**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, 2007





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 not required to file reports


pursuant
      to Section 13 or Section 15(d) of the Act. [ ]





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


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


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


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


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










Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and will
      not be contained, to the best of registrant's knowledge, in a definitive proxy
      or information statements incorporated by reference in Part III of this Form
      10-K or any amendment to this Form 10-K. [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. $3,776,639





Aggregate
      market value of the voting stock held by non-affiliates of the registrant as
      of
      June 29, 2007. $2,994,084





Number
      of
      outstanding shares of the registrant's par value $.001 common stock, as of
      July
      16, 2007: 280,912,220.





**DOCUMENTS
      INCORPORATED BY REFERENCE**





None





Transitional
      Small Business Disclosure Format (Check One):





Yes
      [ ]
      No [X]









**IELEMENT
      CORPORATION**


**FORM
      10-KSB**


**INDEX**




**Part
      I**




Item
      1.
      Business
      ....................................................................................................................
      5





Item
      2.
      Description of Property.............................................
      .............................................13





Item
      3.
      Legal
      Proceedings...................................................................................................
      13





Item
      4.
      Submission of Matters to a Vote of Security
      Holders....................................... 13





**Part II**





Item
      5.
      Market for Registrant's Common Equity and


Related
      Stockholder
      Matters.............................................................................................
      14





Item
      6.
      Management's Discussion and
      Analysis...........................................................
      18




Item
        7.
        Financial Statements and Supplementary
        Data.................................................F-1
 
 Item
        8.
        Changes in and Disagreements with Accountants
 on
        Accounting and Financial
        Disclosure........................................................................
        56
 
 Item
        8A.
        Controls and Procedures
        ..................................................................................
        56










**Part III**





Item
      9.
      Directors, Executive Officers, Promoters and


Control
      Persons; Compliance with Section 16(a)


of
      the
      Exchange
      Act..........................................................................................................
      57





Item
      10.
      Executive
      Compensation....................................................................................
      59





Item
      11.
      Security Ownership of Certain Beneficial Owners


and
      Management................................................................................................................
      61





Item
      12.
      Certain Relationships and Related
      Transactions............................................ 62





Item
      13.
      Exhibits..................................................................................................................
      63





Item
      14.
      Principal Accountant fees and
      services...........................................................
      65





Signatures.............................................................................................................................66









**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.




4




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.




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.





On
      August
      8, 2005, Tim Dean-Smith and Susan Walton resigned their positions on the Board
      of Directors (the “Board”) 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 did 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.





In
      March
      2006, Ivan Zweig, as the only Director, appointed Lance Stovall and Ken Willey
      to the Board of Directors until the next annual meeting, when all three
      Directors were up for re-election.




On
        December 6, 2006 the Board of Directors unanimously appointed Charles Carlson
        to
        the Board of Directors until the next annual meeting.
 
 On
        December 15, 2006, Ivan Zweig, Lance Stovall and Ken Willey were re-elected
        to
        the Board of Directors at the Company’s annual meeting. Charles Carlson also
        continued to serve his initial term on the Board of Directors but was not
        up for
        re-election. Mr. Carlson resigned his position on the Board of Directors
        in
        April 2007. His resignation did 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.
 
 On
        June
        27, 2007, Ken Willey resigned from his position on the Board of Directors.
        His
        resignation did 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.





5




**BUSINESS
      OPERATIONS**





IElement
      is a facilities-based nationwide communications service provider that provides
      telecommunications services to small and medium sized enterprises ("SMEs").
      IElement utilizes high-speed Internet T-1 lines, integrated T-1 lines for voice
      and data, wireless Internet/data services, and a Layer 2 Private Network
      solution to provide SMEs with dedicated Internet access services, customizable
      business solutions for voice, data and Internet, and secure communications
      channels between the SMEs' offices, partners, vendors, customers and employees
      without the use of a firewall or encryption devices. IElement employs 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 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.





As
      of
      July 6, 2007 IElement consists of IElement Corporation, a Nevada corporation,
      which is the registrant and parent corporation. IElement, Inc. is a wholly
      owned
      subsidiary without separate operations. In addition, we have five operating
      subsidiaries. IElement Telephone of California was formed on November 14, 2005
      to acquire and administer a telecommunications license in the state of
      California. IElement Telephone of Arizona was formed on March 13, 2006 to
      acquire and administer a telecommunications license in the state of Arizona.
      IElement Telephone of Nevada, Inc. was formed on July 11, 2006 to acquire and
      administer a telecommunications license in the state of Nevada. IElement
      Telephone of Kentucky, Inc. was formed on December 29, 2006 to acquire and
      administer a telecommunications license in the state of Kentucky. IElement
      Telephone of Pennsylvania, Inc. was formed on December 29, 2006 to acquire
      and
      administer a telecommunications license in the state of
      Pennsylvania.





6




**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 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 competition, 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.







7







**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;







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.


8




**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.





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.





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





**UNE
      LOOPS**





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





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





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




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.





9





**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.





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 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.





10




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







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





11





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.





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.





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.




12




RESEARCH
      AND
      DEVELOPMENT





IElement
      does not engage in research and development.





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






**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 sought damages in the amount
      of $50,000, plus interest. On February 14, 2006 the Company settled the matter
      for $27,000 due in periodic installments, the last of which was paid in December
      2006.





On
      February 23, 2007, Bluemile, Inc., an Ohio corporation, filed a complaint
      against the Company to gain access to some IP blocks that the Company was
      administering on behalf of US Wirless Online, Inc. In June 2007 the suit was
      dropped without the need for a court appearance or settlement.





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





The
      Company held its annual meeting in December 2006 at which the following matters
      were submitted to the security holders for vote:





1. To
      elect
      three Ivan Zweig, Ken Willey and Lance Stovall to the Board of Directors until
      their successors are elected and qualified;





2. To
      consider and vote upon a proposal to approve and adopt our 2005 Stock Plan





3. To
      consider and vote upon a proposal to approve and adopt our 2006 Stock
      Plan;





4. To
      approve the Board of Directors' appointment of Bagell, Josephs, Levine &
Company, L.L.C. as our independent auditors for the fiscal year ending
      March 31, 2007





The
      shareholders approved each proposal.





13




**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:




Closing
                  Bids------------HIGH
              
              LOW----
              
              ---Fiscal
                  Year 2007----------------31-Mar-07
              
              
              
              
              
              0.04
              
              
              0.0231-Dec-06
              
              
              
              
              
              0.05
              
              
              0.0330-Jun-06
              
              
              
              
              
              0.08
              
              
              0.0414-Apr-06
              
              
              
              
              
              0.12
              
              
              0.05Fiscal
                  Year 2006----------------31-Mar-06
              
              
              
              
              
              0.14
              
              
              0.0431-Dec-05
              
              
              
              
              
              0.08
              
              
              0.0330-Sep-05
              
              
              
              
              
              0.07
              
              
              0.0330-Jun-05
              
              
              
              
              
              0.09
              
              
              0.01








(b)
      As of
      June 30, 2007, there were 385 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
      to
      pay cash dividends for the foreseeable future.





(e)
      Recent Sales of Unregistered Securities.





As
      of
      July 16, 2007, the Company has 2,000,000 shares of common stock authorized
      at a
      par value of $0.001, and 280,912,220 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. The Company
      also
      has 15 promissory notes outstanding as of July 16, 2007.





On
      June
      19, 2007, we reached agreements with seven note holders to amend and restate
      the
      terms of our repayment obligations to them as set forth in eight promissory
      notes issued in January and August 2005





14





and
      amended in March 2006. Payment terms on the eight notes was extended on October
      2, 2006 so that the first payments due on each of the notes would be due on
      April 1, 2007, then the June 19, 2007 agreement between the Company and the
      note
      holders extended the payment terms so that the first of 36 monthly payments
      on
      each of the notes is due on April 1, 2008. All seven of these note holders
      members of Ivan Zweig’s (our CEO, CFO and Chariman of the Board of Directors)
      immediate family, with the exception of two notes for a total of $120,000 owed
      to Kramerica, a corporation wholly owned and controlled by Ivan Zweig. These
      seven note holders received a total of 5,400,000 shares of the Company’s common
      stock on June 19, 2007 in lieu of interest and in exchange for extension of
      the
      principle repayment terms. The total aggregate principle balance of these eight
      notes as of March 31, 2007 and July 6, 2007 was $376,956. Each of these notes
      is
      secured by substantially all of the Company’s assets and is convertible into
      shares of the Company’s common stock at a rate of $0.035 per share. The common
      stock that will be issued upon conversion of the Notes will be subject to
      certain resale restrictions, as defined in Rule 144 promulgated under the
      Securities Act of 1933, as amended (the "Securities Act"). The convertible
      notes
      were issued in reliance on Section 4(2) of the Securities Act of
      1933.





In
      addition to these notes, the Company also has one more promissory note payable
      to Kramerica in the principle amount of $25,000. This note was issued on August
      24, 2006 and bears interest at an annual rate of ten percent. As of March 31,
      2007 the accrued interest on this note was $813. This note is secured by
      substantially all of the Company’s assets.





The
      $17,000 promissory note payable to Kramerica that was issued on November 8,
      2006
      has been repaid in full as of March 31, 2007.





The
      remaining six note holders are currently unaffiliated with IElement. The
      aggregate principle and accrued interest balance on these six notes as of March
      31, 2007 was $364,665. All of these notes are and will remain unsecured with
      the
      exception of $110,452 owed to Michael Bloch as of March 31, 2007 for his
      promissory note in the principle amount of $110,000 dated March 16, 2007. Mr.
      Bloch’s note is secured by substantially all of the Company’s
      assets.





We
      did
      not receive cash for any equity securities during the year ended March 31,
      2007.
      The following details our unregistered equity transactions during the year
      ended
      March 31, 2007 and through the date of this Report:





On
      June
      29, 2007 we issued 7,000,000 shares of our common stock at $0.012 per share
      to
      BACE Solutions, Inc. for a total value of $84,000 to pay for consulting services
      rendered. The shares were issued in reliance on Section 4(2) and/or Section
      3(9)
      of the Securities Act of 1933 and contain a restrictive legend in accordance
      with Rule 144.





On
      June
      29, 2007 we issued 5,000,000 shares of our common stock at $0.012 per share
      to
      Martin E. Janis & Company for a total value of $60,000 to pay for consulting
      services rendered. The shares were issued in reliance on Section 4(2) and/or
      Section 3(9) of the Securities Act of 1933 and contain a restrictive legend
      in
      accordance with Rule 144.





On
      June
      29, 2007 we issued 5,000,000 shares of our common stock at $0.012 per share
      to
      Triluc Enterprises, LTD for a total value of $60,000 to pay for consulting
      services rendered. The shares were issued in reliance on Section 4(2) and/or
      Section 3(9) of the Securities Act of 1933 and contain a restrictive legend
      in
      accordance with Rule 144.





On
      June
      29, 2007 we issued 5,000,000 shares of our common stock at $0.012 per share
      to
      American Capital Partners, LLC for a total value of $60,000 to pay for
      consulting services rendered. The shares were issued in reliance on Section
      4(2)
      and/or Section 3(9) of the Securities Act of 1933 and contain a restrictive
      legend in accordance with Rule 144.





On
      June
      29, 2007 we issued 3,000,000 shares of our common stock at $0.012 per share
      to
      Bobenrieth Scribner, LTD for a total value of $36,000 to pay for consulting
      services rendered. The shares were issued in reliance on Section 4(2) and/or
      Section 3(9) of the Securities Act of 1933 and contain a restrictive legend
      in
      accordance with Rule 144.


15





On
      June
      29, 2007 we issued 3,000,000 shares of our common stock at $0.012 per share
      to
      Ferry Land, LTD for a total value of $36,000 to pay for consulting services
      rendered. The shares were issued in reliance on Section 4(2) and/or Section
      3(9)
      of the Securities Act of 1933 and contain a restrictive legend in accordance
      with Rule 144.





On
      June
      29, 2007 we issued 3,000,000 shares of our common stock at $0.012 per share
      to
      Claddagh, LTD for a total value of $36,000 to pay for consulting services
      rendered. The shares were issued in reliance on Section 4(2) and/or Section
      3(9)
      of the Securities Act of 1933 and contain a restrictive legend in accordance
      with Rule 144.





On
      June
      26, 2007 we issued 1,094,930 shares of our common stock at $0.01 per share
      to
      Dominic Antonini for a total value of $10,949 to pay an accounts payable
      balance. The shares were issued in reliance on Section 4(2) and/or Section
      3(9)
      of the Securities Act of 1933 and contain a restrictive legend in accordance
      with Rule 144.





On
      May
      24, 2007 we issued 3,000,000 shares of our common stock at $0.01 per share
      to
      BACE Solutions, Inc. for a total value of $30,000 to pay for consulting services
      rendered. The shares were issued in reliance on Section 4(2) and/or Section
      3(9)
      of the Securities Act of 1933 and contain a restrictive legend in accordance
      with Rule 144.





On
      March
      14, 2007 we issued 904,790 shares of our common stock at $0.025 per share to
      Dominic Antonini for a total value of $22,620 to pay an accounts payable
      balance. The shares were issued in reliance on Section 4(2) and/or Section
      3(9)
      of the Securities Act of 1933 and contain a restrictive legend in accordance
      with Rule 144.





On
      March
      12, 2007 we issued 1,000,000 shares of our common stock at $0.025 per share
      to
      Rick Hughes for a total value of $25,000 to pay for consulting services
      rendered. The shares were issued in reliance on Section 4(2) and/or Section
      3(9)
      of the Securities Act of 1933 and contain a restrictive legend in accordance
      with Rule 144.





On
      January 22, 2007 we issued 1,500,000 shares of our common stock at $0.025 per
      share to Doyle Capital for a total value of $37,500 to pay for consulting
      services rendered. The shares were issued in reliance on Section 4(2) and/or
      Section 3(9) of the Securities Act of 1933 and contain a restrictive legend
      in
      accordance with Rule 144.





On
      December 27, 2006 we issued 30,000,000 shares of our common stock at $0.03
      per
      share to Sutioc Enterprises for a total value of $900,000 in exchange for a
      promissory note, which we've accounted for as a subscription receivable, in
      the amount of $900,000. The shares were issued in reliance on Section 4(2)
      and/or Section 3(9) of the Securities Act of 1933 and contain a restrictive
      legend in accordance with Rule 144.





On
      December 15, 2006 we issued 5,000,000 shares of our common stock at $0.04 per
      share to Barry Brault for a total value of $200,000 to pay for consulting
      services to be rendered. The shares were issued in reliance on Section 4(2)
      and/or Section 3(9) of the Securities Act of 1933 and contain a restrictive
      legend in accordance with Rule 144.





On
      December 8, 2006 we issued 200,000 shares of our common stock at $0.037 per
      share to William Jordan for a total value of $7,400 to pay for consulting
      services rendered. The shares were issued in reliance on Section 4(2) and/or
      Section 3(9) of the Securities Act of 1933 and contain a restrictive legend
      in
      accordance with Rule 144.





16





On
      November 27, 2006 we issued 600,000 shares of our common stock at $0.03 per
      share to Park Avenue Consulting for a total value of $18,000 to pay for
      advertising and marketing services rendered. The shares were issued in reliance
      on Section 4(2) and/or Section 3(9) of the Securities Act of 1933 and contain
      a
      restrictive legend in accordance with Rule 144.





