**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**








**FORM
      10-KSB/A**


**AMENDMENT
      NO. 3**





ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d)


OF
      THE
      SECURITIES EXCHANGE ACT OF 1934





For
      The
      Fiscal Year Ended March 31, 2006





Commission
      file number: 000-29331





**IELEMENT
      CORPORATION**


(Formerly
      Mailkey Corporation)


----------------------------------------------------------------


(name
      of
      small business issuer as specified in its charter)





Nevada
      76-0270295


--------------------------------------------------------------------------------


(State
      or
      other jurisdiction (IRS Employee Identification No.)


of
      incorporation or organization)





17194
      PRESTON ROAD


SUITE
      102, PMB 341


DALLAS,
      TX 75248


----------------------------------------------------------------


(Address
      of principal executive offices)





Issuer's
      telephone number, including area code: (214) 254-3425





SECURITIES
      REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE





SECURITIES
      REGISTERED PURSUANT TO SECTION 12(b) 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 [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. [ X ] Yes [ ] No





Indicate
      by check mark whether registrant (1) has filed all reports required
      to


be
      filed
      by Section 13 or 15(d) of the Securities Exchange Act of 1934
      during


the
      preceding 12 months (or for such shorter period that the registrant
      was


required
      to file such reports), and (2) has been subject to such filing


requirements
      for the past 90 days. [X] Yes [ ] No










Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and will
      not be contained, to the best of registrant's knowledge, in a definitive proxy
      or information statements incorporated by reference in Part III of this Form
      10-K or any amendment to this Form 10-K. [ ]





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 large accelerated file" (as defined in Rule 12b-2 of the Exchange
      Act). (Check one):





Large
      Accelerated filer [ ] Accelerated Filer [ ] 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 [ ] No [X]





State
      issuer's revenues for its most recent fiscal year. $4,550,092





Aggregate
      market value of the voting stock held by non-affiliates of the registrant as
      of
      June 29, 2006. $9,305,854





Number
      of
      outstanding shares of the registrant's par value $.001 common stock, as of
      June
      29, 2006: 159,035,031





**DOCUMENTS
      INCORPORATED BY REFERENCE**





None





Transitional
      Small Business Disclosure Format (Check One):





Yes
      [ ]
      No [X]







**EXPLANATORY
      NOTE**


----------------


This
        Form
        10-KSB/A is being filed to reflect changes made to our internal controls
        and an
        update to the Security Ownership of Certain Beneficial Owners and Management
        section as well as changes in the presentation of the Results of Operations
        section, Cost of sales on the Statement of Operations and Total adjustments
        on
        the Statement of Cash Flows.








**IELEMENT CORPORATION
                                   FORM 10-KSB
                                      INDEX**

                                    **Part I**                                Page
                                      ------                                ----
Item 1.  Business ...........................................................  4

Item 2.  Description of Property............................................. 18

Item 3.  Legal Proceedings................................................... 18

Item 4.  Submission of Matters to a Vote of Security Holders................. 18

                                    **Part II**

Item 5.  Market for Registrant's Common Equity and
                  Related Stockholder Matters................................ 18

Item 6.  Management's Discussion and Analysis................................ 29

Item 7.  Financial Statements and Supplementary Data.........................F-1

Item 8.  Changes in and Disagreements with Accountants
                  on Accounting and Financial Disclosure..................... 52

Item 8A.  Controls and Procedures ........................................... 52

                                  **Part III**

Item 9.  Directors, Executive Officers, Promoters and
                  Control Persons; Compliance with Section 16(a)
                  of the Exchange Act........................................ 52

Item 10. Executive Compensation.............................................. 55

Item 11. Security Ownership of Certain Beneficial Owners
                  and Management............................................. 60

Item 12. Certain Relationships and Related Transactions...................... 61

Item 13. Exhibits............................................................ 62

Item 14. Principal Accountant fees and services.............................. 63

Signatures................................................................... 65







**PART
      I**





This
      annual report on Form 10-KSB contains forward-looking statements that are based
      on current expectations, estimates, forecasts and projections about the Company,
      us, our future performance, our beliefs and our Management's assumptions. In
      addition, other written or oral statements that constitute forward-looking
      statements may be made by us or on our behalf. Words such as "expects,"
      "anticipates," "targets," "goals," "projects," "intends," "plans," "believes,"
      "seeks," "estimates," variations of such words and similar expressions are
      intended to identify such forward-looking statements. These statements are
      not
      guarantees of future performance and involve certain risks, uncertainties and
      assumptions that are difficult to predict or assess. Therefore, actual outcomes
      and results may differ materially from what is expressed or forecast in such
      forward-looking statements. Except as required under the federal securities
      laws
      and the rules and regulations of the SEC, we do not have any intention or
      obligation to update publicly any forward-looking statements after the filing
      of
      this Form 10-KSB, whether as a result of new information, future events, changes
      in assumptions or otherwise.





**ITEM
      1. BUSINESS**





**HISTORY
      OF THE COMPANY**





We
      are
      the product of a series of mergers and acquisitions that began in
      1996.





By
      way of
      background, Northline Industrial Corporation was incorporated in Texas on
      December 28, 1988 ("NIC"). NIC was inactive until March 1996 whereupon it
      adopted a business plan providing for reincorporation in Nevada and the
      establishment of a charter cargo airline under the name "Air Epicurean".
      Consistent therewith, on July 19, 1996 NIC formed Air Epicurean, Inc. as a
      Nevada wholly-owned corporate subsidiary.





Air
      Epicurean, Inc. is the original predecessor to the issuer and is now known
      as
      IElement Corporation. In December 1996, NIC abandoned its previously adopted
      business plan to establish air carrier operations and initiated a search for
      a
      suitable merger candidate.





On
      March
      5, 1997, NIC merged with and into Air Epicurean, Inc., the surviving
      corporation. Effective May 8, 1997, Air Epicurean changed its name to Ikon
      Ventures, Inc. ("Ikon"). Ikon remained inactive until August 2001 whereupon
      it
      acquired in a share-for-share exchange Sutton Online, Inc., a Delaware
      corporation ("Sutton"). On October 31, 2001, Ikon changed its name to Sutton
      Trading Solutions, Inc.




4




On
      April
      23, 2003, Sutton Trading Solutions, Inc. changed its name to Global Diversified
      Acquisition Corp. ("GDAC") to reflect that its principal activity was to seek
      a
      business combination with one or more as yet unidentified privately held
      businesses.





On
      March
      25, 2004, pursuant to an Agreement and Plan of Merger, GDAC acquired all of
      the
      outstanding capital stock of MK Secure Solutions Ltd ("MKSS"), a holding company
      incorporated on March 11, 2003, under the laws of the British Virgin Islands.
      The transaction was effectuated by the issuance of shares such that the former
      MKSS shareholders owned approximately 90% of the outstanding MailKey Corporation
      stock after the transaction. GDAC then changed its name to MailKey Corporation
      ("MailKey").





On
      November 9, 2004, MailKey agreed to merge with and into IElement, Inc., a Nevada
      corporation pursuant to which MailKey acquired all of the issued and outstanding
      shares of capital stock of IElement. On January 19, 2005, Mailkey consummated
      the acquisition of IElement.





On
      August
      1, 2005, we filed with the SEC an Information Statement on Schedule 14C to
      change our name from MailKey Corporation to IElement Corporation. Concurrent
      with this name change, we received a new stock trading symbol (IELM.OB) on
      the
      NASD Over-the-Counter Electronic Bulletin Board. The Company received consent
      to
      amend the Articles of Incorporation to increase the number of shares of common
      stock authorized to be issued from 100,000,000 shares to 2,000,000,000 shares,
      and consented to the authorization of 200,000,000 shares of Blank Check
      Preferred Stock. There are no current plans to designate any Blank Check
      Preferred Stock.





Consistent
      with the expectations of the parties, on August 3, 2005 Tim Dean Smith and
      Susan
      Walton resigned from all positions and as Directors with the Company leaving
      Ivan Zweig as the sole officer and director. On March 4, 2006 Lance K. Stovall
      and Ken A Willey joined the Board of Directors.




5




**BUSINESS
      OPERATIONS**





IElement
      is a facilities-based nationwide communications service provider that provides
      telecommunications services to small and medium sized enterprises ("SMEs").
      IElement utilizes high-speed Internet T-1 lines, integrated T-1 lines for voice
      and data, wireless Internet/data services, and a Layer 2 Private Network
      solution to provide SMEs with dedicated Internet access services, customizable
      business solutions for voice, data and Internet, and secure communications
      channels between the SMEs' offices, partners, vendors, customers and employees
      without the use of a firewall or encryption devices. IElement employees its
      own
      installation technicians that install the Company's services and equipment
      in
      the Dallas/Fort Worth, Texas market as well as the Los Angeles/Orange County,
      California markets. In most other markets the Company contracts to third parties
      to perform such installations and to service customers on an as needed
      basis.





The
      Company competes with both competitive local exchange carriers (CLEC's) who
      lease access lines from incumbent local exchange carriers (ILEC's), as well
      as
      the ILEC's themselves. Some examples of ILEC competitors are Verizon
      Communications and AT&T. Some examples of CLEC competitors are XO
      Communications and CBeyond Communications. In addition, IElement competes with
      internet service providers (ISP's) to some extent. However, most ISP's are
      limited in their product line and do not offer telephone of VOiP services and
      thus are not considered major competitors to us.





The
      Company is of course dependent on its customer base for continued revenue,
      however, its customer base is diversified and consists of many smaller customers
      as opposed to a few larger customers. The Company can generally quickly replace
      a lost customer with a new customer without a significant impact on revenue
      and
      operations. However, at present, IElement has a drastically reduced sales force
      and accordingly, the loss of customers would have a greater impact than at
      other
      times. IElement intends to use proceeds from the private placement and the
      exercise of warrants to build its sales force, including in the Chicago
      area.





Other
      than the IElement logo, the Company has no trademarks. The Company does not
      own
      any patents or significant intellectual property rights.


6




As
      of
      July 17, 2006 IElement consists of IElement Corporation, a Nevada corporation,
      which is the registrant and parent corporation. IElement, Inc. is a wholly
      owned
      subsidiary without separate operations. The Company intends to file a short
      form
      merger to merge IElement, Inc. into IElement corporation and terminate it as
      a
      separate entity. In addition, we have three operating subsidiaries. IElement
      Telephone of California was formed on November 14, 2005 to acquire and
      administer a telecommunications license in the state of California. IElement
      Telephone of Arizona was formed on March 13, 2006 to acquire and administer
      a
      telecommunications license in the state of Arizona. IElement Telephone of
      Nevada, Inc. was formed on July 11, 2006 to acquire and administer a
      telecommunications license in the state of Nevada.








**REGULATORY
      OVERVIEW**





**OVERVIEW**





We
      are
      subject to regulation by federal, state and local government agencies.
      Historically, the FCC had jurisdiction over interstate long distance services
      and international services, while state regulatory commissions had jurisdiction
      over local and intrastate long distance services. The Telecommunications Act
      of
      1996, or the "Telecom Act" fundamentally changed the way telecommunications
      is
      regulated in this country. The FCC was given a major role in writing and
      enforcing the rules under which new competitors could compete in the local
      marketplace. Those rules, coupled with additional rules and decisions
      promulgated by the various state regulatory commissions, form the core of the
      regulatory framework under which we operate in providing our
      services.





With
      a
      few limited exceptions, the FCC continues to retain exclusive jurisdiction
      over
      the provision of interstate and international long distance service, and the
      state regulatory commissions regulate our provision of intrastate local and
      long
      distance service. Additionally, municipalities and other local government
      agencies may regulate limited aspects of our business, such as use of
      government-owned rights-of-way, and may require permits such as zoning approvals
      and building permits.





The
      Telecom Act and the related rules governing competition issued by the FCC,
      as
      well as pro-competitive policies already developed by state regulatory
      commissions, have enabled new entrants like IElement to capture a portion of
      the
      ILECs' market share of local services. However, there have been numerous
      attempts to limit the pro-competitive policies in the local exchange services
      market through a combination of proposed federal legislation, adoption of new
      rules by the FCC, and ILEC challenges to existing and proposed




7




regulations.
      To date, the ILECs have succeeded in eliminating some of the market-opening
      regulations adopted by the FCC and the states through numerous court challenges.
      In particular, the ILECs appealed, and won partial reversals of, a series of
      FCC
      orders defining the ILEC facilities -- known as unbundled network elements
      or
      "UNEs" -- that ILECs must lease to competitors at cost-based rates. We expect
      the ILEC's efforts to scale back the benefits of the Telecom Act and local
      service competition to continue. However, while the FCC has eliminated certain
      UNEs, the basic framework of local competiti on, including the UNE regime
      itself, has remained intact. The successful implementation of our business
      plan
      is predicated on the assumption that the basic competitive framework and
      pro-competitive safeguards will remain in place.





The
      passage of the Telecom Act largely preceded the explosive growth of the Internet
      and IP communications. Congress is currently considering whether to further
      amend the Telecom Act to, among other things, directly address IP
      communications. It is possible that any such amendment to the Telecom Act could
      eliminate or materially alter the market-opening regulatory framework of the
      Telecom Act in general, and the UNE regime in particular. Such a result could
      adversely affect IElement's business. It is not possible to predict if, when,
      or
      how the Telecom Act will be amended.





**FEDERAL
      REGULATION**





The
      FCC
      exercises jurisdiction over our telecommunications facilities and services.
      We
      have authority from the FCC for the installation, acquisition and operation
      of
      our wireline network facilities to provide facilities-based domestic interstate
      and international services. Because IElement is not dominant in any of its
      markets, unlike ILECs, we are not currently subject to price cap or rate of
      return regulation. Thus, our pricing policies for interstate end user services
      are only subject to the federal guidelines that charges for such services be
      just, reasonable, and non-discriminatory.




8




**IMPLEMENTATION
      OF THE TELECOM ACT**





**THE
      TELECOM ACT'S LOCAL COMPETITION FRAMEWORK**





One
      of
      the key goals of the Telecom Act is to encourage competition in the provision
      of
      local telephone service. To do this, the Telecom Act provides three means by
      which CLECs such as IElement can enter the local telephone service market.
      The
      three modes of entry are as follows:





o
      ACCESS
      TO UNES. ILECs are required to lease to CLECs various elements in their network
      that are used individually or in combination with each other to provide local
      telephone service. As discussed in more detail below, the FCC determines which
      facilities must be made available by the ILECs as UNEs. The ILECs must make
      UNEs
      available at rates that are based on their forward-looking economic costs,
      a
      pricing regime known as "TELRIC," short for Total Element Long Run Incremental
      Cost. For IElement, the most critical UNEs are local loops and transport, which
      enable us to connect our customers to our network.





o
      CONSTRUCTION OF NEW FACILITIES. CLECs may also enter the local service market
      by
      building entirely new facilities. The ILECs are required to allow CLECS to
      interconnect their facilities with the ILECs' facilities in order to reach
      all
      customers.





o
      RESALE.
      ILECs are required to permit CLECs to purchase their services for resale to
      the
      public at a wholesale rate that is less than the rate charged by the ILECs
      to
      their retail customers.





To
      facilitate competitors' entry into local telephone markets using one or more
      of
      these three methods, the Telecom Act imposes on the ILECs the obligation to
      open
      their networks and markets to competition. When requested by competitors, ILECs
      are required to negotiate, in good faith, agreements that set forth terms
      governing the interconnection of their network, access to UNEs, and
      resale.





The
      following is a summary of the interconnection and other rights granted by the
      Telecom Act that are important for effective local service competition and
      our
      belief as to the effect of those requirements, if properly
      implemented:





o
      interconnection with the networks of incumbents and other carriers, which
      permits our customers to exchange traffic with customers connected to other
      networks;


9




o
      requirements that the ILECs make available access to their facilities for our
      local loops and transport needs, thereby enabling us to serve customers not
      directly connected to our networks;





o
      compensation obligations, which mandate reciprocal payment arrangements for
      local traffic exchange between us and both incumbent and other competitive
      carriers and compensation for terminating local traffic originating on other
      carriers' networks;





o
      requirements concerning local number portability, which allows customers to
      change local carriers without changing telephone numbers, thereby removing
      a
      significant barrier for a potential customer to switch to our local voice
      services;





o
      access
      to assignment of telephone numbers, which enables us to provide telephone
      numbers to new customers on the same basis as incumbent carriers;
      and





o
      collocation rights allowing us to place telecommunications equipment in ILEC
      central offices, which enables us to have direct access to local loops and
      other
      network elements.





Although
      the rights established in the Telecom Act are a necessary prerequisite to the
      introduction of full local competition, they must be properly implemented and
      enforced to permit competitive telephone companies like IElement to compete
      effectively with the incumbent carriers. Discussed below are several FCC and
      court proceedings relating to the application of certain FCC rules and policies
      that are significant to and directly impact our operations and costs as well
      as
      the nature and scope of industry competition.





**UNBUNDLING
      OF INCUMBENT NETWORK ELEMENTS**





In
      a
      series of orders and related court challenges that date back to 1996, the FCC
      has promulgated rules implementing the market-opening provisions of the Telecom
      Act, including the requirement that the ILECs lease UNEs to competitors at
      cost-based rates. At the core of the series of FCC orders is the FCC's evolving
      effort to define which ILEC network facilities must be made available as UNEs.
      Initially, the FCC defined a broad list of UNEs, consisting of most of the
      elements of the ILECs' networks. Under pressure from the ILECs, the FCC has
      subsequently reduced the list, while preserving access to those network elements
      critical to the operation of IElement's business.





10




The
      current list of UNEs was promulgated by the FCC in two orders. The first is
      the
      Triennial Review Order, or "TRO", which was released on August 21, 2003. Several
      carriers and other entities appealed the FCC's TRO decision. On March 2, 2004,
      the U.S. Court of Appeals for the D.C. Circuit issued its opinion in United
      States Telecom Association v. FCC, No. 00-1012 ("USTA II Decision"). In the
      USTA
      II Decision, the court reversed and overturned many of the conclusions of the
      TRO. In the aftermath of the USTA II Decision, the FCC released the second
      of
      its two currently controlling orders, the TRO Remand Order or "TRRO", on
      February 4, 2005. It is expected that various parties will appeal the TRRO.
      It
      is not possible to predict the outcome of those appeals. It is possible that
      portions of the order could be overturned and that the FCC will issue new rules
      in their place that further restrict access to UNEs.





As
      of
      March 11, 2005, the effective date of the TRRO, the ILECs are obligated to
      provide as UNEs the following network facilities used by IElement to serve
      its
      customers:





**UNE
      LOOPS**





DS0
      LOOPS. A DS0 loop is a single, voice-grade channel. Typically, individual
      business lines are DS0 loops. The ILECs must make DS0 loops available at UNE
      rates on an unlimited basis.





DS1
      LOOPS. A DS1 loop is a digital loop with a total speed of 1.544 megabytes per
      second, which is the equivalent of 24 DS0s. Multiple voice lines and Internet
      access can be provided to a customer over a single DS1 loop. We serve most
      of
      our customers with DS1 loops. The ILECs must provide DS1 loops at UNE rates
      at
      the majority of their central offices. Competitors, however, are limited to
      no
      more than 10 DS1 loops to any particular building.





DS3
      LOOPS. A DS3 loop is a digital loop with a total speed of 44.736 megabytes
      per
      second. In some cases, IElement serves its large business customers with DS3
      loops. ILECs must provide DS3 loops at UNE rates at the majority of their
      central offices. Competitors, however, are limited to no more than one DS3
      loop
      to any particular building.




11




As
      of the
      TRRO, ILECs are not required to provide optical capacity loops or dark fiber
      loops as UNEs. Optical capacity loops, referred to as OCn loops, are very
      high-capacity digital loops ranging in capacity from OC3 loops, which are the
      equivalent of three DS3s to OC192. This will not impact our costs.





The
      ILECs
      are also not required to provide certain mass market broadband loop facilities
      and functionality as UNEs. Under the TRO, the ILECs are not required to make
      newly-deployed fiber-to-the-home or FTTH loops available as UNEs and are only
      required to provide the equivalent of DS0 capacity on any FTTH loop built over
      an existing copper loop. These recent FCC orders should only limit availability
      for those specific network elements, which are not material to us. It is
      possible, however, that the ILECs will seek additional broadband regulatory
      relief in future proceedings.





**UNE
      TRANSPORT**





DS1
      TRANSPORT. Whether transport is available as a UNE is determined on a
      route-by-route basis. ILECs must make transport at UNE rates available at DS1
      capacity levels between any two ILEC central offices unless both central offices
      either (1) serve more than 38,000 business lines or (2) have four or more
      fiber-based collocators. On routes where DS1 transport must be made available,
      each individual competitor is limited to no more than 10 DS1 transport circuits
      per route.





DS3
      TRANSPORT. Access to DS3 capacity-level transport is more limited than access
      to
      DS1 transport. ILECs must make transport at UNE rates available at DS3 capacity
      levels between any two ILEC central offices unless both central offices either
      (1) serve more than 24,000 business lines or (2) have three or more fiber-based
      collocators. On routes where DS3 transport must be made available, each
      individual competitor is limited to no more than 12 DS1 transport circuits
      per
      route.





DARK
      FIBER TRANSPORT. Dark fiber transport is available under the same conditions
      as
      DS3 transport.


12




ILECs
      are
      not required to provide access to transport at greater-than DS3 capacity levels.
      ILECs are also not required to provide transport at any capacity level to
      connect an ILEC central office with a competitor's facilities.





**TRANSITIONAL
      AVAILABILITY WHERE ELEMENTS ARE NO LONGER AVAILABLE AS
      UNES**





For
      DS1,
      DS3, and dark fiber loops and transport that do not meet the criteria for
      availability set forth above, the FCC established a transitional period during
      which the ILECs must continue to make the elements available at UNE rates to
      serve existing customers. For DS1 and DS3 loops and transport, the ILECs must
      make the elements available at 115% of the TELRIC rate for one year beginning
      on
      March 11, 2005. For dark fiber loops and transport, the ILECs must make the
      elements available at 115% of the TELRIC rate for 18 months beginning on March
      11, 2005.





Although
      these rules adopted by the FCC in the TRRO became effective on March 11, 2005,
      many of the requirements imposed by the FCC in the TRO and TRRO were not
      self-executing. Accordingly, the FCC made clear that carriers must follow the
      change of law procedures in their applicable interconnection agreements with
      ILECs to implement any TRO requirements that are not self-executing and that
      carriers must follow the procedures set forth in section 252(b) of the Telecom
      Act to modify interconnection agreements that are silent as to implementation
      of
      changes in law.





**ADDITIONAL
      FEDERAL REGULATIONS**





The
      following discussion summarizes some additional specific areas of federal
      regulation that directly affect our business.





VOIP.
      Like a growing number of carriers, we utilize IP technology for the transmission
      of a portion of our network traffic. The regulatory status and treatment of
      IP-enabled services is unresolved. In particular, there is uncertainty as to
      the
      imposition of access charges, Universal Service fund contributions, and other
      taxes, fees, and surcharges on VoIP services. In a recent order, the FCC held
      that Vonage's VoIP services and similar offerings by other providers are subject
      to the FCC's interstate jurisdiction, preempting state efforts to regulate
      VoIP
      providers as intrastate telecommunications


13




providers.
      Four separate state commissions have appealed this ruling and the case is
      currently pending. The FCC, however, left open the question of whether VoIP
      providers provide "telecommunications" -- i.e., basic transmission services
      --
      or enhanced "information services." Under the Communications Act, those are
      mutually exclusive categories. Generally, telecommunications carriers, including
      traditional local and long distance telecommunications companies are regulated
      under the Communications Act; information service providers are generally
      unregulated. The FCC has initiated a rulemaking proceeding to address the
      classification of VoIP and other IP-enabled service offerings. It is not
      possible to predict the outcome of that proceeding or its effect on IElement's
      operations.





AT&T
      DECLARATORY RULING RE: VOIP. On April 21, 2004, the FCC released an order
      denying AT&T's request that the FCC find that VoIP services are exempt from
      switched access charges, the AT&T Order. The FCC held that an interexchange
      service that uses ordinary customer premises equipment that originates and
      terminates on the PSTN, that provides no enhanced functionality, and that
      undergoes no net protocol conversion, is a telecommunications service and
      subject to switched access charges. The order apparently places interexchange
      services similar to those VoIP services offered by AT&T in the same
      regulatory category as traditional telecommunications services and, therefore,
      potentially subjects such VoIP services to access charges and other regulatory
      obligations including Universal Service fees. Although the FCC did not rule
      on
      the applicability of access charges for services provided prior to April 21,
      2004, the ILECs may attempt to assert claims against other telecommunications
      companies including us for the retroactive payment of access
      charges.





ILEC
      PROVISION OF BROADBAND TELECOMMUNICATIONS SERVICES AND INFORMATION SERVICES.
      Currently, the ILECs, as dominant carriers, are subject to a relatively high
      degree of regulation with respect to their broadband serving offerings. The
      FCC,
      however, has initiated a rulemaking proceeding in which it is considering
      deregulating, or applying a lower degree of regulation to, ILEC broadband
      offerings. If the ILECs are largely freed from dominant carrier regulation,
      they
      will have much greater pricing flexibility and will pose a greater competitive
      threat to IElement. In a second, related rulemaking, the FCC is considering
      whether to eliminate certain requirements it imposes on the ILECs with respect
      to their broadband Internet access services. Currently, where
      the


14




ILECs
      offer Internet access or other information services over broadband facilities,
      they must (1) purchase the underlying broadband transmission facilities from
      themselves at tariffed rates and (2) make the underlying facilities available
      to
      competitors on a non-discriminatory basis. If the FCC were to eliminate these
      requirements, it could result in an increase to our network costs. To date,
      these deregulatory trends have been directed towards facilities used primarily
      by residential customers, and not by business customers.





INTERCARRIER
      COMPENSATION REFORM. Currently, telecommunications carriers are required to
      pay
      other carriers for interstate access charges and local reciprocal compensation
      charges. These two forms of intercarrier compensation have been under review
      by
      the FCC since 2001. The FCC continues to consider a broad order reforming the
      intercarrier compensation system.





**STATE
      AND LOCAL REGULATION**





In
      general, state regulatory commissions have regulatory jurisdiction over us
      when
      our facilities and services are used to provide local and other intrastate
      services. Under the Telecom Act, state commissions continue to set the
      requirements for providers of local and intrastate services, including quality
      of services criteria. State regulatory commissions also can regulate the rates
      charged by CLECs for intrastate and local services and can set prices for
      interconnection by new telecommunications service providers with the ILEC
      networks, in accordance with guidelines set by the FCC. In addition, state
      regulatory commissions in many instances have authority under state law to
      adopt
      additional regulations governing local competition and consumer protection,
      so
      long as the state's actions are not inconsistent with federal law or
      regulation.





Most
      state regulatory commissions require companies that wish to provide intrastate
      common carrier services to register or be certified to provide these services.
      These certifications generally require a showing that the carrier has adequate
      financial, managerial and technical resources to offer the proposed services
      in
      a manner consistent with the public interest. We are certified in all of the
      states in which we conduct business. In most states, we are also required to
      file tariffs setting forth the terms, conditions and prices for services that
      are classified as intrastate, and to update or amend our tariffs as rates change
      or new products are added. We may also be subject to various reporting and
      record-keeping requirements.




15




Where
      we
      choose to deploy our own transmission facilities, we may be required, in some
      cities, to obtain street opening and construction permits, permission to use
      rights-of-way, zoning variances and other approvals from municipal authorities.
      We also may be required to obtain a franchise to place facilities in public
      rights of way. In some areas, we may be required to pay license or franchise
      fees for these approvals. We cannot assure you that fees will remain at current
      levels, or that our competitors will face the same expenses, although the
      Telecom Act requires that any fees charged by municipalities be reasonable
      and
      non-discriminatory among telecommunications carriers.





RECENT
      FEDERAL RULEMAKING. Effective as of March 11, 2005, the Federal Communications
      Commission's, or FCC's, Triennial Review Remand Order, or TRRO, altered a number
      of significant federal regulations applicable to the provision of competitive
      telecommunications services in a manner favorable to incumbent carriers. The
      TRRO established new standards for when CLECs obtain cost-based rates from
      ILECs
      when leasing unbundled network elements, or UNEs, which connect a customer's
      location with the applicable communications network end office, commonly
      referred to as "loops". This aspect of the TRRO will result in an increase
      to
      our overall costs of service in 2005.





