Imedia International SB2/A Registration of securities for small business issuer (amended)

As filed with the Securities and Exchange Commission on May 4, 2005
Commission File No. 333—128643

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Amendment No. 1

FORM SB-2

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

IMEDIA INTERNATIONAL, INC.

(Name of small business issuer in its charter)


Delaware	9995	56-2428786

(State or jurisdiction of	(Primary Standard Industrial	(I.R.S. Employer Identification No.)
incorporation or organization)	Classification Code Number)

David G. MacEachern
Chief Executive Officer
1721 21st Street
Santa Monica, California 90404
(310) 453-4499

(Address and telephone number of principal executive offices)

(Name, address, including zip code, and telephone number, including area code, of agent for service of process)

Copies to:

Mark Y. Abdou, Esq.
Richardson & Patel LLP
10900 Wilshire Boulevard, Suite 500
Los Angeles, California 90024
Telephone (310) 208-1182

Approximate date of proposed sale to public: From time to time after the effective date of this registration statement.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box.þ

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.o

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.o

If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box.o

Calculation of Registration Fee



			Proposed		Proposed
			Maximum		Maximum
			Offering		Aggregate		Amount of
	Amount to be		Price		Offering		Registration
Title of Each Class of Securities to be Registered	Registered		Per Share		Price		Fee
Common shares		3,777,446	$	0.55	$	2,077,595	$	244.53	(1)
Common shares underlying Warrants		6,207,854	$	0.55	$	3,414,320	$	401.87	(2)
Common Shares underlying Series A and Series B Preferred Stock		31,913,487	$	0.55	$	17,552,418	$	2,065.92	(3)
Common shares underlying Warrants issued in connection with Series A Preferred Stock		7,600,000	$	0.55	$	4,180,000	$	491.99	(1)
Common shares underlying Warrants issued in connection with Series B Preferred Stock		14,760,000	$	0.60	$	8,856,000	$	1,042.35	(1)
Total		64,258,787					$	4,246.66


(1)		Registration Fee previously submitted in connection with the Registrant’s filing of the Registration Statement filed on September 28, 2006.

(2)		Registration Fee of $259.10, previously submitted in connection with the Registrant’s filing of the Registration Statement filed on September 28, 2006. The balance of the fee is calculated in accordance with Rule 457(g) under the Securities Act based on the exercise price of the Warrants of $0.55 per share of common stock.

(3)		Registration Fee of $1487.53, previously submitted in connection with the Registrant’s filing of the Registration Statement filed on September 28, 2006. The balance of the fee is calculated in accordance with Rule 457(g) under the Securities Act based on the exercise price of the Warrants of $0.55 per share of common stock.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

IMEDIA INTERNATIONAL, INC.

64,258,787 Shares of Common Stock of iMedia International, Inc.

This prospectus relates to the sale of up 64,258,787 shares of common stock of iMedia International, Inc. by the selling security holders, consisting of:

	•		31,913,487 common shares issuable pursuant to the conversion of currently issued and outstanding Series A 6% Convertible Preferred Stock and Series B 6% Convertible Preferred Stock;

	•		7,600,000 common shares issuable pursuant to the exercise of currently issued and outstanding common share purchase warrants held by holders of our Series A 6% Convertible Preferred Stock;

	•		14,760,000 common shares issuable pursuant to the exercise of currently issued and outstanding common share purchase warrants held by holders of our Series B 6% Convertible Preferred Stock;

	•		3,777,446 currently issued and outstanding common shares; and

	•		6,207,854 common shares issuable pursuant to the exercise of currently issued and outstanding common share purchase warrants held by our security holders, other than the security holders of Series A 6% Convertible Preferred Stock or Series B 6% Convertible Preferred Stock.

This offering is not being underwritten. The prices at which the selling security holders may sell the shares will be determined by the prevailing market price for the shares or in negotiated transactions. We will not receive proceeds from the sale of our shares by the selling security holders.

Our common stock is quoted on the OTC Bulletin Board under the symbol “IMNL.” On April 27, 2006, the last reported sale price for our common stock as reported on the OTC Bulletin Board was $0.20 per share.

The selling security holders are not offering these securities in any state where the offer is not permitted.

Any broker-dealer executing sell orders on behalf of a selling security holder may be deemed to be an “underwriter” within the meaning of the Securities Act of 1933. Commissions received by any broker-dealer may be deemed to be underwriting commissions under the Securities Act of 1933.

Investing in our common stock involves certain risks.SEE “RISK FACTORS” BEGINNING ON PAGE 4 FOR A DISCUSSION OF THESE RISKS.

Neither the United States Securities and Exchange Commission nor any state securities commission has approved or disapproved of the common shares offered for sale under this prospectus or the merits of that offering, or has determined that this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The date of this prospectus is May 4, 2006

TABLE OF CONTENTS


	Page
SUMMARY INFORMATION		2
RISK FACTORS		5
Risks Relating to our Business		5
Risks Relating to an Investment in Our Securities		14
USE OF PROCEEDS		18
SELLING SECURITY HOLDERS		19
PLAN OF DISTRIBUTION		27
DESCRIPTION OF BUSINESS		29
Overview		29
Proprietary Brands		31
Market		34
Business Models		34
Corporate Structure		34
Intellectual Property/License Agreement		37
Competition		37
Principal Suppliers – Royalties		39
Dependence Upon Customers		39
Business Environment		39
Employees		42
Government Regulation and Other Matters		42
DESCRIPTION OF PROPERTY		43
MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION		44
LEGAL PROCEEDINGS		59
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS		60
EXECUTIVE COMPENSATION		63
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT		66
DESCRIPTION OF SECURITIES		68
INTEREST OF NAMED EXPERTS AND COUNSEL		71
DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION FOR SECURITIES ACT LIABILITIES		71
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS		74
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS		76
REPORTS TO SECURITY HOLDERS		77
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE		77
FINANCIAL STATEMENTS		78
Exhibit 5.1
Exhibit 23.1
Exhibit 23.2

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. Such forward-looking statements include statements regarding, among other things, (a) our projected sales and profitability, (b) our growth strategies, (c) anticipated trends in our industry, (d) our future financing plans, and (e) our anticipated needs for working capital. Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” or “project” or the negative of these words or other variations on these words or comparable terminology. This information may involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from the future results, performance, or achievements expressed or implied by any forward-looking statements. These statements may be found under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” as well as in this prospectus generally. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the risks outlined under “Risk Factors” and matters described in this prospectus generally. This prospectus may contain market data related to our business, which may have been included in articles published by independent industry sources. Although we believe these sources are reliable, we have not independently verified this market data. This market data includes projections that are based on a number of assumptions. If any one or more of these assumptions turns out to be incorrect, actual results may differ materially from the projections based on these assumptions. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this filing will in fact occur. In addition to the information expressly required to be included in this filing, we will provide such further material information, if any, as may be necessary to make the required statements, in light of the circumstances under which they are made, not misleading.

Each forward-looking statement should be read in context with, and with an understanding of, the various other disclosures concerning our company and our business made elsewhere in this prospectus as well as other pubic reports which may be filed with the United States Securities and Exchange Commission (the “SEC”). You should not place undue reliance on any forward-looking statement as a prediction of actual results or developments. We are not obligated to update or revise any forward-looking statement contained in this prospectus to reflect new events or circumstances, unless and to the extent required by applicable law.

SUMMARY INFORMATION

This summary highlights important information about our company and business. Because it is a summary, it may not contain all of the information that is important to you. To understand this offering fully, you should read this entire prospectus and the financial statements and related notes included in this prospectus carefully, including the “Risk Factors” section. Unless the context requires otherwise, “we,” “us,” “our”, “ and the “company” and similar terms refer to iMedia International, Inc., and our subsidiaries collectively, while the term “iMedia” refers to iMedia International, Inc., in its corporate capacity.

The Company

iMedia International Inc. is a digital media company and publisher of interactive multi-media publications. We are strategically positioned and poised to exploit the paradigm-shift created by the new digital world, especially as it has affected traditional print advertising. This shift is now affecting all media, communications, marketing and commerce globally, but especially daily metropolitan newspapers, which continue to experience downturns in readership, circulation and advertising revenue.

The core reasons for the trends now affecting the media and publishing industry are: (1) newspapers are no longer attracting younger readers, especially in the key 18-24 year-old demographic market segment, and have lost tremendous amounts of advertising revenue to local cable, the internet and broadcast TV; (2) fractionalization in the media market makes it very difficult for an advertiser or organization to reach large audiences with an engaging multi-media message; and (3) businesses, governments and organizations are demanding immediate accountability and definitive results for each marketing and communications dollar spent.

While the Internet, print, broadcast and wireless communications independently reach a targeted audience, as a whole none of these media forms by themselves can fully meet their advertisers’ and viewers’ demands.

We also believe that new forms of electronic media, technology and distribution channels, including broadband internet, TiVo, WiFi, PodCasts, digital cable, satellite television and other non-traditional media will continue to fractionalize communication markets worldwide making it increasingly difficult for companies, brands and organizations to reach a broad market with a multi-media message. Our products’ unique blend of interactive multi-media and internet connectivity, coupled with mature, established distribution channels provide us with an exceptional opportunity to broadcast a powerful advertising message to one of the only remaining non-fractionalized media audiences left: newspaper readers. This ability to physically distribute our message to any mass or targeted audience, combined with the ability to instantly and seamlessly link our users to the Internet positions us well to capitalize on this emerging marketplace.

We have successfully created true “digital convergence media” that converges the combined power of print, audio, video and the Internet into one physically deliverable device. While our digital media is usually distributed on optical discs such as CD-ROM and DVD-ROMs, our technology and systems can also incorporate interactivity through the Internet, PDAs and web-enabled mobile telephones.

Our business centers around two fundamental products, custom digital media marketing solutions that are created for large corporations, and proprietary proprietary digital publications (iMagazinesÔ) such as Hollywood PreviewsÔ and Travel PreviewsÔ, which we produce and distribute in major metropolitan newspapers.

iMedia International, Inc., is a Delaware corporation. Our principal executive offices are located at 1721 21st Street, Santa Monica, California 90404. Our telephone number is (310) 453-4499. The address of our website is www.imedia-intl.com. Information on our website is not part of this prospectus.

Summary Financial Data

The following table provides selected financial and operating data for the years ended December 31, 2005 and 2004. You should read this information together with the financial statements and the notes thereto appearing

elsewhere in this prospectus and the information under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”


	Year Ended December 31,
	(Restated)
	2004			2005
Net Sales	$	2,290,534		$	5,931,626
Cost of Sales		2,542,579			5,061,153
Gross Profit (Loss)		(252,045	)		870,473

Selling and marketing expense		1,100,737			2,775,346
General and administrative expense		2,112,412			5,609,575
Operating expenses-related party		507,000			581,000
Loss from operations		(3,972,194	)		(8,095,448	)
Other expense		938,340			4,171,666
Loss before taxes		(4,910,534	)		(12,267,114	)
Provision for taxes		3,260			4,000
Net loss		(4,913,794	)		(12,271,114	)
Beneficial Conversion feature and dividends on preferred stock		27,000			4,848,283
Net loss allocable to common shareholders		(4,940,794	)		(17,119,397	)
Other comprehensive loss, net of tax		(1,130,451	)		—
Comprehensive loss		(6,071,245	)		(17,119,397	)
Net loss per common share- Basic and Diluted		(0.08	)		(.24	)

Balance Sheet Information:
Current assets		500,302			3,259,728
Total Assets		1,644,974			3,400,214
Current liabilities		1,986,801			2,479,871
Shareholders Deficit		(341,827	)		(5,047,854	)

Going Concern

For the year ended December 31, 2004 and 2005 the accompanying combined financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. We have experienced net losses from operations since our inception and have an accumulated deficit of $25,728,571 as of December 31, 2005. These factors raise substantial doubt about our ability to continue as a going concern. For the year ended December 31, 2005, the report of our independent registered public accounting firm expresses substantial doubt as to our ability to continue as a going concern.

The Offering

This prospectus relates to the sale of up 64,258,787 shares of our common stock by the selling security holders, consisting of:

	•		31,913,487 common shares issuable pursuant to the conversion of currently issued and outstanding Series A 6% Convertible Preferred Stock and Series B 6% Convertible Preferred Stock;

	•		7,600,000 common shares issuable pursuant to the exercise of currently issued and outstanding common share purchase warrants held by holders of our Series A 6% Convertible Preferred Stock;

	•		14,760,000 common shares issuable pursuant to the exercise of currently issued and outstanding common share purchase warrants held by holders of our Series B 6% Convertible Preferred Stock;

	•		3,777,446 currently issued and outstanding common shares; and

	•		6,207,854 common shares issuable pursuant to the exercise of currently issued and outstanding common share purchase warrants held by our security holders, other than the security holders of Series A 6% Convertible Preferred Stock or Series B 6% Convertible Preferred Stock.

On August 22, 2005, we sold $4,920,000 in shares of Series B 6% Convertible Preferred Stock (the “Series B Preferred Stock”) and warrants to purchase up to 14,760,000 shares of common stock. The warrants are exercisable for five years at $0.60 per share. Each share of Series B Preferred Stock may be converted into shares of common stock at a price of $0.40 per share. In addition, holders of outstanding Series B Preferred Stock will have a right to participate in any of our future debt or equity financings.

On May 23, 2005, we sold $3,040,000 in shares of Series A 6% Convertible Preferred Stock (the “Series A Preferred Stock”), warrants to purchase up to 7,600,000 shares of common stock and a warrant (the “Short Term Warrant”) to purchase (i) up to $1,200,000 in Series A Preferred Stock and (ii) a warrant to purchase common stock. The warrants are exercisable for five years at $0.60 per share. On August 22, 2005, certain anti-dilution provisions were triggered per the terms and conditions of the Warrant Agreement, and the exercise price of these warrants was then reset to $0.40 per share. Each share of Series A Preferred Stock may be converted into shares of common stock at a price of $0.40 per share. In addition, holders of outstanding Series A Preferred Stock will have a right to participate in any of our future debt or equity financings.

We agreed to file a registration statement with the Commission in order to register the resale of the shares issuable upon conversion of the Series A Preferred Stock, the Series B Preferred Stock and the shares issuable upon exercise of the warrants issued to such holders. We are not registering any shares of common stock issuable upon conversion of any Preferred Stock or exercise of any Long Term Warrant, which are issued upon any exercise of the Short Term Warrant.

As of April 20, 2006, we had 73,154,739 shares of common stock outstanding. The number of shares registered under this prospectus would represent approximately 87% of the total common stock outstanding, assuming conversion of the Series A Preferred Stock, the Series B Preferred Stock and upon issuance of the common stock being registered hereunder that is issuable upon exercise of our warrants. A total of 23,360,000 common shares are being registered herein in conjunction with outstanding warrants, and 6,043,487 common shares in conjunction with an agreement to pay accrued liquidated damages to our Series A and B preferred holders. None of these 29,567,854 shares have been issued, and/or may never be issued if (1) the underlying warrants expire un-excercised, or (2) if the accrued liquidated damages are waived by the holders, or negotiated lower or paid in cash by the Company. The number of shares ultimately offered for sale by the selling security holders is dependent on whether and to what extent such holders convert their shares of Series A Preferred Stock, the Series B Preferred Stock or exercise their warrants.

The common shares offered under this prospectus may be sold by the selling security holders on the public market, in negotiated transactions with a broker-dealer or market maker as principal or agent, or in privately negotiated transactions not involving a broker or dealer. Information regarding the selling security holders, the common shares they are offering to sell under this prospectus, and the times and manner in which they may offer and sell those shares is provided in the sections of this prospectus captioned “Selling Security Holders” and “Plan of Distribution.”

RISK FACTORS

An investment in our common shares involves a high degree of risk and is subject to many uncertainties. These risks and uncertainties may adversely affect our business, operating results and financial condition. Material risks and uncertainties that may affect our Company or securities are described below. If any of the following risks actually occur, our business, financial condition, or results or operations could be materially adversely affected, the trading of our common stock could decline, and you may lose all or part of your investment therein. You should acquire shares of our common stock only if you can afford to lose your entire investment. In order to attain an appreciation for these risks and uncertainties, you should read this prospectus in its entirety and consider all of the information and advisements contained in this prospectus, including the following risk factors and uncertainties.

Risks Relating to our Business

We have a limited operating history with significant losses and expect losses to continue for the foreseeable future. Should we continue to incur losses for a significant amount of time, the value of your investment in the common shares could decline and/or we may have to suspend operations and you could lose your entire investment.

We have yet to establish any history of profitable operations. We have incurred operating losses from operations of $8,095,448 for the year end December 31, 2005 and $3,972,194 for the year ended December 31, 2004 and have an accumulated deficit of $25,728,571 at December 31, 2005. Our revenues have not been sufficient to sustain our operations. Also, our net losses may increase from: the development of new products; the acquisition of licenses and rights to other business, products and services; research and development activities; marketing activities; and the general and administrative expenses associated with the above activities. These efforts may prove to be more expensive than we currently anticipate, which could further increase our net losses. We cannot predict when, or if, we will become profitable in the future. Furthermore, as digital media and digital publishing are continually developing technologies, the level of profitability, or lack thereof, cannot be accurately predicted. Even if we achieve profitability, we may not be able to sustain it.

Our independent registered public accounting firm has added an explanatory paragraph regarding our ability to continue as a going concern. If we cannot successfully continue as a going concern, you may lose your entire investment in our common shares.

We have a history of operating losses that are likely to continue in the future. Our independent registered public accounting firm has added an explanatory paragraph to their audit opinion issued in connection with the combined financial statements for the year ended December 31, 2005, to the effect that our significant losses from operations and our dependence on equity and debt financing raise substantial doubt about our ability to continue as a going concern. We may not be successful in addressing these issues. If we cannot successfully continue as a going concern, our shareholders may lose their entire investment in our common shares. Our ability to obtain additional funding will determine our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.

We may require additional financing to sustain our operations, and without it we may not be able to continue operations.

The Company has no formal arrangements with any party to provide ongoing or future financing. We have structured our recent Series A Preferred Stock offering to include warrants to purchase additional Series A 6% Convertible Preferred Stock, and additional common shares. In addition, the Company has other outstanding warrants, which if all were exercised could provide the Company with $19,455,616 in additional capital. Presently, the majority of our outstanding warrants are “out-of-the-money” and therefore the holders have no financial incentive to exercise them. There are no provisions in our agreements that would allow us to “force” the exercise of our warrants into common stock. Our inability to raise additional working capital or the failure to raise it in a timely manner would negatively impact our ability to fund our operations, to generate revenues, and to otherwise execute our business plan. This would lead to the reduction or suspension of our operations and ultimately our going out of

business. Should this occur, the value of your investment in the common shares would decline, and you could lose your entire investment.

Recent Financings may not be sufficient to finance our growth and operations.

We received gross proceeds of $3,040,000 in connection with our private placement of our Series A 6% Convertible Preferred Stock and gross proceeds of $4,920,000 in connection with our private placement of our Series B 6% Convertible Preferred Stock. Although we received an aggregate of $7,960,000, we still may not have enough funding to continue our operations. We have required substantial financing to fund our growth and operations since our inception. Our long-term financial success depends on our ability to generate sufficient revenue and cash flow to offset operating expenses. To the extent we do not generate sufficient revenues and cash flow to offset expenses we will require further financing to fund our ongoing operations. We cannot assure you that any additional financing will be available or if available, that it will be on favorable terms. The terms of any financing that we enter into will vary depending on many factors including, among other things, our then current financial condition, the market price of our common stock, and other characteristics and terms of our capital structure including outstanding options and warrants.

We may need to raise additional equity financing in order to continue operations.

We may seek to raise additional capital through private offerings of equity securities. Our issuance of additional equity securities could cause dilution to holders of our common stock and cause the market price of our common stock to decline substantially. If we are unable to obtain additional equity financing, our business prospects, operating results and financial condition may be materially and adversely affected to such an extent that we are forced to restructure, sell some of our assets or curtail our operations, any of which would have a detrimental effect on the value of our common stock and could cause you to lose some or all of your investment.

We may need to raise additional debt financing in order to continue operations.

We may seek to raise additional capital through private offerings of debt securities. The incurrence of additional debt securities could increase our interest expense and other debt service obligations and could result in the imposition of covenants that restrict our operational and financial flexibility. If we are unable to service our debt or interest obligations, our business prospects, operating results and financial condition may be materially and adversely affected to such an extent that we are forced to restructure, sell some of our assets or curtail our operations, any of which would have a detrimental effect on the value of our common stock and could cause you to lose some or all of your investment.

We have limited cash reserves and have a continuing cash-flow deficit that may not allow us to fund our ongoing operations and could cause us to limit or suspend operations.

At December 31, 2005, we had positive working capital of $779,856, however, we had an operating cash flow deficit of $5,995,711 for the year ended December 31, 2005, and an operating cash flow deficit of $2,937,939 for the year ended December 31, 2004. Based on our historical cash expenditures and taking into account current booked business we believe we currently have sufficient financial resources to fund our operations and those of our subsidiaries for approximately the next six months. However, we will need additional funds to continue these operations, and such additional funds may not be available when required.

We have a limited operating history and our results of operations may highly fluctuate from quarter to quarter as we continue to grow, therefore you cannot use these results to predict how we may perform in the future.

As a result of our limited operating history, we do not have historical financial data for a significant number of periods in which to base our planned operating expenses. Our expense levels are based in part on our projections as to future revenues that are expected to increase. It is anticipated that as we mature, our sales and operating results may fluctuate from quarter to quarter and from year to year due to a combination of factors, including among others the market acceptance of, and variability in demand for our digital media services, increased competition from

existing competitors and other companies entering our markets, our ability to compete against significantly larger and better funded competitors, and the number, timing, pricing and significance of new products and product introductions and enhancements by us and our competitors.

Any unfavorable changes in these or other factors could limit our ability to market our products and services, expand our operations, secure additional capital that may be required for growth or expansion, increase our demand for new capital to subsidize our operations and therefore affect the financial condition and results of our operations. The likelihood of the Company’s business success must be considered in light of the expenses, difficulties and delays frequently encountered in operating a new business and new management. Accordingly, the Company’s prospects must be considered speculative considering the risks, expenses, and difficulties frequently encountered in establishing a new business and considering other uncertainties in our industry. You must consider our prospects in light of the risks, expenses and difficulties we face as an early stage company with a limited operating history.

We will face intense competition from competitors that have greater financial, technical and marketing resources. These competitive forces may impact our projected growth and ability to generate revenues and profits, which would have a negative impact on our business and the value of your investment.

Our business is highly competitive. We will likely face competition from larger media, advertising and production companies offering similar or competing digital media solutions, many of which can be expected to have longer operating histories, greater name recognition, larger installed customer bases and significantly more financial resources, research and development facilities and manufacturing and marketing experience than us. Competitors may have already developed, or be in the process of developing technologies that are, or may be, the basis for competitive products to the Company’s current or planned lines of products. Some of these products may have an entirely different approach or means of accomplishing the same end results as products currently developed, or contemplated for development, by the Company. As a result, competitive products may render our products or proposed products or services obsolete.

We will also compete with large media conglomerates and publishers of traditional print publications such as magazines and newspapers. These competitors may have better access to content, advertisers and distribution, or these may be available to them at a lower cost than those available to us, thereby enabling them to provide similar services at lower costs than we may be willing to provide. In addition, these competitors may be better positioned than we are to market their products and services to clients because of their ability to offer additional services and products, and more favorable rates and terms. These factors could dramatically limit or reduce our ability to maintain or grow our portfolio of client companies, thereby reducing revenue sources from which we may rely upon to continue operations. Should any or all of these factors occur, it could lead to a decline in the price of our common stock, and/or the complete loss of your investment.

We must continue to enhance and expand our digital media services in order to stay competitive.

In order to remain competitive we must enhance our existing digital media services, develop and introduce new products and services, anticipate and meet specific customer requirements and respond to technological change. Any failure to do so in a timely manner may cause us to experience a decrease in demand for our products or our products could become obsolete which may cause us to lose customers and revenues and cause the results of our operations to suffer. The market for digital media services is characterized by rapid technological change, frequent new service offerings, new device introductions and changes in customer requirements, some of which are unique or on a customer-by-customer basis. The Company’s ability to respond quickly to consumer needs or advances in digital publishing technologies, without compromising product quality, will be crucial to our success. Our future success will depend to a substantial degree on our ability to offer services that incorporate leading technology, address the increasingly sophisticated, varied or individual needs of our current and prospective customers and respond to technological advances and emerging industry standards and practices on a timely and cost-effective basis.

Our products may become obsolete and we may not have the resources to stay competitive.

Our technology, services or products may be considered obsolete upon the introduction of alternative technologies. If we do not have sufficient resources, we may not be able to develop or acquire new technologies or have the ability

to introduce new services capable of competing with future technologies or service offerings. We may experience design, manufacturing, marketing and other difficulties that delay or prevent the development, introduction or marketing of new services and enhancements or we may need to reduce the price of our services as rapidly as the cost of any competitive alternatives.

In addition, the Company’s competitive position may be adversely affected by competitive product development or the acceptance or integration by the public or sponsors of new or other forms of digital media, formats or devices not anticipated or supported by the Company. In addition, our inability to effectively manage the transition from older services to newer services could cause disruptions to customer orders and harm our business and prospects.

We will not be competitive unless we continually introduce new services or enhancements to existing services that meet evolving industry standards and customer needs. In the future, we may not be able to effectively address the compatibility and interoperability issues that arise as a result of technological changes and evolving industry standards. The technical innovations required for us to remain competitive are inherently complex, require long development schedules and are dependent in some cases on sole source suppliers. We will be required to continue to invest in research and development in order to attempt to maintain and enhance our existing technologies and services, but we may not have the funds available to do so. Even if we have sufficient funds, these investments may not serve the needs of customers or be compatible with changing technological requirements or standards. Most development expenses must be incurred before the technical feasibility or commercial viability of new or enhanced services and applications can be ascertained. Revenue from future services or enhancements to services may not be sufficient to recover the associated development costs. If we are not able to stay ahead of these industry changes in technology, or if we should lack the appropriate capital to acquire or integrate new technologies, this could lead to our becoming uncompetitive, the loss of our customers or the inability for us to acquire new customers and hence to a decline in the public price of our stock, or the complete loss of your investment.

Our management must be able to manage rapid growth in order to execute our business plan.

We plan to grow rapidly, which will place strains on our management team and other Company resources to both implement more sophisticated managerial, operational and financial systems, procedures and controls and to train and manage the personnel necessary to implement those functions. Our inability to manage our growth could impede our ability to secure or maintain new customers, to generate revenues and profits and to otherwise implement our business plan and growth strategies, which would have the affect of limiting or reducing future revenues or profitability therefore causing a decline in the public price of our stock, or the complete loss of your investment.

Our growth plan requires us to commit substantial financial capital towards sales and marketing and operational administration, the affect of which may not have an immediate positive effect upon the results of our operations.

We will need to devote substantial resources to expand our sales and marketing function, especially focusing on the creation and marketing of our proprietary brands, and our marketing, sales, administrative, operational, financial and other systems and resources to implement our longer-term business plan and growth strategies. In addition, we may incur substantial expenses identifying and investigating strategic partners. This expansion and these expanded relationships will require us to significantly improve and replace our existing managerial, operational and financial systems, procedures and controls, to improve the coordination between our various corporate functions, and to manage, train, motivate and maintain a growing employee base. Our performance and profitability will depend on the ability of our officers and key employees to: manage our business and our subsidiaries as a cohesive enterprise; manage expansion through the timely implementation and maintenance of appropriate administrative, operational, financial and management information systems, controls and procedures; add internal capacity, facilities and third-party sourcing arrangements as and when needed; maintain service quality controls; and attract, train, retain, motivate and manage effectively our employees. The time and costs to effectuate these steps may place a significant strain on our management personnel, systems and resources, particularly given the limited amount of financial resources and skilled employees that may be available at the time. We may not be able to integrate and manage successfully new systems, controls and procedures for our business, or even if we successfully integrate our systems, controls, procedures, facilities and personnel, such improvements may not be adequate to support our projected future operations. The results of expenditures relating to these factors may not have a tangible and immediate positive affect upon the results of operations. In fact, we may never recoup expenditures incurred during this

expansion. Any failure to implement and maintain such changes could have the effect of increasing Selling, General and Administrative costs without a proportionate increase in sales or profitability thereby causing a decline in the public price of our stock, or even the complete loss of your investment.

We may undertake acquisitions to expand our business that may pose risks to our business and dilute the ownership of our existing stockholders.

As part of our growth we will continue to evaluate opportunities to acquire other businesses that would complement our current offerings, expand the breadth of markets we can service or enhance our services and products. Acquisitions that we may potentially make in the future entail a number of risks that could materially and adversely affect our business, operating and financial results, including:

	•		problems integrating the acquired operations, technologies or products with our existing business and products which could result in additional operating costs and lower profitability;

	•		the diversion of management’s time and attention from our core business which could result in slower growth or the loss of key customers, consultants and vendors;

	•		the need for financial resources above our planned investment levels which would require us to raise additional capital, or cut planned expansion or growth in other targeted markets or industries;

	•		difficulties in retaining business relationships or conflicts of interest with suppliers and customers of the acquired company;

	•		risks associated with entering markets in which we lack prior experience the result of which could cause us to devote resources to endeavors that may not be profitable, or divert resources from other projects or programs that may represent a better use of proceeds or resources;

	•		potential loss of key employees of the acquired company which would require us to locate and secure replacement personnel familiar with the acquired companies business activities; and

	•		potential requirements to amortize intangible assets which would have the immediate and direct effect of decreasing cash-on-hand without providing a corresponding increase/decrease in related expenses and/or net tangible assets. .