On
      November 17, 2006 we issued 750,000 shares of our common stock at $0.028 per
      share to Equities Global Communications for a total value of $21,000 to pay
      an
      accounts payable balance in the amount of $21,000. The shares were issued in
      reliance on Section 4(2) and/or Section 3(9) of the Securities Act of 1933
      and
      contain a restrictive legend in accordance with Rule 144.





On
      October 20, 2006 we issued 3,250,000 shares of our common stock at $0.04 per
      share to Tim Dean-Smith for a total value of $130,000 to pay for consulting
      services to be rendered. The shares were issued in reliance on Section 4(2)
      and/or Section 3(9) of the Securities Act of 1933 and contain a restrictive
      legend in accordance with Rule 144.





On
      October 12, 2006 we agreed to issue 857,143 shares of our common stock to Susan
      Walton in exchange for the release of indebtedness in the amount of $30,000.
      The
      indebtedness was converted to shares of common stock at a per share price of
      $0.035. The shares were issued on November 13, 2006. The shares were issued
      in
      reliance on Section 4(2) and/or Section 3(9) of the Securities Act of 1933
      and
      contain a restrictive legend in accordance with Rule 144.




On
      October 12, 2006 we agreed to issue 1,540,857 shares of our common stock to
      Tim
      Dean-Smith in exchange for the release of indebtedness in the amount of $53,930.
      The indebtedness was converted to shares of common stock at a per share price
      of
      $0.035. The shares were issued on November 13, 2006. The shares were issued
      in
      reliance on Section 4(2) and/or Section 3(9) of the Securities Act of 1933
      and
      contain a restrictive legend in accordance with Rule 144.




On
      October 12, 2006 we agreed to issue 1,273,257 shares of our common stock to
      Dolphin Capital in exchange for the release of indebtedness in the amount of
      $44,564. The indebtedness was converted to shares of common stock at a per
      share
      price of $0.035. The shares were issued on November 13, 2006. The shares were
      issued in reliance on Section 4(2) and/or Section 3(9) of the Securities Act
      of
      1933 and contain a restrictive legend in accordance with Rule 144.





On
      October 12, 2006 we agreed to issue 1,560,086 shares of our common stock to
      Jeremy Dean-Smith in exchange for the release of indebtedness in the amount
      of
      $54,603. The indebtedness was converted to shares of common stock at a per
      share
      price of $0.035. The shares were issued on November 13, 2006. The shares were
      issued in reliance on Section 4(2) and/or Section 3(9) of the Securities Act
      of
      1933 and contain a restrictive legend in accordance with Rule 144.





On
      September 30, 2006 we issued 3,000,000 shares of our common stock at $0.04
      per
      share to Yock Investments for a total value of $120,000 to pay for consulting
      services rendered. The shares were issued in reliance on Section 4(2) of the
      Securities Act of 1933 and contain a restrictive legend in accordance with
      Rule
      144.





On
      September 30, 2006 we issued 3,000,000 shares of our common stock at $0.04
      per
      share to Stonegate Ventures for a total value of $120,000 to pay for consulting
      services rendered. The shares were issued in reliance on Section 4(2) of the
      Securities Act of 1933 and contain a restrictive legend in accordance with
      Rule
      144.





On
      September 30, 2006 we issued 4,259,365 shares of our common stock at $0.04
      per
      share to YJ, Inc. for a total value of $170,375 to pay for consulting services
      rendered. The shares were issued in reliance on Section 4(2) of the Securities
      Act of 1933 and contain a restrictive legend in accordance with Rule
      144.


On
        September 30, 2006 we issued 4,259,365 shares of our common stock at $0.04
        per
        share to Cortland Brothers, Inc for a total value of $170,375 to pay for
        consulting services rendered. The shares were issued in reliance on Section
        4(2)
        of the Securities Act of 1933 and contain a restrictive legend in accordance
        with Rule 144.
 
 On
        August
        25, 2006 the Company issued 297,896 shares of our common stock at $0.06 per
        share to retire an accounts payable balance of $17,874 owed to Dominic Antonini.
        The shares were issued in reliance on Section 4(2) of the Securities Act
        of 1933
        and contain a restrictive legend in accordance with Rule 144.





17





**Registration
      of Securities**





On
      September 1, 2006, the Company filed with the SEC the 7 th Amendment to a Registration Statement on Form SB-2 to register for resale the
      securities issued to or pending issuance to various investors. The Registration
      Statement was declared effective on September 13, 2006. On September 25, 2006
      the Company filed a registration statement on Form S-8 to register the shares
      underlying its 2006 Stock Option Plan.








**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**





IElement
      is a facilities-based nationwide communications service provider that offers
      telecommunications services to small and medium sized businesses ("SMBs").
      As a
      facilities-based provider, we own our own network equipment including telephone
      switches. In other words, we sell local and long distance telephone service
      and
      Internet access primarily via digital T-1 connections and tailor the particular
      service to the customer's needs by regulating bandwidth, number of telephone
      lines, and type of service. Our Layer 2 Private Network ("L2PN") service allows
      businesses with multiple locations to connect all of their locations securely
      without the use of firewalls or encryption devices and without routing traffic
      over the internet. In addition, we have developed, tested and deployed our
      Voice
      over Internet Protocol ("VoIP"s) service. We have a network presence in 18
      major
      markets in the United States, including facilities in Los Angeles, Dallas,
      Chicago and smaller facilities in ten other cities.





In
      addition to the operations noted above, we began servicing a large customer
      base
      of wireless internet subscribers in December 2006. This service covers
      everything from service delivery and technical support to back office
      administration and resulted from a management contract with Sutioc Enterprises,
      Inc. on


18





behalf
      of
      US Wireless Online, Inc. These customers are primarily located in Florida,
      Pennsylvania, Kentucky, Mississippi and Alabama.




Although
      we have a solid, steady revenue stream, 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 universal, unavoidable trend in the
      telecommunications industry. 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. 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, which
      is
      the location of our smallest customer base and where we have the most
      underutilized network capacity, and will allow us to turn a profit quicker
      than
      we could elsewhere, possibly within 6 months.




Our
      overall financial condition improved significantly with the completion of our
      private equity placement in January 2006 and the increased liquidity it brought.
      Since that time, however, our overall financial condition has continued to
      deteriorate, we continue to use cash and we currently have to rely on financing
      from outside sources or the acquisition of a business with positive cash
      flows.




We
      could
      enhance our financial position by reducing and eliminating certain general
      and
      administrative expense items, deferring salaries or eliminating 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 have the money to do so. 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.




If
      we are
      able to either raise $750,000 in cash or acquire a company with enough cash
      flow
      to implement our business plan and start a sales force in Chicago, we believe
      we
      will be able to become a profitable company within 6 months of that acquisition
      or capital raise. If we are unable to successfully raise money or acquire a
      cash
      flow positive company, 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.




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
      see an
      excellent opportunity as a business VoIP provider since few 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. We
      may
      decide to upgrade our current VoIP platform to a more robust, full-featured
      version in the near future in order to better accommodate some of our planned
      service application offerings like Managed Microsoft Exchange, offsite disaster
      recovery and managed IT services.





19







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.




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 their first names and are much
      more
      comfortable working with a small, service-oriented company like
      IElement.





On
      December 27, 2006, we entered into a Management Services and Vendor Agreement
      with Sutioc Enterprises, Inc, to offer management and vendor services to both
      Sutioc Enterprises, Inc. and its majority owned subsidiary U.S. Wireless, Inc.
      In addition to being a majority shareholder, Sutioc Enterprises is party to
      a
      Management Agreement with US Wireless Online, Inc. whereby Sutioc Enterprises
      was appointed the Manager of US Wireless Online with broad discretion to retain
      the services of third parties to perform management and other services both
      on
      behalf of Sutioc Enterprises, in its capacity as Manager for US Wireless Online,
      and for US Wireless Online directly.





**OUR
      PLAN OF OPERATION**





IElement
      is a facilities-based nationwide communications service provider that offers
      telecommunications services to small and medium sized businesses ("SMBs")
      including Voice over Internet Protocol (VoIP), broadband data, voice and
      wireless services, integrated T-1 lines and a Layer 2 Private Network
      (L2PN)/Wide Area Network (WAN) solution. IElement offers dedicated Internet
      access, customizable business solutions for voice, data and Internet, and secure
      communication channels between our customers' offices and their partners,
      vendors, customers and employees without the use of a firewall or costly
      encryption devices.





IElement
      has undertaken steps to present itself under the trade name IElement to its
      customer base and target market and will continue to take steps to notify,
      inform and 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, we announced our intention to enter into the Voice over
      Internet Protocol ("VoIP") market. The Company subsequently purchased the
      equipment necessary to begin providing VOIP services, identified a partner
      with
      VOIP expertise to assist in the planning and implementation, and successfully
      developed, tested and deployed its VoIP services. We began marketing VoIP
      services on May 1, 2006.





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 in excess of $100,000 but would allow
      us to
      expand both the scope and the volume of services we are currently able to
      offer.





We
      estimate the cost to enter the Chicago market with an active sales force to
      be
      approximately $500,000 from August 1, 2007 through March 31, 2008 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 with installation engineers, acquiring
      additional bandwidth or connections to accommodate new customers there, and
      paying commissions and agent fees. Our current offices and equipment will
      support the Dallas and Los Angeles service as well as the back office and
      network operations of the Chicago sales force with little or no additional
      expenditure. However, we will incur increased overall costs for additional
      marketing including telemarketing services. Our post-Chicago target markets
      are
      smaller cities in the Midwestern region that have yet to be
      identified.





20





We
      expect
      that a budgeted amount of approximately $750,000 in working capital shall be
      sufficient for 18 months of operations, including the expansion into the Chicago
      market.





In
      addition to adding a sales force in Chicago and marketing VoIP, our other main
      avenue towards revenue growth and profitability is to provide value-added or
      managed services and applications to our new and existing customers, Managed
      Microsoft Exchange, prepaid and postpaid cellular services, email and network
      security, residential and business wireless internet, Managed Blackberry
      services, data storage, offsite disaster recovery and managed IT
      services.




The
      development of these services will allow IElement to offer SMBs 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 will increase the Average Revenue Per Customer
      ("ARPC") as well as help improve customer retention.





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





We
      intend
      to:





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





--
      Build
      out the necessary infrastructure to sell IElement broadband services (wireless
      or wireline) as well as resell voice services over the same T1 or wireless
      equivalent.





--
      Upsell
      value-added 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 have already begun.





--
      Seek
      acquisitions of wireless ISPs (WISPs) and other suitable telephony and/or data
      carriers in secondary and tertiary markets that can be layered onto our current
      network, including equipment and lines already owned or leased. Such
      acquisitions would enable greater economies of scale and operating efficiencies.
      We are continuously exploring potential acquisitions in this
      regard.




--
      Begin
      aggressively marketing VOIP to our current and potential customers. We are
      currently working diligently to add a small VOIP customer base into which we
      can
      aggressively market our value-added services and applications. We are initially
      concentrating on adding customers in the Chicago, Dallas and Los Angeles
      markets, particularly Chicago, but customers we manage on behalf of US Wireless
      Online would also be excellent candidates for our VOIP service in Pennsylvania,
      Kentucky, Alabama, Mississippi and Florida.




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, sale of equity or
      issuance of debt.





Build-out
      of IElement's necessary infrastructure may include the purchase or leasing
      of
      new telephone switches or a VoIP platform that could cost in excess of
      $100,000.




21


RESULTS
      OF
      OPERATIONS





**FISCAL
      YEAR ENDED MARCH 31, 2007 COMPARED TO FISCAL YEAR ENDED MARCH 31,
      2006**





**REVENUES**





Revenues
      were $3,776,639 for the fiscal year ended March 31, 2007, as compared to
      $4,550,092 for the year ended March 31, 2006. This decrease was due to customer
      attrition resulting from the fact that we did not employ a dedicated sales
      force. The addition of  US Wireless Online as a customer starting in
      January 2007 helped temper the revenue decline. We plan to hire a sales force
      this year.





**COST
      OF REVENUES**





Cost
      of
      revenues excluding depreciation was $2,434,570 for the fiscal year ended March
      31, 2007 and $2,838,021 for the year ended March 31, 2006. The decrease was
      attributable to the fact that we had less revenue to support.





**OPERATING
      EXPENSES**





Operating
      expenses excluding cost of revenues for the fiscal year ended March 31, 2007
      were $3,616,618 compared to $3,138,155 for the year ended March 31, 2006. The
      increase in operating expenses was primarily related to expanding our service
      offerings, entrance into new markets, consulting fees for proposed acquisitions
      and other items such as legal and accounting fees.





**(LOSS)
      FROM OPERATIONS**




Loss
      from
      operations for the year ended March 31, 2007 was $2,255,554 as compared to
      $1,426,084 for the year ended March 31, 2006.





The
      increased loss from the year earlier periods was due to lower revenues resulting
      from the fact that we did not employ a dedicated sales force as well as
      significant consulting expenses related to the development of new services,
      entrance into new markets, proposed acquisitions and other one-time items.
      We
      intend to hire a dedicated sales force this year and do not anticipate any
      significant consulting expenses.




Our
      net
      loss on an adjusted EBITDA basis for the year ended March 31, 2007 was $454,385
      as compared to a loss of $516,802 for the year ended March 31, 2006. Our
      management uses adjusted EBITDA as a financial measure to compare our gain
      or
      loss from operations to other small businesses in the telecommunications
      industry, most of which are not required to publicly report their financial
      results and are thus less likely to have GAAP numbers available for comparison.
      The calculation and disclosure of adjusted EBITDA affords both our management
      and that of other companies a measure to more accurately compare our financial
      results with those of non-public reporting companies within our industry.
      Adjusted EBITDA, as used in this section, excludes interest, income taxes (of
      which there were none), depreciation and non-cash items (services performed
      for
      stock and stock-based employee compensation in the form of stock options) from
      our net loss from operations and is meant only to supplement the financials
      in
      this periodic report that have been prepared using GAAP. Our presentation of
      adjusted EBITDA should in no way be considered more important, accurate or
      be
      displayed more prominently than our loss from operations. In reconciling
      adjusted EBITDA to our loss from operations, we provide the following
      table:




2007
              2006Adjusted
                  EBITDA
              ($454,385)
              ($516,802)Stock
                  Issued for
                  Services
              (1,167,129)
              (522,748)Stock-based
                  Employee Compensation (Options)
              (225,650)
              (0)Interest
                  Expense
              (22,622)
              (534)Receivable
                  Factoring Fees (Interest
                  Expense)
              (83,350)
              (106,602)Depreciation
              (302,418)
              (279,398)Gain
                  (Loss) from
                  Operations
              ($2,255,554)
              ($1,426,084)




22




**INTEREST
      EXPENSE**





Interest
      expense was $22,622 and $534 for the years ended March 31, 2007, and March
      31,
      2006, respectively. Interest expense including factor fees for the years ended
      March 31, 2007 and March 31, 2006 were $105,972 and $107,136, respectively.
      Factor fees are very similar to interest charges.





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





Net
      loss
      applicable to Common Stock was $2,255,554 for the fiscal year ended March 31,
      2007 compared to a loss of $1,426,084 for the year ended March 31, 2006. Net
      loss per common share was $0.01 for both the years ended March 31, 2007 and
      March 31, 2006.





