**UNITED
      STATES****SECURITIES
      AND EXCHANGE COMMISSION****Washington,
      DC 20549****FORM
      10-QSB**x
    **QUARTERLY
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934****For
      the quarterly period ended March 31, 2005**OR ̈
    **TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934**Commission
      file number 000-26809**SMARTVIDEO
      TECHNOLOGIES, INC.**(Exact
      name of small business issuer as specified in its
  charter)
  **Delaware**
    
    **91-1962104**(State
      or other jurisdiction of incorporation)
    
    (IRS
      Employer Identification No.)
  **3505
      Koger Boulevard, Suite 400, Duluth, Georgia**
    **30096**(Address
      of principal executive offices)
    (Zip
      Code)
  **(770)
      279-3100**Issuer’s
      telephone number, including area code
  **1650
      Oakbrook Drive, Suite 405, Norcross Georgia**
    **30093**(Former
      address of principal executive offices)
    (Zip
      Code)
  Check
      whether the issuer (1) filed all reports required to be filed by Section
      13 or 15(d) of the Exchange Act 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.
      YesxNo ̈Transitional
      Small Business Disclosure Format: Yes ̈NoxThe
      total number of shares of the issuer’s common stock, $.001 par value,
      outstanding on May 12, 2005 was 25,999,179.
 
 
  
 **SMARTVIDEO
TECHNOLOGIES INC.**
   **Index
to Form 10-QSB**
  **PART
      I - FINANCIAL INFORMATION**Disclosure
      Regarding Forward-Looking Statements
    iiItem
      1.
    Financial
      StatementsHistorical
      Financial StatementsCondensed
      Consolidated Balance Sheet (Unaudited)
    1Condensed
      Consolidated Statements of Operations (Unaudited)
    2Condensed
      Consolidated Statements of Cash Flows (Unaudited)
    3Notes
      to Condensed Consolidated Financial Statements (Unaudited)
    4Item
      2.
    Management’s
      Discussion and Analysis or Plan of Operation
    13Item
      3.
    Controls
      and Procedures
    17**PART
      II - OTHER INFORMATION**Item
      1.
    Legal
      Proceedings
    18Item
      2.
    Unregistered
      Sales of EquitySecurities and Use of Proceeds
    18Item
      3.
    Defaults
      Upon Senior Securities
    19Item
      4.
    Submission
      of Matters to a Vote of Security Holders
    19Item
      5.
    Other
      Information
    19Item
      6.
    Exhibits
    19Signatures
    
    20
 - i
-
 **DISCLOSURE
REGARDING FORWARD-LOOKING STATEMENTS**
 
 We make
“forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995 throughout this document. Whenever you read a
statement that is not simply a statement of historical fact (such as when we
describe what we “believe,” “intend,” “plan,” “estimate,” “expect” or
“anticipate” will occur and other similar statements), you must remember that
our expectations may not turn out
to be correct, even though we believe they are reasonable. We do not guarantee
that any future transactions or events described herein will happen as described
or that they will happen at all. You should read this document completely and
with the understanding that actual future results may be materially different
from what we expect. You should not place undue reliance on these
forward-looking statements. Whether actual events or results will conform to our
expectations and predictions is subject to a number of risks and uncertainties.
These risks and uncertainties include, but are not limited to, the
following:
  ·
    significant
      uncertainty inherent in the mobile entertainment services
      industry;
 ·
    our
      ability to obtain future financing or funds when
needed;
 ·
    our
      ability to successfully obtain a diverse customer base;
 ·
    our
      ability to protect our intellectual property through patents, trademarks,
      copyrights and confidentiality agreements;
 ·
    our
      ability to respond to new developments in technology and new applications
      of existing technology before our competitors;
 ·
    our
      ability to develop, maintain and enhance our strategic relationships with
      wireless carriers, handset distributors, key streaming media technology
      companies and content providers; and
 ·
    our
      ability to design and execute a successful business
    strategy.
 
 This
document should be read in conjunction with our Annual Report on Form 10-KSB.
You should carefully consider carefully the statements under “Risk Factors” in
our Form 10-KSB, which address additional factors that could cause our actual
results to differ from those set forth in the forward-looking statements and
could materially and adversely affect our business, operating results and
financial condition. All subsequent written and oral forward-looking statements
attributable to us or persons acting on our behalf are expressly qualified in
their entirety by the applicable cautionary statements.
 
 All
cautionary statements made herein should be read as being applicable to all
forward-looking statements wherever they appear. In this connection, investors
should consider the risks described herein and should not place undue reliance
on any forward-looking statements.
 
 The
forward-looking statements speak only as of the date on which they are made,
and, except to the extent required by federal securities laws, we undertake no
obligation to update any forward-looking statement to reflect events or
circumstances after the date on which the statement is made or to reflect the
occurrence of unanticipated events. In addition, we cannot assess the impact of
each factor on our business or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from those contained in
any forward-looking statements.
 
 In this
document, the words “we,” “our” and “us” refer to SmartVideo Technologies, Inc.
and its subsidiary, unless the context otherwise requires.
  - ii
-
 ****
 **PART
I - FINANCIAL INFORMATION**
 
 **Item
1.**  **Financial
Information**
 
 **SMARTVIDEO
TECHNOLOGIES, INC.**
  **Condensed
Consolidated Balance Sheet**
  (Unaudited)
 
 **March
      31,****2005****ASSETS****CURRENT
      ASSETS**Cash
    
    $
    2,535,233Accounts
      receivable - net of allowance for doubtful accounts of
      $58,347
    
    
    3,502Prepaid
      expenses
    
    
    143,037***Total
      current assets***
    
    
    2,681,772**PROPERTY
      AND EQUIPMENT,**net of accumulated depreciation of $96,677
    
    
    773,846**OTHER
      ASSETS**
    
    
    60,000***TOTAL
      ASSETS***
    
    $
    3,515,618**LIABILITIES
      AND SHAREHOLDERS’ EQUITY****CURRENT
      LIABILITIES**Accounts
      payable and accrued expenses
    