The
      TRRO
      also curtailed the ability of CLECs to obtain cost-based UNE rates for network
      elements linking central offices in which they have located their own equipment,
      but between which they do not own proprietary fiber lines. Fiber lines between
      central offices is referred to in our industry as "local transport". This aspect
      of the TRRO will not have a material impact on us as we own or lease under
      long-term agreements nearly all of the local transport that we use to connect
      central offices in which we own equipment. This aspect of the TRRO could,
      however present opportunities for us to sell our own network capacity to
      telecommunications companies that are negatively impacted by the TRRO ruling
      on
      local transport.





The
      TRRO
      also severely curtailed the ability of CLECs to lease switching capacity from
      ILECs at cost-based rates, which practice is known in the telecommunications
      industry as unbundled network element platform, or UNE-P. We are not materially
      impacted by this aspect of the TRRO as we own all of the switching facilities
      we
      use in our business. We anticipate that one of the results of the TRRO will
      be
      that many CLECs that are substantially dependent on UNE-P will need to either
      acquire their own switches, seek a facilities-based partner to switch their
      customers' traffic, or find other strategic alternatives to their current
      business models. One possible result of the TRRO on UNE-P dependent carriers
      is
      additional consolidation of existing telecommunications
      carriers.


16





INDUSTRY
      CONSOLIDATION. On January 31, 2005, SBC Communications, Inc. and AT&T Corp.
      announced their intention to enter into a business combination. In February
      2005, Verizon Communications, Inc. and MCI, Inc. announced an agreement to
      enter
      into a business combination, and Qwest Communications International, Inc.
      announced a bid to compete with Verizon's purchase offer, which competitive
      bid
      was unsuccessful. In the fourth quarter of 2005, the Federal Communications
      Commission, or FCC, and the U.S. Department of Justice approved the mergers
      of
      SBC Communications, Inc. with AT&T Corp. and Verizon Communications, Inc.
      with MCI, Inc. In addition, AT&T Corp. and BellSouth, Inc. have announced
      their intention to enter into a business combination. Such transactions, have
      resulted in substantial consolidation of U.S. wireline telecommunications
      resources and revenue. In addition, as reflected by XO's acquisition of the
      CLEC
      businesses of Allegiance Telecom, Inc. and the acquisitions of Cable and
      Wireless USA, Inc. by Savvis Communications, Inc., Focal Communications, Inc.
      by
      Broadwing Corporation, and KMC Telecom Corp. by CenturyTel, Inc., substantial
      consolidation has also taken place among CLECs. While it is not certain what
      the
      effects of this industry consolidation will be, we believe that one possible
      result could be that prices for telecommunications services would stabilize
      due
      to reduced competition.





**RESEARCH
      AND DEVELOPMENT**





IElement
      does not engage in research and development.





For
      more
      information about us visit our website at www.ielement.com





WE
      INTEND
      TO ENGAGE IN STRATEGIC ACQUISITIONS AND JOINT VENTURES





We
      intend
      to acquire, where appropriate, telecommunication companies, companies with
      technologies that we believe are complimentary to our existing technologies,
      as
      well as to acquire wireless broadband Internet service providers with
      strategically located networks that will enable the expansion of our national
      coverage area. In addition, we intend to acquire companies, businesses and
      assets that we believe are complementary to our business. We may seek to form
      joint ventures and seek joint venture partners in order to reduce our investment
      in a particular project and to help promote the development and sale of our
      products.





We
      intend
      to finance this acquisition strategy with proceeds from our private placement,
      the exercise of the warrants issued therein and, depending on the size of the
      acquisition, our common stock. In addition, we may utilize short term debt and
      revenue from operations. Any acquisition we consummate should include a cash
      payment, a stock payment or a combination of the two. We have met preliminarily
      with some companies to discuss a possible acquisition and each of them are
      either: (a) similar businesses from which we could realize cost reductions
      and
      improve net income or (b) complimentary businesses from which we could expand
      our current range of services to improve gross margins and net income. No
      definitive agreements have been signed with any potential
      acquisition.




17




**ITEM
      2. DESCRIPTION OF PROPERTY**





Our
      corporate headquarters and principal offices are located at 13714 Gamma Road,
      Suite 120 Farmers Branch, TX 75244 where we lease office space on a
      month-to-month basis at $3,284 per month. We believe that this office space
      is
      adequate to support our current operations. Our mailing address is 17194 Preston
      Road Suite 102, PMB 341, Dallas, TX 75248.








**ITEM
      3. LEGAL PROCEEDINGS**





On
      April
      19, 2005 KK Solutions, Inc., a California corporation d/b/a/ Three 18, Inc.
      ("KK"), filed a complaint against the Company and its CEO, Ivan Zweig,
      individually, in the Superior Court of the State of California, County of Los
      Angeles, alleging breach of contract pursuant to a dispute regarding sales
      commissions due to KK. On May 2, 2006 we settled the litigation for a total
      settlement amount of $26,500 which has been paid in full.





On
      April
      26, 2005 Communications Plus, Inc., a California company d/b/a Global
      Communications, ("Global"), filed a complaint against the Company and its CEO,
      Ivan Zweig, individually, in the Superior Court of the State of California,
      County of Los Angeles, alleging breach of contract pursuant to a dispute
      regarding sales commissions due to Global. Global seeks damages in the amount
      of
      $50,000, plus interest. On February 14, 2006 the Company settled the matter
      for
      $27,000 payable in periodic installments the first of which was on February
      14,
      2006 and the last of which is due December 1, 2006.





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





The
      Company did not submit any matters to a vote of its stockholders, through the
      solicitation of proxies or otherwise, during the fourth quarter of fiscal
      2006.





**PART
      II**





**ITEM
      5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
      MATTERS**





Since
      April 2005, our common stock has been quoted on the OTC Bulletin Board under
      the
      symbol "IELM.OB". Prior to that date, there was no active market for our common
      stock. We have a March 31 fiscal year.





Prices
      reported represent prices between dealers, do not include markups, markdowns
      or
      commissions and do not necessarily represent actual transactions. The following
      table sets forth high and low bid quotations of the Company's common stock
      (broken-down into fiscal quarters) for the periods indicated as reported on
      the
      OTC Bulletin:




18




Closing Bids
                                  ------------

                                             HIGH               LOW
                                             ----               ---
   Fiscal Year 2006
   ----------------

March 31, 2006                              0.138               0.037
December 31, 2005                           0.08                0.03
September 30, 2005                          0.07                0.03
June 30, 2005                               0.09                0.01

  Fiscal Year 2005
  ----------------

March 31, 2005                              0.09                0.02
December 31, 2004                           1.01                0.40
June 30, 2004                               3.60                0.78
April 14, 2004                              3.80                3.30








(b)
      As of
      June 6, 2006, there were 392 holders of record of our common stock and
      approximately 530 beneficial holders.





(c)
      No
      cash dividends on outstanding common stock have been paid within the last two
      fiscal years, and interim periods. The Company does not anticipate or intend
      upon paying cash dividends for the foreseeable future.








(e)
      Recent Sales of Unregistered Securities.





As
      of
      December 31, 2005, the Company has 2,000,000,000 shares of common stock
      authorized at a par value of $0.001, and as of June 5, 2006 159,035,031 shares
      issued and outstanding. The company also has 200,000,000 shares of Blank Check
      Preferred Stock authorized. There are no current plans to designate any Blank
      Check Preferred Stock.





On
      March
      25, 2006, we reached agreements with twelve (12) note holders to amend and
      restate the terms of our repayment obligations to them as set forth in certain
      promissory notes issued in January and August 2005. The note holders agreed
      to
      waive the accrued but unpaid principal, in exchange for the future right to
      convert the outstanding principal amount ($560,053 as of March 23, 2006) to
      shares of our common stock at a conversion price of $0.035 per share. Both
      the
      prior notes and the new convertible secured promissory notes are non interest
      bearing. The first payment on each of the new convertible promissory notes
      is
      due in September 2006 with a total of 36 monthly installments through August
      2009. The note holder has the right to convert all or a portion of the
      outstanding balance, at any time until the notes are paid in full, into
      IElement's common stock at a conversion price of $0.035 per share.





Two
      of
      the notes are held by Kramerica, Inc., a Company in which our Chief Executive
      Officer and Director, Mr. Ivan Zweig, is the sole shareholder, officer and
      director. The aggregate principal amount of the notes owed to Kramerica, Inc.
      is
      $120,000. In addition, six additional note holders are Mr. Zweig's immediate
      family. The aggregate principal amount of the notes owed to Mr. Zweig's
      immediate family is $256,956. Both the prior notes and the new convertible
      secured promissory notes in favor of Kramerica and Mr. Zweig's family, are
      secured by substantially all of the assets of IElement, Inc. The remaining
      four
      note holders are currently unaffiliated with IElement. In addition, the
      remaining four notes were and remain unsecured.





The
      common stock that will be issued upon conversion of the Notes will be subject
      to
      certain resale restrictions, as defined in Rule 144 promulgated under the
      Securities Act of 1933, as amended (the "Securities Act"). The convertible
      notes
      were issued in reliance on Section 4(2) of the Securities Act of
      1933.





On
      March
      23, 2006, IElement issued 400,000 shares of common stock to Susan Walton in
      exchange for payment of a debt in the amount of $200,000. The shares were issued
      in reliance on Section 4(2) of the Securities Act and contain a restrictive
      legend in accordance with Rule 144.





On
      March
      23, 2006, IElement issued 1,600,000 shares of common stock to Tim Dean Smith
      in
      exchange for payment of a debt in the amount of $80,000. The shares were issued
      in reliance on Section 4(2) of the Securities Act and contain a restrictive
      legend in accordance with Rule 144.





On
      March
      23, 2006, IElement issued 1,800,000 shares of common stock to Jeremy Dean Smith
      in exchange for payment of a debt in the amount of $90,000. The shares were
      issued in reliance on Section 4(2) of the Securities Act and contain a
      restrictive legend in accordance with Rule 144.


19




On
      March
      23, 2006, IElement issued 2,900,000 shares of common stock to Dolphin Capital
      in
      exchange for payment of a debt in the amount of $145,000. The shares were issued
      in reliance on Section 4(2) of the Securities Act and contain a restrictive
      legend in accordance with Rule 144.





On
      March
      23, 2006, IElement issued 150,000 shares of common stock to Isaac de la Pena
      in
      exchange for payment of a debt in the amount of $7,500. The shares were issued
      in reliance on Section 4(2) of the Securities Act and contain a restrictive
      legend in accordance with Rule 144.





On
      March
      22, 2006, IElement issued 80,000 shares of common stock to Tim Dean Smith in
      exchange for payment of a debt in the amount of $4,000. The shares were issued
      in reliance on Section 4(2) of the Securities Act and contain a restrictive
      legend in accordance with Rule 144.





On
      February 1, 2006, I Element issued 168,680 shares of common stock to Quality
      Sound Communications in exchange for the cancellation of a debt owed to Quality
      by IElement in the amount of $18,554.85 for sales commissions owed. The shares
      were issued in reliance on Section 4(2) of the Securities Act and contain a
      restrictive legend in accordance with Rule 144.





On
      February 1, 2006, IElement issued 250,000 shares of common stock to Stefan
      Muller in exchange for consulting services rendered in the amount of $8,750.
      The
      shares were issued in reliance on Section 4(2) of the Securities Act and contain
      a restrictive legend in accordance with Rule 144.





On
      February 1, 2006, IElement issued 1,000,000 shares of common stock to Stefan
      Muller in exchange for consulting services rendered in the amount of $60,000.
      The shares were issued in reliance on Section 4(2) of the Securities Act and
      contain a restrictive legend in accordance with Rule 144.





On
      February 1, 2006, IElement issued 1,000,000 shares of common stock to Jurgen
      Popp in exchange for consulting services rendered in the amount of $60,000.
      The
      shares were issued in reliance on Section 4(2) of the Securities Act and contain
      a restrictive legend in accordance with Rule 144.





On
      February 1, 2006, IElement issued 20,000 shares of common stock to Donald
      Kennedy in exchange for consulting services rendered in the amount of $1,000.
      The shares were issued in reliance on Section 4(2) of the Securities Act and
      contain a restrictive legend in accordance with Rule 144.




20




On
      February 1, 2006, IElement issued 100,000 shares of common stock to John Fox
      in
      exchange for consulting services rendered in the amount of $5,000. The shares
      were issued in reliance on Section 4(2) of the Securities Act and contain a
      restrictive legend in accordance with Rule 144.





On
      February 1, 2006, IElement issued 1,000,000 shares of common stock to Vista
      Capital in exchange for consulting services rendered in the amount of $70,000.
      The shares were issued in reliance on Section 4(2) of the Securities Act and
      contain a restrictive legend in accordance with Rule 144.





On
      February 1, 2006, IElement issued 500,000 shares of common stock to Misty Starke
      in exchange for consulting services rendered in the amount of $20,000. The
      shares were issued in reliance on Section 4(2) of the Securities Act and contain
      a restrictive legend in accordance with Rule 144.





On
      February 1, 2006, IElement issued 250,000 shares of common stock to Global
      Equity Trading in exchange for consulting services rendered in the amount of
      $10,000. The shares were issued in reliance on Section 4(2) of the Securities
      Act and contain a restrictive legend in accordance with Rule 144.





On
      February 1, 2006, IElement issued 1,000,000 shares of common stock to Yock
      Investment in exchange for consulting services rendered in the amount of
      $60,000. The shares were issued in reliance on Section 4(2) of the Securities
      Act and contain a restrictive legend in accordance with Rule 144.





On
      February 1, 2006, IElement issued 1,000,000 shares of common stock to Stonegate
      Ventures in exchange for consulting services rendered in the amount of $60,000.
      The shares were issued in reliance on Section 4(2) of the Securities Act and
      contain a restrictive legend in accordance with Rule 144.





On
      February 1, 2006, IElement issued 200,000 shares of common stock to Brett Jensen
      in exchange for employee compensation in the amount of $7,000. The shares were
      issued in reliance on Section 4(2) of the Securities Act and contain a
      restrictive legend in accordance with Rule 144.





On
      February 1, 2006, IElement issued 714,286 shares of common stock to Jeff Wilson
      in exchange for employee compensation in the amount of $25,000. The shares
      were
      issued in reliance on Section 4(2) of the Securities Act and contain a
      restrictive legend in accordance with Rule 144.





On
      February 1, 2006, IElement issued 2,500,000 shares of common stock to Palladian
      Advisors in exchange for the settlement of a claim in the amount of $100,000.
      The shares were issued in reliance on Section 4(2) of the Securities Act and
      contain a restrictive legend in accordance with Rule 144.





On
      February 1, 2006, IElement issued 880,000 shares of common stock to Duanne
      Morris in exchange for the settlement of a claim in the amount of $44,000.
      The
      shares were issued in reliance on Section 4(2) of the Securities Act and contain
      a restrictive legend in accordance with Rule 144.


On
      January 12, 2006, IElement issued 1,000,000 shares of common stock to Yock
      Investment in exchange for consulting services rendered in the amount of
      $60,000. The shares were issued in reliance on Section 4(2) of the
      Securities


Act
      and
      contain a restrictive legend in accordance with Rule 144.





21




On
      January 12, 2006, IElement issued 1,000,000 shares of common stock to Stonegate
      Ventures in exchange for consulting services rendered in the amount of $60,000.
      The shares were issued in reliance on Section 4(2) of the Securities Act and
      contain a restrictive legend in accordance with Rule 144.





On
      January 9, 2006, IElement issued 250,000 shares of common stock to Global Equity
      Trading in exchange for services rendered in the amount of $10,000. The shares
      were issued in reliance on Section 4(2) of the Securities Act and contain a
      restrictive legend in accordance with Rule 144.





On
      January 9, 2006, IElement issued 500,000 shares of common stock to Misty Starke
      in exchange for services rendered in the amount of $20,000. The shares were
      issued in reliance on Section 4(2) of the Securities Act and contain a
      restrictive legend in accordance with Rule 144.





The
      Board
      of Directors approved the delivery of the shares to each of the following
      recipients on January 23, 2006, except for the shares issued to John Fox, Donald
      Kennedy and Stefan Muller which were approved for issuance on December 27,
      2005.
      The shares were issued in exchange for services rendered and as compensation.
      The securities were issued in reliance on Section 4(2) of the Securities Act.
      All shares are restricted pursuant to Rule 144.








Share      Shares           Aggregate
Purchaser                            Price      Issued             Value
---------                          ---------   ---------       --------------
Duane Morris, LLP                  $    .050     880,000       $    44,000.00

Palladian Cap Partners,LLC         $    .040   2,200,000            88,000.00

Palladian Cap Partners,LLC         $    .040     300,000            12,000.00

Tim Dean-Smith                     $    .050   1,600,000            84,000.00

Susan Walton                       $    .050     400,000            20,000.00

Jeremy Dean-Smith                  $    .050   1,800,000            90,000.00

Dolphin Capital                    $    .050   2,900,000           145,000.00

Isaac de la Pena                   $    .050     150,000             7,500.00

Misty Starke                       $    .040     500,000            20,000.00

Brett Jensen                       $    .035     200,000             7,000.00

Jeff Wilson                        $    .035     714,286            25,000.00

Vista Capital                      $    .070   1,000,000            70,000.00

Stonegate Ventures                 $    .060   1,000,000            60,000.00

Yock Investments                   $    .060   1,000,000            60,000.00

Jurgen Popp                        $    .060   1,000,000            60,000.00

Glob Eq Trad & Fin Trad Ltd.       $    .040     250,000            10,000.00

John Fox                           $    .050     100,000             5,000.00

Donald Kennedy                     $    .050      20,000             1,000.00

Stefan Muller                      $    .060   1,000,000            60,000.00
                                             --------------------------------
TOTAL                                         17,014,286           868,500.01
                                             ================================ 22


On
      December 30, 2005, the Company confirmed the sale of unregistered securities
      sold in units consisting of, in the aggregate, 45,125,000 shares of common
      stock
      at a purchase price of $0.035 per share, for an aggregate purchase price of
      $1,579,375 and warrants for the purchase of and aggregate total of 22,562,500
      at
      a strike price of $0.10 per share (the "Warrants"). The securities were sold
      to
      accredited investors in reliance on an exemption provided in Regulation D,
      Rule
      506 and 4(2) under the Securities Act. The Company may call the Warrants at
      any
      time after both the (1) closing bid price for the common stock of the Company
      has been equal to or greater than $0.12 per share for ten (10) consecutive
      trading days, and (2) the shares underlying the warrants have been included
      on
      an SB-2 Registration Statement, or other substantially equivalent registration
      statement, that has been filed by the Company and then active or declared
      effective by the SEC and shall expire upon the earlier of forty-five (45) days
      from the date the Warrant is called or on December 31,2007. The following is
      a
      complete list of share recipients:





Purchase           Shares        Shares issued on
Purchaser                             Price           Purchased      exercise of warrant
------------------------           -----------        ---------      -------------------

Michael Bloch                      $    70,000        2,000,000        1,000,000

Jonathan Lowenthal                 $    17,500          500,000          250,000

Wayne Schoenmakers                 $     3,500          100,000           50,000

Thomas Barrett                     $     7,000          200,000          100,000

Wm Goatley Rev Trust               $     8,750          250,000          125,000

Richard Crose                      $    17,500          500,000          250,000

Robert Gillman                     $    17,500          500,000          250,000

Timothy Broder                     $    17,500          500,000          250,000

Thomas A Piscula                   $    17,500          500,000          250,000

Raymond Dunwoodle                  $    17,500          500,000          250,000

Fred Matulka                       $    17,500          500,000          250,000

Michael Melson                     $    17,500          500,000          250,000

Oscar Greene Jr                    $    17,500          500,000          250,000

Robert Rowley                      $    17,500          500,000          250,000

Trey Investments                   $     5,250          150,000           75,000

William Cail                       $       875           25,000           12,500

Kenneth Meyer                      $    35,000        1,000,000          500,000

Frank Davis                        $     7,000          200,000          100,000

Holger Pfeiffer                    $     8,750          250,000          125,000

Bellano Fam Trust                  $    10,500          300,000          150,000

Calder Cap, Inc.                   $    17,500          500,000          250,000

Ulrich Nusser                      $     8,750          250,000          125,000

Sat Paul Dewan                     $    10,500          300,000          150,000

Thomas Weiss                       $     8,750          250,000          125,000 23 Purchase           Shares        Shares issued on
Purchaser                             Price           Purchased      exercise of warrant
------------------------           -----------        ---------      -------------------

Marianne Issels                    $     8,750          250,000          125,000

Stefan Muller                      $    17,500          500,000          250,000

Annette Bohmer                     $    17,500          500,000          250,000

Hendrik Paulus                     $    17,500          500,000          250,000

Robert Flaster                     $     7,000          200,000          100,000

William Harner                     $     5,250          150,000           75,000

Veronica K Prenn                   $    52,500        1,500,000          750,000

Ryan Cornelius                     $    52,500        1,500,000          750,000

Jurgen Popp                        $    52,500        1,500,000          750,000

Robert Smith                       $    10,500          300,000          150,000

Gerd Weger                         $   350,000       10,000,000        5,000,000

Christiane Lerba                   $     8,750          250,000          125,000

Fred Schmitz                       $   175,000        5,000,000        2,500,000

Glenn Jensen                       $   105,000        3,000,000        1,500,000

Laurence Straus                    $    10,500          300,000          150,000

General Res GMBH $                 $    17,500          500,000          250,000

AK Asset Management                $    35,000        1,000,000          500,000

Benjamin Eichholz                  $    52,500        1,500,000          750,000

Amaltea SA                         $    17,500          500,000          250,000

Clarence Keck Jr                   $     5,250          150,000           75,000

Jorn Follmer                       $    17,500          500,000          250,000

Mattias Graeve                     $     8,750          250,000          125,000

Jerome Niedfelt                    $    10,500          300,000          150,000

John Niedfelt                      $     7,000          200,000          100,000

Global Equity
Trading & Fin, Ltd.                $    17,500          500,000          250,000

Global Equity
Trading & Fin, Ltd.                $    70,000        2,000,000        1,000,000

Film & Music
Entertainment, Inc.                $    35,000        1,000,000          500,000

Red Giant
Productions, Inc.                  $    17,500          500,000          250,000
                                   -----------      -----------      -----------
                                   $ 1,579,375       45,125,000       22,562,500
                                   ===========      ===========      ===========24On March 8, 2005 the Company issued 1,693,334 shares of common stock to Lance K. Stovall in exchange for services rendered as a sales agent, which services were valued at $42,333.On June 6, 2005 Mr. Stovall returned 1,498,195 shares of common stock valued at $37,455. Upon receipt, the common shares were canceled. The shares were issued in reliance on Section4(2) of the Securities Act and contain a restrictive legend in accordance with Rule 144.


On
      April
      8, 2005 the Company issued 1,500,000 shares of common stock to BDM Holdings,
      LLC
      against the $75,000 liability for Stock to be issued. The shares were issued
      in
      reliance on Section 4(2) of the Securities Act and contain a restrictive legend
      in accordance with Rule 144.





On
      May
      19, 2005, the Company issued 340,000 shares of common stock to Trad Solutions
      valued at $8,500 as a sales agent as payment on the outstanding balance owed.
      The shares were issued in reliance on Section 4(2) of the Securities Act and
      contain a restrictive legend in accordance with Rule 144.





On
      June
      7, 2005 the Company issued 175,000 shares of common stock to Rick Wright valued
      at $3,500 to a consultant as payment on the outstanding balance owed. The shares
      were issued in reliance on Section 4(2) of the Securities Act and contain a
      restrictive legend in accordance with Rule 144.





On
      March
      10, 2005, the Company issued 200,000 shares of common stock valued at $5,000
      to
      Blake Martensen, a consultant, for services received. On June 7, 2005 the
      Company issued 300,000 shares of common stock to Blake Martensen valued at
      $6,000 as a consultant for services received. On June 29, 2005 the Company
      issued 1,000,000 shares of common stock valued at $40,000 to Blake Martensen,
      a
      consultant for services received. The shares were issued in reliance on Section
      4(2) of the Securities Act and contain a restrictive legend in accordance with
      Rule 144.





On
      June
      20, 2005, the Company issued 250,000 shares of common stock to Burton Goldi
      valued at $5,500 as a consultant for services received. On March 8, 2005 the
      Company issued 1,030,672 shares of common stock valued at $25,767 to Mr. Goldi
      for consulting services received. The shares were issued in reliance on Section
      4(2) of the Securities Act and contain a restrictive legend in accordance with
      Rule 144.





On
      June
      29, 2005 the Company issued 1,000,000 shares of common stock valued at $40,000
      to Heather Walther as a bonus. On March 8, 2005 the Company issued 1,220,637
      shares of common stock valued at $30,516 to Ms. Walther for employee
      compensation. The shares were issued in reliance on Section 4(2) of the
      Securities Act and contain a restrictive legend in accordance with Rule
      144.


25




On
      July
      28, 2005 and August 8, 2005 the Company issued 1,596,311 and 30,219 respectively
      shares of common stock valued at $73,194 to Quality Sound Communications, a
      sales agent as payment on the outstanding balance owed and as payment for
      current services. The shares were issued in reliance on Section 4(2) of the
      Securities Act and contain a restrictive legend in accordance with Rule
      144.





On
      March
      14, 2005, the Company issued 2,229,374 shares of common stock valued at $111,469
      to Obelix for consulting services received. The shares were issued in reliance
      on Section 4(2) of the Securities Act and contain a restrictive legend in
      accordance with Rule 144.





On
      March
      14, 2005 the Company issued 2,018,000 shares of common stock valued at $50,450
      to Claudette Milan for consulting services received. The shares were issued
      in
      reliance on Section 4(2) of the Securities Act and contain a restrictive legend
      in accordance with Rule 144.





On
      March
      10, 2005 and December 8, 2004 the Company issued 150,000 and 150,000
      respectively shares of common stock valued at $3,750 and $9,000 to Jon A Gordon
      for consulting services received. The shares were issued in reliance on Section
      4(2) of the Securities Act and contain a restrictive legend in accordance with
      Rule 144.





On
      March
      10, 2005 and December 31, 2005 the Company issued 150,000 and 150,000
      respectively shares of common stock valued at $3,750 and $9,000 to Carl D.
      Glaeser for consulting services received. The shares were issued in reliance
      on
      Section 4(2) of the Securities Act and contain a restrictive legend in
      accordance with Rule 144.





On
      March
      8, 2005 and March 28, 2005, the Company issued 192,308 and 192,308 respectively
      shares of common stock valued at $4,808 and $4,808 to Brian Lebrecht for legal
      services received. The shares were issued in reliance on Section 4(2) of the
      Securities Act and contain a restrictive legend in accordance with Rule
      144.





On
      March
      8, 2005, the Company issued 1,000,000 shares of common stock valued at $25,000
      to David Otto for legal services received. The shares were issued in reliance
      on
      Section 4(2) of the Securities Act and contain a restrictive legend in
      accordance with Rule 144.





On
      March
      8, 2005 the Company issued 693,280 shares of common stock valued at $17,332
      to
      Rick Wright for consulting services received. The shares were issued in reliance
      on Section 4(2) of the Securities Act and contain a restrictive legend in
      accordance with Rule 144.





On
      March
      8, 2005 the Company issued 2,018,000 shares of common stock valued at $50,450
      to
      Alex Ponnath for technology services received. The shares were issued in
      reliance on Section 4(2) of the Securities Act and contain a restrictive legend
      in accordance with Rule 144.




26




On
      March
      8, 2005 the Company issued 1,680,000 shares of common stock valued at $42,000
      to
      Jeff Wilson for employee compensation. The shares were issued in reliance on
      Section 4(2) of the Securities Act and contain a restrictive legend in
      accordance with Rule 144.





On
      January 19, 2005, Mailkey Corporation, consummated the acquisition of IElement,
      Inc. Under the terms of the Merger Agreement dated November 9, 2004, the Company
      issued an aggregate of 47,845,836 shares of its common stock, $.001 par vale
      per
      share, in exchange for all of the issued and outstanding shares of capital
      stock
      of IElement and in exchange for the cancellation of certain debt outstanding
      on
      the date of closing. The Agreement and Plan of Merger and First Amendment
      thereto are filed herewith as Exhibits 2.1 and 2.2.





On
      December 8, 2004, the Company issued 400,000 shares of common stock valued
      at
      $68,000 to Brad Van Siclen for services received. The shares were issued in
      reliance on Section 4(2) of the Securities Act and contain a restrictive legend
      in accordance with Rule 144.





On
      December 8, 2004, the Company issued 95,000 shares of common stock valued at
      $16,150 to Eric A Farrow for services received. The shares were issued in
      reliance on Section 4(2) of the Securities Act and contain a restrictive legend
      in accordance with Rule 144.