Future acquisitions could prove unviable or cause us to incur additional liabilities, which would reduce future profitability.

Future acquisitions also could cause us to incur debt or contingent liabilities and/or impairment related to goodwill and other intangibles and the incurrence of large, immediate write-offs or cause us to issue equity securities that would reduce the ownership percentages of existing stockholders. Moreover, we may never realize the anticipated benefits of any acquisition.

We are dependent upon certain key officers and consultants, which could impede our growth and operations if one or more of these officers terminate their employment.

We are dependent for our success on a few key executive officers and outside consultants. Our inability to retain those officers would impede our business plan and growth strategies, which would have a negative impact on our business and the value of your investment. Our success depends to a critical extent on the continued efforts of services of David G. MacEachern, our Chairman and Chief Executive Officer, Scott Kapp, our President and Director, Franklin H. Unruh, our Chief Operating Officer and Director, Anthony J. Fidaleo, our Chief Financial Officer, Kelly Konzelman, our Executive Vice President and Kevin Plate, our Executive Vice President of Sales and Business Development for our primary subsidiary iMedia US LLC. In addition, we are also dependant upon certain full-time consultants such as Penn Jones, Henry Williamson and John Brda. Were we to lose one or more of these key executive officers or consultants, we would be forced to expend significant time and money in the pursuit of a replacement, which would result in both a delay in the implementation of our business plan and the diversion of limited working capital. We currently have employment agreements in place with our key executives. Certain of these agreements may be terminated upon 14 days prior notice by either the Company or executive. We may not find satisfactory replacements for these key executive officers at all, or on terms that are not unduly expensive or burdensome to our Company. We do not currently carry a key-man life insurance policy on any of our employees, which would assist us in recouping our costs in the event of the loss of those officers.

If our consultants or collaborative partners do not perform, we may be unable to develop and bring to market new products as anticipated, which could limit our ability to grow, or secure new customers or revenues, and reduce or eliminate profitability thereby causing a decline in the public price of our stock, or even the complete loss of your investment.

We may in the future enter into consulting collaborative arrangements with third parties to develop products. These arrangements may not produce successful products. If we fail to establish these arrangements, the number of products from which we could receive future revenues will be limited. Our dependence on consulting or collaborative arrangements with third parties subjects us to a number of risks. These arrangements may not be on terms favorable to us. We cannot absolutely control the amount and timing of resources our consultants or collaborative partners may devote to our products, and these third parties may choose to pursue alternative products. These third parties also may not perform their obligations as expected. Business combinations, significant changes in their business strategy, or their access to financial resources may adversely affect a consultant’s or partner’s willingness or ability to complete its obligations under the arrangement. Moreover, we could become involved in disputes with our consultants or partners, which could lead to delays or termination of the arrangements and time-consuming and expensive litigation or arbitration. In addition, the Company’s consultants may be affiliated or employed by others and some may have consulting or other advisory arrangements with other entities that may conflict or compete with their obligations to the Company. The Company addresses such potential conflicts by requiring that its consultants, collaborators and sponsored researchers execute confidentiality agreements upon commencement of relationships with the Company, by closely monitoring the work of such persons and by requiring material transfer and intellectual property assignment agreements wherever possible and appropriate.

We are dependant upon our ability to hire additional qualified personnel.

Our inability to hire qualified personnel could impede our ability to generate revenues and profits and to otherwise implement our business plan and growth strategies, which would have a negative impact on our business and could adversely affect the value of your investment. We currently have an extremely small management and executive team comprised of six employees. Although we believe that our management team will be able to handle most of our additional management, administrative, research and development, sales and marketing, and manufacturing requirements in the short term, as we ramp up our sales and operations, we will nevertheless be required over the longer-term to hire highly skilled managerial, sales and marketing and administrative personnel to fully implement our business plan and growth strategies. We cannot assure you that we will be able to engage the services of such qualified personnel at competitive prices or at all, particularly given the risks of employment attributable to our limited financial resources and lack of an established track record.

Our status as a publicly traded company may impede our ability to attract qualified management.

We may have difficulty in attracting and retaining management and outside independent members to our board of directors as a result of their concerns relating to their increased personal exposure to lawsuits and shareholder claims by virtue of holding these positions in a publicly held company. The directors and management of publicly traded corporations are increasingly concerned with the extent of their personal exposure to lawsuits and shareholder claims, as well as governmental and creditor claims which may be made against them, particularly in view of recent changes in securities laws imposing additional duties, obligations and liabilities on management and directors. Due to these concerns, directors and management are also becoming increasingly concerned with the availability of directors and officers’ liability insurance to pay on a timely basis the costs incurred in defending shareholder claims. Although we have directors and officers insurance to cover a portion of this liability, it may become increasingly more difficult to attract and retain qualified outside directors to serve on our board of directors. The fees of directors are also rising in response to their increased duties, obligations and liabilities as well as increased exposure to such risks. As a company with a limited operating history and limited resources, we will have a more difficult time attracting and retaining management and outside independent directors than a more established company due to these enhanced duties, obligations and liabilities.

We rely on strategic relationships to promote our services and for access to licensed technology. If we fail to maintain or enhance existing relationships or obtain new relationships, our ability to serve our customers and develop new services could be harmed.

The Company is seeking to build alliances with leading national sponsors, media and publishing companies, distributors, financial organizations, automotive manufacturers and technology companies, and plans to continue its strategy of developing key alliances in order to expand its reach into the national and international marketplace. However, there can be no assurance that the Company will be successful in obtaining ongoing strategic alliances or that the Company will be able to find further suitable business relationships as it develops strategies and new products. Any failure to continue or expand such relationships could have a material adverse effect on the Company’s business, results of operations or financial condition.

Major risks associated with strategic alliances and partnerships are: the lack of control the Company may have over these operations, and the possibility that in the future, the Company’s strategic alliances will not develop or market products in competition with the Company, and/or discontinue their alliances with the Company or form alliances with the Company’s competitors.

Digital media distribution services in general are new and rapidly evolving and may not prove to be viable business models.

Our digital media solution distribution services are a relatively new business model for delivering digital media coupled with traditional print publications. It is too early to predict whether consumers will accept our products and services in significant numbers and accordingly whether our clients will use our digital media solutions to reach their audience or consumers. If digital media distribution services do not prove to be popular with consumers, or if these services cannot sustain any such popularity, our business and prospects may be materially and adversely affected. We may have to suspend operations if our business model is non-viable, which could result in a complete loss of your investment.

We are dependent on our ability to develop strategic relationships with media, entertainment and Internet organizations. There is no guarantee that the motion picture studios will continue to provide the Company with content and movie trailers at no cost.

The success of our operations is dependent in part on our ability to enter into and maintain strategic relationships and agreements with media, entertainment and Internet organizations. There can be no assurance that we will be able to develop and maintain these strategic relationships and, if we are unable to do so, our financial conditions and results of operations could be adversely impacted. Presently, the Company is being provided copyrighted theatrical movie trailers and other copyrighted public dissemination’s such as press releases, behind-the-scenes footage, video clips, celebrity interviews and other promotional media directly from film studios and other sources at no cost. This same promotional media is also made available to other companies, broadcasters and production facilities for their use and incorporation into various other broadcast mediums and products. Traditionally, this media has been provided free of charge in the form of industry “Press Kits” and made available for re-broadcast or re-distribution by third parties without license or fees. The Company will continue to rely upon the availability of this free media and content as the key component for the Hollywood Previews™ Entertainment Magazine. Although it is not anticipated, should in the future this content become unavailable, or should at any time studios begin charging a license or other royalties for the use or re-broadcast of its copyrighted materials, the Company’s ability to continue producing the Hollywood Previews™ Entertainment Magazine could be jeopardized, and the production and distribution of this core Company product could prove non-viable. This would have an immediate and materially adverse effect upon the Company’s revenue projections, and subsequently affect Company viability. In addition, our intellectual property library is dependent on our ability to identify and license current media content.

Our intellectual properties may be subject to infringement or attack.

We may not be able to protect our intellectual property, and we may be found to infringe on proprietary rights of others, which could harm our business. Should our intellectual property rights not adequately protect our products or technologies; others could compete against us more directly, which would adversely affect our sales and profitability. Our performance and ability to compete are dependent to a significant degree on our internally

developed and licensed content and technology. We rely on a combination of copyright, trademark and trade secret laws, confidentiality and nondisclosure agreements with our employees and with third parties and contractual provisions to establish and maintain our proprietary rights. We do not have any patents protecting our proprietary technology. There can be no assurance that the steps taken by us to protect our proprietary rights will be adequate, or that third parties will not infringe upon or misappropriate our copyrights, trademarks, service marks and similar proprietary rights. In addition, effective copyright and trademark protection may be unenforceable or limited in certain foreign countries. In the future, litigation may be necessary to enforce and protect our trademarks, service marks, trade secrets, copyrights and other intellectual property rights. Any such litigation would be costly and could divert management’s attention from other more productive activities. Adverse determinations in such litigation could result in the loss of certain of our proprietary rights, subject us to significant liabilities, and require us to seek licenses from third parties, or prevent us from selling our services.

Current trademarks may not be sufficient to protect our intellectual properties.

We own trademark registrations in the United States for many of the trademarks that we use. There can be no assurance that we will be able to secure adequate protection for these names or other trademarks in the United States or in foreign countries. If we obtain registration of those trademarks, we may not be able to prevent our competitors from using different trademarks that contain similar words. Many countries have a “first-to-file” trademark registration system; and thus we may be prevented from registering our marks in certain countries if third parties have previously filed applications to register or have registered the same or similar marks. It is possible that our competitors or others will adopt product or service names similar to ours, thereby impeding our ability to build brand identity and possibly leading to customer confusion.

Our inability to protect our trademarks adequately could impair our ability to maintain and expand such brands and thus impair our ability to generate revenue from these brands. We may become subject to liability for infringement of third-party intellectual property rights. There can be no assurance that third parties will not bring copyright or trademark infringement claims against us, or claim that our use of certain technology violates a patent. Even if these claims are not meritorious, they could be costly and could divert management’s attention from other more productive activities. If it is determined that we have infringed upon or misappropriated a third party’s proprietary rights, there can be no assurance that any necessary licenses or rights could be obtained on terms satisfactory to us, if at all. The inability to obtain any required license on satisfactory terms could force us to incur expenses to change the way we operate our businesses. If our competitors prepare and file applications that claim trademarks owned or registered by us, we may oppose these applications and have to participate in administrative proceedings to determine priority of right in the trademark, which could result in substantial costs to us, even if the eventual outcome is favorable to us. An adverse outcome could require us to license disputed rights from third parties or to cease using such trademarks. In addition, inasmuch as we use or license a portion of our content from third parties, our exposure to copyright infringement or right of privacy or publicity actions may increase; because we must rely upon such third parties for information as to the origin and ownership of such licensed content. We generally obtain representations as to the origins, ownership and right to use such licensed content and generally obtain indemnification to cover any breach of any such representations; however, there can be no assurance that such representations will be accurate or that such indemnification will provide adequate compensation for any breach of such representation. There can be no assurance that the outcome of any litigation between such licensors and a third party or between us and a third party will not lead to royalty obligations for which we are not indemnified or for which such indemnification is insufficient, or that we will be able to obtain any additional license on commercially reasonable terms if at all. We may be liable for the content we make available on the Internet.

We may be subject to various legal claims relating to content we may feature in our product and proprietary brands.

There is risk that we could become subject to various types of legal claims relating to the content we make available on our discs or the downloading and distribution of such content, including claims such as defamation, invasion of privacy and copyright infringement. Although we carry liability insurance that covers some types of claims to a limited extent, we do not carry special media insurance. Therefore, our insurance may not cover some or all potential claims of this type, and/or may not be adequate to cover all costs incurred in defense of potential claims or to indemnify us for all liability that may be imposed. Any costs or imposition of liability that is not covered by

insurance or in excess of insurance coverage could have a material adverse effect on our business, results of operations and financial condition.

Our operations could be negatively impacted by systems interruptions, which could affect on our reputation and business.

The hardware, software and discs used in our operations could be damaged by fire, floods, earthquakes, power loss, telecommunications failures, break-ins, electronic break-ins, computer viruses or other similar disruptive problems. These system problems could affect our business. Insurance may not adequately compensate us for any losses that may occur due to any failures or interruptions in systems. General Internet traffic interruptions or delays could also harm our business. Additionally, online service providers have experienced significant outages in the past, and could experience outages, delays and other difficulties due to system failures unrelated to our systems. To the extent our services are disrupted, we may be required to delay delivery of our discs, which may have a material adverse effect on our reputation and business.

Future government regulation concerning the Internet could adversely affect our business.

Government regulations of the Internet could adversely impact the business of our clients, which could have a material adverse effect on our ability to market and sell our products. The application of existing laws and regulations to our business and our clients’ business relating to issues such as user privacy, pricing, taxation, content, sweepstakes, copyrights, trademarks, advertising, and the characteristics and quality of our products and services can be unclear. Our clients and us may be subject to new laws and regulations related to our business. Although we endeavor to comply with all applicable laws and regulations and believe that we are in compliance, because of the uncertainty of existing laws and the possibility that new laws may be adopted, there is a risk that we will not be in full compliance.

Current U.S. laws could negatively affect our business.

Several federal laws could have an impact on our business. The Digital Millennium Copyright Act establishes binding rules that clarify and strengthen protection for copyrighted works in digital form, including works used via the Internet and other computer networks. The Child Online Protection Act is intended to restrict the distribution of certain materials deemed harmful to children. The Children’s Online Privacy Protection Act of 1998 protects the privacy of children using the Internet, by requiring, among other things, (1) that in certain specific instances the operator of a website must obtain parental consent before collecting, using or disclosing personal information from children under the age of 13, (2) the operator of a website to make certain disclosures and notices on the website or online service regarding the collection, use or disclosure of such personal information, and (3) the operator of a website or online service to establish and maintain reasonable procedures to protect the confidentiality, security and integrity of personal information collected from children under the age of 13. Our efforts to comply with these and other laws subject our business to additional costs, and failure to comply could expose the business our clients and us to liability, which may have an adverse effect on our business.

We may not meet all compliance requirements of the Sarbanes-Oxley Act by the applicable compliance deadline.

New rules, including those contained in and issued under the Sarbanes-Oxley Act of 2002, may make it difficult for us to retain or attract qualified officers and directors, which could adversely affect the management of our business and our ability to obtain or retain listing of our Common Stock. The enactment of the Sarbanes-Oxley Act of 2002 has resulted in the issuance of a series of new rules and regulations and the strengthening of existing rules and regulations by the SEC. These developments have increased our legal compliance and financial reporting costs. We may be unable to attract and retain qualified officers, directors and members of board committees required to provide for our effective management as a result of the recent and currently proposed changes in the rules and regulations which govern publicly held companies, including, but not limited to, certifications from executive officers and requirements for financial experts on the board of directors. The perceived increased personal risk associated with these recent changes may deter qualified individuals from accepting these roles. We are presently evaluating and monitoring regulatory developments and cannot estimate the timing or magnitude of additional costs we may incur as a result. Further, certain of these recent and proposed changes heighten the requirements for board

or committee membership, particularly with respect to an individual’s independence from the corporation and level of experience in finance and accounting matters. We may have difficulty attracting and retaining directors with the requisite qualifications. If we are unable to attract and retain qualified officers and directors, the management of our business could be compromised, or cause our common stock to be delisted from the OTC Bulletin Board.

Our internal controls over financial reporting may not be effective, and our independent auditors may not be able to certify as to their effectiveness, which could cause our stock to become de-listed.

We are evaluating our internal controls over financial reporting to allow management to report on, and our independent auditors to attest to, our internal controls over financial reporting, as will be required by Section 404 of the Sarbanes-Oxley Act of 2002 and the rules and regulations of the SEC, which we collectively refer to as Section 404. We are currently performing the system and process evaluation and testing required in an effort to comply with the management assessment and auditor certification requirements of Section 404, which will initially apply to us for the fiscal year ending December 31, 2007. In the course of our ongoing Section 404 evaluations, we may identify conditions that may result in significant deficiencies or material weaknesses in the future.

Risks Relating to an Investment in Our Securities

Our executive officers and directors own or control a large portion of our outstanding common shares.

Our Executive Officers and Directors beneficially own or control approximately 42% of our common shares, which may limit the ability of yourself or other shareholders, whether acting singly or together, to propose or direct the management or overall direction of our Company. Additionally, this concentration of ownership could discourage or prevent a potential takeover of our Company that might otherwise result in you receiving a premium over the market price for your common shares. As a result, they will have the ability to control substantially all matters submitted to our shareholders for approval and to control our management and affairs, including extraordinary transactions such as mergers and other changes of corporate control, and going private transactions.

The application of the “penny stock” rules could adversely affect the market price of our common shares and increase your transaction costs to sell those shares.

As long as the trading price of our common shares is below $5 per share, the open-market trading of our common shares will be subject to the “penny stock” rules. The “penny stock” rules impose additional sales practice requirements on broker-dealers who sell securities to persons other than established customers and accredited investors (generally those with assets in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together with their spouse). For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of securities and have received the purchaser’s written consent to the transaction before the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the broker-dealer must deliver, before the transaction, a disclosure schedule prescribed by the Securities and Exchange Commission relating to the penny stock market. The broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements must be sent disclosing recent price information on the limited market in penny stocks. These additional burdens imposed on broker-dealers may restrict the ability or decrease the willingness of broker-dealers to sell the common shares, and may result in decreased liquidity for our common shares and increased transaction costs for sales and purchases of our common shares as compared to other securities.

Our common shares are thinly traded, so you may be unable to sell at or near ask prices or at all if you need to sell your shares to raise money or otherwise desire to liquidate your shares.

Our common shares have historically been sporadically or “thinly-traded” on the OTC Bulletin Board, meaning that the number of persons interested in purchasing our common shares at or near ask prices at any given time may be relatively small or non-existent. This situation is attributable to a number of factors, including the fact that we are a small company which is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and would be reluctant to follow an unproven company such as ours or purchase

or recommend the purchase of our shares until such time as we became more seasoned and viable. As a consequence, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. We cannot give you any assurance that a broader or more active public trading market for our common shares will develop or be sustained, or that current trading levels will be sustained.

The conversion or exercise of Series A Preferred Stock, Series B Preferred Stock and warrants into our common stock could cause our common stock price to decline due to the additional shares available in the market, particularly in light of the relatively thin trading volume of our common stock.

The market price of our common stock could decline and the voting power and value of your investment would be subject to continual dilution if the holders of our Series A Preferred Stock, Series B Preferred Stock and warrants convert their holdings into common stock and resell those shares into the market. As of May 1, 2006, we had an aggregate of approximately 19.9 million shares of common stock issuable upon conversion of our outstanding Series A Preferred Stock and Series B Preferred Stock and approximately 37,958,150 common shares issuable upon exercise of various outstanding warrants. If all outstanding Series A and Series B Preferred shares were converted, and all outstanding warrants for common shares were exercised, approximately 131,012,889 shares of common stock would be held by our security holders, including approximately 48,390,581 shares of common stock held by holders of Series A and Series B Preferred Stock.

Limitations to 4.99% beneficial ownership by certain institutions may not prevent substantial dilution of voting power to common stock holders.

No holder of our Series A Preferred Stock or Series B Preferred Stock may convert any portion of their holdings to the extent that after giving effect to such conversion, such holder (together with such holder’s affiliates), would beneficially own in excess of 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to such conversion. However, such holder may waive the 4.99% limitation upon 61 days prior notice to the Company. In addition, this 4.99% limitation does not prevent any holder from converting the Series A Preferred Stock or Series B Preferred Stock into shares of our common stock and then reselling those shares at times when neither they nor their affiliates beneficially own shares in excess of the 4.99% limitation. Therefore, by periodically selling our common shares into the market, such holder together with its affiliates could in the aggregate sell more than 4.99% of our outstanding common shares. Consequently, the 4.99% limitation will not necessarily prevent substantial dilution of the voting power and value of your investment.

All shares in this offering will be freely tradable once sold pursuant to the terms outlined in the Plan of Distribution in this prospectus.

Each selling security holder may sell none, some or all of the common shares registered under this prospectus at any time. Depending upon market liquidity at the time, a sale of shares under this offering at any given time could cause the trading price of our common stock to decline. The sale of a substantial number of shares of our common stock under this offering, or anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect sales. In addition, sales of large amount of these shares in the public market could substantially depress the prevailing market prices for our shares. If that were to happen, the value of your investment could decline substantially.

The public market price for our shares is extremely volatile.

The market price for our common shares is particularly volatile given our status as a relatively unknown Company with a small and thinly traded public float, limited operating history and lack of profits which could lead to wide fluctuations in our share price. The price at which you purchase our common shares may not be indicative of the price that will prevail in the trading market. You may be unable to sell your common shares at or above your purchase price, which may result in substantial losses to you. The market for our common shares is characterized by significant price volatility when compared to seasoned issuers, and we expect that our share price will continue to be more volatile than a seasoned issuer for the indefinite future. The volatility in our share price is attributable to a number of factors. First, as noted above, our common shares are sporadically and thinly traded. As a consequence of

this lack of liquidity, the trading of relatively small quantities of shares by our shareholders may disproportionately influence the price of those shares in either direction. The price for our shares could, for example, decline precipitously in the event that a large number of our common shares are sold on the market without commensurate demand, as compared to a seasoned issuer which could better absorb those sales without adverse impact on its share price. Secondly, we are a speculative or “risky” investment due to our limited operating history and lack of profits to date, and uncertainty of future market acceptance for our products. As a consequence of this enhanced risk, more risk-adverse investors may, under the fear of losing all or most of their investment in the event of negative news or lack of progress, be more inclined to sell their shares on the market more quickly and at greater discounts than would be the case with the stock of a seasoned issuer. Many of these factors are beyond our control and may decrease the market price of our common shares, regardless of our operating performance. We cannot make any predictions or projections as to what the prevailing market price for our common shares will be at any time, including as to whether our common shares will sustain their current market prices, or as to what effect that the sale of shares or the availability of common shares for sale at any time will have on the prevailing market price.

The Company’s limited shareholder base and lack of trading activity make our stock vulnerable to manipulation by outside promoters, market makers or broker-dealers.

Shareholders should be aware that, according to SEC Release No. 34-29093, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include (1) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (2) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (3) boiler room practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (4) excessive and undisclosed bid-ask differential and markups by selling broker-dealers; and (5) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the resulting inevitable collapse of those prices and with consequent investor losses. Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive within the confines of practical limitations to prevent the described patterns from being established with respect to our securities. The occurrence of these patterns or practices could increase the volatility of our share price.

Volatility in our common share price may subject us to securities litigation, thereby diverting our resources that may have a material adverse effect on our results of operations.

As discussed in the preceding risk factor, the market for our common shares is characterized by significant price volatility when compared to seasoned issuers, and we expect that our share price will continue to be more volatile than a seasoned issuer for the indefinite future. In the past, plaintiffs have often initiated securities class action litigation against a company following periods of volatility in the market price of its securities. We may in the future be the target of similar litigation. Securities litigation could result in substantial costs and liabilities and could divert management’s attention and resources. This could have the effect of limiting available capital the Company requires for growth, general and administrative expenses and corporate governance requirements, thereby limiting sales, revenues and related profitability causing a decline in the public market price of our shares, or even the loss of your investment.

To date, we have not paid any cash dividends on our common stock and no cash dividends on our common stock will be paid in the foreseeable future. We are required to pay quarterly dividends to our outstanding shares of Series A Preferred Stock and Series B Preferred Stock.

We do not anticipate paying cash dividends on our common shares in the foreseeable future. We may not have enough funds to legally pay dividends. Even if funds are legally available to pay dividends, we may nevertheless decide in our sole discretion not to pay dividends. In addition, we cannot pay any dividends on our common stock if any dividends due on our outstanding Series A Preferred Stock or Series B Preferred Stock are unpaid. Holders of Series A Preferred Stock are entitled to receive cumulative dividends of 6% per annum, based on the stated value of $1,000 per share. Holders of Series B Preferred Stock are entitled to receive cumulative dividends based on the stated value of $1,000 per share of Preferred Stock at the rate of 6% per annum until August 22, 2009, 9% per annum from August 22, 2009 until August 22, 2010 and 14% thereafter until the Preferred Stock is no longer

outstanding. Dividends on our Series A and Series B Preferred Stock are be payable quarterly on March 1, June 1, September 1 and December 1, which further limits our ability to pay dividends on our common shares.

We may issue additional preferred shares or warrants to purchase preferred shares.

Our issuance of additional preferred shares, or options or warrants to purchase those shares, could negatively impact the value of your investment in our common shares as the result of preferential voting rights or veto powers, dividend rights, disproportionate rights to appoint directors to our board, conversion rights, redemption rights and liquidation provisions granted to the preferred shareholders, including the grant of rights that could discourage or prevent the distribution of dividends to you, or prevent the sale of our assets or a potential takeover of our company that might otherwise result in you receiving a distribution or a premium over the market price for your common shares. The conversion of our outstanding preferred shares could result in the substantial dilution of your investment in terms of your percentage ownership in the company as well as the book value of your common shares. The sale of a large amount of common shares received upon the conversion of outstanding preferred shares, could substantially depress the prevailing market prices for our common stock.

We intend to issue additional common shares, or warrants to purchase common shares in the future.

We are entitled under our certificate of incorporation to issue up to 500,000,000 common shares and 20,000,000 “blank check” preferred shares. As of April 20, 2006, after taking into consideration our outstanding common and preferred shares, we will be entitled to issue up to 426,845,261 additional common shares (or 406,945,261 common shares assuming the full conversion of all outstanding Series A and B Convertible Preferred Shares) and 19,992,040 additional preferred shares. Our board may generally issue those common and preferred shares, or options or warrants to purchase those shares, without further approval by our shareholders based upon such factors as our board of directors may deem relevant at that time. Any preferred shares we may issues shall have such rights, preferences and privileges.

Should holders of our Series A and Series B preferred shares convert their shares to common stock, you could suffer substantial and immediate dilution.

In the event of the conversion of our preferred shares and subsequent sale of our common shares, you could suffer substantial dilution of your investment in terms of your percentage ownership in the company as well as the book value of your common shares. Potential dilutive effects of future sales of our common shares by our stockholders, pursuant to this prospectus could have an adverse effect on the prices of our securities.

Our Articles of Incorporation and Bylaws provide indemnification and liability protection to our officers, directors and employers.

The elimination of monetary liability against our directors, officers and employees under our certificate of incorporation and the existence of indemnification rights to our directors, officers and employees may result in substantial expenditures by our company and may discourage lawsuits against our directors, officers and employees. Our certificate of incorporation contains provisions, which eliminate the liability of and indemnify our directors for monetary damages to our company and shareholders to the maximum extent permitted under Delaware corporate law. We may also have contractual indemnification obligations under our agreements with our directors, officers and employees. The foregoing indemnification obligations could result in our company incurring substantial expenditures to cover the cost of settlement or damage awards against directors, officers and employees, which we may be unable to recoup. These provisions and resultant costs may also discourage our company from bringing a lawsuit against directors, officers and employees for breaches of their fiduciary duties, and may similarly discourage the filing of derivative litigation by our shareholders against our directors, officers and employees even though such actions, if successful, might otherwise benefit our company and shareholders.

USE OF PROCEEDS

This prospectus relates to shares of our common stock that may be offered and sold from time to time by selling security holders. We will receive no proceeds from the sale of shares of common stock in this offering, except upon exercise of the warrants other than by a cashless exercise. In that case, we would receive up to approximately $19,455,616. Warrant holders who were issued a warrant in conjunction with the Series A 6% Convertible Preferred Stock or Series B 6% Convertible Preferred Stock offerings may exercise warrants pursuant to a cashless exercise provision only if after May 24, 2006 and August 28, 2006, respectively, there is no effective registration statement or current prospectus available for resale of the Warrant Shares by the holder. If the Company is unsuccessful in obtaining an effective registration for the shares underlying these warrants by the respective dates, and the holders of these warrants were to exercise their warrants pursuant to a cashless exercise feature, we would not receive any additional proceeds from these warrants.

We will bear all expenses incident to the registration of the shares of our common stock under Federal and state securities laws other than expenses incident to the delivery of the shares to be sold by the selling security holders. Any transfer taxes payable on these shares and any commissions and discounts payable to underwriters, agents, brokers or dealers will be paid by the selling security holder.

On May 23, 2005, we received $3,040,000 in connection with the sale of our Series A 6% Convertible Preferred Stock. We have used those proceeds, net our cash offering expenses of approximately $259,000, as follows: first, $1,130,000 to repay indebtedness; second, $1,651,000 for selling, general and administrative expenses and for working capital.

On August 22, 2005, we received $4,920,000 in connection with the sale of our Series B 6% Convertible Preferred Stock. We used or plan to use these proceeds, net of our cash offering expenses of approximately $686,000, as follows: first, up to $250,000 for marketing and advertising; second, up to $1,200,000, to increase our employee base; third, up to $250,000, for investor relations and public relations; and the balance for working capital and general corporate purposes, including but not limited to financing current and future projects.

The proceeds from exercise of the warrants held by the selling security holders, other than by a cashless exercise, will be used for working capital and general corporate purposes.

