|UNITED STATES                                                    
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|SECURITIES AND EXCHANGE COMMISSION                               
|Washington, DC 20549                                             
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|FORM 10-QSB                                                      
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|OR                                                               
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|Commission file number 000-26809                                 
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|SMARTVIDEO TECHNOLOGIES, INC.                                    
|(Exact name of small business issuer as specified in its charter)
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Delaware
91-1962104(State or other jurisdiction of incorporation)
(IRS Employer Identification No.)
  1650 Oakbrook Drive, Suite 405, Norcross, Georgia
30093(Address of principal executive offices)
(Zip Code)
  (770) 729-8777Issuers telephone number, including area codeCheck 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 August 12, 2004 was 22,167,646.












SMARTVIDEO TECHNOLOGIES INC.


Index to Form 10-QSB







PART I  FINANCIAL INFORMATION


Item1.Financial StatementsHistorical Financial StatementsConsolidated Balance Sheets (June 30, 2004 Unaudited)


4Unaudited Consolidated Statements of Operations


5Unaudited Consolidated Statements of Cash Flows


6Notes to Unaudited Consolidated Financial Statements


7Item2.Managements Discussion and Analysis or Plan of Operation


13Item3.Controls and Procedures


19PART II  OTHER INFORMATIONItem1.Legal Proceedings


20Item2.Changes in Securities and Use of Proceeds


20Item3.Defaults Upon Senior Securities


21Item4.Submission of Matters to a Vote of Security Holders


21Item5.Other Information


21Item6.Exhibits and Reports on Form 8-K


21Signatures


22








2






FORWARD-LOOKING STATEMENTS





Certain statements in this Quarterly Report constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. These include statements about anticipated financial performance, future revenues or earnings, business prospects, projected ventures, new products, anticipated market performance and similar matters. The words budgeted, anticipate, project, estimate, intend, expect, may, believe, potential and similar statements are intended to be among the statements that are forward-looking statements. Because such statements reflect the reality of risk and uncertainty that is inherent in our business, actual results may differ materially from those expressed or implied by such forward-looking statements. Some of these risks and
uncertainty are related to our current business situation and include, but are not limited to, our lack of revenues, our history of operating losses, our need for additional financing, the uncertainty about our ability to continue as a going concern and dependence on our current management team. Readers are cautioned not to place undue reliance on these forward-looking statements, which are made as of the date this report was filed with the United States Securities and Exchange Commission.





Readers are advised that we undertake no obligation to release publicly any revisions to the forward-looking statements to reflect events or circumstances after the date hereof or to reflect unanticipated events or developments.


























3






PART I  FINANCIAL INFORMATION





Item 1.Financial Information





SMARTVIDEO TECHNOLOGIES, INC.


Consolidated Balance Sheets


June 30,


December 31,2004


2003ASSETS


(Unaudited)CURRENT ASSETSCash

$
5,245

$
297,998Accounts receivable


17,656


30,321Accounts receivable from related parties


40,932


25,260Total current assets


63,833


353,579PROPERTY AND EQUIPMENT,net of accumulated depreciationof $48,987 and $24,664,
       respectively


101,011


88,730OTHER ASSETS


10,000


10,000TOTAL ASSETS

$
174,844

$
452,309LIABILITIES AND SHAREHOLDERS DEFICITCURRENT LIABILITIESAccounts payable and accrued expenses

$
872,753

$
508,849Convertible promissory notes and accrued interest


-


251,699Due to related parties


12,575


12,575Note payable and accrued interest


178,484


173,901Note payable to related party and accrued interest


367,984


317,442Loan payable to related party and accrued interest


55,599


54,229Total current liabilities


1,487,395


1,318,695SHAREHOLDERS DEFICITPreferred stock, $.001 par value, 50,000,000 shares authorized,0 and 12,000,000 issued and outstanding as of June 30, 2004 and December 31, 2003, respectively


-


12,000Common stock, $.001 par value, 50,000,000 shares authorized, 22,032,646 and 8,912,991 shares issued and outstanding as of June 30, 2004 and December 31, 2003, respectively


22,033


8,913Additional paid in capital


5,833,010


4,533,253Accumulated deficit


(7,167,594
)

(5,420,552
)Total shareholders deficit


(1,312,551
)

(866,386
)TOTAL LIABILITIES AND SHAREHOLDERS DEFICIT

$
174,844

$
452,309




|The accompanying notes are an integral part of these statements.
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SMARTVIDEO TECHNOLOGIES, INC.