On
      December 8, 2004, the Company issued 8,333 shares of common stock valued at
      $1,417 to Brad B Schwall, Jr for services received. The shares were issued
      in
      reliance on Section 4(2) of the Securities Act and contain a restrictive legend
      in accordance with Rule 144.





On
      December 8, 2004, the Company issued 100,000 shares of common stock valued
      at
      $17,000 to Charles Ashley for services received. The shares were issued in
      reliance on Section 4(2) of the Securities Act and contain a restrictive legend
      in accordance with Rule 144.





On
      December 8, 2004, the Company issued 60,500 shares of common stock valued at
      $10,285 to Donald B Schwall, Jr. for services received. The shares were issued
      in reliance on Section 4(2) of the Securities Act and contain a restrictive
      legend in accordance with Rule 144.





On
      November 11, 2004, the Company issued 1,000,000 shares of common stock valued
      at
      $262,000 to Terrence Byrne for services received. The shares were issued in
      reliance on Section 4(2) of the Securities Act and contain a restrictive legend
      in accordance with Rule 144.





On
      November 11, 2004, the Company issued 315,000 shares of common stock valued
      at
      $126,000 to Brad Van Siclen for services received. The shares were issued in
      reliance on Section 4(2) of the Securities Act and contain a restrictive legend
      in accordance with Rule 144.




27




On
      November 11, 2004, the Company issued 400,000 shares of common stock valued
      at
      $160,000 to Willian Grimes for services received. The shares were issued in
      reliance on Section 4(2) of the Securities Act and contain a restrictive legend
      in accordance with Rule 144.





On
      November 5, 2004, the Company issued 37,500 shares of common stock valued at
      $26,250 to Donald B. Schwall, Jr. for services received. The shares were issued
      in reliance on Section 4(2) of the Securities Act and contain a restrictive
      legend in accordance with Rule 144.





On
      November 5, 2004, the Company issued 385,000 shares of common stock valued
      at
      $154,000 to Ivan Zweig for services received. The shares were issued in reliance
      on Section 4(2) of the Securities Act and contain a restrictive legend in
      accordance with Rule 144.





On
      October 5, 2004, the Company issued 500,000 shares of common stock valued at
      $350,000 to Roger B. Ponting for services received. The shares were issued
      in
      reliance on Section 4(2) of the Securities Act and contain a restrictive legend
      in accordance with Rule 144.





On
      October 5, 2004, the Company issued 28,750 shares of common stock valued at
      $20,125 to Susan Walton for services received. The shares were issued in
      reliance on Section 4(2) of the Securities Act and contain a restrictive legend
      in accordance with Rule 144.





On
      September 7, 2004 the Company issued an aggregate of 1,388,072 shares of its
      common stock to its existing shareholders upon the exercise of outstanding
      warrants. The shares were issued in reliance on Section 4(2) of the Securities
      Act and contain a restrictive legend in accordance with Rule 144.





On
      July
      20, 2004, the Company issued an aggregate of 291,944 shares of its common stock
      to its existing shareholders upon the exercise of outstanding warrants. The
      shares were issued in reliance on Section 4(2) of the Securities Act and contain
      a restrictive legend in accordance with Rule 144.





On
      June
      13, 2004, the Company issued 60,005 shares of common stock valued at $210,018
      to
      Scott Peters upon the exercise of an outstanding warrant. The shares were issued
      in reliance on Section 4(2) of the Securities Act and contain a restrictive
      legend in accordance with Rule 144.





On
      March
      25, 2004 MailKey Corporation consummated the reverse merger transaction with
      Global Diversified Acquisition Corp. In accordance with the terms of the Merger
      Agreement dated February 20, 2004 as amended March 24, 2004, the Company issued
      an aggregate of 26,246,000 shares of its common stock to the holders of MailKey
      capital stock in exchange for all the issued and outstanding capital stock
      of
      MailKey. A detailed description of the Merger Agreement and Plan of Merger,
      as
      amended, are set forth on Form 8-K, and Exhibits filed therewith, filed on
      April
      9, 2004.





28




Also
      on
      March 25, 2004 the Company issued an additional 2,590,013 shares of common
      stock
      to certain service providers in association with the consummation of the reverse
      merger transaction with Global Diversified Acquisition Corp.





On
      March
      18, 2004 the Company issued 200,000 shares of common stock valued at $606,000
      to
      Corporate Communications Network, Inc. for consulting services received. The
      shares were issued in reliance on Section 4(2) of the Securities Act and contain
      a restrictive legend in accordance with Rule 144.








**Registration
      of Securities**





On
      February 3, 2006, the Company filed with the SEC a Registration Statement on
      Form SB-2 to register for resale the securities purchased by various
      investors.





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





This
      "Plan of Operation" and other parts of this report contain forward-looking
      statements that involve risks and uncertainties. All forward-looking statements
      included in this report are based on information available to us on the date
      hereof and, except as required by law we assume no obligation to update any
      such
      forward-looking statements. Our actual results may differ materially from those
      anticipated in these forward-looking statements as a result of a number of
      factors, including those set forth under the caption "Disclosure Regarding
      Forward-Looking Statements" and elsewhere in this report. The following should
      be read in conjunction with our audited financial statements and the related
      notes thereto contained elsewhere in this report. The statements contained
      herein that are not historical facts are forward-looking statements that involve
      a number of risks and uncertainties. Historical results should not be relied
      on
      as indicative of trends in operating results for any future period. The actual
      results of the future events described in such forward-looking statements in
      this report could differ materially from those stated in such forward-looking
      statements.








**EXECUTIVE
      OVERVIEW**





Although
      we have a solid, consistent, steady revenue base, characterized by our base
      of
      customers which are under long-term contracts and most of which have been our
      customers for several years, revenue attrition is a major trend in the
      telecommunications industry that affects every provider and is an area of
      financial concern to us. Competition between providers for services that many
      small and medium sized businesses see as commodities leads customers to change
      providers based largely on price. The resulting effect is detrimental to our
      business model in two ways. First, our customers leave us for other providers
      and second, when we do renew our customers' contracts, we do so at rates up
      to
      20 percent lower than they had been paying.





To
      combat
      this revenue attrition, we intend to hire a new sales force in the coming months
      and we have earmarked $500,000 in cash raised through our recent private equity
      placement for this purpose. This will allow us to pursue new customers that
      more
      than replace the revenue lost to attrition. This sales force will be based
      in
      Chicago, where the smallest of our three major customer bases is and also where
      we have the most underutilized network capacity, allowing us to turn a profit
      quicker than we could elsewhere and maybe within 6 months.


29




Our
      overall financial condition improved significantly with the recent private
      equity placement and the increased liquidity it brought. However, we do continue
      to use cash and at our current pace we would run out of cash this year if we
      were not able to successfully convert the warrants issued in the private
      placement, raise additional funds or acquire a cash flow positive
      company.





To
      combat
      this, we would be able to reduce or eliminate certain general and administrative
      expense items, defer salaries or eliminate costly vendors. These spending cuts
      would return the company to the break even point or result in a net income.
      Because doing so would halt our growth plans, we do not intend to make these
      cuts unless we are unable to continue pursuing our growth model.





We
      continue to incur operating losses because we have readied the company for
      rapid
      growth "out of the gate" as soon as we convert the private placement warrants.
      We have the necessary equipment, infrastructure, personnel, experience and
      processes to handle a much higher volume of customers. If we cut back on these
      expenses before we have a chance to utilize them we will save money in the
      short
      term but seriously hinder our ability to grow.





Our
      main
      items of concern with our operating results are the declining revenue that
      results from customer attrition as described above and the corresponding
      decrease in cash flow, which was negative to begin with. These items in tandem
      cause concern because the only way to remedy them is to spend more cash on
      sales
      and retention. We currently do not have an active sales force and only one
      employee dedicated to retention, so our revenue and cash flow from operations
      have recently been decreasing.





We
      believe that the money we expect to receive from investors exercising their
      warrants to purchase our stock will be sufficient not only to stabilize our
      current revenue, but to rapidly grow our customer base and increase our revenue,
      provide a positive cash flow from operations and start earning a net income
      on a
      regular basis. If we are able to successfully convert most of the warrants
      outstanding and set aside $500,000 specifically for a new sales force in
      Chicago, we believe we will be able to successfully become a profitable company
      within 6 months of that successful conversion. If we are unable to successfully
      convert a majority of the warrants, we will be forced to seek other debt or
      equity funding or to cut expenses by laying off employees or discontinuing
      certain services provided by our vendors.





Our
      auditors have expressed doubt as to our ability to continue as a going concern.
      Because of the telecommunications industry's declining revenue trend and the
      fact that we cannot stabilize or increase our revenue and cash flow without
      a
      sales force, we believe that we need to recruit, train and retain an effective
      sales force. In order to do this, we need to obtain additional funding in the
      minimum amount of $500,000. Our intent is to raise this cash by calling the
      warrants issued in our recent private equity placement. If we are not able
      to do
      this and cannot raise additional debt or equity financing by other means, we
      may
      not be able to continue as a going concern. We believe that we have a very
      valuable business and have no intention of discontinuing our operations. We
      will
      do everything in our power to obtain additional financing and continue to carry
      out our business model.


30




Market
      trends in our industry are shifting towards Voice over Internet Protocol (VoIP),
      and we have also developed our own VoIP product offering. VoIP has been gaining
      large scale acceptance as companies like Packet-8, Skype and Vonage continue
      to
      broadly advertise their services. These pioneering companies have paved the
      way
      for smaller, more agile companies like us by spending their time and money
      developing working VoIP platforms and then exerting significant effort to spread
      the word about VoIP, thereby leading to the large scale acceptance of which
      we
      are now in the midst.





We
      believe that we see an excellent opportunity as a business VoIP provider since
      none of the major VoIP providers are targeting businesses. Our barrier to entry
      into VoIP was minimal when you consider the potential return. Since our network
      consulting company, Obelix, had already done all necessary research and
      development, we were able to upgrade our network to provide VoIP for a one
      time
      cost of $79,000 in equipment, which we funded from the proceeds of our recent
      private equity placement.





Another
      major trend in our industry is towards managed services like managed or hosted
      exchange (for email), managed PBX (for call features and routing) and data
      storage or disaster recovery. These services and others like them will be a
      great addition to the services we already provide and will allow our customers
      more freedom and options that could be added on to their existing services.
      Each
      of these services will be very inexpensive for us to provide and would bolster
      our gross margins and cash flow from operations. Theses services will also
      further entrench our customers with us as they would have more services
      committed to one provider, making it more likely that they will opt to renew
      their contracts at the end of their terms.





Managed
      services will be an excellent addition to our product offerings and we are
      currently researching the order in which we want to roll them out.





There
      are
      risks associated with providing these new products, and while the monetary
      costs
      to provide these new products are not great, the time and effort involved in
      providing them are substantial, especially considering our need for a regular
      sales force selling our existing products. The major risks are that we could
      start providing a service that nobody wants to buy, that we are not good at
      selling or that other companies will be able to provide the service at lower
      prices, maybe even below our cost. In any one of these three scenarios, we
      would
      again add to our negative cash flow from operations and take a further net
      loss,
      something we can ill afford to do.





There
      are
      very good opportunities available in our industry. Any company with a strong
      sales force can profit from "traditional" telephone and internet services,
      VoIP,
      managed services, secure wide area networks, wireless internet access and other
      complimentary services. We have the infrastructure in place to compete in the
      marketplace and to profit from our business model, but we need to start with
      a
      sales force and continue to build upon it by layering on additional services
      for
      our sales force to sell (like disaster recovery) and allowing our service
      offerings to evolve with the market (like VoIP). Looking




31




retrospectively
      at the merger between Mailkey and IElement in January 2005, it becomes apparent
      that the merged company made the correct decision in jettisoning its old
      anti-spam product. Even at that time, there were two or three companies that
      had
      already deployed a good anti-spam product and were well on their way to
      achieving a dominant market share. We estimated that the old Mailkey anti-spam
      product would've required an additional $1 million in research and development
      costs to completely develop, and there were no assurances that we would have
      ever been able to sell that product. In fact, it seems likely that we would
      never have produced a product that could compete with those already on the
      market. We believe that the direction we've taken IElement with regards to
      winding down the anti-spam business and concentrating on the business of
      providing telecommunications service is a great turnaround for the company
      and
      one that will benefit our shareholders.





We
      compete with both competitive local exchange carriers (CLECs) like ourselves,
      who lease certain access lines from incumbent local exchange carriers (ILECs),
      and the ILECs themselves. Some examples of our ILEC competitors are Verizon
      Communications and AT&T. Some examples of our CLEC competitors are XO
      Communications and CBeyond Communications. We also compete with internet service
      providers (ISPs), but since their product offerings are typically limited in
      comparison to ours, this competition has little effect on our operations or
      planning.





Most
      of
      our competitors are larger than us, both in terms of employment and revenue.
      A
      number of telecommunications firms either went out of business during the
      telecom downturn or have been acquired by larger carriers. Because of our size,
      we are more agile and can quickly adapt the changes in the marketplace and
      exploit our larger competitors' inability to react quickly, beating them to
      market with a new product or working more closely with a particular customer
      to
      personalize their service.





We
      provide our own in-house live technical support 24 hours a day, 365 days a
      year,
      many of our customers know our employees by our first names and are much more
      comfortable working with a small, service-oriented company like
      IElement.





**OUR
      PLAN OF OPERATION**





IElement
      is a facilities-based nationwide telecommunications communications service
      provider for small and medium sized enterprises.





IElement
      seeks to provide broadband data, voice and wireless services using integrated
      T-1 lines with a Layer 2 Private Network/Wide Area Network (WAN) solution to
      provide dedicated Internet access services, customizable business solutions
      for
      voice, data and Internet, and secure communications channels between our
      customers' offices, partners, vendors, customers and employees without the
      use
      of a firewall or encryption devices.





32




IElement
      has undertaken steps to present itself under the tradename IElement to its
      customer base and target market and will continue to take steps to notify,
      inform and/or promote the name of IElement. We now aim to grow the business
      of
      IElement and establish it as a profitable national added-value
      carrier.





On
      November 10, 2005, the Company announced its intention to enter into the Voice
      Over Internet Protocol ("VOIP") market. The Company subsequently purchased
      the
      equipment necessary to begin providing VOIP services and identified a partner
      with VOIP expertise to assist in the planning and implementation.





We
      purchased VoIP equipment for $80,000 and have identified Comm Partners as a
      VoIP
      partner, an un-related entity. The costs related to further development of
      our
      VoIP product are limited to our potential purchase of a new platform that will
      handle much more capacity than we currently can handle. That platform could
      cost
      up to 100,000 for what we would want to do.





We
      estimate the cost to enter the Chicago market to be approximately $500,000
      from
      May 1, 2006 through March 31, 2007 before operations there become profitable.
      The $500,000 to start the sales force in Chicago covers all costs associated
      with acquiring a new office, staffing, training and managing a sales force
      and
      installation engineers, acquiring additional bandwidth or connections to
      accommodate new customers there, paying commissions and agent fees. The
      Company's current offices and equipment will support the Dallas and Los Angeles
      service. We will however have increased overall costs for additional marketing,
      including telemarketing services. Our next target markets are smaller cities
      in
      the Midwestern region that have yet to be identified.





The
      Company expects that a budgeted amount of approximately $650,000 for monthly
      operations shall be sufficient for 18 months of operations, including the
      expansion into the Dallas, Chicago and Los Angeles markets.





Upselling
      added value managed services will not cost a significant amount of money and
      began on May 1, 2006.





The
      VoIP
      testing phase has been completed. We began aggressively marketing VoIP on May
      1,
      2006.





IElement's
      focus is to become a profitable national Communication Service Provider (CSP)
      from California to Florida. IElement's added value, managed service strategy
      includes the potential development of additional subscription model services
      such as Managed Microsoft Exchange(tm), prepaid and postpaid cellular services,
      email and network security, residential/ business based wireless, and Managed
      Blackberry(tm) services. The development of these services would allow IElement
      to offer Small and Medium-sized Enterprises ("SMEs") the access to large
      enterprise type applications with little or no software purchase, hardware
      investment, upgrade concerns, or full-time administration of these services.
      These sell-through services should increase the Average Revenue Per Customer
      ("ARPC"), as well as help improve customer retention.





33




As
      an
      "added-value" provider we intend to provide services that enhance our customers'
      ability to communicate on top of or along with basic internet access or
      telephone service.





The
      Company intends to:





Initially
      concentrate its resources on adding customers in the Dallas, Los Angeles and
      Chicago markets, while extending its sales reach smaller as of yet unidentified
      cities in the Midwest region of the United States.





Build
      out
      the necessary infrastructure to sell IElement broadbandservices (wireless or
      wireline), as well as reselling voice services over the same T1 or wireless
      equivalent.





Upsell
      added value managed services to our current and future customer base to raise
      our ARPC. We believe that existing infrastructure can serve multiple new markets
      as they are brought online in advance of the need for additional capital
      expenditures or additional software licenses. The cost associated with this
      goal
      is minimal and our efforts are beginning immediately.





Seek
      acquisitions of wireless ISPs (WISPs) and other suitable telephony and/or data
      carriers in secondary and tertiary markets that can be layered onto the
      Company's current network including equipment and lines already owned or leased.
      We believe that such acquisitions would enable greater economies of scale and
      operating efficiencies. The Company is continuously exploring potential
      acquisitions in this regard.





Begin
      aggressively marketing VOIP to the Company's current and potential customers.
      The Company is currently working diligently to add a small VOIP customer base
      upon which it can use as a base to aggressively market and expand this base.
      We
      have already begun such efforts and will continue to do so in the future. As
      noted above, we are initially concentrating on adding customers in the Dallas,
      Los Angeles and Chicago markets.





Our
      focus
      is to become a profitable national Communication Service Provider (CSP) from
      California to Florida. Our added value, managed service strategy includes the
      potential development of additional subscription model services such as Managed
      Microsoft Exchange, prepaid and postpaid cellular services, email and network
      security, residential/ business based wireless, and Managed Blackberry(tm)
      services. The development of these services would allow us to offer SMBs access
      to Enterprise type applications with little or no software purchase, hardware
      investment, upgrade worries, or full-time administration of these services.
      These sell through services should increase the Average Revenue Per Customer,
      as
      well as help improve customer retention.




34




We
      anticipate that the number of people who we employ may increase substantially
      over the next 12 months as we continue to execute on our business
      plan.





The
      costs
      of implementing our business plan will be derived both from operating revenues
      and proceeds received from the exercising of warrants by the Selling
      Stockholders.





The
      building out of IElement's necessary infrastructure includes purchasing or
      leasing new telephone switches, the cost of which is expected to be in the
      range
      of $200,000 to $600,000 depending on whether we upgrade switches in one market
      or two and what features the new switches come with. We intend to begin building
      out infrastructure in May, 2006 and estimate completion by May,
      2007.








**RESULTS
      OF OPERATIONS**





**FISCAL
      YEAR ENDED MARCH 31, 2006 COMPARED TO PERIOD ENDED DECEMBER 31,
      2004**





Along
      with other changes to its Articles of Incorporation adopted on March 7, 2005,
      IElement changed its fiscal year from a December 31 year-end to a March 31
      year-end. The last December 31 year-end occurred on December 31, 2004. A
      transitory period followed from January 1, 2005 through March 31, 2005 and
      those
      financial results and appropriate notes are also included in this
      filing.








**REVENUES**





Revenues
      were $4,550,092 for the fiscal year ended March 31, 2006, as compared to
      $5,954,772 for the period ended December 31, 2004. This decrease was due to
      a
      significant difference in our operations between the two periods. In the period
      ended December 31, 2004 we had $513,335 in consulting income realized from
      a one
      time agreement with a wireless internet provider and another $146,171 in income
      from settlements with former customers. Accordingly, our recurring revenue
      base
      for the period ending December 31, 2004 was $5,295,266. Moreover, to some extent
      the decrease in revenue between the two periods was due to our decision not
      to
      invest in developing and employing a sales force, and that decision has led
      to
      some customer attrition. We plan to hire a sales force this year.





**COST
      OF REVENUES**





Cost
      of
      revenues excluding depreciation was $2,838,021 for the fiscal year ended March
      31, 2006 and $3,042,978 for the period ended December 31, 2004.


35




**OPERATING
      EXPENSES**





Operating
      expenses excluding cost of revenues for the fiscal year ended March 31, 2006
      were $3,554,088 compared to $3,497,700 for the period ended December 31, 2004.
      The increase in operating expenses was primarily related to expanding our
      service offerings.





**GAIN
      (LOSS) FROM OPERATIONS**




Loss
            from
            operations for the fiscal year ended March 31, 2006 was $1,426,084 compared
            to
            $295,041 for the period ended December 31, 2004. EBITDA for the fiscal
            year
            ended March 31, 2006 was ($1,039,550) but more than half of that loss
            was
            non-cash items. In particular, we issued stock for services in the amount
            of
            $522,748 for the year ended March 31, 2006. Much of that stock was issued
            to
            consultants advising the Company in matters pertaining to our private
            equity
            placement, shifting our business model toward Voice over Internet Protocol
            (VoIP) technology and service, expanding our produce offerings and gaining
            entry
            to smaller, less competitive markets. Our net operating loss before interest,
            depreciation, amortization and non-cash items (stock issued for services)
            for
            the period ended March 31, 2006 was $486,802, or less than half a penny
            per
            share, compared with our reported loss from operations of $1,426,084,
            or just
            over a penny per share.
  Our
                management uses EBITDA as a financial measure to compare our gain
                or loss from
                operations to other small businesses in the telecommunications industry,
                most of
                which are not required to publicly report their financial results
                and are thus
                less likely to have GAAP numbers available for comparison. The calculation
                and
                disclosure of EBITDA affords both our management and that of other
                companies a
                measure to more accurately compare our financial results with those
                of
                non-public reporting companies within our industry. EBITDA, as used
                in this
                section, is meant only to supplement the financials in this annual
                report that
                have been prepared using GAAP and should in no way be considered
                more important,
                accurate or be displayed more prominently than our loss from operations.
                In
                reconciling EBITDA to our loss from operations, we provide the following
                table:
 EBITDA                                                                               
                ($1,039,550)
 Interest
                Expense                                                                              (534)
 Receivable
                Factoring Fees (Interest
                Expense)                     (106,602)
 Depreciation                                                                             
                (279,398)
 Gain
                (Loss) from
                Operations                                             
($1,426,084)








**INTEREST
      EXPENSE**





Interest
      expense was $534 and $138,576 for the years ended March 31, 2006, and December
      31, 2004, respectively. Interest expense including factor fees for the years
      ended March 31, 2006 and December 31, 2004 were $107,136 and $276,597,
      respectively. Factor fees are very similar to interest charges.





**NET
      INCOME (LOSS) APPLICABLE TO COMMON STOCK**





Net
      loss
      applicable to Common Stock was $1,426,084 for the fiscal year ended March 31,
      2006, compared to a loss of $295,041 for the period ended December 31, 2004.
      Net
      loss per common share was $0.01 for the fiscal year ended March 31, 2006, and
      $0.02 for the period ended December 31, 2004.





The
      loss
      in the year ended March 31, 2006 can be attributed mostly to expenses that
      remained steady while revenue declined. The cost of consulting fees in
      conjunction with the Company's private equity placement also added to the loss
      for the year ended March 31, 2006. The loss for the year ended December 31,
      2004
      can be attributed to high interest costs on our outstanding promissory notes
      and
      large factoring expenses associated with the financing of accounts
      receivables.




**LIQUIDITY
      AND CAPITAL RESOURCES**





Since
      our
      inception, we have funded our operations primarily through private sales of
      equity securities and the utilization of short-term convertible debt. As of
      March 31, 2006 we had a cash balance of $719,450.





36




In
      order
      to facilitate working cash flow, the Company factors or sells approximately
      99%
      of accounts receivables for its customer billing with an outside agency, thereby
      receiving 75% of the aggregate net face value of the assigned accounts at the
      time of placement with the factor. We do not otherwise maintain a line of credit
      or term loan with any commercial bank or other financial institution. To date,
      our capital needs have been principally met through the receipt of proceeds
      from
      factoring customer receivables and the sale of equity and debt securities.
      Factoring allows us to receive virtually immediate cash from customer invoices.
      When each customer pays the third party directly, we receive another 22.75%,
      so
      the total cost to us for the third party's advance to us, their payment for
      processing and collections is 2.25%. Factoring in this manner is a financing
      alternative to credit card processing.





The
      Company recently closed a private placement offering for an aggregate sale
      price
      of $1,579,375, of which up to 10% is subject to deduction for fees in connection
      with the private placement, and warrants for the purchase of and aggregate
      total
      of 22,562,500 at a strike price of $.10 per share. The proceeds of the private
      placement offering improved the Company's cash balance and if a majority of
      the
      warrants are exercised IElement will receive an additional $2,256,250 which
      would be more than sufficient to satisfy the Company's cash needs for its
      current operations. In addition, if only half of the warrants are exercised,
      IElement will be able to comfortably sustain its current
      operations.





In
      the
      event that none of the warrants are exercised, or only nominal number of the
      warrants are exercised, IElement will require additional funds, above its
      operating revenues, to sustain operations and grow the business. In this event,
      IElement plans to seek additional capital in the form of additional private
      placements of its capital stock or short terms loans or both. In the event
      that
      IElement seeks additional capital through the sale of its stock, there will
      be a
      dilutive impact on its outstanding common stock.





As
      of
      June 27, 2006, our gross accounts receivable totaled $351,530. We have set
      aside
      an allowance of $12,165 against that balance for uncollectible accounts. The
      net
      amount we expect to receive is $339,365. As a telecommunications provider,
      we
      bill for our services up front, so therefore we have significant leverage to
      collect on our Accounts Receivable because, with proper dunning, we can
      discontinue our customers' telephone and internet services if they do not pay
      their bill.





As
      of
      March 31, 2006 IElement had total notes payable and outstanding in the aggregate
      principal amount of $634,684.45 owed to 14 note holders. As of March 31, 2006
      IElement was current in all obligations except for past due total payments
      of
      $7500. None of the notes are interest bearing. The following is a more detailed
      discussion of the 14 notes.





On
      January 19, 2005, IElement issued eight (8) promissory notes to, Kramerica,
      certain members of Mr. Zweig's immediate family and others in the aggregate
      amount of $376,956.16 (the "Notes") with no interest. In particular, the Notes
      are payable to Heather Walther ($20,000), Kramerica, Inc. (aggregate of
      $120,000), Mary Francis Strait Trust ($55,611.15), Peter Walther ($30,000),
      Richard Zweig ($20,000), Richard Zweig IRA ($27,500) and Strait Grandchildren
      Trust ($103,845.01). Upon issuance, the Notes were payable in 36 monthly
      installments with the first payment commencing six months after the closing
      of
      the merger and were secured by substantially all of the assets of IElement.
      IElement did not make any payments on the Notes.





37




On
      March
      25, 2006 each of the eight (8) Notes were cancelled and IElement issued new
      convertible promissory notes to the same individuals in the same principal
      amount of $376,956.16, again with no interest thereon. The first payment on
      each
      of the new convertible promissory notes is due in September 2006 with a total
      of
      36 monthly installments through August 2009. The Lender has the right to convert
      all or a portion of the outstanding balance, at any time until the notes are
      paid in full, into IElement's common stock at a conversion price of $0.035
      per
      share. Any past due balance on the old Notes was forgiven at the time of
      cancellation of the old Notes and issuance of the new convertible promissory
      notes. The new convertible promissory notes are secured by substantially all
      the
      assets of IElement as were the original Notes.





On
      August
      8, 2005, IElement issued four (4) promissory notes in the aggregate principal
      amount of $183,097 to Timothy Dean Smith ($53,930), Susan Walton ($30,000),
      Jeremy Dean Smith ($54,603) and Dolphin Capital ($44,564), with no interest.
      Upon issuance the notes were payable in 36 monthly installments with the first
      payment due in February, 2006. IElement did not make the February, 2006
      payment.





On
      March
      25, 2006 each of the four (4) Notes were cancelled and IElement issued new
      convertible promissory notes to the same individuals in the same principal
      amount of $183,097, again with no interest thereon. The first payment on each
      of
      the new convertible promissory notes is due in September 2006 with a total
      of 36
      monthly installments through August 2009. The Lender has the right to convert
      all or a portion of the outstanding balance, at any time until the notes are
      paid in full, into IElement's common stock at a conversion price of $0.035
      per
      share. Any past due balance on the old Notes was forgiven at the time of
      cancellation of the old Notes and issuance of the new convertible promissory
      notes.