The
      higher loss in the year ended March 31, 2007 when compared with the year ended
      March 31, 2006 can be attributed to a continued decline in revenue coupled
      with
      higher general and administrative expenses that were the result of development
      of new services, entrance into new markets, proposed acquisitions and other
      one-time items.




**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, 2007 we had a cash balance of $165,352.





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 will require additional funds, above its operating revenues, to sustain
      operations and grow the business. We plan to seek additional capital in the
      form
      of private placements of our capital stock, short terms loans or both. In the
      event that IElement seeks additional capital through the sale of its stock,
      there will be a dilutive impact on its outstanding common stock. In addition,
      we
      are currently pursuing the purchase of cash flow positive companies that could
      help our liquidity and fund continued operations.





As
      of
      March 31, 2007, our gross accounts receivable totaled $366,712. We have set
      aside an allowance of $10,684 against that balance for uncollectible accounts.
      The net amount we expect to receive is $356,028. 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.





On
      December 27, 2006 we received a promissory note in the amount of $900,000 and
      accruing eight percent (8%) interest annually from Sutioc Enterprises, Inc.
      in
      exchange for 30,000,000 shares of our common stock. We were to receive interest
      payments in the amount of $6,000 per month starting in February 2007 and ending
      in January 2009, then interest and principle payments in the amount of
      $16,000





23





per
      month
      starting in February 2009 and ending in January 2011. As of July 6, 2007, we
      have not received any interest payments and have agreed to defer them until
      January 1, 2008, when the first 12 payments will be due in one lump sum. In
      January 2011 the note matures and the balance of $497,942 is due at that time.
      The note is classified as a subscription receivable in the equity section of
      our
      balance sheet.





On
      May
      18, 2007 we received a promissory note in the amount of $50,000 and accruing
      20%
      interest or the maximum allowed by law, whichever is lower, from Micro Data
      Systems, Inc. in exchange for assuming a $200,000 note payable to Secure
      Acquisition Financial Entity, LP. We also received $200,000 cash in this
      transaction. The $50,000 note matured on June 14, 2007 but as of July 16, 2007
      it had not been paid. We are negotiating with Micro Data Systems and expect
      to
      receive payment on the note shortly.





As
      of
      March 31, 2007 we had 15 total notes payable outstanding in the aggregate
      principal amount of $767,434 owed to 13 note holders. As of March 31, 2007
      we
      were current on all obligations except for past due total payments of
      $85,041 on two notes. We are currently negotiating with these two note holders
      and no default has been declared. The following is a more detailed discussion
      of
      the 15 notes.





On
      January 19, 2005, IElement issued eight (8) promissory notes to Kramerica and
      certain members of Mr. Zweig's immediate family and others in the aggregate
      amount of $376,956 (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), Peter Walther ($30,000), Richard Zweig
      ($20,000), Richard Zweig IRA ($27,500) and Strait Grandchildren Trust
      ($103,845). 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 the Company. We did not
      make
      any payments on the Notes.





On
      March
      25, 2006 each of the eight (8) Notes were cancelled and we issued new
      convertible promissory notes to the same individuals in the same principal
      amount of $376,956, again with no interest thereon. The first payment on each
      of
      the new convertible promissory Notes was 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 share of our common stock at a conversion price of $0.035
      per
      share. Any past due balance on the old Notes was forgiven at the time of
      cancellation of the old notes and issuance of the new convertible promissory
      Notes. The new convertible promissory Notes are secured by substantially all
      the
      assets of IElement as were the original Notes.





On
      October 6, 2006 we reached agreements with the holders of these eight Notes
      to
      extend the first payment date until April 1, 2007. We did not make any payments
      on the notes.





On
      June
      19, 2007, we reached agreement with these eight Note holders to extend the
      payment terms so that the first of 36 monthly payments on each of the notes
      is
      due on April 1, 2008. These eight Note holders received a total of 5,400,000
      shares of the Company’s common stock on June 19, 2007 in lieu of interest and in
      exchange for extension of the principle repayment terms. The total aggregate
      principle balance of these eight notes as of March 31, 2007 and July 6, 2007
      was
      $376,956. Each of these Notes is still secured by substantially all of the
      Company’s assets and is convertible into shares of the Company’s common stock at
      a rate of $0.035 per share.





In
      addition to these notes, the Company also has one more promissory note payable
      to Kramerica in the principle amount of $25,000. This note was issued on August
      24, 2006 and bears interest at an annual rate of ten percent. As of March 31,
      2007 the accrued interest on this note was $813. This note is secured by
      substantially all of the Company’s assets. The maturity date of this note was
      also extended to April 1, 2008 by agreement on June 19, 2007. It is due in
      full
      on April 1, 2008 and will continue to accrue interest at an annual rate of
      ten
      percent until paid in full.





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





24




On
      March
      25, 2006 each of the four notes were cancelled and IElement issued new
      convertible promissory notes to the same individuals in the same principal
      amount of $183,097, again with no interest thereon. The first payment on each
      of
      the new convertible promissory notes was due in September 2006 with a total
      of
      36 monthly installments through August 2009. The Lender had the right to convert
      all or a portion of the outstanding balance, at any time until the notes were
      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. These four notes were each converted to common stock at a price of $0.035
      per share on November 13, 2006.





One
      of
      the remaining notes is held by Duane Morris in the principle amount of
      $34,631.29. 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 July 6, 2007 we are past due on our payments on the Duane Morris
      note but intend to resume payments in the coming months. This note bears no
      interest.




On
      June
      8, 2006 we issued a note payable in the amount of $100,000 to Rhino Limited
      which bears a ten percent interest rate. It matures when we secure funding
      from
      exercise of outstanding warrants, expected this fiscal year. The current
      principle and interest balance on this note as of March 31, 2007 was
      $108,268.





On
      June
      19, 2006 we issued a note payable in the amount of $20,000 to Veronica Kristi
      Prenn. It bears a ten percent interest rate and matured on December 19, 2006,
      but as of July 7, 2007 we had not made a payment. We intend to renegotiate
      the
      terms of this note. The current principle and interest balance on this note
      as
      of March 31, 2007 was $22,589.




On
      August
      4, 2006 we issued a note payable to Walton Hansen in the amount of $24,808.
      It
      bears a ten percent interest rate and matures when we secure funding from
      exercise of outstanding warrants, expected this fiscal year. The current
      principle and interest balance on this note as of March 31, 2007 was
      $26,272.





On
      September 5, 2006 we issued a note payable to William Goatley in the amount
      of
      $60,000. It bears a ten percent interest rate and matured on December 5, 2006.
      The current principle and interest balance on this note as of March 31, 2007
      was
      $63,452. We intend to renegotiate the terms of this note.





We
      issued
      five new notes during the three months ended December 31, 2006, to Tim
      Dean-Smith in the amount of $116,000 on October 3, 2006, to Kramerica in the
      amount of $17,000 on November 8, 2006, to Barry Brault in the amount of $120,000
      on November 14, 2006, to Stonegate Ventures, Inc. in the amount of $52,000
      on
      November 29, 2006, and to Yock Investments, Inc. in the amount of $52,000 on
      November 29, 2006. All five of these notes accrued interest at a rate of ten
      percent annually and matured six months from the date they were
      issued.





On
      December 29, 2006 we retired four notes payable, to Stonegate Ventures, Inc.
      in
      the amount of $52,000, Yock Investments, Inc. in the amount of $52,000, Barry
      Brault in the amount of $120,000 and Tim Dean-Smith in the amount of $116,000
      by
      converting them to common shares of our stock. In each case, the shares of
      common stock had previously been issued as payment for consulting services,
      but
      the consulting services rendered did not meet our expectations. Each of the
      note
      holders agreed to forgive the balance of their notes in exchange for the company
      allowing them to keep the stock previously issued. Yock and Stonegate’s stock
      was issued as payment for consulting services on September 29, 2006, Tim
      Dean-Smith’s stock was issued as payment for consulting services on November 14,
      2006 and Barry Brault’s stock was issued as payment for consulting services on
      December 15, 2006.





On
      March
      16, 2007 we issued a note payable to Michael Bloch in the amount of $110,000.
      It
      bears a ten percent interest rate and matured on June 16, 2007. The current
      principle and interest balance on this note as of March 31, 2007 was $110,452.
      This note is secured by substantially all of our assets. We intend to
      renegotiate the terms of this note.





25




The
      $17,000 promissory note payable to Kramerica that was issued on November 8,
      2006
      was repaid in full as of March 31, 2007. The $8,200 note payable to Kramerica
      that was issued on August 21, 2006 was repaid in full in October 2006.




Although
      the financial statements included in this Report show the current portion of
      notes payable as of March 31, 2007 at $511,499, that total does not take into
      account the subsequent extension of the repayment terms made on the 9 notes
      held
      by Kramerica, Ivan Zweig and members of Mr. Zweig’s immediate family. As of July
      6, 2007, the total debt servicing requirements on the 15 outstanding promissory
      notes over the twelve months ending March 31, 2008 is approximately
      $360,033.





Cash
      flow
      from current business operations alone would not likely be sufficient to satisfy
      our current debt obligations. We intend to satisfy its debt repayment
      obligations through a combination of the following. First, through cash flows
      from current business operations. Second, we are actively seeking acquisitions
      of business with positive cash flow which could assist in debt servicing
      requirements. Third, from the proceeds from the exercise of the warrants that
      have previously been registered. Fourth, renegotiating the terms of the debt
      obligations and in particular the debt obligations to Mr. Zweig and his family.
      Finally, conversion of notes to shares of our common stock.





On
      December 27, 2006 we issued 30,000,000 shares of our common stock to Sutioc
      Enterprises, Inc. in exchange for a promissory note in the amount of $900,000.
      On the same date we entered into management agreements with both Sutioc
      Enterprises, Inc. and US Wireless Online, Inc. In order to facilitate these
      transactions and secure our interest in both the management contracts and the
      promissory note, we entered into a material contingent liability that does
      not
      appear on our consolidated balance sheet.





This
      contingent liability is in the form of a guarantee granted to Richard
      Williamson, former owner of US Wireless Online’s subsidiary, DHR Technologies.
      On December 27, 2006 we guaranteed that US Wireless Online will repay promissory
      notes to Mr. Williamson in the amounts of $150,000 and $141,179. This guarantee
      is secured by substantially all of our assets and will only affect us in the
      event of a US Wireless Online default. While we believe that default is unlikely
      since we are now managing the daily operations of US Wireless Online, US
      Wireless Online has a history of losses and negative cash flow and may be forced
      to default. As of July 6, 2007 US Wireless Online was current on these two
      notes
      and the remaining balances were $135,000 and $78,179, respectively.





On
      January 10, 2007 we entered into a guarantee agreement whereby we guarantee
      US
      Wireless Online, Inc.’s line of credit for factoring receivables to Rockland
      Credit Finance, LLC. Under the agreement, should US Wireless Online be unable
      to
      pay down its line of credit with Rockland Credit Finance, we would be required
      to do so. The agreement is secured by substantially all of our
      assets.





We
      believe that default is unlikely because it would require a significant number
      of US Wireless Online’s customers to default.




We
      are
      not aware of any other undisclosed actual or contingent
      liabilities.




26


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




On
      July
      14, 2006 our auditors identified a material weakness in our internal controls
      and procedures that resulted in the misstatement of our financial results.
      This
      material weakness began in March of 2003 and was the result of an ineffective
      segregation of duties and inadequate monitoring over financial reporting. One
      person, our controller, performed all of the significant accounting
      tasks, which impacted our ability to accurately report the recapitalization
      of ICCC in March 2003. Upon review of this transaction on July 14, 2006, a
      restatement was filed to correct the reporting of this transaction by removing
      those adjustments related to fair value and goodwill.





Since
      the material weakness originated in March 2003, we have hired two additional
      accountants to segregate the duties of the accounting staff and named a
      CFO, Ivan Zweig, who now monitors all financial reporting. In addition, we
      have
      since implemented a policy to have the full Board of Directors review both
      our
      quarterly and annual financial statements before filing.





Our
      internal accounting team now has both the personnel and the experience to
      recognize and record significant transactions according to GAAP and we have
      implemented a full review of all financial information by our Board of Directors
      as well as certification by our CFO.  Management and the Board of Directors
      believe that the above remedies remediate this material weakness.




**OFF-BALANCE
      SHEET ARRANGEMENTS**





As
      of
      March 31, 2007, 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.





On
      December 27, 2006 we issued 30,000,000 shares of our common stock to Sutioc
      Enterprises, Inc. in exchange for a promissory note in the amount of $900,000.
      On the same date we entered into management agreements with both Sutioc
      Enterprises, Inc. and US Wireless Online, Inc. In order to facilitate these
      transactions and secure our interest in both the management contracts and the
      promissory note, we entered into a material contingent liability that does
      not
      appear on our consolidated balance sheet.





This
      contingent liability is in the form of a guarantee granted to Richard
      Williamson, former owner of US Wireless Online’s subsidiary, DHR Technologies.
      On December 27, 2006 we guaranteed that US Wireless Online will repay promissory
      notes to Mr. Williamson in the amounts of $150,000 and $141,179. This guarantee
      is secured by substantially all of our assets and will only affect us in the
      event of a US Wireless Online default. While we believe that default is unlikely
      since we are now managing the daily operations of US Wireless Online, US
      Wireless Online has a history of losses and negative cash flow and may be forced
      to default. As of July 16, 2007 US Wireless Online was current on these two
      notes and the remaining balances were $135,000 and $78,179,
      respectively.





On
      January 10, 2007 we entered into a guarantee agreement whereby we guarantee
      US
      Wireless Online, Inc.’s line of credit for factoring receivables to Rockland
      Credit Finance, LLC. Under the agreement, should
      US
      Wireless Online be unable to pay down its line of credit with Rockland Credit
      Finance, IElement would be required to do so. The agreement is secured by
      substantially all of the assets of IElement. 
 We
        believe that default is unlikely because it would require a significant number
        of US Wireless Online’s customers to default.





27




**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:




-
      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 $4,658,963 at March 31, 2007. 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.





28





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 2007 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 expansion.
      Among other things, external financing will be required to cover our operating
      costs. The sale of our capital stock to raise capital may cause dilution to
      our
      existing shareholders. Our inability to obtain adequate financing will result
      in
      the need to curtail business operations. Any of these events would be materially
      harmful to our business and may result in a lower stock price. There can be
      no
      assurance that we will be able to obtain additional funding when needed, or
      that
      such funding, if available, will be available on terms we find acceptable.
      If we
      cannot obtain additional funds when needed, we may be forced to curtail or
      cease
      our activities, which may result in the loss of all or a substantial portion
      of
      your investment.





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





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





On
      April
      16, 2007 IElement Corporation entered into an employment agreement with its
      Chief Executive Officer, Ivan Zweig and into a consulting agreement with
      Kramerica, Inc., a consulting company to which Ivan Zweig is the sole
      shareholder, officer and director. The terms and content of the Agreements
      had
      previously been approved by the Board of Directors on August 29, 2006 and such
      approval was ratified and confirmed on April 16, 2007.





The
      employment agreement with Mr. Zweig provides for an annual salary of $36,000
      and
      benefits and termination protection commensurate with Mr. Zweig’s position and
      responsibilities.





