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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB
                  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
        ----------------------------------------------------------------
           (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]

No 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





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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]

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                              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............................................. 59

Item 12. Certain Relationships and Related Transactions...................... 60

Item 13. Exhibits............................................................ 61

Item 14. Principal Accountant fees and services.............................. 62

Signatures................................................................... 64

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                                     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.

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         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.

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         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.

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         As of June 5, 2006 IElement consists of IElement Corporation, a Nevada
corporation, which is the reporting entity 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 two
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.


         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


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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.

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         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;

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         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




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         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, I-Element 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.

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         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.

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         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


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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

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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.

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         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




<PAGE>

         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




<PAGE>

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




<PAGE>

                                  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 23, 2006, I-Element 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, I-Element 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, I-Element 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




<PAGE>

         On March 23, 2006, I-Element 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, I-Element 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, I-Element 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, I-Element 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, I-Element 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, I-Element 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, I-Element 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




<PAGE>

         On February 1, 2006, I-Element 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, I-Element 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, I-Element 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, I-Element 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, I-Element 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, I-Element 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, I-Element 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, I-Element 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, I-Element 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, I-Element 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, I-Element 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




<PAGE>

         On January 12, 2006, I-Element 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, I-Element 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, I-Element 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




<PAGE>

         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:

<TABLE>

                                     Purchase           Shares        Shares issued on
Purchaser                             Price           Purchased      exercise of warrant
------------------------           -----------        ---------      -------------------
<S>                                <C>                <C>              <C>
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




<PAGE>

                                     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
                                   ===========      ===========      ===========
</TABLE>

                                       24




<PAGE>

         On 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 Section 4(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




<PAGE>

         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




<PAGE>

         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 I-Element, 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 I-Element 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




<PAGE>

         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




<PAGE>

         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




<PAGE>

         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




<PAGE>

         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




<PAGE>

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




<PAGE>

         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




<PAGE>

         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




<PAGE>

         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 I-Element'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




<PAGE>

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
$1,842,017 compared to $710,974 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 for the period ended
March 31, 2006 was $486,802, or less than half a penny per share.

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 $1,842,017 for the fiscal year
ended March 31, 2006, compared to a loss of $710,974 for the period ended
December 31, 2004. Net loss per common share was $0.02 for the fiscal year ended
March 31, 2006, and $0.06 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. In addition, for both periods the Company had a large amortization
expense for the customer list it purchased in 2003.


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




<PAGE>

         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 I-Element 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, I-Element 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, I-Element will require additional funds,
above its operating revenues, to sustain operations and grow the business. In
this event, I-Element 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 I-Element 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 I-Element 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 I-Element 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, I-Element 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 I-Element.
I-Element did not make any payments on the Notes.

                                       37




<PAGE>

         On March 25, 2006 each of the eight (8) Notes were cancelled and
I-Element 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 I-Element'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 I-Element as were the original Notes.

         On August 8, 2005, I-Element 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. I-Element did not
make the February, 2006 payment.

         On March 25, 2006 each of the four (4) Notes were cancelled and
I-Element 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 I-Element'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 I-Element 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 I-Element's outstanding shares with I-Element 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 I-Element 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, I-Element is past due
approximately $15,000 on the Palladian note but is making regular monthly
payments in the amount of $2500.

                                       38




<PAGE>

         I-Element'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, I-Element 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
I-Element 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 I-Element's current debt obligations. I-Element
intends to satisfy its debt repayment obligations through a combination of the
following. First, through cash flows from current business operations. Second,
I-Element 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,
I-Element 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




<PAGE>

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.


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




<PAGE>

         -        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 $3,665,578 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




<PAGE>

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 I-Element 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.

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<PAGE>

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




<PAGE>

         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




<PAGE>

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




<PAGE>

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 payable in periodic payment beginning on May 2,
2006 and ending on July 2, 2006.

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 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.

                                       46




<PAGE>

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




<PAGE>

                  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




<PAGE>

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




<PAGE>

         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




<PAGE>

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.


                                       51




<PAGE>

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









<PAGE>



                       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-4-5

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-6-7

Notes to Consolidated Financial Statements                                F-8-30







<PAGE>




                    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.