The
      issuance of new convertible promissory notes on March 25, 2006 in exchange
      for
      the previous promissory notes allowed I- Element to extend the first payment
      date on all twelve of these Notes from February 2006 until September 2006 in
      exchange for the added conversion feature. The twelve Note Holders would be
      able
      to collectively convert their Notes into 16,001,519 shares of IElement common
      stock at a price of $0.035 per share. This could have a dilutive impact on
      the
      Company's outstanding common stock. If all 16,001,519 shares of common stock
      are
      converted, these shares would represent approximately nine (9%) percent of
      IElement's outstanding shares with IElement only receiving approximately half
      the market value for such shares, based on the current market
      price.





The
      remaining two notes are held by Duane Morris ($34,631.29 as of June 5, 2006)
      and
      Palladian ($30,000 as of June 5, 2006). The Duane Morris note was issued in
      exchange for a settlement of disputed attorneys fees on August 16, 2005 and
      was
      originally agreed to be paid in nine monthly installments beginning on September
      30, 2005 and ending May 30, 2006. As of June 5, 2006 IElement is past due on
      its
      payments on the Duane Morris note, but has been paying $2500 per month and
      intends to continue to do so. The Palladian note was issued on August 29, 2005
      and is being paid in fourteen monthly installments beginning September 5, 2005
      and ending October 28, 2006. As of June 5, 2006, IElement is past due on the
      Palladian note but is making regular monthly payments in the amount of
      $2500.


38




IElement's
      total debt servicing requirements on the fourteen (14) outstanding promissory
      notes over the next twelve months is approximately $204,644. In particular,
      beginning in September 2006, IElement will begin debt service on the twelve
      12)
      convertible promissory notes issued March 25, 2006 in the monthly amount of
      $15,557. In addition, within the next twelve months IElement will complete
      payments on the remaining principal balances owed to Duane Morris and Palladian
      ($64,631 as of June 5, 2006).





Although
      cash flow from current business operations alone would not likely be sufficient
      to satisfy IElement's current debt obligations. IElement intends to satisfy
      its
      debt repayment obligations through a combination of the following. First,
      through cash flows from current business operations. Second, IElement is
      actively seeking acquisitions of business with positive cash flow, which cash
      flow could assist in debt servicing requirements. Third, from the proceeds
      from
      the exercise of the warrants, the stock underlying which is being registered
      herein. Fourth, renegotiating the terms of the debt obligations and in
      particular the debt obligations to Mr. Zweig and his family. Finally, IElement
      would not be required to make cash payments on those debt obligations which
      are
      converted. Twelve of the Notes may be converted at $.035 per share, which is
      currently half of the market price.





On
      February 14, 2006 we settled the breach of contract litigation against
      Communications Plus, Inc., a California company d/b/a Global Communications,
      ("Global") for $27,000 payable to Global Communications in periodic payments
      beginning February 14, 2006 and ending December 1, 2006.





On
      April
      19, 2005 KK Solutions, Inc., a California corporation d/b/a Three 18, Inc.
      ("KK"), filed a complaint against us and CEO Ivan Zweig, individually, in the
      Superior Court of the State of California, County of Los Angeles, alleging
      breach of contract pursuant to a dispute regarding sales commissions due to
      KK.
      On May 2, 2006 we settled the litigation for a total settlement amount of
      $26,500 payable in periodic payments beginning on May 2, 2006 and ending on
      July
      2, 2006.





IElement
      is not aware of any undisclosed actual or contingent liabilities.





**CRITICAL
      ACCOUNTING POLICY AND ESTIMATES**





Our
      Management's Discussion and Analysis of Financial Condition and Results of
      Operations section discusses our consolidated financial statements, which have
      been prepared in accordance with accounting principles generally accepted in
      the
      United States of America. The preparation of these financial statements requires
      management to make estimates and assumptions that affect the reported amounts
      of
      assets and liabilities at the date of the financial statements and the reported
      amounts of revenues and expenses during the reporting period. On an on-going
      basis, management evaluates its estimates and judgments, including those related
      to revenue recognition, accrued expenses, financing operations, and
      contingencies and litigation. Management bases its





39




estimates
      and judgments on historical experience and on various other factors that are
      believed to be reasonable under the circumstances, the results of which form
      the
      basis for making judgments about the carrying value of assets and liabilities
      that are not readily apparent from other sources. Actual results may differ
      from
      these estimates under different assumptions or conditions. The most significant
      accounting estimates inherent in the preparation of our financial statements
      include estimates as to the appropriate carrying value of certain assets and
      liabilities which are not readily apparent from other sources. These accounting
      policies are described at relevant sections in this discussion and analysis
      and
      in the notes to the consolidated financial statements included in this Annual
      Report.




On
          July
          14, 2006 our auditors identified a material weakness in our internal controls
          and procedures that resulted in the misstatement of our financial results.
          This
          material weakness began in March of 2003 and was the result of an ineffective
          segregation of duties and inadequate monitoring over financial reporting.
          One
          person, our controller, performed all of the significant accounting
          tasks, which impacted our ability to accurately report the recapitalization
          of ICCC in March 2003. Upon review of this transaction on July 14, 2006,
          a
          restatement was filed to correct the reporting of this transaction by removing
          those adjustments related to fair value and goodwill.
 
 Since
          the
          material weakness originated in March 2003, we have hired two additional
          accountants to segregate the duties of the accounting staff  and named a
          CFO, Ivan Zweig, who now monitors all financial reporting. In addition,
          we have
          since implemented a policy to have the full Board of Directors review both
          our
          quarterly and annual financial statements before filing.
 
 Our
          internal accounting team now has both the personnel and the experience
          to
          recognize and record significant transactions according to GAAP and we
          have
          implemented a full review of all financial information by our Board of
          Directors
          as well as certification by our CFO.  Management and the Board of Directors
          believe that the above remedies remediate this material weakness.


**OFF-BALANCE
      SHEET ARRANGEMENTS**





As
      of
      March 31, 2006, we did not have any relationships with unconsolidated entities
      or financial partners, such as entities often referred to as structured finance
      or special purpose entities, that had been established for the purpose of
      facilitating off-balance sheet arrangements or other contractually narrow or
      limited purposes. As such, we are not materially exposed to any financing,
      liquidity, market or credit risk that could arise if we were engaged in such
      relationships.





**RISK
      FACTORS**





An
      investment in the Common Stock of the Company is highly speculative, involves
      a
      high degree of risk and should be considered only by those persons who are
      able
      to afford a loss of their entire investment. In evaluating the Company and
      its
      business, prospective investors should carefully consider the following risk
      factors in addition to the other information included in this Registration
      Statement.





The
      following risk factors should be considered carefully in addition to the other
      information contained in this prospectus:





**RISKS
      RELATED TO OUR BUSINESS**





WE
      HAVE A
      LIMITED OPERATING HISTORY WHICH RAISES SUBSTANTIAL DOUBT AS TO OUR ABILITY
      TO
      SUCCESSFULLY DEVELOP PROFITABLE BUSINESS OPERATIONS





We
      have a
      limited operating history. Our prospects must be considered in light of the
      risks, expenses and difficulties frequently encountered in establishing a
      business in the telecommunications industry. We have yet to generate significant
      revenues from operations and have been focused on organizational, development,
      and market analysis and fund raising activities. There is nothing at this time
      on which to base an assumption that our business operations will prove to be
      successful or that we will ever be able to operate profitably. Our future
      operating results will depend on many factors, including:




40




-
      our
      ability to raise adequate working capital;


-
      success
      of our development;


-
      demand
      for our services;


-
      the
      level of our competition;


-
      our
      ability to attract and maintain key management and


employees;
      and


-
      our
      ability to efficiently produce and establish facilities


for
      treatment in a highly competitive and speculative


environment
      while maintaining quality and controlling costs.





To
      achieve profitable operations, we must, alone or with others, successfully
      execute on the factors stated above, along with continually developing ways
      to
      enhance our production, marketing and treatment efforts, when commenced. Despite
      our best efforts we may not be successful in our development efforts or obtain
      required regulatory approvals.





WE
      HAVE
      HISTORICALLY INCURRED LOSSES AND LOSSES MAY CONTINUE IN THE FUTURE





We
      have
      generated an accumulated deficit of $2,403,410 at March 31, 2006. Inasmuch
      as we
      will continue to have operating expenses and will be required to make
      significant up-front expenditures in connection with the proposed development
      of
      our business, we may continue to incur losses for at least the next 12 months
      and until such time, if ever, as we are able to generate sufficient revenues
      to
      finance our operations and the costs of continuing expansion. There can be
      no
      assurance that we will be able to generate significant revenues or achieve
      profitable operations. It may be necessary to raise capital through issuing
      equity which could cause dilution and/or negatively affect the price of our
      common stock.





THERE
      IS
      DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN DUE TO RECURRING LOSSES
      AND WORKING CAPITAL SHORTAGES, WHICH MEANS THAT WE MAY NOT BE ABLE TO CONTINUE
      OPERATIONS UNLESS WE OBTAIN ADDITIONAL FUNDING.





The
      report of our independent registered public accountants on our 2006 financial
      statements, as included in this 10-KSB, included an explanatory paragraph
      indicating that there is substantial doubt about our ability to continue as
      a
      going concern due to recurring losses and working capital shortages. Our ability
      to continue as a going concern will be determined by our ability to obtain
      additional funding. Our financial statements do not include any adjustments
      that
      might result from the outcome of this uncertainty.





IF
      WE ARE
      UNABLE TO RAISE ADDITIONAL CAPITAL TO FINANCE OPERATIONS, OUR BUSINESS
      OPERATIONS WILL BE CURTAILED.





Our
      operations have relied almost entirely on external financing to fund our
      operations, including the expansion into VoIP. Such financing has historically
      come from a combination of borrowings from, and sale of capital stock to, third
      parties. Although our recent private placement has provided us with funds to
      operate for the next twelve months, we may in the future need to raise
      additional capital to fund anticipated operating expenses and
      future




41




expansion.
      We anticipate receiving funds from the exercise of the Warrants by the Selling
      Stockholders, however, if for some reason, the Warrants are not exercised,
      we
      may need to curtail expansion plans. Among other things, external financing
      will
      be required to cover our operating costs. The sale of our capital stock to
      raise
      capital may cause dilution to our existing shareholders. Our inability to obtain
      adequate financing will result in the need to curtail business operations.
      Any
      of these events would be materially harmful to our business and may result
      in a
      lower stock price. There can be no assurance that we will be able to obtain
      additional funding when needed, or that such funding, if available, will be
      available on terms we find acceptable. If we cannot obtain additional funds
      when
      needed, we may be forced to curtail or cease our activities, which may result
      in
      the loss of all or a substantial portion of your investment.





WE
      ARE
      DEPENDENT ON THE EFFORTS OF OUR EXECUTIVE OFFICERS AND SENIOR
      MANAGEMENT.





Our
      success depends largely upon the continued services of our executive officers
      and other key personnel. A small number of key management, operating employees
      and consultants manage our telecommunications business. In particular, we rely
      heavily on the services of our CEO, Mr. Ivan Zweig and our Chief Technology
      Expert, Mr. Alex Ponnath. Mr. Ponnath is a consultant, independent contractor
      who has been working with IElement since February, 2000. Our loss of either
      gentlemen or their failure to work effectively as a team could materially
      adversely impact our telecommunications business. Competition for qualified
      executives in the telecommunications and data communication industries is
      intense and there are a limited number of persons with applicable experience.
      In
      addition, the remaining fourteen employees have worked together for several
      years and operate well as a team. Accordingly, the loss of any of our employees
      could effect the overall management of our business.





Effective
      January 18, 2005 we entered into an employment agreement with Ivan Zweig, our
      chairman and chief executive officer. This agreement provides that Mr. Zweig
      may
      discontinue his employment with us after providing us with little notice of
      his
      decision (typically one month). As a result, Mr. Zweig could terminate his
      employment with us at any time without penalty and go to work for one of our
      competitors. We believe that we have offset this risk to some degree by
      maintaining a key person life insurance policy on Ivan Zweig.





BECAUSE
      COMPETITION FOR OUR TARGET EMPLOYEES IS INTENSE, WE MAY NOT BE ABLE TO ATTRACT
      AND RETAIN THE HIGHLY SKILLED EMPLOYEES WE NEED TO SUPPORT OUR PLANNED
      GROWTH.





To
      execute our growth plan, we must attract and retain highly qualified personnel.
      We may need to hire additional personnel in virtually all operational areas,
      including selling and marketing, operations and technical support, programming,
      technology, engineering, customer service and administration. We may not be
      successful in attracting and retaining qualified personnel. We have from time
      to
      time in the past experienced, and we expect to continue to experience in the
      future, difficulty in hiring and retaining highly skilled employees with
      appropriate qualifications. Although competition for highly skilled and
      competent employees is a risk faced by all businesses and by our competitors,
      many of our competitors have greater resources than we do and therefore can
      offer more attractive compensation packages.


42




IF
      WE
      ACQUIRE ANY COMPANIES OR TECHNOLOGIES IN THE FUTURE, SUCH COMPANIES AND
      TECHNOLOGIES COULD PROVE DIFFICULT TO INTEGRATE, DISRUPT OUR BUSINESS, DILUTE
      MANAGEMENT'S TIME AND ATTENTION AND DILUTE STOCKHOLDER VALUE.





We
      intend
      to acquire or make investments in complementary companies, businesses, assets
      and/or technologies in the future. We have not made any acquisitions or
      investments to date, and therefore, our ability to make acquisitions or
      investments is unproven. Moreover, we have not currently entered into any
      material definitive agreements for acquisitions, although we have engaged in
      preliminary and informal discussions. Acquisitions and investments involve
      numerous risks, including:





o
      inability to generate sufficient revenue or growth in revenue


or
      to
      offset acquisition or investment costs;


o
      difficulties in integrating operations, technologies, service


and
      personnel;


o
      diversion of financial and management resources from existing


operations;


o
      risk of
      entering new markets; and


o
      potential loss of key employees;


o
      difficulties integrating the operations and personnel of


acquired
      companies;


o
      the
      additional financial resources required to fund the


operations
      of acquired companies;


o
      the
      potential disruption of our business;


o
      our
      ability to maximize our financial and strategic position


by
      the
      incorporation of acquired technology or businesses with


our
      product and service offerings;


o
      the
      difficulty of maintaining uniform standards, controls,


procedures
      and policies;


o
      the
      potential loss of key employees of acquired companies;


o
      the
      impairment of employee and customer relationships as a


result
      of
      changes in management; and o significant


expenditures
      to consummate acquisitions.





Acquisitions
      could also require us to record substantial amounts of goodwill and other
      intangible assets. Any future impairment of such goodwill along with the
      amortization of other intangible assets, would adversely affect our operating
      results. In addition, if we finance acquisitions by issuing convertible debt
      or
      equity securities our existing stockholders may be diluted, which could affect
      the market price of our stock. If we finance such acquisitions with bank debt
      or
      high yield debt, these arrangements would likely impose substantial operating
      covenants on us and result in interest expense that could adversely affect
      our
      business and operating results.


43




As
      a part
      of our acquisition strategy, we may engage in discussions with various
      businesses respecting the potential acquisition. In connection with these
      discussions, we and each potential acquired business may exchange confidential
      operational and financial information, conduct due diligence inquiries, and
      consider the structure, terms and conditions of the potential acquisition.
      In
      certain cases, the prospective acquired business may agree not to discuss a
      potential acquisition with any other party for a specific period of time, may
      grant us certain rights in the event the acquisition is not completed, and
      may
      agree to take other actions designed to enhance the possibility of the
      acquisition. Potential acquisition discussions may take place over a long period
      of time, may involve difficult business integration and other issues, and may
      require solutions for numerous family relationship, management succession and
      related matters.





As
      a
      result of these and other factors, potential acquisitions that from time to
      time
      appear likely to occur may not result in binding legal agreements and may not
      be
      consummated. Our acquisition agreements may contain purchase price adjustments,
      rights of set-off and other remedies in the event that certain unforeseen
      liabilities or issues arise in connection with an acquisition. These remedies,
      however, may not be sufficient to compensate us in the event that any unforeseen
      liabilities or other issues arise.








OUR
      GROWTH COULD STRAIN OUR PERSONNEL AND INFRASTRUCTURE RESOURCES, AND IF WE ARE
      UNABLE TO IMPLEMENT APPROPRIATE CONTROLS AND PROCEDURES TO MANAGE OUR GROWTH,
      WE
      MAY NOT BE ABLE TO SUCCESSFULLY IMPLEMENT OUR BUSINESS PLAN.





As
      we
      implement our business plan, we may experience a period of rapid growth in
      our
      employee roster and operations, which may place a significant strain on our
      management, administrative, operational and financial
      infrastructure.





Our
      success will depend in part upon the ability of our senior management to manage
      this growth effectively, including attracting additional skilled personnel.
      If
      our new hires perform poorly, if we are unsuccessful in hiring, training,
      managing and integrating these new employees, or if we are not successful in
      retaining our existing employees, our business will likely be harmed. To manage
      the expected growth of our operations and personnel, we will need to continually
      improve our operational, financial and management controls and our reporting
      systems and procedures. The additional headcount and capital investments we
      are
      adding will increase our cost base, which will make it more difficult for us
      to
      offset any future revenue shortfalls by offsetting expense reductions in the
      short term. If we fail to successfully manage our growth, we will be unable
      to
      execute our business plan.


44




THE
      MARKET IN WHICH WE PARTICIPATE IS INTENSELY COMPETITIVE, AND IF WE DO NOT
      COMPETE EFFECTIVELY, OUR OPERATING RESULTS, STOCKHOLDER VALUE AND PLANNED GROWTH
      WILL SUFFER.





The
      market for telecommunications solutions, including local, long distance, data
      and Internet products and services, is intensely competitive and rapidly
      changing. Barriers to entry into this market have increased due to regulatory
      changes and increased costs of doing business with the Incumbent Local Exchange
      Carriers (ILECs), but these barriers have been offset by reductions in costs
      for
      bandwidth and the subsequent development of Voice over Internet Protocol (VoIP),
      which has allowed new competition to arise in the telephone services arena.
      Many
      of our competitors are larger and have more resources than we do. With the
      introduction of new technologies and market entrants, we expect competition
      to
      intensify in the future.





Many
      of
      our current and potential competitors enjoy substantial competitive advantages,
      such as greater name recognition, longer operating histories, larger research,
      development and marketing budgets as well as substantially greater financial,
      technical and other resources. In addition, many of our current and potential
      competitors have access to larger customer bases and have more extensive
      marketing and distribution arrangements with resellers, distributors and OEMs
      than we do. As a result, our competitors may be able to respond more quickly
      and
      effectively than we can to new or changing opportunities, technologies,
      standards or customer requirements. Furthermore, because of these advantages,
      even if we develop products that are more effective than the products that
      our
      competitors offer, potential customers might accept competitive products in
      lieu
      of purchasing our products or services.





We
      face
      competition from businesses that develop their own VoIP and other Internet
      based
      telecommunications services, as well as from ILECs who have achieved regulatory
      relief from the Telecommunications Act of 1996, and have begun to charge more
      for wholesale prices and in some cases eliminated the wholesale opportunity
      based on the size of the market. Our current and potential principal competitors
      include:





o
      Other
      Competitive Local Exchange (CLECs) provider who provide


many
      of
      the same telecommunications products and services that


we
      do.





Some
      examples of CLECs are : XO Communications, Xspedius, Logix Communications and
      McLeod Telecom; ILECs such as SBC Communications, Verizon, Qwest and Bell South
      who are the largest provider of local, long distance and Internet services
      to
      businesses;





o
      VoIP
      providers such as Vonage, Covad and mPower who can


deliver
      local and long distance services over an Internet


connection.


45




WE
      MAY
      BECOME INVOLVED IN LITIGATION, WHICH COULD BE COSTLY AND TIME CONSUMING TO
      DEFEND.





We
      may
      become involved in litigation such as securities class actions, intellectual
      property, employment (unfair hiring or terminations) and/or issues pertaining
      to
      delivering E911 services, among others. For example, we may be subject to
      lawsuits by parties claiming that we did not offer E911 services that are
      required by law at increasingly higher standards. Parties trying to call 911
      from locations that we service may not be able to complete the call based on
      the
      fact that a T1 is a digital service and that emergencies such as fires, power
      outages, or simple equipment failure could disable the ability of a person
      to
      dial out over our local lines. Any of these parties could potentially claim
      that
      we are interfering with the lawful conduct of their business. Although we
      believe we have properly informed our customers, given them information on
      backup E911 procedures, as well as paying for backup lines to be installed,
      risk
      of litigation cannot be entirely eliminated. Litigation involves costs in
      defending the action and the risk of an adverse judgment.





On
      February 14, 2006 we settled the breach of contract litigation against
      Communications Plus, Inc., a California company d/b/a Global Communications,
      ("Global") for a total settlement amount of $27,000 payable in periodic payments
      beginning on February 14, 2006 and ending December 1, 2006.





On
      April
      19, 2005 KK Solutions, Inc., a California corporation d/b/a Three 18, Inc.
      ("KK"), filed a complaint against us and CEO Ivan Zweig, individually, in the
      Superior Court of the State of California, County of Los Angeles, alleging
      breach of contract pursuant to a dispute regarding sales commissions due to
      KK.
      On May 2, 2006 we settled the litigation for a total settlement amount of
      $26,500 which has been paid in full.





THE
      FAILURE OF OUR CUSTOMERS TO PAY THEIR BILLS ON A TIMELY BASIS COULD ADVERSELY
      AFFECT OUR CASH FLOW.





Our
      target customers consist of residences and small businesses. We anticipate
      having to bill and collect numerous relatively small customer accounts. We
      may
      experience difficulty in collecting amounts due on a timely basis. Although
      we
      will have the ability to discontinue services for untimely payments some
      customers may have moved or may not desire continued services, in which case
      collection could be very difficult. Our failure to collect accounts receivable
      owed to us by our customers on a timely basis could have a material adverse
      effect on our business, financial condition, results of operations and cash
      flow.





As
          of
          March 31 ,
          2006,
          our gross accounts receivable totaled $514,762 .
          We have
          set aside an allowance of $12,165 against that balance for uncollectible
          accounts. The net amount we expect to receive is $502,597 .
          As a
          telecommunications provider, we bill for our services up front, so therefore
          we
          have significant leverage to collect on our Accounts Receivable because,
          with
          proper dunning, we can discontinue our customers' telephone and internet
          services if they do not pay their bill.
  46








WE
      MAY BE
      UNABLE TO ADAPT TO RAPID TECHNOLOGY TRENDS AND EVOLVING INDUSTRY
      STANDARDS.





The
      communications industry is subject to rapid and significant changes due to
      technology innovation, evolving industry standards, and frequent new service
      and
      product introductions. New services and products based on new technologies
      or
      new industry standards expose us to risks of technical or product obsolescence.
      We will need to use technologies effectively, continue to develop our technical
      expertise and enhance our existing products and services in a timely manner
      to
      compete successfully in this industry. We may not be successful in using new
      technologies effectively, developing new products or enhancing existing products
      and services in a timely manner in order to compete. In particular, it was
      and
      will continue to be a costly process to upgrade our networks to accommodate
      VoIP
      traffic. If a more advanced technology is developed and implemented in the
      telecommunications industry we may not be able to adapt or adapt quickly enough
      to effectively compete.





THE
      TELECOMMUNICATIONS INDUSTRY IS HIGHLY REGULATED AND AMENDMENTS TO OR REPEALS
      OF
      EXISTING REGULATIONS OR THE ADOPTION OF NEW REGULATIONS COULD ADVERSELY AFFECT
      OUR BUSINESS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS.





Federal,
      state and local regulation may affect our telecommunications business. Since
      regulation of the telecommunications industry in general, and the CLEC industry
      in particular, is frequently changing, we cannot predict whether, when and
      to
      what extent new regulations will affect us. The following factors, among others,
      may adversely affect our business, financial condition and results of
      operations:





o
      delays
      in obtaining required regulatory approvals;


o
      new
      court decisions;


o
      the
      enactment of new adverse regulations; and


o
      the
      establishment of strict regulatory requirements.








INDUSTRY
      CONSOLIDATION COULD MAKE IT MORE DIFFICULT TO COMPETE.





Companies
      offering Internet, data and communications services are, in some circumstances,
      consolidating. We may not be able to compete successfully with businesses that
      have combined, or will combine, to produce companies with substantially greater
      financial, sales and marketing resources, larger client bases, extended networks
      and infra-structures and more established relationships with vendors,
      distributors and partners than we have.


47




**RISKS
      RELATED TO OUR STOCK**





WE
      HAVE
      NOT PAID DIVIDENDS TO OUR STOCKHOLDERS.





We
      have
      never paid, nor do we anticipate paying, any cash dividends on our common stock.
      Future debt, equity instruments or securities may impose additional restrictions
      on our ability to pay cash dividends. Individuals who purchase our common stock
      from the Selling Shareholders will not receive income on such investment from
      the Company paying dividends. Any potential profit on the investment will be
      the
      result of an increased stock price, and the ability of an investor to sell
      the
      stock at such an increased price.





THE
      MARKET PRICE OF OUR COMMON STOCK IS LIKELY TO BE HIGHLY VOLATILE AND SUBJECT
      TO
      WIDE FLUCTUATIONS.





The
      market price of our common stock is likely to be highly volatile and could
      be
      subject to wide fluctuations in response to a number of factors that are beyond
      our control, including:





o
      announcements of new products or services by our competitors;


o
      fluctuations in revenue from our indirect sales channels.





In
      addition, the market price of our common stock could be subject to wide
      fluctuations in response to:





o
      quarterly variations in our revenues and operating expenses;


o
      announcements of technological innovations or new products or


services
      by us; and


o
      our
      technological capabilities to accommodate the future


growth
      in
      our operations or those of our customers.





In
      addition, the stock market has experienced significant price and volume
      fluctuations that have particularly affected the market price of the stock
      of
      many Internet-related companies, and that often have been unrelated or
      disproportionate to the operating performance of these companies. Market
      fluctuations such as these may seriously harm the market price of our common
      stock. Further, securities class action suits have been filed against companies
      following periods of market volatility in the price of their securities. If
      such
      an action is instituted against us, we may incur substantial costs and a
      diversion of management attention and resources, which would seriously harm
      our
      business, financial condition and results of operations.


48




DISAPPOINTING
      QUARTERLY REVENUE OR OPERATING RESULTS COULD CAUSE THE PRICE OF OUR COMMON
      STOCK
      TO FALL.





Our
      quarterly revenue and operating results are difficult to predict and may
      fluctuate significantly from quarter to quarter. If our quarterly revenue or
      operating results fall below the expectations of investors or security analysts,
      the price of our common stock could fall substantially. Our quarterly revenue
      and operating results may fluctuate as a result of a variety of factors, many
      of
      which are outside our control, including:





o
      the
      amount and timing of expenditures relating to the rollout


of
      our
      POTS and VoIP service offerings;


o
      our
      ability to obtain, and the timing of, necessary regulatory


approvals;


o
      the
      rate at which we are able to attract customers within our


target
      markets and our ability to retain these customers at


sufficient
      aggregate revenue levels;


o
      our
      ability to deploy our network on a timely basis;


o
      the
      availability of financing to continue our expansion;


o
      technical difficulties or network downtime; and


o
      the
      introduction of new services or technologies by our


competitors
      and resulting pressures on the pricing of our


service.





FUTURE
      SALES BY OUR STOCKHOLDERS MAY HAVE THE AFFECT OF LOWERING OUR STOCK
      PRICE.





Sales
      of
      our common stock in the public market following this offering could lower the
      market price of our common stock. Sales may also make it more difficult for
      us
      to sell equity securities or equity-related securities in the future at a time
      and price that our management deems acceptable or at all. We are registering
      for
      resale in the recently filed SB-2 more than 100% of the current public float,
      and accordingly, the number of shares trading in the open market will increase
      by over 100%. This large increase in available common stock may have a
      depressive effect on our stock price.





OUR
      COMMON STOCK HAS BEEN RELATIVELY THINLY TRADED AND WE CANNOT PREDICT THE EXTENT
      TO WHICH A TRADING MARKET MAY DEVELOP. ACCORDINGLY INVESTORS MAY HAVE DIFFICULTY
      SELLING THEIR SHARES DUE TO THE LACK OF AN ACTIVE AND LIQUID PUBLIC MARKET
      FOR
      OUR SHARES.