The
      consulting agreement with Kramerica provides for an annual fee of $264,000
      and
      performance based bonuses with a maximum bonus payment of $6,000,000 for the
      term of the Agreement. The consulting agreement also contains termination
      protections.





Both
      Agreements terminate December 31, 2011.





29




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.




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.





30





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.




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,





31





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.





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. The balance has
      been
      paid in full.





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





On
      February 23, 2007, Bluemile, Inc., an Ohio corporation, filed a complaint
      against the Company to gain access to some IP blocks that the Company was
      administering on behalf of US Wirless Online, Inc. In June 2007 the suit was
      dropped without the need for a court appearance or settlement.





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





32








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





As
      of
      March 31, 2007, our gross accounts receivable totaled $366,712. We have set
      aside an allowance of $10,684 against that balance for uncollectible accounts.
      The net amount we expect to receive is $356,028. 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.





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.




33





**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.





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.





34




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.




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.





35




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.




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





36





accounting
      firm may still decline to attest to our management's assessment or may issue
      a
      report that is qualified if they are not satisfied with our controls or the
      level at which our controls are documented, designed, operated or reviewed,
      or
      if it interprets the relevant requirements differently from us. Our reporting
      obligations as a public company will place a significant strain on our
      management, operational and financial resources and systems for the foreseeable
      future. We are a young company with limited accounting personnel and other
      resources with which to address our internal controls and procedures. If we
      fail
      to timely achieve and maintain the adequacy of our internal controls, we may
      not
      be able to conclude that we have effective internal controls over financial
      reporting at a reasonable assurance level. Moreover, effective internal controls
      over financial reporting are necessary for us to produce reliable financial
      reports and are important to help prevent fraud. As a result, our failure to
      achieve and maintain effective internal controls over financial reporting could
      result in the loss of investor confidence in the reliability of our financial
      statements, which in turn could harm our business and negatively impact the
      trading price of our common stock. Furthermore, we anticipate that we will
      incur
      considerable costs and use significant management time and other resources
      in an
      effort to comply with Section 404 and other requirements of the Sarbanes-Oxley
      Act.




OUR
      INTERNAL CONTROLS AND PROCEDURES HAVE PREVIOUSLY BEEN INSUFFICIENT TO ENSURE
      TIMELY AND ACCURATE REPORTING OF OUR FINANCIAL STATEMENTS AND OTHER REQUIRED
      FILINGS.





On
      July
      14, 2006 our auditors identified a material weakness in our internal controls
      and procedures that resulted in the misstatement of our financial results.
      This
      material weakness began in March of 2003 and was the result of an ineffective
      segregation of duties and inadequate monitoring over financial reporting. One
      person, our controller, performed all of the significant accounting
      tasks, which impacted our ability to accurately report the recapitalization
      of ICCC in March 2003. Upon review of this transcation on July 14, 2006, a
      restatement was filed to correct the reporting of this transcation by removing
      those adjustments related to fair value and goodwill.





Since
      the
      material weakness originated in March 2003, we have hired two additional
      accountants to segregate the duties of the accounting staff  and named a
      CFO, Ivan Zweig, who now monitors all financial reporting. In addition, we
      have
      since implemented a policy to have the full Board of Directors review both
      our
      quarterly and annual financial statements before filing.





Our
      internal accounting team now has both the personnel and the experience to
      recognize and record significant transactions according to GAAP and we have
      implemented a full review of all financial information by our Board of Directors
      as well as certification by our CFO.  Management and the Board of Directors
      believe that the above remedies remediate this material
      weakness.


37


**ITEM
        7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**
  IELEMENT
        CORPORATION AND SUBSIDIARY
 CONSOLIDATED
        FINANCIAL STATEMENTS
 FOR
        THE
        YEARS ENDED MARCH 31, 2007 AND 2006
 
 
 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, 2007
      .............................................................................................................................................................F-2





Consolidated
      Statements of Operations for the Years Ended


March
      31,
      2007 and
      2006.......................................................................................................................................................................................................... F-3





Consolidated
      Statements of Changes in Stockholders' (Deficit)


for
      the
      Years Ended March 31, 2007 and
      2006...................................................................................................................................................................... F-4-5





Consolidated
      Statements of Cash Flows for the Years Ended


March
      31,
      2007 and
      2006.......................................................................................................................................................................................................... F-6-7





Notes
      to
      Consolidated Financial Statements F-8-F-26









**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**





Board
        of
        Directors and Stockholders
 IElement
        Corporation
 17194
        Preston Road Ste 102, PMB 341
 Dallas,
        Texas 75248




We
        have
        audited the accompanying consolidated balance sheet of IElement Corporation
        (the
        "Company") as of March 31, 2007 and the related consolidated statements of
        operations, stockholders’ (deficit) and cash flows for the years ended March 31,
        2007 and March 31, 2006. These consolidated financial statements are the
        responsibility of the Company's management. Our responsibility is to express
        an
        opinion on these consolidated financial statements based on our
        audits.
 
 We
        conducted our audits in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether the
        consolidated financial statements are free of material misstatement. The
        Company
        is not required to have, nor were we engaged to perform, an audit of its
        internal control over financial reporting. Our audit included consideration
        of
        internal control over financial reporting as a basis for designing audit
        procedures that are appropriate in the circumstances, but not for the purpose
        of
        expressing an opinion on the effectiveness of the Company’s internal control
        over financial reporting. Accordingly, we express no such opinion. An audit
        also
        includes examining, on a test basis, evidence supporting the amounts and
        disclosures in the financial statements, assessing the accounting principles
        used and significant estimates made by management, as well as evaluating
        the
        overall financial statement presentation. We believe that our audits provide
        a
        reasonable basis for our opinion.
  In
        our
        opinion, the consolidated financial statements referred to above present
        fairly,
        in all material respects, the financial position of IElement Corporation
        as of
        March 31, 2007 and the results of its operations and cash flows for the years
        ended March 31, 2007 and March 31, 2006 in conformity with accounting principles
        generally accepted in the United States of America.
 
 The
        accompanying consolidated financial statements have been prepared assuming
        that
        the Company will continue as a going concern. As discussed in Note 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.


/s/
          BAGELL, JOSEPHS, LEVINE & COMPANY, L.L.C.
 BAGELL,
          JOSEPHS, LEVINE & COMPANY, L.L.C.
 Certified
          Public Accountants
 Gibbsboro,
          New Jersey
 
 
 July
        16,
        2007
 
 MEMBER
        OF: AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
 NEW
        JERSEY SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS
 PENNSYLVANIA
        INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS


F-1





**IELEMENT
                  CORPORATION AND SUBSIDIARY****CONSOLIDATED
                  BALANCE SHEET****March
                  31, 2007****ASSETS****March
                  31,****2007****CURRENT
                  ASSETS:**Cash
                  and cash equivalents
              
              $
              165,352Accounts
                  receivable, net
              
              
              356,028Interest
                  receivable
              
              
              18,542Other
                  current assets
              
              
              7,930**Total
                  current assets**
              
              
              547,852Fixed
                  assets, net of depreciation
              
              
              513,918**OTHER
                  ASSETS:**Deposits
              
              
              62,227**Total
                  other assets**
              
              
              62,227**TOTAL
                  ASSETS**
              
              $
              1,123,997**LIABILITIES
                  AND STOCKHOLDERS' (DEFICIT)****CURRENT
                  LIABILITIES:**Current
                  portion - notes payable
              
              $
              511,499Accounts
                  payable and accrued expenses
              
              
              1,029,911Customer
                  deposits
              
              
              101,742Receivable
                  financing payable
              
              
              313,046Commissions
                  payable
              
              
              8,723Deferred
                  revenue
              
              
              513,779**Total
                  current liabilities**
              
              
              2,478,700**LONG-TERM
                  LIABILITIES:**Notes
                  payable, net of current portion
              
              
              255,935**Total
                  long-term liabilities**
              
              
              255,935**Total
                  Liabilities**
              
              
              2,734,635**STOCKHOLDERS'
                  (DEFICIT)**Preferred
                  stock, $.001 Par Value, 200,000,000 shares authorized;-0-
                  shares issued and outstanding
              
              
              -Common
                  stock, $.001 Par Value, 2,000,000,000 shares authorized;230,417,290
                  shares issued and outstanding
              
              
              230,417Additional
                  paid-in capital
              
              
              3,552,351Additional
                  paid-in capital- warrants
              
              
              177,757Unearned
                  compensation expense
              
              
              (12,200
              )Subscription
                  receivable
              
              
              (900,000
              )Accumulated
                  deficit
              
              
              (4,658,963
              )**Total
                  Stockholders' (Deficit)**
              
              
              (1,610,638
              )**TOTAL
                  LIABILITIES AND STOCKHOLDERS' (DEFICIT)**
              
              $
              1,123,997





F-2


**IELEMENT
                    CORPORATION AND SUBSIDIARY****CONSOLIDATED
                    STATEMENTS OF OPERATIONS****FOR
                    THE YEARS ENDED MARCH 31, 2007 AND 2006****Year
                    Ended****March
                    31,**
                
                
                **March
                    31,****2007**
                
                
                **2006****OPERATING
                    REVENUE:**Service
                    income
                
                $
                3,776,639
                
                $
                4,550,092**OPERATING
                    EXPENSES**Cost
                    of sales (excluding depreciation of $202,343 and $187,197for
                    the years ended March 31, 2007 and 2006, respectively)
                
                
                2,434,570
                
                
                2,838,021General
                    and administrative
                
                
                3,011,492
                
                
                2,335,195Selling
                    expenses
                
                
                196,736
                
                
                416,426Depreciation
                
                
                302,418
                
                
                279,398Interest
                    expense
                
                
                22,622
                
                
                534Receivable
                    factoring fees
                
                
                83,350
                
                
                106,602**Total
                    Operating Expenses**
                
                
                6,051,188
                
                
                5,976,176**(LOSS)
                    BEFORE OTHER INCOME**
                
                
                (2,274,549
                )
                
                (1,426,084
                )**OTHER
                    INCOME**Interest
                    income
                
                
                18,995
                
                
                -**Total
                    Other Income**
                
                
                18,995
                
                
                -**LOSS
                    BEFORE PROVISION FOR INCOME TAXES**
                
                
                (2,255,554
                )
                
                (1,426,084
                )**Provision
                    for Income Taxes**
                
                
                -
                
                
                -**NET
                    LOSS APPLICABLE TO COMMON SHARES**
                
                $
                (2,255,554
                )
                $
                (1,426,084
                )**NET
                    LOSS PER BASIC AND DILUTED SHARES**
                
                $
                (0.01
                )
                $
                (0.01
                )**WEIGHTED
                    AVERAGE NUMBER OF COMMON****SHARES
                    OUTSTANDING**
                
                
                182,359,118
                
                
                105,125,992
  F-3
  **IELEMENT
                    CORPORATION AND SUBSIDIARY****CONSOLIDATED
                    STATEMENTS OF CHANGES IN STOCKHOLDERS'
                    (DEFICIT)****FOR
                    THE YEARS ENDED MARCH 31, 2007 AND 2006****Additional****Additional**
                
                
                **Paid
                    - In**
                
                
                
                
                
                **Unearned****Common
                    Stock**
                
                
                **Paid
                    - In**
                
                
                **Capital-**
                
                
                **Accumulated**
                
                
                **Compensation**
                
                
                **Subscription****Shares**
                
                
                **Amount**
                
                
                **Capital**
                
                
                **Warrants**
                
                
                **Deficit**
                
                
                **Expense**
                
                
                **Receivable**
                
                
                **Total**Balance,
                    March 31, 2005
                
                
                91,783,730
                
                $
                91,783
                
                $
                (1,172,836
                )
                $
                -
                
                $
                (977,326
                )
                $
                -
                
                $
                -
                
                $
                (2,058,379
                )Issuance
                    of 1,500,000 shares at $0.05 per sharefor
                    services
                
                
                1,500,000
                
                
                1,500
                
                
                73,500
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                75,000Issuance
                    of 340,000 shares at $0.025 per sharefor
                    conversion of accounts payable
                
                
                340,000
                
                
                340
                
                
                8,160
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                8,500Cancelation
                    of 1,498,195 shares at $0.025 per sharefor
                    services rendered
                
                
                (1,498,195
                )
                
                (1,498
                )
                
                (35,957
                )
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (37,455
                )Issuance
                    of 300,000 shares at $0.02 per sharefor
                    services rendered
                
                
                300,000
                
                
                300
                
                
                5,700
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                6,000Issuance
                    of 175,000 shares at $0.02 per sharefor
                    conversion of accounts payable
                
                
                175,000
                
                
                175
                
                
                3,325
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                3,500Issuance
                    of 250,000 shares at $0.025 per sharefor
                    services rendered
                
                
                250,000
                
                
                250
                
                
                5,250
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                5,500Issuance
                    of 2,000,000 shares at $0.04 per sharefor
                    services rendered
                
                
                2,000,000
                
                
                2,000
                
                
                78,000
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                80,000Issuance
                    of 1,596,311 shares at $0.05 per sharefor
                    conversion of accounts payable
                
                
                1,596,311
                
                
                1,597
                
                
                70,238
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                71,835Issuance
                    of 30,219 shares at $0.05 per sharefor
                    conversion of accounts payable
                
                
                30,219
                
                
                30
                
                
                1,330
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                1,360Issuance
                    of 325,000 stock options at $0.01for
                    services to be rendered, market price $0.05
                
                
                -
                
                
                
                
                
                13,000
                
                
                -
                
                
                -
                
                
                (13,000
                )
                
                -
                
                
                0Adjust
                    value of 4,109,637 shares by $0.005 per share
                
                
                -
                
                
                -
                
                
                (20,548
                )
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (20,548
                )Cancellation
                    of stock options at $0.01for
                    services to be rendered, market price $0.05
                
                
                -
                
                
                -
                
                
                (800
                )
                
                -
                
                
                -
                
                
                800
                
                
                -
                
                
                0Issuance
                    of 44,875,000 shares at $0.035 per sharefor
                    cash
                
                
                44,875,000
                
                
                44,875
                
                
                1,525,750
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                1,570,625Stock
                    issuance costs
                
                
                -
                
                
                -
                
                
                (216,563
                )
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (38,806
                )Issuance
                    of warrants
                
                
                -
                
                
                -
                
                
                (177,757
                )
                
                177,757
                
                
                
                
                
                
                
                
                -
                
                
                (177,757
                )Issuance
                    of 250,000 shares at $0.035 per sharefor
                    services rendered
                
                
                250,000
                
                
                250
                
                
                8,500
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                8,750Issuance
                    of 3,380,000 sharesfor
                    conversion of accounts payable
                
                
                3,380,000
                
                
                3,380
                
                
                140,620
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                144,000Issuance
                    of 914,286 shares at $0.035 per sharefor
                    services rendered
                
                
                914,286
                
                
                914
                
                
                31,086
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                32,000Issuance
                    of 5,870,000 sharesfor
                    services rendered
                
                
                5,870,000
                
                
                5,870
                
                
                340,130
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                346,000Issuance
                    of 250,000 shares at $0.11 per sharefor
                    services rendered
                
                
                250,000
                
                
                250
                
                
                27,250
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                27,500Issuance
                    of 168,680 shares at $0.11 per sharefor
                    conversion of accounts payable
                
