                A. Stanley
            
            X
            
            X
            
            X





The
      Board
      has designated Mr. Singer, Mr. Stanley and Mr. Abdo as “Audit Committee”
financial experts.





**Item
      11.** **Executive
      Compensation**





**REPORT
      OF COMPENSATION COMMITTEE**





The
      Compensation Committee is responsible for discharging the responsibilities
      of
      the board with respect to the compensation of our executive officers. The
      Compensation Committee sets performance goals and objectives for the Chief
      Executive Officer and the other executive officers, evaluates their performance
      with respect to those goals and sets their compensation based upon the
      evaluation of their performance. In evaluating executive officer pay, the
      Compensation Committee may retain the services of a compensation consultant
      and
      consider recommendations from the Chief Executive Officer and President with
      respect to goals and compensation of the other executive officers. The
      Compensation Committee assesses the information it receives in accordance with
      its business judgment. The Compensation Committee also periodically reviews
      director compensation. All decisions with respect to executive and director
      compensation are approved by the Compensation Committee and recommended to
      the
      full Board for ratification.  The Compensation Committee is responsible for
      administering all of our equity-based plans.





The
      Compensation Committee has reviewed and discussed the Compensation Discussion
      and Analysis (the "CD&A") for the year ended December 31, 2006 with
      management. In reliance on the reviews and discussions referred to above, the
      Compensation Committee recommended to the Board, and the Board has approved,
      that the CD&A be included in the Annual Report on Form 10-K for the
      year ended December 31, 2006 for filing with the SEC.





By
      the
      Compensation Committee of the Board of Directors:


John
      E.
      Abdo, Chairman


Glenn
      Singer


Michael
      Criden


Justin
      A.
      Stanley





**COMPENSATION
      DISCUSSION AND ANALYSIS**





The
      Company's compensation process and policy is overseen by the Compensation
      Committee of the Board of Directors as more fully discussed below.





**Components
      of Compensation**





The
      Company compensates its executives through a mix of base salary, bonus, and
      equity compensation designed to be competitive with comparable employers and
      to
      align management incentives with the long term interests of the Company and
      its
      stockholders.





To
      assist
      the Company in establishing “targeted overall compensation” - i.e., the
      aggregate level of compensation for the executive resulting from the combination
      of base salary, bonus, and equity compensation, the Company annually looks
      at
      data for comparable executives within three industries - cable,
      telecommunications, and media, which are industries we believe are involved
      in
      comparable businesses and facing similar challenges as us. **** We also
      look at national and local area compensation. This is important because
      we strive to be competitive with other employers and, at the executive
      level, we recruit from a national pool of candidates. Local information is
      useful in determining, among other things, “cost of living” information for
      purposes of setting appropriate compensation. The data we utilize comes from
      an
      on-line source (Salary.com). In addition, in order to be competitive with other
      employers, in 2006, we engaged an outside firm (Flex HR) to provide us with
      data
      for compensation ranges based on the position of the executive and the size
      of
      the Company.





Other
      key
      factors considered by the Company in establishing targeted overall compensation
      for executives are the overall performance of the Company during the period
      the
      executive has held the position as well as the anticipated level of difficulty
      in replacing the executive with someone of comparable experience and
      skill.





-39-


**Compensation
      Process and Objectives**





Currently,
      the structure of certain executives' compensation is set pursuant to employment
      agreements negotiated and agreed upon between the executive and the Company.
      The
      Company views the employment agreements as a valuable retention tool, and
      believes the terms of all such agreements reflect the value of the executive's
      services to the Company. The following Named Executive Officers have employment
      agreements: David Ross, President and Interim Chief Executive Officer; Tony
      Novia, Senior Vice President of Content; Scott Hughes, Chief Technology Officer
      and Tom Parrish, Senior Vice President of Business Operations. Richard Bennett,
      the former Chief Executive Officer, also had an employment
      agreement.





Base
      salaries for executives and lower levels of management are reviewed annually
      for
      potential adjustment based on the executives' or managers' performance, and
      taking into account the overall performance of the Company. As discussed more
      fully below, executives' and managers' performances are also reviewed at
      year-end with a view towards determining whether any form of bonus is warranted.
      Given the Company's “start-up” status and current cash position, the
      Compensation Committee has been given the flexibility to use stock options
      in
      lieu of cash as a tool for compensating the Company's executives and
      managers.





Incentive
      compensation (in the form of stock options and/or cash) for the Company's
      executives is designed to reward company-wide performance through tying awards
      to EBITDA and revenue growth. Specific individual performance goals are also
      set
      during the first quarter of the calendar year by the President and Chief
      Executive Officer and/or the Compensation Committee for the executives (with
      the
      exception of the President and Chief Executive Officer - his goals are set
      by
      the Compensation Committee) and approved by the Compensation Committee and/or
      the Board. As noted above, certain of our executives have individually
      negotiated employment agreements, which provide for a cash bonus based on
      performance criteria to be set by the President and Chief Executive Officer
      and/or Board of Directors. At lower levels of management, we design the
      incentive compensation to reward the achievement of specific individual
      performance goals, although company-wide performance is also a
      factor.





**Allocation
      among Components**





Pursuant
      to our overall compensation strategy, the mix of base salary, bonus, and equity
      compensation ranges set for overall compensation are as follows:





**Salary**
            
            **Bonus**
            
            **Equity**President
                and Chief Executive Officer
            
            20
                - 30%
            
            0
                -
                15%
            
            80
                - 95%Company
                Executives
            
            30
                - 70 %
            
            0
                -
                15%
            
            30
                - 70%




**Base
      Salaries**





We
      believe it is both standard and appropriate to provide our executives with
      a
      level of assured cash compensation in the form of base salary. For the President
      and Chief Executive Officer, the Compensation Committee **** concluded, based on the factors discussed above under the *“Components
      of Compensation”* and *“Compensation
      Process and Objectives”* sections ** that for
      fiscal year 2006, a base salary range of $200,000 - $300,000 was appropriate.
      Beginning September 2006 **** the
      President and Chief Executive Officer's salary was set at $275,000.





A
      similar
      analysis for our other executive base salaries was performed. The Company's
      goal
      is to keep salaries at 80% of the median for similar positions in our industry
      (as described in the *“Components
      of Compensation”* section). Furthermore as discussed above under the *“Compensation
      Process and Objectives”* section,
      adjustments are made during annual reviews to ensure our executives are, at
      a
      minimum, at that level.





**Bonuses**





For
      2006,
      neither the President and Chief Executive Officer nor any other executive
      received any type of cash performance based bonus. Pursuant to a provision
      in
      his employment agreement, the Company did pay the Senior Vice President of
      Content a signing bonus of $25,000.





During
      2007, the Compensation Committee will set bonus criteria (including individual
      performance goals and financial criteria in the form of a gross revenue target)
      for the President and Chief Executive Officer pursuant to which they may award
      the President and Chief Executive Officer a bonus payable in the form of equity
      with a value within the range set forth above under the *“Allocation
      Among Components”* section. **** The
      Compensation Committee has made a determination that no cash bonus shall be
      payable to the President and Chief Executive Officer until such time as the
      Company achieves positive cash flow.





-40-


In
      December of 2007, the Compensation Committee shall determine whether any bonus
      shall be awarded to the President and Chief Executive Officer. The
      Compensation Committee has reserved the authority to award a bonus to the
      President and Chief Executive Officer based on individual effort and for
      retention purposes even if established criteria is not achieved.





With
      regard to the Company's other executives, during 2007 the President and
      Chief Executive Officer will recommend to the Compensation Committee and/or
      the
      Board bonus criteria (including individual performance goals and financial
      criteria in the form of a gross revenue target) **** for
      review and approval. Any bonus awarded will be within the range set forth in
      the *“Allocation
      Among Components”* section
      above. The Board has, however, made a determination that, with the exception
      of
      those individuals with employment contracts requiring payments of any earned
      bonuses in cash, no cash bonus shall be payable to any executive until such
      time
      as the Company achieves positive cash flow. ****





In
      December of 2007, the President and Chief Executive Officer will make
      recommendations to the Committee and/or the Board regarding the award of bonuses
      to executives. The Committee and/or the Board shall then review such
      recommendations and determine whether any such bonuses shall be awarded to
      the
      executives.  The Compensation Committee and Board have reserved the
      authority to award bonuses to the executives based on individual effort and
      for
      retention purposes even if established criteria are not achieved.




With
      regard to payouts for any cash bonus awarded in 2007, the range will be from
      50%
      of base salary to 125% of base salary.





Any
      cash
      bonus payout will be determined as follows:





·
            If
                85% of the goal is achieved, the bonus calculation is 50% of the
                target
                payout amount.


·
            If
                100% of the goal is achieved, the bonus calculation is 100% of the
                target
                payout amount.


·
            If
                150% of the goal is achieved, the bonus calculation is 125% of the
                target
                payout amount.





**Equity
      Compensatio** **n**





We
      are a
“growth” company at this time so the primary form of equity compensation that
      the Company utilizes is Incentive Stock Options (“stock options”). The stock
      options are valued according to the Statement of Financial Accounting Standards
      No. 123(R). The Grants under the 2006 Executive Stock Incentive Plan were and
      will be made pursuant to the 2005 Stock Option Plan.





In
      October 2006, the Compensation Committee approved and implemented the 2006
      Executive Stock Option Incentive Plan which is a program that is overseen by
      the
      Compensation Committee. The primary purpose of this program is to provide equity
      incentives to the President and Chief Executive Officer and other executives
      to
      achieve certain quarterly goals deemed to be important to the continued success
      of the Company. Any grants awarded pursuant to this program will be made under
      the 2004 and 2005 Stock Incentive Plans. Beginning in the first quarter of
      2007,
      the quarterly goals for the executives are set by the President and Chief
      Executive Officer and presented to the Compensation Committee for review and
      approval. The President and Chief Executive Officer's quarterly goals are set
      by
      the Compensation Committee.





At
      the
      end of each quarter, the President and Chief Executive Officer will make a
      recommendation to the Compensation Committee regarding whether to award any
      of
      the available pool of 500,000 options to executives (other than himself). The
      Compensation Committee makes the final determination regarding any such awards
      to executives or the President and Chief Executive Officer.





The
      exercise price for any options awarded under this program is set at the closing
      price of the stock on the date the Compensation Committee grants the
      options.





For
      fiscal year 2006, the President and Chief Executive Officer's stock option
      grants constituted 80 to 90% of his overall compensation. **** Other
      Company executives received grants that constituted 30 to 70% of their overall
      compensation based on their contribution to the Company **.**





For
      2007,
      equity compensation including, but not limited to, any compensation granted
      pursuant to the Executive Stock Option Incentive Plan, will be based on the
      Company's performance. The measurements will be based on the Company's
      performance as measured by EBITDA and Revenue Growth.





When
      determining the option grant amount, 75% of the grant will be based on Company
      performance and 25% will be based on the individual contributions to the
      Company's performance.




-41-


**Accounting
      and Tax Considerations**





The
      Company's overall compensation policy is structured to comply with IRS Code
      Section 162m. In addition, the stock options are valued according to the
      Statement of Financial Accounting Standards No. 123(R).




**Board
      Process**




The
      Board
      annually appoints independent Directors to serve as members of the Company's
      Compensation Committee. Each such member serves until his successor is duly
      elected and qualified or until the member resigns or is removed. A member of
      the
      Committee may be removed, with or without cause, by a majority vote of the
      Board.





The
      2007
      Compensation Committee members are as follows: John E. Abdo (Chairman), Michael
      Criden, Glenn Singer and Justin Stanley, Jr. The members of the Committee meet
      approximately 12 times a year. ****





In
      general, the duties of the Company's Compensation Committee include, but are
      not
      limited to the following:





1.
            Review
                and approve corporate goals and objectives relevant to the compensation
                of
                the chief executive officer and other executive
                officers.





2.
            Review
                and evaluate the performance of the Chief Executive Officer and other
                executive officers and other key employees of the Company in light
                of the
                goals and objectives of the Company, and either as a committee or
                together
                with the other independent directors (as directed by the Board) determine
                and approve their annual compensation packages, including base salaries,
                cash bonuses, stock options and other stock-based incentives, based
                on
                these evaluations.





3.
            Monitor
                the effectiveness of benefit plan offerings and approve changes where
                appropriate.4.
            Review
                and approve, or recommend to the full Board, non-Chief Executive
                Officer
                compensation, executive incentive compensation plans and equity-based
                plans in which executive officers and members of the Board of Directors
                are eligible to participate.





5.
            Supervise
                and oversee the administration of the Company's incentive compensation
                programs.6.
            Review
                management proposals to (i) designate employees for incentive compensation
                programs; and (ii) approve new benefit
                plans.





7.
            Report
                regularly to the Board (i) following meetings of the Committee, (ii)
                with
                respect to those matters that are relevant to the Committee's discharge
                of
                its responsibilities, and (iii) with respect to those recommendations
                that
                the Committee may deem appropriate. The report to the Board may take
                the
                form of an oral report by the Chairman of the Committee or any other
                member of the Committee designated by the Committee to make such
                report.





-42-


**SUMMARY
      COMPENSATION TABLE**





**Name
                and Principal Position**
            
            **Year**
            
            **Salary(1)**
            
            **Bonus(2)**
            
            **Stock
                Awards**
            
            **Option**
              **Awards(3)**
            
            **Non-Equity
                Incentive**
              **Plan
                Compensation**
            
            **Change
                in Pension**
              **Value**
            
            **All
                Other Compensation**
            
            **Total**David
                Ross
              Interim
                CEO
              &
                President(4)
            
            
            2006
            
            $
            179,237
            
            $
            —
            
            
            N/A
            
            $
            835,578
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            $
            1,014,815Richard
                Bennett
              CEO(5)
            
            
            2006
            
            $
            94,793
            
            $
            —
            
            
            N/A
            
            $
            —
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            $
            94.793William
                Loughman
              CFO(6)
            
            
            2006
            
            $
            171,839
            
            $
            —
            
            
            N/A
            
            $
            116,592
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            $
            288,431Scott
                Hughes
              CTO(7)
            
            
            2006
            
            $
            143,750
            
            $
            —
            
            
            N/A
            
            $
            921,518
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            $
            1,065,268Tony
                Novia
              SVP
                Content(8)
            
            
            2006
            
            $
            77,575
            
            $
            25,000
            
            
            N/A
            
            $
            93,608
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            $
            196,183Tom
                Parrish
              SVP
                Bus.
              Development(9)
            
            
            2006
            
            $
            78,472
            
            $
            —
            
            
            N/A
            
            $
            77,094
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            $
            155,566








(1)
            Mr.
                Ross, Mr. Loughman, Mr. Novia, and Mr. Parrish all joined the Company
                at
                different times in 2006. Therefore, the salaries reflected here are
                pro-rated for the year.(2)
            Mr.
                Novia received a Signing Bonus per his Employment
                Agreement.(3)
            Detail
                of Option Awards is provided in the Grants of Plan Table
                below.





(4)
            Mr.
                Ross was named Interim CEO in Sept. 2006. Based on his new duties
                and
                responsibilities, Mr. Ross was given a raise in the amount of $75,000,
                which brought his annual salary to $275,000. Mr. Ross received a
                grant of
                1,000,000 stock options under his Employment Agreement. He received
                an
                additional grant of 150,000 stock options in July 2006 and another
                150,000
                stock options were granted based on the Executive Stock Option Incentive
                Plan in October 2006. In each case, the exercise price of the stock
                options is based on the closing price on the date of the
                grant.





(5)
            Mr.
                Bennett resigned as CEO in August****2006.(6)
            Mr.
                Loughman receives a base salary of $240,000 annually less FICA under
                his
                Employment Agreement. Mr. Loughman received a grant of 80,000 stock
                options under his Employment Agreement as well as another 25,000
                under the
                Executive Stock Option Incentive Plan. The exercise price of all
                of Mr.
                Loughman's stock options is based on the closing price on the date
                of the
                grant.





(7)
            Mr.
                Hughes received a salary increase in August 2006 to raise his salary
                from
                $130,000 (the amount in his Employment Agreement) to $160,000. In
                addition, Mr. Hughes was granted 30,000 stock options in October
                2006
                under the Executive Stock Option Incentive Plan. The exercise price
                of all
                stock options is based on the closing price on the date of the
                grant.





(8)
            As
                noted above, Mr. Novia received a $25,000 Signing Bonus under the
                terms of
                his Employment Agreement. In addition, he receives an annual base
                salary
                of $160,000. Under Mr. Novia's Employment Agreement, 250,000 stock
                options
                were granted. He also received an additional grant of 50,000 options
                in
                July 2006 and another grant of 100,000 stock options based on the
                Executive Stock Option Incentive Plan in October 2006. In each case,
                the
                exercise price of the options is based on the closing price on the
                date of
                the grant.





(9)
            Mr.
                Parrish receives a base salary of $175,000 under the terms of his
                Employment Agreement. In addition, he received a grant of 250,000
                stock
                options under his Employment Agreement. In October, a grant of 100,000
                stock options was awarded based on the Executive Stock Option Incentive
                Plan. The exercise price of all stock options is based on the closing
                price on the date of the grant.




-43-





GRANTS
      OF OPTION-BASED **AWARDS**


**Estimated
                Future Payouts Under Non-Equity Incentive Plan
                Awards**
            
            **Estimated
                Future Payouts Under Equity Incentive Plan Awards**
            
            **All
                Other Stock Awards(1):**
            
            **All
                Other Option Awards:****Name**
            
            **Grant
                Date**
            
            **Threshold**
            
            **Target**
            
            **Maximum**
            
            **Threshold**
            
            **Target**
            
            **Maximum**
            
            **Number
                of Shares of Stock or Units**
            
            **Number
                of Securities Underlying Options**
            
            **Exercise
                of Base Price of Option Awards**
            
            **Grant
                Date Fair Value of Stock and Options Awards**David
                Ross
            
            
            2/28/2006
            
            
            —
            
            
            
            
            
            —
            
            
            
            
            
            —
            
            
            —
            
            
            
            
            
            —
            
            
            —
            
            
            
            
            
            —
            
            
            1,000,000
            
            $
            2.10
            
            $
            1,795,170Interim
                CEO (a)
            
            
            7/6/2006
            
            
            —
            
            
            
            
            
            —
            
            
            
            
            
            —
            
            
            —
            
            
            
            
            
            —
            
            
            —
            
            
            
            
            
            —
            
            
            150,000
            
            $
            1.40
            
            $
            150,48010/3/2006
            
            
            —
            
            
            
            
            
            —
            
            
            
            
            
            —
            
            
            —
            
            
            
            
            
            —
            
            
            —
            
            
            
            
            
            —
            
            
            150,000
            
            $
            1.31
            
            $
            139,185William
                Loughman
            
            
            3/20/2006
            
            
            —
            
            
            
            
            
            —
            
            
            
            
            
            —
            
            
            —
            
            
            
            
            
            —
            
            
            —
            
            
            
            
            
            —
            
            
            80,000
            
            $
            1.95
            
            $
            113,768CFO
                (b)
            
            
            10/3/2006
            
            
            —
            
            
            
            
            
            —
            
            
            
            
            
            —
            
            
            —
            
            
            
            
            
            —
            
            
            —
            
            
            
            
            
            —
            
            
            25,000
            
            $
            1.31
            
            $
            23,198Tony
                Novia
            
            
            6/23/2006
            
            
            —
            
            
            
            
            
            —
            
            
            
            
            
            —
            
            
            —
            
            
            
            
            
            —
            
            
            —
            
            
            
            
            
            —
            
            
            250,000
            
            $
            1.48
            
            $
            268,275SVP -
                Content (d)
            
            
            7/6/2006
            
            
            —
            
            
            
            
            
            —
            
            
            
            
            
            —
            
            
            —
            
            
            
            
            
            —
            
            
            —
            
            
            
            
            
            —
            
            
            50,000
            
            $
            1.40
            
            $
            50,16010/3/2006
            
            
            —
            
            
            
            
            
            —
            
            
            
            
            
            —
            
            
            —
            
            
            
            
            
            —
            
            
            —
            
            
            
            
            
            —
            
            
            100,000
            
            $
            1.31
            
            $
            92,790Tom
                Parrish
            
            
            7/5/2006
            
            
            —
            
            
            
            
            
            —
            
            
            
            
            
            —
            
            
            —
            
            
            
            
            
            —
            
            
            —
            
            
            
            
            
            —
            
            
            250,000
            
            $
            1.50
            
            $
            268,700SVP
                - Bus. Dev. (e)
            
            
            10/3/2006
            
            
            —
            
            
            
            
            
            —
            
            
            
            
            
            —
            
            
            —
            
            
            
            
            
            —
            
            
            —
            
            
            
            
            
            —
            
            
            100,000
            
            $
            1.31
            
            $
            92,790Scott
                Hughes
            
            
            10/3/2006
            
            
            —
            
            
            
            
            
            —
            
            
            
            
            
            —
            
            
            —
            
            
            
            
            
            —
            
            
            —
            
            
            
            
            
            —
            
            
            30,000
            
            $
            1.31
            
            $
            27,837CTO
                (c)





(1)
      Currently the Company does not issue Stock Awards.





(a)
      Mr.
      Ross received 1,000,000 options with an exercise price of $2.10 under his
      Employment Agreement. The exercise price is based on the closing price on the
      date of grant. 450,000 of the options vest at 10% annually over a 10 year
      period. 550,000 of the options vest at 50% upon signing the Employment Agreement
      and 50% upon the first anniversary of employment. Mr. Ross also received an
      additional 150,000 options with an exercise price of $1.40. The exercise price
      of these options is also based on the closing price on the date of grant. The
      150,000 options vest quarterly over a two year period. An additional 150,000
      options were granted under the Executive Stock Option Incentive Plan. The
      exercise price of these options is $1.31 and is based on the closing price
      on
      the date of grant. These options vest quarterly over a two year
      period.





(b)
      Mr.
      Loughman received 80,000 options with an exercise price of $1.95 under his
      Employment Agreement. The exercise price is based on the closing price on the
      date of grant. The 80,000 options vest at 10% over a 9 month period. Mr.
      Loughman also received an additional 25,000 options under the Executive Stock
      Option Incentive Plan. The exercise price of these options is $1.31 based on
      the
      closing price on the date of grant. These options vest quarterly over a two
      year
      period.





(c)
      Mr.
      Hughes received 30,000 options under the Executive Stock Option Incentive Plan.
      The exercise price of these options is $1.31 based on the closing price on
      the
      date of grant. These options vest quarterly over a two year period.





(d)
      Mr.
      Novia received 250,000 options with an exercise price of $1.48 under the terms
      of his Employment Agreement. The exercise price of these options is based on
      the
      closing price on the date of grant. 75,000 of these options vest immediately
      upon his signing of the Employment Agreement and the additional vest quarterly
      over a two year period. Mr. Novia also received an additional 50,000 options
      at
      an exercise price of $1.40. The exercise price is based on the closing price
      on
      the date of the grant and the options vest quarterly over a two year period.
      In
      October, Mr. Novia was granted 100,000 options under the Executive Stock Option
      Incentive Plan. The exercise price of these options is $1.31 and is based on
      the
      closing price on the date of grant. These options also vest quarterly over
      a two
      year period.





(e)
      Mr.
      Parrish received 250,000 options with an exercise price of $1.50 under the
      terms
      of his Employment Agreement. The exercise price is based on the closing price
      on
      the date of grant. 50,000 of these options vested immediately upon his signing
      of the Employment Agreement and the additional vest quarterly over a two year
      period. Mr. Parrish also received 100,000 options in October 2006 based on
      the
      Executive Stock Option Incentive Plan. The exercise price is $1.31 based on
      the
      closing price on the date of the grant. These options vest quarterly over a
      two
      year period.





**EMPLOYMENT
      AGREEMENTS**





**David
      Ross**




On
      February 28, 2006, we entered into an employment agreement with David R. Ross,
      pursuant to which he will serve as the Company's President for a period of
      two
      years. On August 25, 2006, Mr. Ross was appointed Interim Chief Executive
      Officer of the Company. Mr. Ross is entitled to a base salary of $275,000 per
      annum, which may be increased at the discretion of the Compensation Committee
      of
      the Board of Directors. We also granted Mr. Ross an incentive stock option
      to
      purchase an aggregate of 476,190 shares of the Company's common stock and a
      non-qualified stock option to purchase an aggregate of 523,810 shares of the
      Company's common stock. The incentive stock option and the non-qualified stock
      option are each exerciseable at $2.10 per share for a period of 10 years from
      the date of grant. The incentive stock option vests at the following percentages
      and at the following times: (1) 10% of the shares vested on February 28, 2006,
      and (2) 10% of the shares vest on each anniversary date thereafter for the
      succeeding nine years. The non-qualified stock option vests in the following
      percentage and at the following times: (1) 50% of the shares vest on February
      28, 2006, and (2) the balance of the shares vest on February 28, 2007. We have
      agreed to reimburse Mr. Ross the rental costs of an apartment or condominium
      unit in Atlanta, Georgia, in an amount not to exceed $1,500 per month. The
      employment agreement made with Mr. Ross may be terminated with or without
“cause” (as defined in the agreement) and contains customary non-competition,
      confidentiality and indemnification provisions. If the employment agreement
      is
      terminated by us without cause or by Mr. Ross with advance “Notice of
      Termination,” a pro rata portion of Mr. Ross' unvested options will vest
      immediately. If the employment agreement is terminated by the Company with
      cause
      or by Mr. Ross without advance Notice of Termination, then Mr. Ross forfeits
      the
      options that have not vested as of the date of termination or
      resignation.




