**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,DC20549**





**FORM
      10-QSB**





[X]
            Quarterly
                Report pursuant to
                Section 13 or 15(d) of the Securities Exchange Act of
                1934





For
      the quarterly period endedSeptember 30,
      2007





[  ]
            Transition
                Report pursuant to 13
                or 15(d) of the Securities Exchange Act of
                1934





For
      the transition period
      __________  to __________





Commission
      File Number:000-51125





SVI
      Media, Inc.


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





Nevada
            20-3270909(State
                or other jurisdiction of
                incorporation organization)
            (IRS
                Employer Identification
                No.)





1520
      W. Altorfer
      Drive,Peoria,IL61615


(Address
      of principal executive
      offices)








309-272-5000


(Issuer's
      telephone
      number)





Oxford
      Media, Inc.,OneTechnologyDriveBuildingH,Irvine,CA92618


(Former
      name, former address and former
      fiscal year, if changed since last report)





Check
      whether the issuer (1) filed all
      reports required to be filed by Section 13 or 15(d) of the Securities Exchange
      Act of 1934 during the past 12 months (or for such shorter period that the
      registrant was required to file such reports), and (2) has been subject to
      such
      filing requirements for the past 90 days [X] Yes [  ]
      No








Indicate
      by check mark whether the
      registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
      [  ] Yes [X] No





As
      of November 19, 2007, 1,604,952
      shares of the registrant’s common stock were outstanding.





Transitional
      Small Business Disclosure
      Format (check one): Yes [  ] No [X]

















TABLE
      OF
      CONTENTS








PagePART
                I - FINANCIAL
                INFORMATIONItem
                1.
            Financial
                Statements
            3Item
                2.
            Management's
                Discussion and
                Analysis or Plan of Operation
            14Item
                3.
            Controls
                and
                Procedures
            21PART
                II - OTHER
                INFORMATIONItem
                1.
            Legal
                Proceedings
            22Item
                2.
            Unregistered
                Sales of Equity
                Securities and Use of Proceeds
            22Item
                3.
            Defaults
                Upon Senior
                Securities
            22Item
                4.
            Submission
                of Matters to a Vote of
                Security Holders
            22Item
                5.
            Other
                Information
            23Item
                6.
            Exhibits
            23















































2





**PART
      I - FINANCIAL
      INFORMATION**


**ITEM
      1. FINANCIAL
      STATEMENTS**





**SVI
      MEDIA,
      INC.**


**(formerly
      Oxford Media,
      Inc.)**


**CONSOLIDATEDBALANCE
      SHEET**


**(UNAUDITED)**





**September
                30,**
              **2007****Assets**Current
                assets:Cash
            
            $
            1,147,505Escrow
                proceeds
                receivable
            
            
            28,393Accounts
                receivable,
                net
            
            
            477,388Inventories
            
            
            578,910Deferred
                cost of
                sales
            
            
            181,064Other
                current
                assets
            
            
            164,134Total
                current
                assets
            
            
            2,577,394Property
                and equipment,
                net
            
            
            4,013,989Deferred
                cost of
                sales
            
            
            537,810Intangible
                assets,
                net
            
            
            3,541,760Other
            
            
            186,000Total
                assets
            
            $
            10,856,953**Liabilities
                and Stockholders'
                Deficit**Current
                liabilities:Current
                portion of notes
                payable
            
            $
            20,605Accounts
                payable
            
            
            1,243,767Accrued
                expenses
            
            
            2,260,238Deferred
                revenue
            
            
            413,444Current
                portion of capital lease
                obligation
            
            
            28,515Liabilities
                of discontinued
                operations
            
            
            52,382Total
                current
                liabilities
            
            
            4,018,951Deferred
                revenue
            
            
            668,696Notes
                payable, net of current
                portion
            
            
            1,342,038Capital
                lease obligation, net of
                current portion
            
            
            2,376Total
                liabilities
            
            
            6,032,061Commitments
                and
                contingencies
            
            
            -Preferred
                stock- $.001 par value;
                1,000,000 shares authorized Issued and outstanding shares -
                23,393
            
            
            23,392,936Stockholders'
                deficit:Common
                stock - $0.001 par value;
                200,000,000 shares authorized Issued and outstanding shares -
                1,604,952
            
            
            1,605Additional
                paid-in
                capital
            
            
            30,626,664Accumulated
                deficit
            
            
            (49,196,313
            )Total
                stockholders'
                deficit
            
            
            (18,568,044
            )Total
                liabilities and
                stockholders' deficit
            
            $
            10,856,953








See
      accompanying Notes to Consolidated
      Financial Statements.








3





**SVI
      MEDIA,
      INC.**


**(formerly
      Oxford Media,
      Inc.)**


**CONSOLIDATED
      STATEMENTS OF
      OPERATIONS**


**(UNAUDITED)**





**Three
                Months
                Ended**
            
            
            **Nine
                Months
                Ended****September
                30,**
            
            
            **September
                30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**Revenue:Services
            
            $
            2,895,045
            
            
            $
            3,186,155
            
            
            $
            8,235,463
            
            
            $
            3,207,989Products
            
            
            256,058
            
            
            
            476,423
            
            
            
            1,060,219
            
            
            
            555,4253,151,103
            
            
            
            3,662,578
            
            
            
            9,295,682
            
            
            
            3,763,414Cost
                of
                sales:Cost
                of
                services
            
            
            799,230
            
            
            
            853,771
            
            
            
            2,036,418
            
            
            
            932,571Cost
                of
                products
            
            
            250,524
            
            
            
            294,604
            
            
            
            757,811
            
            
            
            421,2591,049,754
            
            
            
            1,148,375
            
            
            
            2,794,229
            
            
            
            1,353,830Gross
                profit
            
            
            2,101,349
            
            
            
            2,514,203
            
            
            
            6,501,453
            
            
            
            2,409,584Operating
                expenses:Selling,
                general and
                administrative
            
            
            3,868,765
            
            
            
            4,899,539
            
            
            
            12,580,455
            
            
            
            11,457,766Restructuring
            
            
            334,651
            
            
            
            -
            
            
            
            334,651
            
            
            
            -Impairment
                of
                goodwill
            
            
            2,668,378
            
            
            
            -
            
            
            
            2,668,378
            
            
            
            -Amortization
                of
                intangibles
            
            
            218,782
            
            
            
            229,771
            
            
            
            656,434
            
            
            
            581,135Operating
                loss
            
            
            (4,989,227
            )
            
            
            (2,615,107
            )
            
            
            (9,738,465
            )
            
            
            (9,629,317
            )Other
                income
                (expense):Interest
                income
            
            
            20,803
            
            
            
            7,566
            
            
            
            20,881
            
            
            
            8,958Interest
                expense
            
            
            (621,613
            )
            
            
            (3,298,541
            )
            
            
            (8,787,032
            )
            
            
            (4,228,478
            )Extinguishment
                of debt, preferred
                stock and creditor settlements
            
            
            (981,015
            )
            
            
            (1,322,212
            )
            
            
            (981,015
            )
            
            
            (1,322,212
            )Derivative
                liabilities
            
            
            290,487
            
            
            
            15,251
            
            
            
            9,194,336
            
            
            
            (2,564,504
            )Income
                (loss) before discontinued
                operations
            
            
            (6,280,565
            )
            
            
            (7,213,043
            )
            
            
            (10,291,295
            )
            
            
            (17,735,553
            )Income
                (loss) from discontinued
                operations, net of tax
            
            
            -
            
            
            
            17,976
            
            
            
            (29,899
            )
            
            
            (41,962
            )Gain
                (loss) from sale of
                discontinued operations, net of tax
            
            
            -
            
            
            
            -
            
            
            
            1,173,951
            
            
            
            --
            
            
            
            17,976
            
            
            
            1,144,052
            
            
            
            (41,962
            )Income
                taxes
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Net
                loss
            
            
            (6,280,565
            )
            
            
            (7,195,067
            )
            
            
            (9,147,243
            )
            
            
            (17,777,515
            )Beneficial
                conversion feature on
                preferred stock
            
            
            (4,195,372
            )
            
            
            -
            
            
            
            (4,195,372
            )
            
            
            -Preferred
                stock
                dividends
            
            
            (383,392
            )
            
            
            (128,855
            )
            
            
            (699,715
            )
            
            
            (288,855
            )Net
                loss available to common
                stockholders
            
            $
            (10,859,329
            )
            
            $
            (7,323,922
            )
            
            $
            (14,042,330
            )
            
            $
            (18,066,370
            )Basic
                and diluted net loss
                available to common stockholders:Basic:Income
                (loss) from continuing
                operations
            
            $
            (4.06
            )
            
            $
            (10.82
            )
            
            $
            (7.78
            )
            
            $
            (29.34
            )Income
                (loss) from discontinuing
                operations
            
            
            -
            
            
            
            0.03
            
            
            
            0.86
            
            
            
            (0.07
            )$
            (4.06
            )
            
            $
            (10.79
            )
            
            $
            (6.92
            )
            
            $
            (29.41
            )Dilutive:Income
                (loss) from continuing
                operations
            
            $
            (4.06
            )
            
            $
            (10.82
            )
            
            
            (7.78
            )
            
            $
            (29.34
            )Income
                (loss) from discontinuing
                operations
            
            
            -
            
            
            
            0.03
            
            
            
            0.86
            
            
            
            (0.07
            )$
            (4.06
            )
            
            $
            (10.79
            )
            
            $
            (6.92
            )
            
            $
            (29.41
            )Weighted-average
                common shares
                outstanding - Basic
            
            
            1,545,510
            
            
            
            666,503
            
            
            
            1,323,165
            
            
            
            604,502Weighted-average
                common shares
                outstanding - Diluted
            
            
            1,545,510
            
            
            
            666,503
            
            
            
            1,323,165
            
            
            
            604,502





See
      accompanying Notes to Consolidated
      Financial Statements.