SELLING SECURITY HOLDERS

The following table presents information regarding the selling security holder. Unless otherwise stated below, to our knowledge no selling security holder nor any affiliate of such shareholder has held any position or office with, been employed by or otherwise has had any material relationship with us or our affiliates during the three years prior to the date of this prospectus. Except as disclosed under the section entitled “Plan of Distribution,” none of the selling security holders are members of the National Association of Securities Dealers, Inc. The selling security holders may be deemed to be “underwriters” within the meaning of the Securities Act of 1933. The number and percentage of shares beneficially owned before and after the sales is determined in accordance with Item 507 of Regulation S-B, and the information is not necessarily indicative of beneficial ownership for any other purpose. We believe that each individual or entity named has sole investment and voting power with respect to the securities indicated as beneficially owned by them, subject to community property laws, where applicable, except where otherwise noted. The total number of common shares sold under this prospectus may be adjusted to reflect adjustments due to stock dividends, stock distributions, splits, combinations or recapitalizations.

For purposes of calculating the percentage of shares owned after the offering, we assumed the sale of all common shares offered under this prospectus. However, the selling security holders are under no obligation to sell all or any portion of the common shares offered for sale under this prospectus. Accordingly, no estimate can be given as to the amount or percentage of our common shares that will ultimately be held by the selling security holders upon termination of sales pursuant to this prospectus.

Our aggregate offering costs in connection with the offering of our Series A and Series B 6% Convertible Preferred Stock was approximately $1,080,716. The percentage of outstanding shares is based on 73,154,735 shares of common stock outstanding as of April 20. 2006.


						Percentage of
	Shares					Outstanding
	Beneficially					Shares
	Owned					Beneficially
	Before			Shares to be Sold		Owned After
Selling Security Holder	Offering			in the Offering		Offering

Abdou, Mark		10,000	⁽¹⁾		10,000	*
Adams, Carol		30,000			30,000	*
Allen, John		290,302	⁽²⁾		320,302	*
Anasazi Partners III Offshore, Ltd.		467,620	⁽³⁾		523,870	*
Anasazi Partners III, LLC		467,620	⁽⁴⁾		523,870	*
AS Capital Partner LLC		305,350	⁽⁵⁾		342,850	*
Atlanticcity.com, Inc		623,493	⁽⁶⁾		698,493	*
ACS Holdings, LLC		285,450	⁽⁷⁾		285,450	*
Augustine Fund, LP		50,000	⁽⁸⁾		50,000	*
Axiom Capital Management		741,250	⁽⁹⁾		741,250	*
Baker, Christopher P.		467,620	⁽¹⁰⁾		523,870	*
Barron, Bruce N. and Jacqueline A.		311,747	⁽¹¹⁾		349,247	*
Bauman, Gabor		93,570	⁽¹²⁾		93,570	*
Baxter Capital Advisors, Inc.		50,000	⁽¹³⁾		50,000
Bear Sterns Security Corp FBO Barry W. Zelin		305,350	⁽¹⁴⁾		342,850	*


						Percentage of
	Shares					Outstanding
	Beneficially					Shares
	Owned					Beneficially
	Before			Shares to be Sold		Owned After
Selling Security Holder	Offering			in the Offering		Offering

Brda, John		43,750	⁽¹⁵⁾		43,750	*
Calicchia, Vince		21,375	⁽¹⁶⁾		21,375	*
CAMOFI Master LDC		4,676,202	⁽¹⁷⁾		5,238,702	*
Canfield, Michel D.		155,873	⁽¹⁸⁾		174,623	*
Castle Creek Technology Partners, LLC		610,700	⁽¹⁹⁾		685,700	*
CEO Cast, Inc.		75,000	⁽²⁰⁾		75,000	*
Chernick, Murray		623,493	⁽²¹⁾		698,493	*
Cordillera Fund, L.P.		1,246,987	⁽²²⁾		1,396,987	*
Crestview Capital Master, LLC		6,106,999	⁽²³⁾		6,856,999	*
Darrell J. Dettling 1992 Revocable Trust		91,605	⁽²⁴⁾		102,855	*
Davidowitz, Rosalind		2,493,974	⁽²⁵⁾		2,793,974	*
DCI Master LDC		311,747	⁽²⁶⁾		349,247	*
Draper, Mike		43,750	⁽²⁷⁾		43,750	*
Enable Growth Partners LP		2,198,519	⁽²⁸⁾		2,468,519	*
Enable Opportunity Partners LP		244,280	⁽²⁹⁾		274,280	*
Forfeited 962 Trust		152,675	⁽³⁰⁾		171,425	*
Fryermuth, Reed		35,000	⁽³¹⁾		35,000	*
Gilmore, David & Arlene		249,398	⁽³²⁾		279,398	*
Greenfield, Randy and Randi		935,241	⁽³³⁾		1,047,741	*
Harman Stoller Capital Partners II LTD		125,323	⁽³⁴⁾		140,398	*
Headblom, Per		510	⁽³⁵⁾		510	*
Hirsh, Nicholas		47,500	⁽³⁶⁾		47,500	*
Hoffer, Carol		717,018	⁽³⁷⁾		803,268	*
Irvine Capital International, Ltd.		483,207	⁽³⁸⁾		541,332	*
Irvine Capital Partner, L.P.		828,705	⁽³⁹⁾		937,455	*
Irvine Capital Partners III, L.P.		246,822	⁽⁴⁰⁾		267,447	*
Jaqueten, Jean Sebastian		5,765	⁽⁴¹⁾		5,765	*
Jordon, David		4,442,799	⁽⁴²⁾		4,742,799	*
JP Turner and Company		100,000	⁽⁴³⁾		100,000	*
KBK Ventures, Inc.		1,345,000	⁽⁴⁴⁾		1,345,000	*
K-Com Communications, Inc.		350,000	⁽⁴⁵⁾		350,000	*
Kove, Vivienne		75,000			75,000	*
Kramer, Sheila G.		467,620	⁽⁴⁶⁾		523,870	*
Luskin, Bernard J. and Toni		155,873	⁽⁴⁷⁾		174,623	*
Manolovici, G.E. and Nancy		311,747	⁽⁴⁸⁾		349,247	*
McCullagh, Michael P.		25,000			25,000	*
Michael L. Gruber MD Defined Benefit Pension Plan		124,698	⁽⁴⁹⁾		139,698	*


						Percentage of
	Shares					Outstanding
	Beneficially					Shares
	Owned					Beneficially
	Before			Shares to be Sold		Owned After
Selling Security Holder	Offering			in the Offering		Offering

MicroCapital Fund, LP		666,623	⁽⁵⁰⁾		666,623	*
MicroCapital Fund, LTD		999,933	⁽⁵¹⁾		999,933	*
Mid South Capital, Inc.		15,500	⁽⁵²⁾		15,500	*
Midsummer Investment, Ltd		9,352,404	⁽⁵³⁾		10,477,404	*
Miltenberg, Andrew		311,747	⁽⁵⁴⁾		349,247	*
Muth, Dudley		3,000			3,000	*
Nite Capital LP		610,700	⁽⁵⁵⁾		685,700	*
Paradigm Equities Fund II LTD		365,367	⁽⁵⁶⁾		409,317	*
Petschek, Jay		311,747	⁽⁵⁷⁾		349,247	*
Polinsky, Douglas		124,698	⁽⁵⁸⁾		139,698	*
Pollan, Steven		350,000	⁽⁵⁹⁾		350,000	*
Professional Traders Fund, LLC		623,493	⁽⁶⁰⁾		698,493	*
RHP Master Fund Ltd.		1,526,750	⁽⁶¹⁾		1,714,250	*
Richardson & Patel LLP		152,500	⁽⁶²⁾		152,500	*
Rodriguez, Ricardo		61,070	⁽⁶³⁾		68,570	*
ROI Group Associates		127,500	⁽⁶⁴⁾		127,500	*
Salzwedal Financial Communications, Inc.		500,000	⁽⁶⁵⁾		500,000	*
Sanders 1998 Children’s Trust		610,700	⁽⁶⁶⁾		685,700	*
Sanders Morris Harris		60,000	⁽⁶⁷⁾		60,000	*
Sanders Opportunity Fund Inst. LP		937,180	⁽⁶⁸⁾		1,052,275	*
Sanders Opportunity Fund LP		284,220	⁽⁶⁹⁾		319,125	*
Sanders, Don		916,050	⁽⁷⁰⁾		1,028,550	*
Sanders, Katherine U.		610,700	⁽⁷¹⁾		685,700	*
Sanson, Mark		5,255	⁽⁷²⁾		5,255	*
Schaffer, Gerald W. and Elaine		124,698	⁽⁷³⁾		139,698	*
Schaffer, William D. and Patricia E.		124,698	⁽⁷⁴⁾		139,698	*
Schaffer, William J.		62,350	⁽⁷⁵⁾		69,850	*
Shemano, Gary		35,253	⁽⁷⁶⁾		35,253	*
Solomon Grey Financial Services		144,248	⁽⁷⁷⁾		144,248	*
SPGP		240,000	⁽⁷⁸⁾		240,000	*
Stanley S. Raphael Trust		623,493	⁽⁷⁹⁾		698,493	*
The Harman Stoller Capital Partners Master Fund Ltd.		600,424	⁽⁸⁰⁾		672,649	*
vFinance Investments, Inc.		23,875	⁽⁸¹⁾		23,875	*
Vincent Manngard and Eric Manngard Partnership		623,493	⁽⁸²⁾		698,493	*
Bear Stearns Security Corp, Custodian FBO Vozick, David IRA		311,747	⁽⁸³⁾		349,247	*
Weir, Donald and Julie		305,350	⁽⁸⁴⁾		342,850	*


						Percentage of
	Shares					Outstanding
	Beneficially					Shares
	Owned					Beneficially
	Before			Shares to be Sold		Owned After
Selling Security Holder	Offering			in the Offering		Offering

Weiskopf, Silver & Co., L.P.		311,747	⁽⁸⁵⁾		349,247	*
Bear Stearns Security Corp, Custodian FBO Sammy Wilder IRA		311,747	⁽⁸⁶⁾		349,247	*
Zelin, Barry		250,000	⁽⁸⁷⁾		250,000	*

Total		58,288,787			64,258,787


*		Represents less than 1.0%

1.		Includes 10,000 shares of common stock issuable upon exercise of a warrant. Mark Abdou is an associate at Richardson & Patel LLP, legal counsel to the Company. The address of Richardson & Patel LLP is 10900 Wilshire Boulevard, Suite 500, Los Angeles, California 90024.

2.		Includes 100,000 shares of common stock issuable upon conversion of shares of Series A 6% Convertible Preferred Stock and 100,000 shares of common stock issuable upon exercise of a warrant.

3.		Includes 187,500 shares of common stock issuable upon conversion of shares of Series B 6% Convertible Preferred Stock and 225,000 shares of common stock issuable upon exercise of a warrant. Christopher P. Baker is the control person and Manager of Anasazi Partners III Offshore, Ltd. The address of Anasazi Partners III Offshore, Ltd. is 99 High Street, 7th Floor, Boston, MA 02110.

4.		Includes 187,500 shares of common stock issuable upon conversion of shares of Series B 6% Convertible Preferred Stock and 225,000 shares of common stock issuable upon exercise of a warrant. Christopher P. Baker is the Manager and control person of Anasazi Partners III, LLC. The address of Anasazi Partners III, LLC. is 99 High Street, 7th Floor, Boston, MA 02110.

5.		Includes 125,000 shares of common stock issuable upon conversion of shares of Series A 6% Convertible Preferred Stock and 125,000 shares of common stock issuable upon exercise of a warrant. AS Capital Partner, LLC is a limited liability corporation and Michael Coughlin is the controlling person and has voting and investment power over the shares being offered under this prospectus. The address of AS Capital Partner, LLC is 2 Rector Street, 3rd Floor New York, NY 10006.

6.		Includes 250,000 shares of common stock issuable upon conversion of shares of Series B 6% Convertible Preferred Stock and 300,000 shares of common stock issuable upon exercise of a warrant. David Kaleky has voting and investment power over the shares being offered under this prospectus. The address of Atlanticcity.com, Inc. is 6503 N. Military Trail, #2801, Boca Raton, FL 33496.

7.		Consists of 285,450 shares of common stock issuable upon exercise of a warrant. Steven Pollan has voting and investment power over the shares being offered under this prospectus. The address of ASC Holdings is 405 Lexington Avenue, 47th Floor, New York, NY 10174.

8.		Consists of 50,000 shares of common stock issuable upon exercise of a warrant. John Porter has voting and investment power over the shares being offered under this prospectus. The address of Augustine Fund, LP is 141 W. Jackson Boulevard, #2182, Chicago, IL 60604.

9.		Consists of 741,250 shares of common stock issuable upon exercise of a warrant. Mark Martino is the control person an officer of Axiom Capital Management, Inc. The address of Axiom Capital Management Inc. is 780 Third Avenue, New York, NY 10017.

10.		Includes 187,500 shares of common stock issuable upon conversion of shares of Series B 6% Convertible Preferred Stock and 225,000 shares of common stock issuable upon exercise of a warrant.

11.		Includes 125,000 shares of common stock issuable upon conversion of shares of Series B 6% Convertible Preferred Stock and 150,000 shares of common stock issuable upon exercise of a warrant.

12.		Consists of 93,570 shares of common stock issuable upon exercise of a warrant.

13.		Consists of 25,000 shares of common stock issuable upon exercise of a warrant. Peter Baxter has voting and investment power over the shares being offered under this prospectus. The address of Baxter Capital is c/o MidSouth Capital Inc., 3500 Peachtree Parkway Suite 410, Norcross, GA 30092

14.		Includes 125,000 shares of common stock issuable upon conversion of shares of Series A 6% Convertible Preferred Stock and 125,000 shares of common stock issuable upon exercise of a warrant. Barry Zelin has voting and investment power over the shares being offered under this prospectus. The address of Bear Sterns Security Corp. is 300 East 56th Street, New York, NY 10022.

15.		Consists of 43,750 shares of common stock issuable upon exercise of a warrant.

16.		Consists of 21,375 shares of common stock issuable upon exercise of a warrant.

17.		Includes 1,875,000 shares of common stock issuable upon conversion of shares of Series B 6% Convertible Preferred Stock and 2,250,000 shares of common stock issuable upon exercise of a warrant. Jeffrey Haas


		has voting and investment power over the shares being offered under this prospectus. The address of CAMOFI Master LDC is 830 Third Avenue, New York, NY 10022.

18.		Includes 62,500 shares of common stock issuable upon conversion of shares of Series B 6% Convertible Preferred Stock and 75,000 shares of common stock issuable upon exercise of a warrant.

19.		Includes 250,000 shares of common stock issuable upon conversion of shares of Series A 6% Convertible Preferred Stock and 250,000 shares of common stock issuable upon exercise of a warrant. Stephen Friend is the controlling person of Castle Creek Tech-Partners and has voting and investment power over the shares being offered under this prospectus. The address of Castle Creek Technology Partners, LLC is 111 West Jackson Blvd., Suite 2020 Chicago, IL 60604.

20.		Michael Wachs is the controlling person of CEO Cast, Inc and has voting and investment power over the shares being offered under this prospectus. The address of CEO Cast, Inc is 55 John Street, 11^th Floor, New York, NY 10038.

21.		Includes 250,000 shares of common stock issuable upon conversion of shares of Series B 6% Convertible Preferred Stock and 300,000 shares of common stock issuable upon exercise of a warrant.

22.		Includes 500,000 shares of common stock issuable upon conversion of shares of Series B 6% Convertible Preferred Stock and 600,000 shares of common stock issuable upon exercise of a warrant. James P. Andrew has voting and investment power over the shares being offered under this prospectus. The address of Cordillera Fund, L.P. is 8201 Preston Road, Suite 400, Dallas, TX 75225.

23.		Includes 2,500,000 shares of common stock issuable upon conversion of shares of Series A 6% Convertible Preferred Stock and 2,500,000 shares of common stock issuable upon exercise of a warrant. Stewart Flink, Robert Hoyt and Daniel Warsh have voting and investment power over the shares being offered under this prospectus. The address of Crestview Capital Master, LLC is 95 Revere Drive, Suite A Northbrook, IL 60062.

24.		Includes 37,500 shares of common stock issuable upon conversion of shares of Series A 6% Convertible Preferred Stock and 37,500 shares of common stock issuable upon exercise of a warrant. Darrell Dettling has voting and investment power over the shares being offered under this prospectus.

25.		Includes 1,000,000 shares of common stock issuable upon conversion of shares of Series B 6% Convertible Preferred Stock and 1,200,000 shares of common stock issuable upon exercise of a warrant.

26.		Includes 125,000 shares of common stock issuable upon conversion of shares of Series B 6% Convertible Preferred Stock and 150,000 shares of common stock issuable upon exercise of a warrant. Michael Crow has voting and investment power over the shares being offered under this prospectus. The address of DCI Master LDC is 830 Third Avenue, 14th Floor, New York, NY 10019.

27.		Consists of 43,750 shares of common stock issuable upon exercise of a warrant.

28.		Includes 900,000 shares of common stock issuable upon conversion of shares of Series A 6% Convertible Preferred Stock and 900,000 shares of common stock issuable upon exercise of a warrant. Mitch Levine has voting and investment power over the shares being offered under this prospectus. The address of Enable Growth Partners, LP is 95 Revere Drive, Suite A Northbrook, IL 60062.

29.		Includes 100,000 shares of common stock issuable upon conversion of shares of Series A 6% Convertible Preferred Stock and 100,000 shares of common stock issuable upon exercise of a warrant. Mitch Levine has voting and investment power over the shares being offered under this prospectus. The address of Enable Opportunity Partners, LP is 95 Revere Drive, Suite A Northbrook, IL 60062.

30.		Includes 62,500 shares of common stock issuable upon conversion of shares of Series A 6% Convertible Preferred Stock and 62,500 shares of common stock issuable upon exercise of a warrant. Anthony Unruh is the trustee and control person of the Forfeited 962 Trust. The address of the Forfeited 962 Trust is 1553 Curren Street, Los Angeles, CA 90026.

31.		Consists of 20,000 shares of common stock and 15,000 shares of common stock issuable upon exercise of a warrant.

32.		Includes 100,000 shares of common stock issuable upon conversion of shares of Series B 6% Convertible Preferred Stock and 120,000 shares of common stock issuable upon exercise of a warrant.

33.		Includes 375,000 shares of common stock issuable upon conversion of shares of Series B 6% Convertible Preferred Stock and 450,000 shares of common stock issuable upon exercise of a warrant.

34.		Includes 50,250 shares of common stock issuable upon conversion of shares of Series B 6% Convertible Preferred Stock and 60,300 shares of common stock issuable upon exercise of a warrant. Matthew Harman has voting and investment power over the shares being offered under this prospectus. The address of Harman Stoller Capital Partners II LTD is 650 Fifth Avenue, 5th Floor, New York, NY 10019.

35.		Consists of 510 shares of common stock issuable upon exercise of a warrant.


36.		Consists of 47,500 shares of common stock issuable upon exercise of a warrant.

37.		Includes 287,500 shares of common stock issuable upon conversion of shares of Series B 6% Convertible Preferred Stock and 345,000 shares of common stock issuable upon exercise of a warrant.

38.		Includes 193,750 shares of common stock issuable upon conversion of shares of Series B 6% Convertible Preferred Stock and 232,500 shares of common stock issuable upon exercise of a warrant. David Bunzel has voting and investment power over the shares being offered under this prospectus. The address of Irvine Capital International, Ltd. is Manhattanville Road, Suite 105, Purchase NY 10577.

39.		Includes 362,500 shares of common stock issuable upon conversion of shares of Series B 6% Convertible Preferred Stock and 435,000 shares of common stock issuable upon exercise of a warrant. David Bunzel has voting and investment power over the shares being offered under this prospectus. The address of Irvine Capital Partners, L.P. is Manhattanville Road, Suite 105, Purchase NY 10577.

40.		Includes 68,750 shares of common stock issuable upon conversion of shares of Series B 6% Convertible Preferred Stock and 82,500 shares of common stock issuable upon exercise of a warrant. David Bunzel has voting and investment power over the shares being offered under this prospectus. The address of Irvine Capital Partners III, L.P. is Manhattanville Road, Suite 105, Purchase NY 10577.

41.		Consists of 5,765 shares of common stock issuable upon exercise of a warrant.

42.		Includes 1,000,000 shares of common stock issuable upon conversion of shares of Series A 6% Convertible Preferred Stock and 3,000,000 shares of common stock issuable upon exercise of a warrant.

43.		Includes 100,000 shares of common stock issuable upon exercise of a warrant. Patrick Carmichael has voting and investment power over the shares being offered under this prospectus. The address of JP Turner and Company is 3340 Peachtree Road, Suite 2300, Atlanta GA 30326.

44.		Includes 45,000 shares of common stock issueable upon exercise of a warrant. David Bromberg has voting and investment power over the shares being offered under this prospectus. The address of KBK Ventures, Inc is 25227 Grogan’s Mill Road #125, The Woodlands, TX 77380.

45.		Howard Abrams is the controlling person K-Com Communications, Inc and has voting and investment power over the shares being offered under this prospectus. The address of K-Com Communications, Inc is 3945 Wasatch Boulevard, #282, Holladay UT 84124.

46.		Includes 187,500 shares of common stock issuable upon conversion of shares of Series B 6% Convertible Preferred Stock and 225,000 shares of common stock issuable upon exercise of a warrant.

47.		Includes 62,500 shares of common stock issuable upon conversion of shares of Series B 6% Convertible Preferred Stock and 75,000 shares of common stock issuable upon exercise of a warrant.

48.		Includes 125,000 shares of common stock issuable upon conversion of shares of Series B 6% Convertible Preferred Stock and 150,000 shares of common stock issuable upon exercise of a warrant.

49.		Includes 50,000 shares of common stock issuable upon conversion of shares of Series B 6% Convertible Preferred Stock and 60,000 shares of common stock issuable upon exercise of a warrant. Michael L. Gruber is Trustee and has voting and investment power over the shares being offered under this prospectus.

50.		Includes 666,623 shares of common stock issuable upon exercise of a warrant. Ian Ellis has voting and investment power over the shares being offered under this prospectus. The address of MicroCapital Fund LP is 201 Post Street, #1001, San Francisco, CA 94108.

51.		Includes 999,933 shares of common stock issuable upon exercise of a warrant. Ian Ellis has voting and investment power over the shares being offered under this prospectus. The address of MicroCapital Fund LTD is 201 Post Street, #1001, San Francisco, CA 94108.

52.		Timothy Moody has voting and investment power over the shares being offered under this prospectus. The address of Mid South Capital Inc is 3500 Parkway Lane #415, Norcross, GA 30092.

53.		Includes 3,750,000 shares of common stock issuable upon conversion of shares of Series B 6% Convertible Preferred Stock and 4,500,000 shares of common stock issuable upon exercise of a warrant. Midsummer Capital, LLC is the investment manager to Midsummer Investment Ltd. By virtue of such relationship, Midsummer Capital, LLC may be deemed to have dispositive power over the shares owned by Midsummer Investment Ltd. Midsummer Capital, LLC disclaims beneficial ownership of such shares. Mr. Michel Amsalem and Mr. Scott Kaufman are control persons and have delegated authority from the members of Midsummer Capital, LLC with respect to the shares of common stock owned by Midsummer Investment Ltd. Messrs. Amsalem and Kaufman may be deemed to share dispositive power over the shares of our common stock owned by Midsummer Investment Ltd. Messrs. Amsalem and Kaufman disclaim beneficial ownership of such shares of our common stock and neither person has any legal right to maintain such delegated authority.

54.		Includes 125,000 shares of common stock issuable upon conversion of shares of Series B 6% Convertible


		Preferred Stock and 150,000 shares of common stock issuable upon exercise of a warrant.

55.		Includes 250,000 shares of common stock issuable upon conversion of shares of Series A 6% Convertible Preferred Stock and 250,000 shares of common stock issuable upon exercise of a warrant. Keith Goodman is the control person and manager of the General Partner of Nite Capital LP. The address of Nite Capital LP is 100 East Loop Avenue #201, Libertyview, IL 60048.

56.		Includes 146,500 shares of common stock issuable upon conversion of shares of Series B 6% Convertible Preferred Stock and 175,800 shares of common stock issuable upon exercise of a warrant. HS Management LLC is the controlling entity of Paradigm Equities Fund II LTD and has voting and investment power over the shares being offered under this prospectus. Matthew Harmon is the control person of HS Management LLC. The address of HS Management LLC and Paradigm Equities Fund II LTD is 650 Fifth Avenue, 5^th Floor, New York, NY 10019.

57.		Includes 125,000 shares of common stock issuable upon conversion of shares of Series B 6% Convertible Preferred Stock and 150,000 shares of common stock issuable upon exercise of a warrant.

58.		Includes 50,000 shares of common stock issuable upon conversion of shares of Series B 6% Convertible Preferred Stock and 60,000 shares of common stock issuable upon exercise of a warrant.

59.		Consists of 350,000 shares of common stock issuable upon exercise of a warrant.

60.		Includes 250,000 shares of common stock issuable upon conversion of shares of Series B 6% Convertible Preferred Stock and 300,000 shares of common stock issuable upon exercise of a warrant. Marc K. Swickie has voting and investment power over the shares being offered under this prospectus. The address of Professional Traders Fund, LLC is 1400 Old Country Road, Suite 206, Westbury, NY 11590.

61.		Includes 625,000 shares of common stock issuable upon conversion of shares of Series A 6% Convertible Preferred Stock and 625,000 shares of common stock issuable upon exercise of a warrant. RHP Master Fund, Ltd. is a party to an investment management agreement with Rock Hill Investment Management, L.P. a limited partnership of which the general partner is RHP General Partner, LLC. Pursuant to such agreement, Rock Hill Investment Management directs the voting and disposition of shares owned by RHP Master Fund. Messrs. Wayne Bloch and Peter Lockhart own all of the interests in RHP General Partner.

62.		Includes 90,000 shares of common stock issuable upon exercise of a warrant. Erick Richardson and Nimish Patel are the controlling persons of Richardson & Patel LLP, legal counsel to the Company, and have voting and investment power over the shares being offered under this prospectus. The address of Richardson & Patel LLP is 10900 Wilshire Boulevard, Suite 500, Los Angeles, California 90024.

63.		Includes 25,000 shares of common stock issuable upon conversion of shares of Series A 6% Convertible Preferred Stock and 25,000 shares of common stock issuable upon exercise of a warrant.

64.		Robert Giordano has voting and investment power over the shares being offered under this prospectus. The address of ROI Group Associates, Inc. is 39 Broadway, Suite 2410, New York, NY 10006.

65.		Jeff Salzwedal has voting and investment power over the shares being offered under this prospectus. The address of Salzwedal Financial Communications, Inc is 1800 SW Blankenship Road, Suite 275, West Linn, OR, 97068.

66.		Includes 250,000 shares of common stock issuable upon conversion of shares of Series A 6% Convertible Preferred Stock and 250,000 shares of common stock issuable upon exercise of a warrant. Don Weir has voting and investment power over the shares being offered under this prospectus.

67.		Consists of 60,000 shares of common stock issuable upon exercise of a warrant. Don Wier and Don Sanders have voting and investment power over the shares being offered under this prospectus. The address of Sanders Morris Harris is 600 Travis Street # 3100 Chase Tower, Houston, TX 77002.

68.		Includes 383,650 shares of common stock issuable upon conversion of shares of Series A 6% Convertible Preferred Stock and 383,650 shares of common stock issuable upon exercise of a warrant. Don Wier and Don Sanders have voting and investment power over the shares being offered under this prospectus. The address of Sanders Opportunity Fund Inst., LP is 600 Travis Street # 3100 Chase Tower, Houston, TX 77002.

69.		Includes 116,350 shares of common stock issuable upon conversion of shares of Series A 6% Convertible Preferred Stock and 116,350 shares of common stock issuable upon exercise of a warrant. Don Weir and Don Sanders have voting and investment power over the shares being offered under this prospectus. The address of Sanders Opportunity Fund, LP is 600 Travis Street # 3100 Chase Tower, Houston, TX 77002.

70.		Includes 375,000 shares of common stock issuable upon conversion of shares of Series A 6% Convertible Preferred Stock and 375,000 shares of common stock issuable upon exercise of a warrant.

71.		Includes 250,000 shares of common stock issuable upon conversion of shares of Series A 6% Convertible Preferred Stock and 250,000 shares of common stock issuable upon exercise of a warrant.


72.		Consists of 5,255 shares of common stock issuable upon exercise of a warrant.

73.		Includes 50,000 shares of common stock issuable upon conversion of shares of Series B 6% Convertible Preferred Stock and 60,000 shares of common stock issuable upon exercise of a warrant.

74.		Includes 50,000 shares of common stock issuable upon conversion of shares of Series B 6% Convertible Preferred Stock and 60,000 shares of common stock issuable upon exercise of a warrant.

75.		Includes 25,000 shares of common stock issuable upon conversion of shares of Series B 6% Convertible Preferred Stock and 30,000 shares of common stock issuable upon exercise of a warrant.

76.		Consists of 15,000 shares of common stock issuable upon exercise of a warrant.

77.		Consists of 144,248 shares of common stock issuable upon exercise of a warrant. Kyle Rowe has voting and investment power over the shares being offered under this prospectus. The address of Solomon Grey Financial Services is 5430 LBJ Freeway, Suite 1626, Dallas, TX 75240.

78.		Includes 120,000 shares of common stock issuable upon exercise of a warrant. Guy Bertin has voting and investment power over the shares being offered under this prospectus. The address of SPGP is 17 Avenue Matignon, Paris, 75008, France.

79.		Includes 250,000 shares of common stock issuable upon conversion of shares of Series B 6% Convertible Preferred Stock and 300,000 shares of common stock issuable upon exercise of a warrant. Stanley S. Raphael is Trustee and has voting and investment power over the shares being offered under this prospectus. The address of Stanley S. Raphael Trust is 4221 Bocaire Blvd., Boca Raton, FL 33487.