Unaudited Consolidated Statements of Operations





|                                                                                    |  | For the Quarterly Period | For the Six Months
|----------------------------------------------------------------------------------- |  | ------------------------ | ------------------
|                                                                                    |  | Ended June 30,           | Ended June 30,    
|                                                                                    |  |                          |                   
|                                                                                    |  |                          | 2004              
|                                                                                    |  |                          |                   
|REVENUE                                                                             |  |                         
|Revenue                                                                             |  | $                        | 10,637            
|Revenue  related party                                                             |  |                          | 9,066             
|                                                                                    |  |                          |                   
|Total revenue                                                                       |  |                          | 19,703            
|                                                                                    |  |                          |                   
|EXPENSES                                                                            |  |                         
|Compensation and benefits                                                           |  |                          | 285,868           
|Data center                                                                         |  |                          | 86,415            
|Selling, general and administrative                                                 |  |                          | 590,757           
|Amortization of deferred compensation                                               |  |                          | -                 
|Depreciation & amortization                                                         |  |                          | 11,386            
|                                                                                    |  |                          |                   
|Total operating expenses                                                            |  |                          | 974,426           
|                                                                                    |  |                          |                   
|Loss from operations                                                                |  |                          | (954,723          
|                                                                                    |  |                         
|OTHER EXPENSES                                                                      |  |                         
|Interest expense                                                                    |  |                          | ( 11,166          
|                                                                                    |  |                          |                   
|NET LOSS                                                                            |  | $                        | (965,889          
|                                                                                    |  |                          |                   
|LOSS PER SHARE                                                                      |  |                         
|Basic and diluted net loss per share                                                |  | $                        | (0.04             
|                                                                                    |  |                          |                   
|Weighted average common shares used to compute basic and diluted net loss per share |  |                          | 21,785,331        
|                                                                                    |  |                          |                   







|The accompanying notes are an integral part of these statements.
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SMARTVIDEO TECHNOLOGIES, INC.





Unaudited Consolidated Statements of Cash Flows





|                                                                            |  | For the Six Months Ended
|--------------------------------------------------------------------------- |  | ------------------------
|                                                                            |  | June 30,                
|                                                                            |  |                         
|                                                                            |  |                         
|                                                                            |  |                         
|CASH FLOWS FROM OPERATING ACTIVITES                                         |  |                         
|Net loss                                                                    |  | $                       
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                         
|Beneficial conversion feature of convertible debt                           |  |                         
|Depreciation                                                                |  |                         
|Amortization of deferred compensation                                       |  |                         
|Increase (decrease) in cash resulting from changes in:                      |  |                         
|Increase in accounts receivable                                             |  |                         
|Increase in accrued interest on notes payable                               |  |                         
|Increase in accounts payable and accrued expenses                           |  |                         
|                                                                            |  |                         
|Net cash used in operating activities                                       |  |                         
|                                                                            |  |                         
|CASH FLOWS FROM INVESTING ACTIVITES                                         |  |                         
|Purchase of equipment                                                       |  |                         
|                                                                            |  |                         
|Net cash used in investing activities                                       |  |                         
|                                                                            |  |                         
|CASH FLOWS FROM FINANCING ACTIVITES                                         |  |                         
|Issuance of common stock                                                    |  |                         
|Payments to related parties                                                 |  |                         
|Issuance of convertible promissory notes                                    |  |                         
|                                                                            |  |                         
|Net cash provided by financing activities                                   |  |                         
|                                                                            |  |                         
|NET INCREASE (DECREASE) IN CASH                                             |  |                         
|                                                                            |  |                         
|CASH, beginning of period                                                   |  |                         
|                                                                            |  |                         
|CASH, end of period                                                         |  | $                       
|                                                                            |  |                         










|The accompanying notes are an integral part of these statements.
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SMARTVIDEO TECHNOLOGIES, INC.


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


June 30, 2004








NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Description of Business





SmartVideo Technologies, Inc. and subsidiary (SmartVideo or the Company) is a provider of turnkey digital media solutions and the technology that enables the management of live or on-demand high quality video presentations delivered to media enabled devices via the Internet and other digital networks including cellular or wireless connections. SmartVideo has developed and markets products and services enabling audio, video, and other multimedia content to be viewed through both broadband and narrowband (dial-up and cellular) Internet connections.





Inherent in SmartVideos business are various risks and uncertainties, including its limited operating history and the limited history of delivering audio, video, and other multimedia services through the Internet and other digital networks. The Companys success will depend on the acceptance of its technologies and services by the market place and the ability to generate revenue from the use of its technologies and services.





Financial Statement Presentation





The accompanying interim consolidated financial statements have been prepared by SmartVideo, without audit, in accordance with the instructions to Form 10-QSB and, therefore, do not necessarily include all information and footnotes necessary for a fair presentation of its consolidated financial position, results of operations and cash flows in accordance with accounting principles generally accepted in the United States of America. Certain information and disclosures normally included in financial statements prepared in conformity with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the United States Securities and Exchange Commission.





These interim consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All significant intercompany balances and transactions have been eliminated in the consolidation. These financial statements reflect all adjustments, consisting only of normal and recurring, in the opinion of management, that are necessary for a fair presentation of the periods presented. The operating results for any interim period are not necessarily indicative of the results that may be expected for any subsequent quarter or for the entire year.