    $
    1,479,177Private
      placement monies to be refunded
    
    
    64,500Due
      to related parties
    
    
    12,575Payable
      to related party
    
    
    53,311Due
      to advisor
    
    
    727,504Loan
      payable and related accrued interest
    
    
    57,719***Total
      current liabilities***
    
    
    2,394,786**Commitments
      and Contingencies****SHAREHOLDERS’
      EQUITY**Preferred
      stock, $.001 par value, 50,000,000 shares authorized, no sharesissued
      and outstanding as of March 31, 2005
    
    
    -Common
      stock, $.001 par value, 50,000,000 shares authorized, 25,999,179 shares
      issued and outstanding as of March 31, 2005
    
    
    25,999Additional
      paid-in capital
    
    
    20,809,156Non-cash,
      stock-based compensation attributable to future periods
    
    
    (5,282,283
    )Accumulated
      deficit
    
    
    (14,432,040
    )***Total
      shareholders’ equity***
    
    
    1,120,832***TOTAL
      LIABILITIES AND SHAREHOLDERS’ EQUITY***
    
    $
    3,515,618
 
 The
accompanying notes are an integral part of these statements.




1




**SMARTVIDEO
TECHNOLOGIES, INC.**




**Condensed
Consolidated Statements of Operations**




(Unaudited)





**For
      the Three Months Ended****March
      31,****2005**
    
    **2004****REVENUES**Revenue
    
    $
    25,132
    
    $
    31,696Revenue
      - related party
    
    
    -
    
    
    11,135***Total
      revenue***
    
    
    25,132
    
    
    42,831**EXPENSES**Compensation
      and benefits
    
    
    302,549
    
    
    232,518Consulting
      fees
    
    
    110,261
    
    
    152,161Data
      center
    
    
    128,402
    
    
    85,034Professional
      fees
    
    
    145,265
    
    
    53,756Selling,
      general and administrative
    
    
    857,399
    
    
    213,888Non-cash,
      stock-based compensation
    
    
    447,230
    
    
    -Depreciation
    
    
    24,364
    
    
    12,937***Total
      operating expenses***
    
    
    2,045,470
    
    
    750,294***Loss
      from operations***
    
    
    (2,020,338
    )
    
    (707,463
    )**OTHER
      EXPENSES**Interest
      expense
    
    
    (198,220
    )
    
    (73,690
    )**NET
      LOSS**
    
    $
    (2,218,558
    )
    $
    (781,153
    )**LOSS
      PER SHARE**Basic
      and diluted net loss per share
    
    $
    (0.09
    )
    $
    (0.08
    )Weighted
      average common shares used to computebasic
      and diluted net loss per share
    
    
    24,236,381
    
    
    10,084,446








The accompanying notes are an integral part of these
statements.





2


****


**SMARTVIDEO
TECHNOLOGIES, INC.**




**Condensed
Consolidated Statements of Cash Flows**




(Unaudited)


**For
      the Three Months Ended****March
      31,****2005**
    
    **2004****CASH
      FLOWS FROM OPERATING ACTIVITES**Net
      loss
    
    $
    (2,218,558
    )
    $
    (781,153
    )Adjustments
      to reconcile net loss to net cash used inoperating
      activities:Non-cash,
      stock-based compensation
    
    
    447,230
    
    
    -Valuation
      adjustment related to non-cash compensation due to advisor
    
    
    (79,970
    )
    
    -Additional
      consideration related to rights of convertible promissory
      notes
    
    
    197,500
    
    
    -Depreciation
    
    
    24,364
    
    
    12,937Bad
      debt expense
    
    
    14,027
    
    
    -Increase
      (decrease) in cash resulting from changes in:Accounts
      receivable
    
    
    (16,529
    )
    
    (17,550
    )Prepaid
      expenses
    
    
    (52,350
    )
    
    -Other
      assets
    
    
    (50,000
    )
    
    -Accrued
      interest on notes payable
    
    
    716
    
    
    70,094Investor
      returns
    
    
    (50,000
    )
    
    -Accounts
      payable and accrued expenses
    
    
    739,274
    
    
    219,518Net
      cash used in operating activities
    
    
    (1,014,296
    )
    
    (496,154
    )**CASH
      FLOWS FROM INVESTING ACTIVITES**Capital
      expenditures
    
    
    (567,938
    )
    
    (28,457
    )Net
      cash used in investing activities
    
    
    (567,938
    )
    
    (28,457
    )**CASH
      FLOWS FROM FINANCING ACTIVITES**Proceeds
      from the issuance of common stock
    
    
    3,729,875
    
    
    261,000Payments
      to related parties
    
    
    -
    
    
    (20,000
    )Net
      cash provided by financing activities
    
    
    3,729,875
    
    
    241,000**NET
      INCREASE (DECREASE) IN CASH**
    
    
    2,147,641
    
    
    (283,611
    )**CASH**,
      beginning of period
    
    
    387,592
    
    
    297,998**CASH**,
      end of period
    
    $
    2,535,233
    
    $
    14,387

The accompanying notes are an integral part of these statements.


3


**SMARTVIDEO
TECHNOLOGIES, INC.**


**NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


(Unaudited)





**Note
1 - Organization** ****





SmartVideo
Technologies, Inc. (“SmartVideo” or “the Company”) has developed a video
compression and processing technology enabling the delivery of Internet
multimedia broadcast content.





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





*Basis
of Presentation*




The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States (“GAAP”) and with the instructions to Form 10-QSB for interim
financial information. Accordingly, these statements do not include all of the
information and notes required for complete financial statements. In the
Company’s opinion, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. Certain prior
year amounts have been reclassified to conform to the current year presentation.
Operating results for the three months ended March 31, 2005 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2005. For further information, refer to the consolidated
financial statements and notes thereto included in the Company’s Annual Report
on Form 10-KSB for the year ended December 31, 2004 (“2004 10-KSB”).





*Cash*




The
Company minimizes its credit risk associated with cash by periodically
evaluating the credit quality of its primary financial institution. The balance
at times may exceed federally insured limits. At December 31, 2004, the balance
exceeded the federally insured limit by $2,424,866.





*Property
and Equipment*




Property
and equipment consisting primarily of computer equipment is stated at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, which is generally three years. Depreciation expense
was $24,364 and $12,937 for the three month periods ended March 31, 2005 and
2004, respectively.