-44-


**Richard
      Bennett**




Richard
      E. Bennett, Jr.'s ** employment
      agreement provided for an initial base salary of $75,000 and was increased
      to
      $150,000 on January 19, 2006, with subsequent increases as determined by our
      Board of Directors. Mr. Bennett's Employment Agreement allowed for a stock
      option grant of 750,000 options, but these options were never granted. The
      employment agreement also provided, among other things, for participation in
      an
      equitable manner in any profit-sharing or retirement plan for employees or
      executives and for participation in employee benefits applicable to our
      employees and executives, as well as for the provision of an automobile
      allowance of up to $800 per month and other fringe benefits commensurate with
      his duties and responsibilities and for benefits in the event of disability.
      Pursuant to the employment agreement, employment may be terminated by us with
      cause or by the executive with or without good reason. If Mr. Bennett's
      employment was terminated by us without cause or by the executive for good
      reason would subject us to liability for liquidated damages in an amount equal
      to six months of the current salary of the terminated executive as of the date
      of termination. Mr Bennett resigned as the Chief Executive Officer and Interim
      Chief Financial Officer of the Company on August 25, 2006. The Company has
      not
      paid any severance benefits to Mr. Bennett and no such payments are
      due.





**William
      Loughman**




Pursuant
      to an agreement with Tatum, LLC, the Company pays Mr. Loughman, the Chief
      Financial Officer of the Company, a salary of $20,000 per month less the
      amount of the Company's portion of FICA taxes. In addition, the Company has
      granted Mr. Loughman options to purchase 80,000 shares of the Company's common
      stock at an exercise price of $1.95 per share. The options vest at the rate
      of
      10,000 per month and expire 10 years from the date of grant. The agreement
      commenced on March 20, 2006 and extends through December 31, 2006. Thereafter,
      the agreement will automatically renew for additional three-month periods unless
      either party gives the other party written notice of its intent not to renew
      at
      least 30 days prior to the end of the then current period.





**Scott
      Hughes**




Pursuant
      to the Company's employment agreement with Mr. Hughes, Mr. Hughes’ initial
      annual salary was $130,000. In 2006, Mr. Hughes was paid an annual salary of
      $143,750. In addition, the Company has granted Mr. Hughes options to purchase
      1,500,000 shares of its stock, half of which vested on the date of his
      employment agreement, one quarter of which vested on the first anniversary
      of
      the date of his employment agreement, and one quarter of which will vest on
      the
      second anniversary of the date of his employment agreement if Mr. Hughes is
      still employed by the Company. The options expire ten years from the date of
      grant.





If
      Mr.
      Hughes is terminated by the Company without Cause or resigns for Good Reason
      (as
      those terms are defined in his employment agreement), the Company must pay
      Mr.
      Hughes an amount equal to the salary he would have earned during the remaining
      term of his employment agreement within ten days of his termination and maintain
      certain welfare benefit plans for the benefit of Mr. Hughes and his
      dependents.





**Tony
      Novia**




Pursuant
      to an employment agreement with Mr. Novia, the Company pays him a salary of
      $160,000 annually. In addition, the Company has granted Mr. Novia options to
      purchase 250,000 shares of the Company's common stock at an exercise price
      of
      $1.48 per share. 50,000 shares vested on the date of his employment and the
      remaining shares vest at 25,000 per quarter during the Employment Term. The
      options expire 10 years from the date of grant.





If
      Mr.
      Novia is terminated by the Company without Cause or resigns for Good Reason
      (as
      those terms are defined in his employment agreement), the Company must pay
      Mr.
      Novia an amount equal to the greater of the salary he would have earned during
      the remaining term of his employment agreement or nine months' salary. The
      Company must also maintain certain welfare benefit plans for the benefit of
      Mr.
      Novia and his dependents for the period during which severance payments are
      made.





-45-


**Tom
      Parrish**




Pursuant
      to an employment agreement with Mr. Parrish, the Company pays him an annual
      salary of $175,000. In addition, the Company has granted Mr. Parrish options
      to
      purchase 250,000 shares of the Company's common stock at an exercise price
      of
      $1.50 per share. 50,000 share vested on the date of his employment and the
      remaining shares vest at 25,000 per quarter during the Employment Term. The
      options expire 10 years from the date of grant.





**OUTSTANDING
      EQUITY AWARDS VALUE AT FISCAL YEAR-END TABLE**





The
      following table gives information regarding all unexercised options previously
      awarded to the Executive Officers named above for fiscal year ended December
      31,
      2006. The number of options held at December 31, 2006 includes options granted
      under the 2004 Stock Option Plan and the 2005 Stock Option Plan.




**Option
                Awards**
            
            
            
            **Stock
                Awards (1)****Name
                and Principal Position**
            
            **Number
                of Securities Underlying Unexercised Options
                Exercisable**
            
            **Number
                of Securities Underlying Unexercised Options
                Unexercisable**
            
            **Equity
                Incentive Plan Awards: Number of Securities Underlying Unearned
                Options**
            
            **Option
                Exercise Price**
            
            **Option
                Expiration Date**
            
            **Numbers
                of Shares or Units of Stock That Have Not Vested**
            
            **Market
                Value of Shared or Units of Stock That Have Not
                Vested**
            
            **Equity
                Incentive Plan Awards: Number of Unearned Shares, Units, or Other
                Rights
                That Have Not Vested**
            
            **Incentive
                Plan Awards: Market or Payout Value of Unearned Shares, Units or
                Other
                Rights That Have Not Vested**David
                Ross
              InterimCEO
              &
                President(a)
            
            
            275,000
              18,750
              —
            
            
            725,000
              131,250
              150,000
            
            
            N/A
              N/A
                N/A
            
            $
              $
              $
            2.10
              1.40
              1.31
            
            
            02/28/2016
              070/6/2016
              10/30/2016
            
            
            N/A
              N/A
                N/A
            
            
            N/A
              N/A
                N/A
            
            
            N/A
              N/A
                N/A
            
            
            N/A
              N/A
                N/ARichard
                BennettCEO(b)
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/AWilliam
                Loughman
              CFO(c)
            
            
            80,000
              —
            
            
            —
              25,000
            
            
            N/A
              N/A
            
            $
              $
            1.95
              1.31
            
            
            03/20/2016
              10/03/2016
            
            
            N/A
              N/A
            
            
            N/A
              N/A
            
            
            N/A
              N/A
            
            
            N/A
              N/AScott
                HughesCTO(d)
            
            
            —
            
            
            30,000
            
            
            N/A
            
            $
            1.31
            
            
            10/03/2016
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/ATony
                Novia
              SVP
                Content(e)
            
            
            100,000
              6,250
              —
            
            
            150,000
              43,750
              100,000
            
            
            N/A
              N/A
                N/A
            
            $
              $
              $
            1.48
              1.40
              1.31
            
            
            06/23/2016
              07/06/2016
              10/03/2016
            
            
            N/A
              N/A
                N/A
            
            
            N/A
              N/A
                N/A
            
            
            N/A
              N/A
                N/A
            
            
            N/A
              N/A
                N/ATom
                Parrish
              SVP
              Bus.
                Development(f)
            
            
            75,000
              —
            
            
            175,000
              100,000
            
            
            N/A
              N/A
            
            $
              $
            1.50
              1.31
            
            
            07/05/2016
              10/03/2016
            
            
            N/A
              N/A
            
            
            N/A
              N/A
            
            
            N/A
              N/A
            
            
            N/A
              N/A





-46-


(1)
      Currently the Company does not issue Stock Awards.




(a)
      Mr.
      Ross received 1,000,000 options with an exercise price of $2.10 under his
      Employment Agreement. The exercise price is based on the closing price on the
      date of grant. 450,000 of the options vest at 10% annually over a 10 year
      period. 550,000 of the options vest at 50% upon signing the Employment Agreement
      and 50% upon the first anniversary of employment. Mr. Ross also received an
      additional 150,000 options with an exercise price of $1.40. The exercise price
      of these options is also based on the closing price on the date of grant. The
      150,000 options vest quarterly over a two-year period. An additional 150,000
      options were granted under the Executive Stock Option Incentive Plan. The
      exercise price of these options is $1.31 and is based on the closing price
      on
      the date of grant. These options vest quarterly over a two-year
      period.




(b)
      Mr.
      Bennett did not receive any options in 2006.




(c)
      Mr.
      Loughman received 80,000 options with an exercise price of $1.95 under his
      Employment Agreement. The exercise price is based on the closing price on the
      date of grant. The 80,000 options vest at 10% over a 9 month period. Mr.
      Loughman also received an additional 25,000 options under the Executive
      Stock Option Incentive Plan. The exercise price of these options is $1.31 based
      on the closing price on the date of grant. These options vest quarterly over
      a
      two-year period.




(d)
      Mr.
      Hughes received 30,000 options under the Executive Stock Option Incentive Plan.
      The exercise price of these options is $1.31 based on the closing price on
      the
      date of grant. These options vest quarterly over a two-year period.




(e)
      Mr.
      Novia received 250,000 options with an exercise price of $1.48 under the terms
      of his Employment Agreement. The exercise price of these options is based on
      the
      closing price on the date of grant. 75,000 of these options vest immediately
      upon his signing of the Employment Agreement and the additional vest quarterly
      over a two-year period. Mr. Novia also received an additional 50,000 options
      at
      an exercise price of $1.40. The exercise price is based on the closing price
      on
      the date of the grant and the options vest quarterly over a two-year
      period. In October, Mr. Novia was granted 100,000 options under the Executive
      Stock Option Incentive Plan. The exercise price of these options is $1.31 and
      is
      based on the closing price on the date of grant. These options also vest
      quarterly over a two-year period.




(f)
      Mr.
      Parrish received 250,000 options with an exercise price of $1.50 under the
      terms
      of his Employment Agreement. The exercise price is based on the closing price
      on
      the date of grant. 50,000 of these options vested immediately upon his signing
      of the Employment Agreement and the additional vest quarterly over a two-year
      period. Mr. Parrish also received 100,000 options in October 2006 based on
      the
      Executive Stock Option Incentive Plan. The exercise price is $1.31 based on
      the
      closing price on the date of the grant. These options vest quarterly over a
      two-year period.




**OPTION
      EXERCISES AND STOCK VESTED**





No
      options were exercised by the President and Chief Executive Officer or any
      other
      Executive Officer listed herein in fiscal year ended December 31,
      2006.





**NON-QUALIFIED
      DEFERRED COMPENSATION**





At
      this
      time the Company does not have a non-qualified deferred compensation
      plan.





**SEVERANCE
      BENEFITS**





The
      Company believes that it should provide reasonable severance benefits to
      executives under appropriate circumstances. In that regard, certain Company
      executives have severance benefits, the terms of which are set forth in their
      employment contracts negotiated and agreed upon between the executives and
      the
      Company. The Company views the severance benefits as a valuable retention tool
      and believes the terms of all such severance benefits reflect the value of
      the
      executive's services to the Company.





In
      general, the employment contracts provide that the severance benefits for
      termination by the Company without Cause (in general “Cause” is defined as
      conviction of a crime, stealing from the Company, violation of the
      Non-Compete/Non-Disclosure agreement, failure to perform job duties as directed
      by the board, or gross negligence) or by the employee with Good Reason (in
      general “Good Reason” is defined as a required relocation, position change,
      change in responsibilities or decrease in compensation) are to be paid including
      earned but unpaid salary and expenses, continued provision of benefits during
      the severance period, and a pro rated bonus payment. As is described in more
      detail under “Key Employees” and “Employment Agreements” below, certain of the
      employment contracts also require the Company to pay the employee's salary
      past
      the date he or she is terminated by the Company without Cause or by the employee
      for Good Reason. In addition, unvested stock options will vest immediately
      if he
      or she is terminated by the Company without Cause or by the employee for Good
      Reason.





Further,
      in general, the employment contracts provide that the executive will not receive
      any severance benefits if the individual is terminated by the Company for Cause
      as defined above or if the executive terminates his or her employment without
      Good Reason (as defined above). Rather, the executive would generally only
      be
      entitled to earned but unpaid salary and expenses, and vested stock
      options.


-47-





**SEVERANCE
      BENEFITS TABLE** **1**





**Name**
            
            **Lump
                Sum**
              **Severance
                Payment**
            
            **Continuation
                of**
              **Insurance
                Benefit**
            
            **Accelerated
                Vesting**
              **of
                Stock Options**David
                Ross
            
            $
            343,740
            
            $
            17,187
            
            $
            1,201,317Scott
                Hughes
            
            $
            226,667
            
            $
            9,744
            
            $
            612,291Tony
                Novia
            
            $
            255,000
            
            $
            22,086
            
            $
            317,617Tom
                Parrish
            
            $
            292,083
            
            $
            —
            
            $
            284,396




1.
      The
      amounts relate to termination without Cause, by the executive with Good
      Reason, or due to a Change in Control.





**Change
      in Control**




In
      the
      event of a Change in Control (as defined in each employment contract) any
      unvested stock options will immediately vest. Per some employment contracts,
      certain executives will also receive base salary for a stated period of time
      (generally one year or less). ****





**DIRECTOR
      COMPENSATION TABLE**





The
      following table provides the compensation information for the one year period
      ended December 31, 2006 for each member of our Board of Directors.





**Name**
            
            **Fees
                Earned or Paid in Cash(1)**
            
            **Stock
                Awards**
            
            **Option**
              **Awards(2)**
            
            **Non-Equity
                Incentive Plan Compensation**
            
            **Pension
                Value and Non-Qualified Deferred Compensation
                Earnings**
            
            **All
                Other Compensation**
            
            **Total**Glenn
                Singer (a)
            
            $
            16,000
            
            
            N/A
            
            $
            331,772
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            $
            347,772John
                E. Abdo (b)
            
            $
            5,000
            
            
            N/A
            
            $
            110,959
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            $
            115,959Michael
                Criden(c)
            
            $
            14,500
            
            
            N/A
            
            $
            297,482
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            $
            311,982David
                Oros(d)
            
            $
            1,500
            
            
            N/A
            
            $
            15,836
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            $
            17,336Justin
                A. Stanley(e)
            
            $
            16,000
            
            
            N/A
            
            $
            182,126
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            $
            198,126




(1)
            Board
                members receive $1,500.00 for attendance in person at Board meetings
                and
                $500.00 for telephonic Board
                meetings.




(2)
            New
                Directors receive an initial grant of 250,000 options upon joining
                the
                Board. Board members receive a grant of 25,000 options annually for
                each
                Committee upon which they serve. The Chairman of each Committee receives
                an additional grant of 10,000 options annually. The Chairman of the
                Board
                receives an additional 25,000 options
                annually.





(a)
            Mr.
                Singer received cash payments for Board meeting attendance. For serving
                as
                Chairman of the Board he was given 25,000 additional stock options.
                In
                addition, he received 75,000 stock options for membership on the
                Audit,
                Compensation and Nominating Committees. He also served as Chair of
                the
                Audit Committee for 2006 and received 10,000 stock options for this.
                In
                all cases, the exercise price was based on the closing price on the
                date
                of the grant. All options vest quarterly in one
                year.





-48-


(b)
            Mr.
                Abdo joined the Board in August 2006. He received cash payments based
                on
                Board meeting attendance. He also received a grant of 250,000 stock
                options for joining the Board of Directors. Further, Mr. Abdo received
                10,000 options for serving as Chair of the Compensation Committee
                for part
                of 2006. All stock options vest quarterly over one year and the exercise
                price is based on the closing price on the date of the
                grant.





(c)
            Mr.
                Criden received cash payments based on Board meeting attendance.
                He
                received a grant of 75,000 stock options for membership on the Audit,
                Compensation, and Nominating Committees. He received an additional
                grant
                of 10,000 stock options for serving as Chair of the Nominating Committee.
                All stock options vest quarterly over one year and the exercise price
                is
                based on the closing price on the date of the
                grant.





(d)
            Mr.
                Oros joined the Board in November 2006. He received cash compensation
                for
                Board meeting attendance. In addition, Mr. Oros received 250,000
                stock
                options for joining the Board of Directors. The options vest quarterly
                over a year and the exercise price is based on the closing price
                on the
                date of grant.





(e)
            Mr.
                Stanley received cash payments for Board meeting attendance. He was
                granted 75,000 stock options for membership on the Audit, Compensation,
                and Nominating Committees. As Chair of the Compensation Committee
                for part
                of 2006, Mr. Stanley received an additional grant of 10,000 stock
                options.
                The options vest quarterly over one year and the exercise price is
                based
                on the closing price on the date of
                grant.





**Compensation
      Committee Interlocks and Insider Participation**





No
      member
      of our Board's Compensation Committee has served as one of our officers or
      employees at any time. None of our Executive Officers serves as a member of
      the
      Compensation Committee of any other company that has an executive officer
      serving as a member of our Board of Directors. None of our executive officers
      serve as a member of the board of directors of any other company that has an
      executive officer serving as a member of our Board's Compensation
      Committee.




**Item
        12.** **Security
        Ownership of Certain Beneficial Owners and Management and Related Stockholder
        Matters**




The
      following table sets forth, as of March 24, 2007, certain
      information known to the Company with respect to the beneficial ownership of
      its
      Capital Stock, by (i) each person known by the Company to be the beneficial
      owner of more than 5% of the Company's outstanding Capital Stock, (ii) each
      executive officer named in the summary compensation table included elsewhere
      in
      this prospectus and director of the Company, and (iii) all directors and
      executive officers as a group. Except as otherwise indicated, the Company
      believes that the beneficial owners of the Capital Stock listed below, based
      on
      information furnished by such owners, have sole investment and voting power
      with
      respect to their shares.





**Name
                and Address of Beneficial Owner**
            
            **Number
                of Shares Beneficially Owned (1)**
            
            **Percentage
                Shares Beneficially Owned**Richard
                E. Bennett, Jr. (2) 2290 White Bluff Way, Buford, GA
                30519
            
            
            3,510,000
            
            
            6.3
            %William
                R. Dunavant (3) 1721 North Silver Springs Road, Park City, UT
                84098
            
            
            3,531,940
            
            
            6.3
            %Robert
                J. Walters (4) 3621 Howell TR, Duluth, GA 30096
            
            
            1,000,000
            
            
            1.8
            %Wilmington
                Trust (4) 1100 North Market St., Wilmington, DE 19890
            
            
            1,773,400
            
            
            3.2
            %Michael
                E. Criden (5) 3505 Koger Boulevard, Suite 400, Duluth, GA
                30096
            
            
            3,231,669
            
            
            5.5
            %Glenn
                H. Singer (6) 3505 Koger Boulevard, Suite 400, Duluth, GA
                30096
            
            
            4,350,000
            
            
            7.4
            %Justin
                A. Stanley (7) 3505 Koger Boulevard, Suite 400, Duluth, GA
                30096
            
            
            737,542
            
            
            1.3
            %David
                Ross (8) 3505 Koger Boulevard, Suite 400, Duluth, GA 30096
            
            
            733,750
            
            
            1.3
            %William
                J. Loughman (9) 3505 Koger Boulevard, Suite 400, Duluth, GA
                30096
            
            
            166,250
            
            
            *John
                E. Abdo (10) 3505 Koger Boulevard, Suite 400, Duluth, GA
                30096
            
            
            1,165,000
            
            
            2.2
            %David
                S. Oros (11) 3505 Koger Boulevard, Suite 400, Duluth, GA
                30096
            
            
            125,000
            
            
            *Tony
                Novia (12) 3505 Koger Boulevard, Suite 400, Duluth, GA
                30096
            
            
            167,850
            
            
            *Tom
                Parrish (13) 3505 Koger Boulevard, Suite 400, Duluth, GA
                30096
            
            
            150,000
            
            
            *Scott
                Hughes (14) 3505 Koger Boulevard, Suite 400, Duluth, GA
                30096
            
            
            1,607,500
            
            
            2.8
            %All
                directors and executive officers as a group (10 persons)
            
            
            12,509,556
            
            
            22.3
            %





Less
      than
      1%.





-49-




(1)
            Beneficial
                ownership is determined in accordance with the rules of the SEC.
                Shares of
                common stock (a) subject to options or warrants currently exercisable
                or exercisable within 60 days of March 27, 2007 or (b) into which
                shares of Preferred Stock are convertible, are deemed outstanding
                for
                computing the percentage ownership of the stockholder holding the
                options,
                warrants or Preferred Stock, as applicable, but are not deemed outstanding
                for computing the percentage ownership of any other stockholder.
                Unless
                otherwise indicated in the footnotes to this table, we believe that
                stockholders named in the table have sole voting and sole investment
                power
                with respect to the shares set forth opposite such stockholder's
                name.
                Unless otherwise indicated, the officers, directors and stockholders
                can
                be reached at our principal offices. As of March 27, 2007, the Company
                had
                56,100,617 shares of Capital Stock outstanding (which includes 2,433,333
                shares of Preferred Stock currently convertible into one share of
                Common
                Stock each).(2)
            Represents
                3,510,000 shares of common stock held by a trust for the benefit
                of
                Richard E. Bennett, Jr.(3)
            Represents
                3,531,940 shares of common stock held by a trust for the benefit
                of
                William R. Dunavant.




(4)
            Represents
                1,000,000 shares of common stock held by Robert J. Walters and 1,733,400
                shares of common stock held in a brokerage account at Wilmington
                Trust for the benefit of Robert J.
                Walters.




(5)
            Represents
                966,666 shares of common stock into which Mr. Criden's shares of
                the
                Preferred Stock are convertible, three warrants to purchase an aggregate
                of 1,899,998 shares of common stock at an exercise price of $1.25
                per
                share, and options to purchase 395,000 shares of common stock at
                exercise
                prices ranging from $1.31 per share to $1.91 per share; of which
                options
                to purchase 365,000 shares are exercisable within 60 days of March
                27,
                2007.




(6)
            Represents
                160,000 shares of common stock, 15,000 shares of common stock held
                in a
                custodial account for his children, 1,200,000 shares of common stock
                into
                which Mr. Singer's shares of the Preferred Stock are convertible,
                six
                warrants to purchase an aggregate of 2,560,000 shares of common stock
                at
                exercise prices ranging from $1.25 per share to $2.50 per share,
                and
                options to purchase 470,000 shares of common stock at exercise prices
                ranging from $1.02 per share to $1.91 per share; of which options
                to
                purchase 415,000 shares are exercisable within 60 days of March 27,
                2007.
                The warrants were issued in the name of GHS Holdings Limited Partnership,
                a company that Mr. Singer controls.




(7)
            Represents
                249,114 shares of common stock held by Mr. Stanley, 10,000 shares
                of
                common stock held in a custodial account for his children, two warrants
                to
                purchase an aggregate of 105,928 shares of common stock at exercise
                prices
                ranging from $0.75 to $2.50 per share, and options to purchase 410,000
                shares of common stock at exercise prices ranging from $0.90 per
                share to
                $1.91 per share; of which options to purchase 372,500 shares are
                exercisable within 60 days of March 27,
                2007.




(8)
            Represents
                options to purchase 1,300,000 shares of common stock at exercise
                prices
                ranging from $1.31 per share to $2.10 per share; of which 733,750
                are
                exercisable within 60 days of March 27,
                2007.




(9)
            Represents
                40,000 shares of common stock held my Mr. Loughman, one warrant to
                purchase an aggregate of 40,000 shares of common stock at an exercise
                price of $2.50 per share, and options to purchase 105,000 shares
                of common
                stock at exercises prices ranging from $1.31 per share to $1.95 per
                share;
                of which options to purchase 86,250 shares of common stock are exercisable
                within 60 days of March 27, 2007.




(10)
            Represents
                480,000 shares held by a trust for the benefit of John E. Abdo and
                one
                warrant to purchase an aggregate of 480,000 shares of common stock
                at an
                exercise price of $2.50 per share, and options to purchase 335,000
                shares
                of common stock at exercise prices ranging from $0.97 per share to
                $1.31
                per share; of which options to purchase 205,000 shares are exercisable
                within 60 days of March 27, 2007.




(11)
            Represents
                options to purchase 250,000 shares of common stock; 125,000 of which
                are
                exercisable at $1.02 per share within 60 days of March 27,
                2007.




(12)
            Represents
                options to purchase 400,000 shares of common stock; 125,000 of which
                are
                exercisable at $1.48, 17,850 of which are exercisable at $1.40, and
                25,000
                of which are exercisable at $1.31, in each case, within 60 days of
                March
                27, 2007.




(13)
            Represents
                options to purchase 350,000 shares of common stock; 125,000 of which
                are
                exercisable at $.151 and 25,000 of which are exercisable at $1.31,
                in each
                case, within 60 days of March 27,
                2007.




(14)
            Represents
                options to purchase 1,630,000 shares of common stock; 100,000 of
                which are
                exercisable at $1.00, 1,500,000 of which are exercisable at $1.55,
                and
                7,500 of which are exercisable at $1.31, in each case, within 60
                days of
                March 27, 2007.





-50-





**Item
      13.**  **Certain
      Relationships and Related Transactions, and Director
      Independence**





On
      December 2, 2005, the investors waived the conditions to complete the second
      closing under the Securities Purchase Agreement. In connection with the second
      closing, the Company received gross proceeds of $4,000,000 and issued to the
      investors an additional 5,333,333 shares of the Preferred Stock, five-year
      warrants exercisable at $1.75 per share to purchase up to 5,333,333 shares
      of
      common stock and five-year warrants exercisable at $2.00 per share to purchase
      up to 1,333,333 shares of common stock. Mr. Criden acquired 483,334 shares
      of
      the Preferred Stock and warrants to purchase 483,334 shares of common stock
      at
      $1.75 per share and 120,834 shares of common stock at $2.00 per share for a
      purchase price of $362,500, which was paid in cash. GHS Holdings Limited
      Partnership received 600,000 shares of the Preferred Stock and warrants to
      purchase 600,000 shares of common stock at $1.75 per share and 150,000 shares
      of
      common stock at $2.00 per share for a purchase price of $450,000, which was
      paid
      in cash.