4


**SVI
      MEDIA,
      INC.**


**(formerly
      Oxford Media,
      Inc.)**


**CONSOLIDATED
      STATEMENTS OF CASH
      FLOWS**


**(UNAUDITED)**


**Nine
                Months
                Ended**
              **September
                30,****2007**
            
            
            **2006****Cash
                Flows from Operating
                Activities:**Net
                loss
            
            $
            (9,147,243
            )
            
            $
            (17,777,515
            )Adjustments
                to reconcile net loss
                to net cash from operating activities:Gain
                on sale of discontinued
                operations
            
            
            (1,173,951
            )
            
            
            -Depreciation
            
            
            1,619,921
            
            
            
            598,305Amortization
                of intangible
                assets
            
            
            655,719
            
            
            
            581,135Impairment
                of
                goodwill
            
            
            2,668,378
            
            
            
            -Stock-based
                compensation
            
            
            230,873
            
            
            
            3,901,764Change
                in fair value of derivative
                liabilities
            
            
            (8,988,949
            )
            
            
            2,564,504Extinguishment
                of derivative
                liabilities
            
            
            (205,387
            )
            
            
            -Extinguishment
                of debt, preferred
                stock and creditor settlements
            
            
            981,015
            
            
            
            1,322,212Non-cash
                interest
                expense
            
            
            7,112,488
            
            
            
            -Amortization
                of debt discounts,
                premiums and debt issue costs
            
            
            388,731
            
            
            
            909,841Excess
                value of common shares
                issued for dividends
            
            
            -
            
            
            
            60,000Stock
                issued for extensions of
                notes payable
            
            
            -
            
            
            
            2,609,522Modication
                of
                warrant
            
            
            -
            
            
            
            204,331Changes
                in operating assets and
                liabilities:Escrow
                proceeds
                receivable
            
            
            391,705
            
            
            
            -Accounts
                receivable
            
            
            95,226
            
            
            
            (398,272
            )Inventory
            
            
            (137,411
            )
            
            
            181,067Other
                current
                assets
            
            
            38,306
            
            
            
            (305,475
            )Accounts
                payable
            
            
            914,657
            
            
            
            461,064Accrued
                expenses
            
            
            1,688,096
            
            
            
            813,301Deferred
                revenue
            
            
            (259,035
            )
            
            
            111,498Deferred
                cost of
                sales
            
            
            (170,528
            )
            
            
            -Net
                cash used in operating
                activities
            
            
            (3,297,389
            )
            
            
            (4,162,718
            )**Cash
                Flows from Investing
                Activities:**Purchases
                of property and
                equipment
            
            
            (735,319
            )
            
            
            (405,800
            )Purchase
                of SVI Hotel
                Corporation
            
            
            -
            
            
            
            (6,390,000
            )Proceeds
                from sales of property
                and equipment
            
            
            55,840
            
            
            
            -Net
                cash used in investing
                activities
            
            
            (679,479
            )
            
            
            (6,795,800
            )**Cash
                Flows from Financing
                Activities:**Net
                proceeds from the issuance of
                notes payable
            
            
            264,000
            
            
            
            4,400,000Proceeds
                from exercise of common
                stock warrants
            
            
            830,000
            
            
            
            20,000Proceeds
                from the issuance of
                Senior Notes
            
            
            3,800,000
            
            
            
            6,950,000Principal
                payments on notes
                payable
            
            
            (31,997
            )
            
            
            -Payment
                of
                dividend
            
            
            -
            
            
            
            (128,855
            )Net
                borrowings (payments) on
                wholesale financing line of credit
            
            
            -
            
            
            
            (171,710
            )Principal
                payments on capital
                lease obligations
            
            
            (26,829
            )
            
            
            (5,268
            )Net
                cash provided by financing
                activities
            
            
            4,835,174
            
            
            
            11,064,167Net
                increase in cash and cash
                equivalents
            
            
            858,306
            
            
            
            105,649Cash
                and cash equivalents at
                beginning of period
            
            
            289,199
            
            
            
            640,299Cash
                and cash equivalents at end
                of period
            
            $
            1,147,505
            
            
            $
            745,948**Supplemental
                Disclosure of Cash
                Flow Information:**Cash
                paid for
                interest
            
            $
            105,906
            
            
            $
            74,695**Supplemental
                Schedule of Noncash
                Investing and Financing Activities:**Acquisitions:Fair
                value of notes
                payable
            
            
            -
            
            
            $
            2,782,000Fair
                value of common stock and
                warrants issued
            
            
            -
            
            
            
            1,807,000Common
                stock issued as debt issue
                costs
            
            
            -
            
            
            
            590,000Warrant
                liability reclassified to
                paid in capital upon exercise
            
            
            -
            
            
            
            820,009Conversion
                of accrued dividends
                into common stock
            
            
            -
            
            
            
            240,000Exchange
                common shares for Series
                B Preferred Stock
            
            
            -
            
            
            
            2,476,921Exchange
                of notes payable for
                Series B Preferred Stock
            
            
            -
            
            
            
            1,708,466




See
      accompanying Notes to Consolidated
      Financial Statements.


5





**SVI
      MEDIA,
      INC.**


**(formerly
      Oxford Media,
      Inc.)**


**NOTES
      TO CONSOLIDATED FINANCIAL
      STATEMENTS**


**September
      30,
      2007**


**(UNAUDITED)**








**1.**
            **Business**





At
      its annual shareholder meeting held
      August 27, 2007, the Company changed its name from Oxford Media, Inc. to SVI
      Media, Inc. (the “Company”). The Company provides services to the hospitality
      industry, including video-on-demand (“VOD”) systems, free-to-guest television
      (“FTG”) and high-speed internet access (“HSIA”).





Effective
      July 1, 2006, the Company
      purchased all of the outstanding shares of SVI; as a result, the Company has
      the
      following products and services available for the hospitality
      industry:





§
            Instant
                Entertainment which is an
                electronic VOD delivery system that allows a guest to start a movie
                on-demand and pay for that movie by utilizing a credit card swiper
                connected to the hotel room's telephone or by cash at the front desk
                of
                the hotel. In certain instances, the hotels earn commissions based
                on the
                property's net collected movie revenues, excluding any applicable
                taxes
                and fees, as stated in their individual
                contract.


§
            Super
                Video Cinema is a video
                player and tape-based system supplied to the hotel, which in-turn
                rents
                the equipment to their customers and remits gross proceeds, net of
                applicable taxes, fees and earned commissions, to the
                Company.


§
            DirecTV/DSS
                which includes digital
                programming using DirecTV content whereby the Company receives
                installation and hardware fees on a per channel cost basis and ongoing
                programming residuals.


§
            High-Speed
                Internet Access which
                includes providing all the hardware and software necessary to allow
                hotel
                guests to plug into a wireless (or wired) network using their laptop
                computers. The Company generates revenue by providing technical support
                services, monthly maintenance fees and equipment and installation
                sales.





The
      Company’s wholly-owned subsidiary
      Creative Business Solutions, Inc. (“CBC”) was sold in March 2007. Through CBC,
      the Company provided consulting services to information technology (“IT”)
      clients regarding IT networking and security. In addition, CBC provides IT
      training services to clients. The consulting and training services were provided
      primarily to government and industry clients in southernCalifornia.
      CBC also purchased, assembled,
      installed and sold IT networking hardware and related software and provided
      network maintenance services.





**2.**
            **Exchange
                Transaction and Issuance
                of Senior Secured
                Notes**





*Exchange
      Transaction*


On
      July 16, 2007, the Company entered
      into a transaction whereby the holders of certain debt and preferred stock
      securities (individually or collectively “Holder”) cancelled and exchanged their
      principal and accrued interest on outstanding debt and the face amount and
      accrued dividends on preferred stock into shares of Series C convertible
      preferred stock (“Series C Preferred”). This transaction (“Exchange
      Transaction”) was contingent upon the issuance of the senior secured notes as
      described below titled “Issuance of Senior Secured Notes”.  The
      Holders converted the following securities:





·
            Senior
                Notes - outstanding
                principal and accrued interest of $11,897,608 and $532,357,
                respectively were exchanged on a basis of one shares of Series C
                Preferred (for a total of 12,430 shares) for each $1,000 of amounts
                owed;





·
            SVI
                Notes - outstanding principal
                and accrued interest of $2,350,000 and $259,269, respectively were
                exchanged on a basis of 0.50 shares of Series C Preferred (for a
                total of
                1,304 shares) for each $1,000 of amounts owed.  In addition, the
                Company agreed to forgive approximately $118,381 of net amounts owed
                (accounts payable, net of accounts receivable) and provide additional
                service credits of $388,600 to a company related to the holders of
                the SVI
                Notes in connection with this
                exchange;





·
            Series
                A Convertible Preferred
                Stock - outstanding stated value and accrued dividends of $4,000,000
                and
                $134,040, respectively were exchanged on a basis of 0.25 shares of
                Series
                C Preferred  (for a total of 1,034 shares) for each $1,000 of
                amounts owed;





·
            Series
                B Convertible Preferred
                Stock - outstanding stated value and accrued dividends of $3,857,000
                and
                $128,179, respectively were exchanged on a basis of 0.25 shares of
                Series
                C Preferred (for a total of 996 shares) for each $1,000 of amounts
                owed; and





·
            Other
                Notes - outstanding
                principal and accrued interest of $447,000 and $66,161, respectively
                were
                exchanged on a basis of 0.125 shares of Series C Preferred (for a
                total of
                64 shares) for each $1,000 of amounts
                owed.





In
      addition, warrants to purchase common
      stock held by the Holders totaling 450,480 shares were
      cancelled.








6





*Accounting
      for the Exchange
      Transaction*


During
      the third quarter of 2007, the
      Company accounted for these extinguishments in accordance with Statement of
      Financial Accounting Standards No. 15 (“SFAS 15”), “*Accounting by Debtors
      and Creditors
      for Troubled Debt Restructurings*” due to the fact
      the holders of the
      debt and preferred stock instruments granted the Company concessions intended
      to
      alleviate its immediate liquidity constraints. The concessions the creditors
      granted to the Company enabled it to (a) effectuate their settlement
      through an exchange of equity instead of a use of cash and (b) consummate a
      sale of Senior Secured Notes (see below) that resulted in an infusion of cash
      that was needed to sustain operations for a period of time.




In
      accordance with the provisions of
      SFAS 15, the Company recorded a non-cash loss on the extinguishment of the
      Senior Notes, based on the difference between (a) the fair value of the
      Series C Preferred on an as if, converted to common stock basis using the
      closing stock price ($0.90 per share) on the date of the transaction and (b)
      the
      carrying value of the notes on the settlement date.  The Company also
      recorded non-cash gains on the extinguishment on the SVI Notes, Series A
      convertible preferred stock, Series B convertible preferred stock and Other
      Notes.  The aggregate non-cash loss on the above extinguishments was
      $6,395,679.  In addition, the Company incurred direct, cash-based
      transaction costs of $154,368, which was included in the calculation of the
      loss
      on extinguishment.





The
      Company also recorded non-cash gains
      resulting from the extinguishments of the derivative liabilities for the
      outstanding warrants on the Senior Notes of $290,487.





*Issuance
      of Senior Secured
      Notes*


In
      connection with the Exchange
      Transaction, the Company issued $4,210,526 face value, 12% senior secured
      promissory notes (“Senior Secured Notes”), due July 16, 2011. The Company
      received gross proceeds of $3,800,000 and converted $200,000 of secured
      promissory notes issued on June 29, 2007.  Of the total proceeds
      received, approximately 69% was from a third party that did not have a previous
      debt or significant equity interest in the Company.  The Company also
      issued to the holders of the Senior Secured Notes 7,228 shares of Series C
      Preferred, which represented 30% of the fully-diluted shares of the Company
      on
      an as if, converted basis on the date of issuance.





The
      holders of the Senior Secured Notes
      have a first priority lien on all of the Company's assets and are guaranteed
      by
      each of its subsidiaries. The Senior Secured Notes require the Company to repay
      the principal amounts in equal installments beginning September 30, 2009.
      Interest is payable based on a 360-day year at the stated rate every three
      months beginning October 1, 2007. In the event the Company is in default of
      the
      Senior Secured Notes, the default interest rate is 18% per annum, until such
      default has been cured.





The
      Company is using the proceeds to
      fund its ongoing operations, allowing for its future growth in the VOD business,
      further expansion of other business initiatives and servicing of its debt
      obligations.





The
      Company accounted for the preferred
      stock issued with the Senior Secured Notes in accordance with Accounting
      Principles Board Opinion No. 14 (“APB 14”),*“Accounting for Convertible
      Debt and
      Debt Issued with Stock Purchase Warrants”.*Theproceeds from the issuance of the debt
      and underlying Series C Preferred were allocated based on their relative fair
      value and recorded as a debt discount and a beneficial conversion feature
      respectively. The debt discount was $3,123,223 and is being amortized over
      the
      term of the related debt. The beneficial conversion feature on the Series C
      Preferred of $4,195,372 was immediately amortized over the earliest conversion
      date to which the Series C Preferred can be converted into common stock which
      was the date of issuance.