Property
and equipment consist of the following:





******March
      31,********2005**Computer
      equipment
    
    $
    791,023Proprietary
      software development
    
    
    79,500870,523Less
      accumulated depreciation
    
    
    (96,677
    )Property
      and equipment , net
    
    $
    773,846





4


****


**SMARTVIDEO
TECHNOLOGIES, INC.**


**NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)**


(Unaudited)





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





*Product
Concentration*




Historically,
the Company derived a substantial portion of its revenues from one product and
related services, Internet multimedia broadcasting. The Company does not expect
this trend to continue.





SmartVideo
recently launched a direct-to-the-consumer mobile video service and is
attempting to develop a broad and diverse subscriber base.





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





*Going
Concern*




The
Company has incurred recurring losses and negative cash flows since inception.
As of and for the three months ended March 31, 2005, it had an accumulated
deficit of approximately $14,432,000 and a loss from operations of approximately
$2,020,000. These matters raise substantial doubt about its ability to continue
as a going concern. The ability of the Company to continue its operations is
contingent upon obtaining additional financing and attaining profitable
operations.


Proceeds
received from the March 2005 private placement will be used for the
acquisition of programming rights, marketing and sales
initiatives, and further
improvements to the
Company’s technology , as well
as increase staffing levels to support these marketing and technology
efforts , all of which
will adversely affect operating results until revenues from sales of the
Company’s services reach a level at which operating costs can be
supported . In the
Company’s efforts to strengthen its marketing and sales initiatives of the
distribution of its services, it is critical that the Company obtain
distribution partners in order to begin generating revenues .





The
Company does not expect to generate cash flows from operating activities during
2005 sufficient to offset its operating expenditures. The Company’s operations
to date have been financed primarily through sales of its securities. The
Company anticipates, based on its currently proposed plans and assumptions
relating to operations, that the net proceeds from its recent financings,
together with projected cash flow from operations, will not be sufficient to
meet the Company’s cash requirements for working capital and capital
expenditures through December 31, 2005. As a result, it will be necessary for
the Company to secure additional financing to support its operations. There can
be no assurance that the Company will be able to obtain such financing on
acceptable terms, or at all. If adequate funds are not available or not
available on acceptable terms, the Company will be unable to continue as a going
concern. The Company currently has no commitments for any additional capital.




*Earnings
Per Share*
  Common
shares equivalents consist of shares issuable upon the exercise of certain stock
warrants and stock options. The Company has excluded these common share
equivalents from its computation of earnings per share due to their antidilutive
effect.


5





**SMARTVIDEO
TECHNOLOGIES, INC.**


**NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)**


(Unaudited)





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


*Stock-based
Compensation*
  The
Company accounts for stock options issued to employees in accordance with the
provisions of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting
for Stock Issued to Employees,” and related interpretations.  As such,
compensation cost is measured on the date of grant as the excess of the current
market price of the underlying stock over the exercise price.  Such
compensation amounts, if any, are amortized over the respective vesting periods
of the option grant.  The Company adopted the disclosure provisions of SFAS
No. 123, “Accounting for Stock-Based Compensation” and SFAS 148, “Accounting for
Stock-Based Compensation -Transition and Disclosure”, which permits entities to
provide pro forma net income (loss) and pro forma earnings (loss) per share
disclosures for employee stock option grants as if the fair-valued based method
defined in SFAS No. 123 had been applied.  The Company accounts for stock
options and stock issued to non-employees for goods or services in accordance
with the fair value method of SFAS 123.


*Use
of Estimates*




The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Significant estimates made by management
include the provision for doubtful accounts receivable and accrued expenses.
While the Company believes that such estimates are fair when considered in
conjunction with the consolidated financial position and results of operations
as a whole, the actual amounts of these estimates, when known, will often vary
from these estimates.





*Recent
Accounting Pronouncements*




In
December 2004, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 (Revised 2004), “Share Based
Payment” (“SFAS 123R”) which (i) revises SFAS No. 123, “Accounting for
Stock-Based Compensation,” (“SFAS 123”) to eliminate the disclosure only
provisions of that statement and the alternative to follow the intrinsic value
method of accounting under Accounting Principles Board Opinion No. 25,
“Accounting for Stock Issued to Employees” (“APB 25”) and its related
implementation guidance, and (ii) requires a public entity to measure the
cost of employee services received in exchange for an award of equity
instruments, including grants of employee stock options, based on the grant-date
fair value of the award and recognize that cost in its results of operations
over the period during which an employee is required to provide the requisite
service in exchange for that award. On April 14, 2005, the U.S. Securities
and Exchange Commission adopted a new rule amending the compliance dates for FAS
123R. In accordance with the new rule, the accounting provisions of FAS 123R
will be effective for the Company in fiscal 2006. Companies may elect to apply
this statement either prospectively, or on a modified version of retrospective
application under which financial statements for prior periods are adjusted on a
basis consistent with the pro forma disclosures required for those periods under
SFAS 123. The Company is currently evaluating which transitional provision and
fair value methodology it will follow. The Company expects that any expense
associated with the adoption of the provisions of SFAS 123R will have a material
negative impact on our results of operations.




**Note** **3
- Due to Advisor**





Under the
terms of an advisory agreement with one of the Company’s consultants, the
Company has recorded a liability for a cash component of approximately $34,000
and unissued, non-cash, stock-based compensation due and outstanding in the
approximate amount of $693,000 as of March 31, 2005. The estimated non-cash,
stock-based compensation due to the advisor has been computed using a
Black-Scholes fair value method.
6


**SMARTVIDEO
TECHNOLOGIES, INC.**
**NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)**
**(Unaudited)**

**Note
4 - Shareholders’ Equity**

The
authorized capital stock of the Company consists of 50,000,000 shares of $.001
par value common stock and 50,000,000 shares of $.001 par value preferred stock,
in one or more series as determined by the Board of Directors. Prior to its
conversion in March 2004, each share of preferred stock was entitled to the same
voting preferences as the Company’s common stock.