On
      July
      17, 2006, the Company completed the private sale of its securities pursuant
      to
      the Securities Purchase Agreement (the “SPA”) dated as of July 7, 2006 among
      SmartVideo Technologies, Inc. and 74 accredited investors (the “Investors”).
      Under the terms of the SPA, the Company received gross proceeds of $9,000,000
      and issued to the Investors a total of 7,200,000 shares of common stock and
      five-year warrants exercisable at $2.50 per share to purchase up to 7,200,000
      shares of common stock. Justin Stanley, one of the Company's directors, acquired
      80,000 shares of the common stock and warrants to purchase 80,000 shares of
      common stock at $2.50 per share for a purchase price of $100,000 in cash.
      GHS Holdings Limited Partnership purchased 160,000 shares of the common stock
      and warrants to purchase 160,000 shares of common stock at $2.50 per share
      for a
      purchase price of $200,000, which was paid in cash. Art Criden, the brother
      of
      Michael Criden, one of the Company's directors, acquired, for $100,000 in cash,
      80,000 shares of common stock and warrants to purchase 80,000 shares of common
      stock at $2.50 per share.





This
      financing triggered the anti-dilution provision in warrants issued in a previous
      financing, thereby causing the issuance of additional warrants to purchase
      6,553,663 shares of common stock at an exercise price of $1.25 per share.
      Michael Criden and Glenn Singer, two of the Company's directors, participated
      in
      the prior offering and received additional warrants.




Our
      Audit
      Committee is charged with monitoring and reviewing issues involving potential
      conflicts of interest, and reviewing and approving all related party
      transactions.





**Our
      Board**





Our
      Board
      consists of five directors. See Part III. Item 10. The Board has determined
      that
      each of the Directors qualify as “independent” as defined by applicable NASDAQ
      and SEC rules. In making this determination, the Board has concluded that none
      of these members has a relationship which, in the opinion of the Board, would
      interfere with the exercise of independent judgment in carrying out the
      responsibilities of a director.





**Item
      14.**  **Principal
      Accountant Fees and Services**





The
      following table represents fees for professional services rendered by Sherb
      & Co. LLP billed to us for the audit of our annual financial statements for
      the years ended December 31, 2006 and 2005, respectively, and fees for other
      services during those periods.


**Type
                  of Fees**
              
              **2006**
              
              **2005**Audit
                  Fees
              
              $
              40,000
              
              $
              34,500Audit-Related
                  Fees
              
              
              13,500
              
              
              —Tax
                  Fees
              
              
              —
              
              
              —All
                  Other Fees
              
              
              2,250
              
              
              —Total
              
              $
              55,750
              
              $
              34,500






**Audit
      Fees**





We
      incurred the following fees to Sherb & Co. LLP, our independent auditors,
      for services rendered for the years ended December 31, 2006 and 2005, a total
      of
      (i) $55,750 incurred in fiscal 2006 for the audit of our financial statements
      for fiscal 2006 and the reviews of the financial statements included in each
      of
      our Quarterly Reports on Form 10-Q for the year ended December 31, 2006, (ii)
      $34,500 incurred in fiscal 2005 was paid to Sherb & Co. LLP. for the audit
      of our financial statements for fiscal 2005 and the reviews of the financial
      statements included in each of our Quarterly Reports on Form 10-QSB for the
      year
      ended December 31, 2005.





-51-




**Audit
      Related Fees**





There
      were no additional fees for 2006 and 2005 billed to us by Sherb & Co. LLP
      and Spicer Jeffries LLP for assurance and related services that are reasonably
      related to the performance of the audit and review of our financial statements
      that are not already reported in the paragraph immediately above.




**Tax
      Fees**




There
      were no additional fees for 2006 and 2005 billed to us by Sherb & Co. LLP
      for tax services.




**All
      Other Fees**





There
      were no additional fees for 2006 and 2005 billed to us by Sherb & Co. LLP
      for products and services rendered, other than as described above.





**Auditor
      Pre-Approval Policies**





The
      Audit
      Committee is responsible for pre-approving every engagement of the independent
      auditor to perform audit or non-audit services for us. The Audit Committee's
      pre-approval policy provides as follows:




·
            First,
                once a year when the base audit engagement is reviewed and approved,
                management will identify all other services (including fee ranges)
                for
                which management knows it will engage the independent auditor for
                the next
                12 months. Those services typically include quarterly reviews, specified
                tax matters, certifications to lenders as may be required by financing
                documents, consultation on new accounting and disclosure standards and, in
                future years, reporting on management's internal controls
                assessment.




·
            Second,
                if any new "unlisted" services are proposed during the year, the
                Audit
                Committee will review each proposed individual engagement. From and
                after
                the effective date of the Commission's rule requiring Audit Committee
                pre-approval of all audit and permissible non-audit services provided
                by
                independent auditors, the Audit Committee had pre-approved all audit
                and
                permissible non-audit services provided by Sherb & Co. LLP, since
                its engagement as our principal independent accountants. The Audit
                Committee gives due consideration to the potential effect of non-audit
                services on maintaining Sherb & Co. LLP’s audit
                independence.




-52-





**PART
      IV**





**Item
      15.**  **Exhibits
      and Financial Statement Schedules**





(a)  Documents
      filed as part of this report





(1)  Consolidated
      Financial Statements.





The
      following consolidated financial statements of SmartVideo are filed as part
      of
      this report:





Report
      of
      Independent Registered Accounting Firm


Consolidated
      Balance Sheets - December 31, 2006 and 2005


Consolidated
      Statements of Operations - Years ended December 31, 2006, 2005 and
      2004


Consolidated
      Statements of Changes in Stockholders' Deficit - Years ended December 31, 2006,
      2005 and 2004


Consolidated
      Statements of Cash Flow - Years ended December 31, 2006, 2005 and
      2004


Notes
      to
      Consolidated Financial Statements





(2)  Consolidated
      Financial Statement Schedule





All
      schedules required by applicable SEC regulations are either not required under
      the related instructions, are inapplicable or the required information has
      been
      included in the Consolidated Financial Statements and therefore such schedules
      have been omitted.





(3)  Exhibits.





**Exhibit**
              **Number**
            
            **Exhibit**3.1
            
            Certificate
                of Incorporation, as amended, incorporated by reference from Exhibit
                3.1
                to the Registrant's Current Report on Form 8-K filed on January 2,
                2001.3.2
            
            Bylaws,
                as amended, of the Company, incorporated by reference from Exhibit
                3.2 to
                the Registrant's Annual Report on Form 10-KSB for the fiscal year
                ended
                December 31, 2003.3.3
            
            Series
                A-1 Convertible Preferred Stock Certificate of Designation as filed
                with
                the Secretary of State of the State of Delaware, incorporated by
                reference
                from Exhibit 3.1 to the Registrant's Form 8-K filed with the SEC
                on
                November 4, 2005 (the “November 2005 Form 8-K”)3.4
            
            Certificate
                of Amendment to Certificate of Incorporation, incorporated by reference
                to
                Exhibit 3.1 to the Registrant's Current Report on Form 8-K filed
                on
                February 24, 2006.4.1
            
            Form
                of Securities Purchase Agreement, dated as of March 29, 2005, incorporated
                by reference from Exhibit 10.7 to the Registrant's Annual Report
                on Form
                10-KSB for the fiscal year ended December 31, 2004.4.2
            
            Form
                of Subscription Agreement, dated as of December 31, 2004, incorporated
                by
                reference from Exhibit 10.8 to the Registrant's Annual Report on
                Form
                10-KSB for the fiscal year ended December 31, 2004.4.3
            
            Form
                of Registration Rights Agreement, dated as of March 29, 2005, incorporated
                by reference from Exhibit 10.9 to the Registrant's Annual Report
                on Form
                10-KSB for the fiscal year ended December 31,
                2004.




-53-


**Exhibit**
              **Number**
            
            **Exhibit**4.4
            
            Form
                of Registration Rights Agreement, dated as of December 31, 2004,
                incorporated by reference from Exhibit 10.10 to the Registrant's
                Annual
                Report on Form 10-KSB for the fiscal year ended December 31,
                2004.4.5
            
            Registration
                Rights Agreement, dated as of November 29, 2004, between SmartVideo
                Technologies, Inc. and Interim CFO Solutions LLC, incorporated by
                reference from Exhibit 10.11 to the Registrant's Annual Report on
                Form
                10-KSB for the fiscal year ended December 31, 2004.4.6
            
            Form
                of Registration Rights Agreement, incorporated by reference from
                Exhibit
                10.7 to the Registrant's Annual Report on Form 10-KSB for the fiscal
                year
                ended December 31, 2003.4.7
            
            Amendment
                No. 1 dated March 29, 2005 to Securities Purchase Agreement, between
                SmartVideo Technologies, Inc. and Forte Capital Partners, LLC,
                incorporated by reference from Exhibit 4.7 to the Registrant's May
                2005
                Registration Statement on Form SB-2.4.8
            
            Form
                of warrant issued to each purchaser in the March 2005 private placement,
                incorporated by reference from Exhibit 4.1 to the Registrant's Annual
                Report on Form 10-KSB for the fiscal year ended December 31,
                2004.4.9
            
            Form
                of warrant issued to each purchaser in the December 2004 private
                placement, incorporated by reference from Exhibit 4.2 to the Registrant's
                Annual Report on Form 10-KSB for the fiscal year ended December 31,
                2004.4.10
            
            Warrant
                issued to Interim CFO Solutions LLC to purchase 100,000 shares of
                common
                stock at $1.50 per share, incorporated by reference from Exhibit
                4.3 to
                the Registrant's Annual Report on Form 10-KSB for the fiscal year
                ended
                December 31, 2004.4.11
            
            Warrant
                issued to Interim CFO Solutions LLC to purchase 100,000 shares of
                common
                stock at $2.00 per share, incorporated by reference from Exhibit
                4.4 to
                the Registrant's Annual Report on Form 10-KSB for the fiscal year
                ended
                December 31, 2004.4.12
            
            Warrant
                issued to Interim CFO Solutions LLC to purchase 1,739,130 units,
                incorporated by reference from Exhibit 4.5 to the Registrant's Annual
                Report on Form 10-KSB for the fiscal year ended December 31,
                2004.4.13
            
            Form
                of Warrant issued to Interim CFO Solutions LLC to purchase 434,783
                shares
                of common stock at $1.50 per share, incorporated by reference from
                Exhibit
                4.6 to the Registrant's Annual Report on Form 10-KSB for the fiscal
                year
                ended December 31, 2004.4.14
            
            Form
                of Warrant issued to Interim CFO Solutions LLC to purchase 434,783
                shares
                of common stock at $2.00 per share, incorporated by reference from
                Exhibit
                4.7 to the Registrant's Annual Report on Form 10-KSB for the fiscal
                year
                ended December 31, 2004.4.15
            
            Warrant
                issued to Trilogy Capital Partners, Inc. to purchase 150,000 shares
                of
                common stock at $4.30, incorporated by reference from Exhibit 4.15
                to the
                Registrant's May 2005 Registration Statement on Form
                SB-2.4.16
            
            Warrant
                issued to Trilogy Capital Partners, Inc. to purchase 275,000 shares
                of
                common stock at $5.00, incorporated by reference from Exhibit 4.16
                to the
                Registrant's May 2005 Registration Statement on Form
                SB-2.4.17
            
            Warrant
                issued to Trilogy Capital Partners, Inc. to purchase 375,000 shares
                of
                common stock at $5.50, incorporated by reference from Exhibit 4.17
                to the
                Registrant's May 2005 Registration Statement on Form
                SB-2.




-54-


**Exhibit**
              **Number**
            
            **Exhibit**4.18
            
            Warrant
                issued to Trilogy Capital Partners, Inc. to purchase 450,000 shares
                of
                common stock at $6.50, incorporated by reference from Exhibit 4.18
                to the
                Registrant's May 2005 Registration Statement on Form
                SB-2.4.19
            
            Securities
                Purchase Agreement dated as of October 31, 2005 among the Registrant
                and
                the investors listed on the Schedule of Buyers, incorporated by reference
                from Exhibit 10.1 of the November 2005 Form 8-K.4.20
            
            Registration
                Rights Agreement entered into as of October 31, 2005 among the Registrant
                and the investor signatory thereto, incorporated by reference from
                Exhibit
                10.2 to the November 2005 Form 8-K.4.21
            
            Form
                of $1.75 warrant issued to each purchaser in the October 2005 private
                placement, incorporated by reference from Exhibit 4.2 of the November
                2005
                Form 8-K.4.22
            
            Form
                of $2.00 warrant issued to each purchaser in the October 2005 private
                placement, incorporated by reference from Exhibit 4.1 of the November
                2005
                Form 8-K.4.23
            
            Warrant
                issued to Glenn Singer to purchase 33,333 shares of common stock
                at $2.00
                per share, incorporated by reference by Exhibit 10.5 to the November
                2005
                Form 8-K.4.24
            
            Warrant
                issued to Michael E. Criden to purchase 33,333 shares of common stock
                at
                $2.00 per share, incorporated by reference from Exhibit 10.7 to the
                November 2005 Form 8-K.4.25
            
            Warrant
                issued to GHS Holdings Limited Partnership to purchase 66,667 shares
                of
                common stock at $2.00 per share, incorporated by reference from Exhibit
                10.9 to the November 2005 Form 8-K.4.26
            
            Warrant
                issued to Michael E. Criden to purchase 66,667 shares of common stock
                at
                $2.00 per share, incorporated by reference from Exhibit 10.11 to
                the
                November 2005 Form 8-K.4.27
            
            Form
                of Warrant, incorporated by reference from Exhibit 4.1 to the July
                21,
                2006 Form 8-K.4.28
            
            Form
                of Anti-Dilution Warrant, incorporated by reference from the November
                4,
                2005 Form 8-K.10.1
            
            Convertible
                Promissory Note dated September 26, 2005 issued to Glenn Singer,
                incorporated by reference from Exhibit 10.4 to the November 2005
                Form
                8-K.10.2
            
            Warrant
                issued to Glenn Singer to purchase 33,333 shares of common stock
                at $2.00
                per share, incorporated by reference by Exhibit 10.5 to the November
                2005
                Form 8-K.10.3
            
            Convertible
                Promissory Note issued to Michael E. Criden dated September 26, 2005,
                incorporated by reference from Exhibit 10.6 to the November 2005
                Form
                8-K.10.4
            
            Warrant
                issued to Michael E. Criden to purchase 33,333 shares of common stock
                at
                $2.00 per share, incorporated by reference from Exhibit 10.7 to the
                November 2005 Form 8-K.10.5
            
            Convertible
                Promissory Note dated October 19, 2005 issued to GHS Holdings Limited
                Partnership, incorporated by reference from Exhibit 10.8 to the November
                2005 Form 8-K.10.6
            
            Warrant
                issued to GHS Holdings Limited Partnership to purchase 66,667 shares
                of
                common stock at $2.00 per share, incorporated by reference from Exhibit
                10.9 to the November 2005 Form 8-K.




-55-


**Exhibit**
              **Number**
            
            **Exhibit**10.7
            
            Convertible
                Promissory Note dated October 19, 2005 issued to Michael E. Criden,
                incorporated by reference from Exhibit 10.10 to the November 2005
                Form
                8-K.10.8
            
            Warrant
                issued to Michael E. Criden to purchase 66,667 shares of common stock at
                $2.00 per share, incorporated by reference from Exhibit 10.11 to
                the
                November 2005 Form 8-K.10.9
            
            Waiver
                of Second Closing Conditions under the Securities Purchase Agreement,
                incorporated by reference from Exhibit 10.1 to the December 2005
                Form
                8-K.10.10
            
            Settlement
                Agreement, dated January 30, 2006, among KC Ventures, Inc., Richard
                Seifert, SmartVideo Technologies, Inc. and OVT, Inc., incorporated
                by
                reference from Exhibit 10.1 to the January 31, 2006 Form
                8-K.10.11
            
            Consulting
                Agreement, dated January 27, 2006, among Growth Consultants, LLC,
                N. John
                Simmons, Jr., and the Company.10.12
            
            Employment
                Agreement, dated as of February 28, 2006, between the Registrant
                and David
                Ross, incorporated by reference to Exhibit 10.1 to the Form 8-K filed
                with
                the SEC on March 6, 2006.10.13
            
            Agreement
                dated as of April 14, 2006, among the Company, OVT, Inc., Richard
                E.
                Bennett, Jr., Robert J. Walters and William R. Dunavant, incorporated
                by
                reference to Exhibit 10.13 to Post Effective Amendment No. 3 to the
                Company's Registration Statement on Form S-1 filed with the SEC on
                April
                19, 2006.10.14
            
            Settlement
                and Release Agreement dated June 8, 2006 among the Registrant and
                Enable
                Growth Partners, LP, incorporated by reference to Exhibit 10.1 to
                the June
                13, 2006 Form 8-K.10.15
            
            Interim
                Executive Services Agreement dated March 20, 2006 between the Company
                and
                Tatum, LLC, incorporated by reference to Exhibit 10.15 of the Company’s
                Registration Statement on Form S-1, filed on June 30, 2006 (SEC
                Registration No. 333-135532 (the “2006 S-1”)).10.16
            
            Securities
                Purchase Agreement dated July 17, 2006 among the Registrant and the
                investors listed on the Schedule of Buyers, incorporated by reference
                from
                Exhibit 10.1 to the Registrant's Form 8-K filed with the SEC on July
                21,
                2006 (“July 21, 2006 Form 8-K”).10.17
            
            Registration
                Rights Agreement entered into as of July 17, 2006 among the Registrant
                and
                the investor signatory thereto, incorporated by reference from Exhibit
                10.2 to the July 21, 2006 Form 8-K.10.18
            
            Form
                of $1.25 warrant issued to each purchaser in the July 17, 2006 private
                placement, incorporated by reference from Exhibit 4.1 of the July
                21, 2006
                Form 8-K.10.19
            
            Employment
                Agreement, dated as of June 12, 2006, between the Registrant and
                Tom
                Parrish, incorporated by reference from Exhibit 10.19 of the 2006
                S-1.10.20
            
            Employment
                Agreement, dated as of June 30, 2006, between the Registrant and
                Tracy
                Caswell, incorporated by reference from Exhibit 10.20 of the Company's
                Registration Statement on Form S-1 (SEC Registration No. 333-135532
                filed
                with the SEC on June 30, 2006 (the "2006 S-1").10.21
            
            First
                Amendment to Tracy Culver Caswell's June 30th, 2006 Executive Employment
                Agreement, dated as of July 25, 2006, between the Registrant and
                Tracy
                Caswell, incorporated by reference from Exhibit 10.21 of the 2006
                S-1.10.22**
            
            Master
                Development Agreement dated July 24, 2006, between Skyward Mobile,
                LLC and the Company.




-56-


**Exhibit**
              **Number**
            
            **Exhibit**10.23**
            
            Master
                Consulting Agreement dated July 24, 2006, between James Morrison
                and the
                Company, incorporated by reference from Exhibit 10.23 to the Registrant’s
                Form S-1/A filed on September 27, 2006.10.24**
            
            Redeemable
                Warrant issued to Skyward Mobile, LLC,
                incorporated by reference from Exhibit 10.24 to the Registrant’s Form
                S-1/A filed on September 27, 2006.10.25**
            
            Letter
                Agreement dated August 22, 2006, between Joseph S. Johnson and the
                Company,
                incorporated by reference from Exhibit 10.25 to the Registrant’s Form
                S-1/A filed on September 27, 2006.10.26**
            
            Redeemable
                Warrant issued to James Morrison,
                incorporated by reference from Exhibit 10.26 to the Registrant’s Form
                S-1/A filed on September 27, 2006.10.27**
            
            Redeemable
                Warrant issued to Skyward Mobile, LLC,
                incorporated by reference from Exhibit 10.27 to the Registrant’s Form
                S-1/A filed on September 27, 2006.10.28**
            
            Redeemable
                Warrant issued to Skyward Mobile, LLC,
                incorporated by reference from Exhibit 10.28 to the Registrant’s Form
                S-1/A filed on September 27, 2006.10.29**
            
            Redeemable
                Warrant issued to Skyward Mobile, LLC,
                incorporated by reference from Exhibit 10.29 to the Registrant’s Form
                S-1/A filed on September 27, 2006.10.30**
            
            Redeemable
                Warrant issued to Skyward Mobile, LLC,
                incorporated by reference from Exhibit 10.30 to the Registrant’s Form
                S-1/A filed on September 27, 2006.10.31**
            
            Redeemable
                Warrant issued to Skyward Mobile, LLC,
                incorporated by reference from Exhibit 10.31 to the Registrant’s Form
                S-1/A filed on September 27, 2006.10.32**
            
            Redeemable
                Warrant issued to Skyward Mobile, LLC,
                incorporated by reference from Exhibit 10.32 to the Registrant’s Form
                S-1/A filed on September 27, 2006.10.33**
            
            Redeemable
                Warrant issued to Skyward Mobile, LLC,
                incorporated by reference from Exhibit 10.33 to the Registrant’s Form
                S-1/A filed on September 27, 2006.10.34**
            
            Redeemable
                Warrant issued to Skyward Mobile, LLC,
                incorporated by reference from Exhibit 10.34 to the Registrant’s Form
                S-1/A filed on September 27, 2006.10.35**
            
            Redeemable
                Warrant issued to James Morrison,
                incorporated by reference from Exhibit 10.35 to the Registrant’s Form
                S-1/A filed on September 27, 2006.10.36**
            
            Redeemable
                Warrant issued to James Morrison,
                incorporated by reference from Exhibit 10.36 to the Registrant’s Form
                S-1/A filed on September 27, 2006.10.37**
            
            Redeemable
                Warrant issued to James Morrison,
                incorporated by reference from Exhibit 10.37 to the Registrant’s Form
                S-1/A filed on September 27, 2006.10.38**
            
            Redeemable
                Warrant issued to James Morrison,
                incorporated by reference from Exhibit 10.38 to the Registrant’s Form
                S-1/A filed on September 27, 2006.10.39**
            
            Redeemable
                Warrant issued to James Morrison,
                incorporated by reference from Exhibit 10.39 to the Registrant’s Form
                S-1/A filed on September 27, 2006.




-57-


**Exhibit**
              **Number**
            
            **Exhibit**10.40**
            
            Redeemable
                Warrant issued to James Morrison,
                incorporated by reference from Exhibit 10.40 to the Registrant’s Form
                S-1/A filed on September 27, 2006.10.41**
            
            Redeemable
                Warrant issued to James Morrison,
                incorporated by reference from Exhibit 10.41 to the Registrant’s Form
                S-1/A filed on September 27, 2006.10.42**
            
            Redeemable
                Warrant issued to James Morrison,
                incorporated by reference from Exhibit 10.42 to the Registrant’s Form
                S-1/A filed on September 27, 2006.10.43
            
            Smart
                Video Technologies, Inc. 2004 Equity Incentive Plan, incorporated
                by
                reference from the Company's proxy statement on Scheduled 14A filed
                with
                the SEC on July 21, 2004.10.44
            
            Smart
                Video Technologies, Inc. 2005 Stock Incentive Plan, incorporated by
                reference from the Company's proxy statement on Scheduled 14A filed
                with
                the SEC on January 19, 2006.10.45
            
            Form
                of Non-Qualified Stock Option, incorporated by reference from Exhibit
                10.45 to the Registrant’s Form S-1/A filed on September 27,
                2006.10.46
            
            Form
                of Non-Qualified Stock Option, incorporated by reference from Exhibit
                10.46 to the Registrant’s Form S-1/A filed on September 27,
                2006.10.47
            
            Form
                of Incentive Stock Option, incorporated by reference from Exhibit
                10.47 to
                the Registrant’s Form S-1/A filed on September 27,
                2006.10.48
            
            Form
                of Incentive Stock Option, incorporated by reference from Exhibit
                10.48 to
                the Registrant’s Form S-1/A filed on September 27,
                2006.10.49
            
            General
                Release and Settlement Agreement dated January 11, 2007 by and between
                SmartVideoTM Technologies, Inc. d/b/a uVuMobileTM and the claimant parties
                signatory thereto, incorporated by reference from Exhibit 10.1 to
                the
                January 17, 2006 Form 8-K.10.50
            
            Registration
                Rights Agreement dated January 11, 2007 by and between SmartVideoTM
                Technologies, Inc. d/b/a uVuMobileTM and the investors signatory thereto,
                incorporated by reference from Exhibit 10.2 to the January 17, 2006
                Form
                8-K.10.51
            
            Letter
                dated July 7, 2006 regarding extension of the Growth Consultants,
                LLC
                Consulting Agreement, incorporated by reference from Exhibit 10.4
                to the
                Registrant’s Form 10-Q filed on November 6, 2006.10.52*
            
            Consulting
                Agreement, dated November 1, 2006, among Centurion Investments and
                Holding
                Company, and the Registrant.10.53
            
            Redeemable
                Warrant to Purchase 150,000 Shares of the Common Stock of Smartvideo
                Technologies, Inc. for $2.50 per share issued to William B. Bandy
                and
                dated November 12, 2003, incorporated by reference from Exhibit (d)(76)
                to
                the Registrants Schedule TO-I filed on March 9, 2007.10.54
            
            Redeemable
                Warrant to Purchase 13,000 Shares of the Common Stock of Smartvideo
                Technologies, Inc. for $2.50 per share issued to Christopher V. Devone
                and
                dated November 12, 2003, incorporated by reference from Exhibit (d)(77)
                to
                the Registrants Schedule TO-I filed on March 9, 2007.10.55
            
            Redeemable
                Warrant to Purchase 25,000 Shares of the Common Stock of Smartvideo
                Technologies, Inc. for $2.50 per share issued to Christopher V. Devone
                and
                dated October 30, 2003, incorporated by reference from Exhibit (d)(78)
                to
                the Registrants Schedule TO-I filed on March 9, 2007.10.56
            
            Redeemable
                Warrant to Purchase 350,000 Shares of the Common Stock of Smartvideo
                Technologies, Inc. for $2.10 per share issued to Dale Financial Consulting
                Services, Attn: Dick Newburg and dated February 28, 2006, incorporated
                by
                reference from Exhibit (d)(79) to the Registrants Schedule TO-I filed
                on
                March 9, 2007.