The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and the disclosure of contingent amounts in the Companys financial statements and the accompanying notes to financial statements. Actual results could differ from those estimates. Certain amounts in prior periods have been reclassified to conform to the current presentation.





In connection with the engagement of a new accounting firm and the review of the Companys financial statements, the Company determined that it was preferable to present the value of compensation paid to an outside advisor as deferred compensation instead of as a prepaid expense as originally recorded. This reclassification has no impact on the statements of operations for the quarterly periods ended June 30, 2004 and 2003 and does not affect the balance sheet as of June 30, 2004.








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SMARTVIDEO TECHNOLOGIES, INC.





NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)








Financial Statement Presentation (continued)





These consolidated financial statements should be read in conjunction with the consolidated financial statements and the accompanying notes to the financial statements included in the Companys Annual Report on Form 10-KSB for the year ended December 31, 2003.





Going Concern





The Company has incurred recurring losses and negative cash flows since inception. As of June 30, 2004, it had an accumulated deficit of approximately $7.2 million and a working capital deficit of approximately $1.4 million. These matters raise substantial doubt about its ability to continue as a going concern. The ability of the Company to continue operations is contingent upon attaining profitable operations and obtaining additional debt and/or equity capital to fund its operations.


The Company has only recently started to market its various products. The Company has generated only minimal revenues from operations since its inception and has no assurance of any significant future revenues. The Company will require substantial additional financing for continuing research and development of its products and for the commercialization of its products and it is evaluating its options for additional financings. There can be no assurances that the Companys operations will be profitable or that it will be able to obtain sufficient additional financings when they are needed, or that such financings will be obtainable on terms satisfactory to the Company.





Cash Equivalents





All highly liquid investments purchased with an original maturity of three months or less are considered to be cash equivalents.





Property and Equipment





The Company provides for depreciation of equipment using the straight-line method based on estimated useful lives of three years.





Long-Lived Assets





The Company reviews its long-lived assets for impairment whenever changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For purposes of evaluating the recoverability of long-lived assets, the recoverability test is performed using undiscounted net cash flows estimated to be generated by the asset.





Income Taxes





The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". Under the asset and liability method of Statement 109, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled.





Common Stock Data





Earnings per share is based on the weighted average number of common stock and stock equivalents outstanding. The outstanding warrants and stock options are currently excluded from the earnings per share calculation as their effect would be antidilutive.





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SMARTVIDEO TECHNOLOGIES, INC.


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)





NOTE 1 -  Summary of Significant Accounting Policies  (Continued)





Fair Value of Financial Instruments





Substantially all of the Companys assets and liabilities are carried at fair value or contracted amounts that approximate fair value. Estimates of fair value are made at a specific point in time, based on relative market information and information about the financial instrument, specifically, the value of the underlying financial instrument. Assets that are recorded at fair value consist largely of other assets, which are carried at contracted amounts that approximate fair value. Similarly, the Companys liabilities consist of liabilities recorded at contracted amounts that approximate fair value.





Recent Accounting Pronouncements





In March 2004, the Financial Accounting Standards Boards Emerging Issues Task Force reached a consensus on EITF Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. The guidance prescribes a three-step model for determining whether an investment is other-than-temporarily impaired and requires disclosures about unrealized losses on investments. The accounting guidance is effective for reporting periods beginning after June 15, 2004, while the disclosure requirements are effective for annual reporting periods ending after June 15, 2004. Although the Company will continue to evaluate the application of EITF 03-1, the Company does not currently believe adoption will have a material impact on its results of operations or financial position.





In June 2004, the Emerging Issues Task Force reached a consensus on Issue No. 02-14, Whether an Investor Should Apply the Equity Method of Accounting to Investments Other Than Common Stock (EITF 02-14). EITF 02-14 addresses whether the equity method of accounting applies when an investor does not have an investment in voting common stock of an investee but exercises significant influence through other means, how the equity method should be applied to investments other than common stock, and for securities with a readily determinable fair market value, how the provisions of Accounting Principles Board Opinion No. 18, The Equity Method of Accounting for Investments in Common Stock (APB 18), and Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities (SFAS 115), interact.
The consensus in this EITF is effective for reporting periods beginning after September 15, 2004. The Company does not expect EITF 02-14 to have an impact on its consolidated financial statements.





NOTE 2 -  Convertible Promissory Notes





In February, March, and April 2004, three holders of our 10% Convertible Promissory Notes exercised their conversion rights and converted them into common stock. Please see Note 3  Shareholders Deficit for a description of these conversions.