On May 1,
2004, the Board of Directors granted options for an aggregate of 750,000 shares
of common stock under the 2004 Equity Incentive Plan. These stock options were
awarded to five members of our outside Advisory Committee, Herman Rush, Joseph
Indelli, Peter Sealey, James Rosenfield, and Frederick Pierce, with have an
exercise price of $3.50 per share. For the three months ended March 31, 2005,
the Company has recorded $209,925 in non-cash, stock-based compensation expense
and $1,609,425 in non-cash, stock-based compensation attributable to future
periods related to these awards. The current and deferred portions of the
compensation have been determined using the Black-Scholes fair value method.

On
September 1, 2004, the Company issued an incentive stock option award to Darren
Breitkreuz, a former director, in the amount of 500,000 options. These options
were previously authorized by the Board of Directors subject to shareholder
approval of the 2004 Equity Incentive Plan. These options have an exercise price
of $1.00 per share. The closing share price on the date preceding this award was
$2.07. For the three months ended March 31, 2005, the Company has recorded
$24,688 in non-cash, stock-based compensation expense and $345,625 in non-cash,
stock-based compensation attributable to future periods related to this award.
The current and deferred portions of the compensation have been determined using
the Black-Scholes fair value method.

Effective
March 1, 2005, the Company entered into a consulting agreement with Forte
Capital Partners, LLC, whose designee is Michael P. Walsh, to serve as our Chief
Financial Officer. The term of the consulting agreement is for a period of six
months and provides for a monthly salary of $7,500 plus reimbursement of all
reasonable travel and other out-of-pocket expenses incurred in performing the
consulting services. The consulting agreement also provides for a warrant to
purchase 150,000 shares of common stock at an exercise price of $3.50 per share.
The warrant includes certain cashless exercise provisions and piggyback
registration rights. Either party may terminate the agreement with or without
reason. If the Company terminates the agreement without cause, the Company would
be obligated to pay all amounts then owed, as well as liquidated damages equal
to the monthly salary for the remainder of the term. For the three months ended
March 31, 2005, the Company has recorded $47,825 in non-cash, stock-based
compensation expense and $239,125 in non-cash, stock-based compensation
attributable to future periods related to this award. The current and deferred
portions of the compensation have been determined using the Black-Scholes fair
value method.

Effective
March 1, 2005, the Company entered into a consulting agreement with Trilogy
Capital Partners, Inc. for the development and implementation of a marketing
program. The term of the consulting agreement is for a period of one year and
provides for a monthly fee of $10,000 plus reimbursement of all reasonable
travel and other out-of-pocket expenses incurred in performing the consulting
services. The consulting agreement also provides for warrants to purchase an
aggregate of 1,250,000 shares of common stock at exercise prices ranging from
$4.30 to $6.50 per share. The warrants include certain cashless exercise
provisions and piggyback registration rights. Either party may terminate the
agreement with or without reason. If the Company terminates the agreement prior
to February 1, 2006, the Company would be obligated to pay a severance fee of
$30,000. For the three months ended March 31, 2005, the Company has recorded
$194,792 in non-cash, stock-based compensation expense and $2,142,708 in
non-cash, stock-based compensation attributable to future periods related to the
issuance of these warrants. The current and deferred portions of the
compensation have been determined using the Black-Scholes fair value
method.
****
7
****
**SMARTVIDEO
TECHNOLOGIES, INC.**
**NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)**
(Unaudited)

**Note****4
- Shareholders’ Equity (continued)**

During
March 2005, the Company reached an agreement with two shareholders who were
originally holders of the Company’s 10% Convertible Promissory Notes. Under the
terms of the agreement, the shareholders were issued a total of 50,000 shares as
additional consideration related to rights associated with such promissory
notes.

On March
29, 2005, the Company completed a private placement in which we issued 1,761,345
shares of common stock at $2.25 per share and warrants to purchase up to an
additional 880,675 shares of common stock at an exercise price of $3.50 per
share, resulting in gross proceeds of approximately $3,963,000. The warrants
have a five-year term. In connection with this private placement, the Company
paid a finder’s fee of $233,125 in cash and issued warrants to purchase up to
139,000 shares of common stock at $2.25 per share to Forte Capital Partners,
LLC, the placement agent in the transaction. Further, the placement agent has
agreed to purchase an additional $740,000 of the securities issued in the
transaction, consisting of 328,889 shares of common stock and warrants to
purchase up to an additional 164,445 shares of common stock at a purchase price
of $3.50 per share, no fewer than three days prior to the registration statement
going effective, or in the case that the registration does not go effective, by
November 1, 2005. The Company has agreed to file a registration statement with
respect to the securities issued in this March 2005 private placement. These
securities have been issued as restricted shares to an aggregate of 28
accredited investors in a private placement exempt from registration.

**Note****5
- Stock Plans**

***2004
Equity Incentive Plan***

The Board
of Directors of the Company adopted the 2004 Stock Incentive Plan (“2004 Plan”)
effective January 1, 2004, to provide incentives to attract and retain officers,
directors, and key employees. The 2004 Plan allows for the issuance of up to
5,000,000 shares of common stock. This Plan was approved by the shareholders at
the annual meeting held on August 31, 2004. There are 2,445,000 options granted
and outstanding under this plan. The exercise prices of the options granted
under this plan range between $1.00 and $3.50 with a weighted average exercise
price of $2.19. All of the stock options granted from the adoption of the 2004
Plan through March 31, 2005 are outstanding as of March 31, 2005. There were no
exercises or forfeitures during the three months ended March 31, 2005. The
weighted average remaining contractual life of the options granted and
outstanding under this plan is 8.00 years. As of March 31, 2005, there were
327,500 options exercisable, but unexercised. In general, stock options granted
through March 31, 2005 have included exercise prices not less than the fair
market value of our common stock at the date of grant, and vest, as determined
by the Company’s Board of Directors.

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

SmartVideo
reports all non-cash, stock-based compensation to non-statutory employees as a
single expense category in the accompanying consolidated statements of
operations. During the three months ended March 31, 2005, the Company recorded
approximately $477,000 in non-cash stock-based compensation to non-statutory
employees.