**3.**
            **Basis
                of Presentation and
                Significant Accounting
                Policies**





*Management’s
      Plan of Operation and Going
      Concern Consideration*


The
      Company has incurred losses from
      operations and negative cash flows from operating activities since inception,
      and as of September 30, 2007, had a working capital deficiency of $1,441,557
      and
      $4,210,526 of Senior Secured Notes outstanding.  In addition, during
      the three months ended September 30, 2007, the Company recorded an impairment
      on
      its goodwill associated with the acquisition of SVI of $2,668,378, see Note
      4.





During
      the third quarter of 2007,
      management identified several cost reduction measures to reduce our operating
      expenses as a result of a review of our business plan and
      operations.  These measures will be fully implemented by December
      2007.  Our total headcount is expected to be reduced from 200
      employees to 153 employees by the end of 2007.  We have consolidated
      our operations, moving the remaining functions performed at theIrvine,Californiafacility to ourPeoria,Illinoisfacility. In connection with this
      consolidation, we subleased approximately 75% of theIrvinefacility. In addition, we have
      identified and implemented other cost reduction measures, such as salary
      reductions for senior management and a number of other employees, strict
      oversight and reduction in discretionary travel, professional fees and other
      variable overhead expenses. We expect to realize annual savings in operating
      expenses of approximately $2,200,000 as a result ofthese
      actions.  We believe
      these reductions in operating costs will significantly reduce our monthly
      operating expenses and allow us to achieve profitability much sooner, assuming
      these actions do not adversely impact our customer service or customer
      relationships, of which we cannot be assured.





The
      Company anticipates its current cash reserves, including the funds received
      from
      the Senior Secured Notes in July 2007, will be sufficient to fund its
      anticipated operations into December 2007.  The Company is actively
      pursuing obtaining additional debt and equity financings.  There is no
      assurance that the proceeds from future financings will be sufficient to obtain
      profitable operations.  Such financings, if available, may increase
      the risk that the Company will be unable to service its debt obligations, cause
      dilution to existing equity holders, or both.  Unless additional
      financing is obtained, the Company may not be able to continue as a going
      concern.








7





The
      accompanying consolidated financial
      statements have been prepared on a going concern basis, which contemplates
      the
      realization of assets and the settlement of liabilities in the normal course
      of
      business.These consolidated financial statements do not include any
      adjustments to reflect the possible future effects on the recoverability and
      classification of assets and liabilities that might result from the outcome
      of
      this uncertainty.





*Basis
      of
      Presentation*


The
      consolidated financial statements of
      SVI Media, Inc. are unaudited and have been prepared in accordance with
      accounting principles generally accepted in theUnited States of Americafor interim financial information,
      pursuant to the rules and regulations of the Securities and Exchange Commission.
      Notes to the financial statements which would substantially duplicate the
      disclosures contained in the audited financial statements for the most recent
      fiscal year 2006 as reported in the Form 10-KSB, have been
      omitted. The results of operations for the three and nine months ended
      September 30, 2007 and 2006 are not necessarily indicative of the results to
      be
      expected for the full year. All accounts and intercompany transactions have
      been
      eliminated in consolidation. In the opinion of management, the consolidated
      financial statements include all adjustments, consisting of normal recurring
      accruals, necessary to present fairly the Company's financial position, results
      of operations and cash flows. The results of operations for these interim
      periods are not necessarily indicative of results to be expected for the full
      year. These statements should be read in conjunction with the financial
      statements and related notes which are part of the Company's Annual Report
      on
      Form 10-KSB for the year ended December 31, 2006.





The
      Company has identified certain
      significant accounting policies that it considers particularly important to
      the
      portrayal of its results of operations and financial position which may require
      the application of a higher level of judgment by the Company's management and,
      as a result, are subject to an inherent level of
      uncertainty.





*Discontinued
      Operations*


During
      the fourth quarter of 2006,
      management with the requisite authority actively pursued and entered into
      discussions with third parties to sell its CBC business unit. Effective March
      1,
      2007, the Company closed the sale of substantially all of the assets and
      transferred certain liabilities to the buyers. These assets met the requirements
      of the Financial Accounting Standards Board (“FASB”) SFAS No. 144 (“SFAS 144”),
“*Accounting for
      Impairment or Disposal of Long-Lived Assets*” as being held for
      sale. Operations and
      cash flows were eliminated as a result of the sale and the Company did not
      have
      any involvement in the operations after the sale. In accordance with SFAS 144,
      these results are presented on a historical basis as a separate line in the
      consolidated statements of operations and the consolidated balance sheet
      entitled “Assets/Liabilities Held forSale”.
      All of the financial information in
      the notes to the consolidated financial statements reflects only the results
      of
      continuing operations of the Company.





*Stock
      Split and Amendment to Shares
      Authorized*


On
      July 26, 2007, the Board of Directors
      of the Company approved a one (1) for thirty (30) reverse stock split of the
      Company's common stock. The record date of the stock split was August 27, 2007.
      All common shares and per share information have been adjusted to give effect
      to
      the stock split for all periods presented, including all references throughout
      the financial statements and accompanying notes. In connection with this stock
      split, the Board of Directors approved an amendment to the Company's Articles
      of
      Incorporation to increase the number of authorized shares of common stock to
      200,000,000. The Board also approved amendments to the Certificates of
      Designations for the Company's Series C Preferred to adjust the conversion
      price
      of each such series of preferred stock to reflect the stock
      split.





*Net
      Loss per Common
      Share*


Basic
      net loss per share is calculated
      by dividing net loss by the weighted average common shares outstanding during
      the period. Diluted net income loss per share reflects the potential dilution
      to
      basic EPS that could occur upon conversion or exercise of securities, options
      or
      other such items to common shares using the treasury stock method, based upon
      the weighted average fair value of our common shares during the
      period.





The
      following is a summary of
      outstanding securities which have been excluded from the calculation of diluted
      net loss per share because the effect would have been anti-dilutive as of
      September 30:





**2007**
            
            
            **2006**Common
                stock
                warrants
            
            
            60,333
            
            
            
            392,000Convertible
                preferred stock –
                Series A
            
            
            -
            
            
            
            266,667Convertible
                preferred stock –
                Series B
            
            
            -
            
            
            
            257,133Convertible
                preferred stock –
                Series C
            
            
            38,988,226
            
            
            
            -Convertible
                debt
            
            
            -
            
            
            
            127,604Common
                stock
                options
            
            
            610,667
            
            
            
            10,66739,659,226
            
            
            
            1,054,071








8





*Costs
      Associated with Exit or Disposal
      Activities*


As
      a result of the consolidation of our
      operations and sublease of a portion of theIrvine,Californiafacility, the action qualified as an
      exit activity under SFAS No. 146 (“SFAS 146”), “*Costs Associated
      with Exit or
      Disposal Activities*.”
As a result of the
      consolidation of the facilities, the Company recorded an exit
      cost of $334,651 during the three months ended September 30,
      2007.  The related costs are included in the accompanying statement of
      operations under the caption “Restructuring”.  As of September 30,
      2007, the Company has accrued $334,651 in its consolidated balance
      sheet.





We
      do not expect to incur any additional
      costs associated with the workforce reduction.





*Pro
      Forma Financial
      Information*


The
      following unaudited pro forma
      operating data gives effect to the acquisition of SVI which was acquired
      effective July 1, 2006, as if it had occurred on January 1, 2006 through
      September 30, 2006 and excludes the results of CBC due to its presentation
      as
      discontinued operations. Pro forma financial information is not necessarily
      indicative of the results of operations that may have occurred had the
      acquisition of SVI occurred at the beginning of 2006.





Revenues
            
            $
            10,026,677Net
                loss, before discontinued
                operations
            
            
            (19,421,185
            )Net
                loss applicable to common
                stockholders
            
            
            (19,752,002
            )Basic
                and diluted loss per common
                share, before discontinued operations
            
            $
            (32.13
            )Basic
                and diluted loss per common
                share, applicable to common stockholders
            
            $
            (32.67
            )





**4.**
            **Goodwill**





In
      accordance with SFAS 142 “Goodwill and Other Intangible Assets”, goodwill is not
      amortized, and is tested for impairment at the reporting unit level annually
      or
      when there are any indications of impairment. A reporting unit is an operating
      segment for which discrete financial information is available and is regularly
      reviewed by management. The Company has one reporting unit, SVI, which was
      acquired during the third quarter of 2006 which provides video-on-demand, HSIA services
      and the
      sales of VOD, HSIA and other equipment and servicesto which goodwill has
      been assigned.





SFAS
      142
      requires a two-step approach to test goodwill for impairment for each reporting
      unit. The first step tests for impairment by applying fair value-based tests
      (described below) to a reporting unit. The second step, if deemed necessary,
      measures the impairment by applying fair value-based tests to specific assets
      and liabilities within the reporting unit. Application of the goodwill
      impairment tests require judgment, including identification of reporting units,
      assignment of assets and liabilities to each reporting unit, assignment of
      goodwill to each reporting unit, and determination of the fair value of each
      reporting unit. The determination of fair value for a reporting unit could
      be
      materially affected by changes in these estimates and
      assumptions.  SVI conducted goodwill impairment testing as of
      September 30, 2007. As part of the first step, management considered three
      methodologies to determine the fair-value of this reporting unit.





1.
            Discounted
                cash flow methodology, which requires significant judgment to estimate
                the
                future cash flows and to determine the appropriate discount rates,
                growth
                rates, trends for commodity prices and other
                assumptions.





2.
            Orderly
                sale of assets process,
                which values the unit based on publicly-traded comparables using
                certain
                multiples of EBITDA.





3.
            Market
                capitalization approach.
                Management does not believe this method provides an accurate
                representation of the fair value due to the significant number of
                shares
                of Series C convertible preferred stock that are not included in
                this
                measurement and the lack of trading volume in its
                stock.





The
      Company believes the asset sale valuation and discounted cash flow methods
      provide the most accurate representations of the fair value of its business.
      In
      determining the future cash flows management considered among other things,
      the
      current and projected demand for its VOD content, demand for its HSIA services,
      customer churn and future opportunities to grow its revenue base.  For
      the asset sale valuation, the Company analyzed recent merger and acquisition
      activity pertaining to installed customer base and the related metrics such
      as
      revenue per room and cash flows. As a result, the expected cash flows projected
      to be generated have been adversely impacted, resulting in the impairment of
      goodwill of $2,668,378 during the third quarter of 2007.








9





**5.**
            **Accrued
                Expenses**





Accrued
      expenses consist of the
      following at September 30, 2007:





Wages
                and
                benefits
            
            $
            594,039Service
                credits
            
            
            723,999Lease
                obligations
            
            
            334,651Other
            
            
            607,549$
            2,260,238





As
      discussed in Note 2, during the third
      quarter of 2007, the Company converted accrued interest on its then outstanding
      debt securities and accrued dividends on its Series A and Series B convertible
      preferred stock into shares of Series C Preferred.





**6.**
            **Debt**





Immediately
      prior to the Exchange
      Transaction, the Company's previously outstanding Senior Notes, SVI Acquisition
      Notes and Other Notes as described below were in default under the terms of
      their respective agreements.





*Bridge
      Notes*


On
      June 29, 2007, the Company issued two
      promissory notes (“Promissory Notes”) for aggregate cash proceeds of
      $200,000.  The Promissory Notes had a stated interest rate of 12% per
      annum. The Promissory Notes had a maturity date of the earlier of (i) written
      demand by the holders of the notes; or, (ii) December 31, 2007, unless due
      earlier in accordance with the terms of the Promissory Notes. On July 16, 2007,
      the outstanding principal balance of $200,000 was converted into an equal amount
      of Senior Secured Debt (see Note 2).





