**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 September 30, 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 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 ̈Indicate
                    by check mark whether the registrant is a shell company (as defined
                    in
                    Rule 12b-2 of the Exchange Act): Yes ̈NoxThe
                    total number of shares of the issuer’s common stock, $.001 par value,
                    outstanding on November 23, 2005 was 26,822,061.







**Table
        of Contents**





**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
            18Item
                3.
            Controls
                and Procedures
            24**PART
                II - OTHER INFORMATION**Item
                1.
            Legal
                Proceedings
            25Item
                2.
            Unregistered
                Sales of Equity Securities and Use of
                Proceeds
            26Item
                3.
            Defaults
                Upon Senior Securities
            26Item
                4.
            Submission
                of Matters to a Vote of Security
                Holders
            27Item
                5.
            Other
                Information
            27Item
                6.
            Exhibits
            27Signatures
            
            28





-i-
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          of Contents**





**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 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-
 **Table
          of Contents**





**PART
      I - FINANCIAL INFORMATION**





**Item
      1.****Financial
      Information**





**SMARTVIDEO
      TECHNOLOGIES, INC.**




**Condensed
      Consolidated Balance Sheet**


(Unaudited)


**September
                  30,****2005****ASSETS****CURRENT
                  ASSETS**Cash
              
              $
              91,473Accounts
                  receivable - net of allowance for doubtful accounts of
                  $96,079
              
              
              1,132Broadcast
                  rights
              
              
              2,744,392Prepaid
                  expenses
              
              
              70,555***Total
                  current assets***
              
              
              2,907,552**PROPERTY
                  AND EQUIPMENT,**net of accumulated depreciation of $262,597
              
              
              804,467**OTHER
                  ASSETS**Broadcast
                  rights, net of current portion
              
              
              3,926,403Other
              
              
              117,261***TOTAL
                  ASSETS***
              
              $
              7,755,683**LIABILITIES
                  AND SHAREHOLDERS’ DEFICIT****CURRENT
                  LIABILITIES**Accounts
                  payable and accrued expenses
              
              $
              2,293,679Contracts
                  payable - Broadcast rights
              
              
              3,117,750Due
                  to related parties
              
              
              11,575Due
                  to related party - other
              
              
              53,311Due
                  to advisor
              
              
              267,457Convertible
                  promissory notes and related accrued interest, net of debt
                  discount
              
              
              105,522Promissory
                  note from director and related accrued interest
              
              
              226,811Loan
                  payable and related accrued interest
              
              
              59,177***Total
                  current liabilities***
              
              
              6,135,282**LONG-TERM
                  OBLIGATIONS, NET OF CURRENT PORTION**Contracts
                  payable - Broadcast rights
              
              
              4,457,326***Total
                  liabilities***
              
              
              10,592,608**Commitments
                  and Contingencies**
              
              
              –**SHAREHOLDERS’
                  DEFICIT**Preferred
                  stock, $.001 par value, 50,000,000 shares authorized, no sharesissued
                  and outstanding as of September 30, 2005
              
              
              –Common
                  stock, $.001 par value, 50,000,000 shares authorized, 26,822,061
                  shares
                  issued and outstanding as of September 30, 2005
              
              
              26,822Additional
                  paid-in capital
              
              
              21,698,339Non-cash,
                  stock-based compensation attributable to future periods
              
              
              (1,692,265
              )Accumulated
                  deficit
              
              
              (22,869,821
              )***Total
                  shareholders’ deficit***
              
              
              (2,836,925
              )***TOTAL
                  LIABILITIES AND SHAREHOLDERS’ DEFICIT***
              
              $
              7,755,683


The
        accompanying notes are an integral part of these
        statements.





-1-
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          of Contents**





**SMARTVIDEO
      TECHNOLOGIES, INC.**




**Condensed
      Consolidated Statements of
      Operations**


(Unaudited)


**For
                    the Quarterly Period**
                
                **For
                    the Nine Months****Ended
                    September 30,**
                
                **Ended
                    September 30,****2005**
                
                **2004**
                
                **2005**
                
                **2004****REVENUE**Revenue
                
                $
                58,248
                
                $
                26,868
                
                $
                121,740
                
                $
                70,710Revenue
                    - related party
                
                
                –
                
                
                7,478
                
                
                –
                
                
                26,170***Total
                    revenue***
                
                
                58,248
                
                
                34,346
                
                
                121,740
                
                
                96,880**EXPENSES**Broadcast
                    rights
                
                
                776,997
                
                
                –
                
                
                1,286,348
                
                
                –Compensation
                    and benefits
                
                
                469,017
                
                
                1,149,800
                
                
                1,235,413
                
                
                758,686Consulting
                    fees
                
                
                763,066
                
                
                229,837
                
                
                999,525
                
                
                648,116Data
                    center
                
                
                260,038
                
                
                91,960
                
                
                603,120
                
                
                263,409Professional
                    fees
                
                
                336,331
                
                
                43,536
                
                
                743,011
                
                
                156,440Selling,
                    general and administrative
                
                
                392,306
                
                
                154,081
                
                
                1,457,709
                
                
                633,460Non-cash,
                    stock-based compensation
                
                
                965,633
                
                
                –
                
                
                4,067,248
                
                
                909,500Depreciation
                
                
                87,627
                
                
                11,695
                
                
                190,284
                
                
                36,018***Total
                    operating expenses***
                
                
                4,051,015
                
                
                1,680,909
                
                
                10,582,658
                
                
                3,405,629***Loss
                    from operations***
                
                
                (3,992,767
                )
                
                (1,646,563
                )
                
                (10,460,918
                )
                
                (3,308,749
                )**OTHER
                    INCOME (EXPENSE)**Interest
                    income
                
                
                1,519
                
                
                –
                
                
                10,357
                
                
                –Interest
                    expense
                
                
                (
                    6,350
                )
                
                26,205
                
                
                (
                    205,778
                )
                
                (
                    58,651
                )**NET
                    LOSS**
                
                $
                (4,044,926
                )
                $
                (1,620,358
                )
                $
                (10,656,339
                )
                $
                (3,367,400
                )**LOSS
                    PER SHARE**Basic
                    and diluted net loss per share
                
                $
                (0.15
                )
                $
                (0.07
                )
                $
                (0.42
                )
                $
                (0.19
                )Weighted
                    average common shares outstanding - basic and diluted
                
                
                26,634,849
                
                
                22,247,572
                
                
                25,632,388
                
                
                18,054,731


The
      accompanying notes are an integral part of these
      statements.