NOTE 3 -  Shareholders Deficit





In November 2002, we acquired all of the issued and outstanding equity securities of OVT, Inc., d/b/a SmartVideo, in exchange for 12,000,000 shares of our Series A preferred stock plus 916,666 shares of our common stock. Each Series A preferred share may be converted into one share of our common stock at any time after November 26, 2003. Each Series A preferred share is entitled to one vote on any matter for which our shareholders may vote generally. The agreement relating to the acquisition of SmartVideo provides, among other things, that if OVT fails to attain pre-tax earnings for the fiscal year of OVT ended September 30, 2003, of $220,000, 3,000,000 of the Series A preferred shares will be forfeited by the holders of the Series A preferred shares. Additionally, the agreement provided that the Armagh Group, Inc. was to fund additional working capital needs by infusing $500,000
within 15 days of closing and





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SMARTVIDEO TECHNOLOGIES, INC.


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)





NOTE 3  Shareholders Deficit (continued)





within 30 days of closing it was to commence a private placement of not less than $1,500,000. The discussion regarding the forfeiture of the 3,000,000 Series A Preferred Shares owned by Richard E. Bennett, Jr., Robert J. Walters and William R. Dunavant and the issuance of an additional 916,666 shares of common stock has been tabled by the Board of Directors until such time as there is a majority of outside independent directors that were not involved in the discussions or negotiations regarding the acquisition of OVT, Inc. On or about June 30, 2004, a stockholder of the Company filed a stockholder derivative action on behalf of the Company against Messrs. Bennett, Jr., Walters and Dunavant, seeking the forfeiture of the 3,000,000 Series A Preferred Shares. See Note 5 to these financial statements for additional information regarding this lawsuit.





In February 2004, a holder of our 10% Convertible Promissory Note exercised his conversion rights at a conversion price of $1.00 per share of common stock. We had originally received gross proceeds of $100,000 upon the issuance of this 10% Convertible Promissory Note. A total of 109,830 restricted shares of common stock were issued under this conversion including accrued interest of $9,830 through the date of conversion.





In March 2004, a holder of our 10% Convertible Promissory Note exercised his conversion rights at a conversion price of $0.75 per share of common stock. We had originally received gross proceeds of $100,000 upon the issuance of this 10% Convertible Promissory Note. A total of 147,184 restricted shares of common stock were issued under this conversion including accrued interest of $10,388 through the date of conversion.





In April 2004, a holder of our 10% Convertible Promissory Note exercised his conversion rights at a conversion price of $0.75 per share of common stock. We had originally received gross proceeds of $30,000 upon the issuance of this 10% Convertible Promissory Note. A total of 45,545 restricted shares of common stock were issued under this conversion including accrued interest of $4,159 through the date of conversion.





During January, February, and March 2004, we completed a group of private financing transactions. We received $261,000 of gross proceeds from these transactions. In these transactions, we sold 94,096 shares of common stock at purchase prices ranging between $1.00 and $3.50 per share. These securities have been issued as restricted shares to seven accredited investors in a private placement exempt from registration.





In March 2004, the holders of the 12,000,000 shares of convertible preferred stock provided notification to us for the conversion of their shares into common stock. Under the terms of the convertible preferred stock, the shareholders were issued a total of 12,000,000 shares of common stock. These shares of common stock were issued as restricted shares exempt from registration.





During April and May 2004, we completed a group of private financing transactions. We received $785,500 of gross proceeds from these transactions. In these transactions, we sold 723,000 shares of common stock at purchase prices ranging between $1.00 and $2.00 per share. These securities have been issued as restricted shares to fourteen accredited investors in a private placement exempt from registration.





NOTE 4 -  Related Party Transactions





The Company has a $325,000 note payable to an entity owned by the spouse of a shareholder, bearing interest at 8%. Under the terms of the note payable, $75,000 is due and payable within 30 days of the funding of a public offering by the Company followed by monthly principal payments of $50,000 per month thereafter plus accrued interest beginning 30 days after the initial payment. The Company also has an advance payable due to this same entity of approximately $20,000. This advance is payable on


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SMARTVIDEO TECHNOLOGIES, INC.


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)





NOTE 4 -  Related Party Transactions (continued)





demand and does not bear any interest. The total amounts due under these arrangements, including accrued interest totaled $367,984 at June 30, 2004.





The Company has a $150,000 note payable to a former shareholder of its subsidiary in connection with a stock repurchase, bearing interest at 5.18%. The Company is in default under the terms of such note. The note is secured by 2,500,000 shares of the subsidiarys common stock. The amount due under the terms of this note payable, including accrued interest of approximately $26,000, amounted to approximately $178,500.





The Company has a loan payable in the amount of $50,000 due to a shareholder. This loan bears interest at 5% and is payable on demand.





NOTE 5 -  Litigation





On or about April 6, 2004, Mr. Rene Hamouth, a former advisor to the Company, filed a Writ of Summons in the Supreme Court of British Columbia against the Company, Richard E. Bennett 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 stockbrokers, First Associates Investments, Inc. The Company and the other defendants have made an appearance in the court through their respective legal counsel. On June 29, 2004, Mr. Hamouth filed an Amended Statement of Claim with the court. The Company and the other defendants will vigorously defend any claims made by Mr. Hamouth.