                
                168,680
                
                
                169
                
                
                18,385
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                18,555Issuance
                    of 4,700,000 shares at $0.05 per sharefor
                    conversion of notes payable
                
                
                4,700,000
                
                
                4,700
                
                
                230,300
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                235,000Issuance
                    of 2,150,000 sharesfor
                    conversion of accounts payable
                
                
                2,150,000
                
                
                2,150
                
                
                105,350
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                107,500Net
                    loss for the year ended March 31, 2006
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (1,426,084
                )
                
                -
                
                
                -
                
                
                (1,426,084
                )Balance
                    March 31, 2006
                
                
                159,035,031
                
                $
                159,035
                
                $
                1,061,413
                
                $
                177,757
                
                $
                (2,403,410
                )
                $
                (12,200
                )
                $
                -
                
                $
                (1,017,404
                )The
                    accompanying notes are an integral part of these consolidated
                    financial
                    statements.
  F-4
  **IELEMENT
                    CORPORATION AND SUBSIDIARY****CONSOLIDATED
                    STATEMENT OF CHANGES IN STOCKHOLDERS' (DEFICIT)
                    (CONTINUED)****FOR
                    THE YEARS ENDED MARCH 31, 2007 AND 2006****Additional****Additional**
                
                **Paid
                    - In**
                
                
                
                **Unearned****Common
                    Stock**
                
                
                
                **Paid
                    - In**
                
                **Capital-**
                
                **Accumulated**
                
                **Compensation**
                
                **Subscription****Shares**
                
                **Amount**
                
                **Capital**
                
                **Warrants**
                
                **Deficit**
                
                **Expense**
                
                **Receivable**
                
                **Total**Balance
                    March 31, 2006
                
                
                159,035,031
                
                $
                159,035
                
                $
                1,061,413
                
                $
                177,757
                
                $
                (2,403,410
                )
                $
                (12,200
                )
                $
                -
                
                $
                (1,017,404
                )Issuance
                    of 297,896 shares at $0.06 per sharefor
                    conversion of accounts payable
                
                
                297,896
                
                
                298
                
                
                17,576
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                17,874Issuance
                    of 14,518,730 shares at $0.04 per sharefor
                    services rendered
                
                
                14,518,730
                
                
                14,519
                
                
                566,231
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                580,750Employees
                    earned 18.75% of the 17,100,000 stock optionsgranted
                    on 8/29/06
                
                
                -
                
                
                -
                
                
                133,893
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                133,893Issuance
                    of 622,000 shares at $0.04 per sharefor
                    services rendered
                
                
                622,000
                
                
                622
                
                
                24,258
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                24,880Issuance
                    of 5,231,343 shares at $0.035 per sharefor
                    conversion of notes payable
                
                
                5,231,343
                
                
                5,231
                
                
                177,866
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                183,097Issuance
                    of 170,000 shares at $0.03 per sharefor
                    services rendered
                
                
                170,000
                
                
                170
                
                
                4,930
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                5,100Issuance
                    of 3,250,000 shares at $0.04 per sharefor
                    services rendered
                
                
                3,250,000
                
                
                3,250
                
                
                126,750
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                130,000Issuance
                    of 750,000 shares at $0.028 per sharefor
                    conversion of accounts payable
                
                
                750,000
                
                
                750
                
                
                20,250
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                21,000Issuance
                    of 600,000 shares at $0.03 per sharefor
                    services rendered
                
                
                600,000
                
                
                600
                
                
                17,400
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                18,000Issuance
                    of 200,000 shares at $0.037 per sharefor
                    services rendered
                
                
                200,000
                
                
                200
                
                
                7,200
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                7,400Issuance
                    of 5,000,000 shares at $0.04 per sharefor
                    services rendered
                
                
                5,000,000
                
                
                5,000
                
                
                195,000
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                200,000Issuance
                    of 30,000,000 shares at $0.03 per sharein
                    exchange for a subscription receivable
                
                
                30,000,000
                
                
                30,000
                
                
                870,000
                
                
                -
                
                
                -
                
                
                -
                
                
                (900,000
                )
                
                0Employees
                    earned 6.25% of the stock optionsgranted
                    on 8/29/06 & 9/11/06
                
                
                -
                
                
                -
                
                
                44,841
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                44,841Issuance
                    of 500,000 shares at $0.023 per sharefor
                    conversion of accounts payable
                
                
                500,000
                
                
                500
                
                
                10,574
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                11,074Issuance
                    of 3,850,000 shares at $0.026 per sharefor
                    services rendered
                
                
                3,850,000
                
                
                3,850
                
                
                96,250
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                100,100Issuance
                    of 1,500,000 shares at $0.025 per sharefor
                    services rendered
                
                
                1,500,000
                
                
                1,500
                
                
                36,000
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                37,500Issuane
                    of 600,000 shares at $0.029 per sharefor
                    services rendered
                
                
                600,000
                
                
                600
                
                
                16,800
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                17,400Issuance
                    of 1,000,000 shares at $0.021 per sharefor
                    conversion of accounts payable
                
                
                1,000,000
                
                
                1,000
                
                
                20,000
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                21,000Issuance
                    of 1,387,500 shares at $0.01 per sharefor
                    exercise of employee stock options
                
                
                1,387,500
                
                
                1,388
                
                
                12,488
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                13,876Issuance
                    of 1,000,000 shares at $0.025 per sharefor
                    services rendered
                
                
                1,000,000
                
                
                1,000
                
                
                24,000
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                25,000Issuance
                    of 904,790 shares at $0.025 per sharefor
                    conversion of accounts payable
                
                
                904,790
                
                
                905
                
                
                21,715
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                22,620Employees
                    earned 6.25 % of the stock optionsgranted
                    on 8/29/06 and 9/11/06
                
                
                -
                
                
                -
                
                
                46,916
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                46,916Net
                    loss for the year ended March 31, 2007
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (2,255,554
                )
                
                -
                
                
                -
                
                
                (2,255,554
                )Balance
                    March 31, 2007
                
                
                230,417,290
                
                $
                230,417
                
                $
                3,552,351
                
                $
                177,757
                
                $
                (4,658,964
                )
                $
                (12,200
                )
                $
                (900,000
                )
                $
                (1,610,638
                )The
                    accompanying notes are an integral part of these consolidated
                    financial
                    statements.
  F-5
  **IELEMENT
                        CORPORATION AND SUBSIDIARY****CONSOLIDATED
                        STATEMENTS OF CASH FLOWS****FOR
                        THE YEARS ENDED MARCH 31, 2007 AND 2006****Year
                        Ended****March
                        31,**
                    
                    **March
                        31,****2007**
                    
                    **2006****CASH
                        FLOWS FROM OPERATING ACTIVITIES**Net
                        (loss)
                    
                    $
                        (2,255,554)
                    
                    $
                        (1,426,084)**Adjustments
                        to reconcile net loss to net cash****(used
                        in) operating activities:**Depreciation
                        and amortization
                    
                    302,418
                    
                    279,398Bad
                        debt expense
                    
                    82,643
                    
                    86,800Stock
                        issued for services
                    
                    1,167,129
                    
                    522,748Stock
                        based employee compensation
                    
                    225,650
                    
                    -**Changes
                        in assets and liabilities**(Increase)
                        in accounts receivable
                    
                    
                    63,927
                    
                    
                    (68,753
                    )(Increase)
                        in accrued interest receivable
                    
                    
                    (18,542
                    )
                    
                    -(Increase)
                        decrease in other current assets
                    
                    
                    (7,821
                    )
                    
                    1,671(Increase)
                        decrease in deposits
                    
                    
                    56,260
                    
                    
                    (59,494
                    )Increase
                        (decrease) in accounts payable and accrued expenses
                    
                    
                    (103,462
                    )
                    
                    320,555(Decrease)
                        in liability for stock to be issued
                    
                    
                    -
                    
                    
                    (75,000
                    )Increase
                        in accrued interest payable
                    
                    
                    16,038
                    
                    
                    4,872(Decrease)
                        in customer deposits
                    
                    
                    (34,478
                    )
                    
                    (27,892
                    )Increase
                        in lines of credit payable
                    
                    
                    -
                    
                    
                    6,027(Decrease)
                        in receivable financing payable
                    
                    
                    (86,205
                    )
                    
                    (83,863
                    )(Decrease)
                        in commissions payable
                    
                    
                    (5,641
                    )
                    
                    (161,772
                    )Increase
                        (decrease) in deferred revenue
                    
                    
                    (162,980
                    )
                    
                    (138,277
                    )Total
                        adjustments
                    
                    
                    1,494,936
                    
                    
                    607,020**Net
                        cash (used in) operating activities**
                    
                    
                    (760,618
                    )
                    
                    (819,064
                    )**CASH
                        FLOWS FROM INVESTING ACTIVITIES**Acquisition
                        of fixed assets
                    
                    
                    (107,164
                    )
                    
                    (99,519
                    )**Net
                        cash (used in) investing activities**
                    
                    
                    (107,164
                    )
                    
                    (99,519
                    )The
                        accompanying notes are an integral part of these consolidated
                        financial
                        statements
  F-6
 **IELEMENT
                    CORPORATION AND SUBSIDIARY****CONSOLIDATED
                    STATEMENTS OF CASH FLOWS (CONTINUED)****FOR
                    THE YEARS ENDED MARCH 31, 2007 AND 2006****Year
                    Ended****March
                    31,**
                
                **March
                    31,****2007**
                
                **2006****CASH
                    FLOWS FROM FINANCING ACTIVITES**Payments
                    of notes payable
                
                $
                (405,200
                )
                $
                (56,350
                )Proceeds
                    from notes payable
                
                
                705,008
                
                
                -Common
                    stock issued for cash
                
                
                -
                
                
                1,570,625Stock
                    issuance costs
                
                
                -
                
                
                (216,563
                )Proceeds
                    in exercise of stock options
                
                
                13,876
                
                
                -**Net
                    cash provided by financing activities**
                
                
                313,684
                
                
                1,297,712**NET
                    INCREASE (DECREASE) IN CASH****AND
                    CASH EQUIVALENTS**
                
                
                (554,098
                )
                
                379,129**CASH
                    AND CASH EQUIVALENTS -****BEGINNING
                    OF YEAR**
                
                
                719,450
                
                
                340,321**CASH
                    AND CASH EQUIVALENTS - END OF****YEAR**
                
                $
                165,352
                
                $
                719,450**SUPPLEMENTAL
                    DISCLOSURE OF CASH FLOW****INFORMATION:****CASH
                    PAID DURING THE YEAR FOR:**Interest
                    expense
                
                $
                -
                
                $
                114**SUPPLEMENTAL
                    DISCLOSURE OF NONCASH****ACTIVITIES:**Accounts
                    payable converted to equity
                
                $
                72,568
                
                $
                355,250Common
                    stock issued for subscription receivable
                
                $
                900,000
                
                $
                -Accounts
                    payable converted to notes payable
                
                $
                -
                
                $
                170,384Notes
                    payable converted to equity
                
                $
                183,097
                
                $
                235,000Stock
                    issued for services
                
                $
                1,167,129
                
                $
                522,748Stock
                    based compensation
                
                $
                225,650
                
                $
                -The
                    accompanying notes are an integral part of these consolidated
                    financial
                    statements
 F-7
 IELEMENT
          CORPORATION AND SUBSIDIARY
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 FOR
          THE
          YEARS ENDED MARCH 31, 2007 AND 2006
  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 continuingentity
      for accounting purposes and the historical financial statementspresented
      will be those of IElement.




F-8


IELEMENT
        CORPORATION AND SUBSIDIARY
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 FOR
        THE
        YEARS ENDED MARCH 31, 2007 AND 2006
  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.





F-9


IELEMENT
      CORPORATION AND SUBSIDIARY


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      YEARS ENDED MARCH 31, 2007 AND 2006




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





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.





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.





F-10


IELEMENT
        CORPORATION AND SUBSIDIARY
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 FOR
        THE
        YEARS ENDED MARCH 31, 2007 AND 2006
  NOTE
          1-
          ORGANIZATION AND BASIS OF PRESENTATION
 --------------------------------------
 (CONTINUED)


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 was 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. On
      October 6, 2006 we reached agreements with the holders of these eight Notes
      to
      extend the first payment date until April 1, 2007. We did not make any payments
      on the notes.





On
      June
      19, 2007, we reached agreement with these eight Note holders to extend the
      payment terms so that the first of 36 monthly payments on each of the notes
      is
      due on April 1, 2008. These eight Note holders received a total of 5,400,000
      shares of the company’s common stock on June 19, 2007 , which will be recorded
      as interest expense, in exchange for extension of the principle repayment
      terms. The total aggregate principle balance of these eight notes as of March
      31, 2007 and July 6, 2007 was $376,956. Each of these Notes is still secured
      by
      substantially all of the Company’s assets and is convertible into shares of the
      Company’s common stock at a rate of $0.035 per share.





F-11


IELEMENT
        CORPORATION AND SUBSIDIARY
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 FOR
        THE
        YEARS ENDED MARCH 31, 2007 AND 2006
  NOTE
          1-
          ORGANIZATION AND BASIS OF PRESENTATION
 --------------------------------------
 (CONTINUED)


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.




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.




In
      March
      2006, Ivan Zweig, as the only Director, appointed Lance Stovall and Ken Willey
      to the Board of Directors until the next annual meeting, when all three
      Directors were up for re-election.





On
      December 6, 2006 the Board of Directors unanimously appointed Charles Carlson
      to
      the Board of Directors until the next annual meeting after the annual meeting
      scheduled for December 15, 2006.





On
      December 15, 2006, Ivan Zweig, Lance Stovall and Ken Willey were re-elected
      to
      the Board of Directors at the Company’s annual meeting. Charles Carlson also
      continued to serve his initial term on the Board of Directors but was not up
      for
      re-election. Mr. Carlson resigned his position on the Board of Directors in
      April 2007. His resignation did 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.


F-12


IELEMENT
        CORPORATION AND SUBSIDIARY
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 FOR
        THE
        YEARS ENDED MARCH 31, 2007 AND 2006


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.




F-13


IELEMENT
          CORPORATION AND SUBSIDIARY
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 FOR
          THE
          YEARS ENDED MARCH 31, 2007 AND 2006
  NOTE
            2-
            SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 ------------------------------------------
 (CONTINUED)
 REVENUE
        AND COST RECOGNITION
 ----------------------------
 
 The
        Company records its transactions under the accrual method of accounting
        whereby income is recognized when the services are provided rather
        than when billed or the fees are collected, and costs and expenses
        are recognized in the period they are incurred rather than paid
        for.
        In determining when to recognize revenue the Company relies on
        Staff
        Accounting Bulletin Topic 13. The Company uses 4 criteria in determining
        when revenue is realized or realizable and earned. First, the
        Company must have persuasive evidence of the existing of an arrangement.
        The Company utilizes written contracts with its customers to
        meet
        this criterion. Second, delivery must have occurred or services must
        have
        been rendered. The Company defers revenue from the date invoiced,
        usually 35-40 days before services are rendered, to the month services
        are deemed completely rendered, thereby satisfying this criterion.
        Third, the price must be fixed and determinable. The Company delivers
        invoices to every customer stating the exact amount due for services,
        thereby satisfying this criterion. Fourth, the Company determines
        credibility of its customers and collectibility of its invoices
        by evaluating its ongoing history and relationship with each customer,
        the fact that each customer is dependant upon the Company to provide
        its telephone and internet services and, in many cases, the fact
        that
        the customer has a security or service deposit with the Company
        in the amount of one month's service charges. When the Company cannot
        determine that a particular customer is credible and a particular
        invoice is collectible, the company will not record this invoice
        as revenue until the payment is collected from that customer. Thus,
        the
        Company meets the fourth criterion that collectibility be reasonably
        assured.