80.		Includes 240,750 shares of common stock issuable upon conversion of shares of Series B 6% Convertible Preferred Stock and 288,900 shares of common stock issuable upon exercise of a warrant. HS Management LLC is the controlling entity of The Harman Stoller Capital Partners Master Fund LTD and has voting and investment power over the shares being offered under this prospectus. Matthew Harmon is the control person of HS Management LLC. The address of The Harman Stoller Capital Partners Master Fund LTD is 650 Fifth Avenue, 5th Floor, New York, NY 10019.

81.		Consists of 23,875 shares of common stock issuable upon exercise of a warrant. Robert Wein has voting and investment power over the shares being offered under this prospectus. The address of vFinance Investments Inc. is 3010 Military Trail, Suite 300, Boca Raton, FL 33431.

82.		Includes 250,000 shares of common stock issuable upon conversion of shares of Series B 6% Convertible Preferred Stock and 300,000 shares of common stock issuable upon exercise of a warrant. Eric and Vincent Manngard have voting and investment power over the shares being offered under this prospectus. The address of Vincent Manngard and Eric Manngard Partnership is 196 East Main Street, Huntington, NY 11743.

83.		Includes 125,000 shares of common stock issuable upon conversion of shares of Series B 6% Convertible Preferred Stock and 150,000 shares of common stock issuable upon exercise of a warrant. David Vozick has voting and investment power over the shares being offered under this prospectus. The address of Bear Sterns Security Corp. is 300 East 56th Street, New York, NY 10022.

84.		Includes 125,000 shares of common stock issuable upon conversion of shares of Series A 6% Convertible Preferred Stock and 125,000 shares of common stock issuable upon exercise of a warrant.

85.		Includes 125,000 shares of common stock issuable upon conversion of shares of Series B 6% Convertible Preferred Stock and 150,000 shares of common stock issuable upon exercise of a warrant. William Silver has voting and investment power over the shares being offered under this prospectus. The address of Weiskopf, Silver & Co., L.P. is 230 Park Avenue, Suite 1550, New York, NY 10169.

86.		Includes 125,000 shares of common stock issuable upon conversion of shares of Series B 6% Convertible Preferred Stock and 150,000 shares of common stock issuable upon exercise of a warrant. Sammy Wilder has voting and investment power over the shares being offered under this prospectus. The address of Bear Sterns Security Corp. is 300 East 56th Street, New York, NY 10022.

87.		Consists of 250,000 shares of common stock issuable upon exercise of a warrant.

PLAN OF DISTRIBUTION

Each Selling Security Holder may, from time to time, sell any or all of their shares of Common Stock on the OTC Bulletin Board or any other stock exchange, market or trading facility on which the shares are traded or quoted or in private transactions. These sales may be at fixed or negotiated prices. A Selling Security Holder may use any one or more of the following methods when selling shares:

	•		ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

	•		block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;

	•		purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

	•		an exchange distribution in accordance with the rules of the applicable exchange;

	•		privately negotiated transactions;

	•		settlement of short sales entered into after the effective date of the registration statement of which this prospectus is a part;

	•		broker-dealers may agree with the Selling Stockholders to sell a specified number of such shares at a stipulated price per share;

	•		a combination of any such methods of sale;

	•		through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; or

	•		any other method permitted pursuant to applicable law.

A Selling Security Holder may also sell shares under Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”), if available, rather than under this prospectus.

Broker-dealers engaged by a Selling Security Holder may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from a Selling Security Holder (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this Prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with NASDR Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with NASDR IM-2440.

In connection with the sale of the Common Stock or interests therein, a Selling Security Holder may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the Common Stock in the course of hedging the positions they assume. A Selling Security Holder may also sell shares of the Common Stock short and deliver these securities to close out their short positions, or loan or pledge the Common Stock to broker-dealers that in turn may sell these securities. A Selling Security Holder may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).

The Selling Security Holder and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Each Selling Stockholder has informed the Company that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the Common Stock. In no event shall any broker-dealer receive fees, commissions and markups which, in the aggregate, would exceed eight percent (8%). The following Selling Security Holders are NASD registered brokers or broker-dealers: Weiskopf Silver & Co., LP., JP Turner and Company, Mid South Capital, Inc., vFinance Investments, Inc. and Solomon Grey Financial Services. The foregoing Selling Security Holders received the securities being registered in this prospectus for services rendered, and at the time of their receipt, had no agreements or understandings, directly or indirectly, with any person to distribute the securities being registered in this prospectus. The following Selling Security Holders are affiliates of NASD registered broker-dealers: Anasazi Partners III Offshore, Ltd., Anasazi Partners III, LLC, Barry Zelin, Castle Creek Technology

Partners, LLC, Christopher Baker, Crestview Capital Master, LLC, David L. Jordon, Enable Growth Partners LP, Enable Opportunity Partners LP, Irvine Capital International, Ltd., Irvine Capital Partners III, L.P., Irvine Capital Partners, L.P., Jay Petschek, Sammy Wilder, Sanders Opportunity Fund Inst. LP, Sanders Opportunity Fund LP, Don Sanders, Donald Weir, David Jordon, Baxter Capital Advisors, John Rich, Vince Calicchia, AS Capital Partners LLC, Reed Fryermuth and Gary Shemano. The foregoing Selling Security Holders purchased the securities being registered in this prospectus with an investment intent and not with a view towards distribution, and at the time of their receipt, had no agreements or understandings, directly or indirectly, with any person to distribute the securities being registered in this prospectus.

The Company is required to pay certain fees and expenses incurred by the Company incident to the registration of the shares. The Company has agreed to indemnify the Selling Security Holder against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.

Because Selling Security Holder may be deemed to be “underwriters” within the meaning of the Securities Act, they will be subject to the prospectus delivery requirements of the Securities Act. In addition, any securities covered by this prospectus which qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than under this prospectus. Each Selling Stockholder has advised us that they have not entered into any written or oral agreements, understandings or arrangements with any underwriter or broker-dealer regarding the sale of the resale shares. There is no underwriter or coordinating broker acting in connection with the proposed sale of the resale shares by the Selling Security Holders.

We agreed to keep this prospectus effective until the earlier of (i) the date on which the shares may be resold by the Selling Stockholders without registration and without regard to any volume limitations by reason of Rule 144(e) under the Securities Act or any other rule of similar effect or (ii) all of the shares have been sold pursuant to the prospectus or Rule 144 under the Securities Act or any other rule of similar effect. The resale shares will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale shares may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.

Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale shares may not simultaneously engage in market making activities with respect to the Common Stock for a period of two business days prior to the commencement of the distribution. In addition, the Selling Stockholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of shares of the Common Stock by the Selling Stockholders or any other person. Rule 102 under Regulation M provides, with limited exceptions, that it is unlawful for a selling security holder or its affiliated purchaser to, directly or indirectly, bid for or purchase or attempt to induce any person to bid for or purchase, for an account in which the selling security holder or affiliated purchaser has a beneficial interest in any securities that are the subject of the distribution during the applicable restricted period under Regulation M. We will make copies of this prospectus available to the Selling Stockholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale.

DESCRIPTION OF BUSINESS

Overview

The core reasons for the trends affecting the media and publishing industry are: (1) newspapers are no longer attracting younger readers, especially in the key 18-24 year-old demographic market segment, and have lost tremendous amounts of advertising revenue to local cable, the internet and broadcast TV; (2) fractionalization in the media market makes it very difficult for an advertiser or organization to reach large audiences with an engaging multi-media message; and (3) businesses, governments and organizations are demanding immediate accountability and definitive results for each marketing and communications dollar spent.

In addition to delivering pre-produced advertising messages, we also create a variety of interactive multi-media content consisting of audio, video, animations, still photography and Internet web links. We use this content to produce our own proprietary digital publications (our iMagazinesÔ) such as Hollywood PreviewsÔ and Travel PreviewsÔ. Our interactive iMagazines are now beginning to be distributed in major metropolitan newspapers as digital preprints or digital supplements.

For over five years, iMedia has been creating, developing and implementing our “Digital iMedia Solutions” that exploit our convergence technologies, and allow us to take advantage of new market opportunities. We use our technologies in our own branded publications, and license it to specific customers for custom projects. Our solutions typically incorporate a variety of proprietary and off-the-shelf software technologies, engaging content and are distributed via a network of existing distribution channels. Our technical solutions include digital video, digital audio, digital optical discs (CD and DVD-ROM), e-mail broadcasts, PodCasts and the Internet. These solutions seamlessly converge print, multi-media, broadcast and the Internet together and deliver an engaging, interactive multi-media presentation to any targeted audience. Better yet, we can instantly determine the consumer acceptance and opening response.

Measurability, Reportability and Accountability

A key feature and proprietary aspect of our technology is our ability to measure and record the navigation of a consumer while they are viewing our productions. Without using cookies or spy ware, or violating the privacy

of any user, we know when a consumer puts our disc in, how long they watched it, what content they saw, what advertisements they saw, even how long they may have watched a video or commercial before moving on. We track and compile this data, and can sort it by time of day, zip code, city, or state. We know immediately what is the most popular content or advertisements, and conversely which content or advertisement the consumer liked least. We can then report the effectiveness of a campaign instantly and in real-time to our advertisers, clients and sponsors using our web-based reporting system.

Digital Pre-Prints, The Future of Newspapers TODAY!

The publishing of newspapers continues to be a multi-billion dollar annual business. Over the past few years, major metropolitan newspapers have seen a decline in readership, circulation and most importantly, advertising revenue. Yet despite these fall-offs, the newspaper industry remains the last non-fragmented media audience left on earth. On any given weekend, over 70 million newspapers are delivered in the United States alone, with almost 12 million being delivered in the top 25 markets alone. Traditionally, newspapers have delivered tremendous cash flows, but have not enjoyed top-line revenue growth for many years. Newspapers must find a way to attract younger readers, increase circulation and recover some of the advertising dollars recently lost to broadcast, local cable TV and the Internet.

We believe that our digital iPreprints provide an unprecedented solution to newspapers that look to attract a younger audience without compromising the editorial quality of their publications. By incorporating a digital supplement, not just as a free disc with purchase, but as a branded part of their editorial content they can accomplish both of these goals. Newspapers of the future will incorporate some form of digital multi-media on a regular basis, and we are currently leading the industry in the development, marketing and integration of digital preprints to supplement major metropolitan newspapers.

Anticipated National Rollout

Beginning with the Dallas Morning News on Sunday, April 30th, we anticipate rolling out a national expansion program that will allow us to begin distributing Hollywood Previews Entertainment iMagazine on a national basis. In order to achieve a national footprint, we have targeted the following metropolitan US markets for penetration during 2006: Dallas, New York City, Chicago, Los Angeles and Minneapolis.

As advertising revenues and working capital allow, we will continue to offer additional titles and new brands such as Travel Previews, Fashion Previews, Sports Scene, Auto Previews and Health Previews to our newspaper distribution partners for incorporation in their publications on a weekly basis if desired.

Our Newspaper Syndication Program- We Partner, not Compete!

A key component of our syndication program is that we partner with newspapers, not compete against them for their advertisers. Typically, we bring our national advertisers with us to each new market we enter. We split all advertising revenues after recouping our deemed hard costs of production. Initially, we are required to subsidize revenue shortfalls from the Dallas Morning News. We anticipate that we will be able to negotiate better deal terms that require our newspaper partners to guarantee our financial break-even in every successive market we enter. After our guaranteed minimums, additional revenue above costs are shared between iMedia and our newspaper partners. Meeting certain revenue milestones may automatically trigger certain contract extensions that lock us in with each newspaper for upwards of five additional years. It is our goal to realize $1.05 of advertising revenue on each and every Hollywood Previews disc we produce after allowing for program stabilization. We expect that stabilization will take between 4-6 months for each new market we enter. Currently, there is an opportunity to realize over $6.00 in total revenue on a per disc basis (assuming 100% of all advertising inventory is sold). Therefore, in order to reach our target of $1.05 per disc, a total of $1.65 of total advertising would have to be sold, or approximately 27% of each disc’s total available advertising inventory.

We will be required to invest a substantial amount of capital in each new newspaper market we enter regardless of whether our publishing partner guarantees our break-even. This is due to one-time, non-recurring costs for start-up, marketing, promotion and training costs involved to prepare the newspaper’s sales force to sell multi-

media advertising, and prepare the public for our multi-media product. We anticipate that it will cost $150,000 to $250,000k for pre-launch and promotional costs for each new market. These costs will traditionally be matched by our newspaper partners who will be required to contribute a significant amount of advertising value through print, broadcast and radio advertisements and promotions.

It is our goal that by the calendar year end of 2007, we will have attained a circulation of 10 million Hollywood Previews Entertainment iMagazines each month, which represents approximate penetration of the top 16 US Newspaper markets. In addition it is our goal, and subject to available capital, to continue launching new branded titles so that we may offer our newspaper partners a weekly multi-media preprint. Should we meet all of our long-term expansion goals, we would publishing and delivering up to five unique titles monthly, thus allowing us to distribute a new digital magazine each week, in each market, and participate in the advertising revenues therefrom.

Proprietary Brands

Per our growth plan, we intend to begin producing new proprietary brand digital publications that will promote our “Previews” brands. Currently, our proprietary brands consist mainly of Hollywood Previews™ Entertainment iMagazine. However, in addition to Hollywood Previews Entertainment iMagazine, we have created prototypes or are in development of prototypes for the following other digital publications:

	•		Travel PreviewsÔ iMagazine

	•		Fashion PreviewsÔ iMagazine

	•		Stock PreviewsÔ iMagazine

	•		Auto PreviewsÔ iMagazine

	•		Sports SceneÔ iMagazine

Each of these titles and publications serve unique and specific audiences, and complement existing successful sections of each newspaper. We believe that the launch of each new title will also complement the Company’s marketing of one-off, custom promotional discs into the following four targeted vertical markets: Entertainment, Finance, Travel and Direct Response marketing.

As each of these proprietary titles has the ability to equal the distribution of Hollywood Previews, and should each of our newspaper distribution partners distribute each title once each month (one title each week), and assuming full circulation in each market, the net effect on an annualized basis could be:

(NOTE: The following tables are for comparative purposes only and to demonstrate the scalability of our business, distribution channels, and our underlying business models. We presently do not have any signed contracts or commitments to distribute Hollywood Previews or any other titles in any other newspapers or publications other than as stated above. This information is not to be considered as guidance as to our projected revenues or future operations. Reader should not place undue emphasis upon these possible scenarios, and this information should not be relied upon as the basis for any investment decisions.)

Number of

Publishing

Weekly

Annualized

Revenue

Annualized

Markets

Publication Names

Schedule

Circulation

Per Disc

Revenue

Top Five

Hollywood Previews
Travel Previews
Fashion Previews
Auto Previews
Sports Scene

Weekly

2.45 MM

127 MM

$1.05

$133 MM

Top Ten

Hollywood Previews
Travel Previews
Fashion Previews
Auto Previews

Weekly

4.48 MM

233 MM

$1.05

$244 MM

Sports Scene

Top Twenty

Hollywood Previews
Travel Previews
Fashion Previews
Auto Previews
Sports Scene

Weekly

7.5 MM

390 MM

$1.05

$409 MM

Our Custom Digital Media Solutions

Since our inception, we have relied upon the sale of custom digital media solutions such as custom, interactive promotional CD-ROMs and DVD-ROMs for “Fortune 100” type clients as our primary method of revenue generation. During this period, we have been continually refining, testing and marketing Hollywood Previews as the core product for our newspaper syndication model. While we believe that revenues from our digital preprint business will eventually eclipse those of our custom digital solution business, we will continue to market and produce custom disc products, and expect that this section of our business will continue to grow.

Approximately 98% of the Company’s current revenues are currently generated in custom or business-to-business (B2B) sales. B2B projects and productions usually consist of custom interactive media programs developed and produced specifically for promoting a particular event, television show, product or service. The Company reduces its risk on these projects because approximate costs and gross margins are known in advance and rarely change after contracting.

Our B2B services continue to expand. We intend to continue developing new models that will generate additional revenue or raise gross profits without significantly increasing the net cost of our services to our B2B clients. We believe that offering additional services as a component of our custom digital media solutions will give us a competitive edge in this marketplace. These services may include follow-up marketing programs that are bundled as part of our digital solutions programs. These programs may produce revenues from transactions, merchandising, and our follow-up marketing programs. These solutions may include instant messaging, call center support, and advanced e-mail and voice cast technologies. In addition, we continue to collect data on each program, its users and the resulting transactions. This data can then be analyzed and sold to various third parties. Our B2B business allows us to continue developing relationships with the world’s largest corporations as we have done with current customers such as American Express, Nissan, Jeep Chrysler, NBC Television Network, FX Networks, General Motors, Johnson & Johnson, Warner Bros. Television, Mazda USA and others. The production of custom discs for these clients provides a relatively stable source of revenues and income, and offers unlimited potential for growth. However, this industry is highly competitive and has been commoditized thereby reducing overall profit margins.

Profit margins for our B2B customers vary from 20% to 40%, depending upon the size and scale of each contracted project. Although we have some major customers that continue to re-order new programs on a regular basis, the majority of our custom revenue is non-recurring and therefore becomes difficult to project annual sales of B2B business on a forward-looking basis.

We expect to see a decline in our custom business for the first two quarters of 2006 as sales activity is directly focused on securing advertisers for Hollywood Previews, and supporting our newspaper syndication rollout. However, we expect that as more national advertisers are exposed to our branded publications through newspaper syndication, additional opportunities to create custom digital solutions for these same advertisers will drive future revenue growth in our custom business, and that our custom business will grow hand-in-hand with our newspaper preprint division.

Targeted, Rich Media

Because of its limitations, most traditional media is limited to creating brand, product or organization awareness. There is usually very little “call to action” for the consumer, and the net effect is that advertisers only enjoy a fractional return on investment for each advertising dollar expended. Our digital solutions not only allow for impressive branding opportunities, but more importantly educate and eventually encourage the consumer to make a

purchase or transaction immediately online. Because our media is interactive, we are able measure the consumer’s interest and response throughout the entire process, and report this response to our advertisers or sponsors, all in real-time.

Our proprietary brands, technologies and business models provide us the opportunity to deliver rich, engaging interactive digital media to any targeted audience, and to participate in or get a commission from the unlimited retail transactional opportunities that result from each consumer’s response. We have effectively converged digital multi-media, interactive advertising and retail sales with efficient and economical distribution device that has mass and global appeal.

Physically Deliverable Multi-Media

We believe that there are two fundamental keys to generate high consumer response in any marketing program. They are: (1) the ability to target a market and (2) the ability to capture consumers’ attention in a meaningful way.

iMedia accomplishes both using various proven business models. We partner with traditional print media for distribution of our multi-media productions. These include magazines and newspapers, which have well-established, mature targeted audiences. We also exploit catalogs and direct mail as other key distribution sources. Because we know in advance both the demographic and psychographic makeup of these audiences, we can produce an optical disc (CD-ROM or DVD-ROM) that is designed specifically for, and that can be physically delivered to that targeted audience. Each disc contains engaging content along with advertising and sponsors’ messages. The content varies depending upon the advertiser’s goals, but might contain movie, entertainment, sports or travel or other content specifically chosen to appeal to the targeted audience. An advertiser may wish to associate their brands, products or services with an existing iMedia publication like Hollywood Previews Entertainment iMagazine, or hire us to create an entirely new, custom marketing digital campaign.

Because our productions are highly interactive, and demand consumer interaction, we succeed in engaging our consumers in the experience. Once viewers are engaged, we can deliver specific advertising messages that have appeal to that target audience. We also can present a “call to action” for them to respond. Their response might be a click-through to an Internet website, participating in an online survey, opting-in for more information, or actually making a product purchase or reservation online.

The ability to take a consumer from viewing promotional materials to instantly making an online purchase sets us apart from most traditional media such as broadcast and print. This is true convergent media. There is always a call to action. We always encourage the consumer to “buy now!” as opposed to later, and provide them with the ability to instantly respond and make a purchase or transaction. Every optical disc links seamlessly and instantly with the Internet allowing us or our sponsors to direct an interested, pre-qualified consumer instantly to a pre-determined webpage where they make a reservation or buy the product or service offered.

Because all of the content and advertisements are embedded on the disc, we have no 30-second time limitations imposed by television and no broadband or downloading constraints. Video can be delivered instantly. Content and advertising can be melded to create a meaningful advertorial. If consumers don’t wish to watch, they can simply skip to the content they desire.

Convergence Media Follows Up Consumer Interest

Because our discs are interactive, we can charge our clients and sponsors for follow-up sales programs in a way that traditional print and broadcast media cannot. These additional sales and marketing solutions include the ability to integrate instant on-screen messaging from call center operators, live chat capability, viral marketing and e-mail opportunities and telephone voice casting. Our media does more than just deliver messages. We deliver prepared, informed consumers to sellers of products and services, and allow advertisers to follow up on interest using state-of-the art web-based technology. While traditional marketing companies offer some of these services as stand-alone components, our ability to offer a complete turnkey digital solution package in addition to our multi-media discs is unique in the marketing and media industry.

Market

Newspaper market: Over 78 million newspapers are distributed in the US each weekend making it one of the largest media distribution channels in the world. Over 1,470 newspapers are printed and distributed in the U.S. alone, with thousands more publishing regularly worldwide. Newspapers are one of the largest delivery channels for world, regional and local news, content and advertising. In the US, this market is owned principally by several large publishing conglomerates: Tribune Company, Gannett Co, News Corp, Knight-Ridder, McClatchy Company, EW Scripps Company, Belo Corp, along with many smaller newspaper-only publishing companies and stand-alone publications. According to Newspaper Association of America research, the US newspaper industry generated over $95 billion in annual advertising revenues during 2004, representing 35% of all media advertising expenditures.

Custom market: According to the 2002 Report by the International Recording Media Association, U.S. companies spent over $208 billion in direct-to-consumer advertising alone. This does not include the billions of dollars spent for traditional print, outdoor and broadcast marketing. There are over one hundred different vertical markets that are potential users of our convergent media technologies.

Business Models

We have multiple revenue models, each with multiple revenue streams. We incorporate both business-to-business and business-to-consumer models. Revenues are generated from advertising, production, replication, distribution, transactions, data collection, data sales, subscriptions, product merchandising and from ancillary follow-up marketing services.

Our overall business model has tremendous scalability and continuity. Each division co-brands and supports the products, services brands and sponsors offered and/or /featured by the Company’s other divisions. Revenue models are modular and transition easily from vertical market to vertical market, and can be applied (in theory) in any country in the world. We believe that (1) the modular scalability of our underlying business and revenue models, and (2) the infinite number of vertical markets our products and services can provide support for future growth opportunities.

Corporate Structure

iMedia International, Inc. is a holding company structured to operate using various operating divisions and wholly owned subsidiaries. Currently, the Company’s main operating unit is iMedia US LLC, a California limited liability company. We also do some business under another wholly owned subsidiary Hollywood Previews, Inc., a California Corporation. In an effort to simplify operations and reduce costs, we have transferred the core operations of Hollywood Previews Inc. to iMedia US LLC. iMedia US LLC contains designated operating divisions structured to take advantage of market opportunities in various industries and market sectors. Each of these operating divisions are informally structured and only three currently have material operations. Presently, each division shares a pool of production and human resources and works from one corporate headquarters. There is no specific line item budget for each division other than for its designated sales manager. It is anticipated that as each division expands, additional management and production staff will be added solely to support their respective division and more formal “divisional operations” will commence.

iMedia US LLC’s current divisions include:

	•		Newspaper Syndication Division-Markets and develops custom branded interactive digital iMagazines. We expect this to become our fastest growing division in terms of gross revenue over the next 24 months. Our newspaper syndication division publishes Hollywood Previews Entertainment iMagazine and has developed other branded titles that we look to integrate into our newspaper syndication partnerships.

	•		Business-to-Business Divisions- Markets and develops custom digital media solutions to the general marketplace. This division is sub-divided into the following various industry vertical sectors. These include clients like American Express, the Irvine Company and Johnson & Johnson.

	•		Entertainment Sector- Markets custom digital media solutions to broadcasters and television networks. These include clients such as NBC Television, Warner Bros., Cirque du Soleil and FX Networks. Future responsibility includes Hollywood Previews Entertainment iMagazine.

	•		Automotive Sector- Markets custom digital media solution to the automotive industry. These include clients such as Jeep Chrysler, General Motors, and Mazda.

	•		Direct Response Marketing Division- markets digital media solutions to the direct-to-consumer marketing industry.

	•		Travel and Leisure Sector- Markets digital media solutions to the travel industry. Current clients include Costco Travel, Mesquite Resorts and Wynn Hotel and Casino.

	•		Finance and Public Company Sector (future)- Markets digital media solutions to public companies. Future responsibilities include publishing Stock Previews iMagazine.

	•		Internet Solutions and Destination Websites- The Company has developed its first destination website at ww.hollywoodpreviews.com. The website exploits the variety of content currently available and produced for the Hollywood Previews™ iMagazine, its wireless distribution and possible future television programming. Using a traditional Internet model, the Company intends, but has not yet generated revenues from banner and click-though advertising and from the sale of movie tickets, DVDs and video games using our proprietary shopping cart solution.

	•		Hollywood Previews is the first of the Company’s future destination websites. We intend to create new destination sites for each of the vertical markets and/or proprietary brands currently under development. Again, the model is simple: our discs brand our wireless, which brand our broadcast TV, which brand our Internet sites which brand our newspaper syndications. Advertisers and sponsors are provided with a great diversity of exposure and distribution opportunities while we concurrently establish and build our national brands.

In addition to our traditional Hollywood Previews website, we intend to eventually launch The Academy, an online community similar to MySpace.com, that will allow users interested in films, art and music to post music, video and short films, and which will be promoted and linked using our nationally distributed Hollywood Previews Entertainment iMagazine. The Academy is still in concept form, and our launch plan and revenue model has not yet been formalized.

Transactional Revenues

The Company has proven that our interactive digital discs can be highly effective in driving consumer transactions. To exploit this opportunity, we endeavor to incorporate some form of transactional revenue into each future program we create, whether for a custom B2B client or as part of our syndicated proprietary brands. Wherever possible, we desire to participate in a portion of the revenues derived from each transaction we help to generate. This may be a simple fee for processing a sale through our shopping cart solution, or could be as much as 40% of the retail sale price for some of our direct marketing products. We see the largest potential for transactional opportunities from our existing brands and publications as we control the consumer’s transaction. Since we are just beginning regularly scheduled publishing and distribution of Hollywood Previews, we have yet to generate material revenues from transactions or related commissions on product sales.

Data Collection and Data Sales

The interactive capability of the Company’s media allows for future revenue opportunities from data collection. Our data collection model is still in its infancy, but will continue to be developed on an ongoing basis. With the potential for millions of discs being distributed on a monthly basis, and the ability of the Company to generate profiles for various demographic audiences that are based on qualitative data, our ability to launch into a future data, survey, polling and lead generation business exists, and offers an additional profit and revenue center for the Company and its operations. We have not yet concentrated on data collection, nor generated any material revenues from the sale or Collection of Data.

Revenue Streams

We currently generate the majority of our revenue from our B2B operations. Revenue is generated in two primary ways, through pre-production and production services, and from replication and manufacturing.

Each day we find new ways to monetize our custom products and services, which may create new revenue streams. These supplemental revenue streams do not in themselves constitute a different or altered revenue or business model from those in our public filings. We continue to develop and integrating various ancillary services for which we have or will begin to charge our customers. We consider these ancillary revenue streams as supplementary and do not believe that their integration will constitute a material change of our published revenue model(s).

We intend to begin recognizing revenue from advertising sales from Hollywood Previews and other branded publications, and possibly from commissions or fees for purchases or other transactions that originate from our discs. To date, we have not recognized any material advertising or transactional revenues, as our custom B2B productions do not typically have a stand-alone advertising or transactional revenue component that we generally participate in.

If you were to look at our revenue streams, and classify them under one of these four general headings, they would be as follows:


PROD. SERVICES	REPLICATION	ADVERTISING	MISCELLANEOUS
(Present)	(Present)	(Future)	(Future)

Pre Production and Production	CD and DVD Replication	Hollywood Previews Ad Sales	Retail Sales From Discs or Websites
Video and Photography	CD and DVD Packaging	Website Ad Sales	Product Sales Commissions
CD and DVD Authoring	Project Specific Printing	Print Ad Sales
Media Consulting		Cross Promotions
Graphic Design
Data Collection and Analysis
Data Sales
Video and Voice Casting
Call Center Support
Sweepstakes Management
Distribution
Content Creation

Revenue streams noted in this section as “Future” are projected, and have not come to fruition.