On or about April 22, 2004, the Company filed a complaint with the United States District Court, North District of Georgia against Mr. Rene Hamouth, a former advisor to the Company, 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 the Companys 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. Mr. Hamouth has been served with the complaint but, to date, has not filed an answer or any other pleading with the court.





On or about June 30, 2004, Mr. 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. In his complaint, Mr. Hamouth alleges that Messrs. Bennett, Walters and Dunavant failed to forfeit three million shares of the Companys Series A Convertible Preferred Stock (Preferred Stock) in breach of a Stock Exchange Agreement dated November 9, 2002, among such persons, the Company (formerly named Armagh Group Inc.), and OVT, Inc., a subsidiary of the Company (OVT). Under the terms of the Amended and Restated Stock Exchange Agreement, dated as of November 19, 2002 (the Amended Stock Exchange Agreement), among the Company, OVT and Messrs. Bennett, Walters and
Dunavant, the Preferred Stock was required to be forfeited if OVT did not have pre-tax earnings of at least $220,000 for OVTs fiscal year ended September 30, 2003.





Messrs. Bennett, Walters and Dunavant intend to vigorously defend the action claiming, among other things, that under the terms of the Amended Stock Exchange Agreement, the three million shares of Preferred Stock are not required to be forfeited because the Armagh Group Inc. did not comply with its obligations under Sections 2.5(d) and 2.5(f) of the Amended Stock Exchange Agreement by: (a) contributing $500,000 to the capital of OVT within 15 days after the closing of the transaction and (b) commencing a private placement of its common stock to raise not less than $1.5 million within 30 days following the closing of the transaction. Messrs. Bennett, Walters and Dunavant will assert, among other


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SMARTVIDEO TECHNOLOGIES, INC.


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)





NOTE 5 -  Litigation (continued)





things, that the Companys breach of its obligations under Sections 2.5(d) and 2.5(f) of the Amended Stock Exchange Agreement was the direct cause of OVTs failure to attain pre-tax earnings of $220,000 for the fiscal year ended September 30, 2003.





NOTE 6 -  Subsequent Events





During July 2004, the Company completed three private financing transactions. From these transactions, the Company received $135,000 in gross proceeds. In these transactions, SmartVideo sold 135,000 shares of common stock at a purchase price of $1.00 per share. These securities have been issued as restricted shares to three accredited investors in a private placement.
























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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





SmartVideo Technologies, Inc. is a provider of turnkey digital media solutions and the technology that enables the management of high quality live or on-demand video presentations delivered to media enabled devices via the Internet and other digital networks including cellular or wireless connections. SmartVideo has developed and markets products and services enabling audio, video, and other multimedia content to be viewed through both broadband and narrowband (dial-up and cellular) Internet connections.





We specialize in the delivery of high-quality digital media solutions to the narrowband market space. 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 mobile phones at an average frame rate of 15 fps (frames per second). We intend to deliver high quality digital media solutions to cellular devices to acquire a large base of consumers, network operators and content owners who will use our services to deliver both free and paid content to cellular users around the world. Our strategy is to grow and leverage our technological advantage to drive the creation of a market for premium digital video content to todays cellular customers. Our cellular solutions are available using todays 2.5G cellular data networks or the new 3G data
networks as they are implemented. While we do not intend to abandon the business we have developed of delivering digital media and multimedia content and presentations to the corporate, educational and governmental sectors, we believe that moving into the entertainment and broad-based communications arena represents an exceptional opportunity for the Company and our shareholders.





We have made substantial progress in our negotiations to acquire the rights to deliver rich entertainment programming to wireless media enabled devices. If we are successful in acquiring such rights on a timely basis, we intend to launch a consumer service based on this programming to cellular subscribers throughout North America during the fourth quarter of this year. There can be no assurances that we will be successful in acquiring such rights.





Critical Accounting Policies and Estimates





The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amount of assets and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported period. Our critical accounting policies and estimates are focused primarily on revenue recognition.





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.





13




We typically provide the 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 will lease hardware to our customers enabling them to facilitate a live broadcast. In certain situations, we may sell hardware to our resellers under the 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.





Plan of Operation





SmartVideo was conceived and developed through the vision of our founders. In 2000, they recognized a vast unmet need for the delivery of high-quality digital media and multimedia presentations (including video) to the narrowband or dial-up class of user. A narrowband or dial-up class of user is considered to be anyone who has consistently less than 56Kbps of available bandwidth. (This category also includes Internet users that are connected via oversubscribed broadband services.) At the present time, we estimate that this class of user represents over 65% of all Internet users.





Not believing the hype that broadband ubiquity was just around the corner as the media would have lead us to believe, several products and services where designed and developed that were specifically tailored to serve the needs of the narrowband user.  Our early developments were in the areas of webcasting and messaging products designed to meet the burgeoning needs of business communications in a simple, yet cost-effective manner.