-58-


**Exhibit**
              **Number**
            
            **Exhibit**10.57
            
            Registration
                Rights Agreement dated February 28, 2006 between Smartvideo Technologies,
                Inc. and Dale Financial Consulting Services, incorporated by reference
                from Exhibit (d)(80) to the Registrants Schedule TO-I filed on March
                9,
                2007.10.58
            
            Redeemable
                Warrant to Purchase 20,000 Shares of the Common Stock of Smartvideo
                Technologies, Inc. for $2.10 per share issued to Al Mahesh and dated
                February 28, 2006, incorporated by reference from Exhibit (d)(81)
                to the
                Registrants Schedule TO-I filed on March 9, 2007.10.59
            
            Registration
                Rights Agreement dated February 28, 2006 between Smartvideo Technologies,
                Inc. and Al Mahesh, incorporated by reference from Exhibit (d)(82)
                to the
                Registrants Schedule TO-I filed on March 9,
                2007.


21*
            
            Subsidiary
                of SmartVideo Technologies Inc23.1*
            
            Consent
                of Sherb & Co., LLP, independent registered public accounting
                firm.31.1*
            
            Certification
                of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 200231.2*
            
            Certification
                of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 200232.1*
            
            Certification
                of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
                Act of 200232.2*
            
            Certification
                of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
                Act of 2002




*
            Filed
                herewith**
            Certain
                confidential information contained in the document filed herewith
                has been
                omitted and filed separately with the Securities and Exchange Commission
                pursuant to Rule 406 of the Securities Act of 1933, as
                amended.





(b)
            Item
                601 Exhibits





The
      exhibits required by Item 601 of Regulation S-K are set forth in (a) (3)
      above.





(c)
            Financial
                Statement Schedules





The
      financial statement schedules required by Regulation S-K are set forth in (a)
      (2) above.




-59-





SIGNATURES





Pursuant
      to the requirements of Section 13 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.




SMARTVIDEO
                TECHNOLOGIES, INC.March
                30, 2007
            By:
            /s/
                David R. RossDavid
                R. Ross President and InterimChief
                Executive Officer




Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons on behalf of the Registrant and in the
      capacities indicated on March 30, 2006.




Signature
            
            Title
            
            Date/s/
                David R. RossDavid
                R. Ross
            
            Interim
                Chief Executive Officer and President
            
            March
                30, 2007/s/
                William J. LoughmanWilliam
                J. Loughman
            
            Chief
                Financial Officer
            
            March
                30, 2007/s/
                Glenn H. SingerGlenn
                H. Singer
            
            Chairman
                of the Board of Directors
            
            March
                30, 2007/s/
                Michael E. CridenMichael
                E. Criden
            
            Director
            
            March
                30, 2007/s/
                Justin A. StanleyJustin
                A. Stanley
            
            Director
            
            March
                30, 2007/s/
                John E. AbdoJohn
                E. Abdo
            
            Director
            
            March
                30,2007/s/
                David OrosDavid
                Oros
            
            Director
            
            March
                30, 2007




-60-




**FINANCIAL
      STATEMENTS**




**Index
      to Financial Statements**





Report
                of Independent Registered Public Accounting Firm
            F-2Consolidated
                Balance Sheet
            F-3Consolidated
                Statements of Operations
            F-4Consolidated
                Statements of Changes in Stockholders’ Deficit
            F-5Consolidated
                Statements of Cash Flows
            F-6Notes
                to Consolidated Financial Statements
            F-7




F-1




REPORT
      OF
      INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To
      the
      Board of Directors and Shareholders


SmartVideo
      Technologies, Inc.





We
      have
      audited the accompanying consolidated balance sheets of SmartVideo Technologies,
      Inc. and Subsidiary as of December 31, 2006 and 2005 and the related
      consolidated statements of operations, changes in Stockholders’ deficit and cash
      flows for the years ended December 31, 2006, 2005, and 2004. These consolidated
      financial statements are the responsibility of the Company’s management. Our
      responsibility is to express an opinion on these consolidated financial
      statements based on our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the
      consolidated financial statements are free of material misstatement. An audit
      includes examining, on a test basis, evidence supporting the amounts and
      disclosures in the financial statements. An audit also includes assessing the
      accounting principles used and significant estimates made by management, as
      well
      as evaluating the overall financial statement presentation. We believe that
      our
      audits provide a reasonable basis for our opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of SmartVideo Technologies,
      Inc. and Subsidiary as of December 31, 2006 and 2005 and the results of
      their operations and their cash flows for the years ended December 31, 2006,
      2005 and 2004, in conformity with accounting principles generally accepted
      in
      the United States of America.





The
      accompanying consolidated financial statements have been prepared assuming
      that
      the Company will continue as a going concern. As discussed in Note 2 to the
      financial statements, the Company has suffered recurring losses from operations,
      has net cash used in operations, a net working capital deficit, a stockholders’
deficit and an accumulated deficit that raises substantial doubt about its
      ability to continue as a going
      concern. Management’s plan in regard to these matters is also described in Note
      2. The consolidated financial statements do not include any adjustments that
      might result from the outcome of this uncertainty.







/s/
                SHERB & CO., LLPSHERB
                & CO., LLPCertified
                Public Accountants





Boca
      Raton, Florida


March
      23,
      2007





F-2





**SMARTVIDEO
      TECHNOLOGIES, INC. AND SUBSIDIARY**


**Consolidated
      Balance Sheets**


**December
      31, 2006 and 2005**


**December
                  31,**
              
              **December
                  31,****2006**
              
              **2005****Assets****Current
                  Assets**Cash
              
              $
              3,696,581
              
              $
              5,792,566Certificate
                  of deposit
              
              
              201,447
              
              
              —Accounts
                  receivable - net of allowance for doubtful accounts of $0 and
                  $77,937
              
              
              162,795
              
              
              —Broadcast
                  rights - net of accumulated amortization of $2,273,192 and
                  $1,740,552
              
              
              301,281
              
              
              2,408,525Prepaid
                  expenses
              
              
              125,189
              
              
              —**Total
                  Current Assets**
              
              
              **4,487,293**
              
              
              **8,201,091****Property
                  and Equipment, net of accumulated depreciation of $936,614 and
                  $350,641**
              
              
              **1,541,390**
              
              
              **716,423****Other
                  Assets**Broadcast
                  rights, net of current portion
              
              
              310,384
              
              
              2,880,999Intangible
                  assets - net of accumulated amortization of $14,725 and
                  $0
              
              
              250,317
              
              
              —Other
              
              
              102,261
              
              
              122,161**Total
                  Other Assets**
              
              
              662,962
              
              
              3,003,160**Total
                  Assets**
              
              $
              6,691,645
              
              $
              11,920,674**Liabilities
                  and Stockholders' Deficit****Current
                  Liabilities**Accounts
                  payable and accrued expenses
              
              $
              2,048,129
              
              $
              2,905,618Contracts
                  payable - broadcast rights
              
              
              2,454,725
              
              
              2,283,500Capital
                  lease obligations - current
              
              
              33,255
              
              
              —Deferred
                  Current Liabilities
              
              
              20,248
              
              
              —Accrued
                  settlement expenses
              
              
              5,022,000
              
              
              5,541,244Due
                  to related parties
              
              
              —
              
              
              64,429Loan
                  payable and related accrued interest
              
              
              63,042
              
              
              59,922**Total
                  Current Liabilities**
              
              
              **9,641,399**
              
              
              **10,854,713****Long-Term
                  Liabilities**Contracts
                  payable - broadcast rights - net of current portion
              
              
              979,851
              
              
              3,386,576Capital
                  lease obligations - net of current portion
              
              
              161,089
              
              
              —**Total
                  Long-Term Liabilities**
              
              
              1,140,940
              
              
              3,386,576**Total
                  Liabilities**
              
              
              **10,782,339**
              
              
              **14,241,289****Commitments
                  and Contingencies****Stockholders'
                  Deficit**Preferred
                  stock, Series A-1, Convertible, $.001 par value, 50,000,000 sharesauthorized,
                  11,666,666 shares issued and 2,633,333 outstanding as of
                  December31,
                  2006, 10,666,666 shares issued and outstanding as of December 31,
                  2005
              
              
              2,634
              
              
              10,667Common
                  stock, $.001 par value, 150,000,000 shares authorized, 47,292,284
                  shares
                  issuedand
                  outstanding as of December 31, 2006, 28,688,463 shares issued andoutstanding
                  as of December 31, 2005
              
              
              47,288
              
              
              28,689Additional
                  paid-in capital
              
              
              61,179,644
              
              
              39,027,618Less:
                  Deferred consulting fees
              
              
              (877,628
              )
              
              (1,433,833
              )Accumulated
                  deficit
              
              
              (64,442,632
              )
              
              (39,953,756
              )**Total
                  Stockholders' Deficit**
              
              
              **(4,090,694**
              **)**
              
              **(2,320,615**
              **)****Total
                  Liabilities and Stockholders' Deficit**
              
              $
              6,691,645
              
              $
              11,920,674




**See
      accompanying notes to consolidated financial statements**




F-3




**SMARTVIDEO
      TECHNOLOGIES, INC. AND SUBSIDIARY**


**Consolidated
      Statements of Operations**


**For
                  the Years Ended****December
                  31,****2006**
              
              **2005**
              
              **2004****Revenues**Revenue
              
              $
              800,231
              
              $
              197,257
              
              $
              118,733**Total
                  Revenues**
              
              
              **800,231**
              
              
              **197,257**
              
              
              **118,733****Cost
                  of Goods Sold**Cost
                  of goods sold
              
              
              94,830
              
              
              —
              
              
              —**Total
                  Cost of Goods Sold**
              
              
              **94,830**
              
              
              **—**
              
              
              **—****Gross
                  Profit**
              
              
              **705,401**
              
              
              **197,257**
              
              
              **118,733****Operating
                  Expenses**Broadcast
                  rights
              
              
              2,024,549
              
              
              2,001,584
              
              
              —Impairment
                  of broadcast rights
              
              
              2,330,000
              
              
              —
              
              
              —Compensation
                  and benefits
              
              
              2,723,307
              
              
              1,757,088
              
              
              1,034,951Consulting
                  and professional fees
              
              
              4,060,773
              
              
              1,851,781
              
              
              1,235,523Data
                  center
              
              
              990,163
              
              
              770,702
              
              
              355,999Depreciation
                  and amortization
              
              
              600,698
              
              
              278,328
              
              
              47,649Settlement
                  expense
              
              
              4,935,756
              
              
              5,541,244
              
              
              —Stock-based
                  compensation
              
              
              5,038,519
              
              
              4,325,680
              
              
              3,118,996Selling,
                  general and administrative
              
              
              2,750,626
              
              
              2,495,104
              
              
              1,046,567**Total
                  Operating Expenses**
              
              
              **25,454,391**
              
              
              **19,021,511**
              
              
              **6,839,685****Loss
                  from Operations**
              
              
              **(24,748,990**
              **)**
              
              **(18,824,254**
              **)**
              
              **(6,720,952**
              **)****Other
                  Income (Expense)**Interest
                  income (expense)
              
              
              260,114
              
              
              (916,020
              )
              
              (71,978
              )**Total
                  Other Income (Expense), Net**
              
              
              **260,114**
              
              
              **(916,020**
              **)**
              
              **(71,978**
              **)****Net
                  Loss**
              
              **$**
              **(24,488,876**
              **)**
              **$**
              **(19,740,274**
              **)**
              **$**
              **(6,792,930**
              **)**Net
                  loss per share - basic and diluted
              
              **$**
              **(0.61**
              **)**
              **$**
              **(0.76**
              **)**
              **$**
              **(0.35**
              **)**Weighted
                  average common sharesoutstanding
                  during the period
              
              
              **40,285,528**
              
              
              **26,093,554**
              
              
              **19,208,345**




**See
      accompanying notes to consolidated financial statements**




F-4




**SMARTVIDEO
      TECHNOLOGIES, INC. AND SUBSIDIARY**


**Consolidated
      Statements of Changes in Stockholders’ Deficit**


**For
      the Period from December 31, 2004, 2005 and 2006**


**Series
                  A-1, Convertible**
              
              
              
              
              
              **Additional**
              
              **Deferred****Preferred
                  Stock**
              
              **Common
                  Stock**
              
              **Paid-in**
              
              **Consulting**
              
              **Accumulated****Shares**
              
              **Par
                  Value**
              
              **Shares**
              
              **Par
                  Value**
              
              **Capital**
              
              **Fees**
              
              **Deficit**
              
              **Total**Balance,
                  December 31, 2003
              
              
              12,000,000
              
              $
              12,000
              
              
              8,912,991
              
              $
              8,913
              
              $
              4,533,253
              
              $
              —
              
              $
              (5,420,552
              )
              $
              (866,386
              )Issuance
                  of common stock for cash
              
              
              —
              
              
              —
              
              
              94,096
              
              
              94
              
              
              260,906
              
              
              —
              
              
              —
              
              
              261,000Issuance
                  of common stock pursuant toconversions
                  of convertible debt
              
              
              —
              
              
              —
              
              
              302,559
              
              
              303
              
              
              254,074
              
              
              —
              
              
              —
              
              
              254,377Conversion
                  of preferred stock intocommon
                  stock
              
              
              (12,000,000
              )
              
              (12,000
              )
              
              12,000,000
              
              
              12,000
              
              
              —
              
              
              —
              
              
              —
              
              
              —Issuance
                  of common stock for cash
              
              
              —
              
              
              —
              
              
              723,000
              
              
              723
              
              
              784,777
              
              
              —
              
              
              —
              
              
              785,500Issuance
                  of common stock for cash
              
              
              —
              
              
              —
              
              
              333,952
              
              
              334
              
              
              333,618
              
              
              —
              
              
              —
              
              
              333,952Issuance
                  of stock options toemployees
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              374,500
              
              
              —
              
              
              —
              
              
              374,500Issuance
                  of stock options toto
                  non-employees
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              395,000
              
              
              (370,313
              )
              
              —
              
              
              24,687Issuance
                  of common stock and commonstock
                  purchase warrants for cash
              
              
              —
              
              
              —
              
              
              120,000
              
              
              120
              
              
              119,880
              
              
              —
              
              
              —
              
              
              120,000Issuance
                  of common stock and commonstock
                  purchase warrants for cash
              
              
              —
              
              
              —
              
              
              960,000
              
              
              960
              
              
              959,040
              
              
              —
              
              
              —
              
              
              960,000Issuance
                  of common stock and commonstock
                  purchase warrants on conversionof
                  debt to equity
              
              
              —
              
              
              —
              
              
              400,000
              
              
              400
              
              
              399,600
              
              
              —
              
              
              —
              
              
              400,000Issuance
                  of warrants to purchase units ofcommon
                  stock and common stockpurchase
                  warrants on conversion ofdebt
                  to equity and deferredcompensation
                  related to conversion
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              1,590,435
              
              
              —
              
              
              —
              
              
              1,590,435Issuance
                  of warrants to purchase sharesof
                  common stock
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              442,000
              
              
              —
              
              
              —
              
              
              442,000Issuance
                  of stock options toto
                  non-employees
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              3,044,650
              
              
              (2,764,750
              )
              
              —
              
              
              279,900Issuance
                  of common stock and commonstock
                  purchase warrants for cash
              
              
              —
              
              
              —
              
              
              341,236
              
              
              341
              
              
              767,409
              
              
              —
              
              
              —
              
              
              767,750Net
                  Loss
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (6,792,930
              )
              
              (6,792,930
              )Balance,
                  December 31, 2004
              
              
              —
              
              
              —
              
              
              24,187,834
              
              
              24,188
              
              
              14,259,142
              
              
              (3,135,063
              )
              
              (12,213,482
              )
              
              (1,065,215
              )Issuance
                  of convertible preferred stockstock
                  for cash
              
              
              8,919,999
              
              
              8,920
              
              
              —
              
              
              —
              
              
              6,681,080
              
              
              —
              
              
              —
              
              
              6,690,000Issuance
                  of convertible preferred stock in connectionwith
                  conversion of convertible debt
              
              
              1,746,667
              
              
              1,747
              
              
              —
              
              
              —
              
              
              1,308,253
              
              
              —
              
              
              —
              
              
              1,310,000Dividend
                  recorded on convertible preferred stock issuance
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              8,000,000
              
              
              —
              
              
              (8,000,000
              )
              
              —Issuance
                  of common stock for cash
              
              
              —
              
              
              —
              
              
              1,761,345
              
              
              1,761
              
              
              3,961,239
              
              
              —
              
              
              —
              
              
              3,963,000Cash
                  paid as direct offering cost
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (233,125
              )
              
              —
              
              
              —
              
              
              (233,125
              )Issuance
                  of common stock in connectionwith
                  cash based warrant exercises
              
              
              —
              
              
              —
              
              
              527,779
              
              
              528
              
              
              722,807
              
              
              —
              
              
              —
              
              
              723,335Issuance
                  of common stock in connectionwith
                  cashless based warrant exercises
              
              
              —
              
              
              —
              
              
              1,338,623
              
              
              1,339
              
              
              (1,339
              )
              
              —
              
              
              —
              
              
              —Issuance
                  of common stock ascompensation
                  to investors
              
              
              —
              
              
              —
              
              
              50,000
              
              
              50
              
              
              197,450
              
              
              —
              
              
              —
              
              
              197,500Issuance
                  of stock for services
              
              
              —
              
              
              —
              
              
              750,000
              
              
              750
              
              
              711,750
              
              
              —
              
              
              —
              
              
              712,500Issuance
                  of common stock for settlement ofvendor
                  payables
              
              
              —
              
              
              —
              
              
              72,882
              
              
              73
              
              
              82,777
              
              
              —
              
              
              —
              
              
              82,850Issuance
                  of warrants for services
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              2,624,450
              
              
              —
              
              
              —
              
              
              2,624,450Amortization
                  of beneficial conversion feature onconvertible
                  debt
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              713,134
              
              
              —
              
              
              —
              
              
              713,134Amortization
                  of stock based compensation
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              1,701,230
              
              
              —
              
              
              1,701,230Net
                  Loss
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (19,740,274
              )
              
              (19,740,274
              )Balance,
                  December 31, 2005
              
              
              10,666,666
              
              
              10,667
              
              
              28,688,463
              
              
              28,689
              
              
              39,027,618
              
              
              (1,433,833
              )
              
              (39,953,756
              )
              
              (2,320,615
              )Amortization
                  of stock based compensation
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (271,563
              )
              
              2,372,017
              
              
              —
              
              
              2,100,454Fair
                  market value of options granted
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              1,815,812
              
              
              (1,815,812
              )
              
              —
              
              
              —Exercise
                  of warrants
              
              
              —
              
              
              —
              
              
              807,607
              
              
              806
              
              
              943,169
              
              
              —
              
              
              —
              
              
              943,975Issuance
                  of common stock for settlement of vendor payables
              
              
              —
              
              
              —
              
              
              434,916
              
              
              435
              
              
              501,502
              
              
              —
              
              
              —
              
              
              501,937Issuance
                  of common stock due to anti-dilution
              
              
              —
              
              
              —
              
              
              1,121,856
              
              
              1,122
              
              
              (1,122
              )
              
              —
              
              
              —
              
              
              —Issuance
                  of convertible preferred stock
              
              
              1,000,000
              
              
              1,000
              
              
              —
              
              
              —
              
              
              4,749,000
              
              
              —
              
              
              —
              
              
              4,750,000Conversion
                  of Series A-1 convertible preferred
              
              
              (9,033,333
              )
              
              (9,033
              )
              
              9,033,333
              
              
              9,033
              
              
              —
              
              
              —
              
              
              —
              
              
              —Issuance
                  of warrants for services
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              1,557,690
              
              
              —
              
              
              —
              
              
              1,557,690FAS
                  123R amortization
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              3,287,405
              
              
              —
              
              
              —
              
              
              3,287,405Issuance
                  of common stock for cash
              
              
              —
              
              
              —
              
              
              7,206,109
              
              
              7,203
              
              
              9,640,800
              
              
              —
              
              
              —
              
              
              9,648,003Redemption
                  of warrants
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (70,667
              )
              
              —
              
              
              —
              
              
              (70,667
              )Net
                  Loss
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (24,488,876
              )
              
              (24,488,876
              )Balance,
                  December 31, 2006
              
              
              2,633,333
              
              $
              2,634
              
              
              47,292,284
              
              $
              47,288
              
              $
              61,179,644
              
              $
              (877,628
              )
              $
              (64,442,632
              )
              $
              (4,090,694
              )





**See
      accompanying notes to consolidated financial statements**




F-5





**SMARTVIDEO
      TECHNOLOGIES, INC. AND SUBSIDIARY**


**Consolidated
      Statements of Cash Flows**


**For
      the Years Ended December 31, 2006, 2005 and 2004**


**For
                  the Years Ended****December
                  31,****2006**
              
              **2005**
              
              **2004****Cash
                  Flows from Operating Activities**Net
                  loss
              
              $
              (24,488,876
              )
              $
              (19,740,274
              )
              $
              (6,792,930
              )Adjustments
                  to reconcile net loss to net cashused
                  in operating activities:Amortization
                  of stock options pursuant to SFAS No. 123R
              
              
              3,287,405
              
              
              —
              
              
              —Amortization
                  of stock based compensation
              
              
              2,100,454
              
              
              —
              
              
              —Amortization
                  of broadcast rights
              
              
              2,024,549
              
              
              1,740,552
              
              
              —Impairment
                  of broadcast rights
              
              
              2,330,000
              
              
              —
              
              
              —Adjustment
                  to broadcast right contracts
              
              
              407,310
              
              
              —
              
              
              —Amortization
                  of intangible assets
              
              
              14,725
              
              
              —
              
              
              —Bad
                  debt
              
              
              60,078
              
              
              77,937
              
              
              68,119Depreciation
              
              
              585,973
              
              
              278,328
              
              
              47,649Issuance
                  of common stock as compensation for services
              
              
              —
              
              
              712,500
              
              
              —Issuance
                  of warrants as compensation for services
              
              
              1,557,690
              
              
              2,624,450
              
              
              —Issuance
                  of common stock for legal settlement
              
              
              —
              
              
              —
              
              
              —Amortization
                  of beneficial conversion feature on convertible debt
              
              
              —
              
              
              713,134
              
              
              —Non-cash,
                  stock-based compensation
              
              
              —
              
              
              1,701,230
              
              
              3,118,996Valuation
                  adjustment related to non-cash compensation due to advisor
              
              
              —
              
              
              —
              
              
              —Additional
                  consideration related to rights of convertible promissory
                  notes
              
              
              —
              
              
              197,500
              
              
              —Changes
                  in operating assets and liabilities:
              
              
              —
              
              
              —
              
              
              —(Increase)
                  Decrease in:
              
              
              —
              
              
              —
              
              
              —Accounts
                  receivable
              
              
              (222,873
              )
              
              (76,937
              )
              
              (13,539
              )Prepaid
                  expenses
              
              
              (125,189
              )
              
              90,687
              
              
              (90,687
              )Other
                  assets
              
              
              19,900
              
              
              (112,161
              )
              
              —Increase
                  (Decrease) in:
              
              
              —
              
              
              —
              
              
              —Accounts
                  payable and accrued expenses
              
              
              (646,432
              )
              
              1,633,565
              
              
              1,031,055Deferred
                  liabilities
              
              
              20,248
              
              
              —
              
              
              —Contract
                  rights payable
              
              
              (2,233,500
              )
              
              (520,000
              )
              
              —Accrued
                  settlement expense
              
              
              4,230,756
              
              
              5,316,244
              
              
              —**Net
                  Cash Used in Operating Activities**
              
              
              **(11,077,782**
              **)**
              
              **(5,363,245**
              **)**
              
              **(2,631,337**
              **)****Cash
                  Flows from Investing Activities**Purchase
                  of certificate of deposit
              
              
              (201,447
              )
              
              —
              
              
              —Purchase
                  of equipment
              
              
              (1,005,950
              )
              
              (764,479
              )
              
              (189,191
              )Purchase
                  of intangible assets
              
              
              (265,042
              )
              
              —
              
              
              —**Net
                  Cash Used in Investing Activities**
              
              
              **(1,472,439**
              **)**
              
              **(764,479**
              **)**
              
              **(189,191**
              **)****Cash
                  Flows from Financing Activities**Redemption
                  of warrants
              
              
              (70,667
              )
              
              —
              
              
              —Issuance
                  of convertible preferred stock for cash
              
              
              —
              
              
              6,690,000
              
              
              —Issuance
                  of common stock for cash
              
              
              9,648,003
              
              
              3,963,000
              
              
              3,228,202Cash
                  paid as direct offering cost for common stock issuance
              
              
              —
              
              
              (233,125
              )
              
              —Proceeds
                  from warrant exercises
              
              
              943,975
              
              
              723,335
              
              
              —Proceeds
                  from issuance of convertible debt
              
              
              —
              
              
              1,310,000
              
              
              —Proceeds
                  from related party borrowings
              
              
              —
              
              
              225,000
              
              
              —Repayments
                  of related party borrowings
              
              
              (64,429
              )
              
              (235,000
              )
              
              (497,886
              )Repayments
                  of capital lease obligations
              
              
              (2,646
              )
              
              —
              
              
              —Repayments
                  on advisor borrowings
              
              
              —
              
              
              (807,474
              )
              
              —Proceeds
                  from (Repayments of) PPM funds
              
              
              —
              
              
              (114,500
              )
              
              114,500**Net
                  Cash Provided By Financing Activities**
              
              
              **10,454,236**
              
              
              **11,521,236**
              
              
              **2,844,816**Net
                  Increase/(Decrease) in cash
              
              
              (2,095,985
              )
              
              5,393,512
              
              
              24,288Cash
                  - Beginning of year
              
              
              5,792,566
              
              
              387,592
              
              
              297,998**Cash
                  - End of Year**
              
              **$**
              **3,696,581**
              
              **$**
              **5,781,104**
              
              **$**
              **322,286****Supplemental
                  Disclosure of Cash Flow Information**Cash
                  paid for:Income
                  taxes
              
              $
              —
              
              $
              —
              
              $
              —Interest
              
              $
              —
              
              $
              —
              
              $
              57,426**Supplemental
                  Disclosure of Non-Cash Investing and Financing
                  Activities**Acquisition
                  of broadcast rights
              
              $
              84,000
              
              $
              7,705,076
              
              $
              —Acquisition
                  of equipment held under capital leases
              
              $
              196,990
              
              
              —
              
              
              —Issuance
                  of common stock to acquire software
              
              $
              208,000
              
              $
              —
              
              $
              —Issuance
                  of common stock for settlement of accounts payable
              
              $
              293,937
              
              $
              82,850
              
              $
              —Issuance
                  of convertible preferred stock for settlement of
                  litigation
              
              $
              4,750,000
              
              $
              —
              
              $
              —Issuance
                  of common stock pursuant to anti-dilution agreement
              
              $
              1,122
              
              $
              —
              
              $
              —Conversion
                  of convertible preferred stock to common stock
              
              $
              9,033
              
              $
              —
              
              $
              —Forfeiture
                  of stock based compensation
              
              $
              271,563
              
              $
              —
              
              $
              —Options
                  granted for future services
              
              $
              1,815,812
              
              $
              —
              
              $
              —





**See
      accompanying notes to consolidated financial statements**




F-6




**SmartVideo
      Technologies, Inc.**


**Notes
      to Consolidated Financial Statements**


**December
      31, 2006, 2005 and 2004**





**Note
      1 - Organization**




SmartVideo
      Technologies, Inc. (“smarTVideoTM” or “the Company”) was incorporated in Florida
      on August 17, 1984, and on December 19, 2000, changed its corporate domicile
      to
      Delaware. Its wholly-owned subsidiary, OVT, Inc., d/b/a smarTVideoTM (“OVT”) was
      incorporated in the state of Georgia on August 31, 2000. smarTVideoTM is a media
      distribution services company. smarTVideoTM is in the business of obtaining the
      rights to video and television content for the mobile handset market and
      delivering the video content to mobile subscribers for a monthly fee or a
      portion of the associated advertising revenue. The Company specializes in the
      distribution of high-quality video and television programming through devices
      connected to the public Internet and is currently focused on distribution to
      consumers with mobile display devices, cell phones and PDAs connected to the
      public Internet via wireless data networks and Wi-Fi.