*Accounting
for Stock-Based Compensation*

The
Company accounts for stock options issued to employees in accordance with the
provisions of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting
for Stock Issued to Employees,” and8**SMARTVIDEO
TECHNOLOGIES, INC.**
**NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)**
(Unaudited)

**Note****5
- Stock Plans (continued)**

*Accounting
for Stock-Based Compensation (continued)*

related
interpretations.  As such, compensation cost is measured on the date of
grant as the excess of the current market price of the underlying stock over the
exercise price.  Such compensation amounts, if any, are amortized over the
respective vesting periods of the option grant.  The Company adopted the
disclosure provisions of SFAS No. 123, “Accounting for Stock-Based Compensation”
and SFAS 148, “Accounting for Stock-Based Compensation -Transition and
Disclosure”, which permits entities to provide pro forma net income (loss) and
pro forma earnings (loss) per share disclosures for employee stock option grants
as if the fair-valued based method defined in SFAS No. 123 had been
applied.  The Company accounts for stock options and stock issued to
non-employees for goods or services in accordance with the fair value method of
SFAS 123.

Pro forma
information regarding net income and earnings per share is required by SFAS 123
and has been determined as if the Company had accounted for its stock-based
compensation plans using the fair value method prescribed by that statement. For
purposes of pro forma disclosures, the estimated fair value of the options is
amortized to expense over the options’ vesting period on a straight-line basis.
All options are initially assumed to vest. Compensation previously recognized is
reversed to the extent applicable to forfeitures of unvested options. The
following table illustrates the effect on the net loss per share if the Company
had accounted for its stock-based compensation plans using the fair value
method:

**March
      31,****2005**
    
    **2004**Net
      loss to common shareholders, as reported
    
    $
    (2,218,558
    )
    $
    (781,153
    )Add:
      Stock-based employee compensation expense included in reported net loss,
      net of related tax effects
    
    
    -
    
    
    -Deduct:
      Total stock-based employee compensation expense determined under fair
      value based method for all awards, net of related tax
    effects
    
    
    (78,353
    )
    
    -Pro
      forma net loss to common shareholders
    
    $
    (2,296,911
    )
    $
    (781,153
    )Basic
      and diluted net loss per share, as reported
    
    $
    (0.09
    )
    $
    (0.08
    )Pro
      forma basic and diluted net loss per share
    
    $
    (0.09
    )
    $
    (0.08
    )

For
purposes of this pro forma presentation, the fair value of each option grant was
estimated at the date of the grant using a Black-Scholes option pricing model
with the following weighted average assumptions: the risk-free interest rate was
2.50%, the volatility factor was 115.96%, the estimated average life term was
3.25 years, and the weighted average fair value of the options granted was
$2.19.

The
Company’s wholly owned subsidiary had issued under its stock incentive plan
approximately 1,565,500 options which were still outstanding at March 31, 2005.
These options have exercise prices ranging from $0.06 to $0.50 per option. Such
options were granted between October 2000 and April 2002. Under the terms of the
stock incentive plan, all of these options have expired.9**SMARTVIDEO
TECHNOLOGIES, INC.**
**NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

(Unaudited)

**Note
6 - Promissory Notes**

Concurrent
with the merger between Armagh and OVT, the Company agreed to assume a $50,000
loan payable to a third party. The loan bears interest at 5% and is payable on
demand. The accrued interest on the loan payable was approximately $7,719 as of
March 31, 2005.

The
Company had a $325,000 note payable to an entity owned by the spouse of a
shareholder, bearing interest at 8%. The principal due under the terms of this
note payable, including accrued interest, was paid in full on December 31, 2004.
However, we have received notice of additional late charges in the amount of
$53,311 associated with this note payable that may be due but are in dispute as
March 31, 2005.

**Note****7
- Related Party Transactions**

The
Company had a $325,000 note payable to an entity owned by the spouse of a
shareholder, bearing interest at 8%. The principal due under the terms of this
note payable, including accrued interest, was paid in full on December 31, 2004.
However, we have received notice of additional late charges in the amount of
$53,311 associated with this note payable that may be due but are in dispute as
March 31, 2005.

The
Company had advances from holders of preferred shares amounting to $12,575 at
December 31, 2003. These advances are payable on demand and do not bear
interest.

Until
October 2002, the Company was provided the use of office facilities from a
related entity, owned by the spouse of Robert J. Walters (a holder of more than
10% of our common stock), at no cost. In October 2002, an agreement was reached
with this related entity to charge the Company rent for its share of the office
facilities and common expenses. This lease expires on August 31, 2005.

During
2004 and 2005, a related entity, owned by the spouse of Robert J. Walters (a
holder of more than 10% of our common stock), used the Company’s products and
services. Revenues generated from this arrangement during 2004 and 2005 amounted
to approximately $45,000, all of which was receivable at March 31, 2005. These
amounts have been reserved in full pending the resolution of the dispute
regarding the late charges associated with the note payable as discussed
earlier.

**Note****8
- Commitments and Contingencies**

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

On or
about April 6, 2004, Rene Hamouth filed a Writ of Summons in the Supreme Court
of British Columbia (Case No. SO41955) against the Company, the Chief Executive
Officer and sole director, Richard E. Bennett, Jr. and the Company’s securities
counsel, Edwards & Angell, LLP, seeking an unspecified amount of damages and
costs for alleged libel of Mr. Hamouth resulting from two letters to his
stockbroker, First Associates Investments, Inc. The Company and the other
defendants have made an appearance in the court through respective legal
counsel. On June 29, 2004, Mr. Hamouth filed an Amended Statement of Claim with
the court. On November 19, 2004, the Court of Appeal for British Columbia
granted Edwards & Angell, LLP the right to appeal a chambers judge's
decision that the alleged libelous correspondence in question is covered by
absolute privilege and granted a stay of the proceeding pending the outcome of
the appeal. The appeal was heard in February 2005.On March
30, 2005, the court granted the appeal and dismissed the claim against Edwards
& Angell, LLP. Since the court's entry10**SMARTVIDEO
TECHNOLOGIES, INC.**
**NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

(Unaudited)

Note 8 -
Commitments and Contingencies (continued)

of
judgment in the appeal, Mr. Hamouth has taken no further steps in his claims
against the Company or Mr. Bennett. The Companyintends
to vigorously defend any claims made by Mr. Hamouth.should
further action be taken by him in this dispute.