International Expansion

Because the fundamental models underlying our business are modular and scaleable, we foresee future international expansion. We intend to begin offering Hollywood Previews to non-US markets, possibly as early as the fourth-quarter of 2006. Any early international expansion would initially target the following English speaking markets, and may include direct or subsidiary operations in:

	•		Canada

	•		The United Kingdom

	•		Australia

Subsequently, and subject to viability and capital availability, we may form additional subsidiaries to service and expand operations into the following international markets:

•

Japan

	•		Western Europe

	•		China

	•		South America

	•		India

Intellectual Property/License Agreement

Hollywood Previews, Inc. (“HPI”), iMedia International’s wholly owned subsidiary, was originally incorporated in California on July 25, 2002 under the name DTV Studios. Pursuant to an Agreement and Plan of Merger dated as of August 18, 2003 (the “Merger Agreement”), a wholly owned subsidiary of the Company’s corporate predecessor, Irvine Pacific Corporation (“IPC”) merged with and into Hollywood Previews, Inc. (“HPI”), on August 29, 2003, resulting in HPI becoming a wholly owned subsidiary of IPC (the “Acquisition”). At the time of the Acquisition, HPI held an exclusive license (the “License”) from iPublishing, Inc. (“iPublishing”), an affiliate of the Company, to use iPublishing’s intellectual property (the “iPublishing Technology”). iPublishing’s three shareholders, David MacEachern, Scott Kapp and Franklin Unruh (each of whom owns approximately 33% of the outstanding securities of iPublishing), are each officers and directors of the Company. The financial statements of iPublishing are combined with those of iMedia International, Inc. and, accordingly, all intercompany transactions are eliminated upon combination. The sole consideration for the License was a royalty arrangement pursuant to which iPublishing receives 5% of defined gross margin annually, generated by disks produced by the Company using the iPublishing Technology. Because the License is exclusive, iPublishing may not license or assign any of its intellectual property to any other party and may not compete with the Company. It is the Company’s intention to permanently acquire ownership of the iPublishing Technology at some point in the future when operations and revenue have stabilized. In connection with the License, HPI purchased all of iPublishing’s personal property and equipment, which iPublishing had previously purchased from one of its shareholders and officers. The purchase transaction has been accounted for at the carry-over basis of the assets, valued at $71,196, at which they were obtained by the shareholder/officer of iPublishing. HPI has since transferred the License to its parent, the Company. The iPublishing Technology consists of various proprietary procedures, codes, technologies, copyrights, trademarks and brands, along with the proprietary suite of mastering software used to create our CD-ROM and DVD-ROM products.

The Company and iPublishing are currently negotiating the acquisition of the ownership rights in the iPublishing Technology, and are in the process of determining the fair market value thereof.

Competition

Our competition currently comes in two forms, direct competition and indirect competition. Indirect competition is every other form of media (i.e. print, broadcast, internet, radio and outdoor) that is vying for the same, limited advertising budget of our customers.

Direct competition for our custom B2B products takes the form of other digital media companies that can provide similar CD and DVD creation and replication services. This section of our business is a cottage industry. Our competitors are generally small, privately-held companies that offer limited media and creative services. When it comes to creating, authoring and distributing custom digital B2B disc solutions, there is no major or dominant competitor.

As far as competition for our newspaper syndication business, we have no direct competition. As far as we know, there are no other companies that have created a product line of proprietary digital publications exclusively for distribution in newspapers. This first-mover position gives us a key advantage over future competition as we now have the ability to lock-up exclusive newspaper distribution channels in major metropolitan markets. With some exceptions (such as New York City), most major metropolitan markets have one dominant newspaper. Our goal is to secure an exclusive partnership with the dominant newspaper in each market, thereby significantly raising the barrier to competition for future competition as we lock-up each market’s major distribution channel.

Internet Competition

With recent advances in video compression technology and the increasing availability of broadband access to consumers, computer users who wish to view theatrical trailers or listen to music may now do so online. There are various websites devoted to the entertainment industry that have the capability to stream or serve movie previews and other multi-media content. With each new major motion picture release, a website is usually created by the studio to assist in the promotion of the film. These sites provide viewers the ability to watch and in some cases download movie previews. These web sites are created and operated usually at a loss by the studios or film distributors, and have a limited term of operation. Commercial web sites that stream or serve movie previews face significant challenges involving bandwidth and connectivity that can be very expensive to overcome. As most consumers are not willing to pay to view movie previews, Internet subscription models are not viable. Conversely, because of stringent copyright issues, some online companies may not be able to charge users for viewing studio-owned trailers without paying them a royalty. Therefore, entertainment-based web sites must rely upon revenues generated by banner or other advertising, merchandising or studio participation in order to subsidize the cost involved in serving movie previews to a large audience. The exceptions are sites like AOL and Yahoo! that now offer streaming movie previews directly from their home page. These major portal sites have already developed the infrastructure necessary to stream video content to a mass audience. Although entertainment content will continue to be readily available to consumers via the internet, significant download times and streaming video quality will remain problematic.

Although the Internet also provides for an interactive, multi-media experience, the Internet has limited reach as it cannot be physically distributed and is not archival. Physical distribution capability is a major advantage of the Company’s disc products over Internet competition. We not only can deliver multi-media messages directly to any targeted demographic, but our discs also deliver the Internet with one-click, something no other media can do.

Traditional Print Competition

Traditional magazines will continue to play a prominent role in delivering content, news and information. Revenues generated from print media constitute the majority of publishing revenues derived worldwide. Magazines that cater to entertainment may be well-established and have vast circulation. These magazines can attract a larger and more diverse group of sponsors than the Company. These magazines may be very well-funded and/or have national brand recognition.

Traditional print media has always lacked the capacity to report back to sponsors accurate data as to the effectiveness of sponsors’ ad campaigns. Other than the interpolation of circulation and reader poll data, neither publishers nor sponsors can provide accurate determinations of reader interest. Traditional publishers can make only best-effort judgments about consumer response, ad placement, etc. Through proprietary audience measurement technology, we have the ability to report accurate and real-time data to sponsors as to the effectiveness of their advertising. This real-time auditing capability is very unique in the publishing industry and may prove to be a substantial advantage to us in securing sponsors.

We foresee that, over time, large, established publishers eventually will begin creating their own proprietary digital content to amend and enhance their printed publications. We therefore desire to become pro-active to this competitive threat. As the initial cost to develop and perfect the coding, templates and functionality of an interactive disc could exceed several million dollars, we intend to form new joint ventures with these publishers, or enter into license agreements that will allow them to employ our proprietary I-Publishing Software Suite. By doing so, we may be able to convert potential competition into revenue producing partnerships.

Principal Suppliers – Royalties

Royalty to iPublishing, Inc.

We produce our products using intellectual properties licensed from iPublishing, Inc. iPublishing Inc. is a related party owned equally by David MacEachern, Scott Kapp and Franklin Unruh who also serve as directors of iMedia International. In exchange for the exclusive license, we pay iPublishing a royalty of 5% of the defined gross profit derived from each project or program that uses the licensed IP. We are currently negotiating the acquisition of the IP and license from iPublishing. iPublishing has agreed in principal to a sale or transfer, and we expect that the transaction shall be formalized during 2006. The financial statements of iPublishing are combined with those of iMedia International, Inc. and, accordingly, all inter-company transactions are eliminated upon combination.

We have a continual need for service providers for the outsourced replication of our CD and DVD-ROM products, along with qualified printing companies that can handle large orders of CD and DVD-ROM packaging. Currently, there are many outside vendors who can provide these services, both domestically and internationally. The printing and disc replication business is considered a commodity industry, and there is presently significant competition for orders. Manufacturing capacity far exceeds current demand. We typically use two or three different disc replication vendors and two or three different printing vendors to handle our respective orders. Each of these vendors are large, well capitalized companies. Should these vendors be unable to meet our manufacturing needs, finding other suitable vendors whose pricing is similar to our current vendors would not be problematic.

Dependence Upon Customers

We continue to see an increase in the number of our new customers, and believe that future sales will not continue to be concentrated on any one or few of these clients. During the twelve-month period ending December 31, 2005, the Company increased new clients from 13 to 36 during the same period in 2004. The Company continues to realize repeat business with many of its original customers. These repeat orders tend to become progressively larger as our Digital Media Solutions are tested by our clients and expanded from local to regional and national programs. As new clients proceed through this sales and re-order cycle, we anticipate that future gross sales will continue to be allocated over an increasingly large customer base.

Business Environment

The Company intends to continue deriving revenues from a variety of products and from services, fees and royalties in the entertainment, information and publishing industries. The core business revolves around publishing, promotion and advertising using various disc magazines, brochures, directories and publications. In addition, the Company expects to produce revenues and royalties from a variety of synergistic industry-related projects and ancillary sales.

Information, Publishing and Media as a Global Industry

The “information industry” is one of the largest single sectors of the U.S. economy. This sector is comprised of several main industries including publishing, motion pictures and sound recording, broadcasting, telecommunications, news and information services.

Publishing and media is a global industry with the major industrialized nations producing revenues similar but slightly less than that of the U.S. when revenues are factored in as a percentage of population.

Publishing and media revenues vary annually depending upon regional, national and global economic conditions. In times of recession or depression, revenues may be severely impacted as companies have less capital to invest in advertising and promotions. Conversely, during times of economic growth, revenues from publishing and advertising can increase dramatically as companies compete to retain or increase their customer base, market share or establish brand recognition.

Over the last few years, traditional publishing and advertising has experienced a change as new forms of digital media and electronic distribution become available. The new digital media is rapidly becoming accepted by publishers and corporate sponsors as a unique and effective way to educate consumers, gain brand recognition and increase market share.

Digital Publishing and Digital Media

Digital publishing and digital media are developing technologies that continue to find new venues, uses and applications. With the advent of personal computers, the internet, wireless devices, cable television, PDAs, smart phones and other devices used to receive and transmit digital media, the opportunities for interaction between consumers, broadcasters, publishers and advertisers continues to expand. Content delivered through interactive media (via computers as a “lean forward experience”) provides to consumers a far more involving experience than by passive viewing alone (via TV as a “lean back experience”). Interactive disc based media is simply archival media that is physically deliverable and can be collectible or used for personal reference. Consumers now have more choices, as to how they want to experience media or purchase products, than ever before. Interactivity allows consumers to instantly receive more information about what they are interested in, and to easily bypass information in which they are not interested. Interactivity also allows for vast data-mining capabilities, so publishers and advertisers can receive accurate information as to what consumers are actually viewing, when they are viewing and the viewer demographic. Digital publishing industries will continue to evolve as additional and new forms of digital distribution become available and are publicly accepted.

Digital publishing consists mainly of digital multi-media. Digital multi-media can be both interactive or passive depending upon the advertisers’ or viewers’ choice. Digital publishing is limited only by the capability of the technology and the publisher’s method of distribution. Passive digital media is currently being used extensively in the U.S. to display content and advertising at ATM machines, grocery lines, airports, fast food restaurants, convenience stores, hotel lobbies and a variety of other locations and businesses. However, interactive digital media is becoming more popular as new technologies, consumer products and services become available.

Digital media and interactive digital publishing have the potential to rapidly become a significant threat to traditional forms of published media (such as print). With each new generation of consumer becoming more and more accustomed to receiving information from electronic media sources (i.e., television, internet, wireless devices) and less reliant on traditional media like newspapers, books and magazines, interactive digital media and disc publishing is fast becoming a preferred and adopted method of distributing information to younger consumers. In addition, growth projections for established publications and periodicals tend to remain relatively flat as the subscriber and reader base becomes saturated. Traditional publishers see digital media like Hollywood Previews™ Entertainment Magazine, Travel and Fashion Previews as welcome enhancements to their printed newspapers, magazines and periodicals.

Home Computers, Entertainment and Multi-Media

The advent of the home computer, the internet, video games, digital photography, CD-ROMs, DVDs, and the developing technologies that allow these devices to interact, communicate and network, have created consumer demand for more uses and adaptability from these devices. Each year, millions of new personal computers are sold, with most being equipped with state-of-the-art multi-media players. By their use, consumers continue to demonstrate their positive acceptance of the home computer as a prominent source of information and entertainment. The CD-ROM is a world-wide standard, playable on virtually every personal computer, PC or Mac, one of the few such standards that exist.

Each year, more and more computers are becoming linked by high-speed connection either through the Internet or through wide or local networks, providing consumers with the opportunity to interact with other computer users. Interactive computer video games, chat rooms, instant messaging and interactive e-mail demonstrates that many computer users desire interactive content and capability.

Industry statistics continue to show that computer users devote a large majority of their computer time to entertainment, playing games and surfing the Internet. The adoption of CD-ROM and DVD technology has made the home computer a true multi-media experience. With constantly improving graphics, speed and quality, along

with the availability of rich media content, multi-media computers provide users with ever-increasing entertainment choices.

Traditional Publishing vs. Digital Publishing

Traditional publishing has remained virtually unchanged for decades. It may consist of print media such as newspapers, books and magazines, directories like the Yellow Pages, and non-print media such radio and television. Content such as news, recorded music, television shows and other content is provided by the publisher and delivered to the consumer either for free (i.e. radio, broadcast television and directories) or at greatly subsidized costs (i.e. newspapers, magazines and cable television). In traditional media, content is provided to attract viewers or subscribers and the publisher derives revenues through the sale of ads or sponsorships. Advertisers pay rates based upon the number of viewers or circulation of the publication. Advertisers pay regardless of whether or not their ad was viewed, and as traditional publishing is passive, there is no way for an advertiser to accurately determine how many people viewed their ads, or how many unique views it received. For example, a magazine purchased at a newsstand might only be viewed by that one person on a lone occasion. However, the same magazine placed in the lobby of a medical office may be viewed repeatedly by many different (unique) readers over a period of a month or longer. The industry term for this is “pass-along”.

Digital publishing is substantially different yet still similar to traditional publishing. Revenue models are very similar. Content is provided usually in the form of multi-media (video and audio) and like traditional publishing, is provided at a subsidized cost or no charge to the viewers or subscribers. Just as with traditional publishing, revenues are derived from the sale of ad space, promotions and sponsorships, and costs are based upon each journal’s circulation. However, because the Company’s publishing is interactive, both the publisher and sponsors (advertisers) can now identify the viewer, determine which ads were viewed, for how long and even direct the viewer back to the corporate sponsor for additional information. Digital publishing therefore is much more accurate as to its reporting, and when compared to traditional publishing can be a more efficient and cost-effective alternative.

Digital publishing however does not have to be interactive. It can be completely passive so as to require no user interaction. Watching a movie on DVD is a good example. Because digital media can be displayed, distributed and produced in such variety, the Company is provided with an almost unlimited opportunity to design and implement custom digital media solutions for its various customers, consumers and sponsors.

Entertainment and Motion Picture Industry

Although Hollywood, California is widely accepted to be the motion picture capital of the world, the production and distribution of motion pictures is a global industry. While the majority of first-run motion pictures continue to be produced by U.S. movie studios, more and more international studios are producing high-quality products in direct competition for the international and U.S. market. It is estimated that there are over 500 feature films distributed in the U.S. each year. Of these many films, 100 or more may have advertising and promotional budgets in excess of $30 million.

Competition for market share has caused motion picture studios to allocate large portions of their distribution budgets to promotion and advertising. As motion pictures are a very visual art form, studios traditionally look to advertising media that can visually showcase their products to their largest demographic audience. Television spots, theatrical trailers and print (newspaper) advertising have long been the mainstay for studio marketing executives.

With an ever-escalating pace of life, consumers continue to view entertainment as a diversion, and for this reason entertainment industries such as movies, music, sports and gaming continue to increase in popularity and revenues. Consumers have an insatiable appetite for new recreation and leisure activities, and continue to devote more of their discretionary income to entertainment products.

Employees

As of December 31, 2005, the Company had 43 employees and/or full-time independent contractors of whom approximately one-half are involved with graphics, programming, design, and video production, eight in sales and marketing, six in general office administration, and seven in executive management. Executive officers are compensated by way of consulting agreements with their respective independent corporations. There have never been any litigation issues with employees and the Company considers its relationships with its employees to be satisfactory. The Company has, since inception, relied heavily upon outside contractors, consultants, attorneys and other independent professionals to augment its employees and to aid in the performance of duties. The Company intends to continue using outside contractors, consultants, attorneys and other professionals until such time as it elects to hire employees to fulfill these obligations.

Government Regulation and Other Matters

The Company is currently unaware of any government intervention or legislative acts pertaining to its industry that could have a materially adverse affect on its operations or viability.

The Company is dependent upon certain standard industry practices that if changed could adversely affect our business. The largest and single most important factor relates to the dissemination, redistribution and re-publishing of trademarked or other rights-protected materials currently available to our subsidiary, HPI, for the production of the Hollywood Previews™Entertainment Magazine. The Company does and will continue to rely upon the availability of certain media, video clips, audio clips, photographs, graphics and other collateral materials produced by movie studios and record companies for the promotion of our products. It is an industry practice that promotional materials are provided free-of-charge to established and credentialed news or media agencies. These promotional materials are usually distributed through “press kits” or other special disseminations to various media organizations, publishers, TV shows and news organizations for publication or re-broadcast. Media companies, publishers and broadcasters then incorporate this copyrighted content into their various proprietary programs for broadcast or redistribution.

Although the Company does not expect a change in the way studios and record companies distribute or license their copyrighted promotional materials, should for some reason these promotional materials be unavailable or should there be a requirement to pay for the use of these materials, HPI’s business could be materially and negatively affected.

In addition, the use of celebrity names and/or likenesses, even when believed to be in the public domain or when provided as a part of a studio’s promotional materials, may be subject to certain rights protections of which the Company may not have been made aware, or that may not have been clearly established. Hence, although not anticipated, the Company could face claims arising from the use of these real or perceived intellectual properties from right holders or other entities who may claim damages based upon our unauthorized use or other infringement.

Finally, over the past few years, an increasing number of celebrities have entered promotional agreements, and have become spokespersons for various consumer products such as soda, athletic equipment, cars and national brands. It is possible that the Company may create a conflict of interest with these celebrities and/or their sponsors though passive association with sponsors advertising in our publications. Although these conflicts currently exist in traditional media and print magazines (these magazines have numerous and competing sponsors in the same publications), rights issues and case laws inherent in digital media are not as clearly defined. Therefore, the Company has decided to obtain multi-media insurance in an amount adequate to protect and defend itself should a problem arise. The Company does not presently carry this insurance, but intends to acquire it as soon as it becomes practicable.

History

iMedia International was incorporated on June 10, 1987, originally under the name of Weston Hotel Corp., and later changed its name to Irvine Pacific Corporation. The Company had no material operations from shortly after its inception until its merger (reverse-merger) with Hollywood Previews, Inc. (HPI) on August 29, 2003.

HPI is a California Corporation founded on July 25, 2002, originally under the name DTV Studios. HPI officially changed its corporate name to Hollywood Previews, Inc. on January 3, 2003. HPI is a wholly owned subsidiary of the Company with limited operations. HPI is a successor-in-interest to an affiliated group of companies, which include MOD Studios, Inc, incorporated on November 3, 2000 in the state of Delaware, The Modern Company LLC, a California Limited Liability Company incorporated on February 25, 1999 and iPublishing Inc., a California corporation incorporated on May 6, 2003. Both the Modern Company and MOD Studios are defunct, and have had no material operations since 2003.

DESCRIPTION OF PROPERTY

Our principal management offices are located at 1721 21st Street, Santa Monica, California 90404. The property is leased on a month-to-month basis and consists of 3,000 square feet of mixed-use office, production and warehouse space. In addition we rent additional parking spaces sufficient to accommodate our current staffing levels. The additional parking is on a 12 month lease. Combined annual rent expense is approximately $67,000

Office equipment consist of computers, servers, audio and video editing equipment, CD duplication equipment and other miscellaneous equipment that in management’s opinion are in overall good operating condition and adequate to meet our immediate needs. We foresee the need to acquire additional or larger facilities in order to attain and service our projected growth. In addition, we will need to continually upgrade or acquire additional audio-video equipment computer software and hardware and other devices. We are dependant upon using state-of-the-art technology to produce and distribute our products.

MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

This “Management’s Discussion and Analysis and Plan of Operation” contains “forward-looking statements” that include information relating to future events, future financial performance, strategies, expectations, competitive environment, regulation and availability of resources. These forward-looking statements include, without limitation, statements regarding: proposed new services; our expectations concerning litigation, regulatory developments or other matters; statements concerning projections, predictions, expectations, estimates or forecasts for our business, financial and operating results and future economic performance; statements of management’s goals and objectives; and other similar expressions concerning matters that are not historical facts. Words such as “may,” “will,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes” and “estimates,” and similar expressions, as well as statements in future tense, identify forward-looking statements.

Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by which, that performance or those results will be achieved. Forward-looking statements are based on information available at the time they are made and/or management’s good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements.

Forward-looking statements speak only as of the date they are made. You should not put undue reliance on any forward-looking statements. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information, except to the extent required by applicable securities laws. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.

Overview

IPC was originally incorporated in Colorado on June 10, 1987 under the name of Weston Hotel Corp. The Company had no material operations from shortly after its inception until the Acquisition of HPI, as described above. Shortly after the Acquisition, effective November 25, 2003, IPC completed a statutory merger effected for the purpose of changing its state of incorporation from Colorado to Delaware by merging into a newly formed Delaware corporation, iMedia International, Inc. (the “Company”). This change in IPC’s state of incorporation and corporate name was approved by the holders of a majority of IPC’s outstanding shares of common stock at a special meeting of shareholders on November 21, 2003.

As a result of the reincorporation merger, each outstanding share of IPC’s common stock was automatically converted into one share of Company common stock. Each stock certificate representing issued and outstanding shares of IPC’s common stock continues to represent the same number of shares of common stock of the Company. The Company continues to operate the business of IPC, and the reincorporation did not result in any change in IPC’s

former business, assets or liabilities, did not cause the Company’s headquarters to be moved, or result in any relocation of management or other employees.

At the time of the Acquisition HPI held an exclusive license (the “License”) from iPublishing, Inc. (“iPublishing”), an affiliate of the Company, to use iPublishing’s intellectual property (the “iPublishing Technology”). iPublishing’s three shareholders, David MacEachern, Scott Kapp and Franklin Unruh (each of whom own approximately 33% of the outstanding securities of iPublishing), are each officers and directors of the Company. The sole consideration for the License was a royalty arrangement pursuant to which iPublishing receives 5% of Gross Margin annually, generated by disks produced by the Company using the iPublishing Technology. Because the License is exclusive, iPublishing may not license or assign any of its intellectual property to any other party and may not compete with the Company. It is the Company’s intention to permanently acquire ownership of the iPublishing Technology at some point in the future when operations and revenue have stabilized. In connection with the License, HPI purchased all of iPublishing’s personal property and equipment, which iPublishing had previously purchased from Franklin Unruh. The purchase transaction has been accounted for at the carry-over basis of the assets, valued at $71,196, the amount by which they were obtained by Franklin Unruh. HPI has since transferred the License to its parent, the Company. The iPublishing Technology consists of various proprietary procedures, codes, technologies, copyrights, trademarks and brands, along with the proprietary suite of mastering software used to create our CD-ROM and DVD-ROM products.

Under the terms of the License, the Company is obligated to use its best efforts to commercially exploit the License and the iPublishing Technology to create a royalty-stream that will allow iPublishing and its preferred shareholder, Franklin Unruh, to service and retire certain debt obligations encumbered as a result of his acquisition of the iPublishing Technology. The iPublishing Technology was obtained by Mr. Unruh through a UCC 9504 “Transfer in Lieu of Foreclosure” resulting from a default on certain indebtedness owed to Mr. Unruh by Mod Studios Inc, a Delaware corporation. At the time of the transfer, Mod Studios Inc. was owned by Messrs. Unruh, MacEachern and Kapp. On April 3, 2003, Mod Studios, Inc. transferred to Mr. Unruh all of its physical assets (including a variety of computers, servers, office equipment, supplies and furnishings previously used by MOD Studios in the operation of its business) having a book value of $71,196 and the iPublishing Technology with a book value of $0 due to MOD Studios’ non-payment of certain notes payable to Mr. Unruh. The notes payable totaled $393,331 at the time of the transfer. On April 4, 2003 Mr. Unruh then sold the iPublishing Technology and the physical assets to iPublishing in exchange for an equity interest in iPublishing. iPublishing subsequently sold the physical assets to the Company in exchange for a note from the Company in the principal amount of $71,196. As compensation fro the license I-Publishing receives annual royalties for each of 5% gross profit for each CD distributed.

In accordance with generally accepted accounting principles, iPublishing’s operations are combined with the Company’s financial statements. However, iMedia International, Inc. and iPublishing are currently negotiating the acquisition of the ownership rights in the iPublishing Technology, and are in the process of determining the fair market value thereof.

As a result of the Acquisition, the Company became a publisher of interactive, digital, and multimedia publications on CD-ROM. The Company markets and produces a variety of special edition digital publications and custom promotional discs for various corporate clients. We also distribute Hollywood Previews™ Entertainment iMagazine™, an interactive digital magazine (also called an iMagazine) on CD-ROM that features movie previews, video games, and television previews, plus interviews with stars, behind the scenes videos, music soundtracks and music videos, Hollywood fashion and style, and other entertainment news. Hollywood Previews™ Entertainment iMagazine™ is used primarily to showcase the Company’s proprietary digital publishing system capabilities. The Company’s publications are distributed in a variety of methods including insertions in major metropolitan newspapers, insertions in major magazines and periodicals, hand-outs using targeted street teams, at movie theater box offices, in back-end fulfillment and packaging, or via direct mail to consumers.

The majority of the Company’s revenues to date have been generated from the sale of custom publications and special edition discs. We continue to pursue the procurement of paid advertising sponsorships, licensing, content placements, and e-commerce fees from Hollywood Previews™ Entertainment iMagazine™. We also intend to begin sales efforts with respect to our proprietary data and usage report technology which has the ability to monitor the navigation of users on our Hollywood Previews™ Entertainment iMagazine™, and our other custom disc products.

Strategic Distribution Partners

During the one-year period ending December 31, 2005 our strategic distribution partners for Hollywood Previews™ Entertainment iMagazine™ and our custom discs include the Los Angeles Times a large metropolitan newspapers and Amazon.com, an online retailer, and Universal Press Syndicate, our exclusive newspaper agent a syndicator of content to the newspaper industry. We anticipate that in the future a majority of our new distribution sources will result from sales representation by Universal Press Syndicate to their affiliated group of newspaper clients. We currently have a partnership and distribution agreement with the Dallas Morning News, which will launch on April 30, 2006. Through Universal Press Syndicate, we are currently negotiating additional distribution agreements with several major metropolitan newspapers, but have not yet formalized or completed these negotiations. We believe that we will succeed in securing these additional partnership and distribution agreements, and project that we will be distributing Hollywood Previews in 4-5 U.S. markets by the end of 2006.

During the one-year period ending December 31, 2005 we underwrote the costs involved in the distribution of Hollywood Previews™ Entertainment iMagazine™ with the Los Angeles Times and Amazon.com. We incurred costs of $626,000 to subsidize the distribution of Holly Previews during this same period. We anticipate that we will continue to subsidize costs, with our current cash resources, related to the future distributions until such time as advertising revenues exceed production and distribution costs. As we expand to new markets, we plan to have each new distribution partner cover any revenue shortfall that may occur thereby minimizing our subsidization costs. If we cannot negotiate minimum guaranteed revenue that covers our direct manufacturing costs we may delay the launch of a new market or publication until financial break-even can be assured.

While we expect that we will continue to secure new distribution partnerships with other metropolitan U.S. newspapers, the newspaper industry in general is currently in a state of flux as these companies look for new ways to increase advertising revenues, and stop the recent and substantive trend in circulation and advertising losses. Although we believe that these trends will benefit us in the long term, current disruptions within the industry could prove to have the affect of delaying our ability to integrate our business plan with these newspapers as strategic distribution partners.

Custom Discs

During the one-year period ending December 31, 2005, a major portion of our efforts and resources were spent on the development of special edition and custom interactive project for a variety of industries and corporate clientele. We are continually improving and advancing our custom disc products in order to integrate developing technologies. These technologies and services can be incorporated into our existing products and then offered to other clients on a custom basis. Each of these new technologies and services constitute opportunities for new or additional revenue streams. As technology advances allow, we will continue to incorporate and integrate other forms of digital media into our products and services that will allow us to expand our revenue streams without materially changing our underlying products, services or business models.

We have focused the majority of our recent sales activity away from custom projects and toward our newspaper syndication program. We believe that this adjustment will have an immediate negative effect on our custom disc revenues, especially during the first two quarters of 2006. Despite this shift in sales focus we anticipate that the custom disc market will continue to constitute a significant part of our future revenues. We have identified and have developed new products specifically targeted to new custom disc industries and sectors, including entertainment, sports, travel, information, medical, wireless, automotive and direct marketing. These new products include various digital communication services such as voicecasting, e-mail campaigns, data management and call center support. We intend to use a portion of our capital on an ongoing basis to develop these new target markets.

RESULTS OF OPERATIONS

Revenues are generated from the sale of paid advertising sponsorships, licensing, content placements, and e-commerce fees, plus the sale of advertising inventory to advertisers and content providers and from the future sale of data derived from our proprietary usage and measurement reporting system.

The combined financial statements of iMedia International Inc., as of December 31, 2005 include the accounts of the Company and its wholly owned subsidiaries Hollywood Previews, Inc. (a California corporation), iMedia US, LLC (a California limited liability company), iMedia Nevada, LLC (a Nevada limited liability company) and iPublishing, Inc. (a California Corporation) an affiliated company.

On a combined basis, we have incurred operating losses since inception due to the expenses involved with production, fundraising and for our general and administrative expenses. Significant expenditures at the corporate level continue. These outlays include production and distribution costs, fundraising costs, marketing costs, growth initiatives, legal, accounting and other professional fees.