-2-
 **Table
          of Contents**





**SMARTVIDEO
      TECHNOLOGIES, INC.**




**Condensed
      Consolidated Statements of Cash
      Flows**


(Unaudited)


**For
                  the Nine Months Ended****September
                  30,****2005**
              
              **2004****CASH
                  FLOWS FROM OPERATING ACTIVITES**Net
                  loss
              
              $
              (10,656,339
              )
              $
              (3,367,400
              )Adjustments
                  to reconcile net loss to net cash used inoperating
                  activities:Non-cash,
                  stock-based compensation, option/warrant related
              
              
              4,067,248
              
              
              909,500Issuance
                  of common stock as compensation for services
              
              
              750,000
              
              
              –Valuation
                  adjustment related to non-cash compensation due to advisor
              
              
              (540,017
              )
              
              –Additional
                  consideration related to rights of convertible promissory
                  notes
              
              
              197,500
              
              
              –Depreciation
              
              
              190,284
              
              
              36,018Bad
                  debt expense
              
              
              51,759
              
              
              –Change
                  in operating assets and liabilities:Increase
                  in accounts receivable
              
              
              (51,891
              )
              
              (21,449
              )Decrease
                  in broadcast rights, net of liabilities
              
              
              904,281
              
              
              –Decrease
                  in prepaid expenses
              
              
              20,132
              
              
              –Increase
                  in other assets
              
              
              (107,261
              )
              
              –Increase
                  in accrued interest on notes payable
              
              
              4,163
              
              
              52,229Decrease
                  in investor returns
              
              
              (114,500
              )
              
              –Increase
                  in accounts payable and accrued expenses
              
              
              1,599,126
              
              
              680,412Net
                  cash used in operating activities
              
              
              (3,685,515
              )
              
              (1,710,690
              )**CASH
                  FLOWS FROM INVESTING ACTIVITES**Capital
                  expenditures
              
              
              (764,479
              )
              
              (116,104
              )Net
                  cash used in investing activities
              
              
              (764,479
              )
              
              (116,104
              )**CASH
                  FLOWS FROM FINANCING ACTIVITES**Proceeds
                  from the issuance of common stock, net of offering costs
              
              
              3,729,875
              
              
              1,500,452Proceeds
                  from the issuance of convertible promissory notes
              
              
              200,000
              
              
              –Proceeds
                  from the issuance of promissory note
              
              
              225,000
              
              
              –Advance
                  from shareholder
              
              
              –
              
              
              50,000Repayments
                  to related parties
              
              
              (1,000
              )
              
              (20,000
              )Net
                  cash provided by financing activities
              
              
              4,153,875
              
              
              1,530,452**NET
                  DECREASE IN CASH**
              
              
              (296,119
              )
              
              (296,342
              )**CASH**,
                  beginning of period
              
              
              387,592
              
              
              297,998**CASH**,
                  end of period
              
              $
              91,473
              
              $
              1,656


The
        accompanying notes are an integral part of these
        statements.




-3-
 **Table
          of Contents**





**SMARTVIDEO
      TECHNOLOGIES, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL
      STATEMENTS**


(Unaudited)





**Note
      1 - Organization**





SmartVideo
      Technologies, Inc. (“SmartVideo” or “the Company”) is a media distribution
      services company.  SmartVideo is in the business of obtaining the rights
      to
      video and television content for the mobile handset market and delivering the
      video content to mobile subscribers for a monthly fee or a portion of the
      associated advertising revenue.  The Company specializes in the
      distribution of high-quality video and television programming through devices
      connected to the public Internet and are currently focused on distribution
      to
      consumers with mobile display devices, cell phones and PDAs; connected to the
      public Internet via cellular data networks and Wi-Fi. .





**Note
      2 -**  **Basis
      of Presentation, 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 unaudited condensed consolidated
      financial 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 nine months ended September 30, 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”).





*Principles
      of Consolidation*




The
      Company consolidates its wholly owned subsidiary. All significant intercompany
      accounts and transactions have been eliminated in consolidation.





*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.





*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 $190,284 and $36,018 for the nine month periods ended September 30, 2005
      and
      2004, respectively.








-4-
 **Table
          of Contents**





**SMARTVIDEO
      TECHNOLOGIES, INC.**


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


(Unaudited)





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





*Property
      and Equipment (continued)*





Property
      and equipment consist of the following:


**September
                  30,****2005**Computer
                  equipment
              
              $
              987,564Proprietary
                  software development
              
              
              79,5001,067,064Less
                  accumulated depreciation
              
              
              (262,597
              )Property
                  and equipment, net
              
              $
              804,467





*Broadcast
      Rights*




The
      Company acquires rights to programming so that it may deliver this programming
      to its subscribers. The costs incurred in acquiring programs are capitalized
      and
      amortized over the license period or projected useful life of the programming.
      Program rights and the related liabilities are recorded at the gross amount
      of
      the liabilities when the license period has begun, the cost of the program
      is
      determinable, and the program is accepted and available for airing.





*Going
      Concern*




The
      Company has incurred recurring losses and negative cash flows since inception.
      The accompanying condensed consolidated financial statements have been prepared
      assuming that the Company will continue as a going concern. As of and for the
      nine months ended September 30, 2005, it had an accumulated deficit of
      approximately $22,917,000, a loss from operations of approximately $10,461,000,
      and cash flows used in operations of approximately $3,686,000. 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 have been used to
      support the expenses associated with market roll-out of the SmartVideo services,
      which include 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 for 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





-5-
 **Table
          of Contents**





**SMARTVIDEO
      TECHNOLOGIES, INC.**


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


(Unaudited)





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





*Going
      Concern (continued)*




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.





*Earnings
      Per Share*




Statement
      of Financial Accounting Standards No. 128, “Earnings Per Share” (“SFAS 128”)
      requires entities to present both basic earnings per share (“EPS”) and diluted
      EPS. Basic EPS excludes dilution and is computed by dividing net income (loss)
      by the weighted average number of common shares outstanding for the period.
      Diluted EPS reflects the potential dilution that could occur if the outstanding
      common share equivalents exercised into common stock. Common share equivalents
      consist of shares issuable upon the exercise of certain common stock purchase
      warrants, stock options, and convertible promissory notes. The Company has
      excluded these common share equivalents from its computation of earnings per
      share due to their antidilutive effect. Accordingly, the basic and diluted
      EPS
      are the same. At September 30, 2005, there were 10,616,220 shares of issuable
      common stock if underlying the warrants, options, or convertible securities.
      Earnings per share amounts for all periods presented in the accompanying
      condensed consolidated financial statements are presented in accordance with
      the
      requirements of SFAS 128.





*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.