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

On or
about June 30, 2004, Rene Hamouth filed a stockholder derivative action on
behalf of the Company, as a nominal defendant, against Richard E. Bennett, Jr.,
Robert J. Walters and William R. Dunavant in the United States District Court
for the Northern District of Georgia, Atlanta Division, Civil Action File No.
1:04-CV-1921-TWT. In his complaint, Mr. Hamouth alleged that Messrs. Bennett,
Walters and Dunavant failed to forfeit three million shares of the Company’s
Series A Convertible Preferred Stock in breach of a Stock Exchange Agreement
dated November 9, 2002, among the Company and Messrs. Bennett, Walters and
Dunavant. Mr. Hamouth alleged that the Preferred Stock was required to be
forfeited if the Company did not have pre-tax earnings of at least $220,000 for
the fiscal year ended September 30, 2003. On January 21, 2005, Mr. Hamouth filed
his Consent Motion to Dismiss without Prejudice. On February 8, 2005, the Court
granted Mr. Hamouth's Consent Motion to Dismiss without Prejudice and dismissed
the case without prejudice.

On July
5, 2004, the Company entered into a distribution agreement with Open Systems
Solution, Ltd. Certain issues arose regarding the terms of the agreement and the
parties have mutually agreed to terminate the contract. The parties are
currently engaged in the process of ending the relationship pursuant to the
terms and conditions of a settlement agreement which is anticipated to provide
for a release of all actual or potential claims against the Company, its
officers and its directors.

On
November 15, 2004, the Company, its subsidiary, OVT, Inc., Robert J. Walters,
Richard E. Bennett, Jr. and William R. Dunavant filed suit against Balboni Law
Group, LLC, Gerardo M. Balboni, II, and Baker Donelson, Bearman, Caldwell &
Berkowtiz, PC, in the State Court of Fulton County, Georgia, Civil Action File
No. 04V50744704. The suit alleges breach of contract, negligence and breach of
fiduciary duty relating to the legal services provided by the defendants to the
plaintiffs. The suit alleges that the defendants committed legal malpractice and
breached their fiduciary duties to the plaintiffs in drafting, advising, and
negotiating legal documents for the plaintiffs, including the Stock Exchange
Agreement, dated November 19, 2002, among and between Armagh Group, Inc., OVT,
Inc., Richard E. Bennett, Jr., Robert J. Walters, and William R. Dunavant. The
suit also alleges certain conflicts of interests resulting from the defendants'
representation of others, including the Armagh Group, Inc. and Rene Hamouth. In
the suit, the plaintiffs seek damages in an excess of $6,000,000. Pursuant to
extensions provided by the plaintiffs, an answer to the suit has not yet been
filed by the defendants. The parties are currently discussing the use of
alternative dispute resolution procedures to resolve the suit, including
mediation.11**SMARTVIDEO
TECHNOLOGIES, INC.**
**NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

(Unaudited)

**Note****8
- Commitments and Contingencies (continued)**

On March
9, 2005, SmartVideo Europe, Ltd., or SVEL, which is not an affiliate of the
Company, announced its intention to bring legal action in the form of a
mediation/arbitration against the Company in regard to its alleged repudiation
and breach of a distribution agreement between the parties, dated April 2, 2004,
which involved certain rights to distribute certain of its products. The dispute
includes claims of SVEL that the Company had anticipatorily breached its
agreement with SVEL, thus allegedly inhibiting the development of SVEL's
business utilizing its technology on an exclusive basis throughout 25 countries
throughout the European Union. The Company contends that it had the right to
terminate the agreement because of breaches by SVEL. The Company believes that
the claim is wholly without merit and intends to defend the claim vigorously, if
a legal action is ever instituted.

On March
31, 2005, Mr. Richard Seifert and KC Adventures, Inc. filed with the American
Arbitration Association in Atlanta, Georgia, certain claims against the Company
and its wholly-owned subsidiary, OVT, Inc. The arbitration case number is
30-181-559-05. The Statement of Claim filed by the claimants against the Company
and OVT, Inc. asserts causes of action for breach of contract, breach of
fiduciary duty, unjust enrichment, violation of Pennsylvania's Commissioned
Sales Representative Act, accounting and declaratory judgment. The claims are
based upon a Representation Agreement, dated February 6, 2003, between KC
Ventures Group and OVT, Inc. and the Advisory Agreement dated February 19, 2003,
between OVT, Inc. and KC Ventures. One or both claimants contend that they have
earned or will earn compensation under the Representation Agreement in excess of
$10,000,000 for providing customers and content to the Company and OVT, Inc.
Further, one or both claimants also contend that they have earned fees under the
Advisory Agreement in excess of $1,000,000 and certain stock options as a result
of capital raised for the Company. The Company intends to vigorously defend
against these claims.

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

**Note****9
- Subsequent Events**

In May
2005, the Company received approval from the Landlord to assume a sublease for
approximately 25,000 square feet of office space in Duluth, Georgia. This office
space currently serves as the Company’s corporate headquarters. This sublease
calls for monthly rental payments of approximately $23,000 and terminates on
August 31, 2007. The Company will continue to pay $8,000 per month on our old
office space, through August 2005, when that lease terminates.

12


****


**Item
2. Management’s Discussion and Analysis or Plan of
Operation**





*The
discussion in this report contains forward-looking statements that involve risks
and uncertainties. SmartVideo’s actual results could differ materially from
those discussed below. Factors that could cause or contribute to such
differences include, but are not limited to, those identified below. You should
also carefully review the risk factors set forth in other reports or documents
that SmartVideo files from time to time with the United States Securities and
Exchange Commission, particularly our Annual Reports on Form 10-KSB, other
Quarterly Reports on Form 10-QSB and any Current Reports on Form 8-K. You
should also read the following discussion and analysis in conjunction with our
condensed consolidated financial statements and related notes to condensed
consolidated financial statements included in this report.*





***Overview***




We
are a
provider of mobile entertainment services. We were incorporated in 2000. We are
in the business of purchasing the rights to video/television content for the
mobile handset market and delivering the video content to mobile subscribers for
a monthly fee. Additionally, we anticipate being in the business of providing
managed services for network operators (carriers) and for major content
owners/distributors. We intend to expand our market opportunity by ultimately
delivering video services to all forms of devices capable of receiving an
Internet Protocol, or IP, data stream and having this data stream rendered into
visible images on displays.