*Senior
      Notes*


Immediately
      prior to the Exchange
      Transaction, the Company had $11,897,608 face value, 12% senior secured
      promissory notes (18% default interest rate) (“Senior Notes”) outstanding which
      were in default due to non-payment of interest.





Immediately
      prior to the Exchange
      Transaction, the Company determined the fair value of the Senior Notes to be
      $10,911,398. The Company recorded the change in the fair value to interest
      expense $0 and $271,676 for the three and nine months ended September 30, 2007,
      respectively.





On
      February 28, 2007 and March 15, 2007,
      the Company issued 123,826 and 46,930 shares, respectively of restricted common
      stock in satisfaction of $557,215 of accrued interest on the Senior
      Notes.  The closing market price of the Company's common stock ranged
      from $5.40 to $8.70 per share while the agreed to conversion price was $4.50
      per
      share. As a result, the Company recorded additional interest expense during
      the
      nine months of 2007 of approximately $520,068 for the difference between the
      closing market price and the conversion price at each issuance
      date.





*SVI
      Acquisition
      Notes*


On
      September 1, 2006, the Company issued
      $2,350,000 face value subordinated convertible notes to the selling shareholders
      of SVI (“SVI Notes”). While outstanding, the notes were convertible into shares
      of common stock at a conversion price of $52.50 per share. The notes had a
      stated interest rate equal to the prime rate plus 1.5% as announced, published
      or referenced by Citibank N.A and a default interest rate equal to the variable
      interest rate plus 5%.  Interest was payable at the end of each calendar
      quarter beginning September 30, 2006. Immediately prior to the Exchange
      Transaction, the notes were in default as the Company did not make the required
      interest payments. The Company determined the fair value of the subordinated
      convertible notes on the date of issuance to be $2,682,000 due to the conversion
      feature, which resulted in a premium on the notes.  As a result of the
      notes being in default, the Company accreted the premium on the notes of
      $228,711 to their face value during the three months ended June 30,
      2007.





In
      addition, the Company issued $100,000
      of promissory notes to these selling shareholders which were due on or before
      January 31, 2007. These notes were not repaid by their due date and were in
      default immediately prior to the Exchange Transaction.





*Other
      Notes*


Immediately
      prior to the Exchange
      Transaction, the Company had outstanding amount due under promissory note
      agreements totaling $347,000, which were in default.





**7.**
            **Derivative
                Liabilities**





As
      discussed in Note 2, in connection with the Exchange Transaction, the securities
      underlying the derivative liabilities were cancelled, resulting in a gain on
      extinguishment of $290,487.





From
      January 1, 2007 to immediately
      prior to the cancellation of the underlying securities, the Company recognized
      gains due to the change in the fair value of our derivative liabilities of
      $9,194,336 for the nine months ended September 30, 2007. The gains resulted
      from
      (1) the decrease in the Company's stock price, (2) the exercise of the warrants
      underlying certain of the Company's debt instruments and (3) the issuance of
      additional warrants that were determined to be derivative
      instruments.








10





**8.**
            **Preferred
                Stock**





On
      July
      16, 2007, the outstanding principal and accrued dividends were exchanged and
      converted into shares of Series C Preferred (see Note 2).  Immediately
      prior to the Exchange Transaction, the Company's Series A and Series B
      convertible preferred stock (collectively “Preferred Stock”) were in default
      resulting from the non-payment of contractual dividend payments and were
      immediately redeemable by the respective holders.  The Preferred
      Stock, prior to being in default, was being carried at discounted amounts.
      As a
      result of the redemption provision, the Company accreted the Preferred Stock
      to
      its face value with a corresponding offset to non-cash interest expense of
      $6,381,894 during the three months ended June 30, 2007.





The
      Series C Preferred as described in
      Note 2 has been classified as “temporary equity” in accordance with Statement of
      Financial Accounting Standards No. 150 (“SFAS 150”),*“Accounting for Certain
      Financial
      Instruments with Characteristics of Both Liabilities and
      Equity”,*due to the
      existence of certain redemption provision which is outside the control of the
      Company.





The
      holders of the Series C Preferred
      have the following rights and preferences:





*Dividends*


The
      Holders are entitled to receive
      cumulative dividends at a rate of 7.0% per annum. Dividends are payable in
      shares of Series C Preferred, payable quarterly beginning October 1, 2007,
      and
      ending upon the earlier of four years from the date of issuance or the forced
      conversion date.





*Conversion*


Each
      share of Series C Preferred is
      convertible at the option of the holder at any time into common stock by
      dividing the face value per share of $1,000 by the conversion price ($0.60
      or
      1,666.67 shares of common stock), subject to adjustments for dividends. On
      the
      fourth anniversary of the date of issuance, each share of Series C Preferred
      outstanding will be automatically converted into common
      stock.





The
      Company may cause each holder to
      convert all or part of such holder's Series C Preferred upon the occurrence
      of (i) the VWAP for 22 consecutive trading days exceeding $1.50 per share and
      (ii) the volume for such 22 trading day period exceeding 1% percent of the
      then
      issued and outstanding shares of common stock..





In
      the event the Company issues
      additional shares of common stock at a price per share lower than the Series
      C
      Preferred conversion price, the Series C Preferred are entitled have their
      conversion price reduced to such amount.





*Voting*


The
      holders of Series C Preferred shares
      are entitled to the number of votes equal to the number of shares of common
      stock into which each preferred share is convertible at the time of such vote,
      notwithstanding any limitations on the actual number shares which may be issued
      upon conversion of the Series C Preferred Stock.





The
      holders of our Series C Convertible
      Preferred Stock collectively beneficially own securities with voting power
      equivalent to 38,988,226 common shares (or approximately 95% of the voting
      power
      of our capital stock).  Accordingly, the holders of our Series C
      Convertible Preferred Stock have a significant and overwhelming influence in
      determining the outcome of all corporate transactions or other
      matters.





*Liquidation
      Preference*


Each
      holder of the Series C Preferred is
      entitled to receive upon any liquidation, dissolution or winding-up of the
      Company, whether voluntary or involuntary, amounts equal to the stated value
      per
      share, plus accrued and unpaid dividends and any other fees or liquidated
      damages owing upon before any payments to the holders of common
      stock.





*Redemption*


The
      Series C Preferred is
      redeemable for cash at a premium equal to the respective stated value plus
      accrued dividends upon the occurrence of certain contingent events that include
      registration effectiveness requirements pursuant to an executed registration
      rights agreement. As a result, the Company carries the Series C Preferred
      outside of stockholders' equity. In the event a redemption event becomes
      probable, the Company would be required to adjust the carrying value to
      redemption value.





In
      the event of default, the holder of
      the Series C Preferred may demand redemption based on (i) the greater of (A)
      120% of the stated value and (B) the product of (a) the volume weighted-average
      price (“VWAP”) on the trading day immediately preceding the date of the default
      and (b) the stated value divided by the then set conversion price, (ii) all
      accrued but unpaid dividends, (iii) all liquidated damages and other amounts
      due
      in respect to the Series C Preferred. At the option of the holder, the
      determined redemption can be paid in cash or converted into common stock at
      a
      rate of 75% of the average of the 10 VWAP immediately prior to the date of
      election. As of the reporting date, the Company's management has determined
      that
      the likelihood of such redemption is not probable.





*Registration
      Rights
      Agreement*


The
      Company entered into a registration
      rights agreement with the holders of the Senior Secured Debt and the Series
      C
      Preferred whereby the Company is required to file an initial registration
      statement on Form SB-2 or Form S-3 with the Securities and Exchange Commission
      in order to register the resale of the maximum amount of common stock underlying
      the Series C Preferred under the Securities Act within sixty days of the
      Exchange Agreement (or September 14, 2007).  The registration
      statement must then be declared effective no later than 175 calendar days from
      date of issuance (or January 7, 2008), in the event of a full review by the
      Securities and Exchange Commission, or in the event of no review, 90 days from
      the initial filing date.








11





In
      the event that the Company fails to
      have the registration statement declared effective by the SEC by the dates
      described above, or fails to maintain on the registration statement the
      effectiveness of the registration statement thereafter, then the Company must
      pay the Holders an amount equal to 2% of the aggregate purchase price paid
      by
      each Holder, for each month the registration statement remains
      uncured.  Additionally, failure to have a registration statement
      declared effective would result in the Company being in default of the terms
      of
      the Senior Secured Notes and the Series C Preferred would be in default of
      this
      provision.  On September 14, 2007, the Company filed its initial
      registration statement which is currently under review by the Securities and
      Exchange Commission.  The Company has analyzed the potential liability
      under the registration rights agreement and has not accrued any liability in
      association with this agreement.





**9.**
            **Common
                Stock**





*Modification,
      Exercise and Issuance of
      Warrants*


On
      February 28, 2007, the Company agreed
      to modify the exercise price of 383,333 common stock warrants from $15.00 to
      $3.00 per share to induce the holders to exercise their warrants. During the
      three and nine months ended September 30, 2007, the Company received $0 and
      $830,000, respectively, in proceeds from the exercise of an aggregate of 276,667
      common stock warrants. At the time of exercise of the warrants, the underlying
      derivative liabilities were terminated, as such the fair value was reclassified
      to additional paid in capital totaling $2,095,929 through September 30,
      2007.





On
      the date of each modification, the
      Company recorded a non-cash charge to gain on derivative liability, representing
      the difference between the fair value of the modified warrants immediately
      before and after the modification. The holders that elected to exercise their
      warrants were also issued additional warrants (“Replacement Warrants”) to
      purchase 276,667 shares of common stock at an exercise price of $15.00 per
      share.





Upon
      issuance of the Replacement
      Warrants, the Company evaluated the terms and features and determined the
      warrants did not meet all of the established criteria for equity classification
      provided in EITF 00-19 “Accounting for Derivative Financial Instruments Indexed
      to, and Potentially Settled in, a Company's Own Stock.” The fair value of the
      warrants was determined using the Black-Scholes model using market based
      assumptions consistent with those used during 2006.





*Issuance
      of Common Stock for Accrued
      Dividends on Series A and Series B Convertible Preferred
      Stock*


On
      February 28, 2007, the Company issued
      28,701 shares of restricted common stock for payment of dividends on its Series
      A and Series B Preferred stock for amounts accrued through February 28, 2007
      totaling $258,312, a conversion rate of $9.00. The closing stock price of the
      Company's common stock was $8.70 per share.





*David
      Parker
      Settlement*


On
      July 16 2007, the Company entered
      into a Settlement and Release Agreement with David L. Parker, a former employee
      and member of the Company's board of directors.  Mr. Parker agreed to
      terminate his employment agreement with the Company and waive all rights he
      might have to any further compensation or payment of any kind under an
      employment contract.  As part of the agreement, the Company issued
      210,000 shares of common stock to Mr. Parker.  Mr. Parker also
      released the Company of $157,500 of accrued compensation.  In the
      third quarter of 2007, the Company recorded a non-cash charge to the statement
      of operations for the difference between the fair value of the common stock
      totaling $189,000 based on the closing stock price and the accrued
      compensation.  Mr. Parker was granted the same registration rights as
      provided to the holders of the Series C Preferred.