*Revenue
      Recognition*




The
      Company provides services to our business to business customers under
      volume-based usage arrangements of our digital media and multimedia broadcast
      products and services. Under certain arrangements, the customers are subject
      to
      a base monthly fee or minimum monthly usage requirements in order to maintain
      a
      customer’s preferential negotiated rates. From time to time, the Company may
      also lease hardware to its customers enabling them to facilitate a live
      broadcast. In certain situations, the Company may sell hardware to its resellers
      under the specific terms of the agreements with them.




Revenue
      is also recognized as earned upon the delivery of services to the Company’s
      subscription-based customers. This is typically when a digital media or
      multimedia broadcast is viewed. Many of the Company’s subscription-based
      customers access its programming through the purchase of a monthly, semi-annual,
      or annual subscription fee for SmartVideo’s mobile entertainment
      services.




-6-
 **Table
          of Contents**




**SMARTVIDEO
      TECHNOLOGIES, INC.**


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


(Unaudited)





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





*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. SFAS 123R will be effective for
      the fiscal year and first interim period beginning on January 1, 2006.




**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 $234,000 as of September 30, 2005. The estimated non-cash,
      stock-based compensation due to the advisor has been computed using a
      Black-Scholes fair value method. For purposes of estimating the liability due
      to
      advisor, the fair value of each option was estimated as of September 30, 2005
      using a Black-Scholes option pricing model with the following weighted average
      assumptions: the risk-free interest rate was 4.25%, the volatility factor as
      169.96, the estimated average life term was 4.00 years, and the weighted average
      fair value of the options was $1.89.




**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.





-7-
 **Table
          of Contents**





**SMARTVIDEO
      TECHNOLOGIES, INC.**


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


(Unaudited)





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





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, and have an
      exercise price of $3.50 per share. For the nine months ended September 30,
      2005,
      the Company has recorded $629,775 in non-cash, stock-based compensation expense
      and $1,189,575 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 nine months ended September 30, 2005, the Company has recorded
      $74,063 in non-cash, stock-based compensation expense and $296,250 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 six month consulting agreement with
      Forté Capital Partners, LLC, (“Forté”) whose designee was Michael P. Walsh, to
      serve as our Chief Financial Officer. The Company was required to pay Forté a
      monthly salary of $7,500 plus reimburse all reasonable travel and other
      out-of-pocket expenses incurred in performing the consulting services. The
      consulting agreement also required the Company to issue to Forté 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 had the right to terminate the agreement
      with
      or without reason. Forté delivered a notice of termination on June 14, 2005 and
      Mr. Walsh resigned from this engagement effective June 15, 2005. For the nine
      months ended September 30, 2005, the Company has recorded $286,950 in non-cash,
      stock-based compensation expense related to this award. The compensation expense
      has been determined using the Black-Scholes fair value method. As of September
      30, 2005, the Company owed Forté $30,000 for the monthly salary under the terms
      of this arrangement.




Effective
      March 1, 2005, the Company entered into a consulting agreement with Trilogy
      Capital Partners, Inc. (“Trilogy”) for the development and implementation of a
      marketing program. The term of the consulting agreement was for a period of
      one
      year and provided 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 required the Company to
      issue
      to Trilogy 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. The Company
      terminated this agreement in June 2005. For the nine months ended September
      30,
      2005, the Company has recorded $2,337,500 in non-cash, stock-based compensation
      expense related to the issuance of these warrants. The compensation expense
      has
      been determined using the Black-Scholes fair value method.




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. The shares were valued at $3.95 per share, the fair market value of
      the
      shares at the date of issuance. Accordingly, the additional consideration
      resulting from the issuance of the shares amounted to $197,500, based on the
      fair value of the common stock at the date of issuance and is recognized as
      interest expense in the accompanying consolidated financial
      statements.




-8-
 **Table
          of Contents**




**SMARTVIDEO
      TECHNOLOGIES, INC.**


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


(Unaudited)





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





On
      March
      29, 2005, the Company completed a private placement pursuant to 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 were issued, 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 Forté, the
      placement agent in the transaction. Further, Forté unconditionally 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 date that a registration statement
      filed with the Securities and Exchange Commission (the “SEC”) was declared
      effective or in the case that the registration statement does not go effective,
      by November 1, 2005. The Company’s registration statement with respect to the
      securities issued in this March 2005 private placement was declared effective
      by
      the SEC on July 1, 2005.





On
      June
      23, 2005, the Company notified Forté that it intended to request that the SEC
      declare the registration statement effective no later than Thursday, June 30,
      2005 and requested that Forté fulfill its “unconditional obligation” to fund the
      balance of $740,000 within three business days of such notice. As of September
      30, 2005 and the date of this filing, Forté had not fulfilled this obligation.
      The entire amount of this receivable has been reserved in the accompanying
      financial statements. The Company has filed a claim in the Delaware Court of
      Chancery against Forté to recover the funds owed to it.





On
      July
      15, 2005, the Company issued 9,882 shares of its common stock to The Lippin
      Group in accordance with the terms of its agreement as part of the monthly
      service fees. The shares were valued at an average price of approximately $3.04
      per share, which represents the fair market value of the shares as of the dates
      of computation per the agreement. Accordingly, the consideration resulting
      from
      the issuance of the shares amounted to $30,000, based on the fair value of
      the
      common stock at the dates of computation per the agreement and is recognized
      as
      consulting expense in the accompanying consolidated financial
      statements.




On
      July
      18, 2005, the Company entered into an Advisory Services Agreement (the "Advisory
      Agreement") with Ascendiant Capital Group LLC, pursuant to which Ascendiant
      will
      provide advice with respect to business strategy, strategic alliances, mergers
      and acquisitions, stock option plans, corporate governance and analysis
      regarding qualification for national stock exchanges. The term of the Advisory
      Agreement is for six months from the date of the Advisory Agreement, with
      additional extensions at the mutual agreement of the parties.




The
      Company has agreed to pay Ascendiant for its services (i) an up front fee of
      750,000 shares of its common stock, par value $0.001 per share, in consideration
      of entering into the Advisory Agreement and (ii) if such services were requested
      by the Company, a fee for services rendered in connection with a merger,
      consolidation, asset purchase, technology license or substantially similar
      transaction equal to 10% of the value of the transaction (or 5% if the party
      to
      the transaction is identified by registrant). The shares were valued at $0.95
      per share, the fair market value of the shares at the date of issuance.
      Accordingly, the consideration resulting from the issuance of the shares
      amounted to $712,500, based on the fair value of the common stock at the date
      of
      issuance and is recognized as consulting expense in the accompanying
      consolidated financial statements.