We
specialize in the delivery of high-quality digital media solutions to the
narrowband market space and provide a resource savings for delivery of digital
media to the broadband market. In April 2004, we showcased our cellular
solutions at the National Association of Broadcasters (NAB) trade show in Las
Vegas and demonstrated our unique ability to deliver high-quality video to
cellular/mobile phones at an average frame rate of 15-24 fps (frames per
second). The 2004 NAB show established foundational credibility that enabled us
to pursue the content rights necessary to develop a service. We anticipate that
through the acquisition of these content delivery rights, we will be able to
acquire a large base of customers, network operators and content owners who will
use our services to deliver both free and paid content to mobile subscribers
around the world. Our immediate strategy is to grow and leverage our
technological advantage to excel in the emerging market for premium digital
video content for today's mobile customers. Our mobile solutions are available
using today's 2.5G or 3G cellular data networks and today’s
Wi-Fi networks.





***Critical
Accounting Policies and Estimates***




Our
discussion and analysis of financial condition and results of operations are
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent liabilities. We base these
estimates on our historical experience and on various other assumptions that we
believe to be reasonable under the circumstances, and these estimates form the
basis for our judgments concerning the carrying values of assets and liabilities
that are not readily apparent from other sources. We periodically evaluate these
estimates and judgments based on available information and experience. Actual
results will differ from our estimates under different assumptions and
conditions. If actual results significantly differ from our estimates, our
financial condition and results of operations could be materially
impacted.




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




13


**


*Revenue
Recognition*




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




We
typically provide services to our customers under volume-based usage
arrangements of our digital media and multimedia broadcast products and
services. Under certain arrangements, our customers are subject to a base
monthly fee or minimum monthly usage requirements in order to maintain their
negotiated rates. From time to time, we lease hardware to our customers enabling
them to facilitate a live broadcast. In certain situations, we may sell hardware
to our resellers under the specific terms of our agreements with
them.




Revenue
is recognized as earned upon the delivery of service to our customers. This is
typically when a digital media or multimedia broadcast is viewed or in the case
of hardware, when it is delivered.




*Software
Development Costs*




Statement
of Financial Accounting Standards (“SFAS”) No. 86, Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed, requires certain
development costs to be capitalized upon the establishment of technological
feasibility. The establishment of technological feasibility and the ongoing
assessment of the recoverability of such costs require considerable judgment by
management with respect to certain external factors such as anticipated revenue,
estimated economic life, and changes in software and hardware technologies.
Software development costs incurred beyond the establishment of technological
feasibility have not been significant.





*Accounting
for Stock-Based Compensation*





We
account for stock options issued to employees in accordance with the provisions
of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock
Issued to Employees,” and related interpretations.  As such, compensation
cost is measured on the date of grant as the excess of the current market price
of the underlying stock over the exercise price.  Such compensation
amounts, if any, are amortized over the respective vesting periods of the option
grant.  We have adopted the disclosure provisions of SFAS No. 123,
“Accounting for Stock-Based Compensation” and SFAS 148, “Accounting for
Stock-Based Compensation -Transition and Disclosure”, which permits entities to
provide pro forma net income (loss) and pro forma earnings (loss) per share
disclosures for employee stock option grants as if the fair-valued based method
defined in SFAS No. 123 had been applied.  We account for stock options and
stock issued to non-employees for goods or services in accordance with the fair
value method of SFAS 123.


******


***Results
of Operations***




*Quarterly
Period Ended March 31, 2005 compared to 2004*





Revenues




Revenues
for the quarterly period ended March 31, 2004 consisted typically of license
fees from volume-based usage arrangements of our digital media and multimedia
broadcast products and services, and under certain circumstances, our customers
are subject to a base monthly fee or minimum monthly usage requirements in order
to maintain their negotiated rates. Revenues for the quarterly period ended
March 31, 2005 consisted primarily of a subscription based service delivering
live and on-demand mobile entertainment services directly to consumers. Our
revenues decreased by approximately $18,000 when compared to the same period in
2004. This decrease is primarily attributable to our decision to change our
focus to a subscription based model delivering mobile entertainment services
direct to the consumer.





14





Compensation
and benefits




Our
compensation and benefits expenses increased by approximately $70,000 for the
quarterly period ended March 31, 2005 as compared to the same period in 2004. As
our industry continues to develop, we are continuing to fill key positions that
will enable us to leverage our future prospects and growth and relying less on
the use of consultants for discrete projects.





Consulting
fees




Our
consulting fees have decreased by approximately $42,000 for the quarterly period
ended March 31, 2005 when compared to the same period in 2004. This decrease is
primarily due to our ability to fill key positions with full-time employees
instead of continuing to utilize outside consultants.





Data
Center




Our data
center expenses consist primarily of those items related to the maintenance of
certain facilities and equipment at a third-party data center. The increase in
data center expenses of approximately $43,000 for the quarterly period ended
March 31, 2005 when compared to 2004 is primarily due to an increase in the
utilization of bandwidth and additional services provided by our third-party
data center.





Professional
Fees




Our
professional fees increased approximately $92,000 for the quarterly period ended
March 31, 2005 when compared to the same period in 2004. This increase is
primarily attributable to additional professional fees incurred that were
associated with our recent financing.





Selling,
General and Administrative Expenses




Selling,
general and administrative expenses consist primarily of travel expenses related
to the marketing of our product and services, lease payments related to the use
of our corporate facilities, trade shows, and other general and administrative
expenses. The increase in selling, general and administrative expenses in 2005
of approximately $644,000 when compared to 2004 is primarily due costs
associated with our participation in numerous trade shows and the extra costs
attributable to our decision to develop a prominent presence in each of these
events. Our focus is to create a presence in each of these events designed to
extend and enhance the awareness of our brand, products and services to
potential partners, distributors, and content owners. We have also incurred
additional travel related and marketing costs associated with specialized
consultants we have hired to assist us in this process.





Non-cash,
Stock-based Compensation





In March
2005, as part of a financial consulting arrangement and a marketing consulting
arrangement, we issued a total of 1,400,000 warrants to purchase our common
stock. These warrants are exerciseable at prices ranging from $3.50 to $6.50.
For the three months ended March 31, 2005, we have recorded $242,617 in
non-cash, stock-based compensation expense and $2,381,833 in non-cash,
stock-based compensation attributable to future periods related to the issuance
of these warrants. The current and deferred portions of the compensation have
been determined using the Black-Scholes fair value method. The remainder of the
non-cash, stock-based compensation is related to the amortization of the
deferred portion of previous stock option grants.