**Note
      2 - Going Concern, Significant Accounting Policies and Risks and
      Uncertainties**




***(A)
      Going Concern***




As
      reflected in the accompanying audited consolidated financial statements, the
      Company has a net loss of $24,488,876 and net cash used in operations of
      $11,077,782, respectively for the year ended December 31, 2006. The Company
      also
      has an accumulated deficit of $64,442,632 at December 31, 2006.





Based
      on
      information currently available regarding our proposed plans and assumptions
      relating to operations we anticipate that the net proceeds from the closing
      of
      our last financing in 2006, together with revenues generated from operations,
      will not be sufficient to meet our cash requirements for working capital and
      capital expenditures beyond the second quarter of 2007. There can be no
      assurance that the Company will be able to secure additional financing on
      acceptable terms at or prior to the depletion of existing funds, or at all.
      If
      adequate funds are not available or not available on acceptable terms, the
      Company will be unable to continue as a going concern. The Company has no firm
      commitment for any additional capital.





***(B)
      Basis of Presentation***





The
      consolidated financial statements of the Company include the accounts of its
      wholly owned subsidiary, OVT, Inc. All significant transactions and balances
      between the Company and its subsidiaries have been eliminated in
      consolidation.





***(C)
      Use of Estimates***





In
      preparing financial statements, management is required to make estimates and
      assumptions that affect the reported amounts of assets and liabilities,
      disclosure of contingent assets and liabilities at the date of the financial
      statements, and revenues and expenses during the periods presented. Actual
      results may differ from these estimates.





F-7




**SmartVideo
      Technologies, Inc.**


**Notes
      to Consolidated Financial Statements**


**December
      31, 2006, 2005 and 2004**




Significant
      estimates during 2006, 2005 and 2004 include depreciable lives on property
      and
      equipment, the valuation of stock options/warrants granted for services, the
      value of warrants issued in connection with debt and equity related financings,
      valuation and related amortization of intangible broadcast rights pursuant
      to
      Statement of Financial Accounting Standards (“SFAS”) No. 63 and the valuation
      allowance for deferred tax assets since the Company had continuing operating
      losses.





***(D)
      Cash and Cash Equivalents***





For
      the
      purpose of the cash flow statements, the Company considers all highly liquid
      investments with original maturities of three months or less at the time of
      purchase to be cash equivalents.




The
      Company minimizes its credit risk associated with cash by periodically
      evaluating the credit quality of its primary financial institution. The balance
      at times may exceed federally insured limits. At December 31, 2006 and 2005,
      the
      balance exceeded the federally insured limit by $3,597,000 and $5,693,000
      respectively. Additionally, at December 31, 2006 and 2005, the Company had
      $15,000 maintained under a compensating balance agreement. The $15,000 is
      retained due to potential credit card chargebacks that are
      unforeseen.





***(E)
      Accounts Receivable***





Substantially
      all of the Company’s accounts receivable are due from end-users. Collateral is
      not required. Credit losses are provided for in the consolidated financial
      statements. The Company has a limited history in evaluating such credit losses.





***(F)
      Allowance for Doubtful Accounts***





Management
      estimates the amount of required allowances for potential non-collectibility
      of
      accounts receivable based upon past collection experience and consideration
      of
      other relevant factors. However, past experience may not be indicative of future
      collections and therefore additional charges could be incurred in the future
      to
      reflect differences between estimated and actual collections. In January 2005,
      the Company launched its direct-to-the-consumer mobile video service. While
      the
      Company uses many of the features developed for the core technology in
      delivering this new service, its focus on a direct-to-consumer model represents
      a significant change in direction. The allowance for doubtful accounts at
      December 31, 2006 and 2005 was $0 and $77,937 respectively.





***(G)
      Equipment***





Equipment
      is stated at cost, less accumulated depreciation. Expenditures for maintenance
      and repairs are charged to expense as incurred. Equipment consists primarily
      of
      computer equipment. Depreciation is computed using the straight-line method
      over
      the estimated useful lives of the assets, which is generally three years.





***(H)
      Revenue Recognition***





The
      Company follows the guidance of the Securities and Exchange Commission’s Staff
      Accounting Bulletin No. 104 for revenue recognition.  In general, the
      Company records revenue when persuasive evidence of an arrangement exists,
      services have been rendered or product delivery has occurred, the sales price
      to
      the customer is fixed or determinable, and collectability is reasonably
      assured.




F-8





**SmartVideo
      Technologies, Inc.**


**Notes
      to Consolidated Financial Statements**


**December
      31, 2006, 2005 and 2004**




The
      Company provides services to our business-to-business customers under
      volume-based usage arrangements of our digital media and multimedia broadcast
      products and services. Under certain arrangements, the customers are subject
      to
      a base monthly fee or minimum monthly usage requirement in order to maintain
      a
      customer’s preferential negotiated rates. From time-to-time, the Company may
      also lease hardware to its customers enabling them to facilitate a live
      broadcast. In certain situations, the Company may sell hardware to its resellers
      under the specific terms of the agreements with them.




Revenue
      is also recognized as earned upon the delivery of services to the Company’s
      subscription-based customers. This is typically when a digital media or
      multimedia broadcast is viewed. Many of the Company’s subscription-based
      customers access its programming through the purchase of a monthly, semi-annual,
      or annual subscription fee for SmartVideo’s mobile entertainment services.
      Revenue received on annual subscriptions is deferred and therefore is recognized
      ratably over the term of the contract.





***(K)
      Product Concentration***





The
      Company derives a substantial portion of its revenues from four types of
      products: business-to-business, direct-to-consumer mobile video service, mobile
      advertising and custom applications.


**For
                  the Years Ended****December
                  31,**Revenues
              
              **2006**
              
              **2005**
              
              **2004**Business-to-business
              
              $
              77,002
              
              
              9%
              
              $
              83,475
              
              
              42%
              
              $
              31,945
              
              
              27%Direct-to-consumer
              
              
              542,178
              
              
              68%
              
              
              113,782
              
              
              58%
              
              
              86,788
              
              
              73%Mobile
                  Advertising
              
              
              23,030
              
              
              3%
              
              
              —
              
              
              0%
              
              
              —
              
              
              0%Custom
                  applications
              
              
              158,021
              
              
              20%
              
              
              —
              
              
              0%
              
              
              —
              
              
              0%Total
                  Revenue
              
              $
              800,231
              
              
              100%
              
              $
              197,257
              
              
              100%
              
              $
              118,733
              
              
              100%





The
      Company could experience declines in demand for products, whether as a result
      of
      general economic conditions, new competitive product releases, price
      competition, lack of market acceptance, technological change or other
      factors.





***(L)
      Customer Concentration***





For
      the
      year ended December 31, 2006, the Company derived a portion of its revenues
      from
      two customers accounting for 8% of its revenues. For the year ended December
      31,
      2005, the Company derived a substantial portion of its revenues from two
      customers accounting for 34% of its revenues. For the year ended December 31,
      2004, the Company derived a substantial portion of its revenues from five
      customers accounting for 75% of its revenue.





***(M)
      Long-Lived Assets***





The
      Company accounts for long-lived assets in accordance with the provisions of
      SFAS
      No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS
      No. 144 requires that long-lived assets be reviewed for impairment whenever
      events or changes in circumstances indicate that the carrying amount of an
      asset
      may not be recoverable. Recoverability of assets to be held and used is measured
      by a comparison of the carrying amount of an asset to future undiscounted 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.
      Assets to be disposed of are reported at the lower of the carrying amount or
      fair value less costs to sell the asset. For the year ended December 31, 2006
      the Company recorded an impairment charge of $2,300,000 related to the
      impairment of certain Broadcast Rights Assets.




F-9




**SmartVideo
      Technologies, Inc.**


**Notes
      to Consolidated Financial Statements**


**December
      31, 2006, 2005 and 2004**





***(N)
      Intangible Assets***





The
      Company accounts for intangible assets in accordance with the
      provisions of Statement of Financial Accounting Standards No. 142, “Goodwill and
      Other Intangible Assets” (“SFAS 142”), which requires goodwill and intangible
      assets with indefinite useful lives not be amortized, but be tested for
      impairment annually or whenever indicators or impairments arise. Intangible
      assets that have finite lives continue to be amortized over their estimated
      useful lives. Out intangible assets consist of contract based
      intangibles.





During
      November 2006, we entered into an agreement with Diggit Entertainment Group
      (“Diggit”) for the distribution arrangements to provide for the management of
      the mobile platform, assets and carrier relationships for both Vibe and Spin
      magazines for an aggregate price of $253,000, plus transactions
      costs.





These
      transactions were accounted for as a purchase business combination in accordance
      with Statement of Financial Accounting Standard No. 141, “Business Combinations”
(“SFAS 141”).





As
      of
      December 31, 2006 our identifiable intangible assets subject to amortization
      consisted of the following:


**As
                  of****December
                  31, 2006**
              
              **December
                  31, 2005**Intangible
              
              Accumulated
              
              Intangible
              
              AccumulatedAssets
              
              Amortization
              
              Assets
              
              AmortizationContract
                  based
              
              $
              265,042
              
              $
              14,725
              
              $
              —
              
              $
              —**Total**
              
              **$**
              **265,042**
              ****
              **$**
              **14,725**
              ****
              **$**
              **—**
              ****
              **$**
              **—**





Amortization
      of these intangible assets, recorded on a straight line basis over an average
      finite useful life of 3 years was $14,725 for the year ended December 31, 2006.
      The aggregate amortization expense is estimated to be approximately $88,347
      for
      2007, $88,347 for 2008, and $73,623 for 2009.





***(O)
      Capital Lease Obligations***





Capital
      lease obligations consist of the following:


**As
                  of December 31,****2006**
              
              **2005**Equipment
                  financed under capital lease obligations
              
              $
              194,344
              
              $
              —Total
              
              $
              194,344
              
              $
              —Less
                  current portion
              
              
              (33,255
              )
              
              —Capital
                  lease obligations, net of current portion
              
              $
              161,089
              
              $
              —





F-10


In
      December 2006, we financed the purchase of equipment for our data center from
      Banc of America Capital Lease. We are required to make monthly payments to
      Banc
      of America Capital Lease for this equipment beginning in December
      2006.


**Payment
                  due by period****Total**
              
              **2007**
              
              **2008
                  - 2009**
              
              **2010
                  - 2011**
              
              **Thereafter**Capital
                  lease obligations
              
              $
              194,344
              
              $
              33,255
              
              $
              75,589
              
              $
              85,500
              
              $
              —**Total**
              
              $
              194,344
              
              **$**
              **33,255**
              
              **$**
              **75,589**
              
              **$**
              **85,500**
              
              **$**
              **—**




***(P)
      Income Taxes***




The
      Company accounts for income taxes under Financial Accounting Standards (“FAS”)
      No. 109 “Accounting for Income Taxes” (“Statement 109”). Under Statement 109,
      deferred tax assets and liabilities are recognized for the future tax
      consequences attributable to differences between the financial statement
      carrying amounts of existing assets and liabilities and their respective tax
      bases. Deferred tax assets and liabilities are measured using enacted tax rates
      expected to apply to taxable income in the years in which those temporary
      differences are expected to be recovered or settled. Under Statement 109, the
      effect on deferred tax assets and liabilities of a change in tax rates is
      recognized in income in the period, which includes the enactment date.




***(Q)
      Fair Value of Financial Instruments***




SFAS
      No.
      107, “Disclosures about Fair Value of Financial Instruments,” requires
      disclosures of information about the fair value of certain financial instruments
      for which it is practicable to estimate the value. For purpose of this
      disclosure, the fair value of a financial instrument is the amount at which
      the
      instrument could be exchanged in a current transaction between willing parties,
      other than in a forced sale or liquidation.





The
      carrying amounts of the Company’s short-term financial instruments, including
      accounts receivable, broadcast rights (asset), accounts payable, broadcast
      rights payable, and loans payable/due to - related party approximate fair value
      due to the relatively short period to maturity for these
      instruments.





***(R)
      Earnings per Share***




In
      accordance with SFAS No. 128, “Earnings per Share” (“EPS”), basic earnings per
      share is computed by dividing the net income (loss) less preferred dividends
      for
      the period by the weighted average number of shares outstanding. Diluted
      earnings per share is computed by dividing net income (loss) less preferred
      dividends by the weighted average number of shares outstanding including the
      effect of share equivalents. Common share equivalents consist of shares issuable
      upon the exercise of certain common stock purchase warrants, stock options,
      and
      Convertible Preferred Stock. The Company has excluded these common share
      equivalents from its computation of earnings per share due to their antidilutive
      effect as the Company has reflected a net loss at December 31, 2006, 2005 and
      2004, respectively. Accordingly, basic and diluted EPS are the same.




The
      following table shows all common stock equivalents outstanding at December
      31,
      2006, 2005 and 2004, respectively.


**December
                  31****2006**
              
              **2005**
              
              **2004**Common
                  Stock Options
              
              
              9,030,000
              
              
              3,480,000
              
              
              2,445,000Common
                  Stock Warrants
              
              
              35,010,149
              
              
              24,640,917
              
              
              4,837,534Total
                  Common Stock Options and Warrants
              
              
              44,040,149
              
              
              28,120,917
              
              
              7,282,534
  F-11


**SmartVideo
      Technologies, Inc.**


**Notes
      to Consolidated Financial Statements**


**December
      31, 2006, 2005 and 2004**





***(S)
      Stock Based Compensation***





In
      December 2004, the FASB issued SFAS No. 123(R), "Share-Based Payment," which
      replaces SFAS No. 123 and supersedes Accounting Principles Board (“APB”) Opinion
      No. 25. Under SFAS No. 123(R), companies are required to measure the
      compensation costs of share-based compensation arrangements based on the
      grant-date fair value and recognize the costs in the financial statements over
      the period during which employees are required to provide services. Share-based
      compensation arrangements include stock options, restricted share plans,
      performance-based awards, share appreciation rights and employee share purchase
      plans. In March 2005 the SEC issued Staff Accounting Bulletin No. 107, or “SAB
      107”. SAB 107 expresses views of the staff regarding the interaction between
      SFAS No. 123(R) and certain SEC rules and regulations and provides the staff's
      views regarding the valuation of share-based payment arrangements for public
      companies. SFAS No. 123(R) permits public companies to adopt its requirements
      using one of two methods. On April 14, 2005, the U.S. Securities and
      Exchange Commission (the “SEC”) adopted a new rule amending the compliance dates
      for SFAS 123R. Companies may elect to apply this statement either prospectively,
      or on a modified version of retrospective application under which financial
      statements for prior periods are adjusted on a basis consistent with the pro
      forma disclosures required for those periods under SFAS No. 123. Effective
      January 1, 2006, we have adopted SFAS No. 123(R) under the prospective
      method.





***(T)
      Broadcast Rights***




The
      Company acquires rights to programming so that it may deliver this programming
      to its subscribers. The costs incurred in acquiring programs are capitalized
      and
      amortized over the license period or projected useful life of the programming.
      The broadcast rights are accounted for according to SFAS No. 63 “Financial
      Reporting by Broadcasters”. Program rights and the related liabilities are
      recorded at the gross amount of the liabilities when the license period has
      begun, the cost of the program is determinable, and the program is accepted
      and
      available for airing.





***(U)
      Derivative Liabilities***





In
      June
      2005, the Emerging Issues Task Force ("EITF") issued EITF 05-2, “The Meaning of
      Conventional Convertible Debt Instrument in Issue No. 00-19". EITF 05-2 retained
      the definition of a conventional convertible debt instrument as set forth in
      EITF 00-19, and which is used in determining certain exemptions to the
      accounting treatments prescribed under SFAS 133, "Accounting for Derivative
      Instruments and Hedging Activities". EITF 05-2 also clarified that certain
      contingencies related to the exercise of a conversion option would not be
      outside the definition of "conventional" and determined that Convertible
      Preferred Stock with a mandatory redemption date would also qualify for similar
      exemptions if the economic characteristics of the preferred stock are more
      akin
      to debt than equity. EITF 05-2 is effective for new instruments entered into
      and
      instruments modified in periods beginning after June 29, 2005. We adopted the
      provisions of EITF 05-2 on July 1, 2005, which did not have a material effect
      on
      our unaudited consolidated financial position, results of operations and cash
      flows.





In
      July
      2005, the FASB issued FASB Staff Position ("FSP") 150-5, "Accounting Under
      SFAS
      150 for Freestanding Warrants and Other Similar Instruments on Redeemable
      Shares". FSP 150-5 clarifies that warrants on shares that are redeemable or
      puttable immediately upon exercise and warrants on shares that are redeemable
      or
      puttable in the future qualify as liabilities under SFAS 150, regardless of
      the
      redemption feature or redemption price. The FSP is effective for the first
      reporting period beginning after June 30, 2005, with resulting changes to prior
      period statements reported as the cumulative effect of an accounting change
      in
      accordance with the transition provisions of SFAS 150. We adopted the provisions
      of FSP 150-5 on July 1, 2005, which did not have a material effect on our
      unaudited consolidated financial position, results of operations and cash
      flows.





F-12




**SmartVideo
      Technologies, Inc.**


**Notes
      to Consolidated Financial Statements**


**December
      31, 2006, 2005 and 2004**




***(V)
        Recent Accounting Pronouncements***


In
      May
      2005, the Financial Accounting Standard Board ("FASB") issued Statement No.
      154,
      "Accounting Changes and Error Corrections, a replacement of APB Opinion No.
      20,
      Accounting Changes, and Statement No. 3, Reporting Accounting Changes in Interim
      Financial Statements" (SFAS 154). SFAS 154 changes the requirements for the
      accounting for, and reporting of, a change in accounting principle. Previously,
      most voluntary changes in accounting principles were required to be recognized
      by way of a cumulative effect adjustment within net income during the period
      of
      the change. SFAS 154 requires retrospective application to prior periods'
      financial statements, unless it is impracticable to determine either the
      period-specific effects or the cumulative effect of the change. SFAS 154 is
      effective for accounting changes made in fiscal years beginning after December
      15, 2005; however, the Statement does not change the transition provisions
      of
      any existing accounting pronouncements. We do not believe adoption of SFAS
      154
      will have a material effect on our financial position, results of operations
      or
      cash flows.





In
      June
      2005, the Emerging Issues Task Force ("EITF") issued EITF 05-2, “The Meaning of
      Conventional Convertible Debt Instrument in Issue No. 00-19". EITF 05-2 retained
      the definition of a conventional convertible debt instrument as set forth in
      EITF 00-19, and which is used in determining certain exemptions to the
      accounting treatments prescribed under SFAS 133, "Accounting for Derivative
      Instruments and Hedging Activities". EITF 05-2 also clarified that certain
      contingencies related to the exercise of a conversion option would not be
      outside the definition of "conventional" and determined that Convertible
      Preferred Stock with a mandatory redemption date would also qualify for similar
      exemptions if the economic characteristics of the preferred stock are more
      akin
      to debt than equity. EITF 05-2 is effective for new instruments entered into
      and
      instruments modified in periods beginning after June 29, 2005. We adopted the
      provisions of EITF 05-2 on July 1, 2005, which had a material effect on our
      financial position, results of operations and cash flows.





In
      July
      2005, the FASB issued FASB Staff Position ("FSP") 150-5, "Accounting Under
      SFAS
      150 for Freestanding Warrants and Other Similar Instruments on Redeemable
      Shares". FSP 150-5 clarifies that warrants on shares that are redeemable or
      puttable immediately upon exercise and warrants on shares that are redeemable
      or
      puttable in the future qualify as liabilities under SFAS 150, regardless of
      the
      redemption feature or redemption price. The FSP is effective for the first
      reporting period beginning after June 30, 2005, with resulting changes to prior
      period statements reported as the cumulative effect of an accounting change
      in
      accordance with the transition provisions of SFAS 150. We adopted the provisions
      of FSP 150-5 on July 1, 2005, which did not have a material effect on our
      financial position, results of operations and cash flows.





In
      February 2006 the FASB issued SFAS 155, "Accounting for Certain Hybrid Financial
      Instruments" which amends SFAS No. 133 to narrow the scope exception for
      interest-only and principal-only strips on debt instruments to include only
      such
      strips representing rights to receive a specified portion of the contractual
      interest or principal cash flows. SFAS No. 155 also amends SFAS No. 140 to
      allow
      qualifying special-purpose entities to hold a passive derivative financial
      instrument pertaining to beneficial interests that it is a derivative financial
      instrument .
      The
      Company will adopt SFAS No. 155 on January 1, 2007 and does not expect it to
      have a material effect on financial position, results of operations, and cash
      flows.




In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No.
      157, “Fair Value Measurements” (“FAS 157”). This Statement defines fair value as
      used in numerous accounting pronouncements, establishes a framework for
      measuring fair value in generally accepted accounting principles and expands
      disclosure related to the use of fair value measures in financial statements.
      The Statement is to be effective for the Company’s financial statements issued
      in 2008; however, earlier application is encouraged. The Company is currently
      evaluating the timing of adoption and the impact that adoption might have on
      its
      financial position or results of operations





In
      July
      2006, the FASB issued FASB Interpretation No. 48 (“ FIN
      48”)
“Accounting for Uncertainty in Income Taxes - an interpretation of FASB
      Statement No. 109,” to clarify certain aspects of accounting for uncertain tax
      positions, including issues related to the recognition and measurement of those
      tax positions. This interpretation is effective for fiscal years beginning
      after
      December 15, 2006. The Company is in the process of evaluating the impact of
      the
      adoption of this interpretation on the Company’s results of operations and
      financial condition.





F-13




**SmartVideo
      Technologies, Inc.**


**Notes
      to Consolidated Financial Statements**


**December
      31, 2006, 2005 and 2004**




***(W)
      Reclassifications***





Certain
      amounts in the years 2004 and 2005 consolidated financial statements have been
      reclassified to conform to the year 2006 consolidated presentation. Such
      reclassifications had no effect on the financial position, results operations
      or
      cash flows.