Our
      common stock has traded on the Over-the-Counter Bulletin Board. Thinly traded
      common stock is typically significantly more volatile than common stock trading
      in an active public market.




49




The
      market price of our common stock is likely to be highly volatile as the stock
      market in general, and the market for small cap and micro cap technology
      companies in particular, has been highly volatile. Investors may not be able
      to
      resell their shares of our common stock following periods of volatility because
      of the market's adverse reaction to volatility. We cannot assure you that our
      common stock will trade at the same levels of our stocks in our industry or
      that
      our industry stocks in general will sustain their current market prices. Factors
      that could cause such volatility may include, among other things:





o
      actual
      or anticipated fluctuations in our quarterly operating


results


o
      large
      purchases or sales or our common stock


o
      announcements of technological innovations


o
      changes
      in financial estimates by securities analysts


o
      investor perception of our business prospects


o
      conditions or trends in the telecommunications industry


o
      changes
      in the market valuations of other industry-related


companies


o
      the
      acceptance of market makers and institutional investors of


our
      business model and our common stock; and


o
      worldwide economic or financial conditions.





INVESTORS
      IN OUR SECURITIES MAY SUFFER DILUTION. THE SELLING STOCKHOLDERS DELINEATED
      IN
      OUR RECENTLY FILED SB-2 INTEND TO SELL THEIR SHARES OF COMMON STOCK IN THE
      MARKET, WHICH SALES MAY CAUSE OUR STOCK PRICE TO DECLINE.





The
      issuance of shares of our common stock, or shares of our common stock underlying
      warrants, options or preferred stock will dilute the equity interest of existing
      stockholders who do not have anti-dilution rights and could have a significant
      adverse effect on the market price of our common stock. The sale of our common
      stock acquired at a discount could have a negative impact on the market price
      of
      our common stock and could increase the volatility in the market price of our
      common stock. In addition, we may seek additional financing which may result
      in
      the issuance of additional shares of our common stock and/or rights to acquire
      additional shares of our common stock. The issuance of our common stock in
      connection with such financing may result in substantial dilution to the
      existing holders of our common stock who do not have anti-dilution rights.
      Those
      additional issuances of our common stock would result in a reduction of an
      existing holder's percentage interest in our company.





The
      Selling Stockholders delineated in our recently filed SB-2 intend to sell in
      the
      public market the shares of common stock being registered in this offering.
      To
      the extent the Selling Stockholders acquired their shares or warrants at prices
      less than the current trading price of our common stock, they may have an
      incentive to immediately resell such shares in the market which may, in turn,
      cause the trading price of our common stock to decline. Significant downward
      pressure on our stock price caused by the sale of stock registered in this
      offering could encourage short sales by third parties that would place further
      downward pressure on our stock price.





50




OUR
      COMMON STOCK IS DEEMED TO BE "PENNY STOCK," WHICH MAY MAKE IT MORE DIFFICULT
      FOR
      INVESTORS TO RESELL THEIR SHARES DUE TO SUITABILITY REQUIREMENTS.





Our
      common stock is deemed to be "penny stock" as that term is defined in Rule
      3a51-1 promulgated under the Securities Exchange Act of 1934. Penny stocks
      are
      stocks:





o
      With a
      price of less than $5.00 per share;


o
      That
      are not traded on a "recognized" national exchange;


o
      Whose
      prices are not quoted on the NASDAQ automated quotation


system
      (NASDAQ listed stock must have a price of not less than


$5.00
      per
      share); or


o
      In
      issuers with net tangible assets less than $2.0 million (if


the
      issuer has been in continuous operation for at least three


years)
      or
      $5.0 million (if in continuous operation for less


than
      three years), or with average revenues of less than $6.0


million
      for the last three years.





Broker-dealers
      dealing in penny stocks are required to provide potential investors with a
      document disclosing the risks of penny stocks. Moreover, broker-dealers are
      required to determine whether an investment in a penny stock is a suitable
      investment for a prospective investor. These requirements may reduce the
      potential market for our common stock by reducing the number of potential
      investors. This may make it more difficult for investors in our common stock
      to
      sell shares to third parties or to otherwise dispose of them. This could cause
      our stock price to decline.





IF
      WE
      FAIL TO MAINTAIN AN EFFECTIVE SYSTEM OF INTERNAL CONTROLS, WE MAY NOT BE ABLE
      TO
      ACCURATELY REPORT OUR FINANCIAL RESULTS. AS A RESULT, CURRENT AND POTENTIAL
      STOCKHOLDERS COULD LOSE CONFIDENCE IN OUR FINANCIAL REPORTING, WHICH COULD
      HARM
      OUR BUSINESS AND THE TRADING PRICE OF OUR COMMON STOCK.





We
      are
      subject to reporting obligations under the U.S. securities laws. The Securities
      and Exchange Commission, or the SEC, as required by Section 404 of the
      Sarbanes-Oxley Act of 2002, adopted rules requiring every public company to
      include a management report on such company's internal controls over financial
      reporting in its annual report, which contains management's assessment of the
      effectiveness of the company's internal controls over financial reporting.
      In
      addition, an independent registered public accounting firm must attest to and
      report on management's assessment of the effectiveness of the company's internal
      controls over financial reporting. These requirements may first apply to our
      annual report on Form 10-K for the fiscal year ending March 31, 2008. Our
      management may conclude that our internal controls over our financial reporting
      are not effective. Moreover, even if our management concludes that our internal
      controls over financial reporting are effective, our independent registered
      public accounting firm may still decline to attest to our management's
      assessment or may issue a report that is qualified if they are not satisfied
      with our controls or the level at which our controls are documented, designed,
      operated or reviewed, or if it interprets the relevant requirements differently
      from us. Our reporting obligations as a public company will place a significant
      strain on our management, operational and financial resources and systems for
      the foreseeable future. We are a young company with limited accounting personnel
      and other resources with which to address our internal controls and procedures.
      If we fail to timely achieve and maintain the adequacy of our internal controls,
      we may not be able to conclude that we have effective internal controls over
      financial reporting at a reasonable assurance level. Moreover, effective
      internal controls over financial reporting are necessary for us to produce
      reliable financial reports and are important to help prevent fraud. As a result,
      our failure to achieve and maintain effective internal controls over financial
      reporting could result in the loss of investor confidence in the reliability
      of
      our financial statements, which in turn could harm our business and negatively
      impact the trading price of our common stock. Furthermore, we anticipate that
      we
      will incur considerable costs and use significant management time and other
      resources in an effort to comply with Section 404 and other requirements of
      the
      Sarbanes-Oxley Act.




OUR
          INTERNAL CONTROLS AND PROCEDURES HAVE PREVIOUSLY BEEN INSUFFICIENT TO ENSURE
          TIMELY AND ACCURATE REPORTING OF OUR FINANCIAL STATEMENTS AND OTHER REQUIRED
          FILINGS.
 
 On
          July
          14, 2006 our auditors identified a material weakness in our internal controls
          and procedures that resulted in the misstatement of our financial results.
          This
          material weakness began in March of 2003 and was the result of an ineffective
          segregation of duties and inadequate monitoring over financial reporting.
          One
          person, our controller, performed all of the significant accounting
          tasks, which impacted our ability to accurately report the recapitalization
          of ICCC in March 2003. Upon review of this transcation on July 14, 2006,
          a
          restatement was filed to correct the reporting of this transcation by removing
          those adjustments related to fair value and goodwill.
 
 Since
          the
          material weakness originated in March 2003, we have hired two additional
          accountants to segregate the duties of the accounting staff  and named a
          CFO, Ivan Zweig, who now monitors all financial reporting. In addition,
          we have
          since implemented a policy to have the full Board of Directors review both
          our
          quarterly and annual financial statements before filing.
 
 Our
          internal accounting team now has both the personnel and the experience
          to
          recognize and record significant transactions according to GAAP and we
          have
          implemented a full review of all financial information by our Board of
          Directors
          as well as certification by our CFO.  Management and the Board of Directors
          believe that the above remedies remediate this material
          weakness.
  51





**ITEM
      7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**








IELEMENT
      CORPORATION AND SUBSIDIARY


(FORMERLY
      MAILKEY CORPORATION)


CONSOLIDATED
      FINANCIAL STATEMENTS


FOR
      THE
      YEARS ENDED MARCH 31, 2006 AND DECEMBER 31, 2004 AND 2003


AND


FOR
      THE
      THREE MONTHS ENDED MARCH 31, 2005 AND 2004







IELEMENT CORPORATION AND SUBSIDIARY
                         (FORMERLY MAILKEY CORPORATION)
                        CONSOLIDATED FINANCIAL STATEMENTS
        FOR THE YEARS ENDED MARCH 31, 2006 AND DECEMBER 31, 2004 AND 2003
                                       AND
               FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004




                                TABLE OF CONTENTS




Consolidated Audited Financial Statements:
                                                                         PAGE(S)
                                                                         -------

Report of Independent Registered Public Accounting Firm                    F-1

Consolidated Balance Sheet as of March 31, 2006                            F-2

Consolidated Statements of Operations for the Years Ended
  March 31, 2006 and December 31, 2004 and 2003 and the
  Three Months Ended March 31, 2005 and 2004                               F-3

Consolidated Statement of Changes in Stockholders' (Deficit)
  for the Years Ended March 31, 2006 and December 31, 2004 and
  2003 And the Three Months Ended March 31, 2005                         F-4-6

Consolidated Statements of Cash Flows for the Years Ended
  March 31, 2006 and December 31, 2004 and 2003 and the
  Three Months Ended March 31, 2005 and 2004                             F-7-8

Notes to Consolidated Financial Statements                              F-9-30







**BAGELL,
      JOSEPHS, LEVINE & COMPANY, L.L.C.**


**Certified
      Public Accountants**


High
      Ridge Commons


Suites
      400-403


200
      Haddonfield Berlin Road


Gibbsboro,
      New Jersey 08026


(856)
      346-2828 Fax (856) 346-2882







**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





IElement
      Corporation and Subsidiary


Dallas,
      Texas





We
      have
      audited the accompanying consolidated balance sheet of IElement Corporation
      and
      Subsidiary (the "Company") as of March 31, 2006 and the related statements
      of
      operations and cash flows for the years ended March 31, 2006, December 31,
      2004
      and 2003 and the three months ended March 31, 2005 and the related statement
      of
      stockholders' equity (deficit) for the years ended March 31, 2006 and December
      31, 2004 and 2003 and the three months ended March 31, 2005. 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 standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audits 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 consolidated financial statements. An audit also includes
      assessing the accounting principles used and significant estimates made by
      management, as well as evaluating the overall consolidated 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 IElement Corporation and
      Subsidiary as of March 31, 2006 and the results of its operations and cash
      flows
      and changes of stockholders' equity(deficit) for the years ended March 31,
      2006
      and December 31, 2004 and 2003 and three months ended March 31, 2005 in
      conformity with accounting principles generally accepted in the United States
      of
      America.





The
      accompanying consolidated financial statements for the years ended March 31,
      2006 and December 31, 2004 and 2003 and the three months ended March 31, 2005
      have been prepared assuming that the Company will continue as a going concern.
      As discussed in Note 8 to the consolidated financial statements, the Company
      has
      sustained operating losses and capital deficits that raise substantial doubt
      about its ability to continue as a going concern. Management's plans in regard
      to these matters are also described in Note 8. The consolidated financial
      statements do not include any adjustments that might result from the outcome
      of
      these uncertainties.





As
          discussed in note 1 to the financial statements, the accompanying financial
          statements have been restated.


/s/
      BAGELL, JOSEPHS LEVINE & COMPANY, L.L.C.


BAGELL,
      JOSEPHS LEVINE & COMPANY, L.L.C.


Certified
      Public Accountants


Gibbsboro,
      New Jersey








June
          28 ,
          2006


MEMBER
      OF: AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS


NEW
      JERSEY SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS


PENNSYLVANIA
      INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS




F-1




IELEMENT CORPORATION AND SUBSIDIARY
                          (FORMERLY MAILKEY CORPORATION)
                       CONSOLIDATED BALANCE SHEET (RESTATED)
                                  MARCH 31, 2006


                                                                       RESTATED
                                      ASSETS
                                                                       MARCH 31,
                                                                         2006
                                                                      -----------
CURRENT ASSETS:
  Cash and cash equivalents                                           $   719,450
  Accounts receivable, net                                                502,597
  Other current assets                                                        109
                                                                      -----------

          TOTAL CURRENT ASSETS                                          1,222,156
                                                                      -----------

  Fixed assets, net of depreciation                                       709,172
                                                                      -----------

OTHER ASSETS:
  Deposits                                                                118,487
                                                                      -----------

          TOTAL OTHER ASSETS                                              118,487
                                                                      -----------

TOTAL ASSETS                                                          $ 2,049,815
                                                                      ===========

                  LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)


CURRENT LIABILITIES:
  Current portion - notes payable                                     $   168,899
  Lines of credit payable                                                   6,027
  Accounts payable and accrued expenses                                 1,199,914
  Customer deposits                                                       136,220
  Receivable financing payable                                            399,251
  Commissions payable                                                      14,364
  Deferred revenue                                                        676,759
                                                                      -----------

          TOTAL CURRENT LIABILITIES                                     2,601,434
                                                                      -----------

LONG-TERM LIABILITIES:
  Notes payable, net of current portion                                   465,785
                                                                      -----------

          TOTAL LONG-TERM LIABILITIES                                     465,785
                                                                      -----------

      TOTAL LIABILITIES                                                 3,067,219
                                                                      -----------

STOCKHOLDERS' EQUITY (DEFICIT)
  Preferred stock, $.001 Par Value, 200,000,000 shares authorized;
    -0- shares issued and outstanding at March 31, 2006                        --
  Common stock, $.001 Par Value, 2,000,000,000 shares
  159,035,031 shares issued and outstanding
    at March 31, 2006                                                     159,035
  Additional paid-in capital                                            1,061,413
  Additional paid-in capital- warrants                                    177,757
  Unearned compensation expense                                           (12,200)
  Accumulated deficit                                                  (2,403,410)
                                                                      -----------

      TOTAL STOCKHOLDERS' EQUITY (DEFICIT)                             (1,017,404)
                                                                      -----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                  $ 2,049,815
                                                                      ===========


The accompanying notes are an integral part of these consolidated financial statements.


F-2


IELEMENT CORPORATION AND SUBSIDIARY
                                              (FORMERLY MAILKEY CORPORATION)
                                     CONSOLIDATED STATEMENTS OF OPERATIONS (RESTATED)
                             FOR THE YEARS ENDED MARCH 31, 2006 AND DECEMBER 31, 2004 AND 2003
                                  AND FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004


                                             RESTATED        RESTATED         RESTATED       RESTATED         RESTATED

                                                                   YEARS ENDED                     THREE MONTHS ENDED
                                                            -----------------------------     ---------------------------
                                              MARCH 31,     DECEMBER 31,     DECEMBER 31,     MARCH 31,       MARCH 31,
                                                2006            2004            2003            2005            2004
                                              (AUDITED)       (AUDITED)       (AUDITED)       (AUDITED)      (UNAUDITED)
                                            -------------   -------------   -------------   -------------   -------------

OPERATING REVENUE:
   Service income                           $   4,550,092   $   5,954,772   $   4,552,436   $   1,228,411   $   1,530,427

OPERATING EXPENSES
   Cost of sales (excluding depreciation
     of $187,197, $174,740 and $106,577
     for the years ended March 31, 2006,
     December 31, 2004 and December 31, 2003,
     respectively, and $45,670 and $40,470 for
     the three months ended March 31, 2005
     and March 31, 2004, respectively)          2,838,021       3,042,978       2,716,680         736,275         819,756
   General and administrative                   2,335,195       2,033,764       1,116,810         687,928         458,311
   Selling expenses                               416,426         519,600         518,425         116,263         109,240
   Depreciation & amortization                    279,398         260,806         159,070          68,164          60,403
   Interest expense                                   534         138,576         122,100           6,992          31,354
   Receivable factoring fees                      106,602         129,021         118,504          29,874          33,085
                                            -------------   -------------   -------------   -------------   -------------

       TOTAL OPERATING EXPENSES                 5,976,176       6,124,745       4,751,589       1,645,496       1,512,149
                                            -------------   -------------   -------------   -------------   -------------

INCOME (LOSS) BEFORE OTHER (EXPENSE)           (1,426,084)       (169,973)       (199,153)       (417,085)         18,278
                                            -------------   -------------   -------------   -------------   -------------

OTHER (EXPENSE)
   Loss on sale of investments                         --        (125,068)        (65,903)             --         (86,558)
                                            -------------   -------------   -------------   -------------   -------------

       TOTAL OTHER EXPENSES                            --        (125,068)        (65,903)             --         (86,558)
                                            -------------   -------------   -------------   -------------   -------------

NET LOSS BEFORE PROVISION FOR INCOME TAXES     (1,426,084)       (295,041)       (265,056)       (417,085)        (68,280)

PROVISION FOR INCOME TAXES                             --              --              --              --              --
                                            -------------   -------------   -------------   -------------   -------------

NET LOSS APPLICABLE TO COMMON SHARES        $  (1,426,084)  $    (295,041)  $    (265,056)  $    (417,085)  $     (68,280)
                                            =============   =============   =============   =============   =============

NET LOSS PER BASIC AND DILUTED SHARES       $       (0.01)  $       (0.02)  $       (0.02)  $       (0.01)  $       (0.00)
                                            =============   =============   =============   =============   =============

WEIGHTED AVERAGE NUMBER OF COMMON
    SHARES OUTSTANDING                        105,125,992      14,913,483      12,167,110      56,697,484      14,525,433
                                            =============   =============   =============   =============   =============


                  The accompanying notes are an integral part of these consolidated F-3


``

`IELEMENT CORPORATION AND SUBSIDIARY
                                                  (FORMERLY MAILKEY CORPORATION)
                         CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' (DEFICIT) - AUDITED (RESTATED)
                                     FOR THE YEARS ENDED MARCH 31, 2006 AND DECEMBER 31, 2004
                                           AND FOR THE THREE MONTHS ENDED MARCH 31, 2005

                                         RESTATED     RESTATED     RESTATED      RESTATED     RESTATED      RESTATED
                                                                               ADDITIONAL
                                                                   ADDITIONAL   PAID - IN                   UNEARNED
                                              COMMON STOCK         PAID - IN     CAPITAL-    ACCUMULATED   COMPENSATION
                                          SHARES       AMOUNT       CAPITAL      WARRANTS      DEFICIT       EXPENSE        TOTAL
                                        -----------  -----------  -----------   -----------  -----------   -----------  -----------

Balance, December 31, 2003,
  as originally stated                            4  $        --  $        --   $        --  $  (265,056)  $        --  $  (265,056)

Issuance of common stock in exchange
  for redemption of shares of
  Integrated Communications
  Consultants Corporation
  ("ICCC") - recapitalization            14,369,364       14,369      (14,369)           --           --            --           --

Excess liabilities assumed
  from recapitalization of ICCC                  --           --   (2,079,665)           --           --            --   (2,079,665)

Issuance of common stock as 1%
  premium for redemption of
  ICCC shares                               143,687          144           --            --         (144)           --           --

Balance, December 31, 2003, (Restated)   14,513,055       14,513   (2,094,034)           --     (265,200)           --   (2,344,721)
                                        -----------  -----------  -----------   -----------  -----------   -----------  -----------


Shares of common stock issued in
  exercise of options                       26,400           26           49            --           --            --           75

Accounts payable converted to
  common stock                              35,200           35        4,965            --           --            --        5,000

Issuance of common stock in
  conversion of notes payable              423,209          423      247,577            --           --            --      248,000

Shares issued for cash                     206,391          206      119,094            --           --            --      119,300

Net loss for the period                         --           --           --            --     (295,041)           --     (295,041)
                                       -----------  -----------  -----------   -----------  -----------   -----------  -----------

Balance, December 31, 2004, (Restated)  15,204,255       15,203   (1,722,349)           --     (560,241)           --   (2,267,387)
                                       -----------  -----------  -----------   -----------  -----------   -----------  -----------


Shares of common stock issued in
  exercise of options                   16,115,345       16,115       29,667            --           --            --       45,782

Issuance of common stock in
  conversion of notes payable           16,526,236       16,527      809,785            --           --            --      826,312

Effects of reverse merger               34,726,355       34,726     (511,014)           --           --            --     (476,288)

Issuance of shares at $0.025 per
  share for services                     7,487,587        7,488      179,701            --           --            --      187,189

Issuance of shares at $0.025 per share
  in conversion of accounts payable        693,280          693       16,639            --           --            --       17,332

Issuance of shares at $0.025 per share
  in conversion of debt to equity        1,030,672        1,031       24,735            --           --            --       25,766

Net loss for the year ended
  March 31, 2005                                --           --           --            --     (417,085)           --     (417,085)
                                       -----------  -----------  -----------   -----------  -----------   -----------  -----------

Balance March 31, 2005 (Restated)       91,783,730  $    91,783  $(1,172,836)  $        --  $  (977,326)  $        --  $(2,058,379)
                                       ===========  ===========  ===========   ===========  ===========   ===========  ===========



                       The accompanying notes are an integral part of the consolidated financial statements.`

F-4


IELEMENT CORPORATION AND SUBSIDIARY
                                                   (FORMERLY MAILKEY CORPORATION)
                    CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' (DEFICIT) - AUDITED (RESTATED) (CONTINUED)
                                      FOR THE YEARS ENDED MARCH 31, 2006 AND DECEMBER 31, 2004
                                            AND FOR THE THREE MONTHS ENDED MARCH 31, 2005


                                                          RESTATED        RESTATED        RESTATED        RESTATED       RESTATED
                                                        ------------    ------------    ------------    ------------   ------------
                                                                                                         ADDITIONAL
                                                                                         ADDITIONAL       PAID - IN
                                                               COMMON STOCK              PAID - IN        CAPITAL-      ACCUMULATED
                                                           SHARES          AMOUNT         CAPITAL         WARRANTS        DEFICIT
                                                        ------------    ------------    ------------    ------------   ------------
Balance, March 31, 2005 (Restated)                        91,783,730    $     91,783    $ (1,172,836)   $          -   $   (977,326)
                                                        ------------    ------------    ------------    ------------   ------------

Issuance of 1,500,000 shares at $0.05 per share
   for services                                            1,500,000           1,500          73,500               -              -

Issuance of 340,000 shares at $0.025 per share
   for conversion of accounts payable                        340,000             340           8,160               -              -

Cancelation of 1,498,195 shares at $0.025 per share
   for services rendered                                  (1,498,195)         (1,498)        (35,957)              -              -

Issuance of 300,000 shares at $0.02 per share
  for services rendered                                      300,000             300           5,700               -              -

Issuance of 175,000 shares at $0.02 per share
   for conversion of accounts payable                        175,000             175           3,325               -              -

Issuance of 250,000 shares at $0.025 per share
   for services rendered                                     250,000             250           5,250               -              -

Issuance of 2,000,000 shares at $0.04 per share
   for services rendered                                   2,000,000           2,000          78,000               -              -

Issuance of 1,596,311 shares at $0.05 per share
   for conversion of accounts payable                      1,596,311           1,597          70,238               -              -

Issuance of 30,219 shares at $0.05 per share
   for conversion of accounts payable                         30,219              30           1,330               -              -

Issuance of 325,000 stock options at $0.01
   for services to be rendered, market price $0.05                 -                          13,000               -              -

Adjust value of 4,109,637 shares by $0.005 per share               -               -         (20,548)              -              -

Cancellation of stock options at $0.01
   for services to be rendered, market price $0.05                 -               -            (800)              -              -

Issuance of 44,875,000 shares at $0.035 per share
  for cash                                                44,875,000          44,875       1,525,750               -              -

Stock issuance costs                                               -               -        (216,563)              -              -

Issuance of warrants                                               -               -        (177,757)        177,757

Issuance of 250,000 shares at $0.035 per share
   for services rendered                                     250,000             250           8,500               -              -

Issuance of 3,380,000 shares
   for conversion of accounts payable                      3,380,000           3,380         140,620               -              -

Issuance of 914,286 shares at $0.035 per share
   for services rendered                                     914,286             914          31,086               -              -

Issuance of 5,870,000 shares
   for services rendered                                   5,870,000           5,870         340,130               -              -

Issuance of 250,000 shares at $0.11 per share
   for services rendered                                     250,000             250          27,250               -              -

Issuance of 168,680 shares at $0.11 per share
   for conversion of accounts payable                        168,680             169          18,385               -              -

Issuance of 4,700,000 shares at $0.05 per share
   for conversion of notes payable                         4,700,000           4,700         230,300               -              -

Issuance of 2,150,000 shares
   for conversion of accounts payable                      2,150,000           2,150         105,350               -              -

Net loss for the year ended March 31, 2006                         -               -               -               -     (1,426,084)
                                                        ------------    ------------    ------------    ------------   ------------

Balance March 31, 2006                                   159,035,031    $    159,035    $  1,061,413    $    177,757   $ (2,403,410)
                                                        ============    ============    ============    ============   ============

                                                                                                            (CONTINUED ON NEXT PAGE)
F-5




(CONTINUED FROM PREVIOUS PAGE)

                                                           RESTATED
                                                         ------------
                                                           UNEARNED
                                                         COMPENSATION
                                                           EXPENSE           TOTAL
                                                         ------------    ------------
Balance, March 31, 2005 (Restated)                       $          -    $ (2,058,379)
                                                         ------------    ------------

Issuance of 1,500,000 shares at $0.05 per share
   for services                                                     -          75,000

Issuance of 340,000 shares at $0.025 per share
   for conversion of accounts payable                               -           8,500

Cancelation of 1,498,195 shares at $0.025 per share
   for services rendered                                            -         (37,455)

Issuance of 300,000 shares at $0.02 per share
  for services rendered                                             -           6,000

Issuance of 175,000 shares at $0.02 per share
   for conversion of accounts payable                               -           3,500

Issuance of 250,000 shares at $0.025 per share
   for services rendered                                            -           5,500

Issuance of 2,000,000 shares at $0.04 per share
   for services rendered                                            -          80,000

Issuance of 1,596,311 shares at $0.05 per share
   for conversion of accounts payable                               -          71,835

Issuance of 30,219 shares at $0.05 per share
   for conversion of accounts payable                               -           1,360

Issuance of 325,000 stock options at $0.01
   for services to be rendered, market price $0.05            (13,000)              0

Adjust value of 4,109,637 shares by $0.005 per share                -         (20,548)

Cancellation of stock options at $0.01
   for services to be rendered, market price $0.05                800               0

Issuance of 44,875,000 shares at $0.035 per share
  for cash                                                          -       1,570,625

Stock issuance costs                                                -         (38,806)

Issuance of warrants                                                         (177,757)

Issuance of 250,000 shares at $0.035 per share
   for services rendered                                            -           8,750

Issuance of 3,380,000 shares
   for conversion of accounts payable                               -         144,000

Issuance of 914,286 shares at $0.035 per share
   for services rendered                                            -          32,000

Issuance of 5,870,000 shares
   for services rendered                                            -         346,000

Issuance of 250,000 shares at $0.11 per share
   for services rendered                                            -          27,500

Issuance of 168,680 shares at $0.11 per share
   for conversion of accounts payable                               -          18,555

Issuance of 4,700,000 shares at $0.05 per share
   for conversion of notes payable                                  -         235,000

Issuance of 2,150,000 shares
   for conversion of accounts payable                               -         107,500

Net loss for the year ended March 31, 2006                          -      (1,426,084)
                                                         ------------    ------------

Balance March 31, 2006                                   $    (12,200)   $ (1,017,404)
                                                         ============    ============


 The accompanying notes are an integral part of the consolidated financial statements.