The Company has restated its previously issued consolidated financial statements
for the years ended December 31, 2004 and 2003 and the three months ended March
31, 2005. The Company reclassified from amounts recorded as Goodwill in a 2003
transaction to an acquisition of Customer Lists. The effect of this
reclassification was to recognize the amortization of the Customer Lists for the
periods indicated above. The net effect on operations was to increase net loss
and accumulated deficits of the Company for each period restated. The amounts
recognized were $415,933, $311,950 and $103,983 for the December 31, 2004,
December 31, 2003 and the March 31, 2005 periods, respectively. See note (9).

/s/ BAGELL, JOSEPHS LEVINE & COMPANY, L.L.C.
BAGELL, JOSEPHS LEVINE & COMPANY, L.L.C.
Certified Public Accountants
Gibbsboro, New Jersey

June 28, 2005

MEMBER OF:      AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
                NEW JERSEY SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS
                PENNSYLVANIA INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS


                                      F-1




<PAGE>
<TABLE>


                        IELEMENT CORPORATION AND SUBSIDIARY
                           (formerly Mailkey Corporation)
                             CONSOLIDATED BALANCE SHEET
                                   March 31, 2006


                                       ASSETS
                                                                        March 31,
                                                                          2006
                                                                       -----------
<S>                                                                    <C>
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:
  Customer List, net of amortization                                       831,865
  Deposits                                                                 118,487
                                                                       -----------

          TOTAL OTHER ASSETS                                               950,352
                                                                       -----------

TOTAL ASSETS                                                           $ 2,881,680
                                                                       ===========

                   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                                             3,155,447
  Additional paid-in capital - warrants                                    177,757
  Unearned compensation expense                                            (12,200)
  Accumulated deficit                                                   (3,665,578)
                                                                       -----------

      TOTAL STOCKHOLDERS' EQUITY (DEFICIT)                                (185,539)
                                                                       -----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                   $ 2,881,680
                                                                       ===========

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

                                        F-2





<PAGE>


                                            IELEMENT CORPORATION AND SUBSIDIARY
                                              (formerly Mailkey Corporation)
                                           CONSOLIDATED STATEMENTS OF OPERATIONS
                             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

                                                            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                                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                    695,331         676,739         471,020         172,147         164,386
   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                 6,392,109       6,540,678       5,063,539       1,749,479       1,616,132
                                            -------------   -------------   -------------   -------------   -------------

INCOME (LOSS) BEFORE OTHER (EXPENSE)           (1,842,017)       (585,906)       (511,103)       (521,068)        (85,705)
                                            -------------   -------------   -------------   -------------   -------------

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     (1,842,017)       (710,974)       (577,006)       (521,068)       (172,263)

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

NET LOSS APPLICABLE TO COMMON SHARES        $  (1,842,017)  $    (710,974)  $    (577,006)  $    (521,068)  $    (172,263)
                                            =============   =============   =============   =============   =============

NET LOSS PER BASIC AND DILUTED SHARES       $       (0.02)  $       (0.06)  $    (577,006)  $       (0.01)  $       (1.00)
                                            =============   =============   =============   =============   =============

WEIGHTED AVERAGE NUMBER OF COMMON
    SHARES OUTSTANDING                        105,125,992      11,344,053               1      56,697,484         171,863
                                            =============   =============   =============   =============   =============


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

                                                            F-3



<PAGE>



<PAGE>

                                                 IELEMENT CORPORATION AND SUBSIDIARY
                                                   (formerly MailKey Corporation)
                               CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' (DEFICIT) - AUDITED
                                      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                  1   $         --   $         --   $         --  $   (265,056)  $         --   $   (265,056)

Prior period adjustment,
  Note 9                               --             --             --             --      (311,950)            --       (311,950)
                             ------------   ------------   ------------   ------------  ------------   ------------   ------------

Balance, December 31, 2003,
  (Restated)                            1             --             --             --      (577,006)            --       (577,006)
                             ------------   ------------   ------------   ------------  ------------   ------------   ------------

Issuance of common stock in
  exchange for redemption of
  shares of Integrated
  Communications Consultants
  Corporation ("ICCC") -
  recapitalization             14,369,367         14,369             --             --       (14,369)            --             --

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

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 as
  originally stated                    --             --             --             --      (295,041)            --       (295,041)

Prior period adjustment,
  Note 9                               --             --             --             --      (415,933)            --       (415,933)
                             ------------   ------------   ------------   ------------  ------------   ------------   ------------

Balance, December 31,
  2004, (Restated)             15,204,255         15,203        371,685             --    (1,302,493)            --       (915,605)
                             ------------   ------------   ------------   ------------  ------------   ------------   ------------