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 tobe
      rendered two months subsequent to the billing date. The Companyreceives
      75% of the aggregate net face value of the assigned accountsat
      the
      time of placement with the factor.





F-14


IELEMENT
        CORPORATION AND SUBSIDIARY
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 FOR
        THE
        YEARS ENDED MARCH 31, 2007 AND 2006
  NOTE
          2-
          SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 ------------------------------------------
 (CONTINUED)


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 $10,684 has been recorded at March 31, 2007.





Bad
      debt
      expense for the years ended March 31, 2007 and 2006 were $82,643 and $86,800,
      respectively.








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, 2007 and 2006 were
      $85,011 and $44,444, 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 ofassets
      and liabilities and their financial reporting amounts at eachyear-end
      based on enacted tax laws and statutory tax rates. No benefitis
      reflected for the years ended March 31, 2007 and 2006,
      respectively.





F-15


IELEMENT
        CORPORATION AND SUBSIDIARY
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 FOR
        THE
        YEARS ENDED MARCH 31, 2007 AND 2006
  NOTE
          2-
          SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 ------------------------------------------
 (CONTINUED)


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. We do not accrue expenses
      for unpaid vacation or post employment benefits due to employees, both because
      they would be difficult to estimate and because they would not be
      significant.





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




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.





F-16


IELEMENT
        CORPORATION AND SUBSIDIARY
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 FOR
        THE
        YEARS ENDED MARCH 31, 2007 AND 2006
  NOTE
          2-
          SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 ------------------------------------------
 (CONTINUED)


(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.





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





Year
                EndedMarch
            
            March31,
                2007
            
            
            31,
                2006(Unaudited)
            
            
            (Unaudited
            )Net
                (Loss)
            
            
            ($2,255,554
            )
            
            ($1,426,084
            )Weighted
                average common shares outstanding (Basic)
            
            
            182,359,118
            
            
            105,125,992Weighted
                average common stock equivalents
            
            
            -
            
            
            -Stock
                options
            
            
            -
            
            
            -Warrants
            
            
            -
            
            
            -Weighted
                average common shares outstanding (Diluted)
            
            
            182,359,118
            
            
            105,125,992








There
      were 48,285,781 and 31,723,281 warrants and options outstanding as of March
      31,
      2007 and 2006, respectively, but including these options and warrants would
      have
      been anti-dilutive to our loss per common share.




F-17


IELEMENT
          CORPORATION AND SUBSIDIARY
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 FOR
          THE
          YEARS ENDED MARCH 31, 2007 AND 2006
  NOTE
            2-
            SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 ------------------------------------------
 (CONTINUED)


STOCK-BASED
      COMPENSATION


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





Effective
      April 1, 2006, the Company adopted the provisions of Financial Accounting
      Standards Board Statement of Financial Accounting Standard ("SFAS") No. 123(R),
      "Share-Based Payments," which establishes the accounting for employee
      stock-based awards. Under the provisions of SFAS No.123(R), stock-based
      compensation is measured at the grant date, based on the calculated fair value
      of the award, and is recognized as an expense over the requisite employee
      service period (generally the vesting period of the grant). The Company adopted
      SFAS No. 123(R) using the modified prospective method and, as a result, periods
      prior to March 31, 2006 have not been restated. The Company recognized
      stock-based compensation for awards issued under the Company's stock option
      plans in other income/expenses included in the Consolidated Statement of
      Operations. Additionally, no modifications were made to outstanding stock
      options prior to the adoption of SFAS No. 123(R), and no cumulative adjustments
      were recorded in the Company's financial statements.




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.




SFAS
        No.
        123(R) requires disclosure of pro-forma information for periods prior to
        adoption. The pro-forma disclosures are based on the fair value of awards
        at the
        grant date, amortized to expense over the service period. The following table
        illustrates the effect on net income and earnings per share as if the Company
        had applied fair value recognition provisions of SFAS No. 123, “Accounting for
        Stock-Based Compensation”, for the period prior to the adoption of SFAS No.
        123(R), and the actual effect on net income and earning per share for the
        period
        after the adoption of SFAS No. 123(R).





F-18


IELEMENT
        CORPORATION AND SUBSIDIARY
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 FOR
        THE
        YEARS ENDED MARCH 31, 2007 AND 2006
  NOTE
          2-
          SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 ------------------------------------------
 (CONTINUED)
  Year EndedMarch
                  31, 2007
              
              March
                  31, 2006Net
                  (loss), as reported
              
              $
              (2,255,554
              )
              $
              (1,426,084
              )Add:
                  Stock-based employee compensation expenseincluded
                  in reported net income, net of related tax effects
              
              
              225,650
              
              
              -Deduct:
                  Total stock-based employee compensationexpense
                  determined under fair value based methodfor
                  all awards, net of related tax effects
              
              
              (225,650
              )
              
              (111,344
              )Net
                  (loss), pro forma
              
              $
              (2,255,554
              )
              $
              (1,537,428
              )(Loss)
                  per share:Basic,
                  as reported
              
              $
              (0.01
              )
              $
              (0.01
              )Basic,
                  pro forma
              
              $
              (0.01
              )
              $
              (0.01
              )Diluted,
                  as reported
              
              $
              (0.01
              )
              $
              (0.01
              )Diluted,
                  pro forma
              
              $
              (0.01
              )
              $
              (0.01
              )
 
 
 For
        the
        purposes of the above table, the fair value of each option granted is estimated
        as of the date of grant using the Black-Scholes option-pricing model with
        the
        following assumptions:
 
 Year
                  EndedMarch
                  31, 2007
              
              
              March
                  31, 2006Dividend
                  yield
              
              
              0.0%
              
              
              0.0%Expected
                  volatility
              
              
              0.62
              
              
              0.62Risk-free
                  interest rate
              
              
              5.0%
              
              
              4.6%Expected
                  life in years
              
              
              10
              
              
              10






Stock-based
      compensation for the years ended March 31, 2007 and 2006 were $225,650 and
      $12,200 respectively.




On
        August
        29, 2006, the Company issued 17,100,000 stock options to its employees. The
        options have an exercise price of $0.01 and vest over 40 months. They have
        a
        fair value of $714,096 using the Black-Scholes pricing model.




On
        September 11, 2006, the Company issued 100,000 stock options to its employees.
        The options have an exercise price of $0.01 and vest over 48 months. They
        have a
        fair value of $3,360 using the Black-Scholes pricing model.




On
        December 6, 2006, the Company issued 250,000 stock options to its directors.
        The
        options have an exercise price of $0.01 and vest over 12 months. They have
        a
        fair value of $6,000 using the Black-Scholes pricing model.




On
        January 2, 2007, the Company issued 500,000 stock options to its employees.
        The
        options have an exercise price of $0.01 and vest over 48 months. They have
        a
        fair value of $9,200 using the Black-Scholes pricing model.





The
      following summarizes the stock option activity for the year ended March 31,
      2007:


F-19


IELEMENT
        CORPORATION AND SUBSIDIARY
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 FOR
        THE
        YEARS ENDED MARCH 31, 2007 AND 2006
  NOTE
          2-
          SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 ------------------------------------------
 (CONTINUED)


WeightedWeighted
            
            AverageAverage
                Exercise
            
            ContractualShares
            
            Price
            
            Term
                (Years)Outstanding,
                March 31, 2006
            
            31,723,281
            
            0.097Options
                granted
            
            17,950,000
            
            0.010Options
                reinstatedOptions
                exercised
            
            
            1,387,500
            
            
            0.010Options
                forfeited or expired
            
            
            250,000
            
            
            0.010Outstanding,
                March 31, 2007
            
            
            48,035,781
            
            
            0.067
            
            
            4.39Options
                exercisable, March 31, 2007
            
            
            34,887,188
            
            
            0.081
            
            
            2.87Options
                available for grant at end of year
            
            
            23,300,000




At
      the
      annual shareholder meeting on December 15, 2006, the shareholders approved
      the
      Company’s 2006 Employee Stock Option Plan. The plan authorizes 41,000,000 shares
      to be optioned and sold. All employees are covered by the plan, although some
      employees have not been granted options or shares under the plan. All options
      that have been granted under the plan through March 31, 2007 vest over the
      term
      for which they are meant as compensation. Options that have been issued to
      Directors vest monthly over one year. Options that have been issued to employees
      vest quarterly over four years. All options that have been issued under the
      plan
      have a strike price of $0.01 per share.





F-20


IELEMENT
        CORPORATION AND SUBSIDIARY
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 FOR
        THE
        YEARS ENDED MARCH 31, 2007 AND 2006
  NOTE
          2-
          SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 ------------------------------------------
 (CONTINUED)


RECENT
      ACCOUNTING PRONOUNCEMENTS


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





In
      May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error
      Corrections.” SFAS No. 154 replaces Accounting Principles Board (“APB”)
      Opinion No. 20, “Accounting Changes” and SFAS No. 3, “Reporting
      Accounting Changes in Interim Financial Statements.” SFAS No. 154 requires
      retrospective application to prior periods’ financial statements of a voluntary
      change in accounting principle unless it is impracticable. APB No. 20
      previously required that most voluntary changes in accounting principle be
      recognized by including the cumulative effect of changing to the new accounting
      principle in net income in the period of the change. SFAS No. 154 is
      effective for accounting changes and corrections of errors made in fiscal years
      beginning after December 15, 2005. The adoption of SFAS No. 154 did
      not have a material impact on the Company’s financial position or results of
      operations.




In
      February 2006, the FASB issued SFAS No. 155, “Accounting for Certain
      Hybrid Financial Instruments, an amendment of FASB Statements No. 133 and
      140.” SFAS No. 155 resolves issues addressed in SFAS No. 133
      Implementation Issue No. D1, “Application of Statement 133 to Beneficial
      Interests in Securitized Financial Assets,” and permits fair value remeasurement
      for any hybrid financial instrument that contains an embedded derivative that
      otherwise would require bifurcation, clarifies which interest-only strips and
      principal-only strips are not subject to the requirements of SFAS No. 133,
      establishes a requirement to evaluate interests in securitized financial assets
      to identify interests that are freestanding derivatives or that are hybrid
      financial instruments that contain an embedded derivative requiring bifurcation,
      clarifies that concentrations of credit risk in the form of subordination are
      not embedded derivatives and amends SFAS No. 140 to eliminate the
      prohibition on a qualifying special-purpose entity from holding a derivative
      financial instrument that pertains to a beneficial interest other than another
      derivative financial instrument. SFAS No. 155 is effective for all
      financial instruments acquired or issued after the beginning of the first fiscal
      year that begins after September 15, 2006. The Company is currently
      evaluating the effect the adoption of SFAS No. 155 will have on its
      financial position or results of operations.




In
      March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of
      Financial Assets, an amendment of FASB Statement No. 140.” SFAS
      No. 156 requires an entity to recognize a servicing asset or liability each
      time it undertakes an obligation to service a financial asset by entering into
      a
      servicing contract under a transfer of the servicer’s financial assets that
      meets the requirements for sale accounting, a transfer of the servicer’s
      financial assets to a qualified special-purpose entity in a guaranteed mortgage
      securitization in which the transferor retains all of the resulting securities
      and classifies them as either available-for-sale or trading securities in
      accordance with SFAS No. 115, “Accounting for Certain Investments in Debt
      and Equity Securities” and an acquisition or assumption of an obligation to
      service a financial asset that does not relate to financial assets of the
      servicer or its consolidated affiliates. Additionally, SFAS No. 156
      requires all separately recognized servicing assets and servicing liabilities
      to
      be initially measured at fair value, permits an entity to choose either the
      use
      of an amortization or fair value method for subsequent measurements, permits
      at
      initial adoption a one-time reclassification of available-for-sale securities
      to
      trading securities by entities with recognized servicing rights and requires
      separate presentation of servicing assets and liabilities subsequently measured
      at fair value and additional disclosures for all separately recognized servicing
      assets and liabilities. SFAS No. 156 is effective for transactions entered
      into after the beginning of the first fiscal year that begins after
      September 15, 2006. The Company is currently evaluating the effect the
      adoption of SFAS No. 156 will have on its financial position or results of
      operations.




In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No.
      157, Fair Value Measurements, (“FAS 157”). This Standard defines fair value,
      establishes a framework for measuring fair value in generally accepted
      accounting principles and expands disclosures about fair value measurements.
      FAS
      157 is effective for financial statements issued for fiscal years beginning
      after November 15, 2007 and interim periods within those fiscal years. The
      adoption of FAS 157 is not expected to have a material impact on the Company’s
      financial position, results of operations or cash flows.


The
        FASB
        also issued in September 2006 Statement of Financial Accounting Standards
        No.
        158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement
        Plans — an amendment of FASB Statement No. 87, 88, 106 and 132(R), (“FAS 158”) .
        This Standard requires recognition of the funded status of a benefit plan
        in the
        statement of financial position. The Standard also requires recognition in
        other
        comprehensive income certain gains and losses that arise during the period
        but
        are deferred under pension accounting rules, as well as modifies the timing
        of
        reporting and adds certain disclosures. FAS 158 provides recognition and
        disclosure elements to be effective as of the end of the fiscal year after
        December 15, 2006 and measurement elements to be effective for fiscal years
        ending after December 15, 2008. The Company has not yet analyzed the impact
        FAS
        158 will have on its financial condition, results of operations, cash flows
        or
        disclosures.
  In
        June
        2006, the FASB issued FASB Interpretation No. 48, “Accounting for
        Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109”
(“FIN 48”). FIN 48 prescribes a recognition threshold and measurement attribute
        for financial statement recognition and measurement of a tax position taken
        or
        expected to be taken in a tax return, and also provides guidance on
        de-recognition, classification, interest and penalties, accounting in interim
        periods, disclosure, and transition. FIN 48 is effective for fiscal years
        beginning after December 15, 2006. The adoption of FIN 48 is not expected
        to have a material impact on the Company’s consolidated financial position and
        results of operations.




F-21


IELEMENT
          CORPORATION AND SUBSIDIARY
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 FOR
          THE
          YEARS ENDED MARCH 31, 2007 AND 2006
 NOTE
        3-
        FIXED ASSETS
 ------------
 
 Property
        and equipment as of March 31, 2007 was as follows:





**March
                31,****2007**Property
                and equipment
            $1,579,951Less:
                accumulated depreciation
            (1,066,033)Net
                book value
            $513,918





There
      was
      $302,418 and $279,398 charged to operations for depreciation expense for the
      years ended March 31, 2007 and 2006, respectively.





NOTE
      4-
      NOTES PAYABLE


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





The
      Company has 15 notes payable at March 31, 2007 in the aggregate principal and
      interest amount of $767,434 owed to 13 note holders. As of March 31, 2007 we
      were current in all obligations except for past due total payments of $85,041
      on
      two notes. We are currently negotiating with these two note holders and no
      default has been declared. The following is a more detailed discussion of the
      15
      notes.