F-6


IELEMENT CORPORATION AND SUBSIDIARY
                                                 (FORMERLY MAILKEY CORPORATION)
                                        CONSOLIDATED STATEMENTS OF CASH FLOWS (RESTATED)
                                FOR THE YEARS ENDED MARCH 31, 2006 AND DECEMBER 31, 2004 AND 2003
                                     AND FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004

                                                                RESTATED      RESTATED     RESTATED      RESTATED       RESTATED
                                                              -----------   -----------   -----------   -----------   -----------
                                                                                  YEARS ENDED              THREE MONTHS ENDED
                                                               MARCH 31,    DECEMBER 31,  DECEMBER 31,   MARCH 31,     MARCH 31,
                                                                 2006          2004          2003          2005           2004
                                                               (AUDITED)     (AUDITED)     (AUDITED)     (AUDITED)     (UNAUDITED)
                                                              -----------   -----------   -----------   -----------   -----------

CASH FLOWS FROM OPERATING ACTIVITIES
   Net (loss)                                                 $(1,426,084)  $  (295,041)  $  (265,056)  $  (417,085)  $   (68,280)
                                                              -----------   -----------   -----------   -----------   -----------

   ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
     PROVIDED BY (USED IN) OPERATING ACTIVITIES:
     Depreciation and amortization                                279,398       260,806       159,070        68,164        60,403
     Bad debt expense                                              86,800        63,498        52,241         4,821        17,626
     Stock issued for services                                    522,748            --            --       187,189            --
     Loss on disposal of equipment                                     --         2,296            --         1,877            --

  CHANGES IN ASSETS AND LIABILITIES
     (Increase) decrease in accounts receivable                   (68,753)       96,436      (800,180)       62,540       221,720
     (Increase) decrease in other current assets                    1,671        (4,077)         (173)        2,470        (2,471)
     (Increase) decrease in deposits                              (59,494)      (14,517)      (40,006)       10,530           468
     Increase (decrease) in accounts payable                      320,555       154,463    (1,259,056)      294,777       (19,316)
     Increase (decrease) in liability for stock to be issued      (75,000)           --            --            --            --
     Increase (decrease) in accrued interest                        4,872        77,364        56,507            --        17,289
     Increase (decrease) in payroll taxes payable                      --        17,230            --       (17,230)       27,232
     Increase (decrease) in customer deposits                     (27,892)      (35,010)      204,000        (4,878)      (14,819)
     Increase (decrease) in receivable financing payable          (83,863)     (153,082)      657,003       (20,807)     (342,679)
     Increase (decrease) in lines of credit payable                 6,027            --            --            --            --
     Increase (decrease) in commissions payable                  (161,772)       98,994        58,731        18,411        43,786
     Increase (decrease) in refunds payable                            --          (936)        2,015        (1,079)       (1,526)
     Increase (decrease) in deferred revenue                     (138,277)     (262,959)    1,097,935       (19,940)       93,331
                                                              -----------   -----------   -----------   -----------   -----------


     NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES         (819,064)        5,465       (76,969)      169,760        32,764
                                                              -----------   -----------   -----------   -----------   -----------

CASH FLOWS FROM INVESTING ACTIVITIES
     Proceeds from sale of fixed assets                                --         3,451            --         2,800            --
     Acquisition of fixed assets                                  (99,519)     (233,396)     (251,023)       (9,485)     (163,766)
                                                              -----------   -----------   -----------   -----------   -----------

      NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES         (99,519)     (229,945)     (251,023)       (6,685)     (163,766)
                                                              -----------   -----------   -----------   -----------   -----------


                     The accompanying notes are an integral part of these consolidated financial statements F-7




IELEMENT CORPORATION AND SUBSIDIARY
                                    CONSOLIDATED STATEMENTS OF CASH FLOWS (RESTATED) (CONTINUED)
                                                   (FORMERLY MAILKEY CORPORATION)
                                  FOR THE YEARS ENDED MARCH 31, 2006 AND DECEMBER 31, 2004 AND 2003
                                       AND FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004


                                                             RESTATED       RESTATED       RESTATED       RESTATED       RESTATED
                                                            -----------    -----------    -----------    -----------    -----------
                                                                           YEARS ENDED                       THREE MONTHS ENDED
                                                            -----------------------------------------    --------------------------
                                                             MARCH 31,     DECEMBER 31,   DECEMBER 31,    MARCH 31,      MARCH 31,
                                                               2006           2004           2003           2005           2004
                                                             (AUDITED)      (AUDITED)      (AUDITED)      (AUDITED)     (UNAUDITED)
                                                            -----------    -----------    -----------    -----------    -----------
CASH FLOWS FROM FINANCING ACTIVITES
    Payments of notes payable                               $   (56,350)   $  (465,344)   $   (46,193)   $   (32,909)   $   (32,600)
    Proceeds from notes payable                                 625,331        467,054         22,450        100,000
    Common stock issued for cash                              1,570,625        119,300              -              -              -
    Stock issuance costs                                       (216,563)
    Proceeds in exercise of stock options                             -             75              -         39,954              -
                                                            -----------    -----------    -----------    -----------    -----------

       NET CASH PROVIDED BY FINANCING ACTIVITIES              1,297,712        279,362        420,861         29,495         67,400
                                                            -----------    -----------    -----------    -----------    -----------

NET INCREASE (DECREASE) IN CASH
    AND CASH EQUIVALENTS                                        379,129         54,882         92,869        192,570        (63,602)

CASH AND CASH EQUIVALENTS -
    BEGINNING OF YEAR / PERIOD                                  340,321         92,869              -        147,751         92,869
                                                            -----------    -----------    -----------    -----------    -----------

CASH AND CASH EQUIVALENTS - END OF
    YEAR / PERIOD                                           $   719,450    $   147,751    $    92,869    $   340,321    $    29,267
                                                            ===========    ===========    ===========    ===========    ===========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW
  INFORMATION:

CASH PAID DURING THE YEAR FOR:
    Interest expense                                        $       114    $    34,983    $     6,459    $     2,563    $     3,890
                                                            ===========    ===========    ===========    ===========    ===========

SUPPLEMENTAL DISCLOSURE OF NONCASH
  ACTIVITIES:

    Common stock issued for conversion of accounts payable  $   355,250    $     5,000    $         0    $    17,332    $     5,000
                                                            ===========    ===========    ===========    ===========    ===========

    Accounts payable converted to debt                      $   170,384    $    50,000    $         0    $    70,000    $         0
                                                            ===========    ===========    ===========    ===========    ===========

    Issuance of stock for redemption of ICCC shares         $         0    $         0    $     4,123    $         0    $         0
                                                            ===========    ===========    ===========    ===========    ===========

    Common stock issued for conversation of notes payable    $   235,000    $   248,000    $         0    $   852,078    $         0
                                                            ===========    ===========    ===========    ===========    ===========

    Debt converted to accounts payable                      $         0    $         0    $         0    $   126,000    $         0
                                                            ===========    ===========    ===========    ===========    ===========

    Liabilities assumed to acquire fixed assets from ICCC   $         0    $         0    $ 2,079,665    $         0    $         0
                                                            ===========    ===========    ===========    ===========    ===========

    Debt converted in exercise of options                   $         0    $         0    $         0    $     5,828    $         0
                                                            ===========    ===========    ===========    ===========    ===========

    Accounts payable and accrued expenses
      acquired in reverse merger                            $         0    $         0    $         0    $    63,343    $         0
                                                            ===========    ===========    ===========    ===========    ===========

    Debt acquired in reverse merger                         $         0    $         0    $         0    $   337,945    $         0
                                                            ===========    ===========    ===========    ===========    ===========

    Stock issued for services                               $   522,748    $         0    $         0    $   187,189    $         0
                                                            ===========    ===========    ===========    ===========    ===========


                       The accompanying notes are an integral part of these consolidated financial statements F-8  IELEMENT CORPORATION AND SUBSIDIARY
                         (FORMERLY MAILKEY CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        FOR THE YEARS ENDED MARCH 31, 2006 AND DECEMBER 31, 2004 AND 2003
             AND FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004

NOTE 1-  ORGANIZATION AND BASIS OF PRESENTATION
         --------------------------------------

         MK Secure Solutions Ltd. was established as a messaging security and
         Management company. On March 25, 2004, pursuant to an Agreement and
         Plan of Merger, Global Diversified Acquisition Corp. ("GDAC"), acquired
         all of the outstanding capital stock of MK Secure Solutions Ltd
         ("MKSS"), a holding company incorporated on March 11, 2003, under the
         laws of the British Virgin Islands. The transaction was effected by the
         issuance of shares such that the former MKSS shareholders owned
         approximately 90% of the outstanding MailKey stock after the
         transaction. GDAC then changed its name to MailKey Corporation
         ("MailKey").

         The Company's Chairman and Chief Executive Officer resigned in
         September 2004 and the Company's Chief Financial Officer and member of
         the Board resigned in November 2004. Both positions have been filled by
         the Company's founder and deputy chairman.

         In the first quarter of 2005 the Company was unable to continue funding
         the development of its messaging security solutions, and the rights
         were transferred to the development team in return for the cancellation
         of most of the liabilities which the Company owed to them. The Company
         retains an interest of 20% in the messaging security solutions; however
         to date there has been no commercialization of the solutions. In the
         first quarter 2005 the Company sold its insolvent British Virgin
         Islands subsidiary, MK Secure Solutions Limited, for $1 to a UK based
         accounting firm, SS Khehar & Company. SS Khehar & Company has agreed to
         deal with the winding up of the former subsidiary, for a fee of $1,800.

         On November 9, 2004, the Company entered into an Agreement and Plan of
         Merger (the "Merger Agreement") by and among the MailKey Corporation,
         MailKey Acquisition Corp., a Delaware corporation and our wholly-owned
         subsidiary ("Merger Sub"), Inc., a Nevada Corporation, IElement, Inc.
         ("IElement") and Ivan Zweig, pursuant to which the Company agreed to
         acquire all of the issued and outstanding shares of capital stock of
         IElement. This transaction closed in January 2005. At the closing of
         the Merger, Merger Sub was merged into IElement, at which time the
         separate corporate existence of Merger Sub ceased and IElement now
         continues as the surviving company. The Share Exchange has been
         accounted for as a reverse merger under the purchase method of
         accounting. Accordingly, IElement will be treated as the continuing
         entity for accounting purposes and the historical financial statements
         presented will be those of IElement.  F-9 IELEMENT CORPORATION AND SUBSIDIARY
                         (FORMERLY MAILKEY CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        FOR THE YEARS ENDED MARCH 31, 2006 AND DECEMBER 31, 2004 AND 2003
             AND FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004

NOTE 1-  ORGANIZATION AND BASIS OF PRESENTATION
         --------------------------------------
         (CONTINUED)

         Under the terms of the Merger Agreement, MailKey issued its common
         stock, $.001 par value per share, in exchange for all of the issued and
         outstanding shares of capital stock of IElement. The exchange ratio
         setting forth the number of shares of MailKey common stock issued for
         each issued and outstanding share of capital stock of IElement was 3.52
         shares of MailKey common stock for each issued and outstanding share of
         capital stock of IElement.

         IElement, incorporated in Nevada on December 30, 2002, is a
         facilities-based nationwide communications service provider that
         provides state-of-the-art telecommunications services to small and
         medium sized enterprises ("SMEs"). IElement provides broadband data,
         voice and wireless services by offering integrated T-1 lines as well as
         Layer 2 Private Network solutions that provide SMEs with dedicated
         Internet access services, customizable business solutions for voice,
         data, wireless and Internet, and secure communications channels between
         the SME offices, partners, vendors, customers and employees without the
         use of a firewall or encryption devices. IElement has a network
         presence in 18 major markets in the United States, including facilities
         in Los Angeles, Dallas, and Chicago. The Company started business in
         2003.

         In connection with the closing of the merger, MailKey entered into a
         letter of intent with Ivan Zweig and Kramerica Capital Corporation
         ("Kramerica"), a corporation wholly-owned by Mr. Zweig, which
         contemplates that MailKey and IElement will enter into a four year
         employment agreement with Kramerica and Mr. Zweig pursuant to which Mr.
         Zweig will serve as the Chief Executive Officer of MailKey and
         IElement. The letter of intent provides that Mr. Zweig will receive an
         annual base salary of $300,000. In addition to his base salary, Mr.
         Zweig will be entitled to annual performance bonuses with targets
         ranging from $1,000,000 to $3,000,000 during the second, third and
         fourth years provided IElement achieves certain performance goals. If
         Mr. Zweig is terminated without cause, MailKey is obligated to pay the
         remaining salary owed to Mr. Zweig for the complete term of the
         employment agreement, to pay off all notes owed to Mr. Zweig or
         Kramerica, all outstanding options shall become fully vested, MailKey
         shall pay all earned performance bonuses and all accrued vacation. If
         Mr. Zweig is terminated for any reason other than cause, MailKey shall
         pay in full the notes owed to either Mr. Zweig or Kramerica Capital
         Corporation and at least 75% of the earned bonus plan set forth by the
         directors. F-10


IELEMENT CORPORATION AND SUBSIDIARY
                         (FORMERLY MAILKEY CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        FOR THE YEARS ENDED MARCH 31, 2006 AND DECEMBER 31, 2004 AND 2003
             AND FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004

NOTE 1-  ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
         --------------------------------------------------

         Effective January 24, 2005, Mr. Zweig was also appointed to the Board
         of Directors of MailKey. Ivan Zweig has served as the Chief Executive
         Officer of IElement since March 2003. Mr. Zweig is also the Chief
         Executive Officer, director and sole shareholder of Kramerica, a
         personnel services corporation. Since December 1998, Mr. Zweig has
         served as the Chief Executive Officer and director of Integrated
         Communications Consultants Corp. ("ICCC"), a nationwide data carrier
         specializing in high speed Internet access and secure data transaction.
         ICCC provides IElement with resold telecom services and IElement pays
         ICCC approximately $97,000 on a monthly basis for such services. On
         October 1, 2004, ICCC filed for Chapter 11 bankruptcy protection in the
         United States Bankruptcy Court, Northern District of Texas, Dallas
         Division. On January 19, 2005, upon the consummation of the
         acquisition, IElement issued eight (8) promissory notes to, Kramerica,
         certain members of Mr. Zweig's immediate family and others in the
         aggregate amount of $376,956.16 (the "Notes") with no interest. Upon
         issuance, the Notes were payable in 36 monthly installments with the
         first payment commencing six months after the closing of the merger and
         were secured by substantially all of the assets of IElement. IElement
         did not make any payments on the Notes. On March 25, 2006 each of the
         Notes were cancelled and IElement issued new convertible promissory
         notes to the same individuals in the same principal amount of
         $376,956.16, again with no interest thereon. The first payment on each
         of the new convertible promissory notes is due in September 2006 with a
         total of 36 monthly installments through August 2009. The Lender has
         the right to convert all or a portion of the outstanding balance, at
         any time until the notes are paid in full, into IElement's common stock
         at a conversion price of $0.035 per share. Any past due balance on the
         old Notes was forgiven at the time of cancellation of the old Notes and
         issuance of the new convertible promissory notes. The new convertible
         promissory notes are secured by substantially all the assets of
         IElement, as were the original Notes. The aggregate of the Kramerica
         notes are $120,000 and were issued for services rendered prior to
         issuance. The $50,000 note was originally issued on June 1, 2004 for
         services prior to that date and was restated subsequent to the merger
         on January 19, 2005. The remaining $70,000 note was issued on January
         19, 2005 for services rendered prior to that date. The Company's
         consolidated financial statements are prepared on the accrual basis of
         accounting in accordance with accounting principles generally accepted
         in the United States of America, and have been presented on a going
         concern basis which contemplates the realization of assets and the
         satisfaction of liabilities in the normal course of business.F-11 IELEMENT CORPORATION AND SUBSIDIARY
                         (FORMERLY MAILKEY CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        FOR THE YEARS ENDED MARCH 31, 2006 AND DECEMBER 31, 2004 AND 2003
             AND FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004

NOTE 1-  ORGANIZATION AND BASIS OF PRESENTATION
         --------------------------------------
         (CONTINUED)

         The Company received consent to amend the Articles of Incorporation to
         increase the number of shares of common stock authorized to be issued
         from 100,000,000 shares to 2,000,000,000 shares, and consented to the
         authorization of 200,000,000 shares of Blank Check Preferred Stock.
         There are no current plans to designate any Blank Check Preferred
         Stock.

         On August 1, 2005, the Company filed an Information Statement in the
         definitive form on schedule 14C with the SEC to change its name from
         MailKey Corporation to IElement Corporation. Concurrent with this name
         change, the Company received a new stock trading symbol (IELM.OB) on
         the NASD Over-the-Counter Electronic Bulletin Board.

         On August 8, 2005, Tim Dean-Smith and Susan Walton resigned their
         positions on the Board of Directors (the "Board") of the Company. Tim
         Dean-Smith also resigned from his position as Chief Financial Officer
         of the Company. The resignations of Mr. Dean-Smith and Ms. Walton were
         consistent with the expectations of the parties pursuant to the
         consummation of the merger between IElement and the Company on January
         19, 2005, and do not arise from any disagreement on any matter relating
         to the Company's operations, policies or practices, nor regarding the
         general direction of the Company. Neither Mr. Dean-Smith nor Ms. Walton
         served on any subcommittees of the Board. Ivan Zweig, the current
         Chairman of the Board and Chief Executive Officer was appointed as the
         Chief Financial Officer of the Company until a new Chief Financial
         Officer is found.

RESTATEMENT

The restatement relates to the recapitalization of IElement by Integrated
Communications Consultants Corporation (ICCC) on March 1, 2003. In a
recapitalization, fair value adjustments and goodwill are not recognized. This
restatement corrects the reporting of this transaction by removing those
adjustments relating to fair value and goodwill.

The effects of the restatement adjustments on IElement's previously reported
balance sheet, statement of operations and statement of cash flows for the year
ended March 31, 2006 are summarized below.

                                          3/31/06                 3/31/06
Balance Sheet                           As Restated       As Previously Reported
-------------                           -----------       ----------------------

Customer List, net of amortization               $0                  $831,866

Total assets                             $2,049,815                $2,881,680

Additional paid in capital               $1,075,782                $3,155,447

Total stockholders' equity (deficit)    ($1,017,404)                ($185,539)

Total liabilities and stockholders'
  equity (deficit)                       $2,049,815                $2,881,680



                                        YE 3/31/06               YE 3/31/06
Statement of Operations                 As Restated       As Previously Reported
-----------------------                 -----------       ----------------------

Depreciation and amortization              $279,398                  $695,331

Total operating expenses                 $5,976,176                $6,392,109

Income before other expense             ($1,426,084)              ($1,842,017)

Net income (loss) before taxes          ($1,426,084)              ($1,842,017)

Net income (loss) applicable to
  common shares                         ($1,426,084)              ($1,842,017)

Net income (loss) per basic and
  diluted share                              ($0.01)                   ($0.02)


                                         YE 3/31/06             YE 3/31/06
Statement of Cash Flows                 As Restated       As Previously Reported
-----------------------                 -----------       ----------------------

Net (loss)                              ($1,426,084)              ($1,842,017)

Depreciation and amortization              $279,398                  $695,331


F-12


`IELEMENT CORPORATION AND SUBSIDIARY
                         (FORMERLY MAILKEY CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        FOR THE YEARS ENDED MARCH 31, 2006 AND DECEMBER 31, 2004 AND 2003
             AND FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004


NOTE 2-  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         ------------------------------------------

         BASIS OF CONSOLIDATION
         ----------------------

         The consolidated financial statements include the financial position
         and results of IElement. All significant inter-company accounts and
         transactions have been eliminated in consolidation.

         USE OF ESTIMATES
         ----------------

         The preparation of consolidated financial statements in conformity with
         accounting principles generally accepted in the United States of
         America requires management to make estimates and assumptions that
         affect the reported amounts of assets and liabilities and disclosure of
         contingent assets and liabilities at the date of the consolidated
         financial statements and the reported amounts of revenues and expenses
         during the reporting period. Actual results could differ from those
         estimates.

         CASH AND CASH EQUIVALENTS
         -------------------------

         The Company considers all highly liquid debt instruments and other
         short-term investments with an initial maturity of three months or less
         to be cash or cash equivalents.

         The Company maintains cash and cash equivalents with a financial
         institution which is insured by the Federal Deposit Insurance
         Corporation up to $100,000. At various times throughout the year the
         Company had amounts on deposit at the financial institution in excess
         of federally insured limits.

         REVENUE AND COST RECOGNITION
         ----------------------------

         The Company records its transactions under the accrual method of
         accounting whereby income is recognized when the services are provided
         rather than when billed or the fees are collected, and costs and
         expenses are recognized in the period they are incurred rather than
         paid for. In determining when to recognize revenue the Company relies
         on Staff Accounting Bulletin Topic 13. The Company uses 4 criteria in
         determining when revenue is realized or realizable and earned. First,
         the Company must have persuasive evidence of the existing of an
         arrangement. The Company utilizes written contracts with its customers
         to meet this criterion. Second, delivery must have occurred or services
         must have been rendered. The Company defers revenue from the date
         invoiced, usually 35-40 days before services are rendered, to the month
         services are deemed completely rendered, thereby satisfying this
         criterion. Third, the price must be fixed and determinable. The Company
         delivers invoices to every customer stating the exact amount due for
         services, thereby satisfying this criterion. Fourth, the company
         determines credibility of its customers and collectibility of its
         invoices by evaluating its ongoing history and relationship with each
         customer, the fact that each customer is dependant upon the Company to
         provide its telephone and internet services and, in many cases, the
         fact that the customer has a security or service deposit with the
         Company in the amount of one month's service charges. When the Company
         cannot determine that a particular customer is credible and a
         particular invoice is collectible, the company will not record this
         invoice as revenue until the payment is collected from that customer.
         Thus, the Company meets the fourth criterion that collectibility be
         reasonably assured.`

F-13


`IELEMENT CORPORATION AND SUBSIDIARY
                         (FORMERLY MAILKEY CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        FOR THE YEARS ENDED MARCH 31, 2006 AND DECEMBER 31, 2004 AND 2003
             AND FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004

NOTE 2-   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
          --------------------------------------------
          (CONTINUED)

         ACCOUNTS RECEIVABLE
         -------------------

         The Company factors 99% of its billings with an outside agency. The
         Company invoices its customers on the 28th of the month for services to
         be rendered two months subsequent to the billing date. The Company
         receives 75% of the aggregate net face value of the assigned accounts
         at the time of placement with the factor.

         DEFERRED REVENUE
         ----------------

         Deferred revenue consists of customers billed in advance of revenue
         being earned.

         PROVISION FOR BAD DEBT
         ----------------------

         Under SOP 01-6 "Accounting for Certain Entities (including Entities
         with Trade Receivables), the Company has intent and belief that all
         amounts in accounts receivable are collectible. The Company has
         determined that based on their collections an allowance for doubtful
         accounts of $12,165 and $6,098 has been recorded at March 31, 2006 and
         March 31, 2005.

         Bad debt expense for the years ended March 31, 2006 and December 31,
         2004 and 2003 was $86,800, $63,498 and $52,241, respectively. Bad debt
         expense for the three months ended March 31, 2005 and 2004 was $4,821
         and $17,626, respectively.`

F-14


`IELEMENT CORPORATION AND SUBSIDIARY
                         (FORMERLY MAILKEY CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        FOR THE YEARS ENDED MARCH 31, 2006 AND DECEMBER 31, 2004 AND 2003
             AND FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004

NOTE 2-  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
         --------------------------------------------
         (CONTINUED)

         ADVERTISING COSTS
         -----------------

         The Company expenses the costs associated with advertising and
         marketing as incurred. Advertising and marketing expenses included in
         the statements of operations for the years ended March 31, 2006 and
         December 31, 2004 and 2003 were $44,444, $24,556 and $5,901,
         respectively. Advertising and marketing expenses included in the
         statements of operations for the three months ended March 31, 2005 and
         2004 were $660 and $9,216, respectively.

         INCOME TAXES
         ------------

         The income tax benefit is computed on the pretax loss based on the
         current tax law. Deferred income taxes are recognized for the tax
         consequences in future years of differences between the tax basis of
         assets and liabilities and their financial reporting amounts at each
         year-end based on enacted tax laws and statutory tax rates. No benefit
         is reflected for the years ended March 31, 2006 and 2005, respectively.

         FAIR VALUE OF FINANCIAL INSTRUMENTS
         -----------------------------------

         The carrying amount reported in the balance sheets for cash and cash
         equivalents, accounts receivable, accounts payable and accrued expenses
         approximate fair value because of the immediate or short-term maturity
         of these financial instruments. The carrying amount reported for notes
         payable approximates fair value because, in general, the interest on
         the underlying instruments fluctuates with market rates.

         FIXED ASSETS
         ------------

         Fixed assets are stated at cost. Depreciation is computed using the
         straight-line method over the estimated useful lives of the assets.

                Furniture and equipment            5 Years
                Telecommunications equipment       5 Years`

F-15


`IELEMENT CORPORATION AND SUBSIDIARY
                         (FORMERLY MAILKEY CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        FOR THE YEARS ENDED MARCH 31, 2006 AND DECEMBER 31, 2004 AND 2003
             AND FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004

NOTE 2-  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
         --------------------------------------------
         (CONTINUED)

         When assets are retired or otherwise disposed of, the costs and related
         accumulated depreciation are removed from the accounts, and any
         resulting gain or loss is recognized in income for the period. The cost
         of maintenance and repairs is charged to income as incurred;
         significant renewals and betterments are capitalized. Deduction is made
         for retirements resulting from renewals or betterments.

         (LOSS) PER SHARE OF COMMON STOCK
         --------------------------------

         Historical net (loss) per common share is computed using the weighted
         average number of common shares outstanding. Common stock equivalents
         were not included in the computation of diluted earnings per share when
         the Company reported a loss because to do so would be antidilutive for
         the periods presented.`

F-16


IELEMENT CORPORATION AND SUBSIDIARY
                         (FORMERLY MAILKEY CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        FOR THE YEARS ENDED MARCH 31, 2006 AND DECEMBER 31, 2004 AND 2003
             AND FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004

NOTE 2-  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
         ---------------------------------------------
         (CONTINUED)

         (LOSS) PER SHARE OF COMMON STOCK (CONTINUED)
         --------------------------------------------

         The following is a reconciliation of the computation for basic and
         diluted EPS:


                                           YEARS ENDED                           THREE MONTHS ENDED
                        ------------------------------------------------   -------------------------------
                                            RESTATED        RESTATED         RESTATED         RESTATED
                                         --------------   --------------   --------------   --------------
                           MARCH 31,      DECEMBER 31,     DECEMBER 31,      MARCH 31,       MARCH 31,
                             2006            2004             2003             2005             2004
                           (AUDITED)       (AUDITED)        (AUDITED)        (AUDITED)        (UNAUDITED)
                        --------------   --------------   --------------   --------------   --------------
Net loss                ($  1,426,084)   ($    295,041)   ($    265,056)   ($    417,085)   ($    68,280)

Weighted average
common shares
outstanding (Basic)       105,125,992       14,913,483      12,167,110       56,697,484       14,525,433

Weighted average
common stock
equivalents
     Stock options                 --               --              --               --               --
     Warrants                      --               --              --               --               --

Weighted average
common shares
outstanding (Diluted)     105,125,992       14,913,483       12,167,110       56,697,484      14,525,433


         There were no options or warrants outstanding to purchase stock for the
         three months ended March 31, 2005 and 2004 and for the years ended
         December 31, 2004 and 2003. There were 31,723,281 warrants and options
         outstanding as of March 31, 2006, but including these options and
         warrants would have been anti-dilutive to our loss per common share.  F-17
 IELEMENT CORPORATION AND SUBSIDIARY
                         (FORMERLY MAILKEY CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        FOR THE YEARS ENDED MARCH 31, 2006 AND DECEMBER 31, 2004 AND 2003
             AND FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004

NOTE 2-  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
         --------------------------------------------
         (CONTINUED)

         GOODWILL AND OTHER INTANGIBLE ASSETS
         ------------------------------------

         In June 2001, the FASB issued Statement No. 142 "Goodwill and Other
         Intangible Assets". This Statement addresses financial accounting and
         reporting for acquired goodwill and other intangible assets and
         supersedes APB Opinion No. 17, Intangible Assets. It addresses how
         intangible assets that are acquired individually or with a group of
         other assets (but not those acquired in a business combination) should
         be accounted for in financial statements upon their acquisition. This
         Statement also addresses how goodwill and other intangible assets
         should be accounted for after they have been initially recognized in
         the financial statements. The Company has no goodwill or other
         intangible assets.

         STOCK-BASED COMPENSATION
         ------------------------

         Employee stock awards under the Company's compensation plans are
         accounted for in accordance with Accounting Principles Board Opinion
         No. 25 ("APB 25"), "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES", and
         related interpretations. The Company provides the disclosure
         requirements of Statement of Financial Accounting Standards No. 123,
         "ACCOUNTING FOR STOCK-BASED COMPENSATION" ("SFAS 123"), and related
         interpretations. Stock-based awards to non-employees are accounted for
         under the provisions of SFAS 123 and has adopted the enhanced
         disclosure provisions of SFAS No. 148 "Accounting for Stock-Based
         Compensation- Transition and Disclosure, an amendment of SFAS No. 123".