Through the ongoing development of our products and services targeted to the narrowband marketspace, our expertise at serving this class of customer also grew. During this time, our vision expanded and our focus concentrated on yet, one more unmet need the delivery of high-quality digital media and multimedia content to the cellular user.





Our global community is more mobile today than at any other time in recorded history. Today, corporations send their people around the globe in search of new customers and new opportunities. Many families are not only two income families, but they also spend many hours each week catering to the extracurricular needs of their children. Our need for timely, relevant information and entertainment on our terms and at our convenience has never been greater.





The National Association of Broadcasters (NAB) Trade Show in April 2004 is the worlds largest annual gathering of electronic and digital media professionals with attendees from over 130 countries. During the NAB, we showcased our cellular solutions and demonstrated our unique ability to deliver high-quality video to mobile phones at an average frame rate of 15-18 fps (frames per second) to content owners, providers, and distributors from around the world.





At the NAB, we also received the formal notification of our acceptance into Microsoft Corp.s Windows Media ® 9 Series Certified Hosting Provider Program. Upon our acceptance into this program, we joined an elite group of only 12 companies worldwide who have achieved this status and designation.





We deliver high-quality digital media solutions to the narrowband market space. We intend to deliver high quality digital media solutions to cellular devices to acquire a large base of consumers, network operators and content owners who will use our services to deliver both free and paid content to cellular users around the world. Our strategy is to grow and leverage our technological advantage to drive the creation of a new market for premium digital video content focused on the needs and desires of todays cellular customers. Our cellular solutions are available now and work on todays existing 2.5G cellular data networks or on the new 3G data networks as they are implemented.


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As a key component of our overall strategy, we have formed a Board of Advisors to assist and advise us in seeking out and procuring content from various entertainment groups, content aggregators and distributors. Our charter members to this Board of Advisors are an accomplished group of entertainment industry leaders. Through our association with the members of our Board of Advisors and key contacts made through our participation at NAB, we are in discussion with several well-known media sources to utilize our services in the distribution of their content across todays cellular data networks. There can be no assurance that our discussions will result in arrangements that will be profitable to us.





This concentration on the delivery of digital media and multimedia content to cellular devices represents an expansion of scope of our original model that had been focused primarily on the B2B market to include a separate category that is focused on the entertainment industry. While we do not intend to abandon the business we have developed of delivering digital media and multimedia content and presentations to the corporate, educational and governmental sectors, we believe that the move into the entertainment and broad-based communications arena represents an exceptional opportunity for the Company and our shareholders.





In order to properly execute under our strategy, we believe that we will need to raise $8-12 million over the next 12-18 months. If we are successful in our capital raising efforts, we expect to begin by expanding the capacity of our existing data center and then, building out additional data centers. This increase in capacity will allow us to deliver our services to larger and larger audiences. Once we raise a sufficient amount of capital and our net equity reaches certain minimum requirements, we also intend to apply for the listing of our stock on the Nasdaq Small Cap Market or the American Stock Exchange (AMEX).





Other uses for the additional funds received as a result of our capital raising efforts are expected to include investment in the further development of our core technologies and the hiring of additional personnel in the areas of sales & marketing, product development, customer service, order fulfillment, technical support and quality of service monitoring.




Results of Operations - Quarterly





Quarterly Period Ended June 30, 2004 compared to 2003





Revenues





Revenues consist 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. From time to time, we will lease hardware to our customers enabling them to facilitate a live broadcast. In certain situations, we may sell hardware to our resellers under the terms of our agreements with them. The increase in revenues for the quarterly period ended June 30, 2004 of approximately $9,300 when compared to the same period in 2003 is primarily due to increases in the minutes viewed of digital media and multimedia broadcasts. The majority of this increase came from new customers that are not related parties.





Compensation and benefits





Our compensation and benefits expenses increased by approximately $250,000 for the quarterly period ended June 30, 2004 as compared to the same period in 2003. Over the course of the last nine months, we have begun filling and continue to fill key positions that will enable us to leverage our future prospects and growth.





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 $16,000 for the quarterly period ended June 30, 2004 when compared to 2003 is due to the moving of our hosting services from our facility to a third-party data center and the increased volume of viewer minutes.





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Sales, General and Administrative Expenses





Sales, general and administrative expenses consist primarily of professional fees, travel expenses related to the marketing of our product and services, lease payments related to the use of our corporate facilities and other general and administrative expenses. The increase in general and administrative expenses in 2004 of approximately $300,000 when compared to 2003 is primarily due to specialized consulting services on new projects, professional fees, including legal fees, incurred in connection with matters related to being a publicly-traded company, higher travel expenses associated with increased marketing efforts of our products and services.