On
      January 19, 2005, IElement issued eight (8) promissory notes to Kramerica and
      certain members of Mr. Zweig's immediate family and others in the aggregate
      amount of $376,956 (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), Peter Walther ($30,000), Richard Zweig
      ($20,000), Richard Zweig IRA ($27,500) and Strait Grandchildren Trust
      ($103,845). 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 the Company. We did not
      make
      any payments on the Notes.





On
      March
      25, 2006 each of the eight (8) Notes were cancelled and we issued new
      convertible promissory notes to the same individuals in the same principal
      amount of $376,956, again with no interest thereon. The first payment on each
      of
      the new convertible promissory Notes was 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 share of our common stock at a conversion price of $0.035
      per
      share. Any past due balance on the old Notes was forgiven at the time of
      cancellation of the old notes and issuance of the new convertible promissory
      Notes. The new convertible promissory Notes are secured by substantially all
      the
      assets of IElement as were the original Notes.





On
      October 6, 2006 we reached agreements with the holders of these eight Notes
      to
      extend the first payment date until April 1, 2007. We did not make any payments
      on the notes.





On
      June
      19, 2007, we reached agreement with these eight Note holders to extend the
      payment terms so that the first of 36 monthly payments on each of the notes
      is
      due on April 1, 2008. These eight Note holders received a total of 5,400,000
      shares of the Company’s common stock on June 19, 2007 in exchange for extension
      of the principle repayment terms. This amount will be recorded as interest
      expense. The total aggregate principle balance of these eight notes as of March
      31, 2007 and July 6, 2007 was $376,956. Each of these Notes is still secured
      by
      substantially all of the Company’s assets and is convertible into shares of the
      Company’s common stock at a rate of $0.035 per share.





In
      addition to these notes, the Company also has one more promissory note payable
      to Kramerica in the principle amount of $25,000. This note was issued on August
      24, 2006 and bears interest at an annual rate of ten percent. As of March 31,
      2007 the accrued interest on this note was $813. This note is secured by
      substantially all of the Company’s assets. The maturity date of this note was
      also extended to April 1, 2008 by agreement on June 19, 2007. It is due in
      full
      on April 1, 2008 and will continue to accrue interest at an annual rate of
      ten
      percent until paid in full.





F-22


IELEMENT
      CORPORATION AND SUBSIDIARY


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      YEARS ENDED MARCH 31, 2007 AND 2006




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





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





On
      March
      25, 2006 each of the four notes were cancelled and IElement issued new
      convertible promissory notes to the same individuals in the same principal
      amount of $183,097, again with no interest thereon. The first payment on each
      of
      the new convertible promissory notes was due in September 2006 with a total
      of
      36 monthly installments through August 2009. The Lender had the right to convert
      all or a portion of the outstanding balance, at any time until the notes were
      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. These four notes were each converted to common stock at a price of $0.035
      per share on November 13, 2006.





One
      of
      the remaining notes is held by Duane Morris in the principle amount of $34,631.
      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 July 16, 2007 we are past due on our payments on the Duane Morris note but
      intend to resume payments in the coming months. This note bears no
      interest.




On
      June
      8, 2006 we issued a note payable in the amount of $100,000 to Rhino Limited
      which bears a ten percent interest rate. It matures when we secure funding
      from
      exercise of outstanding warrants, expected this fiscal year. The current
      principle and interest balance on this note as of March 31, 2007 was
      $108,268.





On
      June
      19, 2006 we issued a note payable in the amount of $20,000 to Veronica Kristi
      Prenn. It bears a ten percent interest rate and matured on December 19, 2006,
      but as of July 7, 2007 we had not made a payment. We intend to renegotiate
      the
      terms of this note. The current principle and interest balance on this note
      as
      of March 31, 2007 was $22,589.




On
      August
      4, 2006 we issued a note payable to Walton Hansen in the amount of $24,808.
      It
      bears a ten percent interest rate and matures when we secure funding from
      exercise of outstanding warrants, expected this fiscal year. The current
      principle and interest balance on this note as of March 31, 2007 was
      $26,272.





On
      September 5, 2006 we issued a note payable to William Goatley in the amount
      of
      $60,000. It bears a ten percent interest rate and matured on December 5, 2006.
      The current principle and interest balance on this note as of March 31, 2007
      was
      $63,452. We intend to renegotiate the terms of this note.





We
      issued
      five new notes during the three months ended December 31, 2006, to Tim
      Dean-Smith in the amount of $116,000 on October 3, 2006, to Kramerica in the
      amount of $17,000 on November 8, 2006, to Barry Brault in the amount of $120,000
      on November 14, 2006, to Stonegate Ventures, Inc. in the amount of $52,000
      on
      November 29, 2006, and to Yock Investments, Inc. in the amount of $52,000 on
      November 29, 2006. All five of these notes accrued interest at a rate of ten
      percent annually and matured six months from the date they were
      issued.





On
      December 29, 2006 we retired four notes payable, to Stonegate Ventures, Inc.
      in
      the amount of $52,000, Yock Investments, Inc. in the amount of $52,000, Barry
      Brault in the amount of $120,000 and Tim Dean-Smith in the amount of $116,000
      by
      converting them to common shares of our stock. In each case, the shares of
      common stock had previously been issued as payment for consulting services,
      but
      the consulting services rendered did not meet our expectations. Each of the
      note
      holders agreed to forgive the balance of their notes in exchange for the company
      allowing them to keep the stock previously issued. Yock and Stonegate’s stock
      was issued as payment for consulting services on September 29, 2006, Tim
      Dean-Smith’s stock was issued as payment for consulting services on November 14,
      2006 and Barry Brault’s stock was issued as payment for consulting services on
      December 15, 2006.





F-23


IELEMENT
      CORPORATION AND SUBSIDIARY


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      YEARS ENDED MARCH 31, 2007 AND 2006




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




On
      March
      16, 2007 we issued a note payable to Michael Bloch in the amount of $110,000.
      It
      bears a ten percent interest rate and matured on June 16, 2007. The current
      principle and interest balance on this note as of March 31, 2007 was $110,452.
      This note is secured by substantially all of our assets. We intend to
      renegotiate the terms of this note.





The
      $17,000 promissory note payable to Kramerica that was issued on November 8,
      2006
      was repaid in full as of March 31, 2007. The $8,200 note payable to Kramerica
      that was issued on August 21, 2006 was repaid in full in October 2006.




Although
      the financial statements included in this Report show the current portion of
      notes payable as of March 31, 2007 at $511,499, that total does not take into
      account the subsequent extension of the repayment terms made on the 9 notes
      held
      by Kramerica, Ivan Zweig and members of Mr. Zweig’s immediate family. As of July
      6, 2007, the total debt servicing requirements on the 15 outstanding promissory
      notes over the twelve months ending March 31, 2008 is approximately
      $360,033.




The
      notes
      payable balances at March 31, 2007 were as follows, inclusive of accrued
      interest:







MARCH
      31,


2007


-----------


Total
      notes
      payable                         
$ 767,434


Less:
      current
      maturities                       511,499


-----------





Long-term
      notes
      payable                 $
      255,935


============





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





2008                                                     
      $511,499


2009                                                     
      $130,283


2010                                                     
      $125,652


2011                                                    
       $0


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


$767,434


=================








F-24


IELEMENT
          CORPORATION AND SUBSIDIARY
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 FOR
          THE
          YEARS ENDED MARCH 31, 2007 AND 2006
  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
        are $3,284.


Rental
      payments charged to expense for the years ended March 31, 2007 and 2006 were
      $37,346 and $41,872, respectively.




NOTE
      6-
      STOCKHOLDERS' (DEFICIT)


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





COMMON
      STOCK


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


As
        of
        March 31, 2007, the Company has 2,000,000,000 shares of common stock authorized
        at a par value of $0.001 and 230,417,290 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.
 
 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.
 
 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.
  THE
        FOLLOWING DETAILS THE STOCK TRANSACTIONS FOR THE
        YEAR ENDED MARCH 31,2007:
 
 The
        Company issued 2,702,686 shares of common stock to retire accounts payable
        with
        a fair value of $72,568.
 
 The
        Company issued 32,060,730 shares of common stock as payment for services
        rendered with a fair value of $1,167,129.
 
 The
        Company issued 5,231,343 shares of common stock to convert notes payable
        with a
        fair value of $183,097.
 
 The
        Company issued 30,000,000 shares of common stock in exchange for a note
        receivable, which is recorded as a stock subscription receivable of $900,000.
        Interest on the note receivable is earned at 8% per annum.
 
 The
        Company issued 1,387,500 shares of common stock upon exercise of stock options
        for cash of $13,876.
 F-25
 IELEMENT
          CORPORATION AND SUBSIDIARY
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 FOR
          THE
          YEARS ENDED MARCH 31, 2007 AND 2006
 NOTE
            6-
            STOCKHOLDERS' (DEFICIT)
 ------------------------------
 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, 2007 and 2006, deferred tax assets consist of the
        following:
 
 March
        31,
        2007 March
        31,
        2006
 Net
        deferred tax
        assets                        
$1,397,689 $721,023
 Less:
        valuation
        allowance (1,397,689) (721,023)
 $    
        -0- $    
        -0-


At
      March 31, 2007, the Company had deficits accumulated
      in the approximate amount of $4,658,963 available to offset future taxable
      income through 2026. 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.




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, 2007 and 2006.
        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.
 
 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-
          CONTINGENT GUARANTEES
 ------------------------
 The
          Company guaranteed two debts that do not appear on these consolidated financial
          statements.
 
 First,
          to
          Richard Williamson, former owner of US Wireless Online’s subsidiary, DHR
          Technologies. This guarantee is secured by substantially all of the Company’s
          assets and as of March 31, 2007 the balance on these two notes was $150,000
          and
          $111,179, respectively.
 
 Second,
          to Rockland Credit Finance, LLC in an amount equal to the line of credit
          for
          receivable factoring owed by US Wireless Online. This guarantee is secured
          by
          substantially all of the Company’s assets and as of March 31, 2007 the balance
          on this line of credit was $207,038.
  COMMITMENTS
          AND CONTINGENCIES
 ------------------------
 The
          Company entered into a consulting agreement with Kramerica, Inc. that provides
          for an annual fee of $264,000 and performance based bonuses with a maximum
          bonus
          payment of $6,000,000.
 
 The
          Company entered into an employment agreement with Ivan Zweig that provides
          for
          an annual salary of $36,000.
 NOTE
          10-
          SUBSEQUENT EVENTS
 ------------------------
 
 On
          June
          19, 2007, we reached agreement with eight Note holders to extend the payment
          terms so that the first of 36 monthly payments on each of the notes is
          due on
          April 1, 2008. These eight Note holders received a total of 5,400,000 shares
          of
          the Company’s common stock on June 19, 2007, which will be recorded as interest
          expense, in exchange for extension of the principle repayment terms. The
          total
          aggregate principle balance of these eight notes as of March 31, 2007 and
          July
          6, 2007 was $376,956. Each of these Notes is still secured by substantially
          all
          of the Company’s assets and is convertible into shares of the Company’s common
          stock at a rate of $0.035 per share.




F-26





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





NONE





**ITEM
      8A. CONTROLS AND PROCEDURES**





On
      July
      14, 2006 our auditors identified a material weakness in our internal controls
      and procedures that resulted in the misstatement of our financial results.
      This
      material weakness began in March of 2003 and was the result of an ineffective
      segregation of duties and inadequate monitoring over financial reporting. One
      person, our controller, performed all of the significant accounting
      tasks, which impacted our ability to accurately report the recapitalization
      of ICCC in March 2003. Upon review of this transaction on July 14, 2006, a
      restatement was filed to correct the reporting of this transaction by removing
      those adjustments related to fair value and goodwill.





Since
      the
      material weakness originated in March 2003, we have hired two additional
      accountants to segregate the duties of the accounting staff and named a
      CFO, Ivan Zweig, who now monitors all financial reporting. In addition, we
      have
      since implemented a policy to have the full Board of Directors review both
      our
      quarterly and annual financial statements before filing.





Our
      internal accounting team now has both the personnel and the experience to
      recognize and record significant transactions according to GAAP and we have
      implemented a full review of all financial information by our Board of Directors
      as well as certification by our CFO.  Management and the Board of Directors
      believe that the above remedies remediate this material weakness.




The
      term
“disclosure controls and procedures” is defined in Rules 13(a)-15e and 15(d) -
      15(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act).
      Our
      Chief Executive Officer and Chief Financial Officer have evaluated the
      effectiveness of our disclosure controls and procedures as of March 31,
      2007.
      They have concluded that, as of March 31, 2007 that our disclosures were
      effective to ensure that:


(1)
        That
        information required to be disclosed by the Company in reports that it files
        or
        submits under the act is recorded, processed, summarized and reported, within
        the time periods specified in the Commissions' rules and forms, and
 
 (2)
        Controls and procedures are designed by the Company to ensure that information
        required to be disclosed by IElement Corporation and its subsidiary, IElement
        Inc., in the reports it files or submits under the Act is accumulated and
        communicated to the issuer's management including the Chief Executive Officer
        and the Chief Financial Officer or persons performing similar functions,
        as
        appropriate to allow timely decisions regarding financial
        disclosure.
  This
        term
        refers to the controls and procedures of a Company that are designed to ensure
        that information required to be disclosed by a Company in the reports that
        it
        files under the Exchange Act is recorded, processed, summarized and reported
        within the required time periods. Our Chief Executive Officer and Chief
        Financial Officer have evaluated the effectiveness of our disclosure controls
        and procedures as of the end of the period covered by this quarterly report.
        They have concluded that, as of March 31, 2007 our disclosure and procedures
        were effective in ensuring that required information will be disclosed on
        a
        timely basis in our reports filed under the exchange act.
  There
        have been no other changes in our internal controls over financial reporting
        that occurred during the period covered by this Annual Report on Form 10-KSB
        that have materially affected, or are reasonably likely to materially affect,
        our internal controls over financial reporting.





56




**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 July 7, 2007 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
              SinceIvan
                  Zweig
              34
              CEO
                  and Chairman
              January
                  2005Interim
                  CFO
              August
                  2005Lance
                  K Stovall
              38
              Director
              March
                  2006COO
              January
                  2007Alex
                  Ponnath
              39
              Chief
                  Technology Officer (1)
              January
                  2005
  (1) Although Mr. Ponnath is referred to
        as Chief
        Technology Officer, he is an independent contractor and not an employee of
        IElement.


57




IVAN
      ZWEIG (age 34). 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. Mr. Zweig was up for re-election
      as a
      director at our annual meeting of the shareholders on December 15, 2006 and
      was
      re-elected by the shareholders.





LANCE
      K.
      STOVALL (age 38). 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. Mr. Stovall was up for re-election as a director at our annual
      meeting of the shareholders on December 15, 2006 and was re-elected by the
      shareholders. Mr. Stovall was appointed Chief Operating Officer by the Board
      of
      Directors on January 4, 2007 but has not received any additional compensation
      for this role.