         The Company measures compensation expense for its employee stock-based
         compensation using the intrinsic-value method. Under the
         intrinsic-value method of accounting for stock-based compensation, when
         the exercise price of options granted to employees is less than the
         estimated fair value of the underlying stock on the date of grant,
         deferred compensation is recognized and is amortized to compensation
         expense over the applicable vesting period. In each of the periods
         presented, the vesting period was the period in which the options were
         granted. All options were expensed to compensation in the period
         granted rather than the exercise date.


F-18


`IELEMENT CORPORATION AND SUBSIDIARY
                         (FORMERLY MAILKEY CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        FOR THE YEARS ENDED MARCH 31, 2006 AND DECEMBER 31, 2004 AND 2003
             AND FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004

NOTE 2-  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
         --------------------------------------------
         (CONTINUED)

         STOCK-BASED COMPENSATION (CONTINUED)
         ------------------------------------

         The Company measures compensation expense for its non-employee
         stock-based compensation under the Financial Accounting Standards Board
         (FASB) Emerging Issues Task Force (EITF) Issue No. 96-18, "ACCOUNTING
         FOR EQUITY INSTRUMENTS THAT ARE ISSUED TO OTHER THAN EMPLOYEES FOR
         ACQUIRING, OR IN CONJUNCTION WITH SELLING, GOODS OR SERVICES".

         The fair value of the option issued is used to measure the transaction,
         as this is more reliable than the fair value of the services received.
         The fair value is measured at the value of the Company's common stock
         on the date that the commitment for performance by the counterparty has
         been reached or the counterparty's performance is complete. The fair
         value of the equity instrument is charged directly to compensation
         expense and additional paid-in capital.

         Stock-based compensation for the years ended March 31, 2006 and
         December 31, 2004 and 2003 was $12, $0 and $0, respectively.
         Stock-based compensation for the three months ended March 31, 2005 and
         2004 was $187,189 and $0, respectively.

         RECENT ACCOUNTING PRONOUNCEMENTS
         --------------------------------

         This Standard also requires expected future operating losses from
         discontinued operations to be displayed in the period (s) in which the
         losses are incurred, rather than as of the measurement date as
         presently required. The adoption of SFAS No. 144 did not have an impact
         on the Company's results of operations or financial position.

         In April 2002, the FASB issued SFAS No. 145, Rescission of FASB
         Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and
         Technical Corrections. This statement rescinds SFAS No. 4, "REPORTING
         GAINS AND LOSSES FROM EXTINGUISHMENT OF DEBT," and an amendment of that
         statement, SFAS No. 44, "ACCOUNTING FOR INTANGIBLE ASSETS OF MOTOR
         CARRIERS," and SFAS No. 64, "EXTINGUISHMENTS OF DEBT MADE TO SATISFY
         SINKING-FUND REQUIREMENTS".`

F-19


`IELEMENT CORPORATION AND SUBSIDIARY
                         (FORMERLY MAILKEY CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        FOR THE YEARS ENDED MARCH 31, 2006 AND DECEMBER 31, 2004 AND 2003
             AND FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004

NOTE 2-  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
         --------------------------------------------
         (CONTINUED)

         This statement amends SFAS No. 13, "ACCOUNTING FOR LEASES", to
         eliminate inconsistencies between the required accounting for
         sales-leaseback transactions and the required accounting for certain
         lease modifications that have economic effects that are similar to
         sales-leaseback transactions.

         Also, this statement amends other existing authoritative pronouncements
         to make various technical corrections, clarify meanings, or describe
         their applicability under changed conditions. Provisions of SFAS No.
         145 related to the rescissions of SFAS No. 4 were effective for the
         Company on November 1, 2002 and provisions affecting SFAS No. 13 were
         effective for transactions occurring after May 15, 2002. The adoption
         of SFAS No. 145 did not have a significant impact on the Company's
         results of operations or financial position.

         In June 2003, the FASB issued SFAS No. 146, "ACCOUNTING FOR COSTS
         ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES". This statement covers
         restructuring type activities beginning with plans initiated after
         December 31, 2002. Activities covered by this standard that are entered
         into after that date will be recorded in accordance with provisions of
         SFAS No. 146. The adoption of SFAS No. 146 did not have a significant
         impact on the Company's results of operations or financial position.

         In December 2002, the FASB issued Statement No. 148, "ACCOUNTING FOR
         STOCK-BASED COMPENSATION-TRANSITION AND DISCLOSURE, AN AMENDMENT OF
         FASB STATEMENT NO. 123"("SFAS 148"). SFAS 148 amends FASB Statement No.
         123, "ACCOUNTING FOR STOCK-BASED COMPENSATION," to provide alternative
         methods of transition for an entity that voluntarily changes to the
         fair value based method of accounting for stock-based employee
         compensation. It also amends the disclosure provisions of that
         Statement to require prominent disclosure about the effects on reported
         net income of an entity's accounting policy decisions with respect to
         stock-based employee compensation. Finally, this Statement amends
         Accounting Principles Board ("APB") Opinion No. 28, "INTERIM FINANCIAL
         REPORTING", to require disclosure about those effects in interim
         financial information. SFAS 148 is effective for financial statements
         for fiscal years ending after December 15, 2002. The Company will
         continue to account for stock-based employee compensation using the
         intrinsic value method of APB`

F-20


`IELEMENT CORPORATION AND SUBSIDIARY
                         (FORMERLY MAILKEY CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        FOR THE YEARS ENDED MARCH 31, 2006 AND DECEMBER 31, 2004 AND 2003
             AND FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004

NOTE 2-  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
         --------------------------------------------
         (CONTINUED)

         Opinion No. 25, "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES," but has
         adopted the enhanced disclosure requirements of SFAS 148. In May 2003,
         the FASB issued SFAS Statement No. 150, "ACCOUNTING FOR CERTAIN
         FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND
         EQUITY". This Statement establishes standards for how an issuer
         classifies and measures certain financial instruments with
         characteristics of both liabilities and equity. It requires that an
         issuer classify a financial instrument that is within its scope as a
         liability (or an asset in some circumstances). This statement is
         effective for financial instruments entered into or modified after May
         31, 2003, and otherwise is effective at the beginning of the first
         interim period beginning after June 15, 2003, except for mandatory
         redeemable financial instruments of nonpublic entities, if applicable.
         It is to be implemented by reporting the cumulative effect of a change
         in an accounting principle for financial instruments created before the
         issuance date of the Statement and still existing at the beginning of
         the interim period of adoption. The adoption of this statement did not
         have a significant impact on the Company's results of operations or
         financial position.

         In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"),
         "GUARANTOR'S ACCOUNTING AND DISCLOSURE REQUIREMENTS FOR GUARANTEES,
         INCLUDING INDIRECT GUARANTEES OF INDEBTEDNESS OF Others". FIN 45
         requires a company, at the time it issues a guarantee, to recognize an
         initial liability for the fair value of obligations assumed under the
         guarantees and elaborates on existing disclosure requirements related
         to guarantees and warranties. The recognition requirements are
         effective for guarantees issued or modified after December 31, 2002 for
         initial recognition and initial measurement provisions. The adoption of
         FIN 45 did not have a significant impact on the Company's results of
         operations or financial position.`

F-21


`IELEMENT CORPORATION AND SUBSIDIARY
                         (FORMERLY MAILKEY CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        FOR THE YEARS ENDED MARCH 31, 2006 AND DECEMBER 31, 2004 AND 2003
             AND FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004

NOTE 2-  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
         --------------------------------------------
         (CONTINUED)

         In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
         "CONSOLIDATION OF VARIABLE INTEREST ENTITIES, AN INTERPRETATION OF ARB
         NO. 51". FIN 46 requires certain variable interest entities to be
         consolidated by the primary beneficiary of the entity if the equity
         investors in the entity do not have the characteristics of a
         controlling financial interest or do not have sufficient equity at risk
         for the entity to finance its activities without additional
         subordinated financial

         For variable interest entities created or acquired prior to February 1,
         2003, the provisions of FIN 46 must be applied for the first interim or
         annual period beginning after June 15, 2003. The adoption of FIN 46 did
         not have a significant impact on the Company' results of operations or
         financial position.

         On December 16, 2004, the Financial Accounting Standards Board ("FASB")
         published Statement of Financial Accounting Standards No. 123 (Revised
         2004), "SHARE-BASED PAYMENT" ("SFAS 123R"). SFAS 123R requires that
         compensation cost related to share-based payment transactions be
         recognized in the financial statements. Share-based payment
         transactions within the scope of SFAS 123R include stock options,
         restricted stock plans, performance-based awards, stock appreciation
         rights, and employee share purchase plans.

         The provisions of SFAS 123R are effective for small business issuers as
         of the first interim period that begins after December 15, 2005.
         Accordingly, the Company will implement the revised standard in the
         first quarter of fiscal year 2006. Currently, the Company accounts for
         its share-based payment transactions under the provisions of APB 25,
         which does not necessarily require the recognition of compensation cost
         in the financial statements. Management is assessing the implications
         of this revised standard, which may materially impact the Company's
         results of operations in the first quarter of fiscal year 2006 and
         thereafter.`

F-22


`IELEMENT CORPORATION AND SUBSIDIARY
                         (FORMERLY MAILKEY CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        FOR THE YEARS ENDED MARCH 31, 2006 AND DECEMBER 31, 2004 AND 2003
             AND FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004

NOTE 2-  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
         --------------------------------------------
         (CONTINUED)

         On December 16, 2004, FASB issued Statement of Financial Accounting
         Standards No. 153, "EXCHANGES OF NON-MONETARY ASSETS, AN AMENDMENT OF
         APB OPINION NO. 29, ACCOUNTING FOR NON-MONETARY TRANSACTIONS" (" SFAS
         153"). This statement amends APB Opinion 29 to eliminate the exception
         for non-monetary exchanges of similar productive assets and replaces it
         with a general exception for exchanges of non-monetary assets that do
         not have commercial substance. Under SFAS 153, if a non-monetary
         exchange of similar productive assets meets a commercial-substance
         criterion and fair value is determinable, the transaction must be
         accounted for at fair value resulting in recognition of any gain or
         loss. SFAS 153 is effective for non-monetary transactions in fiscal
         periods that begin after June 15, 2005. The Company does not anticipate
         that the implementation of this standard will have a material impact on
         its financial position, results of operations or cash flow.

NOTE 3-  FIXED ASSETS
         ------------

         Property and equipment as of March 31, 2006 was as follows:

                                                                MARCH 31,
                                                                   2006
                                                               ------------
         Property and equipment                                $  1,472,787
         Less: accumulated depreciation                        ($   763,615)
                                                               ------------
         Net book value                                        $    709,172
                                                               ============

         There was $279,398, $260,806 and $159,079 charged to operations for
         depreciation expense for the years ended March 31, 2006 and December
         31, 2004 and 2003, respectively. There was $68,164 and $60,403 charged
         to operations for depreciation expense for the three months ended March
         31, 2005 and 2004, respectively.`

F-23


`IELEMENT CORPORATION AND SUBSIDIARY
                         (FORMERLY MAILKEY CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        FOR THE YEARS ENDED MARCH 31, 2006 AND DECEMBER 31, 2004 AND 2003
             AND FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004

NOTE 4-  NOTES PAYABLE
         -------------

         The Company has several notes payable at March 31, 2006. On January 19,
         2005, upon the consummation of the acquisition, IElement issued eight
         (8) promissory notes to, Kramerica, certain members of Mr. Zweig's
         immediate family and others in the aggregate amount of $376,956 (the
         "Notes") with no interest. Upon issuance, the Notes were payable in 36
         monthly installments with the first payment commencing six months after
         the closing of the merger and were secured by substantially all of the
         assets of IElement. IElement did not make any payments on the Notes. On
         March 25, 2006 each of the Notes were cancelled and IElement issued new
         convertible promissory notes to the same individuals in the same
         principal amount of $376,956, again with no interest hereon. The first
         payment on each of the new convertible promissory notes is due in
         September 2006 with a total of 36 monthly installments through August
         2009. The Lender has the right to convert all or a portion of the
         outstanding balance, at any time until the notes are paid in full, into
         IElement's common stock at a conversion price of $0.035 per share. Any
         past due balance on the old Notes was forgiven at the time of
         cancellation of the old Notes and issuance of the new convertible
         promissory notes. The new convertible promissory notes are secured by
         substantially all the assets of IElement as were the original Notes.
         The aggregate of the Kramerica notes are $120,000 and were issued for
         services rendered prior to issuance. The $50,000 note was originally
         issued on June 1, 2004 for services prior to that date and was restated
         subsequent to the merger on January 19, 2005. The remaining $70,000
         note was issued on January 19, 2005 for services rendered prior to that
         date.`

F-24


IELEMENT CORPORATION AND SUBSIDIARY
                         (FORMERLY MAILKEY CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        FOR THE YEARS ENDED MARCH 31, 2006 AND DECEMBER 31, 2004 AND 2003
             AND FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004

NOTE 4-  NOTES PAYABLE
         -------------
         (CONTINUED)

         Accrued interest on the notes is $0 at March 31, 2006.

         The notes payable balances at March 31, 2006 were as follows:



                                                             MARCH 31,
                                                               2006
                                                            -----------
                  Total notes payable                       $   634,684
                  Less: current maturities                      168,899
                                                            -----------

                  Long-term notes payable                   $   465,785
                                                            ============

         The amount of principal maturities of the notes payable for the next
         four years ending March 31 and in the aggregate is as follows:

                                2007          $168,899
                                2008          $201,316
                                2009          $186,684
                                2010           $77,785
                                      -----------------
                                              $634,684
                                      =================


F-25


IELEMENT CORPORATION AND SUBSIDIARY
                         (FORMERLY MAILKEY CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        FOR THE YEARS ENDED MARCH 31, 2006 AND DECEMBER 31, 2004 AND 2003
             AND FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004

NOTE 5-  OPERATING LEASES
         ----------------

         The Company leases office space under a lease commencing in June of
         2005. The lease is payable on a month-to-month basis. Monthly payments
         under the current lease is $3,284. The Company also leased additional
         office space in Texas and California. The Company ceased leasing this
         additional space during the period ended December 31, 2004.

         Rental payments charged to expense for the years ended March 31, 2006
         and December 31, 2004 and 2003 were $41,872, $82,072 and $68,750,
         respectively. Rental payments charged to expense for the three months
         ended March 31, 2005 and 2004 were $11,700 and $15,050, respectively.


NOTE 6-  STOCKHOLDERS' EQUITY (DEFICIT)
         ------------------------------

         COMMON STOCK
         ------------

         As of March 31, 2006, the Company has 2,000,000,000 shares of common
         stock authorized at a par value of $0.001, and 159,035,031 shares
         issued and outstanding.

         The following details the stock transactions for the year ended March
         31, 2006:

         The Company issued 2,150,000 shares of common stock in conversion of
         accounts payable valued at $107,000.

         The Company issued 4,700,000 shares of common stock in conversion of
         notes payable in the amount of $235,000.

         The Company issued 168,680 shares of common stock in conversion of
         accounts payable valued at $18,555.

         The Company issued 250,000 shares of common stock for services rendered
         valued at $27,500.

         The Company issued 5,870,000 shares of common stock for services
         rendered valued at $346,000.

         The Company issued 914,286 shares of common stock for services rendered
         valued at $32,000.


F-26


`IELEMENT CORPORATION AND SUBSIDIARY
                         (FORMERLY MAILKEY CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        FOR THE YEARS ENDED MARCH 31, 2006 AND DECEMBER 31, 2004 AND 2003
             AND FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004

NOTE 6-  STOCKHOLDERS' EQUITY (DEFICIT)
         ------------------------------
         (CONTINUED)

         The Company issued 3,380,000 shares of common stock in conversion of
         accounts payable valued at $144,000.

         The Company issued 250,000 shares of common stock for services rendered
         valued at $8,750.

         The Company issued 44,875,000 shares of common stock for $1,570,625 in
         cash.

         On December 30, 2005, the Company confirmed the sale of unregistered
         securities sold in units consisting of, in the aggregate, 45,125,000
         shares of common stock at a purchase price of $0.035 per share, for an
         aggregate purchase price of $1,579,375 and warrants for the purchase of
         and aggregate total of 22,562,500 at a strike price of $0.10 per share
         (the "Warrants"). The securities were sold to accredited investors in
         reliance on an exemption provided in Regulation D, Rule 506 and 4(2)
         under the Securities Act. The Company may call the Warrants at any time
         after both the (1) closing bid price for the common stock of the
         Company has been equal to or greater than $0.12 per share for ten (10)
         consecutive trading days, and (2) the shares underlying the warrants
         have been included on an SB-2 Registration Statement, or other
         substantially equivalent registration statement, that has been filed by
         the Company and then active or declared effective by the SEC and shall
         expire upon the earlier of forty-five (45) days from the date the
         Warrant is called or on December 31,2007.

         The Company issued 1,626,530 shares of common stock in conversion of
         accounts payable valued at $73,195.

         The Company issued 2,000,000 shares of common stock for services
         rendered valued at $80,000.

         The Company issued 250,000 shares of common stock for services rendered
         valued at $5,500.

         The Company issued 175,000 shares of common stock in conversion of
         accounts payable valued at $3,500.

         The Company issued 300,000 shares of common stock for services rendered
         valued at $6,000.`

F-27


`IELEMENT CORPORATION AND SUBSIDIARY
                         (FORMERLY MAILKEY CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        FOR THE YEARS ENDED MARCH 31, 2006 AND DECEMBER 31, 2004 AND 2003
             AND FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004

NOTE 6-  STOCKHOLDERS' EQUITY (DEFICIT)
         ------------------------------
         (CONTINUED)

         The Company canceled 1,498,195 shares of common stock for services
         rendered valued at $37,455.

         The Company issued 340,000 shares of common stock in conversion of
         accounts payable valued at $8,500.

         The Company issued 1,500,000 shares of common stock for services
         rendered valued at $75,000.

         As of March 31, 2005 the Company had 91,783,730 shares of common stock
         issued and outstanding. The following details the stock transactions
         for the three months ended March 31, 2005:

         The Company issued 16,115,345 shares of common stock due to the
         exercise of options.

         The Company issued 16,526,236 shares of common stock in conversion of
         notes payable to equity valued at $826,312.

         The Company issued 34,726,355 shares of common stock in conjunction
         with the reverse merger.

         The Company issued 7,487,587 shares of common stock for services valued
         at $187,189.

         The Company issued 693,280 shares of common stock in conversion of
         accounts payable valued at $17,332.

         The Company issued 1,030,672 shares of common stock in conversion of
         notes payable valued at $25,776.

         In connection with the recapitalization, there were $337,945 in notes
         payable and $63,343 in liabilities assumed by the new company.

         As of December 31, 2004 the Company had 15,204,255 shares of common
         stock issued and outstanding. The following details the stock
         transactions for the year ended December 31, 2004:

         The Company issued 206,391 shares of common stock for $119,300 in cash.`

F-28


IELEMENT CORPORATION AND SUBSIDIARY
                         (FORMERLY MAILKEY CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        FOR THE YEARS ENDED MARCH 31, 2006 AND DECEMBER 31, 2004 AND 2003
             AND FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004

NOTE 6-  STOCKHOLDERS' EQUITY (DEFICIT)
         ------------------------------
         (CONTINUED)

         The Company issued 423,209 shares of common stock in conversion of
         notes payable valued at $248,000.

         The Company issued 35,200 shares of common stock in conversion of
         accounts payable valued at $5,000.

         The Company issued 26,400 shares of common stock due to the exercise of
         options.

         The Company issued 14,513,054 shares of common stock in conjunction
         with the recapitalization and share exchange of Integrated
         Communications Consultants Corporation.

         BLANK CHECK PREFERRED STOCK
         ---------------------------

         The company also has 200,000,000 shares of Blank Check Preferred Stock
         authorized. There are no current plans to designate and Blank Check
         Preferred Stock.


NOTE 7-  PROVISION FOR INCOME TAXES
         --------------------------

         Deferred income taxes will be determined using the liability method for
         the temporary differences between the financial reporting basis and
         income tax basis of the Company's assets and liabilities. Deferred
         income taxes will be measured based on the tax rates expected to be in
         effect when the temporary differences are included in the Company's tax
         return. Deferred tax assets and liabilities are recognized based on
         anticipated future tax consequences attributable to differences between
         financial statement carrying amounts of assets and liabilities and
         their respective tax bases.

         At March 31, 2006, deferred tax assets consist of the following:

         Net deferred tax assets                      $  721,023
         Less:  valuation allowance                  ($  721,023)
                                                      ------------
                                                      $    -0-
                                                      ============

         At March 31, 2006, the Company had deficits accumulated in the
         approximate amount of $2,403,410, available to offset future taxable
         income through 2024. The Company established valuation allowances equal
         to the full amount of the deferred tax assets due to the uncertainty of
         the utilization of the operating losses in future periods.


F-29


`IELEMENT CORPORATION AND SUBSIDIARY
                         (FORMERLY MAILKEY CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        FOR THE YEARS ENDED MARCH 31, 2006 AND DECEMBER 31, 2004 AND 2003
             AND FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004

NOTE 8-  GOING CONCERN
         -------------

         As shown in the accompanying consolidated financial statements the
         Company has sustained net operating losses for the years ended March
         31, 2006 and December 31, 2004 and 2003 as well as the three months
         ended March 31, 2005 and 2004. There is no guarantee that the Company
         will be able to raise enough capital or generate revenues to sustain
         its operations. This raises substantial doubt about the Company's
         ability to continue as a going concern.

         The Company's future success is dependent upon its ability to achieve
         profitable operations and generate cash from operating activities, and
         upon additional financing.

         There is no guarantee that the Company will be able to raise enough
         capital or generate revenues to sustain its operations. Management
         believes they can raise the appropriate funds needed to support their
         business plan and acquire an operating, cash flow positive company.

         The consolidated financial statements do not include any adjustments
         relating to the recoverability or classification of recorded assets and
         liabilities that might result should the Company be unable to continue
         as a going concern.`

F-30


`ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURENONEITEM 8A. CONTROLS AND PROCEDURESThe Company maintains disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.Based upon our evaluation as of the end of the period covered by this report, the Company's chief executive officer and chief financial officer concluded that the Company's disclosure controls and procedures were not effective to ensure that information required to be included in the Company's periodic SEC filings is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms.A material weakness is a significant deficiency or a combination of significant deficiencies that result in a more than remote likelihood thatn a material misstatement of the annual or interim financial statements will not be prevented or detected.Bagell, Josephs, Levine and Company, LLC, our independent registered public accounting firm, has advised management and the board of directors that it has identified the following material weakness in our internal controls: On July 14, 2006 our auditors identified a material weakness in our internal controls  and procedures that resulted in the misstatement of our financial results. This material  weakness began in March of 2003 and was the result of an ineffective segregation of  duties and inadequate monitoring over financial reporting. One person, our controller,  performed all of the significant accounting tasks, which impacted our ability to accurately  report the recapitalization of ICCC in March 2003. Upon review of this transaction on  July 14, 2006, a restatement was filed to correct the reporting of this transaction by  removing those adjustments related to fair value and goodwill.Since the material weakness originated in March 2003, we have hired two additional accountants to segregate the duties of the accounting staff  and named a CFO, Ivan Zweig,  who now monitors all financial reporting. In addition, we have since implemented a policy  to have the full Board of Directors review both our quarterly and annual financial statements  before filing. Our internal accounting team now has both the personnel and the experience to recognize  and record significant transactions according to GAAP and we have implemented a full review of all financial information by our Board of Directors as well as certification by our CFO.   Management and the Board of Directors believe that the above remedies remediate this material  weakness.
      
       PART III`

**ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT****DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES**The following table sets forth information as of June 5, 2006 regarding the members of our board of directors and our executive officers. All directors hold office until the next annual meeting of shareholders and the election and qualification of their successors. Officers are elected annually by the board of directors and serve at the discretion of the board.

Name                       Age          Position               Since
----                       ---          --------               -----

Ivan Zweig                 33        CEO and Chairman      January 2005
                                     Interim CFO           August 2005

Lance K. Stovall           37        Director              March 2006

Ken A. Willey              31        Director              March 2006

Alex Ponnath               38        Chief Technology
                                     Officer(1)            January 2005

(1) Although Mr. Ponnath is referred to as Chief Technology Officer, he is an independent contractor and not an employee of IElement.


52


IVAN
      ZWEIG (age 33). Mr. Zweig has been our Chairman and Chief Executive Officer
      since January 2005, and has been interim Chief Financial Officer since August
      2005. Mr. Zweig is also the Chief Executive Officer, director and sole
      shareholder of Kramerica, a personnel services corporation. Since December
      1998,
      Mr. Zweig has served as the Chief Executive Officer and director of Integrated
      Communications Consultants Corp. ("ICCC"), a nationwide data carrier
      specializing in high speed Internet access and secure data transaction. From
      February 1998 until March 1999 Mr. Zweig was the Western Region Dedicated Sales
      Manager of NET-tel Communications. He was responsible for Internet sales for
      52
      reps in the Western Region. Previously he employed by MidCom Communications,
      where he was a Sales Manager after being an Account Executive for a short time.
      Despite his association with ICCC Mr. Zweig devotes a minimum of forty hours
      per
      week to IElement.





MidCom
      was purchased by Winstar whereupon all of the management team migrated over
      to
      NET-tel. Before Midcom, Mr. Zweig helped form a joint venture of five
      individuals who invested over $500,000 to fund a health food and nutrition
      franchise called Smoothie King. He purchased the rights to build 18 stores
      in
      the San Francisco Bay Area and sold his interest after building the first two.
      Additionally, in 1995 he started a city magazine called Dallas/Ft.Worth
      Lifestyles. This was Mr. Zweig's first employment venture after college and
      a
      brief stint of playing professional baseball. He attended Tulane University
      and
      was a member of Team USA in 1991, which played in Cuba for the Pan American
      Games. He was also a two-time All-American pitcher while at Tulane. Mr. Zweig
      left Tulane before earning a degree.





Additionally,
      Ivan Zweig, our current Chairman of the Board and Chief Executive Officer of,
      has accepted our appointment as the Chief Financial Officer until such time
      as a
      new Chief Financial Officer is appointed.





LANCE
      K.
      STOVALL (age 37). Mr. Stovall attended Texas Christian University from 1987
      to
      1991 where he earned a B.S. in Neuroscience. From September 2005 to the present
      Mr. Stovall has been the President of Lone Star Valet in Dallas, Texas. From
      October 2003 through September 2005, Mr. Stovall was Vice President of Business
      Development of IElement. Mr. Stovall left his employ with IElement for personal
      reasons and not as a result of any disagreement with the Company. From October
      1999 through September 2003, Mr. Stovall worked for and was a co-founder of
      Zone
      Communications in Los Angeles, California. In 1998 and 1999 Mr. Stovall was
      Director of Operations of Lone Star Valet in Dallas, Texas. From 1993 to 1998
      Mr. Stovall was founder and Vice President of Operations for Excel Student
      Services in Arlington, Texas.





Mr.
      Stovall entered into a Directors Agreement with IElement whereby he agreed
      to
      maintain the confidentiality of our trade secrets and proprietary information
      and to refrain from soliciting our employees or customers for a period of two
      years following the term of the Director's Agreement. We agreed to hold Mr.
      Stovall harmless and indemnify him in his position as a Director, where he
      has
      acted in good faith in the performance of his duties. Finally we agreed to
      compensate Mr. Stovall with 250,000 stock options exercisable at $.01 per share
      and vesting 62,500 each on June 4, 2006, September 4, 2006, December
      4,


2006
      and
      March 4, 2007.


53


KEN
      A.
      WILLEY (age 31). From 2005 through the present, Mr. Willey has been employed
      with Noble Royalties, Inc. From 2004 through 2005 Mr. Willey was regional
      director of McLeod USA. From 2000 through 2004 Mr. Willey was District Sales
      Manager at Logix. From 1997 through 2000 Mr. Willey was District Sales Manager
      for Verizon and from 1992 through 1997 Mr. Willey worked in various capacities
      at Circuit City.





Mr.
      Willey entered into a Directors Agreement with IElement whereby he agreed to
      maintain the confidentiality of our trade secrets and proprietary information
      and to refrain from soliciting our employees or customers for a period of two
      years following the term of the Director's Agreement. We agreed to hold Mr.
      Stovall harmless and indemnify him in his position as a Director, where he
      has
      acted in good faith in the performance of his duties. Finally we agreed to
      compensate Mr. Willey with 250,000 stock options exercisable at $.01 per share
      and vesting 62,500 each on June 4, 2006, September 4, 2006, December 4, 2006
      and
      March 4, 2007.