Amortization of Deferred Compensation





Amortization of deferred compensation consist of expenses associated with the issuance of shares to a former advisor prior to our November 2002 merger for services to be provided to us over a 24 month term ending in November 2004. We terminated this agreement in September 2003. For the quarterly period ended June 30, 2003, the entire amount of deferred compensation of $175,500 is from the amortization of these costs.





Interest Expense





Interest expense for the quarterly period ended June 30, 2004 consists of interest expense associated with various outstanding notes payable and represents an approximately $7,000 decrease in interest expense when compared to the same period in 2003. This decrease is primarily due to the holders of our convertible debt instruments exercising the right to convert the debt into equity.





Results of Operations  Six Months





Six Month Period Ended June 30, 2004 compared to 2003





Revenues





Revenues consist 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. From time to time, we will lease hardware to our customers enabling them to facilitate a live broadcast. In certain situations, we may sell hardware to our resellers under the terms of our agreements with them. The increase in revenues for the six month period ended June 30, 2004 of approximately $32,000 when compared to the same period in 2003 is primarily due to increases in the minutes viewed of digital media, special broadcast presentations and multimedia broadcasts. The majority of this increase came from new customers that are not related parties.





Compensation and benefits





Our compensation and benefits expenses increased by approximately $359,000 for the six month period ended June 30, 2004 as compared to the same period in 2003. Over the course of the last nine months, we have begun filling and continue to fill key positions that will enable us to leverage our future prospects and growth.





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 $83,000 for the six month period ended June 30, 2004 when compared to 2003 is due to the moving of our hosting services from our facility to a third-party data center and the increased volume of viewer minutes.


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Sales, General and Administrative Expenses





Sales, general and administrative expenses consist primarily of professional fees, travel expenses related to the marketing of our product and services, lease payments related to the use of our corporate facilities and other general and administrative expenses. The increase in general and administrative expenses in 2004 of approximately $514,000 when compared to 2003 is primarily due to specialized consulting services on new projects, professional fees, including legal fees, incurred in connection with matters related to being a publicly-traded company, higher travel expenses associated with increased marketing efforts of our products and services.





Amortization of Deferred Compensation





Amortization of deferred compensation consist of expenses associated with the issuance of shares to a former advisor prior to our November 2002 merger for services to be provided to us over a 24 month term ending in November 2004. We terminated this agreement in September 2003. For the six month period ended June 30, 2003, the entire amount of deferred compensation of $351,000 is from the amortization of these costs.





Interest Expense





Interest expense for the quarterly period ended June 30, 2004 consists of interest expense associated with various outstanding notes payable and represents an approximately $260,000 decrease in interest expense when compared to the same period in 2003. During the quarterly period ended March 31, 2003, we issued convertible promissory notes which resulted in our recognition of a beneficial conversion feature of $308,000 related to their issuance that was recognized as additional interest expense. No such issuances of convertible promissory notes occurred during the six month period ended June 30, 2004.





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 $3,600,000 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 June 30, 2004, we had an accumulated deficit of approximately $7.2 million and a working capital deficit of approximately $1.4 million. These matters raise substantial doubt about our ability to continue as a going concern. Our ability to continue operations is contingent upon attaining profitable operations and obtaining additional debt and/or equity capital to fund our operations.





We have only recently started to market our various products. We have generated only minimal revenues from operations since our inception and have no assurance of any significant future revenues. We will require substantial additional financing for continuing research and development of our products and for the commercialization of our products and we are evaluating our options for additional financings. There can be no assurances that our operations will be profitable or that we will be able to obtain sufficient additional financings when they are needed, or that such financings will be obtainable on terms satisfactory to us.







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Subsequent Events





During July 2004, the Company completed three private financing transactions. From these transactions, the Company received $135,000 in gross proceeds. In these transactions, SmartVideo sold 135,000 shares of common stock at a purchase price of $1.00 per share. These securities have been issued as restricted shares to three accredited investors in a private placement.





Recent Accounting Pronouncements





In March 2004, the Financial Accounting Standards Boards Emerging Issues Task Force reached a consensus on EITF Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. The guidance prescribes a three-step model for determining whether an investment is other-than-temporarily impaired and requires disclosures about unrealized losses on investments. The accounting guidance is effective for reporting periods beginning after June 15, 2004, while the disclosure requirements are effective for annual reporting periods ending after June 15, 2004. Although we will continue to evaluate the application of EITF 03-1, we do not currently believe adoption will have a material impact on our results of operations or financial position.





In June 2004, the Emerging Issues Task Force reached a consensus on Issue No. 02-14, Whether an Investor Should Apply the Equity Method of Accounting to Investments Other Than Common Stock (EITF 02-14). EITF 02-14 addresses whether the equity method of accounting applies when an investor does not have an investment in voting common stock of an investee but exercises significant influence through other means, how the equity method should be applied to investments other than common stock, and for securities with a readily determinable fair market value, how the provisions of Accounting Principles Board Opinion No. 18, The Equity Method of Accounting for Investments in Common Stock (APB 18), and Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities (SFAS 115), interact.
The consensus in this EITF is effective for reporting periods beginning after September 15, 2004. We do not expect EITF 02-14 to have an impact on our consolidated financial statements.