**Note
      3 - Accounts Receivable**


**December
                  31****2006**
              
              **2005**Accounts
                  Receivable
              
              $
              162,795
              
              $
              77,937Allowance
                  for doubtfull accounts
              
              
              —
              
              
              (77,937
              )Accounts
                  receivable – net of allowance for doubtful accounts
              
              $
              162,795
              
              $
              —





Bad
      debt
      expense for the years ending 2006, 2005 and 2004 was $60,078, $77,937, and
      $68,119, respectively. These amounts are included as a component of Selling,
      General and Administrative Expenses.





**Note
      4 - Broadcast Rights**





**(A)**
            **Asset**





During
      2005, the Company acquired intangible broadcast rights of $7,705,076 pursuant
      to
      various long term contracts with content providers. The Company recorded the
      fair value of these assets at gross cost with a corresponding credit to
      broadcast rights payable. The fair value of these acquired rights is based
      on
      the entire amount due under the terms of the initial agreement. During 2005,
      the
      Company entered into a dispute surrounding one of its content providers. As
      a
      result, the Company reduced the gross value of its broadcast rights assets
      by
      $900,000, the fair value of the previously capitalized amount and decreased
      the
      related gross liability by $900,000.


**For
                  The Years Ended****December
                  31,****Broadcast
                  Rights**
              
              **Total**
              
              **2007**
              
              **2008**
              
              **2009**
              
              **2010**Broadcast
                  rights
              
              $
              611,665
              
              $
              301,281
              
              $
              156,303
              
              $
              144,303
              
              $
              9,778Total
              
              $
              611,665
              
              $
              301,281
              
              $
              156,303
              
              $
              144,303
              
              $
              9,778





At
      December 31, 2006, amortization expense of broadcast rights accounted for
      $2,206,859 of the total broadcast rights expense of $4,354,549. The additional
      $2,147,691 represented expenses paid to content providers where no long term
      commitment exists, recapture of a capitalized contract that had no future value,
      and an impairment charge of approximately $2,300,000. At December 31, 2005,
      amortization expense of broadcast rights accounted for $1,740,552 of the total
      broadcast rights expense of $2,001,584. The additional $261,032 represented
      expenses paid to content providers due to subscriber usage exceeding minimum
      monthly guarantees or to content providers where no long term contract
      commitment exists. There were no similar expenses for the year ending December
      31, 2004 as there was no activity relating to this business operation and also
      since various rollout periods were not effective until 2005.





At
      December 31, 2006, Broadcast Rights Assets - net of accumulated amortization
      was
      $301,281. Broadcast Rights Assets - net of current portion was $310,384. At
      December 31, 2005, Broadcast Rights Assets - net of accumulated amortization
      was
      $2,408,525. Broadcast Rights Assets - net of current portion was
      $2,880,999.





F-14




**SmartVideo
      Technologies, Inc.**


**Notes
      to Consolidated Financial Statements**


**December
      31, 2006, 2005 and 2004**




**(B)**
            **Liability**





The
      following represents broadcast rights commitments during the remaining term
      of
      the agreement.


**For
                  The Years Ended****December
                  31,****Contracts
                  payable - broadcast rights**
              
              **Total**
              
              **2007**
              
              **2008**
              
              **2009**
              
              **2010**Contracts
                  payable-broadcast rights -- current
              
              $
              3,434,576
              
              $
              2,454,725
              
              $
              799,261
              
              $
              144,124
              
              $
              36,466Total
              
              $
              3,434,576
              
              $
              2,454,725
              
              $
              799,261
              
              $
              144,124
              
              $
              36,466




During
      2006 and 2005, the Company paid $2,233,500 and $520,000, respectively, to
      content providers pursuant to the terms of the related contracts.





Contracts
      payable - short term at December 31, 2006 were, $2,454,725. Contracts payable
      -
      long-term at December 31, 2006 were $979,851. Contracts payable - short term
      at
      December 31, 2005 were $2,283,500. Contracts payable - long-term at December
      31,
      2005 were $3,386,576.





**Note
      5 - Property and Equipment**





Equipment
      consisting primarily of computer equipment is stated at cost. Depreciation
      is
      computed using the straight-line method over the estimated useful lives of
      the
      assets, which is generally three years. Depreciation expense for the periods
      ending December 31 are as follows:


**For
                  the Years Ended****December
                  31,****2006**
              
              **2005**
              
              **2004**Depreciation
              
              $
              585,973
              
              $
              278,328
              
              $
              47,649





Equipment
      consists of the following:


**December
                  31,**
              
              **December
                  31,**
              
              **December
                  31,****2006**
              
              **2005**
              
              **2004**Computer
                  equipment
              
              $
              2,398,504
              
              $
              987,564
              
              $
              223,085Proprietary
                  software
                  development
              
              
              79,500
              
              
              79,500
              
              
              79,5002,478,004
              
              
              1,067,064
              
              
              302,585Less
                  accumulated depreciation
              
              
              (936,614
              )
              
              (350,641
              )
              
              (72,313
              )Property
                  and equipment, net
              
              $
              1,541,390
              
              $
              716,423
              
              $
              230,272





**Note
      6 - Convertible Promissory Notes**





On
      September 26, 2005 and October 19, 2005, the Company borrowed an aggregate
      $600,000 from two different related parties (4 separate notes) pursuant to
      the
      terms of a Convertible Promissory Note. Under the terms of the agreement, the
      convertible notes bore interest at 8%, were unsecured and due in one-year.
      These
      Convertible Promissory Notes were each issued with five-year warrants to
      purchase an aggregate 200,000 shares of the Company’s common stock at an
      exercise price of $2.00 per share. The warrant holders were also granted certain
      piggy-back registration rights with respect to the shares of common stock
      underlying the Convertible Promissory Notes and the warrants. Additionally,
      if
      the Company was able to successfully complete a financing of at least $2,500,000
      from the sale of its equity securities prior to the maturity date of the
      Convertible Promissory Notes, the principal amount of each note would
      automatically convert into shares or units of the equity securities sold in
      such
      financing at a per share sale price or unit price of the financing on a one
      for
      one ratio. The financing was completed in November 2005, and all related debt
      principal was converted into Series A-1, Convertible Preferred Stock. This
      $600,000 was converted at $0.75 into 800,000 shares of Series A-1, Convertible
      Preferred Stock. At December 31, 2005, outstanding related party accrued
      interest was $5,422. (See Notes 9(A) (3) and 10)).





F-15




**SmartVideo
      Technologies, Inc.**


**Notes
      to Consolidated Financial Statements**


**December
      31, 2006, 2005 and 2004**




On
      November 10, 2005, the Company borrowed $150,000 from a related party pursuant
      to the terms of a Convertible Promissory Note. Under the terms of the agreement,
      the convertible note bore interest at 15%, was unsecured and due in one-year.
      This Convertible Promissory Note was issued with a five-year warrant to purchase
      50,000 shares of the Company’s common stock at an exercise price of $2.00 per
      share. The warrant holder was also granted certain piggy-back registration
      rights with respect to the shares of common stock underlying the Convertible
      Promissory Note and the warrants. Additionally, if the Company was able to
      successfully complete a financing of at least $2,500,000 from the sale of its
      equity securities prior to the maturity date of the Convertible Promissory
      Note,
      the principal amount of the note would automatically convert into shares or
      units of the equity securities sold in such financing at a per share sale price
      or unit price of the financing on a one for one ratio. The financing was
      completed in December 2005, and all related debt principal was converted into
      Series A-1, Convertible Preferred Stock. This $150,000 was converted at $0.75
      into 200,000 shares of Series A-1, Convertible Preferred Stock. At December
      31,
      2005, outstanding related party accrued interest was $688. (See Notes 9(A)
      (3)
      and 10).





On
      November 10, 2005, the Company borrowed an aggregate $560,000 from unrelated
      third parties pursuant to the terms of a Convertible Promissory Note. Under
      the
      terms of the agreement, the convertible notes bore interest at 15%, were
      unsecured and due in one-year. These Convertible Promissory Notes were issued
      with a five-year warrant to purchase an aggregate 186,667 shares of the
      Company’s common stock at an exercise price of $2.00 per share. The warrant
      holders were also granted certain piggy-back registration rights with respect
      to
      the shares of common stock underlying the Convertible Promissory Notes and
      the
      warrants. Additionally, if the Company was able to successfully complete a
      financing of at least $2,500,000 from the sale of its equity securities prior
      to
      the maturity date of the Convertible Promissory Notes, the principal amount
      of
      each note would automatically convert into shares or units of the equity
      securities sold in such financing at a per share sale price or unit price of
      the
      financing on a one for one ratio. The financing was completed in December 2005,
      and all related debt principal was converted into Series A-1, Convertible
      Preferred Stock. This $560,000 was converted at $0.75 into 746,667 shares of
      Series A-1, Convertible Preferred Stock. At December 31, 2005, outstanding
      related accrued interest was $2,433. (See Note 9 (A) (3)).





In
      connection with the above convertible debt issuances, the convertible debt
      and
      freestanding warrants issued were classified as conventional convertible debt
      pursuant to EITF 00-19. EITF 00-19 does not apply if the hybrid contract is
      a
      conventional convertible debt instrument in which the holder may only realize
      the value of the conversion option by exercising the option and receiving the
      entire proceeds in a fixed number of shares or the equivalent amount of cash
      (at
      the discretion of the issuer).  Since the time that Issue No. 00-19 was
      issued, complex structures have arisen such that the term "conventional
      convertible debt instrument" is no longer adequately defined.





In
      Issue
      No. 05-2, "The Meaning of 'Conventional Convertible Debt Instrument' in EITF
      00-19," the EITF concluded that an instrument with the following characteristics
      should be considered "conventional" for purposes of applying Issue No. 00-19:




·
            The
                holder has an option to convert the instrument into a fixed number
                of
                shares (or a corresponding amount of cash at the issuer’s discretion); and





·
            The
                holder's ability to exercise the option is based on either the passage
                of
                time or a contingent event.




F-16




**SmartVideo
      Technologies, Inc.**


**Notes
      to Consolidated Financial Statements**


**December
      31, 2006, 2005 and 2004**




As
      a
      result of applying the definitions of EITF 00-19 and EITF 05-2, the Company
      has
      accounted for the convertible debt financings pursuant to the provisions of
      EITF
      98-5 and 00-27. The Company computed a debt discount on the aggregate $1,310,000
      in convertible debt financing based on the provisions of APB No. 14 totaling
      $713,134. The allocation was based on the allocable proceeds of the debt
      financings between the fair value of the beneficial conversion option of the
      related convertible debt instruments and detachable freestanding warrants.
      The
      Company began amortizing the debt discount to interest expense over the one-year
      life of the related convertible debt. Upon full conversion of the convertible
      debt in November 2005, all remaining unamortized debt discount was charged
      to
      the statement of operations for the year ended December 31, 2005. The Company
      recorded the effect of the conversion by debiting interest expense and crediting
      additional paid in capital.





The
      following is a summary of the activity for convertible debt issuances the year
      ended December 31, 2005.


Convertible
                  Notes Payable - Related Party
              
              $
              750,000Convertible
                  Notes Payable
              
              
              560,000Total
                  Convertible Notes Payable
              
              $
              1,310,000





There
      were no related issuances during the year ended December 31, 2004 or December
      31, 2006.





Pursuant
      to the terms of the convertible debt, the entire $1,310,000 debt financing
      was
      automatically converted into the Company’s Convertible Preferred Stock offering
      in November 2005 at $0.75 per share for an aggregate 1,746,667 shares. The
      conversions were triggered due to an amount greater than $2,500,000 being raised
      in a subsequent equity financing. The conversion to Convertible Preferred Stock
      is discussed further in Note 9(A) (3).





At
      December 31, 2005, there are no outstanding convertible debt instruments. The
      following is a summary of total accrued interest payable that remained
      unconverted from these convertible debt instruments at December 31,
      2005:


Convertible
                  Notes Payable - Related Party
              
              $
              6,110Convertible
                  Notes Payable
              
              
              2,433Total
                  Convertible Notes Payable
              
              $
              8,543





**Note
      7 - Promissory Notes**





In
      February 2004, a holder of the Company’s 10% Convertible Promissory Note
      exercised his conversion rights at a conversion price of $1.00 per share of
      common stock. We had originally received gross proceeds of $100,000 upon the
      issuance of this 10% Convertible Promissory Note. A total of 109,830 restricted
      shares of common stock were issued under this conversion including accrued
      interest of $9,830 through the date of conversion. These shares of common stock
      were issued as restricted shares.




In
      March
      2004, a holder of the Company’s 10% Convertible Promissory Note exercised his
      conversion rights at a conversion price of $0.75 per share of common stock.
      The
      Company had originally received gross proceeds of $100,000 upon the issuance
      of
      this 10% Convertible Promissory Note. A total of 147,184 restricted shares
      of
      common stock were issued under this conversion including accrued interest of
      $10,388 through the date of conversion. These shares of common stock were issued
      as restricted shares.




In
      April
      2004, a holder of the Company’s 10% Convertible Promissory Note exercised his
      conversion rights at a conversion price of $0.75 per share of common stock.
      The
      Company had originally received gross proceeds of $30,000 upon the issuance
      of
      this 10% Convertible Promissory Note. A total of 45,545 restricted shares of
      common stock were issued under this conversion including accrued interest of
      $4,159 through the date of conversion. These shares of common stock were issued
      as restricted shares.




F-17




**SmartVideo
        Technologies, Inc.**
 **Notes
        to Consolidated Financial Statements**
 **December
        31, 2006, 2005 and 2004**


Concurrent
      with the merger between Armagh and OVT, the Company agreed to assume a $50,000
      loan payable to a third-party. The loan bears interest at 5% and is payable
      on
      demand. The accrued interest on the loan payable was approximately $13,042
      and
      $9,922 as of December 31, 2006 and 2005 respectively.




The
      Company had a $325,000 note payable to an entity owned by the spouse of a former
      stockholder, bearing interest at 8% with principal and interest payments due
      as
      follows:





·
            $75,000
                within 30 days of the funding of the Company;
                and




·
            Monthly
                principal payments of $50,000 thereafter plus accrued interest beginning
                30 days after the initial payment of
                $75,000.





The
      principal due under the terms of this note payable, including accrued interest,
      was paid in full on December 31, 2004. However, we have received notice of
      additional late charges in the amount of $53,311 associated with this note
      payable that may be due but are in dispute as December 31, 2005. The entire
      $53,311 is accrued at December 31, 2005.




The
      Company has a $150,000 note payable to a former stockholder of its subsidiary
      in
      connection with a stock repurchase, bearing interest at 5.18%. The note was
      secured by 2,500,000 shares of the subsidiary’s common stock. The principal due
      under the terms of this note payable, including accrued interest, was paid
      in
      full on December 31, 2004.





**Note
      8 - Commitments and Contingencies**





From
      time-to-time, the Company is a party to claims and legal proceedings arising
      in
      the ordinary course of business. The Company’s management evaluates the exposure
      to these claims and proceedings individually and in the aggregate and allocates
      additional monies for potential losses on such litigation if it is possible
      to
      estimate the amount of loss and determine if the loss is probable.





On
      or
      about April 6, 2004, Rene Hamouth filed a Writ of Summons in the Supreme Court
      of British Columbia (Case No. SO41955) against us, our Chief Executive Officer
      and director, Richard E. Bennett, Jr. and our securities counsel, Edwards &
Angell, LLP, a predecessor to Edwards Angell Palmer & Dodge LLP, seeking an
      unspecified amount of damages and costs for alleged libel of Mr. Hamouth
      resulting from two letters to his stockbroker, First Associates Investments,
      Inc. We and the other defendants have made an appearance in the court through
      respective legal counsel. On June 29, 2004, Mr. Hamouth filed an Amended
      Statement of Claim with the court. On November 19, 2004, the Court of Appeal
      for
      British Columbia granted Edwards Angell Palmer & Dodge LLP the right to
      appeal a chambers judge's decision that the alleged libelous correspondence
      in
      question is covered by absolute privilege and granted a stay of the proceeding
      pending the outcome of the appeal. The appeal was heard in February 2005. On
      March 30, 2005, the court granted the appeal and dismissed the claim against
      Edwards Angell Palmer & Dodge LLP. Since the court's entry of judgment in
      the appeal and to our knowledge, Mr. Hamouth has taken no further steps to
      pursue his claims against us or Mr. Bennett. We intend to vigorously defend
      any
      further actions taken by Mr. Hamouth in this matter.





On
      or
      about April 22, 2004, we filed a complaint in the United States District Court,
      North District of Georgia (Case No. 1:04-CV-1123) against Rene Hamouth, seeking
      the recovery of all profits realized by Mr. Hamouth resulting from his alleged
      violations of Section 16(b) of the Securities Exchange Act of 1934 (the
“Exchange Act”) relating to his purchases and sales of our common stock since
      approximately January 1, 2003. We are seeking damages in the amount of at least
      $151,428, interest on the amount of profits recovered and all other general
      and
      equitable relief to which we may be entitled. Since filing the complaint and
      serving Mr. Hamouth, Mr. Hamouth has filed an answer. The court has entered
      a
      scheduling order, approving the Joint Preliminary Planning Report and Discovery
      Plan. On March 16, 2005, we received notice that Mr. Hamouth's attorney in
      this
      matter has withdrawn from the case. On April 15, 2005, we filed a motion for
      summary judgment on this matter. The motion was unopposed. On October 5, 2005,
      the Court granted our motion and executed a judgment for us in the amount of
      $172,342.




On
      July
      5, 2004, the Company entered into a distribution agreement with Open Systems,
      Ltd. Certain issues arose regarding the terms of the agreement and the parties
      mutually agreed to terminate the contract. The parties have
      been engaged in the process of ending the relationship pursuant to the
      terms and conditions of a settlement agreement, which is anticipated to provide
      for a release of all actual or potential claims against the Company, its
      officers and directors. At December 31, 2006, there are no related accrued
      contingency losses.





F-18
 
  **SmartVideo
          Technologies, Inc.**
 **Notes
          to Consolidated Financial Statements**
 **December
          31, 2006, 2005 and 2004**


On
      March
      9, 2005, SmartVideo Europe, Ltd., or SVEL, which is not an affiliate of ours,
      announced its intention to bring legal action in the form of a
      mediation/arbitration against us in regard to our alleged repudiation and breach
      of a distribution agreement between the parties, dated April 2, 2004, which
      involved certain rights to distribute certain of our products. The dispute
      includes claims of SVEL that we had anticipatorily breached our agreement with
      SVEL, thus allegedly inhibiting the development of SVEL's business utilizing
      our
      technology on an exclusive basis in 25 countries throughout the European Union.
      We contend that we had the right to terminate the agreement because of breaches
      by SVEL. On or about December 13, 2006, SVEL filed its Statement of Claim with
      the American Arbitration Association. The Company filed its response to the
      Statement of Claim on or about January 22, 2007. We intend to defend against
      the
      claim vigorously, although there can be no assurances that we will be
      successful.





On
      November 29, 2005, ProNetworkTV, Inc. filed a Complaint for Equitable Relief
      in
      the Superior County Court of Gwinnett County, State of Georgia, (Civil Action
      Number 05-A-13684-2) against OVT, Inc. seeking the recovery of late fees in
      the
      amount of $100,615 alleged to be owed pursuant to a Promissory Note executed
      by
      OVT, Inc. in favor of ProNetworkTV, Inc. in the principal amount of $325,000.
      ProNetworkTV, Inc. alleges that OVT, Inc. failed to make payments when due
      under
      the Promissory Note. As a result of the alleged failure to makes such payments,
      ProNetworkTV, Inc. alleges that late fees accrued under the Promissory Note.
      On
      March 26, 2006, the Company filed a Motion to Dismiss with the Court. On May
      8,
      2006, the Company's Motion to Dismiss was granted. On September 11, 2006,
      ProNetworkTV, Inc. filed a Complaint against the Company and OVT, Inc. in the
      Superior Court of Gwinnett County, State of Georgia (Civil Action Number
      06A-08430-5) seeking recovery of the same late fees referenced above, but this
      time in the amount of $105,262, which is alleged to be owed pursuant to the
      same
      Promissory Note referenced above. Further, the Complaint seeks a declaratory
      judgment that ProNetworkTV, Inc. is the owner of certain technology belonging
      to
      the Company, which is the subject of a services agreement between the parties.
      The Complaint also alleges that ProNetworkTV, Inc. is entitled to monetary
      damages arising out of the Company's alleged breach of the services agreement.
      On September 15, 2006, the Company reached a settlement agreement with
      ProNetworkTV, Inc. relating to this and certain other unrelated matters.
      Pursuant to the terms of the settlement agreement, both parties agreed, among
      other things, to provide mutual general releases of any existing alleged claims
      either party may have had as of the date of the settlement agreement, including,
      but not limited to, any claims relating to the promissory note that was the
      subject of this lawsuit. After reaching the September 15, 2006 agreement
      referenced above, ProNetworkTV, Inc. took the position that a “final” agreement
      had not, in fact, been reached. Currently, the parties are proceeding as they
      were prior to reaching the September 15, 2006 settlement agreement. The Company
      intends to defend against the claims vigorously, although there can be no
      assurances that the Company will be successful.




On
      January 19, 2006, the Company received a letter on behalf of Mantra Films,
      Inc.
      demanding that the Company pay cash damages of $791,244 as a result of the
      Company's alleged breach of certain guarantee obligations under an agreement
      between Cell Phone Entertainment, LLC, Mantra Films, Inc. and the Company (as
      Guarantor), dated September 30, 2004. Mantra Films, Inc. alleges that Cell
      Phone
      Entertainment, LLC and the Company failed to make certain guaranteed minimum
      license payments due under the agreement. As a result of the alleged failure
      to
      make such minimum payments, Mantra Films, Inc. terminated the agreement. The
      $791,244 demand represents the entire contract amount, including both past
      due
      payments and future guaranteed license fees, totaling minimum payments due
      pursuant to the agreement of $900,000, which amount has been reduced by payments
      made and certain prepaid insurance premiums in the amount of $108,756. On June
      12, 2006, Mantra Films, Inc. filed suit against Cell Phone Entertainment, LLC
      and the Company in the Superior Court for the State of California, County of
      Los
      Angeles (Civil Action File NO. SC090022). Mantra Films, Inc.'s Complaint sets
      forth the same basic facts discussed above, as well as certain additional facts
      regarding the alleged failure of the Company to return certain property to
      Mantra Films, Inc. In its Complaint, Mantra Films, Inc. has asserted claims
      for
      breach of contract, conversion, unjust enrichment, specific recovery of personal
      property accounting and interference with prospective economic advantage. The
      Complaint seeks damages in the amount discussed above, in addition to certain
      unspecified damages to be proven at trial. On October 5, 2006, the Company
      filed
      a Motion to Compel Arbitration. A hearing on the Motion took place on December
      27, 2006 and at the hearing the Court ordered the case to arbitration. The
      parties agreed to mediate the case prior to commencing arbitration proceedings.
      On January 12, 2007, the mediation took place, but the parties were unable
      to
      come to a successful resolution of the matter. Thereafter, on February 15,
      2007,
      the Company and Cell Phone Entertainment, LLC entered into a settlement
      agreement with Mantra Films, Inc. and ROAR Productions (as a signatory to the
      contract at issue in the lawsuit filed by Mantra Films, Inc.). Pursuant to
      the
      terms of the settlement agreement, t he
      Company agreed to pay Mantra Films, Inc. the total sum of one hundred and fifty
      thousand dollars ($150,000), which sum is to be paid in eight (8) equal
      installments of $18,750, to be allocated between Mantra Films, Inc. and ROAR
      Productions as solely agreed to by and between Mantra Films, Inc. and ROAR
      Productions. Payment of the obligation is secured by a lien on certain assets
      of
      the Company in favor of Mantra Films, Inc. in the amount of one hundred and
      fifty thousand dollars ($150,000), which lien shall be released upon full and
      final payment under the agreement. Any breach of the payment obligations by
      the
      Company shall allow Mantra Films, Inc. to assert a claim in any proceeding
      in
      bankruptcy, reorganization, merger, sale, or an assignment for the benefit
      of
      creditors for the value of their claims in the Mantra Lawsuit in the amount
      of
      three hundred ninety-nine thousand ($399,000), less any payments that have
      been
      made, which amount includes a claim for any sums remaining due on the secured
      interest of one hundred fifty thousand ($150,000), and a claim as a general
      unsecured creditor for the balance of the three hundred ninety nine thousand
      ($399,000). In consideration of the foregoing, and once all required payments
      have been made, Mantra Films, Inc. and ROAR Productions agreed to give the
      Company and Cell Phone Entertainment, LLC, among other things, a dismissal
      with
      prejudice of the lawsuit, a non-disparagement clause and a confidentiality
      clause.




F-19





**SmartVideo
      Technologies, Inc.**


**Notes
      to Consolidated Financial Statements**


**December
      31, 2006, 2005 and 2004**





On
      or
      about January 18, 2006, Wilson W. Hendricks, III filed a Complaint in the County
      Court, Seventh Judicial Circuit, in and for St. John's County, Florida against
      the Company. Mr. Hendricks claimed damages in excess of $600,000 relating to
      lost wages and unreimbursed business expenses. In addition, he claimed the
      Company failed to issue 500,000 non-qualified stock options, to which he alleges
      he was entitled. Mr. Hendrick's main claims are that the he was wrongfully
      discharged from the Company and that the Company failed to grant him promised
      stock options. On June 22, 2006, the Court entered an Order requiring the
      parties mediate the case on or before October 31, 2006. The parties began the
      mediation process on August 29, 2006. On February 22, 2007, the Company and
      Mr.
      Hendricks agreed to the basic terms of a settlement which was memorialized
      in a
      settlement agreement dated March 7, 2007. Pursuant to the terms of the
      settlement agreement, the Company agreed to issue Mr. Hendricks 175,000 shares
      of the Company's common stock, and pay $10,000 for attorney’s fees and expenses
      (payable in two monthly installments), in exchange for, among other things,
      a
      dismissal with prejudice of the lawsuit. Among other items, the settlement
      agreement also includes mutual general releases, mutual non-disparagement
      clauses, a confidentiality clause and a “non-cooperation” clause on behalf of
      Mr. Hendricks.