-9-
 **Table
          of Contents**





**SMARTVIDEO
      TECHNOLOGIES, INC.**


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


(Unaudited)





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





In
      the
      Advisory Agreement, the Company has granted to Ascendiant standard “piggy-back”
      registration rights that would permit Ascendiant to include its shares on a
      registration statement filed by the Company in the future relating to the offer
      or sale of its common stock.




On
      August
      25, 2005, the Company reached an agreement with W.H. Platt Company in settlement
      of certain accounts payable due at that time and issued 52,000 shares of its
      common stock. The shares were valued at $0.79 per share, the fair market value
      of the shares at the date of issuance. Accordingly, the consideration resulting
      from the issuance of the shares amounted to $41,028, based on the fair value
      of
      the common stock at the date of issuance.




On
      August
      29, 2005, the Company reached an agreement with The Lippin Group in settlement
      of certain accounts payable due at that time and issued 11,000 shares of its
      common stock. The shares were valued at $1.07 per share, the fair market value
      of the shares at the date of issuance. Accordingly, the consideration resulting
      from the issuance of the shares amounted to $11,770, based on the fair value
      of
      the common stock at the date of issuance.




For
      purposes of computing the fair value of each option or common stock purchase
      warrant issuance listed above, the Company used the Black-Scholes option pricing
      model with the following weighted average assumptions: the risk-free interest
      rate was 4.25%, the volatility factor was 128.77%, the estimated average life
      term was 3.96, and the weighted average fair value of the options granted was
      $2.40.




**Note
      5 - Office Space**





In
      May
      2005, the Company assumed 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. Rent
      expense for the nine months ended September 30, 2005 was $203,716.




**Note
      6 - 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 2,695,000 options granted
      and outstanding under this plan. The exercise prices of the options granted
      under this plan range between $.90 and $3.50 with a weighted average exercise
      price of $2.08. All of the stock options granted from the adoption of the 2004
      Plan through September 30, 2005 are outstanding as of September 30, 2005. There
      were no exercises or forfeitures during the nine months ended September 30,
      2005. The weighted average remaining contractual life of the options granted
      and
      outstanding under this plan is 8.80 years. As of September 30, 2005, there
      were
      1,075,625 options exercisable, but unexercised. In general, stock options
      granted through September 30, 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.





-10-
 **Table
          of Contents**





**SMARTVIDEO
      TECHNOLOGIES, INC.**


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


(Unaudited)








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




***2004
      Equity Incentive Plan (continued)***




SmartVideo
      reports all non-cash, stock-based compensation to non-statutory employees as
      a
      single expense category in the accompanying unaudited condensed consolidated
      statements of operations. During the nine months ended September 30, 2005,
      the
      Company recorded approximately $4,067,000 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,” 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.





Pro
      forma
      information regarding net loss and net loss 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:


**September
                  30,****2005**
              
              
              **2004**Net
                  loss to common shareholders, as reported
              
              $
              (10,656,339
              )
              $
              (3,367,400
              )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
              
              
              (233,540
              )
              
              –Pro
                  forma net loss to common shareholders
              
              $
              (10,889,879
              )
              $
              (3,367,400
              )Basic
                  and diluted net loss per share, as reported
              
              $
              (0.42
              )
              $
              (0.19
              )Pro
                  forma basic and diluted net loss per share
              
              $
              (0.42
              )
              $
              (0.19
              )









-11-
 **Table
          of Contents**





**SMARTVIDEO
      TECHNOLOGIES, INC.**


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


(Unaudited)





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





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
      $2.08.





The
      Company’s wholly owned subsidiary had issued under its stock incentive plan
      approximately 1,565,500 options which were still outstanding at September 30,
      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.





**Note
      7 - Promissory Notes**





Concurrent
      with the merger on November 26, 2002, 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 $9,177 as
      of
      September 30, 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
      September 30, 2005.




On
      August
      12, 2005, the Company borrowed $225,000 from Justin A. Stanley, Jr., one of
      its
      directors. Pursuant to the promissory note issued in connection with the loan,
      the Company is obligated to pay all principal and interest due under the note
      by
      no later than September 12, 2006. Interest on the unpaid principal balance
      of
      the note accrues at a rate equal to the fluctuating prime lending rate of
      LaSalle Bank, N.A., Chicago, Illinois, as such rate is in effect less one
      hundred basis points. This principal portion of this note in the amount of
      $225,000 was repaid on November 22, 2005.




**Note
      8 - Convertible Promissory Notes**





On
      September 26, 2005, the Company borrowed $100,000 from Michael E. Criden, Esq.
      and $100,000 from Glenn H. Singer, and GHS Holdings, a company controlled by
      Mr.
      Singer. Pursuant to the convertible promissory notes issued in connection with
      the loan, the Company is obligated to pay all principal and interest due under
      the note one year from the date of the loan. Interest on the unpaid principal
      balance of the note accrues at a rate of 8% per annum. If the Company completes
      a financing of at least $2.5 million from the sale of its equity securities
      prior to the maturity date of the convertible promissory notes, the principal
      amount of each note will convert into shares or units of the equity securities
      sold in such financing at a per share sale price or unit price of the financing.
      In the event such a financing does not occur, Messrs. Criden and Singer have
      the
      right to convert their loans into shares of the Company’s common stock at a per
      share price equal to the closing price on the date the conversion notice is
      received by the Company. After the allocation of the relative fair value of
      the
      common stock purchase warrants issued in conjunction with these notes, there
      is
      a beneficial conversion feature in the amount of $47,328. This beneficial
      conversion feature has been reflected in the accompanying unaudited financial
      statements as a debt discount with a corresponding adjustment to additional
      paid-in capital as of the date of issuance.










-12-
 **Table
          of Contents**





**SMARTVIDEO
      TECHNOLOGIES, INC.**


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


(Unaudited)







**Note
      8 - Convertible Promissory Notes (continued)**





In
      addition to receiving the convertible promissory notes, Messrs. Criden and
      Singer and GHS Holdings each received a five-year warrant to purchase 33,333
      shares of the Company’s common stock at an exercise price of $2.00 per share.
      Messrs. Criden and Singer were also granted certain piggy-back registration
      rights with respect to the shares of common stock underlying the convertible
      promissory notes and the warrants. The relative fair value of these common
      stock
      purchase warrants was $47,328 as of the date of issuance and has been reflected
      in the accompanying unaudited financial statements as additional paid-in
      capital.




**Note
      9 - 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
      September 30, 2005.





The
      Company had advances from individual holders of more than 10% of the Company’s
      common stock amounting to $11,575 at September 30, 2005. 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 the Company’s 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 expired 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 $75,500, all of which was receivable at September 30, 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.