ALEX
      PONNATH (age 38). Mr. Ponnath attended the University of Munich in Munich,
      Germany where he earned a degree in Communications, then moved to the United
      States in 1993. In 1990 Mr. Ponnath was a founding partner of Outdoor
      Advertising and Sports Marketing Firm, which later he sold to Germany's largest
      outdoor advertiser. He moved to the United States in 1993. From 1996 through
      1999 he worked for the Los Angeles based interconnect firm Nextcom and assumed
      the roll of Senior Network Engineer. From 1999 through 2000 Mr. Ponnath was
      a
      shareholder and Chief Technology Officer for NKOB Networks, a Los Angeles ISP.
      Mr. Ponnath has worked for ICCC, a related party of IElement as Chief Technology
      Officer since February 2000, and then IElement, as Chief Technology Officer
      since January 2005. Mr. Ponnath is an independent contractor.





Resignations.
      On August 3, 2005 we accepted the resignations of Timothy Dean-Smith and Susan
      Walton from their positions on the Board of Directors. Mr. Dean-Smith also
      resigned from his position as Chief Financial Officer of the Company. The
      resignations of Mr. Dean-Smith and Ms. Walton are consistent with the
      expectations of the parties pursuant to the consummation of the merger between
      iElement, Inc. and Mailkey Corporation (the merged entity currently known as
      IElement Corporation) on January 19, 2005.


54


**ITEM
      10. EXECUTIVE COMPENSATION**





(a)
      Compensation.





The
      following table sets forth compensation awarded to, earned by or paid to the
      Company's Chief Executive Officer and the four other most highly compensated
      executive officers with compensation in excess of $100,000 for the three years
      ended March 31, 2006, 2005 and 2004 (collectively, the "Named Executive
      Officers").


SUMMARY COMPENSATION TABLE
                                      --------------------------

                                Annual Compensation                Long Term Compensation Awards
                                -------------------                -----------------------------

                                                                           Securities
                                                             Restricted    Underlying       All other
Name and Principal                   Salary       Bonus        Stock        Options/      compensation
    Position                Year       ($)         ($)        Award(s)      Warrants           ($)
------------------------------------------------------------------------------------------------------
Ivan Zweig, CEO*            2006     300,000          0            0            0              0
                            2005     300,000     45,000       85,000            0              0
                            2004      75,000     15,000            0            0              0

Alex Ponnath, CTO**         2006     132,000          0            0            0              0
                            2005     132,000      6,333            0            0              0
                            2004      33,000          0            0            0              0

Timothy Dean-Smith***       2006           0          0            0            0              0
                            2005     137,448          0            0            0              0
                            2004     136,500          0            0            0              0

Graham Norton-Standen****   2004       7,182          0            0  *
        Includes payments made to Kramerica, Inc.
 
 **
        All
        payments were made to Mr. Ponnath's corporate entity Obelix, Inc.
 
 ***
        On
        August 8, 2005 Timothy Dean-Smith resigned as Chief Financial Officer.Mr.
        Dean-Smith was a former officer and director of MailKey.
 
 ****
        Former Chief Executive Officer and Secretary of MailKey


55


The
      following tables show, as to the named executive officers, certain information
      concerning stock options:


`OPTION GRANTS DURING 2006
                                      -------------------------


                                                         PERCENT OF TOTAL
                                                           OPTIONS GRANTED
                                   NUMBER OF SECURITIES    TO EMPLOYEES IN      EXERCISE OR BASE
NAME                               UNDERLYING OPTIONS      FISCAL YEAR          PRICE ($/SH)            EXPIRATION DATE
----                               ------------------      ----------------     ----------------        ---------------

Calder Capital Inc.                           250,000                                   $0.10              12/30/2007
Christiane Loeberbauer                        125,000                                   $0.10              12/30/2007
Clarence V. Keck Jr                            75,000                                   $0.10              12/30/2007
Film and Music
Entertainment, Inc.                           500,000                                   $0.10              12/30/2007
Frank A. Davis                                100,000                                   $0.10              12/30/2007
Fred J. Matulka                               250,000                                   $0.10              12/30/2007
Fred Schmitz                                2,500,000                                   $0.10              12/30/2007
General Research GMBH                         250,000                                   $0.10              12/30/2007
Gerd Weger                                  5,000,000                                   $0.10              12/30/2007
Glenn L. Jensen                             1,500,000                                   $0.10              12/30/2007
Global Equity Trading &
Finance LTD.                                  250,000                                   $0.10              12/30/2007
Global Equity Trading &
Finance LTD.                                1,000,000                                   $0.10              12/30/2007
Hendrik Paulus                                250,000                                   $0.10              12/30/2007
Holger Pfeiffer                               125,000                                   $0.10              12/30/2007
Jerome Niedfelt                               150,000                                   $0.10              12/30/2007
John Niedfelt                                 100,000                                   $0.10              12/30/2007
Jonathan Lowenthal                            250,000                                   $0.10              12/30/2007
Jorn Follmer                                  250,000                                   $0.10              12/30/2007
Jurgen Popp                                   750,000                                   $0.10              12/30/2007
Kenneth J. Meyer                              500,000                                   $0.10              12/30/2007
Laurence B. Straus                            150,000                                   $0.10              12/30/2007
Marianne Issels                               125,000                                   $0.10              12/30/2007
Matthias Graeve                               125,000                                   $0.10              12/30/2007
Michael Bloch                               1,000,000                                   $0.10              12/30/2007
Michael D. Melson                             250,000                                   $0.10              12/30/2007
Oscar Greene Jr.                              250,000                                   $0.10              12/30/2007
Raymond R. Dunwoodie                          250,000                                   $0.10              12/30/2007
Red Giant Productions,
Inc.                                          250,000                                   $0.10              12/30/2007
Richard R. Crose                              250,000                                   $0.10              12/30/2007
Robert A. Flaster                             100,000                                   $0.10              12/30/2007
Robert A. Smith                               150,000                                   $0.10              12/30/2007
Robert H. Gillman                             250,000                                   $0.10              12/30/2007
Robert R. Rowley                              250,000                                   $0.10              12/30/2007
Ryan Cornelius                                750,000                                   $0.10              12/30/2007
Sat Paul Dewan                                150,000                                   $0.10              12/30/2007
Stefan Muller                                 250,000                                   $0.10              12/30/2007
Thomas Allen Piscula                          250,000                                   $0.10              12/30/2007
Thomas W. Barrett                             100,000                                   $0.10              12/30/2007
Thomas Weiss Dr.                              125,000                                   $0.10              12/30/2007
Timothy M. Broder                             250,000                                   $0.10              12/30/2007
Trey Investments, LLP                          75,000                                   $0.10              12/30/2007
Ulrich Nusser                                 125,000                                   $0.10              12/30/2007
Veronica Kristi Prenn                         750,000                                   $0.10              12/30/2007
Wayne P. Schoenmakers                          50,000                                   $0.10              12/30/2007
William G. Cail                                12,500                                   $0.10              12/30/2007
William Harner                                 75,000                                   $0.10              12/30/2007
William M. Goatley
Revocable Trust FBO
William M Goatley DTD
5/9/89                                        125,000                                   $0.10              12/30/2007
Vista Capital                               2,617,188                                   $0.10               9/12/2010
Vista Capital                               1,046,874                                   $0.13               9/12/2010
Vista Capital                                 261,719                                   $0.10               9/12/2010
Rockwell Capital                            4,000,000                                   $0.10              12/31/2008
Stefan Muller                                 100,000                                   $0.01                3/6/2016
Fred Schmitz                                  100,000                                   $0.01                3/6/2016
Ivan Zweig                                    250,000                                   $0.01                3/4/2016
Lance Stovall                                 250,000                                   $0.01                3/4/2016
Ken Willey                                    250,000                                   $0.01                3/4/2016
Debra Chase                                    50,000             17.54%                $0.01                9/8/2015
Brett Jensen                                   30,000             10.53%                $0.01                9/8/2015
Albert Marerro                                 50,000             17.54%                $0.01                9/8/2015
Eric Mason                                      5,000              1.75%                $0.01                9/8/2015
Mark Mooney                                    20,000              7.02%                $0.01                9/8/2015
Alex Nelson                                    40,000             14.04%                $0.01                9/8/2015
Heather Walther                                40,000             14.04%                $0.01                9/8/2015
Peter Walther                                  50,000             17.54%                $0.01                9/8/2015
                                           31,723,281            100.00%


                                         AGGREGATED OPTIONS EXERCISES IN LAST FISCAL YEAR
                                         ------------------------------------------------
                                                     AND FY-END OPTION VALUES
                                                     ------------------------`

56


`SHARES                       EXERCISABLE   UNEXERCISABLE             EXERCISABLE      UNEXERCISABLE
                                 ACQUIRED      VALUE          OPTIONS OR     OPTIONS OR   EXERCISE
NAME                             ON EXERCISE   REALIZED        WARRANTS       WARRANTS      PRICE     MARKET VALUE     MARKET VALUE
----                             -----------   --------        --------       --------      -----     ------------     ------------

AK Asset Management                                             500,000                     $0.10       $5,000.00           $0.00
Amaltea SA                                                      250,000                     $0.10       $2,500.00           $0.00
Annette Bohmer                                                  250,000                     $0.10       $2,500.00           $0.00
Bellano Family Trust                                            150,000                     $0.10       $1,500.00           $0.00
Benjamin S. Eichholz                                            750,000                     $0.10       $7,500.00           $0.00
Calder Capital Inc.                                             250,000                     $0.10       $2,500.00           $0.00
Christiane Loeberbauer                                          125,000                     $0.10       $1,250.00           $0.00
Clarence V. Keck Jr                                              75,000                     $0.10         $750.00           $0.00
Film and Music Entertainment,
Inc.                                                            500,000                     $0.10       $5,000.00           $0.00
Frank A. Davis                                                  100,000                     $0.10       $1,000.00           $0.00
Fred J. Matulka                                                 250,000                     $0.10       $2,500.00           $0.00
Fred Schmitz                                                  2,500,000                     $0.10      $25,000.00           $0.00
General Research GMBH                                           250,000                     $0.10       $2,500.00           $0.00
Gerd Weger                                                    5,000,000                     $0.10      $50,000.00           $0.00
Glenn L. Jensen                                               1,500,000                     $0.10      $15,000.00           $0.00
Global Equity Trading &
Finance LTD.                                                    250,000                     $0.10       $2,500.00           $0.00
Global Equity Trading &
Finance LTD.                                                  1,000,000                     $0.10      $10,000.00           $0.00
Hendrik Paulus                                                  250,000                     $0.10       $2,500.00           $0.00
Holger Pfeiffer                                                 125,000                     $0.10       $1,250.00           $0.00
Jerome Niedfelt                                                 150,000                     $0.10       $1,500.00           $0.00
John Niedfelt                                                   100,000                     $0.10       $1,000.00           $0.00
Jonathan Lowenthal                                              250,000                     $0.10       $2,500.00           $0.00`

57


`SHARES                       EXERCISABLE   UNEXERCISABLE             EXERCISABLE      UNEXERCISABLE
                                 ACQUIRED      VALUE          OPTIONS OR     OPTIONS OR   EXERCISE
NAME                             ON EXERCISE   REALIZED        WARRANTS       WARRANTS      PRICE     MARKET VALUE     MARKET VALUE
----                             -----------   --------        --------       --------      -----     ------------     ------------

Jorn Follmer                                                    250,000                     $0.10       $2,500.00           $0.00
Jurgen Popp                                                     750,000                     $0.10       $7,500.00           $0.00
Kenneth J. Meyer                                                500,000                     $0.10       $5,000.00           $0.00
Laurence B. Straus                                              150,000                     $0.10       $1,500.00           $0.00
Marianne Issels                                                 125,000                     $0.10       $1,250.00           $0.00
Matthias Graeve                                                 125,000                     $0.10       $1,250.00           $0.00
Michael Bloch                                                 1,000,000                     $0.10      $10,000.00           $0.00
Michael D. Melson                                               250,000                     $0.10       $2,500.00           $0.00
Oscar Greene Jr.                                                250,000                     $0.10       $2,500.00           $0.00
Raymond R. Dunwoodie                                            250,000                     $0.10       $2,500.00           $0.00
Red Giant Productions, Inc.                                     250,000                     $0.10       $2,500.00           $0.00
Richard R. Crose                                                250,000                     $0.10       $2,500.00           $0.00
Robert A. Flaster                                               100,000                     $0.10       $1,000.00           $0.00
Robert A. Smith                                                 150,000                     $0.10       $1,500.00           $0.00
Robert H. Gillman                                               250,000                     $0.10       $2,500.00           $0.00
Robert R. Rowley                                                250,000                     $0.10       $2,500.00           $0.00
Ryan Cornelius                                                  750,000                     $0.10       $7,500.00           $0.00
Sat Paul Dewan                                                  150,000                     $0.10       $1,500.00           $0.00
Stefan Muller                                                   250,000                     $0.10       $2,500.00           $0.00
Thomas Allen Piscula                                            250,000                     $0.10       $2,500.00           $0.00
Thomas W. Barrett                                               100,000                     $0.10       $1,000.00           $0.00
Thomas Weiss Dr.                                                125,000                     $0.10       $1,250.00           $0.00
Timothy M. Broder                                               250,000                     $0.10       $2,500.00           $0.00
Trey Investments, LLP                                            75,000                     $0.10         $750.00           $0.00
Ulrich Nusser                                                   125,000                     $0.10       $1,250.00           $0.00
Veronica Kristi Prenn                                           750,000                     $0.10       $7,500.00           $0.00
Wayne P. Schoenmakers                                            50,000                     $0.10         $500.00           $0.00
William G. Cail                                                  12,500                     $0.10         $125.00           $0.00
William Harner                                                   75,000                     $0.10         $750.00           $0.00
William M. Goatley Revocable
Trust FBO William M Goatley
DTD 5/9/89                                                      125,000                     $0.10       $1,250.00           $0.00
Vista Capital                                                 2,617,188                     $0.10      $26,171.88           $0.00
Vista Capital                                                 1,046,874                     $0.13           $0.00           $0.00
Vista Capital                                                   261,719                     $0.10       $2,617.19           $0.00
Rockwell Capital                                              1,000,000      3,000,000      $0.10      $10,000.00      $30,000.00
Stefan Muller                                                                  100,000      $0.01           $0.00      $10,000.00
Fred Schmitz                                                                   100,000      $0.01           $0.00      $10,000.00
Ivan Zweig                                                                     250,000      $0.01           $0.00      $25,000.00
Lance Stovall                                                                  250,000      $0.01           $0.00      $25,000.00
Ken Willey                                                                     250,000      $0.01           $0.00      $25,000.00
Debra Chase                                                                     50,000      $0.01           $0.00       $5,000.00
Brett Jensen                                                                    30,000      $0.01           $0.00       $3,000.00
Albert Marerro                                                                  50,000      $0.01           $0.00       $5,000.00
Eric Mason                                                                       5,000      $0.01           $0.00         $500.00
Mark Mooney                                                                     20,000      $0.01           $0.00       $2,000.00
Alex Nelson                                                                     40,000      $0.01           $0.00       $4,000.00
Heather Walther                                                                 40,000      $0.01           $0.00       $4,000.00
Peter Walther                                                                   50,000      $0.01           $0.00       $5,000.00
                                        $0.00       $0.00    27,488,281      4,235,000                $264,414.07     $153,500.00`

58


**EMPLOYMENT
      CONTRACTS**





On
      January 18, 2005 we entered into an Employment Agreement with Mr. Zweig in
      the
      form of a Binding Letter of Intent. Pursuant to the Agreement Mr. Zweig is
      the
      Chief Executive Officer of the Company. The terms of the agreement are as
      follows. Mr. Zweig's base salary in the amount of $25,000.00 per month is to
      be
      paid to Kramerica Capital Corporation, a company for which Mr. Zweig is the
      sole
      shareholder, officer and director. Mr. Zweig receives benefits offered to other
      employees of the Company and is to receive 4 weeks of vacation per year. Mr.
      Zweig's reasonable expenses are to be reimbursed. Upon termination without
      cause, all Notes due and owing to Mr. Zweig or his entities are to be paid
      in
      full, all outstanding options are to accelerate and fully vest and be paid
      in
      full, all earned performance bonuses must be paid in full, and all accrued
      vacation pay and other outstanding benefits are to be paid in full. If Mr.
      Zweig
      is terminated for cause, all Notes and other obligations are to be paid within
      60 days. In addition, the Agreement provides for bonus payments following the
      end of the 12th month as follows: for months 13 through 24, a $1,000,000 bonus
      calculated on the closing average revenue number and EDITDA for months 22
      through 24 which revenue number must be $1,250,000 ($15,000,000 annualized)
      per
      month and EBITDA of 15%; for months 25-36 a $2,000,000 bonus if actual revenue
      during months 25-36 reaches $22,500,000 and EBITDA of 18%; and for months 37-48
      a $3,000,000 bonus if actual revenue during months 37-48 reaches $30,000,000
      and
      EBITDA of 21%. Bonuses are payable in promissory notes. The term of the
      Agreement is 48 months, provided however, that the Agreement may be immediately
      terminated if the Notes due to Mr. Zweig are declared in default. Although
      the
      Notes are 6 months behind, Mr. Zweig has not declared a default or terminated
      the employment agreement. Clause 10 to the employment contract inadvertently
      stated "intentionally omitted" rather than "reserved for future
      use".





We
      do not
      have an employment contract with any other executive officer. We may in the
      future create retirement, pension, profit sharing and medical reimbursement
      plans covering our Executive Officers and Directors.





(h)
      The
      company has made no Long Term Compensation payouts (LTIP or other)





**DIRECTOR
      COMPENSATION**





Our
      former Director Susan Walton received compensation of $30,000 during the fiscal
      year end March 31, 2005 and $20,000 during the fiscal year end March, 2006
      for
      serving on the Board of Directors of the Company.





We
      agreed
      to compensate Mr. Stovall with 250,000 stock options exercisable at $.01 per
      share and vesting 62,500 each on June 4, 2006, September 4, 2006, December
      4,
      2006 and March 4, 2007. In addition, we agreed to compensate Mr. Willey with
      250,000 stock options exercisable at $.01 per share and vesting 62,500 each
      on
      June 4, 2006, September 4, 2006, December 4, 2006 and March 4,
      2007.


59


**ITEM
        11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
        MANAGEMENT**
 
 The
        following table sets forth as of June 27, 2006, the number of outstanding
        common
        shares of Company beneficially owned by (i) each person known to the Company
        to
        beneficially own more than 5% of its outstanding common shares, (ii) each
        director, (iii) each nominee for director, (iv) each executive officer listed
        in
        the Summary Compensation Table, and (iv) all executive officers and directors
        as
        a group.
  --------------------------------- ------------------------- --------------------
Owner                                Common Shares(2)           Percentage
--------------------------------- ------------------------- --------------------
Ivan Zweig(1)                         18,967,576(1)               11.95%
--------------------------------- ------------------------- --------------------
Lance Stovall(3)                         318,776                   0.00%
--------------------------------- ------------------------- --------------------
Ken Willey(4)                            125,000                   0.00%
--------------------------------- ------------------------- --------------------
Barry Brault(5)                       10,032,682                   6.31%
--------------------------------- ------------------------- --------------------
Gerd Weger(6)                         15,000,000                   9.45%
--------------------------------- ------------------------- --------------------
Officers and directors as a
group (3 persons)                     19,411,052                   11.95%
--------------------------------- ------------------------- --------------------
 (1) An officer and director. Comprised of 85,000 shares of common stock owned by Mr. Zweig individually; 18,685,966 shares of common stock owned by Kramerica Corporation, an entity in which Mr. Zweig is the sole shareholder, officer and director; and 196,610 shares of common stock owned by Mr. Zweig's spouse.(2) Includes common shares underlying warrants and vested options and warrants and options which shall become exercisable or vest within 60 days from the date of this prospectus.(3) Director. Comprised of 193,776 shares of common stock, 62,500 vested options to purchase common stock and 62,500 options to purchase common stock vesting in the next 60 days.(4) Director. Comprised of 62,500 vested options to purchase common stock and 62,500 options to purchase common stock vesting in the next 60 days.(5) A beneficial owner of more than 5% of outstanding common shares(6) A beneficial owner of more than 5% of outstanding common sharesThere are no family relationships among our directors and executive officers. Except as set forth below, no director or executive officer has been a director or executive officer of any business which has filed a bankruptcy petition or had a bankruptcy petition filed against it. No director or executive officer has been convicted of a criminal offense or is the subject of a pending criminal proceeding. No director or executive officer has been the subject of any order, judgment or decree of any court permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities. No director or officer has been found by a court to have violated a federal or state securities or commoditieslaw.


60


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





None
      of
      our directors or executive officers or their respective immediate family members
      or affiliates is indebted to us. As of the date of this prospectus, there is
      no
      material proceeding to which any of our directors, executive officers or
      affiliates is a party or has a material interest adverse to us.





Mr.
      Zweig
      is also the Chief Executive Officer, director and sole shareholder of Kramerica,
      a personnel services corporation. Since December 1998, Mr. Zweig has served
      as
      the Chief Executive Officer and director of Integrated Communications
      Consultants Corp. ("ICCC"), a nationwide voice and data carrier specializing
      in
      high speed Internet access and secure data transaction. ICCC provides IElement
      with resold telecom services and IElement pays ICCC approximately $100,000
      on a
      monthly basis for such services. On October 1, 2004, ICCC filed for Chapter
      11
      bankruptcy protection in the United States Bankruptcy Court, Northern District
      of Texas, Dallas Division. ICCC's plan of reorganization was approved by the
      Bankruptcy Court on April 26, 2006.





On
      January 19, 2005, IElement issued promissory notes to, Kramerica, certain
      members of Mr. Zweig's immediate family and others in the aggregate amount
      of
      $376,956.16 (the "Notes") with no interest. Upon issuance, the Notes were
      payable in 36 monthly installments with the first payment commencing six months
      after the closing of the merger and were secured by substantially all of the
      assets of IElement. IElement did not make any payments on the
      Notes.





On
      March
      25, 2006 each of the Notes were cancelled and IElement issued new convertible
      promissory notes to the same individuals in the same principal amount of
      $376,956.16, again with no interest thereon. In particular, both the January
      19,
      2005 Notes and the amended March 25, 2006 convertible promissory notes were
      issued to: Heather Walther, Mr. Zweig's wife ($20,000); Kramerica, Inc., Mr.
      Zweig's personal use corporation ($120,000); Mary Francis Trait Trust, Mr.
      Zweig's deceased grandmother's trust for which Mr. Zweig's mother, Heather
      Zweig
      serves as trustee ($55,611.15); Peter Walther, Mr. Zweig's brother in law
      ($30,000); Richard Zweig and Richard Zweig IRA, Mr. Zweig's father (aggregate
      of
      $47,500); and Strait Grandchildren Trust, Mr. Zweig's deceased grandmother's
      trust for which Mr. Zweig's mother, Heather Zweig serves as trustee
      ($103,845.01). The first payment on each of the new convertible promissory
      notes
      is due in September 2006 with a total of 36 monthly installments through August
      2009. The Lender has the right to convert all or a portion of the outstanding
      balance, at any time until the notes are paid in full, into IElement's common
      stock at a conversion price of $0.035 per share. Any past due balance on the
      old
      Notes was forgiven at the time of cancellation of the old Notes and issuance
      of
      the new convertible promissory notes. The new convertible promissory notes
      are
      secured by substantially all the assets of IElement as were the original
      Notes.


61





**ITEM
      13. EXHIBITS**





(a)
      Financial Statements and Schedules. The following financial


statements
      and schedules for the Company as of March 31,2006 are filed as part


of
      this
      report.





(1)
      Financial statements of the IElement, Inc. and


subsidiaries.





(2)
      Financial Statement Schedules:





All
      schedules are omitted because they are not applicable or the
      required


information
      is shown in the financial statements or notes thereto.





(b)
      Reports on Form 8-K








**EXHIBIT INDEX**

Exhibit No.        Description of Exhibits
-----------        -----------------------

2.1      Agreement and Plan of Merger, dated February 20, 2004, by and among
         Global Diversified Acquisition Corp., G.D. Acquisition Corp., MK Secure
         Solutions Limited and Westvale Consulting Limited.*

2.2      First Amendment to Agreement and Plan of Merger, dated March 23, 2004,
         by and among Global Diversified Acquisition Corp., G.D. Acquisition
         Corp., MK Secure Solutions Limited and Westvale Consulting Limited. *

2.3      Agreement and Plan of Merger, dated November 9, 2004, by and among
         Mailkey Corporation, Mailkey Acquisition Corp., IElement, Inc. and
         Ivan Zweig. *

2.4      First Amendment and Waiver to Agreement and Plan of Merger, dated
         December 30, 2004, by and among Mailkey Corporation, Mailkey
         Acquisition Corp., IElement, Inc. and Ivan Zweig. *

3(i).1   Articles of Incorporation. *

3(i).2   Amendment to Articles of Incorporation*

3(i).3   Amendment to Articles of Incorporation*

3(i).4   Amendment to Articles of Incorporation*

3(i).5   Certificate of Correction*

3(i).6   Amended Articles of Incorporation of Mailey Corporation dated August 1,
         2005. *


62




Exhibit No.        Description of Exhibits
-----------        -----------------------

3(ii)    Restated By-Laws of IElement*

10.1     Employment Agreement with Ivan Zweig in the form of Binding Letter of
         Intent dated January 18, 2005*

10.2     Form of Warrant*

10.3     Form of Amended and Restated Convertible Secured Promissory Notes dated
         March 25, 2006*

10.4     Integrated Communications Consultants Corporation Master Services
         Agreement by and between Integrated Communications Consultants
         Corporation and IElement, Inc. dated April 30, 2003. *

10.5     Lease Agreement between IElement, Inc. and 13714 Gamma, Ltd dated June
         9, 2005. *

10.6     Form of Vista Capital warrant*

21.0     List of Subsidiaries**

31.1     Certification pursuant to Sarbanes-Oxley Sec. 302

32.1     Certification pursuant to 18 U.S.C. Sect. 1350

         * Previously filed with Amendment No. 2 to Registration Statement on
Form SB-2 filed on June 6, 2006.

         ** Previously filed with Amendment No. 3 to Registration Statement on
Form SB-2 filed on July 18, 2006.


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





**AUDIT
      FEES**





The
      Company was billed $47,750 for the fiscal year ended March 31, 2006 and $19,500
      for the fiscal year ended March 31, 2005, for professional services rendered
      by the principal accountant for the audit of the Company's annual financial
      statements, the review of our quarterly financial statements, and other
      services performed in connection with our statutory and regulatory filings.
      These services also included updating the audits for our registration statement
      and review of the quarterly financial statements of the Company's acquiree.


63





**AUDIT
      RELATED FEES**





There
      were $12,000 in audit related fees for the fiscal years ended March 31, 2006
      and
      audit related fees are included in the audit fees for fiscal year end March
      31,
      2005. Audit related fees include fees for assurance and related services
      rendered by the principal accountant related to the audit or review of our
      financial statements, not included in the foregoing paragraph.





**TAX
      FEES**





Tax
      fees
      were $700 for the fiscal year ended March 31, 2006.





**ALL
      OTHER FEES**





There
      were no other professional services rendered by our principal accountant during
      the last two fiscal years that were not included in the above
      paragraphs.





The
      Company's Board of Directors reviews and approves audit and permissible non-audit
      services performed by its independent accountants, as well as the fees charged
      for such services. In its review of non-audit service fees and its appointment
      of Bagell, Josephs & Levine, CPA's as the Company's independent accountants,
      the Board of Directors considered whether the provision of such services
      is compatible with maintaining independence.


64







**SIGNATURES**





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








Date:
      August 22 , 2006





**IELEMENT
      CORPORATION**





By:
      /s/
      Ivan Zweig


------------------------------


Name:
      Ivan Zweig


Title:
      Chief Executive Officer,


Chairman
      and Principal Accounting Officer


Chief
      Financial Officer







In
      accordance with the Exchange Act, this report has been signed below by
      the
      following persons on behalf of the registrant and in the capacities and on
      the
      dates indicated.








IVAN
      ZWEIG




/s/
      Ivan
      Zweig


------------------------------


Name:
      Ivan Zweig


Title:
      Chief Executive Officer,


Chairman,
      Chief Financial Officer and


Principal
      Accounting Officer


Director





LANCE
      K.
      STOVALL





/s/
      Lance
      K. Stovall


-------------------------------


Name:
      Lance K. Stovall


Title:
      Director






KEN
      WILLEY


/s/ Ken
        Willey
  Ken
        Willey
 Title:
        Director




65