On
      February 1, 2006 Jenkins & Gilchrest, LLP (“J&G”) filed suit against the
      Company in the United States District Court, Central District of California,
      Los
      Angeles Division (Case No: CV06-0620) alleging breach of contract as a result
      of
      the Company's alleged failure to pay fees and costs for professional services
      in
      the amount of $115,345. The Company failed to file a timely answer to the
      Complaint and therefore J&G filed a Motion for Default Judgment in the
      amount of $131,902, plus costs, with the Court. The Motion for Default Judgment
      was granted on March 22, 2006. On August 14, 2006, the Company entered into
      a
      settlement agreement with J&G, pursuant to which the Company has agreed to
      pay J&G $95,000 in exchange for a release of all claims by J&G. As of
      October 11, 2006, the Company has paid J&G the $95,000 due pursuant to the
      settlement agreement.




On
      or
      about July 18, 2006, Manhattan Investments, Inc. (“Manhattan”) filed a Complaint
      against the Company in the United States District Court, Northern District
      of
      California (Case No. C-06-4379), alleging that the Company has wrongfully
      refused to remove the restrictive legend on a stock certificate representing
      49,795 shares. The Complaint includes claims for breach of fiduciary and
      statutory duties, conversion and fraud, and seeks injunctive relief, as well
      as
      monetary damages. On October 2, 2006, the Company filed a Motion to Transfer
      for
      Improper Venue. The Motion was granted by the Court on November 13, 2006. The
      Company intends to vigorously defend against these claims, although there
      can be no assurances that the Company will be successful.




On
      or
      about October 20, 2006, Hamouth Family Trust (“Hamouth”) filed a Complaint
      against the Company in the Court of Chancery of the State of Delaware, in which
      Hamouth seeks declaratory and injunctive relief, as well as damages in an
      unspecified amount, related to the Company's alleged wrongful refusal to issue
      new stock certificates without restrictive legends for 800,000 shares of stock
      owned by Hamouth. The Company has filed an Answer to the Complaint and the
      discovery period has commenced. The Company intends to vigorously defend against
      these claims, although there can be no assurances that the Company will be
      successful.





On
      November 13, 2006, James A. Jones filed a Complaint in the U.S. District Court
      for the Northern District of Georgia against the Company and Richard E. Bennett,
      Jr., the Company's former President and Chief Executive Officer. Mr. Jones
      alleges a violation of Section 806 of the Corporate Criminal and Fraud
      Accountability Act of 2002, 18 U.S.C. § 1514 et. seq. (“Sarbanes Oxley”), and is
      seeking compensatory damages, back pay and reimbursement for lost wages,
      pension, insurance, and other employment benefits, front pay and reimbursement
      for lost wages, pension, insurance, and other employment benefits, and attorneys
      fees. Mr. Jones claims that he was unlawfully terminated in retaliation for
      investigating and opposing allegedly improper conduct by the Company and Mr.
      Bennett. The Company and Mr. Bennett filed their Answers to the Complaint on
      December 21, 2006. The discovery period has commenced. The Company and Mr.
      Bennett intend to vigorously defend against Mr. Jones' claim, although there
      can
      be no assurances that the Company and Mr. Bennett will be
      successful.





F-20
 
  **SmartVideo
          Technologies, Inc.**
 **Notes
          to Consolidated Financial Statements**
 **December
          31, 2006, 2005 and 2004**





The
      Company was named as a defendant in four lawsuits brought by a total of eighteen
      investors in the United States District Court, Northern District of Georgia
      (Case No. 1:06- CV-0850-MHS filed on or about April 10, 2006, and Case Nos.
      1:06-CV-2388, 1:06-CV-2390, and 1:06-CV-2391 filed on or about October 6, 2006).
      The investors alleged, among other things, that the Company breached certain
      Registration Rights Agreements. The investors also claimed, among other things,
      that as a result of the Company's breach of the registration rights agreements
      they were denied certain rights they were allegedly owed under the agreements,
      and were inappropriately prevented from exercising warrants and selling shares
      during a specific period of time. In the aggregate, the investors claimed that
      as a result of the Company's actions they suffered damages in excess of $13
      million dollars. On January 11, 2007 the Company entered into a Settlement
      Agreement with these investors and certain other interested parties (the
“Claimants”). Pursuant to the terms of the Settlement Agreement, the Company
      issued 6,000,000 shares of the Company's common stock to the Claimants in
      exchange for the Claimants agreeing to release the Company and its owners,
      predecessors, successors, directors, officers, stockholders, employees,
      representatives, attorneys, subsidiaries and affiliates from all suits, claims,
      charges, liabilities and causes of action of any nature whatsoever which the
      Claimants had, have or may in the future have, arising out of any acts or events
      occurring up to and including the effective date of the Settlement Agreement.
      Among other items, the Claimants further agreed not to use confidential
      information against the Company in the future. The Settlement Agreement also
      contains mutual non-disparagement clauses.





On
      September 9, 2006 and February 14, 2007, respectively, the Company received
      correspondence from Epsom Investment Services, N.V. (“Epsom”) demanding
      repayment of an alleged outstanding Demand Loan made in 2002 from Epsom to
      Sharps Eliminations Technologies, Inc. (“Sharps”) in the amount of $50,000
      bearing interest at 5%. Epsom claims that the Company agreed to repay this
      loan
      on behalf of Sharps. The
      Company is still investigating this claim, but currently does not believe any
      such amounts are due and owing to Epsom.





On
      February 28, 2007, the Company filed
      a
      Complaint in the United States District Court, North District of Georgia (Case
      No. 1:07-CV-0503) against Leslie L. Croland, Esq., the Company’s former
      securities counsel, seeking the recovery of damages as a result of Mr. Croland’s
      professional negligence and breach of fiduciary duties to the Company. More
      specifically, the Company seeks to recover c ompensatory
      damages for, among other things, losses sustained and attorneys’ fees, costs,
      and expenses and liabilities incurred due to claims asserted by certain
      investors against the Company, as well as punitive damages, attorneys fees,
      costs of suit and any other relief the Court deems equitable and
      just.





Except
      as
      set forth above, we believe that there are no material litigation matters at
      the
      current time. Although the results of such litigation matters and claims cannot
      be predicted with certainty, we believe that the final outcome of such claims
      and proceedings will not have a material adverse impact on our financial
      position, liquidity, or results of operations.





**(C)
      Employment and Consulting Agreements**





**(1)
      Employment Agreements**





**David
      Ross**




On
      February 28, 2006, we entered into an employment agreement with David R. Ross,
      pursuant to which he will serve as the Company's President for a period of
      two
      years. On August 25, 2006, Mr. Ross was appointed Interim Chief Executive
      Officer of the Company. Mr. Ross is entitled to a base salary of $275,000 per
      annum, which may be increased at the discretion of the Compensation Committee
      of
      the Board of Directors. We also granted Mr. Ross an incentive stock option
      to
      purchase an aggregate of 476,190 shares of the Company's common stock and a
      non-qualified stock option to purchase an aggregate of 523,810 shares of the
      Company's common stock. The incentive stock option and the non-qualified stock
      option are each exerciseable at $2.10 per share for a period of 10 years from
      the date of grant. The incentive stock option vests at the following percentages
      and at the following times: (1) 10% of the shares vested on February 28, 2006,
      and (2) 10% of the shares vest on each anniversary date thereafter for the
      succeeding nine years. The non-qualified stock option vests in the following
      percentage and at the following times: (1) 50% of the shares vest on February
      28, 2006, and (2) the balance of the shares vest on February 28, 2007. We have
      agreed to reimburse Mr. Ross the rental costs of an apartment or condominium
      unit in Atlanta, Georgia, in an amount not to exceed $1,500 per month. The
      employment agreement made with Mr. Ross may be terminated with or without
“cause” (as defined in the agreement) and contains customary non-competition,
      confidentiality and indemnification provisions. If the employment agreement
      is
      terminated by us without cause or by Mr. Ross with advance “Notice of
      Termination,” a pro rata portion of Mr. Ross' unvested options will vest
      immediately. If the employment agreement is terminated by the Company with
      cause
      or by Mr. Ross without advance Notice of Termination, then Mr. Ross forfeits
      the
      options that have not vested as of the date of termination or
      resignation.




F-21
 
  **SmartVideo
          Technologies, Inc.**
 **Notes
          to Consolidated Financial Statements**
 **December
          31, 2006, 2005 and 2004**


**Richard
      Bennett**




Richard
      E. Bennett, Jr.'s ** employment
      agreement provided for an initial base salary of $75,000 and was increased
      to
      $150,000 on January 19, 2006, with subsequent increases as determined by our
      Board of Directors. Mr. Bennett's Employment Agreement allowed for a stock
      option grant of 750,000 options, but these options were never granted. The
      employment agreement also provided, among other things, for participation in
      an
      equitable manner in any profit-sharing or retirement plan for employees or
      executives and for participation in employee benefits applicable to our
      employees and executives, as well as for the provision of an automobile
      allowance of up to $800 per month and other fringe benefits commensurate with
      his duties and responsibilities and for benefits in the event of disability.
      Pursuant to the employment agreement, employment may be terminated by us with
      cause or by the executive with or without good reason. If Mr. Bennett's
      employment was terminated by us without cause or by the executive for good
      reason would subject us to liability for liquidated damages in an amount equal
      to six months of the current salary of the terminated executive as of the date
      of termination. Mr Bennett resigned as the Chief Executive Officer and Interim
      Chief Financial Officer of the Company on August 25, 2006. The Company has
      not
      paid any severance benefits to Mr. Bennett and no such payments are
      due.





**William
      Loughman**




Pursuant
      to an agreement with Tatum, LLC, the Company pays Mr. Loughman, the Chief
      Financial Officer of the Company, a salary of $20,000 per month less the
      amount of the Company's portion of FICA taxes. In addition, the Company has
      granted Mr. Loughman options to purchase 80,000 shares of the Company's common
      stock at an exercise price of $1.95 per share. The options vest at the rate
      of
      10,000 per month and expire 10 years from the date of grant. The agreement
      commenced on March 20, 2006 and extends through December 31, 2006. Thereafter,
      the agreement will automatically renew for additional three-month periods unless
      either party gives the other party written notice of its intent not to renew
      at
      least 30 days prior to the end of the then current period.





**Scott
      Hughes**




Pursuant
      to the Company's employment agreement with Mr. Hughes, the Company pays Mr.
      Hughes a salary of $130,000 annually. In addition, the Company has granted
      Mr.
      Hughes options to purchase 1,500,000 shares of its stock, half of which vested
      on the date of his employment agreement, one quarter of which vested on the
      first anniversary of the date of his employment agreement, and one quarter
      of
      which will vest on the second anniversary of the date of his employment
      agreement if Mr. Hughes is still employed by the Company. The options expire
      ten
      years from the date of grant.





If
      Mr.
      Hughes is terminated by the Company without Cause or resigns for Good Reason
      (as
      those terms are defined in his employment agreement), the Company must pay
      Mr.
      Hughes an amount equal to the salary he would have earned during the remaining
      term of his employment agreement within ten days of his termination and maintain
      certain welfare benefit plans for the benefit of Mr. Hughes and his
      dependents.





**Tony
      Novia**




Pursuant
      to an employment agreement with Mr. Novia, the Company pays him a salary of
      $160,000 annually. In addition, the Company has granted Mr. Novia options to
      purchase 250,000 shares of the Company's common stock at an exercise price
      of
      $1.48 per share. 50,000 shares vested on the date of his employment and the
      remaining shares vest at 25,000 per quarter during the Employment Term. The
      options expire 10 years from the date of grant.





If
      Mr.
      Novia is terminated by the Company without Cause or resigns for Good Reason
      (as
      those terms are defined in his employment agreement), the Company must pay
      Mr.
      Novia an amount equal to the greater of the salary he would have earned during
      the remaining term of his employment agreement or nine months' salary. The
      Company must also maintain certain welfare benefit plans for the benefit of
      Mr.
      Novia and his dependents for the period during which severance payments are
      made.





**Tom
      Parrish**




Pursuant
      to an employment agreement with Mr. Parrish, the Company pays him an annual
      salary of $175,000. In addition, the Company has granted Mr. Parrish options
      to
      purchase 250,000 shares of the Company's common stock at an exercise price
      of
      $1.50 per share. 50,000 share vested on the date of his employment and the
      remaining shares vest at 25,000 per quarter during the Employment Term. The
      options expire 10 years from the date of grant.




F-22




**SmartVideo
        Technologies, Inc.**
 **Notes
        to Consolidated Financial Statements**
 **December
        31, 2006, 2005 and 2004**





**(2)
      Consulting Agreement**





Effective
      March 1, 2005, the Company entered into a consulting agreement with Forte
      Capital Partners, LLC. The term of the consulting agreement is for a period
      of
      six months and provides for a monthly retainer of $7,500 plus reimbursement
      of
      all reasonable travel and other out-of-pocket expenses incurred in performing
      the consulting services. The consulting agreement also provides for a warrant
      to
      purchase 150,000 shares of common stock at an exercise price of $3.50 per share.
      The warrant includes certain cashless exercise provisions and piggyback
      registration rights. Either party may terminate the agreement with or without
      reason. If the Company terminates the agreement without cause, the Company
      would
      be obligated to pay all amounts then owed, as well as liquidated damages equal
      to the monthly salary for the remainder of the term. At December 31, 2005,
      the
      Company included $30,000 in accounts payable relating to the monthly
      retainer.





*(D)
      Commitments* ******





In
      May
      2005, the Company assumed a sublease for approximately 25,000 square feet of
      office space in Duluth, Georgia. This office space currently serves as the
      Company’s corporate headquarters. This sublease calls for monthly rental
      payments of approximately $23,000 and terminates on August 31, 2007. Rent
      expense for the year ended December 31, 2006, 2005, and 2004 was $280,315,
      $273,215, and $122,000, respectively.





The
      following represents minimum rental payments due pursuant to non-cancelable
      operating lease commitments during the remaining term of the operating lease
      agreement.


**For
                  the Years Ended December 31, 2007-2011****Contractual
                  Obligations**
              
              **Total**
              
              **Less
                  Than 1 Year**
              
              **1-3
                  Years**
              
              **3-5
                  years**
              
              **More
                  Than 5 Years**Operating
                  Lease Obligations
              
              $
              185,332
              
              $
              185,332
              
              $
              —
              
              $
              —
              
              $
              —Capital
                  Lease Obligations
              
              
              194,344
              
              
              33,255
              
              
              75,589
              
              
              85,500
              
              
              —Broadcast
                  Rights
              
              
              3,434,576
              
              
              2,454,725
              
              
              943,386
              
              
              36,465
              
              
              —Total
              
              $
              3,814,252
              
              $
              2,673,312
              
              $
              1,018,975
              
              $
              121,965
              
              $
              —





**Note
      9 - Stockholders’ Equity (Deficit)**





**Year
      Ended December 31, 2006**




*(A)*
            *Preferred
                Stock*




(1)
          Capital Structure




As
      of
      December 31, 2006, the authorized Preferred Stock of the Company consisted
      of
      50,000,000 shares of $.001 par value Series A-1 Preferred Stock of which
      11,666,666 shares are issued and 2,633,333 shares are outstanding and are
      designated as convertible.





F-23





**SmartVideo
      Technologies, Inc.**


**Notes
      to Consolidated Financial Statements**


**December
      31, 2006, 2005 and 2004**




*(B)*
            *Common
                Stock Issuances*




On
      July
      17, 2006, the Company completed an equity financing pursuant to a securities
      purchase agreement dated as of July 7, 2006 among the Company and 74 accredited
      investors. Under the terms of the agreement, the Company received gross proceeds
      of $9,000,000 and issued to the investors a total of 7,200,000 shares of common
      stock and five year warrants exercisable at $2.50 per share to purchase up
      to
      7,200,000 shares of common stock. Such securities were issued pursuant to an
      exemption provided by Section 4(2) of the Securities Act and Rule 506 of
      Regulation D promulgated thereunder. This round of financing triggered an
      anti-dilution provision under a prior financing resulting in the issue of
      additional warrants exercisable at $1.25 per share to purchase an additional
      6,553,663 shares of common stock.





(1)
      Capital Structure





As
      of
      December 31, 2006, the authorized common stock of the Company consists of
      150,000,000 shares of $.001 par value.





(2)
            Preferred
                Stock Conversions




During
      the year ended December 31, 2006, the Company converted 9,033,333 shares of
      the
      Company’s Series A-1 Convertible Preferred Stock to shares of common stock on a
      one-to-one basis.




(3)
            Accounts
                Payable




During
      the year ended December 31, 2006, the Company settled two outstanding vendor
      payables with unrelated third parties by issuing an aggregate of 434,916 shares
      of common stock having an aggregate fair value of $501,937. Fair value was
      determined based on the quoted closing trading price on the dates of settlement.
      The share prices on the dates of issuance ranged from $0.75 - $2.08 per share.
      Of the total shares issued, 100,000 shares valued at $208,000, were applied
      directly against a vendor payable in connection with the purchase of computer
      software. In addition the Company settled with a consultant by issuing 60,000
      shares of common stock for all amounts due and owing, issued 75,000 shares
      to a
      consultant for services rendered, and issued 199,916 shares in payment of
      services performed by a vendor.





(4)
            Warrant
                Exercises




During
      the year ended December 31, 2006, the Company issued 1,929,463 shares of common
      stock in connection with the exercise of previously issued stock purchase
      warrants. Of the total, 807,607 shares were issued based on the original warrant
      contractual exercise price. These exercise prices ranged from $0.75 - $2.00
      per
      share and total cash proceeds raised from these exercised warrants was $943,975.
      The remaining 1,121,856 shares were issued based on an anti-dilution exercise
      price adjustment feature in the related warrant contracts. The Company recorded
      related offsetting amounts in additional paid-in capital and common stock at
      the
      par value of the stock issued, which was $1,122.





F-24





**SmartVideo
      Technologies, Inc.**


**Notes
      to Consolidated Financial Statements**


**December
      31, 2006, 2005 and 2004**





During
      the quarter ended December 31, 2006, the Company redeemed 706,670 callable
      warrants at a price of $.10 per warrant for a total payment of $70,667 which
      also reduced additional paid in capital by $70,667.




The
      following is a summary of all common stock issued during the year ended December
      31, 2006:


**Activity**
              
              **Quantity
                  of Shares**
              
              **Valuation**Preferred
                  Stock Conversion
              
              
              9,033,333
              
              $
              —Accounts
                  Payable Settlements
              
              
              434,916
              
              
              501,937Warrant
                  Conversions
              
              
              1,929,463
              
              
              943,975Sale
                  of Common Stock
              
              
              7,206,109
              
              
              9,033,333Other
              
              
              —
              
              
              —Totals
              
              
              18,603,821
              
              $
              10,479,245




*(C)*
            *Common
                Stock Options and Warrants*




(1)
                Services




On
      January 19, 2006, the Company entered into a consulting agreement with Growth
      Consultants LLC (“consultant”). The initial term of the agreement was through
      June 30, 2006, but was extended through September 30, 2006 pursuant to a letter
      agreement dated July 7, 2006. Pursuant to the agreement, the consultant was
      issued 300,000 common stock purchase warrants having an exercise price of $3.00
      per warrant. For the year ended December 31, 2006, the Company recorded
      $1,424,250 in consulting expense using fair value accounting as prescribed
      by
      SFAS No. 123R and the related Black-Scholes pricing model with the following
      weighted average assumptions:


Exercise
                  price
              $3.00Expected
                  dividend yield
              0%Expected
                  volatility
              122.37%Risk
                  free interest rate
              4.50%Expected
                  life of option
              5
                  years





On
      July
      24, 2006, the Company entered into a Master Consulting Agreement with James
      Morrison for a two year term expiring on July 24, 2008. Pursuant to the
      agreement, Morrison was issued an aggregate of 400,000 common stock purchase
      warrants, 50,000 of which are exercisable at any time during the exercise period
      and the remaining will only be exercisable upon obtaining certain thresholds
      and
      milestones. 50,000 of these warrants have an exercise price of $1.40 and the
      remaining will have an exercise price equal to the lesser of (i) $1.40 and(ii)
      the closing price quoted on the OTC Bulletin Board or another recognized
      tracking system on the date the applicable thresholds and/or milestones are
      achieved. The Company also is obligated to pay Morrison a specified amount
      per
      month to provide consulting services which includes general advice and
      directions on business development, strategic planning, and engineering and
      design. ****





For
      the
      year ended December 31, 2006, the Company recorded $66,720 in compensation
      expense using fair value accounting as prescribed in SFAS 123R and the related
      Black-Scholes pricing model with the following weighted average
      assumptions:


Exercise
                  price
              $1.40Expected
                  dividend yield
              0%Expected
                  volatility
              119.39%Risk
                  free interest rate
              4.63%Expected
                  life of option
              5
                  years
  On
          July 24, 2006, the Company entered into a Master Development Agreement
          with
          Skyward Mobile for a two year term expiring on July 24, 2008. Pursuant
          to the
          agreement, Skyward Mobile was issued an aggregate of 400,000 common stock
          purchase warrants, 50,000 of which are exercisable at any time during the
          exercise period and the remaining will only be exercisable upon obtaining
          certain thresholds and milestones. 50,000 of these warrants have an exercise
          price of $1.40 and the remaining will have an exercise price equal to the
          lesser
          of (i) $1.40 and (ii) the closing price quoted on the OTC Bulletin Board
          or
          another recognized tracking system on the date the applicable thresholds
          and/or
          milestones are achieved.****
 
 For
          the
          year ended December 31, 2006, the Company recorded $66,720 in compensation
          expense using fair value accounting as prescribed in SFAS 123R and the
          related
          Black-Scholes pricing model with the following weighted average
          assumptions:
 Exercise
                      price
                  $1.40Expected
                      dividend yield
                  0%Expected
                      volatility
                  119.39%Risk
                      free interest rate
                  4.63%Expected
                      life of option
                  5
                      years
  F-25





**SmartVideo
      Technologies, Inc.**


**Notes
      to Consolidated Financial Statements**


**December
      31, 2006, 2005 and 2004**




*(D)*
            *Other
                Grants of Common Stock Options and
                Warrants*




(1)
                2004 Equity Incentive Plan




The
      Board
      of Directors of the Company adopted the 2004 Equity Incentive Plan (“2004 Plan”)
      effective January 1, 2004, to provide incentives to attract and retain
      participating officers, directors, and key employees. The 2004 Plan allows
      for
      the issuance of up to 5,000,000 shares of common stock in the form of incentive
      awards, including, without limitation, stock options and restricted stock.
      This
      Plan was approved by the stockholders at the annual meeting held on August
      31,
      2004.





(2)
                2005 Equity Incentive Plan




The
      Board
      of Directors of the Company adopted the 2005 Equity Incentive Plan (“2005 Plan”)
      on January 3, 2006 to provide incentives to attract and retain participating
      officers, directors, employees, consultants and advisors. The 2005 Plan allows
      for the issuance of 10,000,000 shares of common stock in the form of incentive
      awards, including, without limitation, stock options and restricted stock.
      The
      Plan was approved by the stockholders on February 23, 2006.