When publishing our proprietary publications like Hollywood Previews, we are required to subsidize any shortfalls that occur when we make a distribution for which there is insufficient revenue to offset costs. As with any traditional magazine publisher, we must evidence our ability to meet our distribution schedule prior to being able to securing advertising commitments or sponsorships. We are currently underwriting the shortfalls involved in the distribution of Hollywood Previews with the Dallas Morning News and foresee that we may be required to do so for a two-to-three month period beginning April 1, 2006 when advertising revenues may fall short of production and distribution costs. We incurred costs of $40,000 and $626,000 to cover such shortfalls for the years ending December 31, 2004 and December 31, 2005 respectively. We anticipate that we will continue to subsidize costs related to the above distributions, with our existing cash resources, until such time as advertising revenues exceed production and distribution costs, however the amount of these revenue shortfalls should begin to decline as new advertisers and sponsors are secured.

iMedia International is a member of an affiliated group (the “affiliated group”), which includes I-Publishing, MOD Studios, Inc. (“MOD Studios”), and The Modern Company, LLC (“The Modern Company”). We originally accounted for the business activity of the affiliated group by providing a separate footnote, which described the nature of the relationships and included the pro forma impact on our consolidated financial condition and results of operations as if the consolidated financial statements were presented on a combined basis with the affiliated group. We did this for each period presented up to and including the fiscal year ended December 31, 2003. For periods subsequent to December 31, 2003 we excluded the results of the affiliated group. Upon further evaluation of our accounting methodology for affiliated companies we determined that we erred in our application of the relevant accounting principals and determined that we should have combined the affiliated group with the consolidated financials of iMedia International, Inc. and Subsidiaries. Accordingly, the restated financials include the combined operations of the predecessor companies through April 5, 2003 and iPublishing from April 6, 2003. We have determined the effect of the correction on our previously issued financial statements and have restated the accompanying financial statements for the year ended December 31, 2004.

Plan of Operation

For the year ended December 31, 2005, our plan of operation focused on four primary objectives: raising capital through private offerings and other financial instruments, continued development and publication of Hollywood Previews™ Entertainment Magazine, the identification and development of specialty and custom disc customers, industries and content, and the development of new proprietary publications. During this period we produced and distributed 12 monthly issues of Hollywood Previews™ Entertainment Magazine. In addition, we produced and distributed a variety of custom disc publications.

We continue to execute our long-term business strategy involving the launch of our newspaper syndication program for our proprietary products such as Hollywood Previews™ Entertainment Magazine (Hollywood Previews). During the forth quarter of 2005 we commenced negotiations with our first Newspaper client, the Dallas Morning News and ultimately signed a one-year contract in January 2006. Per the terms of the agreement we will produce a minimum of 655,000 Hollywood Previews each month for delivery to Dallas Morning News Sunday subscribers, with the first edition slated to be delivered on April 30, 2006. We are in effect partnering with Dallas Morning News in a revenue-sharing agreement. The model allows both parties to sell local, regional and national advertising onto one digital magazine. Revenues are shared after certain up-front production and manufacturing costs are recouped by iMedia. We are currently introducing this partnership model to various major U.S. newspapers through our strategic agency partner syndication representative, Universal Press Syndicate (UPS). UPS is the largest independent syndicate of newspaper content in the world. UPS currently has a client base of

approximately 2,700 newspapers both domestically and internationally, and has stepped-up marketing activity for iMedia with the goal of securing syndication partnerships in five top U.S. markets by the end of 2006, and 15 top U.S. markets by the end of 2007. Through UPS, we expect to increase the distribution of Hollywood Previews with new partnership arrangements with major publishing groups such as Tribune Company, Gannet, Media News, and Bilo as well as directly with independent newspaper publishers. We expect to see an increase in recurring and continuity revenues as we complete successive distributions of Hollywood Previews in established markets. We believe that this increase should commence late in the third quarter of 2006.

Net sales

Our net sales increased $3,641,000 or 159% from $2,291,000 for the year ended December 31, 2004 to $5,932,000 for the year ended December 31, 2005. The increase in sales was primarily due to a continuing market acceptance of our products and services relating to the production of special edition and custom digital solutions. We concentrated our marketing efforts principally on custom B2B discs during the period that we were involved with raising the capital to launch our proprietary products such as Hollywood Previews™ Entertainment Magazine. During 2005 we completed projects for 31 unique customers compared to 21 customers for 2004. Of these 31 customers, 14 were repeat customers purchasing products and services both in 2004 and 2005. In addition to adding 17 new customers we had a significant increase in sales from those customers who had continuing business with us during 2005. During the year ended December 31, 2005, our customer base consisted of several diverse industries operating domestically and abroad in a variety of industries. These industries include television, broadcast, casinos and gaming, travel, entertainment, automotive and financial services. As noted above, we believe that, in the future, sales will not continue to be concentrated on any one or a few clients or industries but shall further diversify. We continue to realize repeat business with many of our original customers. These repeat orders tend to become progressively larger as our products are tested by our clients and have historically expanded from local to regional and national programs. As new clients proceed through this sales and re-order cycle, we anticipate that future sales will continue to be allocated over an increasingly large customer base. Further, we expect to continue targeting new customers in the entertainment, automotive, advertising and wireless device industries. In accordance with EITF Issue 99-19 in the fiscal year 2004, we recorded sales net of outside advertising agency fees. For the years ended December 31, 2004 and 2005 advertising agency fees used to offset sales were $92,000 and $0.00, respectively.

During the year ended December 31, 2005, we produced and distributed various monthly issues of Hollywood Previews™ Entertainment Magazine on a limited basis. In addition, we produced and distributed a variety of custom disc publications.

We continue to execute our long-term business strategy of launching our newspaper syndication model with our proprietary publications such as Hollywood Previews™ Entertainment Magazine (Hollywood Previews). During the fourth quarter of 2005 we commenced negotiations with our first Newspaper client, the Dallas Morning News and ultimately signed a one-year contract in January 2006. Per the terms of the agreement we will produce a minimum of 655,000 Hollywood Previews each month for delivery to their Sunday subscribers, with the first edition to be delivered on April 30 2005. We are in effect partnering with Dallas Morning News in a revenue-sharing agreement. The model allows both parties to sell local, regional and national advertising onto one digital magazine. Revenues are shared after certain up-front production and manufacturing costs are recouped by iMedia. We are currently introducing this partnership model to various major U.S. newspapers through our strategic partner and exclusive newspaper syndication representative, Universal Press Syndicate (UPS). UPS is the largest independent syndicate of newspaper content in the world. UPS currently has a client base of approximately 2,700 newspapers both domestically and internationally, and has stepped-up marketing activity for iMedia with the goal of securing syndication partnerships in five top U.S. markets by the end of 2006, and 15 top U.S. markets by the end of 2007. Through UPS, we expect to increase the distribution of Hollywood Previews through new partnership arrangements with major publishing groups such as Tribune Company, Gannet, Media News, and Bilo as well as directly with independent newspaper publishers. We expect to see an increase in recurring and continuity revenues as we complete successive distributions of Hollywood Previews in established markets. We believe that this increase should commence late in the third quarter of 2006.

We expect to see a decline in our custom business for quarters one and two of 2006 as our sales activity has been directly focused on securing advertisers for Hollywood Previews, and supporting our newspaper syndication

rollout. However, we expect that as more national advertisers are exposed to our branded publications through newspaper syndication, additional opportunities to create custom digital solutions for these same customers will drive future revenue growth in our custom business, and that our custom business will grow hand-in-hand with our newspaper preprint division.

Cost of sales and gross profit

Our cost of sales increased $2,519,000 or 99% from $2,543,000 for the year ended December 31, 2004 to $5,061,000 for the year ended December 31, 2005. The increase in cost of sales is primarily attributable to the overall increase in sales. However the margins from year to year are not comparable. The negative gross profit margin sales were -11% during 2004 compared to a positive 15% gross profit for during 2005. In 2004 we were continuing our start up phase in regards to digital media sales. During this start up phase, we developed a customer acquisition and pilot program to attract customers, in which the price of initial test and pilot programs to our customers was significantly reduced, often below cost, in order to demonstrate the effectiveness and efficiencies of our digital media. As a result, profit margins on sales were negative. During the year ended December 31, 2005, we produced an increasing number of projects with both new and repeat customers having higher gross margin rates, more typical of our future anticipated margins. We anticipate that such trends will continue for several quarters. For the year ended December 31, 2005, we had approximately $104,000 of costs in excess of revenues related to four specific customer projects. We anticipate that as these programs develop, we will be able to reduce the amount of subsidies required for each distribution, and the reduction in these subsidies will have the impact of increasing our overall gross profit margin. The Company does foresee the need to continue a long-term policy of cost variation in order to achieve significant market penetration and brand recognition. For the year ended December 31, 2005 we used two vendors for 96% of our purchases. By concentrating the majority of our purchasing with two vendors, we can negotiate better pricing thereby increasing our profit margins. We do not believe that this concentration poses a risk to operations as the replication of optical discs and printing of packaging materials remains a commodity industry. There are many sources for these services and our vendors can be easily replaced, if necessary.

As discussed above we are entering the next phase of our business model whereby we will now be producing our monthly digital magazine, Hollywood Previews, on a consistent basis. We anticipate subsidizing certain costs of publishing for at least the first three additions until we have enough advertisers to return a gross profit both to the newspapers and ourselves. Accordingly, we anticipate our gross profit will be reduced during the initial launch, during the second quarter and into the third quarter of 2006. We continue to attract a significant number of national advertisers, which we expect will convert to future advertising revenue. Some of these advertisers will focus their advertising regionally, while others may roll-out into each new national market we enter. However, as advertising budgets are typically committed up to two quarters in advance, we expect that we will have revenue shortfalls in each new market we enter. We still anticipate having to subsidize each newspaper launch into the foreseeable future until such time as we have enough empirical data to better estimate the initial advertiser response, and the number of national advertisers that will carry over from one geographical market to the next. We do expect significant improvement in the gross profit of the Hollywood Previews over the first several quarters after each launch. In addition, we believe we can ultimately achieve a much higher profit margin then we are currently achieving on our custom projects due to our economies of scale, and as the costs of producing a monthly product is much lower than our one-time customized projects.

Operating Expenses

Selling

Our selling expenses increased $1,675,000 or 152% from $1,101,000 for the year ended December 31, 2004 to $2,775,000 for the year ended December 31, 2005. The increase in selling expense is primarily attributable to the following:

	•		The overall increase in sales as discussed above.

	•		An increase in payments to outside sales representatives to promote our products resulting from the increase from three sales representatives in 2004 to seven sales representatives in 2005. we also realized substantial additional travel, meals, entertainment and telephone expenses associated with

			these additional sales representatives. The total increase attributed to this increase in sales representatives and related expenses over the same time period in 2004 is approximately $812,000. In addition during 2005, in accordance with EITF Issue 99-19, we recorded sales at gross and included the outside advertising agency fees in selling expenses, while during the same period for 2004 we determined agency fees for specific sales should be recorded net and accordingly were recorded against gross revenues. For the years ended December 31, 2004 and 2005 advertising agency fees included in selling expenses were $0.00 and $285,000, respectively.

	•		In conjunction with our strategy of testing various forms of distribution and promoting brand recognition, we have continued our sales strategy of distributing our proprietary brands including Hollywood Previews iMagazine through various newspapers, periodicals and on-line retailers. We have supplied these products to these distributors at no cost, and are dependent upon advertising revenues as the only revenue source. The total increase in this sales promotion for the year ended December 31, 2005 from the same time period in 2004 is approximately $520,000. We intend to continue this promotional strategy for the foreseeable future but expect the investment to be significantly reduced as we sign new newspaper distribution partners who will eventually underwrite these promotional costs (see discussion under Net Sales and Costs of Sales and gross profit above). As we sign additional newspapers and achieve advertising revenues, direct costs will be matched with the associated revenues and will be recorded as a cost of revenues thereby reducing or eliminating these promotional subsidies.

General and Administrative

Our general and Administrative expenses increased from $2,112,000 to $5,610,000 for the years ended December 31, 2004 and 2005 respectively. The increase in general and administrative expenses for 2005 was $3,498,000 or 166%. The substantial increase is primarily attributable to the following:

	•		Non Cash Transactions: During the one-year period ending December 31, 2005, we booked as general and administrative expenses approximately $3,231,000 in various non-cash transactions as opposed to approximately $44,000 for the same period in 2004. The majority of these expenses were related to non-recurring costs associated with the issuance of common stock and various warrants to prior investors, investment banking consultants and for promotion of ongoing financing activities, as well as some operational costs. We feel that the nature of these non-cash expenses are not indicative of actual month-to-month costs of our general and administrative operations. For this reason, we are including the following breakdown of our non-cash transactions:

	•		In February 2005, we issued 6,163,559 warrants (“Prior Investment Warrants”) valued at approximately $481,000 to investors who had experienced illiquidity due to our delay in obtaining our listing on the Over-the-Counter Bulletin Board. We did not have this expense during the same time period in 2004.

	•		In June 2005, we issued 2,874,119 warrants (“Replacement Warrants”) to provide certain warrant holders the opportunity to obtain shares at a discount to the stock market price at the time. The Replacement Warrants were issued as a condition to the election of holders of certain one-year warrants to exercise such warrants at a discount price of $0.40 per share in March 2004. We valued the Replacement Warrants at approximately $329,000. We did not have this expense during the same time period in 2004.

	•		During 2005 we issued 3,061,603 shares of common stock for services to various consultants for promotion for our ongoing financing activities, and employees as bonuses. The total value of the common shares issued is approximately $2,031,000 of which $1,904,000 is included in operating expenses, $77,000 is included in Selling expenses and $50,000 is included in cost of Series B Preferred financing in equity. The total common shares issued to employees as bonuses was 360,000, of which 100,000 were issued to the Chief Financial Officer, with a $300,000 and $24,000 total value of the common shares issued, respectively. For the same time period in 2004 common stock issued for services included in operating expenses was approximately $44,000.

•

During 2005 we issued 2,534,868 warrants to consultants for advisory services and to an employee as a bonus. These warrants were valued at $482,000. The total value of the warrants included in operating expenses is $517,000 which includes $86,000 of deferred expenses recorded during 2004 and expensed during 2005 offset by $51,000 in expenses in deferred expenses in equity as of December 31, 2005. The total warrants issued to the employee was 391,350 with a total value of $74,000. We did not have equivalent expenses during the same time period in 2004.

•

Cash Transactions: Our total cash expenses included in general and administrative expenses increased by $267,000 during year ended December 31, 2005 compared to the comparable 2004 period. The increase is generally due to our overall growth, the costs to service our increased sales and to prepare infrastructure for future expansion. This infrastructure is specifically related to the distribution of our monthly Hollywood Previews iMagazine through strategic newspaper partnerships. Accordingly, our general office expenses increased by $371,000, investor relations increased by $99,000, legal, accounting and professional fees increased by $91,000 offset by an overall decrease in compensation of $294,000. The increase in general office expenses was due to the overall growth of our Company. The increase in investor relations, legal, accounting and professional fees is primarily related to the indirect costs of securing financing, including the preparation and filing of our SB-2 registration statement in August 2005, and due to costs related to the change in our auditors during the first quarter of 2005. The reduction in compensation costs included in general office expenses is primarily the result of our increase in sales whereby the cost of revenues and selling expenses were allocated a greater amount of compensation costs than during the comparable 2004 period and due to some costs of compensation be paid via non-cash issuance of options and warrants as described above.

As our business increases, it is anticipated that our cash operating expenses will increase in absolute dollars, but should decrease as a percentage of sales. We will continue to issue non-cash compensation to our advisors and consultants as necessary. However we do not anticipate issuing the same volume of warrants or common stock in the near future. We believe certain one time general and administrative expenses will be necessary as we continue to grow and most likely we will have to seek larger corporate headquarters in the near future. We also anticipate investing in upgraded operational, business and accounting systems. We currently have sufficient executive staffing levels to manage our growth and execute our business plan and will continue to add personnel as necessary, commensurate with our growth.

Management and Consulting Fees — Related Parties

Our management consulting fees with related parties increased $74,000 or 15% from $507,000 for the year ended December 31, 2004 to $581,000 for the year ended December 31, 2005. These costs consist of payments to the Modern Company (an affiliated company), for management services of Messrs. MacEachern, Kapp and Unruh, as President, Chief Executive Officer and Chief Operating Officer (formerly Chief Financial Officer), respectively, of the Company. In order for the officers noted above to take advantage of certain tax benefits a disbursement is made from iPublishing to a personal service company, the Modern Company. The Modern Company is wholly owned by Messrs. MacEachern, Kapp and Unruh and as such the disbursement to the Modern Company is recorded as Operating expense –related parties.

Other Expense

Interest on fixed conversion feature and amortization of discount

Interest on the fixed conversion feature and amortization of discount expense (interest expense) decreased $725,000 from $851,000 for the year ended December 31, 2004, to $126,000 for the year ended December 31, 2005. The interest is attributable to beneficial conversion features recorded on three convertible bridge notes, which were funded during 2004, the Augustine Fund, LLP, MicroCapital Fund, LP and LTD (“MicroCap”), and Related Party notes. The decrease is attributable to (1) the Augustine note being paid in full during July 2004 and the remaining unamortized interest expense being fully expensed at that time; (2) the MicroCap notes maturing in December 2004 and the interest being fully amortized as of that date; and (3) the Related Party notes maturing during October 2004 and all interest expense being fully expensed at that time. On December 31, 2004, the Related Party notes were amended and the loans were extended until April 30, 2005 at which date the notes were repaid in full. In exchange

for waiving the interest payments on the original notes, the original 130,000 warrants were cancelled and in exchange we issued 130,000 common shares in January 2005. The value of the common shares was amortized to interest expense during 2005 and was the only amount included in this line item.

Warrants issued for extension on convertible note payable

In the second quarter of 2005, we were granted an additional repayment extension for the MicroCap notes. We issued the lender the aggregate of 555,556 additional warrants in connection with this extension. These warrants were valued at $340,478 and are reflected as warrants issued for extension on convertible note payable in the statement of operations during the year ended December 31, 2005.

Loss on revaluation of warrants

During the year ended December 31, 2005 the Company closed financings on its Redeemable Convertible Preferred Series A Stock and Convertible Preferred Series B Stock. As part of the financings the Company issued 25,360,000 warrants to purchase shares of the Company’s common stock. The warrants were classified as a liability rather than equity because the respective registration rights agreements for the Series A convertible redeemable preferred and Series B convertible preferred stock have certain terms and conditions whereby the Company is required to pay liquidated damages at 2%, in cash for a delay in the effective date of the registration statement. The outstanding warrants are fair valued each reporting period and the warrant liability adjusted accordingly. At December 31, 2005 the total fair value of the warrant liability increased $534,000 and was recorded as a loss on derivative instruments in the consolidated statement of operations. The increase in the warrant liability was due primarily to the decrease in Company’s common share price from the date of issuance of $0.89 and $0.52 per common share respectively compared to $0.24 per common share at December 31, 2005 offset by the limitation to the net value of the preferred stock since the initial warrant value was greater then the proceeds of the preferred stock offering after cash expenses and warrants for commissions.

Liquidated damages on late filing of registration statement

During 2005 we closed financings in gross amounts of $3,040,000 and $4,920,000 for Series A convertible redeemable preferred and Series B convertible preferred stock, respectively. As part of the terms and conditions of the respective registration rights agreements, we are required to pay certain liquidated damages at 2% plus 18% interest for unpaid damages (1) for a delay in filing the registration statement and then (2) for a delay in the effective date. During 2005 we elected to withhold the filing of our registration statement for our Series — A Preferred Stock and warrants until it could close on its Series — B Preferred Stock offering. Therefore, we did not file our registration statement until September 29, 2005. In accordance with the Series A - Preferred Stock agreement, liquidated damages were assessed, as the registration was not filed by the July 7, 2005 deadline. As such, we were 84 days late in filing our registration statement for our Series A holders. During 2005 we paid $50,000 in cash and issued 335,686 of commons stock valued at $120,000 for a combined $170,000, associated with liquidated damages for our late filing. In addition during 2005 the Securities and Exchange Commission (“Commission”) elected to fully review the registration statement and submitted a significant number of questions for our response. During the course of responding to the Commissions questions the financial statements included in the registration statement went stale pursuant to SEC rules, and the registration statement could not go effective. As such, we must replace the stale financial statements with the audited 2005 financials for the period ending December 31, 2005, and respond to the Commissions questions. In addition, we will have to respond to any follow-up questions the Commission may have after reviewing our initial responses. Accordingly, we have estimated and accrued an additional $1,123,000 in estimated liquidated damages and $87,000 in related interest expense for a combined total of $1,210,000. This amount is based upon our best estimate that the registration statement will become effective by June 2006.

Interest expense, net

Interest expense, net primarily consists of interest paid in cash for the convertible bridge notes discussed above offset by interest income from cash held in money market accounts from the proceeds from the convertible debt during 2004 and the preferred stock during 2005.

Impairment loss on available for sale securities

The loss on sale of investments for the year ended December 31, 2005 of $574,000 reflects the sale of 1,883,260 shares of the Company’s available for sale investment in Langley Park. For the year ended December 31, 2004 the Company did not have any investment transactions.

Provision for Income Taxes

For the years ended December 31, 2005 and December 31, 2004, the provision for income taxes represents the minimum state taxes due.

Net Loss

Net loss increased by $7,357,000 or 150% for the year ended December 31, 2005 to $12,271,000 from $4,914,000 for the year ended December 31, 2004. The substantial increase in net loss is primarily attributable to the increase in non-cash operating costs and increases in other expenses, partially offset by the improvement in gross profits during 2005 compared to 2004.

Reconciling Components to Net loss allocable to shareholders

For the year ended December 31, 2005 we recorded the following beneficial conversion features:

During the year ended December 31, 2005 we issued 3,040 shares of Series A — Preferred Stock for an aggregate of $3,040,000. The Series A — Preferred Stock has a mandatory redeemable feature at the end of two years from its issuance date. However, pursuant to ASR 268 and EITF Topic D-98 together with rule 5.02.28 of regulation S-X the Preferred Stock is classified as mezzanine financing on the balance sheet.

The Series A — Preferred Stock contains certain conversion provisions and was issued in conjunction with 16,217,950 warrants to purchase our common stock pursuant to the Purchaser’s respective purchase agreements. In addition $327,000 of cash was paid as commissions for the placement of the Series A Preferred Stock. Based upon the existence of these features, the Company determined that a debt discount was required to be recorded as of the date of issuance to account for the value of the warrants and the value of the beneficial conversion feature. The total value of the warrants associated with this Preferred Stock offering was valued at $9,979,966 based upon the Black-Scholes pricing model and the beneficial conversion feature was valued at $3,415,730. As the value of the warrants and the beneficial conversion feature exceeded the total offering proceeds, the amount allocated to the warrants and the beneficial conversion feature was limited to the amount of the Series A — Preferred Stock. Therefore we recorded a discount of $2,713,000 relating to the issuance of the warrants.

During the year ended December 31, 2005 we issued 4,920 shares of Series B 6% Convertible Preferred Stock (the “Series B Preferred Stock”) for total proceeds of $4,920,000. The Series B Preferred Stock contains certain conversion provisions and was issued in conjunction with 14,760,000 warrants to purchase our common stock pursuant to the Purchaser’s respective purchase agreements. In addition 1,211,250 warrants, valued at $413,000, were issued and $754,000 of cash was paid as commissions for the placement of the Series B Preferred Stock. Based upon the existence of these conversion features and warrants issued, we determined that a preferred stock beneficial conversion feature was required to be recorded as of the date of issuance to account for the value of the warrants and the value of the effect of the beneficial conversion feature. The total value of the warrants attached to Series B Preferred Stock offering was valued at $5,981,400 based upon the Black-Scholes pricing model. The beneficial conversion feature was valued at $3,753,000. Since the warrant value is greater then the proceeds of the preferred stock offering after cash expenses and warrants for commissions, the beneficial conversion feature is limited to the net value of the preferred stock of $3,753,000. In accordance with EITF Issue 98-5 since the holders of the Series B Preferred Stock may convert at anytime the beneficial conversion feature of $3,753,000 has been

amortized in full against retained earnings and shown as a separate component of the statement of operations as of December 31, 2005.

Dividends

For the years ended December 31, 2005 and 2004 we issued stock dividends from our Series A and B preferred shares of $215,000,and $0.00 respectively. In addition for the same time period we issued preferred stock dividends from our iPublishing preferred stock of $27,000 and $27,000, respectively.

Net loss allocable to common Shareholders

For the year ended December 31, 2005 and 2004 the net loss allocable to common shareholders is $17,119,000 and $4,941,000, respectively. The reconciliation between net loss and net allocable to shareholders is the amortization of the beneficial conversion feature of the Series A and B preferred shares and dividends issued as described above.

Liquidity and Capital Resources

Net cash used in operating activities for the years ended December 31, 2005 and 2004 was $5,996,000 and $2,938,000, respectively. The net cash used in operations during 2005 is a result of our net loss of $12,271,000 offset by $4,808,000 of non-cash common stock, warrant compensation and revaluation and interest charges, $1,730,000 of unrealized and realized losses on the investment in Langley Shares, and $72,000 in depreciation and allowance for doubtful account provisions. In addition, we used approximately $335,000 for working capital purposes. Non-cash compensation charges resulted from warrants issued for consulting services, bonuses and interest. The unrealized loss on the investment in Langley Shares is the result of our determination that the shares were permanently impaired as determined in SFAS 115. Net cash used in operating activities for the year ended December 31, 2004 of $2,938,000 is primarily attributable to the net loss of $4,914,000 offset by non-cash warrant compensation and interest charges of $1,288,000, $48,000 in depreciation and amortization charges and $640,000 for working capital purposes.

Net cash provided by investing activities for the year ended December 31, 2005 was $420,000. Net cash provided by investing activities is primarily attributable to the sale of securities held for investments (i.e., the Langley Shares) of $467,000 and $62,000 net decrease in amounts due from Shareholders and affiliates, offset by the purchase of equipment for $109,000.

Net cash used in investing activities for the year ended December 31, 2004 was $171,000. Net cash used in investing activities is primarily attributable to the purchase of equipment for $74,000 and $97,000 net increase in amounts due from Shareholders and affiliates.

Net cash provided by financing activities for the year ended December 31, 2005 totaled $6,521,000. We received net proceeds from the issuance of common and preferred stock, net of costs, of $8,030,000. These proceeds were offset by the payment of notes and notes payable to related parties with the preferred stock offering proceeds of $1,122,000 and the net reduction in committed stock of 145,000. In addition, we paid preferred stock dividends of $242,000.

Net cash provided by financing activities for the year ended December 31, 2004 totaled $2,680,000. We received net proceeds from the private sale of common stock totaling $1,433,000, net of offering costs. We also received $1,394,000 net proceeds from notes and notes payable to related parties. These proceeds were offset by the payment of $265,000 to notes payable and the net issuance of committed stock of $145,000. In addition, we paid preferred stock dividends of $27,000.

We have generated losses since inception and have an accumulated deficit as of December 31, 2005 of $25,729,000. For the year ended December 31, 2005 the independent registered public accounting firm, in their opinion, has expressed substantial doubt about our ability to continue as a going concern. The accompanying

financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

During the year ended December 31, 2005 we raised approximately $8,030,000 in net proceeds from institutional investment funds and other accredited investors through the issuance of Series A and B — Preferred Stock, the issuance of common stock and the exercise of warrants for common stock. As of December 31, 2005 our cash balance is $1,398,000 and we have receivables in the amount of $1,820,000. Based on our historical cash burn and considering current revenues we believe the Company has adequate cash or cash equivalents to fund operations for the next six months. Although there can be no assurance we believe that investments being made in sales and marketing during the fourth quarter of 2005 and into the first quarter of 2006 will result in a significant increase in revenues during the second half of 2006.

During January 2006 we secured a $2.5 million factoring line of credit. We anticipate utilizing the line to fund upfront costs of expected future contracts.

We currently have no additional borrowings available to us under any credit arrangement, and we are continuing to look for additional financing. Adequate funds may not be available or may not be available on terms favorable to us. If additional funds are raised through the issuance of equity securities, dilution to existing stockholders may result. If funding is insufficient at any time in the future, we may be unable to develop or enhance our products or services, take advantage of business opportunities or respond to competitive pressures. Any of which could have a material adverse effect on our financial position, results of operations and cash flows.

Off-Balance Sheet Arrangements

We did not have any relationships with uncombined entities or financial partnerships, such as entities often referred to as structured finance, variable interest or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires that we make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure. On an on-going basis, we re-evaluate our estimates, including those relating to revenue recognition, uncollectible accounts receivable, intangible assets and contingent expenses and revise reported amounts prospectively. We base our estimates on historical experiences, combined with anticipated activity and various other assumptions that we believe to be reasonable under the circumstances. When combined, this body of knowledge forms the basis for making judgments about the carrying value of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.

Financial Reporting Release No. 60, which was issued by the Securities and Exchange Commission, requires all companies to include a discussion of critical accounting policies or methods used in preparation of financial statements. The following is a brief discussion of our most critical accounting policies, including those methods affected by our more complex judgments and estimates.

Revenue Recognition

The Company’s major source of revenue is from the creation and duplication of interactive multi-media CD-ROMs from content provided by customers.

From inception through December 31, 2004 we tested the market with several different forms of contract in order to gain acceptance for our products and services in the market place. Accordingly our initial recognition policy

was to recognize revenue in full when the product, usually a CD-ROM or a production run of CDs or DVDs, was shipped to the customer or distributed to the public, provided that the other conditions of sale as established by the Securities and Exchange Commission’s Staff Accounting Bulleting (“SAB”) No. 104, were satisfied:

	•		Persuasive evidence of an arrangement exists

	•		Delivery has occurred or services have been rendered

	•		The seller’s price to the buyer is fixed or determinable

	•		Collectibility is reasonably assured.

Revenue from advertising contracts and agreements is deferred until the services and/or products are completed and delivered.