*Stock
      Options Issued to Members of the
      Board of Directors*


During
      August and September 2007, the
      Company granted an aggregate of 600,000 stock options to certain members of
      the
      Company’s board of directors. The options will vest in increments of twenty five
      percent (25%) per calendar quarter, with the first twenty-five percent (25%)
      accruing on the date of grant, with successive percentages accruing at the
      beginning of each calendar quarter commencing on January 1, 2008, and continuing
      each successive calendar quarter. The value of the stock options was determined
      using the Black-Scholes model with the following
      assumptions:





Estimated
                fair value of underlying
                common stock
            
            $
            0.60Exercise
                price
            
            $
            0.001Expected
                life (in
                years)
            
            
            5.0Risk-free
                interest
                rate
            
            
            4.39%Expected
                volatility
            
            
            282.4%Dividend
                yield
            
            
            0%





For
      the three and nine months ended
      September 30 2007, the Company recorded stock compensation expense relating
      to
      these stock options totaling $59,998.








12





**10.**
            **Discontinued
                Operations**





Effective
      March 1, 2007, the Company
      completed the sale of substantially all the assets and transferred certain
      liabilities of CBC to an unrelated third party. The Company chose to dispose
      of
      CBC as it was not within the parameters of the Company's core business. The
      purchase price included aggregate cash payments to the Company of $457,219,
      the
      transfer $584,796 of accounts receivable to the buyer and the assumption of
      accounts payable by the buyer of $1,035,322, accrued liabilities of $100,332
      and
      $45,000 of transaction costs paid by the Company. As of September 30, 2007,
      $28,393 of the funds remained in escrow and amounts are classified in the
      consolidated balance sheet as “Escrow Proceeds Receivable”.





As
      result of the sale, the Company
      recognized a gain from the sale totaling $0 and $1,173,951 for the three and
      nine months ended September 30, 2007, respectively. Such amounts have been
      reported in the consolidated statement of operations under the caption of “Gain
      from Sale of Discontinued Operations”.





The
      following is a condensed balance
      sheet of CBC as of September 30, 2007:





Current
                assets
            
            $
            31,354Total
                assets
            
            
            31,354Current
                liabilities
            
            
            52,382Total
                liabilities
            
            
            52,382Total
                stockholders'
                deficit
            
            
            (21,028
            )Total
                liabilities and
                stockholders' deficit
            
            $
            31,354








The
      following are condensed statements
      of operations for the discontinued operations of CBC for the three months and
      nine months ended September 30:





**Three
                Months
                Ended**
              **September
                30,**
            
            
            **Nine
                Months
                Ended**
              **September
                30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**Revenues
            
            $
            -
            
            
            $
            2,005,212
            
            
            $
            801,579
            
            
            $
            4,617,233Net
                income (loss) from
                discontinued operations
            
            $
            -
            
            
            $
            17,976
            
            
            $
            (29,899
            )
            
            $
            (41,962
            )






























































13





**ITEM
      2.
      MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
      OPERATION**





This
      quarterly report on Form 10-QSB of
      SVI Media, Inc. for the nine months ended September 30, 2007, contains
      forward-looking statements, principally in this Section. Generally, you can
      identify these statements because they use words like “anticipates,” “believes,”
“expects,”“future,” “intends,” “plans,” and similar terms. These statements
      reflect only our current expectations. Although we do not make forward-looking
      statements unless we believe we have a reasonable basis for doing so, we cannot
      guarantee their accuracy and actual results may differ materially from those
      we
      anticipated due to a number of uncertainties, many of which are unforeseen,
      including, among others, the risks we face as described in this filing. You
      should not place undue reliance on these forward-looking statements which apply
      only as of the date of this annual report. To the extent that such statements
      are not recitations of historical fact, such statements constitute
      forward-looking statements that, by definition, involve risks and uncertainties.
      In any forward-looking statement where we express an expectation or belief
      as to
      future results or events, such expectation or belief is expressed in good faith
      and believed to have a reasonable basis, but there can be no assurance that
      the
      statement of expectation of belief will be accomplished.





We
      believe it is important to
      communicate our expectations to our investors. There may be events in the
      future, however, that we are unable to predict accurately or over which we
      have
      no control. The cautionary language in this report, provide examples of risks,
      uncertainties and events that may cause our actual results to differ materially
      from the expectations we describe in our forward-looking statements. Factors
      that could cause actual results or events to differ materially from those
      anticipated, include, but are not limited to: our ability to successfully
      develop new products; the ability to obtain financing for product development;
      changes in product strategies; general economic, financial and business
      conditions; changes in and compliance with governmental healthcare and other
      regulations; changes in tax laws; and the availability of key management and
      other personnel.





This
      information should be read in
      conjunction with our unaudited consolidated condensed financial statements
      and
      the notes thereto included in this Quarterly Report and our audited consolidated
      financial statements and notes thereto and Management's Discussion and Analysis
      of Financial Condition and Results of Operations contained in our Annual Report
      on Form 10-KSB for our year ended December 31, 2006.





**Our
      Business**





Our
      primary business is providing
      technology, content and support services for in-room entertainment and
      high-speed internet access to small and medium sized hospitality properties.
      We
      have developed a proprietary system comprised of hardware and software
      technology for the cost-effective delivery of Video-on-Demand (“VOD”), on a
      pay-per-view basis.





Our
      technology platform has three major
      components; proprietary software, video server and in-room equipment. We provide
      content that is rented in the hotel room on demand. We also maintain
      relationships with a variety of major content providers including:Hollywoodstudios, independent movie producers,
      and numerous sources for music and music videos. We are also a reseller of
      DIRECTV®, selling the hardware and receiving monthly recurring revenue from its
      free-to-guest (FTG) television services. We also provide customer support
      services using our integrated call center located inPeoria,Illinoisand field service organization located
      throughout theUnited
      States.





We
      plan to continue to grow our business
      through the growth of our customer base and sales of our VODs systems using
      the
      benefits that come from our technology to save costs and to increase our
      revenues produced.  Specifically, this will result in increases in the
      number of hotels using our products and services, as well as increasing revenue
      produced per room.





We
      are continuing to focus on the
      hospitality service business over the coming year. Our strategy includes two
      major growth drivers; adding hotel properties and generating more revenue per
      room. We believe we are positioned for this growth starting with our base of
      over 2,400 hotel properties to which we deliver our VOD and/or HSIA services.
      Our important differentiation in the marketplace is a combination of our lower
      price points for the technology that enables the delivery of our VOD content
      as
      well as our ability to deliver superior customer support services.  In
      the event our customer support and service levels decrease as a result of our
      headcount reductions, our future revenues may be adversely
      impacted.





Our
      sales strategy is to leverage our
      in-house sales team to up-sell our current installed base and find deals on
      a
      direct basis while also working an authorized dealer channel that delivers
      non
      competitive technologies to a similar market demographic. Our hybrid model
      focuses direct efforts on management companies and brands, and leveraging the
      dealer channel where appropriate to capitalize on their relationships, marketing
      and ability to cover geographies where we do not have a direct presence. This
      sales strategy provides us greater exposure to new potential
      customers.





Another
      significant opportunity in the
      short-term is gaining more revenue per room from our installed base. This will
      be achieved by (1) upgrading technology, (2) providing more compelling content
      and (3) introducing opportunities for advertising revenue.





The
      greater storage capacity of digital
      systems allows us to offer a broader selection of content that is appealing
      to a
      wider audience of hotel guests which is expected to drive additional revenue
      per
      room.







14





The
      other new source of revenue the
      Company expects to have is advertising. The Company plans to add a TV guide
      channel on the system with space available for advertising that would be shared
      between the hotel property and us.  In the event we are not able to
      obtain additional financing, we may not be able to execute on this
      initiative.





We
      will face some significant challenges
      as we attempt to execute on our business plan over the coming months. Currently,
      we are engaged in an effort to upgrade approximately 1,500 hotel properties
      from
      our VHS-based analog systems to our full digital server. In our experience,
      hotel properties featuring our digital system generate more revenue per-room,
      per-month than those featuring our older, tape-based analog
      system.  However, if we are unable to obtain sufficient capital to
      fund the upgrades we will not be able to upgrade these customers and in turn,
      will not be able to increase our revenue per room from VOD
      content.  We also run the risk of customer attrition. Our ability to
      continue to operate while meeting our anticipated expenses will depend in part
      on our being able to convert a sufficient number of properties to our digital
      system on a month-by-month basis.  We estimate that we will need to
      convert a minimum of approximately 20 properties per month to our digital system
      in order to experience the required revenue growth in this area of our
      business.  In addition, our ability to meet our operating expenses
      will depend in part on establishing and expanding a significant flow of
      advertising revenues over the coming months.   If we are unable
      to execute our planned technology upgrades in a timely fashion, and/or if we
      are
      unable to significantly expand our revenues through the sale of advertising,
      we
      may need additional capital to continue our operations and our business may
      fail.





**Recent
      Developments**





On
      July 16, 2007, we entered into a
      transaction whereby the holders of certain debt and preferred stock securities
      (individually or collectively “Holder”) cancelled and exchanged their principal
      and accrued interest on outstanding debt and the face amount and accrued
      dividends on preferred stock into shares of Series C convertible preferred
      stock
      (“Series C Preferred”). This transaction (“Exchange Transaction”) was contingent
      upon the issuance of the senior secured notes as described below titled
“Issuance of Senior Secured Notes”.  The Holders converted the
      following securities:





·
            Senior
                Notes - outstanding
                principal and accrued interest of $11,897,608 and $532,357,
                respectively were exchanged on a basis of one shares of Series C
                Preferred (for a total of 12,430 shares) for each $1,000 of amounts
                owed;





·
            SVI
                Notes - outstanding principal
                and accrued interest of $2,350,000 and $259,269, respectively were
                exchanged on a basis of 0.50 shares of Series C Preferred (for a
                total of
                1,304 shares) for each $1,000 of amounts
                owed;





·
            Series
                A Convertible Preferred
                Stock - outstanding stated value and accrued dividends of $4,000,000
                and
                $134,040, respectively were exchanged on a basis of 0.25 shares of
                Series
                C Preferred (for a total of 1,034 shares) for each $1,000 of amounts
                owed;





·
            Series
                B Convertible Preferred
                Stock - outstanding stated value and accrued dividends of $3,857,000
                and
                $128,179, respectively were exchanged on a basis of 0.25 shares of
                Series
                C Preferred (for a total of 996 shares) for each $1,000 of amounts
                owed; and





·
            Other
                Notes - outstanding
                principal and accrued interest of $447,000 and $66,161, respectively
                were
                exchanged on a basis of 0.125 shares of Series C Preferred (for a
                total of
                64 shares) for each $1,000 of amounts
                owed.





In
      addition, warrants to purchase common
      stock held by the Holders totaling 450,480 shares were
      cancelled.





In
      connection with the Exchange
      Transaction, we also issued $4,210,526 face value, 12% senior secured promissory
      notes (“Senior Secured Notes”), due July 16, 2011. We received gross proceeds of
      $3,800,000 and converted $200,000 of secured promissory notes issued on June
      29,
      2007.  We also issued to the holders of the Senior Secured Notes,
      7,228 shares of Series C Preferred, which represented 30% of the fully-diluted
      shares of the Company on an as if, converted basis on the date of
      issuance.





**Critical
      Accounting
      Policies**





*Estimates*


Our
      discussion and analysis of our
      financial condition and results of operations are based on our consolidated
      financial statements, which have been prepared in accordance with accounting
      principles generally accepted in theUnited States.
      The preparation of financial
      statements in conformity with accounting principles generally accepted in theUnited Statesrequires 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. By their nature, these estimates and judgments are subject
      to an inherent degree of uncertainty. We review our estimates on an ongoing
      basis, including those related to sales allowances, the allowance for doubtful
      accounts, inventories and related reserves, long-lived assets, income taxes,
      litigation and stock-based compensation. We base our estimates on our historical
      experience, knowledge of current conditions and our beliefs of what could occur
      in the future considering available information. Actual results may differ
      from
      these estimates, and material effects on our operating results and financial
      position may result. We believe the following critical accounting policies
      involve our more significant judgments and estimates used in the preparation
      of
      our consolidated financial statements.