ALEX
      PONNATH (age 39). Mr. Ponnath attended the University of Munich in Munich,
      Germany where he earned a degree in Communications, then moved to the United
      States in 1993. In 1990 Mr. Ponnath was a founding partner of Outdoor
      Advertising and Sports Marketing Firm, which later he sold to Germany's largest
      outdoor advertiser. He moved to the United States in 1993. From 1996 through
      1999 he worked for the Los Angeles based interconnect firm Nextcom and assumed
      the roll of Senior Network Engineer. From 1999 through 2000 Mr. Ponnath was
      a
      shareholder and Chief Technology Officer for NKOB Networks, a Los Angeles ISP.
      Mr. Ponnath has worked for ICCC, a related party of IElement as Chief Technology
      Officer since February 2000, and then IElement, as Chief Technology Officer
      since January 2005. Mr. Ponnath is an independent contractor.




Resignations.
        On August 3, 2005 we accepted the resignations of Timothy Dean-Smith and
        Susan
        Walton from their positions on the Board of Directors. Mr. Dean-Smith also
        resigned from his position as Chief Financial Officer of the Company. The
        resignations of Mr. Dean-Smith and Ms. Walton are consistent with the
        expectations of the parties pursuant to the consummation of the merger between
        IElement, Inc. and Mailkey Corporation (the merged entity currently known
        as
        IElement Corporation) on January 19, 2005.
 
 In
        April
        2007, we accepted the resignation of Charles Carlson from his position as
        a
        director. Mr. Carlson had been appointed to serve as a director pending
        acquisition of his company, Comware. IElement signed a letter of intent to
        acquire Comware on January 8, 2007 but the two companies were unable to complete
        a definitive agreement, resulting in Mr. Carlson’s resignation from IElement’s
        Board of Directors. Mr. Carlson forfeited all compensation received while
        serving as a director.
 
 On
        June
        27, 2007 Ken Willey resigned from the Board of Directors.





58




**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, 2007 and 2006 (collectively, the "Named Executive
      Officers").




SUMMARY
      COMPENSATION TABLE


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





Annual
                Compensation
            
            Long
                Term Compensation AwardsYear
            
            
            
            
            
            
            
            
            
            
            
            SecuritiesEnded
            
            
            
            
            
            
            
            
            Restricted
            
            
            Underlying
            
            
            AllStock
            
            
            Options/
            
            
            OtherName
                and Principal Position
            
            
            31-Mar
            
            
            Salary
                $
            
            
            Bonus
                $
            
            
            Awards
            
            
            Warrants
            
            
            CompensationIvan
                Zweig*
            
            
            2007
            
            
            300,000
            
            
            15,000
            
            
            0
            
            
            6,000,000
            
            
            0CEO
            
            
            2006
            
            
            300,000
            
            
            0
            
            
            0
            
            
            0
            
            
            0Alex
                Ponnath**
            
            
            2007
            
            
            132,000
            
            
            5,500
            
            
            0
            
            
            2,200,000
            
            
            0CTO
            
            
            2006
            
            
            132,000
            
            
            0
            
            
            0
            
            
            0
            
            
            0








*
      Includes payments made to Kramerica Capital Corporation. Does not include
      payments that may become due under Mr. Zweig’s employment agreement or
      Kramerica’s consulting agreement, both of which were filed with Form 8-K on
      April 20, 2007.


**
      All payments were made to Mr. Ponnath's corporate
      entity Obelix, Inc.





59




OPTION
      GRANTS DURING 2007


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




Percent
                of TotalOptions
                Granted to
            
            Exercise
                orNumber
                of Securities
            
            Employees
                In
            
            Base
                Price
            
            ExpirationName
            
            Underlying
                Options
            
            Fiscal
                Year
            
            ($
                per share)
            
            DateIvan
                Zweig
            
            6,000,000
            
            33.43
            %
            0.01
            
            8/29/2016Alex
                Ponnath
            
            2,200,000
            
            12.26
            %
            0.01
            
            8/29/2016Brett
                Jensen
            
            2,000,000
            
            11.14
            %
            0.01
            
            8/29/2016Lance
                Stovall
            
            2,000,000
            
            11.14
            %
            0.01
            
            8/29/2016Heather
                Walther
            
            1,250,000
            
            6.96
            %
            0.01
            
            8/29/2016Albert
                Marerro
            
            1,000,000
            
            5.57
            %
            0.01
            
            8/29/2016Debra
                Chase
            
            1,000,000
            
            5.57
            %
            0.01
            
            8/29/2016Peter
                Walther
            
            
            1,000,000
            
            
            5.57
            %
            
            0.01
            
            
            8/29/2016Alex
                Nelson
            
            
            500,000
            
            
            2.79
            %
            
            0.01
            
            
            8/29/2016Shane
                Yarbrough
            
            
            250,000
            
            
            1.39
            %
            
            0.01
            
            
            8/29/2016Charles
                Carlson
            
            
            250,000
            
            
            1.39
            %
            
            0.01
            
            
            ForfeitedFrank
                Turner
            
            
            100,000
            
            
            0.56
            %
            
            0.01
            
            
            8/29/2016Eric
                Mason
            
            
            100,000
            
            
            0.56
            %
            
            0.01
            
            
            8/29/2016Anthony
                Miller
            
            
            100,000
            
            
            0.56
            %
            
            0.01
            
            
            8/29/2016David
                Biggerstaff
            
            
            100,000
            
            
            0.56
            %
            
            0.01
            
            
            8/29/2016Richard
                Nicholson
            
            
            100,000
            
            
            0.56
            %
            
            0.01
            
            
            8/29/2016**Totals**
            
            
            **17,950,000**
            
            
            100.00
            %







**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 were 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 received benefits offered to other
      employees of the Company and was to receive four 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 were to be paid
      in
      full, all outstanding options were 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 were 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 provided 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 were payable in promissory notes. The term of the
      Agreement was 48 months, provided however, that the Agreement may be immediately
      terminated if the Notes due to Mr. Zweig are declared in default. Clause 10
      to
      the employment contract inadvertently stated "intentionally omitted" rather
      than
      "reserved for future use".




On
        April
        20, 2007 this Agreement was amended by two separate agreements, one employment
        agreement for Ivan Zweig and one consulting agreement for Kramerica. The
        combined compensation of the two new Agreements are substantially the same
        as
        the January 18, 2005 agreement except that the performance bonuses were no
        longer tied to a time schedule, $1,000,000 will now be awarded to Kramerica
        if
        the Company reaches $12,000,000 in annual revenue, $2,000,000 will be awarded
        if
        the Company reaches $22,000,000 in annual revenue and $3,000,000 will be
        awarded
        if the Company reaches $30,000,000 in annual revenue. The new bonuses are
        also
        cumulative, so a total of $6,000,000 will be due if the $30,000,000 revenue
        mark
        is reached.
 
 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).





60




**DIRECTOR
      COMPENSATION**





We
      agreed
      to compensate Mr. Stovall with 250,000 stock options exercisable at $0.01 per
      share and vesting 62,500 each on June 4, 2006, September 4, 2006, December
      4,
      2006 and March 4, 2007.





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.








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





The
      following table sets forth as of July 6, 2007, 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 (1)
            
            PercentageIvan
                Zweig (2)
            
            28,788,326
            
            11.54
            %Lance
                Stovall (3)
            
            
            1,193,776
            
            
            0.48
            %Ken
                Willey (4)
            
            
            250,000
            
            
            0.10
            %Alex
                Ponnath (5)
            
            
            4,063,374
            
            
            1.63
            %Gerd
                Weger (6)
            
            
            15,000,000
            
            
            6.01
            %Officers
                and directors as agroup
                (4 persons)
            
            
            34,295,476
            
            
            13.75
            %




(1)
      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.





(2)
      An
      officer and director. Comprised of 4,585,000 shares of common stock owned by
      Mr.
      Zweig individually; 18,685,966 shares of common stock owned by Kramerica Capital
      Corporation, an entity in which Mr. Zweig is the sole shareholder, officer
      and
      director; 4,298,610 shares of common stock owned by Mr. Zweig's spouse, 750,000
      vested options to purchase common stock owned by Mr. Zweig individually and
      468,750 vested options to purchase common stock owned by Mr. Zweig’s
      spouse.




(3)
        Director. Comprised of 193,776 shares of common stock and 250,000 vested
        options
        to purchase common stock.
  (4)
        Director. Comprised of 250,000 vested options to purchase common
        stock.
  (5)
        Officer. Comprised of 2,229,374 shares of common stock owned by Obelix, Inc.,
        1,009,000 shares of common stock owned by Mr. Ponnath’s spouse and 825,000
        vested options to purchase common stock.
 
 (6)
        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.





61




**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
      Capital Corporation, a personnel services corporation. Since December 1998,
      Mr.
      Zweig has served as the Chief Executive Officer and director of Integrated
      Communications Consultants Corp. ("ICCC"), a nationwide voice and data carrier
      specializing in high speed Internet access and secure data transaction. ICCC
      provides IElement with resold telecom services and IElement pays ICCC
      approximately $81,000 on a monthly basis for such services. On October 1, 2004,
      ICCC filed for Chapter 11 bankruptcy protection in the United States Bankruptcy
      Court, Northern District of Texas, Dallas Division. ICCC's plan of
      reorganization was approved by the Bankruptcy Court on April 26,
      2006.





On
      January 19, 2005, IElement issued eight (8) promissory notes to Kramerica and
      certain members of Mr. Zweig's immediate family and others in the aggregate
      amount of $376,956 (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), Peter Walther ($30,000), Richard Zweig
      ($20,000), Richard Zweig IRA ($27,500) and Strait Grandchildren Trust
      ($103,845). 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 the Company. We did not
      make
      any payments on the Notes.





On
      March
      25, 2006 each of the eight (8) Notes were cancelled and we issued new
      convertible promissory notes to the same individuals in the same principal
      amount of $376,956, again with no interest thereon. The first payment on each
      of
      the new convertible promissory Notes was 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 share of our common stock at a conversion price of $0.035
      per
      share. Any past due balance on the old Notes was forgiven at the time of
      cancellation of the old notes and issuance of the new convertible promissory
      Notes. The new convertible promissory Notes are secured by substantially all
      the
      assets of IElement as were the original Notes.




On
        October 6, 2006 we reached agreements with the holders of these eight Notes
        to
        extend the first payment date until April 1, 2007. We did not make any payments
        on the notes.
 
 On
        June
        19, 2007, we reached agreement with these eight Note holders to extend the
        payment terms so that the first of 36 monthly payments on each of the notes
        is
        due on April 1, 2008. These eight Note holders received a total of 5,400,000
        shares of the Company’s common stock on June 19, 2007 which will be
        recorded as interest expense, exchange for extension of the principle repayment
        terms. This amount will be recorded as interest expense. The total aggregate
        principle balance of these eight notes as of March 31, 2007 and July 6, 2007
        was
        $376,956. Each of these Notes is still secured by substantially all of the
        Company’s assets and is convertible into shares of the Company’s common stock at
        a rate of $0.035 per share.
 
 In
        addition to these notes, the Company also has one more promissory note payable
        to Kramerica in the principle amount of $25,000. This note was issued on
        August
        24, 2006 and bears interest at an annual rate of ten percent. As of March
        31,
        2007 the accrued interest on this note was $813. This note is secured by
        substantially all of the Company’s assets. The maturity date of this note was
        also extended to April 1, 2008 by agreement on June 19, 2007. It is due in
        full
        on April 1, 2008 and will continue to accrue interest at an annual rate of
        ten
        percent until paid in full.
 
 A
        $17,000
        promissory note payable to Kramerica that was issued on November 8, 2006
        and was
        repaid in full on March 31, 2007. An $8,200 note payable to Kramerica that
        was
        issued on August 21, 2006 and was repaid in full in October
        2006.





62




**ITEM
      13. EXHIBITS**





(a)
      Financial Statements and Schedules. The following financial


statements
      and schedules for the Company as of March 31,2007 are filed as part


of
      this
      report.





(1)
      Financial statements of the IElement . 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





8-K
      filed
      July 19, 2006 reporting non-reliance on previously issued financial
      statements;





8-K
      filed
      October 17, 2006 filing press release under Regulation FD.





8-K
      filed
      December 8, 2006 reporting and filing restated By-Laws.





8-K
      filed
      January 4, 2007 reporting contract with Sutioc Services and off balance sheet
      arrangement.





8-K
      filed
      January 29, 2007 reporting an off balance sheet arrangement.





8-K
      filed
      April 20, 2007 reporting and filing Ivan Zweig and Kramerica employment and
      consulting agreements





8-K
      filed
      July 3, 2007 reporting resignation of Board member.





63





**EXHIBIT
      INDEX**





Exhibit
      No. Description of Exhibits


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





2.1
      Agreement and Plan of Merger, dated February 20, 2004, by and among


Global
      Diversified Acquisition Corp., G.D. Acquisition Corp., MK Secure


Solutions
      Limited and Westvale Consulting Limited.*





2.2
      First
      Amendment to Agreement and Plan of Merger, dated March 23, 2004,


by
      and
      among Global Diversified Acquisition Corp., G.D. Acquisition


Corp.,
      MK
      Secure Solutions Limited and Westvale Consulting Limited. *





2.3
      Agreement and Plan of Merger, dated November 9, 2004, by and among


Mailkey
      Corporation, Mailkey Acquisition Corp., IElement, Inc. and


Ivan
      Zweig. *





2.4
      First
      Amendment and Waiver to Agreement and Plan of Merger, dated


December
      30, 2004, by and among Mailkey Corporation, Mailkey


Acquisition
      Corp., IElement, Inc. and Ivan Zweig. *





3(i).1
      Articles of Incorporation. *





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





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





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





3(i).5
      Certificate of Correction*





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


2005.
      *




3(ii)
      Restated By-Laws of IElement*





10.1
      Employment Agreement with Ivan Zweig dated April 20, 2007****





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*
  10.7 Consulting
        Agreement with Kramerica, Inc. ****
 
 21.0
        List
        of Subsidiaries**
 
 31.1
        Certification pursuant to Sarbanes-Oxley Sec. 302
 
 32.1
        Certification pursuant to 18 U.S.C. Sect. 1350
 
 *
        Previously filed with Amendment No. 2 to Registration Statement on Form SB-2
        filed on June 6, 2006.
 
 **
        Previously filed with Amendment No. 3 to Registration Statement on Form SB-2
        filed on July 18, 2006.
 
 ***
        Previously filed with Form 8-K on December 8, 2006.
 
 ****
        Previously filed with Form 8-K on April 20, 2007.





64




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





**AUDIT
      FEES**





The
      Company was billed $42,000 for the fiscal year ended March 31, 2007 and $47,750
      for the fiscal year ended March 31, 2006 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.





**AUDIT
      RELATED FEES**





There
      were $0 in audit related fees for the fiscal year ended March 31, 2007 and
      $12,000 in audit related fees for the fiscal year ended March 31, 2006. 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 $0 for the fiscal year ended March 31, 2007 and $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.





65




**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:
      July 16, 2007





**IELEMENT
      CORPORATION**





By:
      /s/
      Ivan Zweig


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


Name:
      Ivan Zweig


Title:
      Chief Executive Officer,


Chairman
      and Principal Accounting Officer


Chief
      Financial Officer






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








IVAN
      ZWEIG




/s/
      Ivan
      Zweig


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


Name:
      Ivan Zweig


Title:
      Chief Executive Officer,


Chairman,
      Chief Financial Officer and


Principal
      Accounting Officer


Director







LANCE
      K.
      STOVALL





/s/
      Lance
      K. Stovall


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


Name:
      Lance K. Stovall


Title:
      Director




66