For contracts written during 2005 we were able to negotiate more specific delivery milestones and adjusted our revenue recognition policy accordingly. For all new contracts revenue is allocated to the creation of the CD-ROMs, and to the duplication of such CD-ROMs, based upon the contract terms and relative fair value of such services to the total contractual revenue. Revenue from the creation of the multi-media interactive CD-ROMs is recognized when completed and upon client acceptance. Revenue from duplication is recognized as the units are delivered.

In accordance with Emerging Issues Task Form (“EITF”) Issue 00-21, we believe that the multiple deliverables under our customer contracts that relate to the creation of a CD-ROM and duplication of a CD-ROM are two distinct separate units of accounting. Each unit of accounting has a value to the customer on a stand-alone basis. We can determine the fair value for the creation of a master and the duplication and delivery of the CD-ROM. Our contracts have no right of return once they have been approved by the customer.

In accordance with EITF Issue 99-19 we recorded sales net of outside advertising agency fees during 2004 and during 2005 sales in partnership with advertising agencies were recorded gross. It is our policy to review and account for each contract separately when an outside advertising is involved.

Deferred revenue and customer deposits consists primarily of customer deposits, which we collect up-front per our contracts, prior to commencing the creation and/or replication process. The deferred revenues are recognized upon completion of the respective element of the contract for which the deposit was attributable to.

Marketable Securities

We account for investments under the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” Investment securities are classified into one of three categories: held-to-maturity, available-for-sale, or trading. Securities are considered held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. These securities are recorded as either short-term investments or long-term marketable securities on the balance sheet depending upon their original contractual maturity dates. Held-to-maturity securities are stated at amortized cost, including adjustments for amortization of premiums and accretion of discounts. Securities are considered trading when bought principally for the purpose of selling in the near term. Trading securities are recorded as short-term investments and are carried at market value. Unrealized holding gains and losses on trading securities are included in operating income. Securities not classified as held-to-maturity or as trading are considered available-for-sale. Available-for-sale securities are recorded as either short-term investments or long-term marketable securities and are carried at market value with unrealized gains and losses included in other comprehensive income in stockholders’ equity.

Stock based compensation to employees and non-employees

Historically we have used warrants and common stock as compensation for services. We have valued our warrants in accordance with the Black-Scholes method, which estimates fair market value for our warrants. Since we have experienced significant volatility in our stock price the warrant values have fluctuated significantly and sometimes can be valued as high as the underlying common stock. Although the Black-Scholes methodology is

generally accepted to determine fair value the resulting warrant value may appear inconsistent with the underlying fair market value of the common stock. This directly results in a significant non-cash expense to us. We intend to limit the future issuance of warrants and common stock as compensation.

We presently do not have a formal employee stock compensation plan. In the years ended December 31, 2005 and 2004, we issued 315,000 shares and zero shares, respectively of restricted stock to 13 employees in lieu of a cash bonus. Included in the 315,000 shares are 100,000 shares issued to the Chief Financial Officer as a signing bonus during December 2005. The initial terms of his employment agreement call the issuance of 1,000,000 shares (subject to vesting) in the Company’s incentive stock option plan when it is formed. No other stock, option or warrant compensation was provided to any officer or director. During January 2006, the Board of directors approved a formal employee stock compensation program. The plan will allow the Board to grant options to purchase up to 10,000,000 shares of our common stock. The plan is in the process of being drafted and reviewed for final adoption by the Board of Directors. We believe the adoption of the incentive stock option plan will allow us to attract qualified personnel to continue developing and integrating its business plan.

Warranties and product liability

We warrant that our products conform to their respective functional specifications. Our products are warranted to perform as designed. Such warranties are extended throughout the term agreements that clients enter into with us which are generally short term in nature. We have minimal direct costs associated with the period of service and such costs are generally included in the cost of our products and services. We currently carry product liability insurance. We believe the amount of insurance is adequate to cover our risks. To further mitigate our risks, our standard service agreement expressly limits its liabilities and warranties of its products and services in accordance with accepted provisions of the Uniform Commercial Code as adopted in most states. In addition our vendors generally warrant the CD-ROM’s and DVD’s we distribute to our clients.

Allowance for Doubtful Accounts

We maintain an allowance for doubtful accounts using estimates that we make based on factors we believe appropriate such as the composition of the accounts receivable aging, historical bad debts, changes in payment patterns, customer creditworthiness and current economic trends. If we used different assumptions, or if the financial condition of the customers were to deteriorate, resulting in an impairment of their ability to make payments, additional provisions for doubtful accounts would be required and would increase our bad debt expense.

Contractual Obligations, Commitments and Contingencies

We have contractual obligations and commitments primarily with regards to employment agreements with our executives, a marketing and distribution agreement with our partner, Universal Press Syndicate and a parking lease.

The following table aggregates our expected contractual obligations and commitments subsequent to December 31, 2005:


	Payments due by Period
									Beyond
Contractual obligations	2006		2007		2008		2009		2010		Total

Employment agreements (1)	$	1,067,000	$	1,017,000	$	867,000	$	—	$	—	$	2,951,000
Marketing and Distribution agreements (2)		96,000		144,000		144,000		144,000		144,000		672,000
Leases		25,850		2,350		—		—		—		28,200

Total	$	1,188,850	$	1,163,350	$	1,011,000	$	144,000	$	144,000	$	3,651,200

(1) Includes the anticipated contractual obligations due to the 3 executive founders, Messrs. MacEachern, Kapp and Unruh, our Chief Executive Officer, President and Chief Operating Officer and Directors, respectively. Although as of December 31, 2005 each of the executives were on a month to month contract we have drafted new employment agreements for 3 years which are anticipated to be approved by the Board of Directors pending final review. Accordingly, we have included the expected commitments herein.

(2) The monthly payment has been suspended from November 2005 until at least April 2006, pending a pending renegotiation of the original terms and conditions to adjust the contract to reflect current market conditions. However, we have included the monthly obligation from April 2006 until the original contract ends pending the final revisions.

Recently Issued Accounting Pronouncements

SFAS No. 151

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs”. SFAS No. 151 amends the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage) under the guidance in ARB No. 43, Chapter 4,” Inventory Pricing”. Paragraph 5 of ARB No. 43, Chapter 4, previously stated that “. . . under some circumstances, items such as idle facility expense, excessive spoilage, double freight, and rehandling costs may be so abnormal as to require treatment as current period charges. . . .” This Statement requires that those items be recognized as current-period charges regardless of whether they meet the criterion of “so abnormal.” In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. This statement is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Management does not expect adoption of SFAS No. 151 to have a material impact on the Company’s financial statements.

SFAS No. 152

In December 2004, the FASB issued SFAS No. 152, “Accounting for Real Estate Time-Sharing Transactions”. The FASB issued this Statement as a result of the guidance provided in AICPA Statement of Position (SOP) 04-2, “Accounting for Real Estate Time-Sharing Transactions”. SOP 04-2 applies to all real estate time-sharing transactions. Among other items, the SOP provides guidance on the recording of credit losses and the treatment of selling costs, but does not change the revenue recognition guidance in SFAS No. 66, “Accounting for Sales of Real Estate”, for real estate time-sharing transactions. SFAS No. 152 amends Statement No. 66 to reference the guidance provided in SOP 04-2. SFAS No. 152 also amends SFAS No. 67, “Accounting for Costs and Initial Rental Operations of Real Estate Projects”, to state that SOP 04-2 provides the relevant guidance on accounting for incidental operations and costs related to the sale of real estate time-sharing transactions. SFAS No. 152 is effective for years beginning after June 15, 2005, with restatements of previously issued financial statements prohibited. This statement is not applicable to the Company.

SFAS No. 153

In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets, “an amendment to Opinion No. 29, “Accounting for Nonmonetary Transactions”. Statement No. 153 eliminates certain differences in the guidance in Opinion No. 29 as compared to the guidance contained in standards issued by the International Accounting Standards Board. The amendment to Opinion No. 29 eliminates the fair value exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. Such an exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS No. 153 is effective for nonmonetary asset exchanges occurring in periods beginning after June 15, 2005. Earlier application is permitted for nonmonetary asset exchanges occurring in periods beginning after December 16, 2004. Management does not expect adoption of SFAS No. 153 to have a material impact on the Company’s financial statements.

SFAS No. 154

In June 2005, the FASB issued SFAS 154, “Accounting Changes and Error Corrections,” a replacement of existing accounting pronouncements. SFAS 154 modifies accounting and reporting requirements when a company voluntarily chooses to change an accounting principle or correct an accounting error. SFAS 154 requires retroactive restatement of prior period financial statements unless it is impractical. Previous accounting guidelines allowed recognition by cumulative effect in the period of the accounting change. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. We have used the guidance from SFAS 154 in preparing the financial statements included herein.

SFAS No. 123(R)

In December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment”. SFAS 123(R) amends SFAS No. 123, “Accounting for Stock-Based Compensation”, and APB Opinion 25, “Accounting for Stock Issued to Employees.” SFAS No. 123(R) requires that the cost of share-based payment transactions (including those with employees and non-employees) be recognized in the financial statements. SFAS No. 123(R) applies to all share-based payment transactions in which an entity acquires goods or services by issuing (or offering to issue) its shares, share options, or other equity instruments (except for those held by an ESOP) or by incurring liabilities (1) in amounts based (even in part) on the price of the entity’s shares or other equity instruments, or (2) that require (or may require) settlement by the issuance of an entity’s shares or other equity instruments. This statement is effective (1) for public companies qualifying as SEC small business issuers, as of the first interim period or fiscal year beginning after December 15, 2005, or (2) for all other public companies, as of the first interim period or fiscal year beginning after June 15, 2005, or (3) for all nonpublic entities, as of the first fiscal year beginning after December 15, 2005. Management is currently assessing the effect of SFAS No. 123(R) and, as of December 31, 2005 has determined that the impact, if any of the adoption of SFAS no 123(R) will not have a material effect on the Company’s financial statements.

LEGAL PROCEEDINGS

We are not a party to any pending material legal proceedings and are not aware of any threatened or contemplated proceeding by any governmental authority against our company.

DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

Identity

The table below identifies our current executive officers and directors and their respective offices held. The executive services of Messrs. MacEachern, Kapp and Unruh are provided through iPublishing, Inc., which is owned equally by those respective officers. Investment Advisory Group, Inc, a company owned by Mr. Konzelman, provides the executive services of Mr. Konzelman. Media Solutions Network, LLC, a company owned by Mr. Plate, provides the executive services of Mr. Plate. All of the following executive officers paid services to the Company on a full-time basis. Each of the following executive officers dedicates in excess of 95% of their total time worked each week to the Company. Historically all five officers have worked in excess of 40 hours per week on the day-to-day operations and management of the Company. The members of the Board of Directors serve until the next annual meeting of shareholders, or until their successors have been elected. The officers serve at the pleasure of the Board of Directors. The following are the directors and executive officers of the Company as of April 7, 2006:


				Held
Name	Age		Position	Since
David G. MacEachern		49	Chairman and Chief Executive Officer		2003
Scott Kapp		44	President and Director		2003
Franklin H. Unruh*		65	Chief Operating Officer and Director		2005
Anthony J. Fidaleo		47	Chief Financial Officer		2005
Kelly Konzelman		43	Executive Vice President		2003
Kevin Plate		48	Executive Vice President of Sales and Business Development		2003


*		Former Chief Financial Officer (August 2003 to December 2005).

Business Experience

David G. MacEachernhas served as iMedia’s Chairman and Chief Executive officer since August 28, 2003. He has executive level experience as founder and Chief Executive Officer of several businesses. His experience includes developing, and managing companies in as diverse fields as marketing, advertising, graphic arts, cosmetics and business development. In 2000, he founded and was Chief Executive Officer for the Company’s predecessor, Mod Studios, Inc., and was responsible for conceptualizing and developing Hollywood Previews Entertainment iMagazine, the first interactive video magazine distributed on disc. In 1999, Mr. MacEachern founded the Modern Company, advertising, marketing and internet design company which developed some of the core technologies used by the Company to produce its products. Both Mod Studios and the Modern Company ceased operations in 2002. In 1985, Mr. MacEachern co-founded the David-Scott Advertising; a Los Angeles based ad agency providing advertising and promotion for local, regional and national accounts. In 1995, while continuing to run David-Scott Advertising, Mr. MacEachern co-founded and was chief executive officer of Professional Make-up, Inc., a cosmetic manufacturing company. Professional Make-up generated over $30 million in domestic and international sales. Mr. MacEachern was instrumental in acquiring distribution agreements for Professional Make-up and for other clients of the David Scott agency with major retailers such as Wal-Mart, K-Mart and Target stores. At Professional Make-up, his primary responsibilities were developing marketing strategies, new product development and product promotion. Professional Make-up and the David-Scott Agency ceased operations in 1990 and 1999 respectively.

Scott Kappco-founded and has served as iMedia’s President and Director since August 28, 2003. Prior to co-founding iMedia he was in partnership with Mr. MacEachern serving as partner and president in several other joint ventures. From 1985 to 1990, Mr. Kapp co-founded and served as President of David-Scott Advertising with Mr. MacEachern. Mr. Kapp was responsible for negotiating and securing many of the agency’s top clients. His advertising campaign for Ogee hair products won a Starch Award. In 1995 Mr. Kapp co-founded Professional Make-up with Mr. MacEachern. In addition to his role as president, Mr. Kapp was responsible for development of

ancillary products, new markets and business development. While at Professional Make-Up, Mr. Kapp built-out and managed a sales force of 250 independent sales reps and secured 10 major distributors worldwide. Professional Make Up ceased operations in 1999. In 1998, Mr. Kapp along with Mr. MacEachern co-founded the Modern Company LLC, a digital multi-media production company and later Mod Studios Inc. in 2000. The Modern Company and Mod Studios, both predecessors to the Company ceased operations in 2003. Mr. Kapp holds a bachelor’s degree from the University of Southern California.

Franklin H. Unruhhas served as iMedia’s Chief Financial Officer and Director since August 28, 2003,and was recently appointed Chief Operating Officer. Mr. Unruh has over 37 years of significant experience in both accounting and financial consulting. His financial experience comprises an array of conglomerate corporations ranging from entertainment, film and music production to food processing and automobile distribution in South Africa, United Kingdom, Israel and the USA. From 1999 to 2003, Mr. Unruh served as Chief Financial Officer of the Mod Studios, a predecessor to the Company. From 1980 to 1986 Mr. Unruh served as Director of Participation at 20th Century Fox Films. His duties included managing profit participations on such award nominated films as the Star Wars Trilogy and other 20th Century Fox motion pictures and television programming. Warner Communications Inc. appointed Mr. Unruh as an International Internal Auditor and later promoting Mr. Unruh to Controller of Warner Bros. Music Publishing, the second largest music publishing company in the world. In 1978, A&M Music Publishing recruited Mr. Unruh to serve as Controller of A&M Music Publishing and later promoted him to Managing Director of ALMO Publications, A&M Publishing’s printed music division. Mr. Unruh acts as a financial consultant specializing in participations, residuals and international tax advantage investments for motion picture clients such as Cinergi, Hemdale Distributing and Streamline Pictures. He also oversees music production and artist management for his company Hanging Rock Studios.

Anthony J. Fidaleojoined us as Chief Financial Officer and Executive Vice President on December 13, 2005. Prior tojoining iMedia Mr. Fidaleo served as the Chief Financial Officer and Vice President of Finance in for AdStar, Inc. from June 2002 to December 2005. Prior to joining AdStar, Mr. Fidaleo served in a consulting capacity, as acting Chief Financial Officer or Vice President Controller, over the prior 5 years primarily servicing the technology sector with companies such as Autobytel, Inc. and L90, Inc. Between 1992 and 1997 Mr. Fidaleo served as Chief Financial Officer of privately held national companies American Dawn, Inc. and Vagabond Inns, Inc. Mr. Fidaleo was in public accounting from 1982 through 1992, primarily with BDO Seidman, LLP where he attained the level of audit senior manager. Mr. Fidaleo is a CPA and holds a B.S. degree in Accounting from California State University at Long Beach.

Kelly Konzelmanhas served as iMedia’s Executive Vice President since August 28, 2003. Mr. Konzelman has extensive experience in corporate development. For the last six years, his business efforts have focused primarily on corporate finance, security sales, investment banking and private equity placements. Mr. Konzelman founded Investment Advisory Group in 1999 and continues to operate this consulting company in addition to his responsibilities at iMedia. During this period, he has consulted with numerous developing and start-up ventures providing management expertise, implementing corporate development programs and authoring business plans and private offering memorandums. These companies were in industries as diverse as medical devices, cosmetic surgery, media, entertainment, technology, reclamation and real estate. As an investment-banking consultant, Mr. Konzelman was responsible for the successful acquisition of capital for a number of developing companies, both public and private. In 2001, he co-founded 360° Securities, and OSJ of Intrepid Securities, an NASD member firm. During his employment, he successfully engineered a national syndicate of over 120 independent broker dealers to offer client’s private securities placements nationwide. From 1999 to 2000, he was Director of Special Projects at Renaissance Asset Fund, a private bridge loan company and asset based lender. At Renaissance, he was responsible for analyzing and developing the underlying financial models for special projects underwritten by Renaissance. Mr. Konzelman brings over 22 years of general and executive-level business experience to the Company. He is currently responsible for business affairs, Corporate finance, investor relations and strategic acquisitions.

Kevin Platehas served as iMedia’s Executive Vice President of Sales and Business Development since August 28, 2003, and worked as Sales Manager for Mod Studios, the Company’s predecessor from 2000 until 2003. Mr. Plate has extensive experience in advertising and sponsorship sales. Mr. Plate has held a variety of increasingly responsible sales and marketing positions over the past 20 years. From 199X to 2000, Mr. Plate served as the Western Regional Director for The Golf Channel, whose high-profile ownership group includes Comcast, Cable, Fox and Times Mirror Corporation. Through his development of creative sales and marketing packages for national

advertisers, Mr. Plate was responsible for delivering over $35 million revenue to the first cable network dedicated exclusively to a single sport. Mr. Plate’s executive management also contributed to the success of Advantage International, the world’s second largest sports marketing and management company, where he used his expertise in strategic planning, new business development and sales for clients including MasterCard International, Sara Lee, Tuner Broadcasting and Keebler. From January 1988 to April 1992, Mr. Plate served in various marketing positions at RJR Nabisco, a Fortune 500 foods and tobacco producer. Mr. Plate’s duties included leveraging the company’s many sports sponsorships and developing national and market-specific advertising and promotional campaigns for both the food and tobacco business units. In 2003, Mr. Plate formed Media Solutions Network LLC, a personal service company from which he consults on digital media issues. Mr. Plate’s responsibilities include implementing the Company’s sales and business development plan, and the development of new client-specific products and special projects. Mr. Plate holds a bachelor’s degree from the University of South Carolina.

Family Relationships

There are no family relationships between any two or more of our directors or executive officers. There is no arrangement or understanding between any of our directors or executive officers and any other person pursuant to which any director or officer was or is to be selected as a director or officer, and there is no arrangement, plan or understanding as to whether non-management shareholders will exercise their voting rights to continue to elect the current board of directors. There are also no arrangements, agreements or understandings to our knowledge between non-management shareholders that may directly or indirectly participate in or influence the management of our affairs.

Involvement in Certain Legal Proceedings

Except as stated herein, to the best of our knowledge, during the past five years, none of the following occurred with respect to a present or former director or executive officer of the Company: (1) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (2) any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of any competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; and (4) being found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the commodities futures trading commission to have violated a Federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated. On September 19, 2005, Mr. Konzelman, our Executive Vice President, became aware that a Desist and Refrain Order was issued by the California Department of Corporations. The California Corporations Commissioner is of the opinion that Pacific Fund, LLC and Mr. Konzelman issued limited liability company membership interests, which were subject to qualification under the California Securities Law of 1968 without being qualified. The Order provides that Mr. Konzelman is to desist and refrain from the offer or sale of securities unless and until qualification has been made under the law or unless exempt. Mr. Konzelman maintains that the Order is based on material misrepresentations of fact. Notwithstanding, Mr. Konzelman intends to comply with the substance of the Order, as it merely demands his compliance with the law.

Board Committees and Independence

All of the directors serve until the next annual meeting of common shareholders and until their successors are elected and qualified by our common shareholders, or until their earlier death, retirement, resignation or removal. Our Bylaws set the authorized number of directors at not less than three, with the actual number fixed by our board of directors. Our Bylaws authorized the Board of Directors to designate from among its members one or more committees and alternate members thereof, as they deem desirable, each consisting of one or more members, with such powers and authority (to the extent permitted by law and these Bylaws) as may be provided in such resolution.

Our board of directors has not established any committees to date. None of our current directors are deemed “independent” directors as that term is used by the national stock exchanges or have the requisite public company accounting background or experience to be considered an “audit committee financial expert” as that term is defined by the under Regulation S-B promulgated under the Securities Act of 1933, as amended. The entire Board of Directors will perform the function of the Audit Committee until we appoint directors to serve on the Audit Committee. Our business model is not complex and our accounting issues are straightforward. Responsibility for our operations is centralized within management, which is currently comprised of five people. We recognize that having a person who possesses all of the attributes of an audit committee financial expert would be a valuable addition to our Board of Directors, however, currently we are not able to adequately compensate such a person, therefore may find it difficult to attract such a candidate. Management wishes to expand the Board of Directors. In expanding our Board of Directors, we will seek individuals who would be able to guide our operations based on their business experience, both past and present, or their education, and whenever possible, persons who will also qualify as independent directors.

EXECUTIVE COMPENSATION

Summary Compensation Table

The following table sets forth certain summary information concerning the compensation paid or accrued for each of the last three fiscal years to the Company’s Chief Executive Officer and each of its other executive officers that received compensation in excess of $100,000 during such period:


	Annual Compensation												Long Term Compensation
											Awards				Payouts
													Securities
											Restricted		Underlying
Name and								Other Annual			Stock		Options		LTIP		All Other
Principle Position	Year		Salary			Bonus		Compensation			Awards		SARs (#)		Payouts		Compensation
David G MacEachern,		2005	$	18,000			—	$	183,000	⁽¹⁾		—		—		—	$	17,707	⁽²⁾
Chief Executive		2004		18,000			—	$	183,000	⁽¹⁾		—		—		—	$	17,707	⁽²⁾
Officer		2003		6,750			—	$	163,750	⁽¹⁾		—		—		—	$	0	⁽²⁾

Scott Kapp,		2005	$	18,000			—	$	162,000	⁽¹⁾		—		—		—	$	17,707	⁽²⁾
President		2004		18,000			—	$	162,000	⁽¹⁾		—		—		—	$	17,707	⁽²⁾
		2003		6,750	⁾		—	$	132,500	⁽¹⁾		—		—		—	$	0	⁽²⁾

Franklin H. Unruh,		2005	$	18,000			—	$	162,000	⁽¹⁾		—		—		—	$	17,707	⁽²⁾
Chief Financial		2004		18,000			—	$	162,000	⁽¹⁾		—		—		—	$	17,707	⁽²⁾
Officer		2003		6,750			—	$	116,000	⁽¹⁾		—		—		—	$	0	⁽²⁾

Kelly Konzelman,		2005	$	18,000			—	$	160,000	⁽³⁾		—		—		—		—
Executive Vice		2004		18,000			—	$	160,000	⁽³⁾		—		—		—		—
President		2003		6,750			—	$	141,600	⁽³⁾		—		—		—		—

Kevin Plate,		2005	$	18,000			—	$	162,000	⁽⁴⁾		—		—		—		—
Executive Vice		2004		18,000			—	$	162,000	⁽⁴⁾		—		—		—		—
President-Sales and		2003		6,750			—	$	137,625	⁽⁴⁾		—		—		—		—
Business Development


(1)		Represents compensation made to iPublishing, Inc., as payments for the services of executive.

(2)		Represents the aggregate royalty payments made to iPublishing, Inc., in connection with the Company’s license of certain intellectual property. iPublishing, Inc. is owned equally by Messrs. MacEachern, Kapp


		and Unruh.

(3)		Represents compensation made to Investment Advisory Group, Inc. and Kelly Konzelman, individually, for the services of executive.

(4)		Represents compensation made to Media Solutions Network, LLC, and Kevin Plate, individually, for the services of executive.

Options and Stock Appreciation Rights Grant Table

There were no grants of stock options to the Named Executive Officers during the fiscal year ended December 31, 2005.

Aggregated Option Exercises and Fiscal Year-End Option Value Table

We did not have any outstanding stock options or stock appreciation rights at end the fiscal year ended December 31, 2005.

Long-Term Incentive Plan Awards Table

We do not have any Long-Term Incentive Plans.

Compensation of Directors

We currently have three directors. We do not currently provide our directors with cash compensation, although we do reimburse their expenses. There are no other arrangements pursuant to which any director was compensated during the Company’s last completed fiscal year for any service provided as director.

Employment Contracts and Termination of Employment and Change-in-Control Arrangements

We have employment contracts with each of our executive officers. Each contract is substantially identical in term and construction, except for the position and respective services to be provided to the Company by the executive. The employment agreements were effective as of February 1, 2003 and were for an initial term of two years. The Company and Executives have agreed to extend these contracts on a month-by-month basis until such time as new contracts are drafted and executed. Each Employment contract provides for each Executive Officer to receive a total of $18,000 in annual salary to be paid semi-monthly. The contracts require our Executive Officers to devote full-time efforts to the Company, provide broad indemnifications for legal actions, specify terms and conditions for termination by Company and by Executive, specify severance provisions for terminations and for Changes in Control, specifies the ownership of and waiver of intellectual property rights by Executive to Company, specifies the non-compete provisions in the case of termination, arbitration provisions and prevailing law and jurisdiction.

In addition, to our Executive’s Employment Agreements, we have entered into independent consulting agreements with each of our Executive’s personal service corporations. The balance of each Executive’s salary is paid as a consultant’s fee to each respective corporation in the amount of $13,500 per month. Each of these contracts is cancelable by Executive or Company on 30-days written notice without cause.

The Company entered into a consulting and independent contractor agreement with I-Publishing, Inc. on July 15, 2003. Effective April 2005, the agreement specified monthly payments totaling $50,000, for the combined executive management services of the Company’s Chief Executive Officer, President and Chief Financial Officer. The Company may terminate the agreement upon 30-days written notice. For the nine months ended September 30, 2005 the Company, in lieu of salary to Messrs. MacEachern, Kapp and Unruh, paid iPublishing, $447,500. In order for the officers to take advantage of certain tax benefits iPublishing in turn paid $447,500 to a personal service corporation, The Modern Company, owned by the three executives noted above. These payments are recorded as management compensation expense in the accompanying statement of operations for the three and nine months ended September 30, 2005. For the year ended December 31, 2004 the Company paid the personal service corporation through iPublishing management fees of $507,000. iPublishing is owned by Messer’s. Kapp, Unruh and MacEachern. iPublishing also licenses the exclusive rights to use its intellectual property to the Company. The Company is obliged to pay iPublishing a royalty of 5% of the gross margin, defined as gross revenues less cost of goods, associated with revenue earned that uses or relies upon the Licensor’s intellectual property in any form. For the three and nine months ended September 30, 2005 the Company paid royalties of $7,927 and $29,717, respectively to iPublishing. For the year ended December 31, 2004 the Company paid royalties of $19,567. The royalties were eliminated upon consolidation.

The Company entered into consulting and independent contractor agreements on July 15, 2003 with companies owned by its shareholder, Investment Advisory Group, Inc. and Media Solutions Network, LLC., Kelly Konzelman and Kevin Plate, respectively. Each agreement specifies monthly payments of $13,500 for management services for a total of $27,000 per month. The Company may terminate the agreements upon 30-days written notice. Total management fees paid for nine months ended September 30, 2005 to Investment Advisory Group, Inc. and Media Solutions, Network, LLC is $121,500 per company, respectively. Total management fees paid for the years ended December 31, 2004 and 2003, to Investment Advisory Group, Inc. is $162,000 and $63,350, respectively. Total management fees paid for the years ended December 31, 2004 and 2003 to Media Solutions, Network, and LLC is $162,000 and $40,500, respectively. In addition for the year ended December 31, 2003 the Company paid Kelly Konzelman and Kevin Plate directly for consulting fees of $78,250 and $97,125, respectively.

The Company and Mr. Fidaleo have signed a Deal Memorandum on December 16, 2005 prior to the finalization of a formal employment agreement. The employment agreement will be formalized upon receipt of a pending review from outside compensation consultants. The compensation consultants will be making recommendations to the Board of Directors with regards to all of the Company’s executive employment agreements and the Company’s executive bonus plan. Per the terms of the Deal Memorandum, Mr. Fidaleo will serve as the Company’s Chief Financial Officer for a three-year terms expiring on December 31, 2008. Mr. Fidaleo will initially earn an annual base salary of $180,000, and a signing bonus grant of 100,000 shares of the restricted common stock. In addition, if and when the Company adopts an employee stock option plan, Mr. Fidaleo will be granted an option to purchase 1,000,000 shares of the Company’s common stock pursuant to the terms of such plan. The options will vest proportionately on the first, second and third anniversary of the Deal Memorandum, and shall be exercisable at $0.24 per share, which was the fair market value of the Company’s underlying common shares on the day the Deal Memorandum was executed. The expiration date of options has not yet been designated.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Security Ownership of Certain Beneficial Owners and Management

The following table sets forth certain information regarding beneficial ownership of the common stock by (i) each person who is k The following table sets forth certain information regarding beneficial ownership of the common stock by (i) each person who is known by the Company to own beneficially more than 5% of the any classes of outstanding Stock, (ii) each director of the Company, (iii) each of the Chief Executive Officers and the four (4) most highly compensated executive officers who earned in excess of $100,000 for all services in all capacities (collectively, the “Named Executive Officers”), and (iv) all directors and executive officers of the Company as a group.