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Item 3. Controls and Procedures





Our chief executive officer and chief financial officer (the Certifying Officer) is responsible for establishing and maintaining disclosure controls and procedures for our company and our subsidiary. Such officer has 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 Officer has 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 fficer, does 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. Because of these inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.





























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PART II  OTHER INFORMATION





Item 1. Legal Proceedings





On or about April 6, 2004, Mr. Rene Hamouth filed a Writ of Summons in the Supreme Court of British Columbia (Case No. SO41955) against us, Richard E. Bennett 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 stockbrokers, First Associates Investments, Inc. We and the other defendants have made an appearance in the court through their respective legal counsel. On June 29, 2004, Mr. Hamouth filed an Amended Statement of Claim with the court. We and the other defendants will vigorously defend any claims made by Mr. Hamouth.


On or about April 22, 2004, we filed a complaint with the United States District Court, North District of Georgia (Case No. 1:04-CV-1123) against Mr. 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 the Companys 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. Mr. Hamouth has been served with the complaint but, to date, has not filed an answer or any other pleading with the court.


On or about June 30, 2004, Mr. 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. In his complaint, Mr. Hamouth alleges that Messrs. Bennett, Walters and Dunavant failed to forfeit three million shares of the Companys Series A Convertible Preferred Stock (Preferred Stock) in breach of a Stock Exchange Agreement dated November 9, 2002, among such persons, the Company (formerly named Armagh Group Inc.), and OVT, Inc., a subsidiary of the Company (OVT). Under the terms of the Amended and Restated Stock Exchange Agreement, dated as of November 19, 2002 (the Amended Stock Exchange Agreement), among the Company, OVT and Messrs. Bennett, Walters and
Dunavant, the Preferred Stock was required to be forfeited if OVT did not have pre-tax earnings of at least $220,000 for OVTs fiscal year ended September 30, 2003.


Messrs. Bennett, Walters and Dunavant intend to vigorously defend the action claiming, among other things, that under the terms of the Amended Stock Exchange Agreement, the three million shares of Preferred Stock are not required to be forfeited because the Armagh Group Inc. did not comply with its obligations under Sections 2.5(d) and 2.5(f) of the Amended Stock Exchange Agreement by: (a) contributing $500,000 to the capital of OVT within 15 days after the closing of the transaction and (b) commencing a private placement of its common stock to raise not less than $1.5 million within 30 days following the closing of the transaction. Messrs. Bennett, Walters and Dunavant will assert, among other things, that the Companys breach of its obligations under Sections 2.5(d) and 2.5(f) of the Amended Stock Exchange Agreement was the direct cause of OVTs failure to attain
pre-tax earnings of $220,000 for the fiscal year ended September 30, 2003.





Item 2. Changes in Securities and Use of Proceeds





In April 2004, a holder of our 10% Convertible Promissory Note exercised his conversion rights at a conversion price of $0.75 per share of common stock. We had originally received gross proceeds of $30,000 upon the issuance of this 10% Convertible Promissory Note. A total of 45,545 restricted shares of common stock were issued under this conversion including accrued interest of $4,159 through the date of conversion. The transaction and the shares of common stock issued upon conversion of the note were exempt from registration pursuant to Section 3(a)(9) and Section 4(2) of the Securities Act of 1933 (the Securities Act).





During April and May 2004, we completed a group of private financing transactions. We received $785,500 of gross proceeds from these transactions. In these transactions, we sold 723,000 shares of common stock at purchase prices ranging between $1.00 and $2.00 per share. These securities have been issued as restricted shares to fourteen accredited investors in a private placement exempt from registration under Section 4(2) of the Securities Act and Regulation D promulgated thereunder.





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Item 3. Defaults on Senior Securities





None





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





None





Item 5. Other Information





On July 21, 2004, we mailed a Notice of Annual Meeting of Stockholders and proxy statement to our stockholders of record as of July 6, 2004. The Annual Meeting will be held on Tuesday, August 31, 2004 at the Marriott Courtyard, 6235 McDonough Drive, Norcross, Georgia 30093 and will begin promptly at 10:00 a.m. Eastern Time.





Item 6. Exhibits and Reports on Form 8-K





a.  Exhibits





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





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





b. There were no reports on Form 8-K filed during the quarter ended June 30, 2004.























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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.                                |  | August 18, 2004 | 
|                              |                                                            |  |                 | 
|                              | Richard E. Bennett, Jr.                                    |  | Date            | 
|                              | President, Chief Executive Officer & Director              |  |                 | 
|                              | (Chief Executive Officer)                                  |  |                 | 
|                              | (Chief Financial Officer and
Principal Accounting Officer) |  |                 | 
|                              |                                                            |  |                 | 






















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