On
      August
      12, 2005, the Company borrowed $225,000 from Justin A. Stanley, Jr., one of
      its
      directors. Pursuant to the promissory note issued in connection with the loan,
      the Company is obligated to pay all principal and interest due under the note
      by
      no later than September 12, 2006. Interest on the unpaid principal balance
      of
      the note accrues at a rate equal to the fluctuating prime lending rate of
      LaSalle Bank, N.A., Chicago, Illinois, as such rate is in effect less one
      hundred basis points. This principal portion of this note in the amount of
      $225,000 was repaid on November 22, 2005.




**Note
      10 - 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, a predecessor to Edwards Angell Palmer &
      Dodge, 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.







-13-
 **Table
          of Contents**





**SMARTVIDEO
      TECHNOLOGIES, INC.**


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


(Unaudited)





**Note
      10 - Commitments and Contingencies**





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 the Company or Mr.
      Bennett. The Company intends
      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. The motion
      was unopposed. On October 5, 2005, the Court granted the Company’s motion for
      summary judgment in the amount of $172,324.32.




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
      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.







-14-
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          of Contents**





**SMARTVIDEO
      TECHNOLOGIES, INC.**


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


(Unaudited)







**Note
      10 - 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.




On
      June
      21, 2005, Forté, one of our stockholders and the finder in connection with our
      March 2005 private placement, filed in the Court of Chancery, New Castle County,
      Delaware, a complaint against us and our Chief Executive Officer and sole
      director, Richard E. Bennett, Jr. Forté seeks an injunction to restrain us and
      Mr. Bennett from taking any further action which dilutes the value and voting
      power of Forté’s shares of stock and an order to inspect the books and records
      of the Company. Forté alleges in its complaint that: (i) Mr. Bennett, William R.
      Dunavant and Robert J. Walters have failed to return a total of 3,000,000 shares
      of common stock to the Company in accordance with the terms of a Stock Exchange
      Agreement among Armagh Group, Inc., OVT, Inc. and Messrs. Bennett, Dunavant
      and
      Walters, (ii) a former director of the Company, Darren Breitkreuz, determined
      that the 3,000,000 shares of common stock should be forfeited and that Messrs.
      Bennett, Dunavant and Walters failed to accept such determination, (iii)
      compensation of $800,000 in the form of 2,139,130 units consisting of common
      stock and warrants were issued to Interim CFO Solutions LLC, an entity owned
      by
      Kevin D. McNeil, which constituted unjust enrichment of Mr. McNeil and breach
      of
      Mr. Bennett’s fiduciary duty to the Company, and (iv) certain other failures by
      the officers and directors of the Company to observe certain corporate
      formalities.





On
      or
      about July 27, 2005, the Company filed its answer, affirmative defenses and
      counterclaim in response to Forté’s complaint. In addition to denying any
      alleged wrongdoing, the Company asserted the following affirmative defenses:
      Forté failed to state a claim upon which relief could be granted, Forté is
      acting for an impermissible purpose and Forté lacks standing to sue in its own
      name. In addition, the Company included a counterclaim seeking the payment
      by
      Forté of $740,000 pursuant to the terms of Amendment No. 1 to the Securities
      Purchase Agreement entered into between the Company and Forté dated March 29,
      2005.








-15-
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          of Contents**





**SMARTVIDEO
      TECHNOLOGIES, INC.**


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


(Unaudited)




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





On
      or
      about August 22, 2005, Mr. Bennett filed his answer and affirmative defenses
      to
      Forté’s complaint. Mr. Bennett denied any alleged wrongdoing and asserted the
      following affirmative defenses: the complaint fails to state a claim upon which
      relief can be granted, Forté is acting for an impermissible purpose and has
      unclean hands, Forté lacks standing to sue in its own name and Forté’s claims
      are precluded by the limitation of director liability provisions of the
      Company’s Certificate of Incorporation authorized by Section 102(b)(7) of the
      Delaware Corporation Laws.





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
      11 - Subsequent Events**





On
      October 19, 2005, the Company borrowed $200,000 from Michael E. Criden, Esq.
      and
      $200,000 from Glenn H. Singer and GHS Holdings, a company controlled by Mr.
      Singer. Pursuant to the convertible promissory notes issued in connection with
      the loan, the Company is obligated to pay all principal and interest due under
      the note one year from the date of the loan. Interest on the unpaid principal
      balance of the note accrues at a rate of 8% per annum. If the Company completes
      a financing of at least $2.5 million from the sale of its equity securities
      prior to the maturity date of the convertible promissory notes, the principal
      amount of each note will convert into shares or units of the equity securities
      sold in such financing at a per share sale price or unit price of the financing.
      In the event such a financing does not occur, Messrs. Criden and Singer have
      the
      right to convert their loans into shares of the Company’s common stock at a per
      share price equal to the closing price on the date the conversion notice is
      received by the Company.




In
      addition to receiving the convertible promissory notes, Messrs. Criden and
      Singer and GHS Holdings, a company controlled by Mr. Singer, each received
      a
      five-year warrant to purchase 66,667 shares of the Company’s common stock at an
      exercise price of $2.00 per share. Messrs. Criden and Singer were also granted
      certain piggy-back registration rights with respect to the shares of common
      stock underlying the convertible promissory notes and the warrants.




On
      October 25, 2005, Forté filed a Motion for Temporary Restraining Order and
      Application with the Court of Chancery, New Castle County, Delaware (the
“Court”), pursuant to Section 225 of the Delaware General Corporation Laws for a
      hearing to determine and enforce the replacement of the Company’s board of
      directors (the “TRO Motion”). In the TRO Motion, Forté requested a hearing to
      determine whether the consent solicitation it engineered and carried out
      successfully removed and replaced the Company’s board of directors. On October
      26, 2005, Forté filed a Supplemental Motion for Temporary Restraining Order (the
“Supplemental TRO Motion”). In addition to requesting an expedited hearing to
      determine the validity of its consent solicitation, Forté sought a variety of
      temporary relief.





The
      Court
      held a hearing on the TRO Motion and the Supplemental TRO Motion on October
      31,
      2005. At the hearing, the Court scheduled a November 21, 2005 trial on the
      merits to determine the validity of the consent solicitation. Pending a
      determination on the merits, the Court entered a Status Quo Order on November
      3,
      2005, directing, among other things, that the Company’s board of directors be
      left in place and that the Company provide five days notice to Forté prior to
      entering into certain business transactions outside the ordinary course of
      business of the Company.






-16-
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          of Contents**





**SMARTVIDEO
      TECHNOLOGIES, INC.**


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


(Unaudited)







**Note
      11 - Subsequent Events (continued)**





On
      November 19, 2005, the Court dismissed Forté’s TRO Motion and the Supplemental
      TRO Motion with prejudice. In addition, the Court vacated its Status Quo Order.