15





*Revenue
      Recognition*


We
      generate our revenues from the sale
      of products and services and recognize revenue when the following fundamental
      criteria are met:





§
            persuasive
                evidence that an
                arrangement exists;





§
            the
                products and services have
                been delivered;





§
            selling
                prices are fixed and
                determinable and not subject to refund or adjustment;
                and





§
            collection
                of amounts due is
                reasonably assured.





Delivery
      occurs when goods are shipped
      and title and risk of loss transfer to the customer, in accordance with the
      terms specified in the arrangement with the customer. Revenue recognition is
      deferred in all instances where the earnings process is incomplete. We provide
      for sales returns and allowances in the same period as the related revenues
      are
      recognized. We base these estimates on our historical experience or the specific
      identification of an event necessitating a reserve. To the extent actual sales
      returns differ from our estimates; our future results of operations may be
      affected. Should changes in conditions cause management to determine that these
      criteria are not met for certain future transactions, revenue recognized for
      any
      reporting period could be adversely affected.





We
      principally generate our revenues
      from the following sources:





*Guest
      Pay
      Services*


Revenues
      from in-room video-on-demand
      (“VOD”) are generated when a hotel guest purchases the content the Company
      provides, upon the viewing of the content by the guest. We track the usage
      of
      such services through our VOD billing system. The pricing of these transactions
      is established through individual contracts with each hotel. Refunds are
      reflected net of revenue recognized.





In
      instances whereby the hotel guest
      elects to purchase the VOD content utilizing the credit card swiper option,
      the
      transaction is processed through our third-party credit card processing firm
      and
      the funds are remitted directly to us. When the hotel guest elects to have
      the
      cost of the movie included as part of its hotel bill or pays the hotel in cash,
      the hotel is contractually obligated to remit such amounts to the Company.
      Under
      these terms, we establish the price charged to the hotel guest, select the
      content to provide, pay the suppliers for the content and bear the credit risk
      of collecting payment from the hotelier. Under these terms, we serve as the
      principal with the customer; and therefore, recognize revenue on a “gross”
basis, in accordance with EITF 99-19, “*Reporting Revenue
      Gross as a
      Principal versus Net as an Agent”*.





*Free-to-Guest*


Free-to-guest
      revenues include revenues
      generated from the sale of equipment allowing a hotel to receive DirecTV
      programming for its guests. Revenue is recognized in the period in which the
      equipment is installed. The hotelier contracts directly with DirecTV for the
      related programming services. We receive a residual commission related to such
      programming services and recognize revenue in the period in which such
      commission payments are received.





*High-Speed
      Internet
      Access*


High-speed
      internet access revenue
      includes the sale and installation of equipment and is recognized upon
      installation. In addition, this equipment has stand-alone value to the customer.
      The software used within these systems is not proprietary to the Company and
      can
      be supplied by other vendors unrelated to us.





We
      also provide ongoing maintenance,
      service and call center support services to hotel properties that have
      high-speed internet access regardless of whether we provide the equipment or
      internet access. Monthly service fees are received from such hotel properties
      and are recognized ratably over the term of the service
      contract.





*Sales
      of VOD
      Systems*


In
      addition to providing VOD content, we
      sell VOD systems to the hospitality industry through our sales force and a
      network of dealers. At the time of sale, we generally require the hotelier
      to
      enter into a content agreement whereby we provide training, customer support
      and
      loading of content. Currently, due to the limited sales history of selling
      the
      systems, we have not obtained vendor specific objective evidence to segregate
      the VOD server, software, and related upgrades, and customer service elements.
      Accordingly, revenues from the sale of the VOD systems are recognized ratably
      over the period of the content agreement, which is generally five years. As
      additional VOD systems are sold, we will analyze its sales and content trends
      to
      determine whether vendor specific objective evidence on each element sold is
      independent of one another. If it is determined that elements are sold on a
      stand-alone basis, the Company may recognize the sale of the VOD system upon
      shipment. The cost of the VOD system is being deferred and amortized to cost
      of
      sales over the respective service periods.





*Accounting
      for Embedded Conversion
      Features and Warrants Issued with Preferred Stock and Debt
      Instruments*


We
      accounted for embedded conversion
      features (ECF) and warrants issued with preferred stock and debt instruments
      in
      accordance with the guidance in paragraph 12 of SFAS No. 133 (“SFAS 133”),
“*Accounting for
      Derivative Instruments and Hedging Activities*”, which requires
      the evaluation of an
      ECF from the respective instrument and separate accounting if the equity
      instrument(s) meets certain criteria. The ECFs and warrants we issued with
      each
      of our Series A preferred stock, Series B preferred stock and $11.5 million
      in
      senior notes met all three criteria of paragraph 12 which requires bifurcation
      from the host instrument. These criteria include: (1) the conversion feature
      is
      not clearly and closely related to the host component, (2) the convertible
      instrument is not accounted for at fair value, and (3) the embedded conversion
      option meets the definition of a derivative in paragraph 6 of SFAS No.
      133.








16





To
      assess whether or not the ECF would
      be classified as stockholders' equity if it were free standing, management
      considered the guidance in EITF 00-19 “Accounting for Derivative Financial
      Instruments Indexed to, and Potentially Settled in, a Company's Own Stock”. In
      assessing whether or not the conversion option would be classified as equity
      or
      a liability if it were freestanding, management determined whether or not the
      Series A convertible preferred stock is considered “conventional”. EITF 00-19
      and EITF 05-2, “The Meaning of Conventional Convertible Debt Instruments in
      issue No. 00-19”, defines conventional convertible debt as debt whereby the
      holder will, at the issuer's option, receive a fixed amount of shares or the
      equivalent amount of cash as proceeds when he exercises the conversion option.
      We determined that our Series A convertible preferred stock was not
“conventional”, and we considered all aspects of EITF 00-19, paragraphs
      12-33.





The
      accounting treatment of derivative
      financial instruments requires that we record the ECF and warrants at their
      fair
      values as of each reporting date. Any change in fair value is recorded as
      non-operating, non-cash income or expense at each reporting date. The
      derivatives were valued using the Black-Scholes option pricing
      model.





*Equity
      Instruments Issued with
      Registration Rights Agreement*


We
      account for these penalties as
      contingent liabilities, applying the accounting guidance of SFAS No. 5,
“Accounting for Contingencies”. This accounting is consistent with views
      established by the Emerging Issues Task Force (EITF) in its consensus set forth
      in EITF 05-04 (view C) and FASB Staff Positions FSP EITF 00-19-2 “Accounting for
      Registration Payment Arrangements”, which was issued December 21, 2006.
      Accordingly, we recognize the damages when it becomes probable that they will
      be
      incurred and amounts are reasonably estimable. We concluded at September 30,
      2007 that the registration rights did not represent a liability under our
      existing registration rights agreement.  Additionally, in connection
      with the Exchange Transaction, the underlying securities and related agreements
      were cancelled and a new registration rights agreement was entered into under
      the terms of the Series C Preferred.





**Results
      of
      Operation**





Effective
      March 1, 2007, we sold certain
      assets and transferred certain liabilities related to our CBC business unit
      to
      an unrelated third party. The purchase price included aggregate cash payments
      to
      us of $457,219, the transfer $584,796 of accounts receivable to the buyer and
      the assumption of accounts payable by the buyer of $1,035,322, accrued
      liabilities of $100,332 and $45,000 of transaction costs paid by us. 
In accordance with current accounting regulations, the financial information
      for
      the three and nine months ended September 30, 2007 and 2006 are presented as
      discontinued operations.





**Three
      Months Ended September 30, 2007
      Compared to the Three Months Ended September 30,
      2006**





*Service
      Revenues*


Revenues
      generated from services consist
      primarily of VOD pay-per-view content, monthly service fees, free-to-guest
      residuals, high speed internet access HSIA call center and field support
      services.





Revenues
      for the third quarter of 2007
      were $2,895,045 compared to $3,186,155 for the comparable period in
      2006.  The change resulted primarily from lower VOD content
      revenue.





During
      the third quarter of 2007, we
      generated $2,402,695 from the sales of our VOD content representing monthly
      revenue per room (“RPR”) of $5.20 as compared to $2,734,419 or $5.75 RPR for the
      comparative period in 2006.  The decrease resulted from customer churn
      and fewer movie rentals.





During
      the third quarter of 2007, we
      generated $245,866 and $246,484 of revenues from HSIA services and other service
      revenues, respectively. During the comparable period in 2006, we generated
      $242,587 and $209,149 of revenues from HSIA services and other service revenues,
      respectively.





*Product
      Revenues*


Revenues
      generated from product sales
      consists of equipment sales of all our products, primarily eModTM VOD,
      free-to-guest and HSIA components.    Revenues for the third
      quarter of 2007 were $256,058 compared to $476,423 for the comparable period
      in
      2006. The change resulted from lower HSIA equipment sales, offset slightly
      by an
      increase in VOD equipment revenue as a result of additional eMod sales and
      recognition of prior revenue previously deferred.





*Gross
      Profits from Services
      Revenues*


VOD
      costs (exclusive of operating
      expenses and depreciation and amortization of the underlying equipment) includes
      movie license fees, the commission retained by the hotel and other related
      costs.





Gross
      profit for the third quarter of
      2007 was $2,095,815 compared to a gross profit of $2,332,384 for the comparable
      period in 2006. Our gross margin for the third quarter of 2007 and 2006 for
      VOD
      content was $1,605,306 or 67% and $1,887,679 or 69%,
      respectively.  The change in the gross profit margin is the result of
      VOD content mix and the associated license fees.








17





*Gross
      Profit from Product
      Revenues*


Gross
      profit from product revenues for
      the third quarter of 2007 was $5,534 (or 2%) compared to a gross profit of
      $181,819 (or 38%) for the comparable period in 2006.





*Selling,
      General and
      Administrative*


Selling,
      general and administrative
      expenses for the third quarter of 2007 were $3,868,765 compared to $4,899,539
      for the comparable period of 2006.  The decrease is the result of
      lower stock-based compensation and the implementation of restructuring and
      cost
      control initiatives, primarily in the areas of payroll, consulting and
      professional services.





During
      the third quarter of 2007, we
      incurred approximately $57,179 of expenses relating to employee severance
      agreements.  During the third quarters of 2007 and 2006, we incurred
      $117,748 and $931,764, respectively of non-cash stock-based
      compensation.





*Restructuring*


During
      the third quarter of 2007, we
      consolidated ourIrvine,Californiafacility toPeoria,Illinoisfacility.  We have subleased
      approximately 75% of the facility and do not anticipate receiving any further
      economic benefit for the unoccupied space for the remaining term of theIrvinelease agreement.  As a
      result, we recorded $334,651of expenses during the third quarter of
      2007.





*Impairment
      of Goodwill*


As
      of the end of the third quarter of 2007, we performed a
      goodwill impairment test relating to SVI which resulted in an impairment to
      the
      goodwill of $2,668,378.





*Amortization
      of Intangible
      Assets*


Amortization
      of intangible includes
      software technology, customer relationships and a trade name from business
      combinations we completed.





For
      the third quarter of 2007 and 2006,
      amortization expense related to our intangible assets was $218,782 and $229,771,
      respectively.