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, as
  originally stated                    --             --             --             --      (417,085)            --       (417,085)

Prior period adjustment,
  Note 9                               --             --             --             --      (103,983)            --       (103,983)
                             ------------   ------------   ------------   ------------  ------------   ------------   ------------

Balance March 31, 2005
  (Restated)                   91,783,730   $     91,783   $    921,198   $         --  $ (1,823,561)  $         --   $   (810,580)
                             ============   ============   ============   ============  ============   ============   ============


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

                                                                 F-4


<PAGE>

                                                 IELEMENT CORPORATION AND SUBSIDIARY
                                                   (formerly MailKey Corporation)
                         CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' (DEFICIT) - AUDITED (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      RESTATED
                             ------------   ------------   ------------   ------------  ------------   ------------
                                                                          ADDITIONAL
                                                            ADDITIONAL     PAID - IN                    UNEARNED
                                     COMMON STOCK           PAID - IN       CAPITAL-    ACCUMULATED   COMPENSATION
                                SHARES         AMOUNT        CAPITAL        WARRANTS      DEFICIT        EXPENSE         TOTAL
                             ------------   ------------   ------------   ------------  ------------   ------------   ------------

Balance, March 31, 2005
  (Restated)                   91,783,730   $     91,783   $    921,198             --  $ (1,823,561)  $         --   $   (810,580)
                             ------------   ------------   ------------   ------------  ------------   ------------   ------------

Issuance of 1,500,000 shares
  at $0.05 per share for
  services                      1,500,000          1,500         73,500             --            --             --         75,000

Issuance of 340,000 shares at
  $0.025 per share for
  conversion of accounts
  payable                         340,000            340          8,160             --            --             --          8,500

Cancelation of 1,498,195 shares
  at $0.025 per share for
  services rendered            (1,498,195)        (1,498)       (35,957)            --            --             --        (37,455)

Issuance of 300,000 shares
  at $0.02 per share for
  services rendered               300,000            300          5,700             --            --             --          6,000

Issuance of 175,000 shares
  at $0.02 per share for
  conversion of accounts
  payable                         175,000            175          3,325             --            --             --          3,500

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

Issuance of 2,000,000 shares
  at $0.04 per share for
  services rendered             2,000,000          2,000         78,000             --            --             --         80,000

Issuance of 1,596,311
  shares at $0.05 per share
  for conversion of
  accounts payable              1,596,311          1,597         70,238             --            --             --         71,835

Issuance of 30,219 shares at
  $0.05 per share for conversion
  of accounts payable              30,219             30          1,330             --            --             --          1,360

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

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

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

Issuance of 44,875,000
  shares at $0.035 per share
  for cash                     44,875,000         44,875      1,525,750             --            --             --      1,570,625

Stock issuance costs                   --             --       (216,563)            --            --             --        (38,806)

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

Issuance of 250,000 shares
  at $0.035 per share for
  services rendered               250,000            250          8,500             --            --             --          8,750

Issuance of 3,380,000 shares
  for conversion of
  accounts payable              3,380,000          3,380        140,620             --            --             --        144,000

Issuance of 914,286 shares
  at $0.035 per share for
  services rendered               914,286            914         31,086             --            --             --         32,000

Issuance of 5,870,000 shares
   for services rendered        5,870,000          5,870        340,130             --            --             --        346,000

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

Issuance of 168,680 shares at
  $0.11 per share for
  conversion of accounts
  payable                         168,680            169         18,385             --            --             --         18,555

Issuance of 4,700,000
  shares at $0.05 per share
  for conversion of notes
  payable                       4,700,000          4,700        230,300             --            --             --        235,000

Issuance of 2,150,000 shares
  for conversion of accounts
  payable                       2,150,000          2,150        105,350             --            --             --        107,500

Net loss for the year
  ended March 31, 2006                 --             --             --             --    (1,842,017)            --     (1,842,017)
                             ------------   ------------   ------------   ------------  ------------   ------------   ------------

Balance March 31, 2006        159,035,031   $    159,035   $  3,155,447   $    177,757  $ (3,665,578)  $    (12,200)  $   (185,539)
                             ============   ============   ============   ============  ============   ============   ============



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

                                                                F-55



<PAGE>


                                                IELEMENT CORPORATION AND SUBSIDIARY
                                                  (formerly Mailkey Corporation)
                                               CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 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