On
      November 21, 2005, the first closing (the “Private Placement”) of the sale of
      securities occurred pursuant to the Securities Purchase Agreement (“SPA”) dated
      as of October 31, 2005 among SmartVideo Technologies, Inc. (the “Company”) and
      60 accredited investors (the “Investors”). Under the terms of the SPA, the
      Company received gross proceeds of $4,000,000 and issued to the Investors a
      total of 5,333,333 shares of Series A-1 Convertible Preferred Stock (the
“Preferred Stock”), five-year warrants exercisable at $1.75 per share to
      purchase up to 5,333,333 shares of common stock and five-year warrants
      exercisable at $2.00 per share to purchase up to 1,333,333 shares of common
      stock.





On
      November 21, 2005, the Company completed the Private Placement pursuant to
      an
      exemption provided by Section 4(2) of the Securities Act of 1933, as amended,
      and Rule 506 of Regulation D promulgated thereunder.





The
      loans
      provided to the Company by Messrs. Singer and Criden have been credited toward
      their purchase price for the Preferred Stock issued in the Private
      Placement.





On
      November 21, 2005, Glenn Singer and Michael E. Criden, Esq. were appointed
      to
      the Company’s board of directors pursuant to the terms of the SPA. Mr. Criden
      has been a partner for over five years in Hanzman & Criden, P.A., a South
      Florida law firm that devotes much of its practice to class action and complex
      commercial litigation. Mr. Singer is currently the mayor of Golden Beach,
      Florida. Mr. Singer and his partners built Florida-based National Business
      Solutions, an employee-leasing company, which was acquired in 1996 by Paychex
      for $160 million.





On
      December 2, 2005, the second closing of the sale of securities occurred pursuant
      to the SPA..Under the terms of the SPA, the Company received gross proceeds
      of
      $4,000,000 and issued to the Investors a total of 5,333,333 shares of Preferred
      Stock , five-year warrants exercisable at $1.75 per share to purchase up to
      5,333,333 shares of common stock and five-year warrants exercisable at $2.00
      per
      share to purchase up to 1,333,333 shares of common stock.







-17-
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          of Contents**





******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
      media distribution services company.  We are in the business of obtaining
      the rights to video and television content for the mobile handset market and
      delivering the video content to mobile subscribers for a monthly fee or a
      portion of the associated advertising revenue.  We anticipate that we
      will
      also be providing managed services for network operators (carriers) and similar
      managed services 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 their
      displays.




We
      specialize in distribution of high-quality video and television programming
      through devices connected to the public Internet. We are currently focused
      on
      distribution to consumers with mobile display devices, cell phones and PDAs;
      connected to the public Internet via cellular data networks and Wi-Fi. 
      We
      have recently made announcements concerning distribution agreements with
      carriers and we anticipate additional similar announcements in the future. 
      We have established an inventory of video and television programming, including
      both video-on-demand short-form clips, and linear programming, like 24-hour
      news
      channels.




Our
      market opportunities have been limited by the requirement that a compatible
      mobile device include a Microsoft Windows Media Player or a Real Networks media
      player.  We expect to announce support for additional devices that do
      not
      include the Windows Media Player or the Real Networks media player. This should
      greatly expand our market opportunities and is expected to include many of
      the
      most popular consumer handsets.




***Critical
      Accounting Policies and Estimates***




Our
      discussion and analysis of financial condition and results of operations are
      based upon our unaudited condensed 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."






-18-
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          of Contents**




*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 business to business 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 preferential 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 also recognized as earned upon the delivery of service to our
      subscription-based customers. This is typically when a digital media or
      multimedia broadcast is viewed. Many of our subscription-based customers access
      our programming through the purchase of a monthly, semi-annual, or annual
      subscription fee for our mobile entertainment services.




*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. The software that has been developed
      is a
      critical component of our core content delivery and distribution system. At
      the
      present time, we do not sell or license our core content delivery and
      distribution system.





*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.








-19-
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          of Contents**





***Results
      of Operations***




*Nine
      Months Ended September 30, 2005 compared to 2004*





Revenues




Revenues
      for the nine months ended September 30, 2004 consisted typically of fees earned
      from volume-based usage arrangements of our digital media and multimedia
      broadcast products and services. 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 nine months ended September
      30, 2005 consisted primarily of a subscription based service delivering live
      and
      on-demand mobile entertainment services directly to consumers. Our revenues
      increased by approximately $25,000 when compared to the same period in 2004.
      This increase is primarily attributable to our decision to change our focus
      to a
      subscription based model delivering mobile entertainment services direct to
      the
      consumer.




Broadcast
      rights




Broadcast
      rights for the nine months ended September 30, 2005 are approximately $1,286,000
      as compared to $0 for the same period in 2004. This change is attributable
      to
      our decision to change our focus to a subscription based model delivering mobile
      entertainment services direct to the consumer. This amount reflects the costs
      associated with acquiring the rights to deliver our mobile entertainment
      services.





Compensation
      and benefits




Our
      compensation and benefits expenses increased by approximately $477,000 for
      the
      nine months ended September 30, 2005 as compared to the same period in 2004.
      As
      our industry and company continues to grow and 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 increased by approximately $351,000 for the nine months
      ended September 30, 2005 when compared to the same period in 2004. We have
      been
      experiencing a decrease in consulting fees primarily due to our ability to
      fill
      key positions with full-time employees instead of continuing to utilize outside
      consultants. This increase in consulting fees for the nine months ended
      September 30, 2005 is primarily attributable to the issuance of 750,000 shares
      of common stock to Ascendiant Capital Group, LLC which had a market value of
      $712,500 at the date of issuance.





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 $340,000 for the nine months ended
      September 30, 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 $587,000 for the nine months ended
      September 30, 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, the preparation of our registration
      statement related to the financing, litigation associated with the arbitration
      with Mr. Richard Seifert and KC Adventures, Inc., and litigation associated
      with
      the contentious proxy solicitation.





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 $824,000 when compared to 2004 is primarily due to 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. During the quarters
      ended June 30, 2005 and September 30, 2005, we focused our efforts in-house
      to
      develop a strategic retail distribution plan. We expect that this plan will
      begin to be deployed towards the end of the quarterly period ending December
      31,
      2005 and throughout the quarterly period ending March 31, 2006.






-20-
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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 exercisable at prices ranging from $3.50 to $6.50.
      In
      June 2005, the financial consultant that we were utilizing resigned from the
      engagement and we terminated the marketing consulting arrangement. For the
      nine
      months ended September 30, 2005, we have recorded approximately $2,624,000
      in
      non-cash, stock-based compensation expense related to the issuance of these
      warrants reflecting the conclusion of the arrangements. The compensation expense
      has 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.