*Interest
      Income*


Interest
      income during the third quarter of 2007 and 2006 was $20,803 and $7,566,
      respectively.  The change resulted from higher average cash balance
      and an increase interest rate in 2007 as compared to 2006.





*Interest
      Expense*


Interest
      expense during the third
      quarter of 2007 includes amounts due under our newly issued Senior Secured
      Notes
      issued in connection with the Exchange Transaction and interest while
      outstanding, on our Senior Notes, SVI Acquisition and other outstanding
      notes.





For
      the third quarter of 2007, interest
      expense was $621,613 compared to $3,298,541 for the comparable period in 2006.
      Interest expense for third quarter of 2007 includes $103,859 and $214,445,
      respectively, of cash-based interest on our outstanding Senior Secured debt
      and
      non-cash interest expense relating to the accretion of the underlying debt
      discount.  For the comparable period in 2006, we incurred $2,609,522
      in loan extension fees and liquidated damages of $341,667.





*Extinguishment
      of Debt, Preferred Stock
      and Creditor Settlements*


As
      discussed in Note 2 to our consolidated financial statements, during the third
      quarter of 2007, in connection with the Exchange Transaction, we recognized
      a
      loss on the extinguishment of debt, preferred stock and creditor settlements
      of
      $981,015. Included in this amount is a loss on extinguishment of debt of
      $6,395,679, a gain on the extinguishment of Series A & B Preferred Stock of
      $5,074,512, and gains of $340,152 for the reduction of certain trade
      payables.





*Derivative
      Liabilities*


During
      2005, we issued Series A
      convertible preferred stock (“Series A Preferred”) and in 2006, issued Series B
      convertible preferred stock (“Series B Preferred”) and certain debt instruments
      which contained embedded conversion features and warrants which were deemed
      to
      be derivative instruments, requiring bifurcation from the respective host
      instrument. The changes in the fair value are recorded in each reporting
      period.





We
      recognized a gain on the
      extinguishment of our derivative liabilities of $290,487 during the third
      quarter of 2007 which resulted from the Exchange Transaction and the
      cancellation of the securities underlying the derivative
      liabilities.





During
      the third quarter of 2006, we
      recorded income of $15,251 from the change in the fair value of the
      derivative liabilities primarily resulting from decrease in our stock price
      during the period.





*Beneficial
      Conversion Feature on
      Preferred Stock*


In
      connection with the Exchange
      Transaction, we issueddebt
      and shares of Series C preferred stock.  The face value of the debt
      and preferred stock were allocated based on their relative fair value and
      recorded as a debt discount and a beneficial conversion feature respectively.
      A
      beneficial conversion feature on the preferred stock of $4,195,372 was
      immediately amortized over the earliest conversion date to which it can be
      converted into common stock which was the date of issuance.








18





*Preferred
      Stock
      Dividends*


During
      the third quarter of 2007 and
      2006, dividends totaled $383,392 and $128,855, respectively. The increase in
      dividends in 2007 resulted from an increase in the face value of the preferred
      stock from the 2006 period.





**Nine
      Months Ended September 30, 2007
      Compared to the Nine Months Ended September 30,
      2006**





*Service
      Revenues*


Revenues
      generated from services consist
      primarily of VOD pay-per-view content, monthly service fees, free-to-guest
      residuals, HSIA call center and field support services.





Revenues
      for the nine months of 2007
      were $8,235,463 compared to $3,207,989 for the comparable period in
      2006.  The increase resulted from the inclusion of revenues generated
      by SVI during the nine months of 2007.  Revenues for the comparable
      nine months of 2006 include only amounts generated by SVI for the three months
      ended September 30, 2006, as the acquisition was consummated effective July
      1,
      2006.





During
      the nine months of 2007, we
      generated $6,788,371 from the sales of our VOD content representing monthly
      revenue per room of $4.85.





During
      the nine months of 2007, we
      generated $736,166 and $710,927 of revenues from HSIA and other service
      revenues, respectively.





*Product
      Revenues*


Revenues
      for the nine months of 2007
      were $1,060,219 compared to $555,425 for the comparable period in
      2006.  The increase resulted from the inclusion of revenues generated
      by SVI and revenues generated from the shipment and/or installation of our
      eMod
      systems.





*Gross
      Profits from Services
      Revenues*


Gross
      profit for the nine months of 2007
      was $6,199,045 compared to a gross profit of $2,275,418 for the comparable
      period in 2006. Our gross margin for the nine months of 2007 for VOD content
      was
      $4,760,785 or 70%.





*Gross
      Profit from Product
      Revenues*


Gross
      profit from product revenues for
      the nine months of 2007 was $302,408 or 29% compared to a gross profit of
      $134,166 or 24% for the comparable period in 2006.





*Selling,
      General and
      Administrative*


Selling,
      general and administrative
      expenses for the nine months of 2007 were $12,580,455 compared to $11,457,766
      for the comparable period of 2006. The increase during 2007 resulted from the
      inclusion of nine months of expenses for SVI during the 2007 period, compared
      to
      three months for the comparable period.





During
      the nine months of 2007, we
      incurred $440,179 of expenses relating to employee severance agreements and
      an
      investment banking agreement.  During 2007 and 2006, we incurred
      $235,873 and $3,521,764, respectively, of non-cash stock-based compensation
      expense.





*Restructuring*


During
      the nine months ended 2007, we
      vacated ourIrvine,Californiafacility and consolidated our
      operations to ourPeoria,Illinoisfacility.  We have subleased
      approximately 75% of the facility and do not anticipate receiving any further
      economic benefit for the unoccupied space for the remaining term of theIrvinelease agreement.  As a
      result, we recorded $334,651 and $0 of expenses during the nine months of 2007
      and 2006, respectively.





*Impairment
      of Goodwill*


As
      of the
      end of the third quarter of 2007, we performed a goodwill impairment test
      relating to SVI which resulted in an impairment to the goodwill of
      $2,668,378.





*Amortization
      of Intangible
      Assets*


Amortization
      of intangible includes
      software technology, customer relationships and a trade name from business
      combinations we completed.





For
      the nine months of 2007 and 2006,
      amortization expense related to our intangible assets was $656,434 and $581,135,
      respectively.  The increase in 2007 resulted from the inclusion of
      amounts related to our acquisition of SVI.





*Interest
      Income*


Interest
      income for the nine months of 2007 and 2006 was $20,881 and $8,958,
      respectively.  The change resulted from higher average cash balance
      and an increase interest rate in 2007 as compared to 2006.








19





*Interest
      Expense*


Interest
      expense for the nine months of
      2007 includes amounts incurred in connection with our Senior Secured Notes
      issued in connection with the Exchange Transaction and interest (cash and
      non-cash) while outstanding, on our Senior Notes, SVI Acquisition, Series A
      and
      Series B preferred stock and other outstanding notes.





For
      the nine months of 2007, interest
      expense was $8,787,032 compared to $4,228,478 for the comparable period in
      2006.
      The change primarily resulted from $6,381,894 of non-cash interest expense
      relating to our previously outstanding Series A and Series B convertible
      preferred stock.  For the comparable period in 2006, we incurred
      $2,609,522 in loan extension fees and liquidated damages of
      $341,667.





*Extinguishment
      of Debt, Preferred Stock
      and Creditor Settlements*


As
      discussed in Note 2 to our consolidated financial statements, during the third
      quarter of 2007, in connection with the Exchange Transaction, we recognized
      a
      loss on the extinguishment of debt, preferred stock and creditor settlements
      of
      $981,015. Included in this amount is a loss on extinguishment of debt of
      $6,395,679, a gain on the extinguishment of Series A & B Preferred Stock of
      $5,074,512, and gains of $340,152 for the reduction of certain trade
      payables.





*Derivative
      Liabilities*


During
      2005, we issued Series A
      convertible preferred stock (“Series A Preferred”) and in 2006, issued Series B
      convertible preferred stock (“Series B Preferred”) and certain debt instruments
      which contained embedded conversion features and warrants which were deemed
      to
      be derivative instruments, requiring bifurcation from the respective host
      instrument. The changes in the fair value are recorded in each reporting
      period.





We
      recognized a gain on the
      extinguishment of our derivative liabilities of $290,487 during the third
      quarter of 2007 which resulted from the Exchange Transaction and the
      cancellation of the securities underlying the derivative
      liabilities.





During
      the nine months of 2007, the
      change in the fair value of our derivative liabilities resulted in non-cash
      income of $9,194,336 compared to a non-cash expense of $2,564,504 for the nine
      months of 2006. The income in 2007 resulted from a decrease in our stock price
      during the period from December 31, 2006.  The expense in 2006 was due
      to increases in the stock price.





*Beneficial
      Conversion Feature on
      Preferred Stock*


In
      connection with the Exchange
      Transaction, we issueddebt
      and shares of Series C preferred stock.  The face value of the debt
      and preferred stock were allocated based on their relative fair value and
      recorded as a debt discount and a beneficial conversion feature respectively.
      A
      beneficial conversion feature on the preferred stock of $4,195,372 was
      immediately amortized over the earliest conversion date to which it can be
      converted into common stock which was the date of issuance.





*Preferred
      Stock
      Dividends*


During
      the nine months of 2007 dividends
      totaled $699,715 compared to $288,855 for the comparable period in 2006. The
      increase in dividends in 2007 from 2006 resulted from an increase in the face
      amount of preferred outstanding.





**Liquidity
      and Capital
      Resources**





The
      accompanying consolidated financial
      statements have been prepared on a going-concern basis, which contemplates
      the
      realization of assets and satisfaction of liabilities and other commitments
      in
      the normal course of business. The report of our independent registered public
      accounting firm on the consolidated financial statements for the year ended
      December 31, 2006 contains an explanatory paragraph expressing substantial
      doubt
      about our ability to continue as a going concern as a result of recurring
      losses, a working capital deficiency, and negative cash flows. The consolidated
      financial statements do not include any adjustments relating to the
      recoverability and classification of recorded asset amounts or the amounts
      and
      classification of liabilities that would be necessary if we are unable to
      continue as a going concern.





At
      September 30, 2007, our cash balance
      was $1,147,505 and we had negative working capital of
      $1,441,557.  Current liabilities at that date consisted primarily of
      accounts payable, accrued expenses, deferred revenue and the current portion
      of
      our long-term debt. As of September 30, 2007, we had $4,210,526 of senior
      secured debt outstanding.





On
      July 16, 2007, we entered into a
      transaction whereby both the holders of  $15,552,394 in outstanding debt
      and accrued interest and the holders of $8,119,219 of preferred stock and
      accrued dividends cancelled and exchanged amounts owed into shares of Series
      C
      convertible preferred stock.





On
      July 16, 2007, we issued $4,210,526
      face value, 12% senior secured promissory notes, due July 16, 2011. We received
      gross proceeds of $3,800,000 and converted $200,000 of secured promissory notes
      issued on June 29, 2007.  The holders of the Senior Secured Notes have
      a first priority lien on all of the Company's assets and are guaranteed by
      each
      of its subsidiaries. The Senior Secured Notes require the Company to repay
      the
      principal amounts in equal installments at a rate of 12.5% per quarter beginning
      in October 2009. Interest is payable based on a 360-day year at the stated
      rate
      every three months beginning October 1, 2007.