The
      following tables summarize all stock option grants to employees and
      non-employees as of December 31, 2006:




**Number
                  of Options**
              
              **Weighted
                  Average Exercise Price****Stock
                  Options**Balance
                  at December 31, 2003
              
              
              —
              
              $
              —Granted
              
              
              2,445,000
              
              
              2.20Exercised
              
              
              —
              
              
              —Forfeited
              
              
              —
              
              
              —Balance
                  at December 31, 2004
              
              
              2,445,000
              
              $
              2.20Granted
              
              
              1,345,000
              
              
              1.61Exercised
              
              
              —
              
              
              —Forfeited
              
              
              (310,000
              )
              
              1.58Balance
                  at December 31, 2005
              
              
              3,480,000
              
              
              2.03Granted
              
              
              6,710,000
              
              
              1.65ExercisedForfeited
              
              
              (1,160,000
              )
              
              1.00Balance
                  at December 31, 2006
              
              
              9,030,000
              
              $
              1.80Options
                  exercisable at December 31, 2006
              
              
              4,499,062
              
              $
              1.89Weighted
                  average fair value of options granted during 2006
              
              
              
              
              $
              1.65





F-26


**SmartVideo
      Technologies, Inc.**


**Notes
      to Consolidated Financial Statements**


**December
      31, 2006, 2005 and 2004**


**Options
                  Outstanding**
              
              **Options
                  Exercisable****Exercise
                  Price**
              
              **Number
                  Outstanding as of December 31, 2006**
              
              **Weighted
                  Average Remaining Contractual Years**
              
              **Weighted
                  Average Exercise Price**
              
              **Number
                  Exercisable at December 31, 2006**
              
              **Weighted
                  Average Exercise Price**$
              0.90
              
              
              250,000
              
              
              8.52
              
              $
              0.90
              
              
              250,000
              
              $
              0.90$
              0.97
              
              
              200,000
              
              
              9.66
              
              $
              0.97
              
              
              28,125
              
              $
              0.97$
              1.00
              
              
              435,000
              
              
              7.85
              
              $
              1.00
              
              
              369,375
              
              $
              1.00$
              1.02
              
              
              265,000
              
              
              9.57
              
              $
              1.02
              
              
              —
              
              $
              1.02$
              1.31
              
              
              990,000
              
              
              9.59
              
              $
              1.31
              
              
              —
              
              $
              1.31$
              1.36
              
              
              275,000
              
              
              9.41
              
              $
              1.36
              
              
              131,250
              
              $
              1.36$
              1.40
              
              
              350,000
              
              
              9.52
              
              $
              1.40
              
              
              62,500
              
              $
              1.40$
              1.44
              
              
              150,000
              
              
              10.44
              
              $
              1.44
              
              
              37,500
              
              $
              1.44$
              1.48
              
              
              250,000
              
              
              9.15
              
              $
              1.48
              
              
              137,500
              
              $
              1.48$
              1.50
              
              
              250,000
              
              
              8.97
              
              $
              1.50
              
              
              31,250
              
              $
              1.50$
              1.55
              
              
              1,700,000
              
              
              8.36
              
              $
              1.55
              
              
              1,275,000
              
              $
              1.55$
              1.58
              
              
              25,000
              
              
              8.41
              
              $
              1.58
              
              
              6,250
              
              $
              1.58$
              1.75
              
              
              25,000
              
              
              9.32
              
              $
              1.75
              
              
              6,250
              
              $
              1.75$
              1.86
              
              
              100,000
              
              
              9.31
              
              $
              1.86
              
              
              50,000
              
              $
              1.86$
              1.90
              
              
              500,000
              
              
              8.84
              
              $
              1.90
              
              
              500,000
              
              $
              1.90$
              1.91
              
              
              280,000
              
              
              9.27
              
              $
              1.91
              
              
              140,000
              
              $
              1.91$
              1.95
              
              
              100,000
              
              
              9.22
              
              $
              1.95
              
              
              100,000
              
              $
              1.95$
              2.10
              
              
              1,350,000
              
              
              9.17
              
              $
              2.10
              
              
              370,000
              
              $
              2.10$
              2.20
              
              
              150,000
              
              
              9.26
              
              $
              2.20
              
              
              150,000
              
              $
              2.20$
              2.25
              
              
              220,000
              
              
              6.04
              
              $
              2.25
              
              
              126,250
              
              $
              2.25$
              2.30
              
              
              150,000
              
              
              7.92
              
              $
              2.30
              
              
              95,000
              
              $
              2.30$
              2.53
              
              
              25,000
              
              
              9.18
              
              $
              2.53
              
              
              9,375
              
              $
              2.53$
              2.77
              
              
              25,000
              
              
              9.18
              
              $
              2.77
              
              
              9,375
              
              $
              2.77$
              2.90
              
              
              20,000
              
              
              8.27
              
              $
              2.90
              
              
              5,000
              
              $
              2.90$
              2.91
              
              
              30,000
              
              
              8.29
              
              $
              2.91
              
              
              7,500
              
              $
              2.91$
              2.95
              
              
              15,000
              
              
              7.76
              
              $
              2.95
              
              
              6,562
              
              $
              2.95$
              3.27
              
              
              150,000
              
              
              9.15
              
              $
              3.27
              
              
              20,000
              
              $
              3.27$
              3.50
              
              
              750,000
              
              
              7.52
              
              $
              3.50
              
              
              575,000
              
              $
              3.509,030,000
              
              
              8.83
              
              $
              1.80
              
              
              4,499,062
              
              $
              1.89





At
      December 31, 2006, the Company had a total of 35,010,149 warrants outstanding.
      All of these warrants are exercisable. The life of the warrants range from
      zero
      to five years. The exercise price of these warrants range from $0.75 to $6.50.
      See additional disclosure above regarding warrant activity.




(3)
      Stock
      Plans





In
      2006,
      the Company adopted SFAS No. 123(R). Under SFAS No. 123(R), companies are
      required to measure the compensation costs of share-based compensation
      arrangements based on the grant-date fair value and recognize the costs in
      the
      financial statements over the period during which employees are required to
      provide services. Share-based compensation arrangements include stock options,
      restricted share plans, performance-based awards, share appreciation rights
      and
      employee share purchase plans.




For
      the
      year ended December 31, 2005, pro forma information regarding net income and
      earnings per share is required by SFAS No. 123 and has been determined as if
      the
      Company had accounted for its stock-based compensation plans using the fair
      value method prescribed by that statement. For purposes of pro forma
      disclosures, the estimated fair value of the options is amortized to expense
      over the options’ vesting period on a straight-line basis. Compensation
      previously recognized is reversed to the extent applicable to forfeitures of
      unvested options. For purposes of presenting the comparative 2005 pro forma
      financial statement information, the Company has determined the amount of share
      based awards previously accounted for pursuant to APB No. 25 prior to January
      1,
      2006 and recorded the appropriate expense as if SFAS No. 123R had been followed
      in the previous comparative period.





F-27
 
  **SmartVideo
          Technologies, Inc.**
 **Notes
          to Consolidated Financial Statements**
 **December
          31, 2006, 2005 and 2004**


The
      following table illustrates the effect on the consolidated net loss and net
      loss
      per share if the Company had accounted for its stock-based compensation plans
      using SFAS No. 123(R) for the employee share based awards.


**For
                  the Year Ended****December
                  31,****2006**
              
              **2005**
              
              **2004**Net
                  loss to common shareholders, as reported
              
              $
              (24,488,876
              )
              $
              (19,740,274
              )
              $
              (6,792,930
              )Add:
                  Stock-based employee compensation expense included in reported
                  net
                  loss,net
                  of related tax effects
              
              
              —
              
              
              —
              
              
              —Deduct:
                  Total stock-based employee compensation expense determined under
                  fairvalue
based
                method for all awards, net of related tax effects
              
              
              —
              
              
              (1,090,181
              )
              
              (75,727
              )Pro
                  forma net loss to common shareholders
              
              $
              (24,488,876
              )
              $
              (20,830,455
              )
              $
              (6,868,657
              )Basic
                  and diluted net loss per share, as reported
              
              $
              (0.61
              )
              $
              (0.76
              )
              $
              (0.35
              )Pro
                  forma basic and diluted net loss per share
              
              $
              (0.61
              )
              $
              (0.80
              )
              $
              (0.36
              )




For
      purposes of this pro forma presentation, the fair value of each option grant
      was
      estimated at the date of the grant using a Black-Scholes option pricing model
      with the following weighted average assumptions: the risk-free interest rate
      was
      4.875%, expected dividend yield of 0%, expected volatility factor was 122.76%
      with an expected life of three years.





For
      the
      years ended December 31, 2006, the Company recorded a charge to income in the
      amount of approximately $3,287,000 for the effects of the adoption of FASB
      123(R) in the current year for employee share based awards.





**Year
      Ended December 31, 2005:**





*(A)*  *Preferred
      Stock*





*(1)* ****** *Capital
      Structure*





As
      of
      December 31, 2005 and 2004, the authorized preferred stock of the Company
      consists of 50,000,000 shares of $.001 par value preferred stock of which
      10,666,666 and 0 shares are issued and outstanding, respectively and are
      designated as convertible. Prior to its conversion in March 2004, each share
      of
      preferred stock was entitled to the same voting preferences as the Company’s
      common stock.





In
      March
      2004, the holders of the 12,000,000 shares of Convertible Preferred Stock
      provided notification to us for the conversion of their shares into common
      stock. Under the terms of the Convertible Preferred Stock, the stockholders
      were
      issued a total of 12,000,000 shares of common stock. These shares of common
      stock were issued as restricted shares exempt from registration.




On
      August
      9, 2005 our Board of Directors authorized the issuance of 2,500 shares of Series
      B 7% Convertible Preferred Stock. As of the date of this report, no shares
      of
      such stock have been issued. Each share of Series B 7% Convertible Preferred
      Stock is convertible into that number of shares of common stock determined
      by
      dividing the Stated Value of the Series B 7% Convertible Preferred Stock, which
      is presently equal to $1,000.





**(2)**
            **Preferences**




Currently,
      the board has not designated any preferences.





**(3)
      Issuance of Convertible Preferred Stock, Series A-1**




In
      November 2005, the Company issued 5,333,333 shares of Convertible Preferred
      Stock, Series A-1. Of the total, 1,746,667 shares were issued in connection
      with
      the conversion of $1,310,000 in convertible debt at $0.75 per share (see Notes
      6
      and 10). The remaining 3,586,666 shares were sold for cash of $2,690,000 or
      $0.75 per share. This represented the first of two Convertible Preferred Stock
      offerings traunches.




F-28
 
  **SmartVideo
          Technologies, Inc.**
 **Notes
          to Consolidated Financial Statements**
 **December
          31, 2006, 2005 and 2004**


In
      December 2005, the Company issued 5,333,333 shares of Convertible Preferred
      Stock, Series A-1. All shares were sold for cash of $4,000,000 or $0.75 per
      share. (See Notes 6 and 10) This represented the second of two Convertible
      Preferred Stock offerings traunches.





In
      connection with the issuance of these aggregate 10,666,666 Series A-1,
      Convertible Preferred Shares, the Company issued 13,333,333 stock purchase
      warrants. For each share of Convertible Preferred Stock purchased, the holder
      is
      entitled to receive freestanding warrants having an exercise price of either
      $1.75 or $2.00. The quantity of warrants granted at $1.75 was equivalent to
      the
      investment multiplied by 133 1/3 %; the quantity of warrants granted at $2.00
      was equivalent to the investment multiplied by 33 1/3 %. All stock purchase
      warrants have an exercise period of five years.




The
      Company followed the provisions of EITF No. 98-5, EITF 00-27 and APB No. 14
      by
      allocating the proceeds raised between the Convertible Preferred Stock and
      freestanding warrants. The allocation is deemed to be analogous to a dividend
      to
      be recognized over the term in which the preferred stockholders can realize
      the
      return. Since the Convertible Preferred Stock is immediately convertible at
      the
      option of the holder, the benefit is realized immediately. The value of the
      dividend was equivalent to $8,000,000 as the allocation exceeded the face amount
      of the gross proceeds raised. The Company charged retained earnings and credited
      additional paid-in capital. Additionally, the Company evaluated the underlying
      common stock for purposes of determining fair value and the related conversion
      price, however, the conversion price of $0.75 used to determine the allocable
      amounts was based on the recent cash offering price of $0.75 for the same
      Convertible Preferred Stock offering as opposed to any value ascribed to the
      common stock.




The
      Company also reviewed this transaction and determined that derivative accounting
      and the related issues of EITF No. 00-19 do not apply.







Management
      used the following weighted average assumptions on the date of issue when
      determining the fair value of the freestanding warrants issued in connection
      with the Series A-1, Convertible Preferred Shares:


Exercise
                  price
              $1.75
                  or $2.00Expected
                  dividend yield
              0%Expected
                  volatility
              175.48%
                  - 176.68%Risk
                  free interest rate
              4.25%Expected
                  life of option
              2
                  years




**(B)**
            **Common
                Stock Issuances**




**(1)**
            **Issued
                for Cash**




During
      March 2005, the Company issued 1,761,345 shares of common stock for gross cash
      proceeds of $3,963,000 in connection with a Private Placement requiring a
      purchase price of $2.25 per share. Additionally, the Company paid a cash fee
      of
      $233,125 to a placement agent in connection with the equity raise representing
      a
      direct offering cost. The $233,125 was netted against the gross cash proceeds
      and resulted in the Company raising $3,729,875 in net cash proceeds. All shares
      issued in this Private Placement had piggy back registration rights and the
      related registration statement was declared effective in July 2005.




In
      connection with the issuance of these shares of common stock, the Company issued
      to each investor an aggregate 1,019,675 stock purchase warrants. These warrants
      have an exercise price ranging from $2.25-3.50 and a life of 5 years. There
      is
      no separate valuation for the attached warrants pursuant to fair value
      accounting as they are deemed to be part of the aggregate gross proceeds raised
      for the related 1,761,345 shares of common stock.




See
      Note
      9 (B) (5) for additional common shares issued in connection with conversion
      of
      stock purchase warrants.




**(2)**
            **Compensation
                to Investors**




During
      March 2005, the Company issued an aggregate 50,000 shares of common stock to
      two
      individuals pursuant to the terms of a debt instrument held that required the
      issuance of additional shares based upon certain market conditions. The value
      of
      these shares was $3.95 per share based on the quoted closing trading price
      on
      the date of grant. Total additional consideration charged to the statement
      of
      operations as interest expense was $197,500.




F-29
 
  **SmartVideo
          Technologies, Inc.**
 **Notes
          to Consolidated Financial Statements**
 **December
          31, 2006, 2005 and 2004**


**(3)**
            **Accounts
                Payable**




During
      2005, the Company settled various outstanding vendor payables with unrelated
      third parties by issuing an aggregate 72,882 shares of common stock having
      an
      aggregate fair value of $82,850. Fair value was determined based on the quoted
      closing trading price on the dates of grant. The share prices on the dates
      of
      grant ranged from $0.79 - $3.04 per share and averaged $1.14 per
      share.







**(4)**
            **Consulting
                Services**




In
      July
      2005, the Company issued 750,000 shares of common stock to an unrelated
      third-party as consideration for entering into a business advisory agreement.
      The term of the agreement was for six months. The shares had a fair value of
      $712,500 or $0.95 per share. Fair value was determined based on the quoted
      closing trading price on the date of grant. There were no other services
      provided to the Company as described in the terms of the agreement and there
      are
      no outstanding accrued liabilities to this service provider at December 31,
      2005. All shares had piggy back registration rights and as of the date of the
      accompanying report were awaiting registration.




**(5)**
            **Warrant
                Conversions**




During
      2005, the Company issued 1,866,402 shares of common stock in connection with
      the
      exercise of previously granted stock purchase warrants. Of the total, 527,779
      shares were issued pursuant to the warrant contractual exercise price. These
      exercise prices ranged from $0.75 - $2.50 per share and averaged $1.37 per
      share. Total cash proceeds raised from conversions was $723,335. The remaining
      1,338,623 shares were issued pursuant to a cashless exercise provision as stated
      in the related warrant contracts. The Company recorded related offsetting
      amounts in the statements of changes in stockholders’ deficit for common stock
      and additional paid-in capital at the par value of the stock issued, the total
      was $1,339.





See
      Note
      9 (B) (1) for issuance of common stock and stock purchase warrants for
      cash.





The
      following is a summary of all common stock issued during 2005:




**ACTIVITY**
              
              **QUANTITY
                  OF SHARES**
              
              **VALUATION**Cash
              
              
              1,761,345
              
              $
              3,729,875Compensation
                  to Investors
              
              
              50,000
              
              
              197,500Accounts
                  Payable Settlements
              
              
              72,882
              
              
              82,850Consulting
                  Services
              
              
              750,000
              
              
              712,500Warrant
                  Conversions
              
              
              1,866,402
              
              
              723,335Totals
              
              
              4,500,629
              
              $
              5,446,060





**(C)**
            **Common
                Stock Options and Warrants**




**(1)**
            **Services**




On
      March
      1, 2005, the Company entered into two separate consulting agreements with
      unrelated third parties to provide professional services for an aggregate
      $17,500 per month for a period of one-year. Under the terms of these agreements,
      the Company issued an aggregate 1,400,000 stock purchase warrants having a
      fair
      value of $2,624,450. The value of these warrants was based on a computation
      derived from the use of a Black-Scholes option pricing model. Management used
      the following weighted average assumptions at the grant date:


Exercise
                      price
                  $3.50
                      - $6.50Expected
                      dividend yield
                  0%Expected
                      volatility
                  151.06%Risk
                      free interest rate
                  4.25%Expected
                      life of option
                  4-4.25
                      years


In
      June
      2005, both agreements were terminated. At December 31, 2005, there were no
      outstanding accrued liabilities to either service provider. At December 31,
      2005, the Company had charged the statement of operations for the entire
      $2,624,450 to consulting expense with an offsetting credit to additional paid
      in
      capital, additionally, all 1,400,000 warrants remain outstanding.





**(D)**
            **Other
                Grants of Common Stock Options and
                Warrants**





**(2)
      2004 Equity Incentive Plan**




The
      Board
      of Directors of the Company adopted the 2004 Stock Incentive Plan (“2004 Plan”)
      effective January 1, 2004, to provide incentives to attract and retain officers,
      directors, and key employees. The 2004 Plan allows for the issuance of up to
      5,000,000 shares of common stock. This Plan was approved by the stockholders
      at
      the annual meeting held on August 31, 2004.





On
      September 1, 2004, the Company granted 50,000 stock options to an officer.
      On
      December 7, 2004, the Company granted an additional 50,000 stock options to
      this
      same officer. No other officer or director of the Company holds any options,
      warrants or other rights allowing such person to acquire additional shares
      of
      the Company’s common stock.





F-30




**SmartVideo
      Technologies, Inc.**


**Notes
      to Consolidated Financial Statements**


**December
      31, 2006, 2005 and 2004**




At
      December 31, 2005, the Company had a total of 31,161,589 warrants outstanding.
      Of these warrants, 30,336,589 are exercisable. The life of the warrants
      range from zero to five years. The exercise price of these warrants range from
      $0.75 to $6.50. See additional disclosure above regarding activity.




**(E)
      Deferred Compensation**




During
      2006, the Company amortized $3,658,144 to the statement of operations as
      consulting expense relating to prior period deferred consulting arrangements.
      The balance at December 31, 2006 to be amortized was $877,628.





**Note
      10 - Related Party Transactions**





The
      Company had advances from holders of Preferred Shares, which included the CEO,
      amounting to $12,575 at December 31, 2003. These advances were due on demand,
      non-interest bearing and unsecured. On September 15, 2005, the Company repaid
      an
      advance in the amount of $10,000. The balance sheet currently reflects a balance
      due of $2,575.





On
      August
      12, 2005, the Company borrowed $225,000 from one of its directors. Pursuant
      to
      the promissory note issued in connection with the loan, the Company is obligated
      to pay all principal and interest due under the note by no later than September
      12, 2006. Interest on the unpaid principal balance of the note accrues at a
      rate
      equal to the fluctuating prime lending rate of LaSalle Bank, N.A., Chicago,
      Illinois; as such rate is in effect less one hundred basis points. This
      principal portion of this note in the amount of $225,000 was repaid on November
      22, 2005. The Company had related outstanding accrued interest of $3,845 at
      December 31, 2005.





Until
      August 31, 2005, the Company was provided the use of office facilities from
      a
      former related party. The amount paid by the Company during 2005 under this
      leasing arrangement amounted to approximately $81,000.





On
      September 26, 2005 and October 19, 2005, the Company borrowed an aggregate
      $600,000 from two different related parties (4 separate notes) pursuant to
      the
      terms of a Convertible Promissory Note.





On
      November 10, 2005, the Company borrowed $150,000 from a related party pursuant
      to the terms of a Convertible Promissory Note. (See Note 6)





In
      connection with these offerings, a family member of a board member invested
      $50,000 in exchange for 66,667 shares of common stock ($0.75 per share). This
      individual also received 83,334 warrants under the same terms as all other
      investors participating in the Series A-1, Convertible Preferred Stock offerings
      in November and December 2005.





During
      the years ending December 31, 2005, 2004 and 2003, the Company generated revenue
      from a former related party accounting for $55,228, $31,945 and $22,432
      respectively. These amounts were fully reserved at year-end.





On
      March
      7, 2006, a Director of the Company exercised 25,000 warrants for 25,000 shares
      of common stock. These warrants were exercised at a price of $1.50 for 12,500
      common shares and $2.00 for the additional 12,500 common shares.





On
      July
      17, 2006, the Company completed an equity financing pursuant to a securities
      purchase agreement dated July 7, 2006 among the Company and 74 accredited
      investors (“Investors”). Included among these Investors are two board members
      along with an officer of the Company who collectively invested $350,000 in
      exchange for 280,000 shares of common stock (at a price of $1.25 per share).
      These individuals also received 280,000 warrants under the same terms as all
      the
      other Investors who participated in the financing.





In
      conjunction with the equity financing, a family member of one of the Company's
      directors invested $100,000 in exchange for 80,000 shares of common stock (at
      a
      price of $1.25 per share). This individual also received 80,000 warrants under
      the same terms as the other investors.





F-31


**SmartVideo
      Technologies, Inc.**


**Notes
      to Consolidated Financial Statements**


**December
      31, 2006, 2005 and 2004**





**Note
      11 - Income Taxes** ****





There
      was
      no provision for income taxes for 2006, 2005 and 2004 due to continuing
      operating losses.





Income
      tax expense (benefit) differed from the amounts computed by applying the
      statutory U.S. federal income tax rate of 35% to income (loss) before provision
      for income taxes as a result of the following:


**2006**
              
              
              
              **2005**
              
              
              
              **2,004**Computed
                  “expected” tax expense (benefit)
              
              $
              (8,571,107
              )
              
              35.11
              %
              $
              (6,909,096
              )
              
              35.00
              %
              $
              (2,377,526
              )
              
              35.00
              %Increase
                  (decrease) in income taxes resulting from:State
                  income taxes, net of federal income taxes
              
              
              (1,122,056
              )
              
              4.60
              %
              
              (582,338
              )
              
              2.96
              %
              
              (201,071
              )
              
              2.96
              %Nondeductible
                  expenses
              
              
              27,198
              
              
              (0.11
              %)
              
              257,424
              
              
              (1.31
              %)
              
              —
              
              
              0.00
              %Increase
                  in valuation allowance
              
              
              11,433,041
              
              
              (46.84
              %)
              
              7,199,753
              
              
              (36.54
              %)
              
              2,578,597
              
              
              (37.96
              %)OtherTrue-Up
                  of Net Operating Loss C/F
              
              
              (1,671,112
              )
              
              6.85
              %
              
              —
              
              
              —
              
              
              —
              
              
              —True-Up
                  of Prior Depreciation Adjustments
              
              
              (24,744
              )
              
              0.10
              %
              
              —
              
              
              —
              
              
              —
              
              
              —Other
              
              
              (71,220
              )
              
              0.29
              %
              
              34,257
              
              
              (0.11
              %)
              
              —
              
              
              0.00
              %Actual
                  tax expense$
              —
              
              
              0.00
              %
              $
              —
              
              
              0.00
              %
              $
              —
              
              
              0.00
              %




The
      income tax effects of temporary differences that give rise to significant
      portions our deferred income tax assets and liabilities are presented
      below:


**December
                  31****2006**
              
              **2005**Deferred
                  income tax assets:Net
                  operating loss and research and experimentationcredit
                  carryforwards
              
              $
              12,956,554
              
              $
              4,416,475Noncash
                  stock-based compensation
              
              
              4,813,480
              
              
              2,600,882Accruals
                  not deducted for tax
              
              
              1,390,202
              
              
              2,180,160Property
                  and equipment, principally due todifferences
                  in depreciation
              
              
              1,953,558
              
              
              483,236Total
                  gross deferred income tax assets
              
              $
              21,113,794
              
              $
              9,680,753Less
                  valuation allowance
              
              
              (21,113,794
              )
              
              (9,680,753
              )Net
                  deferred income tax assets
              
              $
              —
              
              $
              —





At
      December 31, 2006, the valuation allowance for deferred income tax assets
      increased by $11,433,041 from December 31, 2005. In assessing the realizability
      of deferred tax assets, management considers whether it is more likely than
      not
      that some portion or all of the deferred income tax assets will not be realized.
      The ultimate realization of deferred income tax assets is dependent upon the
      generation of future taxable income during the periods in which those temporary
      differences become deductible. Management considers the scheduled reversal
      of
      deferred income tax liabilities, projected future taxable income, and tax
      planning strategies in making this assessment. Based on consideration of these
      items, Management has determined that enough uncertainty exists relative to
      the
      realization of the deferred income tax asset balances to warrant the application
      of a full valuation allowance as of December 31, 2005.




At
      December 31, 2006, we had net operating loss carryforwards for U.S. federal
      income tax purposes of $33.3 million available for offset against future taxable
      income. Such net operating losses expire in varying amounts beginning in the
      year 2026. Utilization of these net operating losses may be limited due to
      potential ownership changes under section 382 of the Internal Revenue
      Code.




F-32




**SmartVideo
      Technologies, Inc.**


**Notes
      to Consolidated Financial Statements**


**December
      31, 2006, 2005 and 2004**





**Note
      12 - Subsequent Events**





In
      January 2007, the Company announced its intent to seek stockholder approval
      to
      change the name of the Company to uVumobile, Inc. to better reflect the
      corporate brand and new products. More specifically, the Company is developing
      a
      new suite of products and platforms, which are expected to include backend
      media
      hosting, application development, mobile marketing, messaging, content
      aggregation, billing, advertising and other services directed towards the mobile
      business- to- business market. On February 14, 2007, the Company initiated
      this
      process by distributing a consent solicitation statement to its stockholders
      seeking consent to amend its Certificate of Incorporation to effect the name
      change.





On
      February 28, 2007, our Board of Directors determined that it would be advisable
      to retain a financial advisor to assist the Company in evaluating various
      strategic alternatives, including recapitalization, sale of stock, merger or
      asset disposition possibilities, all with the goal of maximizing stockholder
      value. On March 21, 2007, after reviewing several candidates, the Board of
      Directors of the Company unanimously approved the engagement of Daniels &
Associates as the Company's exclusive investment banker, financial advisor,
      and
      Consultant for these purposes.





On
      March
      9, 2007, we commenced an Offer to Amend and Exchange certain of our outstanding
      warrants. The offer provides holders of certain warrants the opportunity to
      amend and exercise any or all of their warrants for a significantly reduced
      exercise price by either paying the exercise price in cash or by tendering
      a
      specified number of warrants for each share of common stock being purchased.
      Unless extended, the offer expires at midnight, Eastern Time, on April 6,
      2007.





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