Depreciation




Depreciation
      expense for the nine months ended September 30, 2005 increased by approximately
      $154,000 when compared to the same period in 2004. This increase is primarily
      attributable to the deployment of additional equipment in the process of
      increasing the overall capacity and quality of our services.





Interest
      Expense




Interest
      expense for the nine months ended September 30, 2005 was approximately $206,000.
      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.





*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 $6,000,000 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 nine months ended September 30, 2005, we had an accumulated deficit of
      approximately $22,917,000, a loss from operations of approximately $10,461,000
      and cash flows used in operations of approximately $3,686,000. 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 have been used to support the
      expenses associated with market roll-out of our services, which include 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 our
      marketing and sales initiatives for the distribution of our services, it is
      critical that we obtain distribution partners in order to begin generating
      revenues.






-21-
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          of Contents**





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 firm commitments for any additional capital.





*Subsequent
      Events*




*Loan
      from Director*




On
      August
      12, 2005, we borrowed $225,000 from Justin A. Stanley, Jr., one of our
      directors. According to the promissory note issued in connection with the loan,
      we are obligated to pay all principal and interest due under the note by no
      later than September 12, 2006. Interest on the unpaid principal balance of
      the
      note accrues at a rate equal to the fluctuating prime lending rate of LaSalle
      Bank, N.A., Chicago, Illinois, as such rate is in effect less one hundred basis
      points. The principal portion of this note in the amount of $225,000 was repaid
      on November 22, 2005.




*Issuance
      of Convertible Promissory Notes*




On
      October 19, 2005, we borrowed $200,000 from Michael E. Criden, Esq. and $200,000
      from Glenn H. Singer. Pursuant to the convertible promissory notes issued in
      connection with the loan, we are obligated to pay all principal and interest
      due
      under the note one year from the date of the loan. Interest on the unpaid
      principal balance of the note accrues at a rate of 8% per annum. If we complete
      a financing of at least $2.5 million from the sale of its equity securities
      prior to the maturity date of the convertible promissory notes, the principal
      amount of each note will convert into shares or units of the equity securities
      sold in such financing at a per share sale price or unit price of the financing.
      In the event such a financing does not occur, Messrs. Criden and Singer have
      the
      right to convert their loans into shares of our common stock at a per share
      price equal to the closing price on the date the conversion notice is received
      by us.




In
      addition to receiving the convertible promissory notes, Messrs. Criden and
      Singer each received a five-year warrant to purchase 66,667 shares of our common
      stock at an exercise price of $2.00 per share. Messrs. Criden and Singer were
      also granted certain piggy-back registration rights with respect to the shares
      of common stock underlying the convertible promissory notes and the
      warrants.




*Temporary
      Restraining Order and Subsequent Dismissal*




On
      October 25, 2005, Forté filed a Motion for Temporary Restraining Order and
      Application with the Court of Chancery, New Castle County, Delaware (the
“Court”), pursuant to Section 225 of the Delaware General Corporation Laws for a
      hearing to determine and enforce the replacement of the Company’s board of
      directors (the “TRO Motion”). In the TRO Motion, Forté requested a hearing to
      determine whether the consent solicitation it engineered and carried out
      successfully removed and replaced the Company’s board of directors. On October
      26, 2005, Forté filed a Supplemental Motion for Temporary Restraining Order (the
“Supplemental TRO Motion”). In addition to requesting an expedited hearing to
      determine the validity of its consent solicitation, Forté sought a variety of
      temporary relief.





The
      Court
      held a hearing on the TRO Motion and the Supplemental TRO Motion on October
      31,
      2005. At the hearing, the Court scheduled a November 21, 2005 trial on the
      merits to determine the validity of the consent solicitation. Pending a
      determination on the merits, the Court entered a Status Quo Order on November
      3,
      2005, directing, among other things, that the Company’s board of directors be
      left in place and that we provide five days notice to Forté prior to entering
      into certain business transactions outside our ordinary course of
      business.




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On
      November 19, 2005, the Court dismissed Forté’s TRO Motion and the Supplemental
      TRO Motion with prejudice. In addition, the Court vacated its Status Quo Order.





*Private
      Placement*




On
      November 21, 2005, the first closing (the “Private Placement”) of the sale of
      securities occurred pursuant to the Securities Purchase Agreement (“SPA”) dated
      as of October 31, 2005 among SmartVideo Technologies, Inc. and 60 accredited
      investors (the “Investors”). Under the terms of the SPA, we received gross
      proceeds of $4,000,000 and issued to the Investors a total of 5,333,333 shares
      of Series A-1 Convertible Preferred Stock (the “Preferred Stock”), five-year
      warrants exercisable at $1.75 per share to purchase up to 5,333,333 shares
      of
      common stock and five-year warrants exercisable at $2.00 per share to purchase
      up to 1,333,333 shares of common stock.





The
      loans
      provided to us by Messrs. Singer and Criden have been credited toward their
      purchase price for the Preferred Stock issued in the Private
      Placement.





On
      November 21, 2005, Glenn Singer and Michael E. Criden, Esq. were appointed
      to
      our board of directors in accordance with the terms of the SPA. Mr. Criden
      has
      been a partner for over five years in Hanzman & Criden, P.A., a South
      Florida law firm that devotes much of its practice to class action and complex
      commercial litigation. Mr. Singer is currently the mayor of Golden Beach,
      Florida. Mr. Singer and his partners built Florida-based National Business
      Solutions, an employee-leasing company, which was acquired in 1996 by Paychex
      for $160 million.





On
      December 2, 2005, the second closing of the sale of securities occurred pursuant
      to the SPA. Under the terms of the SPA, we received gross proceeds of $4,000,000
      and issued to the Investors a total of 5,333,333 shares of Preferred Stock,
      five-year warrants exercisable at $1.75 per share to purchase up to 5,333,333
      shares of common stock and five-year warrants exercisable at $2.00 per share
      to
      purchase up to 1,333,333 shares of common stock.





*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.




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**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. 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**




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 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. The motion was unopposed. On October 5, 2005, the Court granted our
      motion for summary judgment in the amount of $172,324.32.




On
      March
      31, 2005, Mr. Richard Seifert and KC Adventures, Inc. filed with the American
      Arbitration Association in Atlanta, Georgia, certain claims against us and
      our
      wholly-owned subsidiary, OVT, Inc. The arbitration case number is 30-181-559-05.
      The Statement of Claim filed by the claimants against us 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. We intends to vigorously defend against these
      claims.