Management
      anticipates its current cash reserves including the funds received from the
      Senior Secured Notes will be sufficient to fund its anticipated operations
      into
      December 2007.  We are actively pursuing obtaining additional debt
      and/or equity financings.  There is no assurance that the proceeds
      from future financings will be sufficient to obtain profitable
      operations.  Such financing(s), if available, may increase the risk of
      the Company not being able to service its debt obligations, and/or cause
      dilution to existing equity holders.  The Company is currently
      experiencing issues with paying its vendors and if additional capital is not
      obtained by December 2007, the Company may be required to seek bankruptcy relief
      which can lead to a liquidation of the Company’s assets.








20





During
      the third quarter of 2007,
      management identified several cost reduction measures to reduce our operating
      expenses as a result of a review of our business plan and
      operations.  These measures will be fully implemented by December
      2007.  Our total headcount will be reduced from 200 employees to 153
      employees by the end of 2007. In addition, we have identified and implemented
      other cost reduction measures, such as salary reductions for significant senior
      management and a number of other employees, strict oversight and reduction
      in
      discretionary travel, professional fees and other variable overhead expenses.
      We
      believe these reductions in operating costs significantly reduced our monthly
      operating expenses which will allow us to achieve profitability much
      sooner.  We expect to realize annual savings in operating expenses of
      approximately $2,200,000 as a result ofthese actions.





*Operating
      Activities*


Cash
      used in operating activities was
      $3,297,389 for the nine months of 2007 compared to cash used of $4,162,718
      for
      the same period in 2006. Operating cash flows in 2007 reflect our net loss
      of
      $9,147,243 which includes non-cash income and expenses and changes in working
      capital. During 2007, we experienced significant increases in our accounts
      payable and accrued expenses due to our liquidity constraints during this
      period.  Included in our net loss in 2007 are non-cash income items
      relating to the net change in the fair value of our derivative liabilities,
      gain
      on extinguishment of derivative liabilities, loss on the extinguishment of
      debt,
      preferred stock and creditor settlements, and the gain resulting from the sale
      of our CBC business unit totaling $9,387,272.  These amounts are
      partially offset by non-cash expenses (depreciation, amortization of intangible
      assets and debt issuance costs, stock-based compensation, impairment of goodwill
      and interest) totaling $12,676,110.





Operating
      cash flows for the nine months
      of 2006 reflect our net loss of $17,777,515, partially offset by non-cash
      expenses of $12,751,614 including $3,901,764 of stock-based compensation,
      $2,564,504 for the change in the fair value of derivative liabilities and
      $909,841 of amortization relating to debt issuance costs.





*Investing
      Activities*


Cash
      used in investing activities was
      $679,479 for the nine months of 2007 compared to $6,795,800 for the comparable
      period of 2006. During 2007, our capital expenditures were primarily comprised
      of purchases of video-on demand equipment provided to our
      customers.  Investing cash flows during the 2006 period reflect cash
      paid of $6,390,000 to acquire SVI and capital expenditures of
      $405,800.





*Financing
      Activities*


Cash
      generated by financing activities
      was $4,835,174 for the nine months of 2007 compared to $11,064,167 for the
      comparable period of 2006.  During 2007, we received $830,000 from the
      exercise of common stock warrants and issued $4,064,000 of debt
      instruments.  During the 2006 period, we issued $11,350,000 of notes
      payable primarily for our acquisition of SVI.





**Off
      Balance Sheet
      Arrangements**





As
      of September 30, 2007, we did not
      have any off-balance sheet arrangements as defined in Item 303(c)(2) of SEC
      Regulation S-B.





**Item
                3.**
            **Controls
                and
                Procedures**





We
      have reviewed the effectiveness of the design and operation of our disclosure
      controls and procedures and our internal controls over financial reporting
      during the year ended December 31, 2006, that have materially affected or are
      reasonably likely to materially affect such controls. Our certifying officers
      have disclosed, based on our most recent evaluation of the internal control
      over
      financial reporting, to our auditors and the audit committee of our board of
      directors (or persons performing the equivalent functions) all significant
      material weaknesses in the design or operation of internal control over
      financial reporting which are reasonably likely to adversely affect our ability
      to record, process, summarize and report financial information. Disclosure
      controls and procedures are controls and other procedures that are designed
      to
      ensure that information required to be disclosed in our reports filed or
      submitted under the Exchange Act are recorded, processed, summarized and
      reported, within the time periods specified in the SEC's rules and forms.
      Disclosure controls and procedures include, without limitation, controls and
      procedures designed to ensure that information required to be disclosed in
      our
      reports filed under the Exchange Act is accumulated and communicated to
      management, including our chief executive officer and chief financial officer
      (or persons performing the equivalent functions), to allow timely decisions
      regarding required disclosure.





In
      connection with its audit of the our
      consolidated financial statements for the year ended December 31,2006, McKennon,
      Wilson & Morgan LLP, our independent accountants, advised management of
      certain significant internal control deficiencies that they considered to be,
      in
      the aggregate, a material weakness, including, inadequate staffing and
      supervision; substantiation and evaluation of certain general ledger account
      balances including the lack of reconciliations and improper cut-offs; lack
      of
      procedures and/or expertise needed to prepare all required financial
      disclosures; and evidence that employees lack the qualifications and training
      to
      fulfill their assigned functions. McKennon, Wilson & Morgan LLP
      indicated that they considered these deficiencies to be a material weakness
      as
      that term is defined under standards established by the American Institute
      of
      Certified Public Accountants. A material weakness is a significant deficiency
      in
      one or more of the internal control components that alone or in the aggregate
      precludes our internal control from reducing to an appropriately low level
      the
      risk that material misstatements in our financial statements will not be
      prevented or detected on a timely basis. We considered these matters in
      connection with the year-end closing of accounts and preparation of financial
      statements as and for the year ended December 31, 2006, and determined that
      no
      prior period financial statements were materially affected by such
      matters.








21





We
      have been and are currently in
      process of remediation of the observations by McKennon Wilson &Morgan LLP.
      We recently completed the integration of the accounting functions and
      responsibilities incurred from the merger of nine companies within the last
      two
      years, including the reverse merger into a public company. Through the
      acquisition of SVI Hotel Corporation, we obtained an accounting department.
      In
      February 2007, we retained Brian Weiss, a principle with BSW & Associates,
      as our Interim Chief Financial Officer. Mr. Weiss has the requisite financial
      and accounting background to assist us with addressing our material weaknesses.
      He is working with our staff to address and remediate our deficiencies. During
      the second quarter of 2007, we successfully centralized our accounting function
      to ourPeoriafacility, utilizing our SVI accounting
      personnel.  We are continuing to implement additional policies,
      procedures, and controls to address the remaining outstanding
      issues.





Limitations
      on the Effectiveness of
      Internal Controls





Our
      management does not expect that our
      disclosure controls and procedures or our internal control over financial
      reporting will necessarily prevent all fraud and material error. Our disclosure
      controls and procedures are designed to provide reasonable assurance of
      achieving our objectives, and our Interim Chief Financial Officer concluded
      that
      our disclosure controls and procedures are effective at that reasonable
      assurance level. Further, the design of a control system must reflect the fact
      that there are resource constraints, and the benefits of controls must be
      considered relative to their costs. Because of the inherent limitations in
      all
      control systems, no evaluation of controls can provide absolute assurance that
      all control issues and instances of fraud, if any, within the Company have
      been
      detected. These inherent limitations include the realities that judgments in
      decision-making can be faulty, and that breakdowns can occur because of simple
      error or mistake. Additionally, controls can be circumvented by the individual
      acts of some persons, by collusion of two or more people, or by management
      override of the internal control.  The design of any system of
      controls also is based in part upon certain assumptions about the likelihood
      of
      future events, and there can be no assurance that any design will succeed in
      achieving its stated goals under all potential future conditions. Over time,
      control may become inadequate because of changes in conditions, or the degree
      of
      compliance with the policies or procedures may deteriorate.





**PART
      II - OTHER INFORMATION**





**Item
                1.**
            **Legal
                Proceedings**





We
      are not a party to any pending legal
      proceeding. We are not aware of any pending legal proceeding to which any of
      our
      officers, directors, or any beneficial holders of 5% or more of our voting
      securities are adverse to us or have a material interest adverse to us.





**Item
                2.**
            **Unregistered
                Sales of Equity
                Securities and Use of
                Proceeds**





The
      following is a list of equity
      securities that we issued during the reporting period that were not registered
      under the Securities Act:





None





**Item
                3.**
            **Defaults
                upon Senior
                Securities**





None





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





At
      the Company’s annual shareholders’
meeting held on August 27, 2007, the shareholders elected each of the director
      nominees, approved an amendment to the Articles of Incorporation to effect
      a
      1-for-30 reverse stock split of all outstanding shares of the Company’s common
      stock, approved an amendment to the Articles of Incorporation to increase the
      number of shares of common stock authorized for issuance from 100,000,000 to
      200,000,000, approved an amendment to the Articles of Incorporation to change
      the Company’s name to SVI Media, Inc., and confirmed the appointment of
      McKennon, Wilson & Morgan LLP as the Company’s independent certified public
      accountants for the fiscal year ended December 31, 2007.








22








Number
                of
                Shares1.
                To elect four directors to the
                Board of Directors to serve until the next annual meeting of shareholders
                or until their respective successors have been elected or
                appointed
            
            Voted
                For
            
            
            Withheld
            
            
            AbstainLewis
                Jaffe
            
            
            29,971,921
            
            
            
            10,957
            
            
            
            2,958David
                Malm
            
            
            29,960,588
            
            
            
            22,290
            
            
            
            2,958Rick
                Winston
            
            
            29,972,255
            
            
            
            10,623
            
            
            
            2,958Anthony
                Cantone
            
            
            29,972,255
            
            
            
            10,623
            
            
            
            2,958








Number
                of
                SharesVoted
                For
            
            
            Voted
                Against
            
            
            Abstain
            
            
            Broker
                Non-Votes2.
                To ratify selection of
                independent certified public accountants for the fiscal year ended
                December 31, 2007
            
            
            29,985,697
            
            
            
            124
            
            
            
            14
            
            
            
            03.
                To approve an amendment to the
                Articles of Incorporation to effect a 1-for-30 reverse stock split
                of all
                outstanding shares of the Company’s common stock
            
            
            29,970,869
            
            
            
            9,949
            
            
            
            5,017
            
            
            
            04.
                To approve an amendment to the
                Articles of Incorporation to increase the number of shares of common
                stock
                authorized for issuance from 100,000,000 to
                200,000,000
            
            
            29,970,240
            
            
            
            12,041
            
            
            
            3,554
            
            
            
            05.
                To approve an amendment to the
                Articles of Incorporation to change the Company’s name to SVI Media,
                Inc.
            
            
            29,973,815
            
            
            
            11,839
            
            
            
            181
            
            
            
            0








**Item
                5.**
            **Other
                Information**





None





**Item
                6.**
            **Exhibits**








**Exhibit
                Number**
            **Description
                of
                Exhibit**





31.1
            Certification
                of principal
                executive and principal financial officer pursuant to Exchange Act
                Rule
                13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley
                Act of
                2002.





32.1
            Certification
                of principal
                executive and principal financial officer pursuant toRule 13a-14(b) of the Exchange Act and 18 U.S.C. Section
                1350, as adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.








**SIGNATURES**





In
      accordance with the requirements of
      the Securities and Exchange Act of 1934, the Registrant has duly caused this
      report to be signed on its behalf by the undersigned, thereunto duly
      authorized.





**SVI
                Media,
                Inc.**Date:
            November
                19,
                2007By:
            /s/
                Brian
                WeissBrian
                WeissTitle:
            **Principal
                Executive Officer and
                Interim Chief Financial
                Officer**









23