                                                                           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)                                                 $(1,842,017)  $  (710,974)  $  (577,006)  $  (521,068)  $  (172,263)
                                                              -----------   -----------   -----------   -----------   -----------

   ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
     PROVIDED BY (USED IN) OPERATING ACTIVITIES:
     Depreciation and amortization                                695,331       676,739       471,020       172,147       164,386
     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
                                                              -----------   -----------   -----------   -----------   -----------

     Total adjustments                                          1,022,953       716,439       500,037       690,828       205,027
                                                              -----------   -----------   -----------   -----------   -----------

     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-6




<PAGE>


                                                IELEMENT CORPORATION AND SUBSIDIARY
                                         CONSOLIDATED STATEMENTS OF CASH FLOWS (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

                                                                         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    $     4,123    $         0    $         0    $     4,123
                                                          ===========    ===========    ===========    ===========    ===========

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

    Debt converted to accounts payable                    $         0    $         0    $         0    $   126,000    $         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-7
</TABLE>





<PAGE>


                       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-8




<PAGE>


                       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-9




<PAGE>

                       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-10




<PAGE>

                       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.






                                      F-11




<PAGE>

                       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.



                                      F-12




<PAGE>

                       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)

         The Company defers revenue from the date invoiced, usually the 28th day
         of the month 2 months prior to completion of rendering services, 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, collectibility
         must be reasonably assured. The Company invoices prior to rendering
         services and can thereby recognize a problem in payment prior to
         providing services. When the Company recognizes such a problem or
         potential problem, the Company will not record the amount in question
         as revenue until the cash is collected from that customer. The Company
         immediately writes down bad debt and the Company utilizes an allowance
         for doubtful receivables, thereby satisfying this criterion.

         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-13




<PAGE>

                       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-14




<PAGE>


                       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-15




<PAGE>

                       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:
<TABLE>
<S>            <C>
                                           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                ($  1,842,017)   ($    710,974)   ($    557,006)   ($    521,068)   ($    172,263)

Weighted average
common shares
outstanding (Basic)       105,125,992       11,344,053                1       56,697,484          171,863

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

Weighted average
common shares
outstanding (Diluted)     105,125,992       11,344,053                1       56,697,484          171,863
</TABLE>

         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. Including the options and warrants
         outstanding for the year ended March 31, 2006 would have been
         anti-dilutive.



                                      F-16




<PAGE>

                       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 is amortizing a customer list
         acquired in 2003 over 5 years. Customer list amortization expense was
         $415,933, $415,933 and $311,950 for the years ended March 31, 2006,
         December 31, 2004 and 2003, respectively. Amortization expense was
         $103,983 and $103,983 for the three months ended March 31, 2005 and
         2004.

         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-17




<PAGE>

                       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 $0, $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-18




<PAGE>

                       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




<PAGE>

                       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-20




<PAGE>

                       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-21




<PAGE>


                       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-22




<PAGE>

                       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-23




<PAGE>

                       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-24




<PAGE>

                       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-25




<PAGE>

                       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-26




<PAGE>

                       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-27




<PAGE>

                       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                      $  1,099,673
         Less:  valuation allowance                  ($  1,099,673)
                                                      -------------
                                                      $         -0-
                                                      =============

         At March 31, 2006, the Company had deficits accumulated in the
         approximate amount of $3,665,578, 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-28




<PAGE>

                       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.


NOTE 9-  RESTATEMENT
         -----------

         During the course of the Company's annual test for impairment of
         Goodwill, the Company determined that it should reclassify the entire
         balance of Goodwill it had been carrying on its books as the purchase
         of a customer list. The Goodwill balance of $2,079,665 was the result
         of a transaction with Integrated Communications Consultants Corporation
         (ICCC) in 2003 whereby IElement acquired substantially all of the
         assets of ICCC in exchange for IElement common stock.

         Because the main purpose of the transaction was for IElement to acquire
         ICCC's customer list and because the value of that customer list is
         presumed to amortize over time, the Company has restated its financials
         for the years ended December 31, 2003 and 2004 as well as the three
         months ended March 31, 2005.



                                      F-29




<PAGE>

                       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 9-  RESTATEMENT (CONTINUED)
         -----------------------

         This restatement amortizes the value of the customer list acquired from
         ICCC over five years and results in an additional annual amortization
         expense of $415,933.