Interest
Expense




Interest
expense for the quarterly period ended March 31, 2005 was approximately
$198,000. Of this amount, $197,500 was attributable to the issuance of
additional shares of common stock as additional consideration related to the
rights of certain convertible debt holders.





15


**


*Liquidity
and Capital Resources*




To date,
we have generated only minimal revenues. As a result, our operations are not an
adequate source of cash to fund future operations. To fund our cash
requirements, we have relied on private placements and loans from shareholders
and other related entities.




It is
anticipated that we will need to raise at least $4,200,000 over the course of
the next twelve months to fund our current level of operations. There can be no
assurance, however, that such financing will be available to us or, if it is
available, that we will be able to structure such financing on terms acceptable
to us and that it will be sufficient to fund our cash requirements until we can
reach a level of profitable operations and positive cash flows. If we are unable
to obtain the financing necessary to support our operations, we may be unable to
continue as a going concern. We currently have no firm commitments for any
additional capital.





*Going
Concern*





We have
incurred recurring losses and negative cash flows since inception. As of and for
the three months ended March 31, 2005, we had an accumulated deficit of
approximately $14,432,000 and a loss from operations of approximately
$2,020,000. These matters raise substantial doubt about our ability to continue
as a going concern. Our ability to continue our operations is contingent upon
obtaining additional financing and attaining profitable operations.


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





We do not
expect to generate cash flows from operating activities during 2005 sufficient
to offset our operating expenditures. Our operations to date have been financed
primarily through sales of our securities. We anticipate, based on its currently
proposed plans and assumptions relating to operations, that the net proceeds
from its recent financings, together with projected cash flow from operations,
will not be sufficient to meet our cash requirements for working capital and
capital expenditures through December 31, 2005. As a result, it will be
necessary for us to secure additional financing to support our operations. There
can be no assurance that we will be able to obtain such financing on acceptable
terms, or at all. If adequate funds are not available or not available on
acceptable terms, the Company will be unable to continue as a going concern. We
currently have no commitments for any additional capital.





*Subsequent
Events*




We
sublease approximately 25,000 square feet of office space in Duluth, Georgia.
This office space currently serves as our corporate headquarters. We pay rent of
approximately $23,000 per month on the sublease which terminates on August
31, 2007. We will continue to pay $8,000 per month on our old office space,
through August 2005, when that lease terminates.




*Recent
Accounting Pronouncements*




In
December 2004, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 (Revised 2004), “Share Based
Payment” (“SFAS 123R”) which (i) revises SFAS No. 123, “Accounting for
Stock-Based Compensation,” (“SFAS 123”) to eliminate the disclosure only
provisions of that statement and the alternative to follow the intrinsic value
method of accounting under Accounting Principles Board Opinion No. 25,
“Accounting for Stock Issued to Employees” (“APB 25”) and its related
implementation guidance, and (ii) requires a public entity to measure the
cost of employee services received in exchange for an award of equity
instruments, including grants of employee stock options, based on the grant-date
fair value of the award and recognize that cost in its results of operations
over the period during which an employee is required to provide the requisite
service in exchange for that award. On April 14, 2005, the U.S. Securities
and Exchange Commission adopted a new rule amending the compliance dates for FAS
123R. In accordance with the new rule, the accounting provisions of FAS 123R
will be effective for us in fiscal year 2006. Companies may elect to apply this
statement either prospectively, or on a modified version of retrospective
application under which financial statements for prior periods are adjusted on a
basis consistent with the pro forma disclosures required for those periods under
SFAS 123. We are currently evaluating which transitional provision and fair
value methodology we will follow. We expect that any expense associated
with the adoption of the provisions of SFAS 123R will have a material negative
impact on our results of operations.





16





**Item
3. Controls and Procedures**





Our chief
executive officer and chief financial officer (the “Certifying Officers”) are
responsible for establishing and maintaining disclosure controls and procedures
for our company and our subsidiary. Such officers have concluded (based upon his
evaluation of these controls and procedures as of the end of the period covered
by this report) that our disclosure controls and procedures are effective to
ensure that information required to be disclosed by us in this report is
accumulated and communicated to management, including our principal executive
officers as appropriate, to allow timely decisions regarding required
disclosure.





The
Certifying Officers have also indicated that there were no significant changes
in our internal controls or other factors that could significantly affect such
controls subsequent to the date of his evaluation, and there were no corrective
actions with regard to significant deficiencies and material
weaknesses.





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




17





**PART
II - OTHER INFORMATION**








**Item
1. Legal Proceedings**




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




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




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




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





During
March 2005, we reached an agreement with two shareholders who were originally
holders of our 10% Convertible Promissory Notes. Under the terms of the
agreement, the shareholders were issued a total of 50,000 shares as additional
consideration related to rights associated with such promissory notes.





18




**Item
3. Defaults on Senior Securities**




None




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




No
matters were submitted to our stockholders, through the solicitation of proxies
or otherwise, during the quarter ended March 31, 2005.





**Item
5. Other Information**




None


**Item
6. Exhibits**


**


*a.*
    *Exhibits*


31.1
    Certification
      of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the
      Securities and Exchange Act of 1934.





31.2
    Certification
      of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the
      Securities and Exchange Act of 1934.





32.1
    Certification
      of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
    2003.





32.2
    Certification
      of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
    2003.




19






**SIGNATURES**








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




**SMARTVIDEO
      TECHNOLOGIES, INC.**By:
    /s/ Richard E.
      Bennett, Jr.
    
    
    May
      23, 2005Richard
      E. Bennett, Jr.
      President,
      Chief Executive Officer & Sole Director
      *(Principal
      Executive Officer)*
    
    
    Date


By:
    /s/ Michael P. Walsh
    
    
    May
      23, 2005Michael
      P. Walsh
      Chief
      Financial Officer
      *(Chief
      Financial Officer and*
      *Principal
      Accounting Officer)*
    
    
    Date




20