On
      June
      21, 2005, Forté, one of our stockholders and the finder in connection with our
      March 2005 private placement, filed in the Court of Chancery, New Castle County,
      Delaware, a complaint against us and our Chief Executive Officer and sole
      director, Richard E. Bennett, Jr. Forté seeks an injunction to restrain us and
      Mr. Bennett from taking any further action which dilutes the value and voting
      power of Forté’s shares of stock and an order to inspect the books and records
      of the Company. Forté alleges in its complaint that: (i) Mr. Bennett, William R.
      Dunavant and Robert J. Walters have failed to Forté return a total of 3,000,000
      shares of common stock to the Company in accordance with the terms of a Stock
      Exchange Agreement among Armagh Group, Inc., OVT, Inc. and Messrs. Bennett,
      Dunavant and Walters, (ii) a former director of the Company, Darren Breitkreuz,
      determined that the 3,000,000 shares of common stock should be forfeited and
      that Messrs. Bennett, Dunavant and Walters failed to accept such determination,
      (iii) compensation of $800,000 in the form of 2,139,130 units consisting of
      common stock and warrants were issued to Interim CFO Solutions LLC, an entity
      owned by Kevin D. McNeil, which constituted unjust enrichment of Mr. McNeil
      and
      breach of Mr. Bennett’s fiduciary duty to the Company, and (iv) certain other
      failures by the officers and directors of the Company to observe certain
      corporate formalities.




On
      or
      about July 27, 2005, the Company filed its answer, affirmative defenses and
      counterclaim in response to Forté’s complaint. In addition to denying any
      alleged wrongdoing, the Company asserted the following affirmative defenses:
      the
      complaint fails to state a claim upon which relief can be granted, Forté is
      acting for an impermissible purpose and Forté lacks standing to sue in its own
      name. In addition, the Company included a counterclaim seeking the payment
      by
      Forté of $740,000 pursuant to the terms of Amendment No. 1 to the Securities
      Purchase Agreement entered into between the Company and Forté on March 29,
      2005.






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On
      or
      about August 22, 2005, Mr. Bennett filed his answer and affirmative defenses
      to
      Forté’s complaint. Mr. Bennett denied any alleged wrongdoing and asserted the
      following affirmative defenses: the complaint fails to state a claim upon which
      relief can be granted, Forté is acting for an impermissible purpose and has
      unclean hands, Forté lacks standing to sue in its own name and Forté’s claims
      are precluded by the limitation of director liability provisions of the
      Company’s Certificate of Incorporation authorized by Section 102(b)(7) of the
      Delaware Corporation Laws.




On
      October 25, 2005, Forté filed a Motion for Temporary Restraining Order and
      Application with the Court of Chancery, New Castle County, Delaware (the
“Court”), pursuant to Section 225 of the Delaware General Corporation Laws for a
      hearing to determine and enforce the replacement of the Company’s board of
      directors (the “TRO Motion”). In the TRO Motion, Forté requested a hearing to
      determine whether the consent solicitation it engineered and carried out
      successfully removed and replaced the Company’s board of directors. On October
      26, 2005, Forté filed a Supplemental Motion for Temporary Restraining Order (the
“Supplemental TRO Motion”). In addition to requesting an expedited hearing to
      determine the validity of its consent solicitation, Forté sought a variety of
      temporary relief.





The
      Court
      held a hearing on the TRO Motion and the Supplemental TRO Motion on October
      31,
      2005. At the hearing, the Court scheduled a November 21, 2005 trial on the
      merits to determine the validity of the consent solicitation. Pending a
      determination on the merits, the Court entered a Status Quo Order on November
      3,
      2005, directing, among other things, that the Company’s board of directors be
      left in place and that we provide five days notice to Forté prior to entering
      into certain business transactions outside our ordinary course of business.





On
      November 19, 2005, the Court dismissed Forté’s TRO Motion and the Supplemental
      TRO Motion with prejudice. In addition, the Court vacated its Status Quo Order.




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





On
      November 21, 2005, we completed the Private Placement. The transaction was
      exempt from registration under the Securities Act of 1933 (“Securities Act”)
      pursuant to Section 4(2) of the Securities Act and Rule 506 of Regulation D
      promulgated thereunder.





On
      December 2, 2005, the second closing of the sale of securities occurred pursuant
      to the SPA. Under the terms of the SPA, we received gross proceeds of $4,000,000
      and issued to the Investors a total of 5,333,333 shares of Preferred Stock,
      five-year warrants exercisable at $1.75 per share to purchase up to 5,333,333
      shares of common stock and five-year warrants exercisable at $2.00 per share
      to
      purchase up to 1,333,333 shares of common stock. The transaction was exempt
      from
      registration under the Securities Act pursuant to Section 4(2) of the Securities
      Act and Rule 506 of Regulation D promulgated thereunder.




**Item
      3. Defaults on Senior Securities**




None






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




According
      to documents filed with the SEC, Forté mailed a consent solicitation to
      stockholders of the Company on or about September 14, 2005, seeking stockholder
      consent for the following actions:




1. To
      amend the
      Company’s Bylaws to fix the number of directors at four, subject to the power of
      the Board of Directors to increase the number up to nine;




2. To
      repeal any
      amendment to the Company’s Bylaws or any amendment adopted since April 29, 2005
      (or not filed with the SEC;




3. To
      elect
      Daniel McKelvey, Steve Himmelman, Michael Walsh and Richard Seifert as
      replacement directors of the Company; and




4. To
      remove all
      current members of the Company’s Board of Directors.




The
      consent statement identified August 29, 2005 as the record date for the
      solicitation under Section 213(b) under the Delaware General Corporation Law,
      or
      DGCL. This was the second consecutive attempt by Forté to obtain the consents
      required to take the actions noted hereinabove. The first consent solicitation,
      which commenced on June 21, 2005, was unsuccessful.





According
      to the tabulation of consents prepared by IVS Associates, Inc., the independent
      inspector of elections, Forté received 11,128,829 shares consenting for each one
      of its proposals. Since such shares represented only 41.63% of the Company’s
      outstanding shares of voting capital stock as of the August 29, 2005 record
      date, Forté’s stockholder consent solicitation was unsuccessful for a second
      time.




**Item
      5. Other Information**





None




**Item
      6. Exhibits**




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










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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.**Date: 
              December 5, 2005
            By:
            /s/ Richard
              E. Bennett, Jr.Richard
                E. Bennett, Jr.
              President, Chief Executive Officer,
              Chief Financial Officer and Director
              *(Principal Executive Officer)*
              *(Chief Financial Officer and Principal Accounting
                Officer)*





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