                                                      AS
                                                   ORIGINALLY        AS
                                                    REPORTED       RESTATED
                                                  -----------    -----------
          YEAR ENDED DECEMBER 31, 2003

          Net Loss                                ($  265,065)   ($  577,006)
                                                  -----------    -----------

          Accumulated (Deficit)                   ($  265,065)   ($  577,006)
                                                  -----------    -----------

          Net Loss per Basic and Diluted Shares   $        --    $        --
                                                  -----------    -----------


          YEAR ENDED DECEMBER 31, 2004

          Net Loss                                ($  295,041)   ($  710,974)
                                                  -----------    -----------

          Accumulated (Deficit)                   ($  574,610)   ($1,302,493)
                                                  -----------    -----------

          Net Loss per Basic and Diluted Shares   ($     0.03)   ($     0.06)
                                                  -----------    -----------


          THREE MONTHS ENDED MARCH 31, 2005

          Net Loss                                ($  417,085)   ($  521,068)
                                                  -----------    -----------

          Accumulated (Deficit)                   ($  991,695)   ($1,823,561)
                                                  -----------    -----------

          Net Loss per Basic and Diluted Shares   ($     0.01)   ($     0.01)
                                                  -----------    -----------









<PAGE>

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

         NONE

ITEM 8A. CONTROLS AND PROCEDURES

         The chief executive officer and chief financial officer of the Company,
after conducting an evaluation of the effectiveness of the design and operation
of the Company's disclosure controls and procedures as of a date within 90 days
of the filing of this report, has concluded that the Company's disclosure
controls and procedures were effective to ensure that information required to be
disclosed by it in its reports filed or submitted under the Securities Exchange
Act of 1934 (the "Exchange Act") is recorded, processed summarized and reported
within the time periods specified in the rules and forms of the Securities and
Exchange Commission (the "SEC"). There were no significant changes in the
Company's internal controls or in other factors that could significantly affect
these controls subsequent to that evaluation, and there were no significant
deficiencies or material weaknesses in such controls requiring corrective
actions.

                                    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 I-Element.

                                       52




<PAGE>

         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




<PAGE>

         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 I-Element as Chief
Technology Officer since February 2000, and then I-Element, 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




<PAGE>

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").

<TABLE>
<S>     <C>
                                     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




<PAGE>

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

Rockwell Capital         4,000,000             n/a                     $0.10             12/31/08
Stefan Muller              100,000             n/a                     $0.01             3/6/16
Fred Schmitz               100,000             n/a                     $0.01             3/6/16
Ivan Zweig                 250,000             n/a                     $0.01             3/4/16
Lance Stovall              250,000             n/a                     $0.01             3/4/16
Ken Willey                 250,000             n/a                     $0.01             3/4/16



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

                                 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


                                       56




<PAGE>

                                 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
</TABLE>
                                       57




<PAGE>

         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)

         Directors 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.

                                       58




<PAGE>

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%
--------------------------------- ------------------------- -----------------
Barry Brault(3)                    11,042,682                6.96%
--------------------------------- ------------------------- -----------------
Gerd Weger(4)                      15,000,000                9.45%
--------------------------------- ------------------------- -----------------

Officers and directors as a
group (1 persons)                  23,967,576                28.36%
--------------------------------- ------------------------- -----------------

(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) A beneficial owner of more than 5% of outstanding common shares

(4) A beneficial owner of more than 5% of outstanding common shares

         There 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 commodities
law.

                                       59




<PAGE>

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 I-Element with resold telecom services and I-Element 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, I-Element 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 I-Element. I-Element did not make any payments on the Notes.

         On March 25, 2006 each of the Notes were cancelled and I-Element 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 I-Element'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 I-Element as were the original Notes.

                                       60




<PAGE>

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 I-Element, 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., I-Element, 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., I-Element, 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. *

                                       61




<PAGE>

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

3(ii)    Restated By-Laws of I-Element*

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.


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.

                                       62




<PAGE>

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.

                                       63




<PAGE>

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:  June 29, 2006       IELEMENT CORPORATION

                           By: /s/ Ivan Zweig
                               ------------------------------
                           Name:   Ivan Zweig
                           Title:  Chief Executive Officer,
                                   Chairman and Principal Accounting 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 and Principal Accounting Officer
                                   Director

                           LANCE K. STOVALL

                           /s/ Lance K. Stovall
                           -------------------------------
                           Name:   Lance K. Stovall
                           Title:  Director

                                       64