The number and percentage of shares beneficially owned is determined in accordance with Item 403 if Regulation S-B, and the information is not necessarily indicative of beneficial ownership for any other purpose. We believe that each individual or entity named has sole investment and voting power with respect to the securities indicated as beneficially owned by them, subject to community property laws, where applicable, except where otherwise noted. Unless otherwise stated, the address of each person is c/o iMedia International, Inc., 1721 21st Street, Santa Monica, California 90404. The percentage of outstanding shares is based on 73,154,735 shares of common stock outstanding as of March 31, 2006.


						Class of Security
						Series A					Series B
	Common Stock					Preferred Stock*					Preferred Stock*
			% of					% of				% of
Name of Beneficial Owner	No. of Shares		Class			No. of Shares		Class			No. of Shares	Class
*Officers and Directors*

David G. MacEachern, Chief Executive Officer, Director		11,727,510		16.0	%

Scott Kapp, President, Director		10,884,000		14.9	%

Franklin H. Unruh Chief Operating Officer,Director		5,432,500		7.4	%

Kevin Plate Exec. VP of Sales and Business Development		2,173,000		3.0	%

Kelly Konzelman (1) Executive Vice-President		315,085		<1	%

Anthony J. Fidaleo Chief Financial Officer		100,000		<1	%

*All Officers and Directors as a Group* (6 persons)		30,632,095		41.9	%

*5% Stockholders*

Waletta Far East LTD⁽²⁾		5,432,500		7.4	%

Crestview Capital Master, LLC							1,000		32.9	%

David Jordon							400		13.2	%

Enable Growth Partners LP⁽³⁾							400		13.2	%


			Class of Security
			Series A					Series B
	Common Stock		Preferred Stock*					Preferred Stock*
		% of			% of					% of
Name of Beneficial Owner	No. of Shares	Class	No. of Shares		Class			No. of Shares		Class
RHP Master Fund Ltd.				250		8.2	%

Sanders Opportunity Fund Inst. LP⁽⁴⁾				200		6.6	%

Midsummer Investment, Ltd									1,500		30.5	%

CAMOFI Master LDC									750		15.2	%

Rosalind Davidowitz									400		8.1	%

Irvine Capital Partners LP⁽⁵⁾									250		5.1	%


*		No holder of our Series A Preferred Stock or Series B Preferred Stock may convert any portion of their holdings to the extent that after giving effect to such conversion, such holder (together with such holder’s affiliates), would beneficially own in excess of 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to such conversion.

(1)		43,460 shares are held by Investment Advisory Group, Inc, of which Kelly Konzelman is the sole controlling person and beneficial owner with voting rights and investment power over these common shares. The address of Investment Advisory Group is 27400 Pacific Coast Highway #2, Malibu, CA 90265.

(2)		Carol Levinsky is the sole controlling person of Waletta Far East Ltd, and has voting and investment power over these common shares. The address of Waletta Far East Ltd. is: c/o Geremant SA, 24 Ave. de Champal #1206, Geneve 12, Switzerland.

(3)		Enable Opportunity Partners LP is the beneficial owner of 40 shares of Series A 6% Convertible Preferred Stock. Mitch Levine has voting and investment power control over the shares held by Enable Opportunity Partners LP and Enable Growth Partners LP.

(4)		Sanders Opportunity Fund LP is the beneficial owner of 47 shares of Series A 6% Convertible Preferred Stock. Don Wier and Don Sanders have voting and investment power over the shares held by Opportunity Fund LP and Sanders Opportunity Fund Inst. LP.

(5)		Irvine Capital Partners III LP is the beneficial owner of 28 shares of Series B 6% Convertible Preferred Stock. Irvine Capital International, Ltd. is the beneficial owner of 78 shares of Series B 6% Convertible Preferred Stock. Irvine Capital Partners III LP, Irvine Capital Partners LP and Irvine Capital International, Ltd. David Bunzel has voting and investment control over the shares held by Irvine Capital Partners III LP, Irvine Capital Partners LP and Irvine Capital International, Ltd.

Changes in Control

We are not aware of any arrangements that may result in a change in control of the Company.

DESCRIPTION OF SECURITIES

General

The company is authorized to issue two classes of stock, designated as common stock and preferred stock. The company is authorized to issue is 520,000,000 shares of capital stock, consisting of 500,000,000 shares of common stock, par value $0.001 per share, and 20,000,000 shares of “blank check” preferred stock, par value $0.001 per share, having such rights, preferences, privileges and restrictions as may be designated from time-to-time by our board. Our board of directors has since designated 7,200 shares of preferred stock as Series A 6% Convertible Preferred Stock and 6,000 shares as Series B 6% Convertible Preferred Stock, each with the rights, preferences, privileges and restrictions summarized below. In addition to the above securities issued directly by the Company, the Company’s affiliate iPublishing Inc. (presented on the financial statements of the Company on a combined basis), is authorized to issue two classes of stock, designated as common stock and preferred stock. iPublishing is authorized to issue is 105,000 shares of capital stock, consisting of 100,000 shares of common stock, no par value, and 5,000 shares of “blank check” preferred stock, no par value, having such rights, preferences, privileges and restrictions as may be designated from time-to-time by iPublishing’s board. iPublishing’s board of directors has since designated 1,000 shares of preferred stock as Series A with the rights, preferences, privileges and restrictions summarized below.

Common Stock

The holders of common stock are entitled to one vote per share for the election of directors and on all other matters to be voted upon by the stockholders. Subject to preferences that may be applicable to any outstanding securities, the holders of common stock are entitled to receive, when and if declared by the board of directors, out of funds legally available for such purpose, any dividends on a pro rata basis. In the event of our liquidation, dissolution or winding up, the holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to prior distribution rights of preferred stock, if any, then outstanding. The common stock has no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to the common stock.

Preferred Stock

The following is a summary of the principal terms, rights and obligations of 7,200 shares of our preferred stock designated as Series A 6% Convertible Preferred Stock (the “Series A Preferred Stock”) and 6,000 shares of our preferred stock designated as Series B 6% Convertible Preferred Stock (the “Series B Preferred Stock”). The following summary does not purport to be complete and is qualified in its entirety by reference to the Certificate of Designations relating thereto.

Series A Preferred Stock

Dividends. Holders of the Series A Preferred Stock shall be entitled to receive cumulative dividends of 6% per annum, based on the stated value of $1,000 per share of Series A Preferred Stock, payable quarterly on March 1, June 1, September 1 and December 1, with the first payment due on June 1, 2005. The Series A Preferred Shares were issued on May 23, 2005. The Company may elect to pay the preferred dividend in cash or common stock. If funds are legally available for the payment of dividends, then the first four quarterly payments may be made in Common Stock valued at 70% of 20-day volume weighted average price immediately prior to the dividend payment date if the equity conditions have not been met under the Certificate of Designation for the Series A Preferred Stock or at 90% of 20-day volume weighted average price immediately prior to the dividend payment date if the equity conditions have been met under the Certificate of Designation for the Series A Preferred Stock. If funds are not legally available for the payment of dividends, then payments may be made in Common Stock valued at 90% of 20-day volume weighted average price immediately prior to the dividend payment date if the equity conditions have

been met, or have not been but have been waived by such holder, under the Certificate of Designation for the Series A Preferred Stock or if the equity conditions have not been met or waived by the holder, then at the election of holder, the dividends shall accrue to the next dividend payment date or shall be accreted to the outstanding stated value. If a dividend payment is not paid within three trading days of the dividend payment date, then interest shall accrue at the rate of 18% annually.

Voting Rights. Except as otherwise required by law, a holder of shares of Series A Preferred Stock does not have the right to vote on matters that come before the Registrant’s stockholders. However, the Registrant may not authorize or create any class of stock ranking senior to, or otherwise pari passu with, the Series A Preferred Stock with respect to dividends, redemption or distribution of assets upon liquidation.

Liquidation Preference. In the event of a dissolution or winding up of the Registrant, each holder of the Series A Preferred Stock is entitled to a liquidation preference of $1,000 per share of Series A Preferred Stock held plus any declared but unpaid dividends on such share, prior to any payment to the holders of Registrant’s common stock or any other stock of Registrant ranking junior to the Series A Preferred Stock with regard to any distribution of assets upon liquidation, dissolution or winding up of the Registrant.

Conversion. Shares of Series A Preferred Stock may, at the option of the holder, be converted at any time or from time to time into shares of common stock at the initial conversion price of $0.40 per share, subject to adjustment; provided, that a holder of Series A Preferred Stock may at any given time convert only up to that number of shares of Series A Preferred Stock so that, upon conversion, the aggregate beneficial ownership of common stock of such holder and all persons affiliated with such holder is does not exceed 4.99% of the then outstanding common stock. The number of shares into which one share of Series A Stock shall be convertible shall be determined by dividing $1,000 by the then existing conversion price.

The conversion price may be reduced if the Registrant sells common stock or other securities convertible into or exercisable for common stock at a per share price, exercise price or conversion price lower than the conversion price then in effect (other than in connection with an acquisition of the securities, assets or business of another company, joint ventures and employee stock options).

Forced Conversion.If the shares underlying the Series A Preferred Stock are registered and the Registrant’s stock price trades above $1.25 for a period of thirty consecutive days with average daily volume for 20 consecutive days of 100,000 shares per day the Registrant may force the holders of Series A Preferred Stock to convert into Common Stock.

Redemption. The Registrant is to redeem all of the then outstanding shares of Series A Preferred Stock on May 23, 2007.

Series B Preferred Stock

Dividends. Holders of the Preferred Stock shall be entitled to receive cumulative dividends based on the stated value of $1,000 per share of Preferred Stock. The Series B Preferred is non-redeemable by the holder and carries an escalating preferred dividend rate. The Series B Preferred Shares were issued on August 22, 2005. For quarterly periods beginning August 22, 2005 until August 21 2009, the preferred dividend rate is 6%. For the period beginning August 22, 2009 until August 21, 2010 the preferred dividend shall increase to 9%. After August 22, 2010, the preferred dividend rate shall be 14% until the Preferred Stock is no longer outstanding. Dividends will be payable quarterly on March 1, June 1, September 1 and December 1, with the first payment due on December 1. In addition, if the Company does not have in effect a policy of directors and officers liability insurance by February 20, 2006, then dividends shall accrue and be payable at a rate of 9% per annum in lieu of 6% per annum during the occurrence and during the continuance of the foregoing events. The Company may elect to pay the preferred dividend in cash or common stock. If funds are legally available for the payment of dividends and the equity conditions have not been met under the Certificate of Designation for the Series A Preferred Stock, then the payments must be made in cash. If funds are legally available for the payment of dividends and the equity conditions have been met under the Certificate of Designation for the Series A Preferred Stock, then payment may be made in

Common Stock valued at 90% of 20-day volume weighted average price immediately prior to the dividend payment date. If funds are not legally available for the payment of dividends, then payments may be made in Common Stock valued at 90% of 20-day volume weighted average price immediately prior to the dividend payment date if the equity conditions have been met, or have not been but have been waived by such holder, under the Certificate of Designation for the Series A Preferred Stock or if the equity conditions have not been met or waived by the holder, then at the election of holder, the dividends shall accrue to the next dividend payment date or shall be accreted to the outstanding stated value. If a dividend payment is not paid within three trading days of the dividend payment date, then interest shall accrue at the rate of 18% annually.

Voting Rights. Except as otherwise required by law, a holder of shares of Preferred Stock does not have the right to vote on matters that come before the Registrant’s stockholders. However, the Registrant may not authorize or create any class of stock ranking senior to, or otherwise pari passu with, the Preferred Stock with respect to dividends, redemption or distribution of assets upon liquidation.

Liquidation Preference. In the event of a dissolution or winding up of the Registrant, each holder of the Preferred Stock is entitled to a liquidation preference of $1,000 per share of Preferred Stock held plus any declared but unpaid dividends on such share, after distribution or payment to the holders of the Registrant’s Series A 6% Convertible Preferred Stock and prior to any payment to the holders of Registrant’s common stock or any other stock of Registrant ranking junior to the Preferred Stock with regard to any distribution of assets upon liquidation, dissolution or winding up of the Registrant.

Conversion. Shares of Preferred Stock may, at the option of the holder, be converted at any time or from time to time into shares of common stock at the initial conversion price of $0.40 per share, subject to adjustment; provided, that a holder of Preferred Stock may at any given time convert only up to that number of shares of Preferred Stock so that, upon conversion, the aggregate beneficial ownership of the common stock of such holder and all persons affiliated with such holder is does not exceed 4.99% of the then outstanding common stock. The number of shares into which one share of Series B Stock shall be convertible shall be determined by dividing $1,000 by the then existing conversion price.

Forced Conversion. If the shares underlying the Preferred Stock are registered and the Registrant’s stock price trades above $1.25 for a period of thirty consecutive days with average daily volume for 20 consecutive days of 100,000 shares per day the Registrant may force the holders of Preferred Stock to convert into Common Stock.

iPublishing Common Stock

iPublishing has authorized the issuance of 100,000 shares of its common stock, no par value , of which 30,000 shares are issued and outstanding.

iPublishing Preferred Stock

iPublishing has authorized the issuance of up to 5,000 shares of Preferred “blank check” preferred stock, no par value, having such rights, preferences, privileges and restrictions as may be designated from time-to-time by iPublishing’s board. 1,000 of these shares have been since designated as “Series A Preferred”. Series A Preferred have a par value of $1,000 per share, and a cumulative annual preferred dividend of 4.5%, payable quarterly. 450 shares of Series A Preferred Stock are issued and outstanding. The Series A shares are callable by the Company at any future time at par value provided that the cumulative annual dividend has been either (1) paid in full; (2) converted to common or preferred shares; or (3) waived by the shareholder.

Amendment of our Bylaws

Our bylaws may be adopted, amended or repealed by the affirmative vote of a majority of our outstanding shares. Subject to applicable law, our bylaws also may be adopted, amended or repealed by our board of directors.

Delaware Laws

Business Combinations with Substantial Stockholders.Our Certificate of Incorporation provides that we are not subject to Section 203 of the Delaware General Corporation Law, which applies to business combinations with interested stockholders. Section 203 of the Delaware General Corporation Law precludes a shareholder who owns 15% or more of our shares from entering into a “business combination” involving our company for a period of three years, unless (1) our board of directors approves the combination before the shareholder acquires the 15% interest; (2) the interested shareholder acquires at least 85% of our shares as part of the transaction in which he acquired the initial 15%, excluding shares owned by our officers who are also directors and voting stock held by employee benefit plans; or (3) the combination is approved by a majority vote of our board of directors and two-thirds vote of our other shareholders at a duly called shareholders’ meeting. A “business combination” is defined as (1) a merger or consolidation requiring shareholder approval, (2) the sale, lease, pledge, or other disposition of our assets, including by dissolution, having at least 50% of the entire asset value of our company, or (3) a proposed tender or exchange offer of 50% or more of our voting stock.

INTEREST OF NAMED EXPERTS AND COUNSEL

Our financial statements for the year ended December 31, 2004, contained in this prospectus were audited by Singer Lewak Greenbaum & Goldstein LLP. Singer Lewak Greenbaum & Goldstein LLP does not own any interest in us. Effective April 1, 2005, Singer Lewak Greenbaum & Goldstein LLP resigned as the Company’s independent registered public accountant.

Our financial statements for the year ended December 31, 2005, contained in this prospectus were audited by Weinberg & Company, P.A. We engaged Weinberg and Company, PA on May 10, 2005. Weinberg & Company, P.A. does not own any interest in us.

Richardson & Patel LLP passed upon the validity of the issuance of the common shares to be sold by the selling security holders under this prospectus. As of April 26, 2006, Richardson & Patel LLP, and its assigns, owns 62,500 shares of common stock and a warrant to purchase up to 100,000 common shares, all of which are being registered for sale under this prospectus.

DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES

Our bylaws and certificate of incorporation entitle our directors or executive officers to indemnification to the fullest extent permitted under Section 145 of the Delaware General Corporation Law, as may be amended. Our bylaws and certificate of incorporation also provide that our directors shall not be liable to the company or our stockholders for monetary damages for breach of duty, except (a) for any breach of duty of loyalty to the company or our stockholders, (b) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (c) under Section 174 of the Delaware General Corporation Law, or (d) for any transaction from which a director derived an improper personal benefit.

opinion of independent legal counsel; or by opinion of independent legal counsel in the event a quorum of directors who were not a party to such action, suit, or proceeding does not exist.

Section 145 of the Delaware General Corporation Law, provides further for permissive indemnification of officers and directors, and insurance, as follows:

A corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit or proceeding if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe the person’s conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendre or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which the person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that the person’s conduct was unlawful.

A corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys’ fees) actually and reasonably incurred by the person in connection with the defense or settlement of such action or suit if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnify for such expenses which the Court of Chancery or such other court shall deem proper.

To the extent that a present or former director or officer of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections (a) and (b) of this section, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys fees) actually and reasonably incurred by such person in connection therewith.

Any indemnification under subsections (a) and (b) of this section (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the present or former director, officer, employee or agent is proper in the circumstances because the person has met the applicable standard of conduct set forth in subsections (a) and (b) of this section. Such determination shall be made, with respect to a person who is a director or officer at the time of such determination, (1) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, or (2) by a committee of such directors designated by majority vote of such directors, even though less than a quorum, or (3) if there are no such directors, or if such directors so directs, by independent legal counsel in a written opinion, or (4) by the stockholders.

Expenses (including attorneys’ fees) incurred by an officer or director in defending any civil, criminal, administrative or investigative action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the corporation as authorized in this section. Such expenses (including attorneys’ fees) incurred by former directors

and officers or other employees and agents may be so paid upon such terms and conditions, if any, as the corporation deems appropriate.

The indemnification and advancement of expenses provided by, or granted pursuant to, the other subsections of this section shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person’s official capacity and as to action in another capacity while holding such office.

A corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person’s status as such, whether or not the corporation would have the power to indemnify such person against such liability under this section.

For purposes of this section, reference to “the corporation” shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under this section with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued.

For purposes of this section, references to “other enterprises” shall include employee benefit plans; references to “fines” shall include any excise taxes assessed on a person with respect to any employee benefit plan; and references to “serving at the request of the corporation” shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner such person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interests of the corporation” as referred to in this section.

The indemnification and advancement of expenses provided by, or granted pursuant to, this section shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.

The Court of Chancery is hereby vested with exclusive jurisdiction to hear and determine all actions for advancement of expenses or indemnification brought under this section or under any bylaw, agreement, vote of stockholders or disinterested directors, or otherwise. The Court of Chancery may summarily determine a corporation’s obligation to advance expenses (including attorneys’ fees).

Provided the terms and conditions of these provisions under Delaware law are met, officers, directors, employees, and agents of the Registrant may be indemnified against any cost, loss, or expense arising our of any liability under the Securities Act. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the “Act”) may be permitted to directors, officers and controlling persons of the small business issuer pursuant to the foregoing provisions, or otherwise, the small business issuer has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

License Agreement and Physical Properties from iPublishing, Inc.

On December 12, 2003, HPI, iPublishing, Inc. and the Company renegotiated a license agreement originally entered into between iPublishing and Hollywood Previews Inc. The License was renegotiated in order to make iMedia International, Inc. the exclusive licensee, and transfer the license for intellectual properties to iMedia International, Inc. In addition to the transfer, the royalty structure was re-negotiated at that time. In the original License required the Company to pay a fixed royalty of $0.05 per disc for each disc the Company produced that utilized iPublishing’s intellectual properties. We determined that under the existing license, royalties could conceivably exceed 100% of the gross profit on our lower-margin jobs. Therefore, the license was adjusted to provide for a flat 5% of the Company’s defined gross profits for each project or product that utilized the licensed intellectual properties. Gross Profits are defined as net sales minus direct cost of goods sold. The license agreement has a provision for adjustment to incorporate cost of living increases after the fifth year, and every two years thereafter. Licensor may not sell, provide or otherwise assign a similar license to any other company, nor become a competitor for as long a period of time as the Company remains in operation. There are no minimum performance stipulations in the License Agreement. The license term is for 99 years beginning April 2003. We paid $56,329 and $17,707 in royalties for the year ended December 31, 2005 and 2004, respectively. Total royalties paid since inception is $74,076. iPublishing, Inc. is owned and controlled by Franklin Unruh, Scott Kapp and David MacEachern, who are also executive officers and directors of the Company. Our combined financial statements for the years ended December 31, 2005 and 2004 include the iPublishing operations, as such the royalties paid are eliminated in consolidation.

Executive Compensation is paid directly to Entities Owned or Controlled by the Officers or Principal Shareholders

In lieu of salaries to the three executive officers for the years ended December 31, 2005 and December 31, 2004, the Company paid iPublishing, management fees of $612,000 and $507,000, respectively. In order for the officers to take advantage of certain tax benefits iPublishing in turn paid $612,000 and $507,000, respectively to a personal service corporation owned by the three executives noted above. These payments are recorded as management compensation expense in the accompanying statement of operations for the years ended December 31, 2005 and December 31, 2004.

Each of the three executive officers dedicates in excess of 95% of their total time worked each week to the Company. Historically the three founding officers have worked in excess of 40 hours per week on the day to day operations and management of the Company.

Consulting Agreements

Related Party Notes

promissory note (each, a “Related Party Note”). Each Related Party Note had identical terms and conditions, although the note amounts varied. The notes had a term of 90 days and bore interest at 8% per annum. In addition, a total of 130,000 two-year warrants, convertible to common stock at the price of $0.50 per share, valued at $42,016, were issued to the lenders as an incentive to make the loans. The warrants were valued with Black Scholes assumptions of 50% volatility, $0.73 share price, risk free interest rates ranging from 2.87% to 3.7%, and exercise prices ranging from $0.50. On December 31, 2004 the Related Party Notes were amended and the loans were extended until April 30, 2005. In exchange for waiving the interest payments on the original notes, the 130,000 two year warrants were cancelled and the Company authorized the issuance of 130,000 common shares in January 2005 (see Note 11). At December 31, 2004 the committed stock was valued at $94,900. During the years ended December 31, 2005 and 2004 the deferred interest of $63,267 and $31,633 had been amortized to interest on fixed conversion feature and amortization of debt discount in the statement of operations. On May 26, 2005 the Company paid $130,000 to satisfy its “Payable to related parties”.

At December 31, 2005 the Company had a demand note balance of $8,483 due on a note payable to Frank Unruh, our Chief Operating Officer.

Due from Shareholder through iPublishing

The Company’s Chief Executive Officer, David MacEachern, was advanced approximately $55,000 for personal expenses during the year ended December 31, 2004 from iPublishing, an affiliated privately held combined entity. The event occurred prior to the time we began combining the financial statements of iPublishing with those of the Company. During the year ended December 31, 2005 approximately $15,000 was repaid leaving an ending amount due of $40,000. There is no formal repayment agreement and there have been no amounts repaid since the first quarter of 2005, accordingly, the receivable has been classified as a contra-equity in the balance sheet.

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information

Our common shares are currently quoted on the OTC Bulletin Board under the symbol “IMNL.” Prior to November 24, 2004, our common shares were quoted on the Pink Sheets with very little activity and few isolated transactions. The following table sets forth the quarterly high and low bid prices for our common shares on the OTC Bulletin Board for the periods indicated. The prices set forth below represent inter-dealer quotations, without retail markup, markdown or commission and may not be reflective of actual transactions. The source of the following information was obtained from the Pink Sheets for transactions occurring prior to November 23, 2004 and from the OTC Bulletin Board for the period beginning November 23, 2005 to present. Prior to our reverse merger on August 29, 2003, our stock had been inactive with only a few isolated transactions at approximately $0.01 per share.


	Bid Price
Period	High		Low
March 31, 2006	$	0.43	$	0.21

Fiscal Year 2005:
December 31, 2005	$	0.42	$	0.15
September 30, 2005	$	0.70	$	0.37
June 30, 2005	$	1.26	$	0.42
March 31, 2005	$	1.55	$	0.40

Fiscal Year 2004:
December 31, 2004	$	2.00	$	1.01
September 30, 2004	$	2.25	$	1.50
June 30, 2004	$	2.25		1.75
March 31, 2004	$	2.50	$	1.15

Holders

We have approximately 828 record holders of our common stock as of April 20, 2006, according to a shareholders’ list provided by our transfer agent as of that date and our records relating to issuable shares, not including an indeterminate number of stockholders who may hold their shares in street name.

Dividend Policy

We do not anticipate that we will pay any dividends with respect to our common stock in the foreseeable future. Our current business plan is to retain any future earnings to finance the expansion development of our business. Any future determination to pay cash dividends will be at the discretion of our board of directors, and will be dependent upon our financial condition, results of operations, capital requirements and other factors as our board may deem relevant at that time.

We cannot pay any dividends on our common stock if any dividends due on our outstanding Series A Preferred Stock or Series B Preferred Stock are unpaid. Holders of Series A Preferred Stock are entitled to receive cumulative dividends of 6% per annum, based on the stated value of $1,000 per share. Holders of Series B Preferred Stock are entitled to receive cumulative dividends of based on the stated value of $1,000 per share of Preferred Stock at the rate of 6% per annum until the fourth anniversary of the Original Issue Date, 9% per annum from the fourth anniversary of the Original Issue Date until the fifth anniversary of the Original Issue Date and 14% from the fifth anniversary of the Original Issue Date until the Preferred Stock is no longer outstanding. Dividends on our Series A and Series B Preferred Stock are payable quarterly on March 1, June 1, September 1 and December 1.

Securities Authorized for Issuance Under Equity Compensation Plans

We did not have any equity compensation plans at the end of our last fiscal year.

Stand-Alone Grants

We do not have any outstanding stock options or stock appreciation rights. In the future, our board of directors may grant additional common share purchase options or warrants to selected directors, officers, employees, consultants and advisors in payment of goods or services provided by such persons on a stand-alone basis outside of any formal stock plans. The terms of these grants may be individually negotiated.

REPORTS TO SECURITY HOLDERS

We file annual and quarterly reports with the U.S. Securities and Exchange Commission (SEC). In addition, we file additional reports for matters such as material developments or changes. Our executive officers, directors and beneficial owners of 10% or more of our common shares also file reports relative to the acquisition or disposition of our common shares or acquisition, disposition or exercise of our common shares purchase options or warrants. These filings are a matter of public record and any person may read and copy any materials we file with the SEC at the SEC’s Public Reference Room a 100 F Street, NE, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains a Web site at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers, including us, that file electronically with the SEC. We are not required to deliver an annual report with this prospectus, nor will we do so. However, you may obtain a copy of our annual report and its exhibits, or any of our other public filings, by contacting the Company or from the SEC as mentioned above.

This prospectus constitutes a part of a registration statement on Form SB-2 filed by us with the Commission under the Securities Act of 1933. As permitted by the rules and regulations of the Commission, this prospectus omits certain information that is contained in the registration statement. We refer you to the registration statement and related exhibits for further information with respect to us and the securities offered. Statements contained in the prospectus concerning the content of any documents filed as an exhibit to the registration statement (or otherwise filed with the Commission) are not necessarily complete. In each instance you may refer to the copy of the filed document. Each statement is qualified in its entirety by such reference.

No person is authorized to give you any information or make any representation other than those contained or incorporated by reference in this prospectus. Any such information or representation must not be relied upon as having been authorized. Neither the delivery of this prospectus nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in our affairs since the date of the prospectus.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE

Our financial statements for the year ended December 31, 2004 and 2003, contained in this prospectus have been audited by Singer Lewak Greenbaum & Goldstein LLP, independent registered public accountants, to the extent set forth in their report, and are set forth in this prospectus in reliance upon such report given upon their authority as experts in auditing and accounting. Singer Lewak Greenbaum & Goldstein LLP does not own any interest in us. Effective April 1, 2005, Singer Lewak Greenbaum & Goldstein LLP (“SLGG”) resigned as the Company’s principal independent registered public accountant. The Company received notice of SLGG’s resignation on April 7, 2005.

SLGG’s reports on the Company’s financial statements for the fiscal years ended December 31, 2003 and December 31, 2004, did not contain an adverse opinion or disclaimer of opinion and were not qualified or modified as to audit scope or accounting principles. However, SLGG’s reports on the combined financial statements of the Company included explanatory language regarding substantial doubt about the Company’s ability to continue as a going concern.

During our fiscal years ended December 31, 2003, and December 31, 2004, and through April 1, 2005, there were no disagreements between us and SLGG on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements if not resolved to SLGG’s satisfaction would have caused SLGG to make reference to the subject matter of the disagreements in connection with its reports; and there were no reportable events described under Item 304(a)(1)(iv) of Regulation S-B.

On May 10, 2005, we engaged Weinberg & Company, P.A. (“Weinberg”) as our new independent certified public accountants, and the engagement of Weinberg was approved by the Board of Directors of the Company. During the two most recent fiscal years and the interim period preceding the engagement of Weinberg, the Company has not consulted with Weinberg regarding either: (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements; or (ii) any matter that was either the subject of a disagreement or event identified in paragraph (a)(1)(iv) of Item 304 of Regulation S-B.

FINANCIAL STATEMENTS

iMEDIA INTERNATIONAL, INC.
COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004 (as restated)

Index to Financial Statements


Description		Page No.
Reports of Independent Registered Public Accounting Firms		F-1 — F-2
Combined Balance Sheets at December 31, 2005 and 2004 as (restated)		F-3 — F-4
Combined Statements of Operations and Comprehensive Loss for the years ended December 31, 2005 and 2004 as (restated)		F-5 — F-6
Combined Statements of Shareholders’ Equity (Deficit) for the years ended December 31, 2005 and 2004 as (restated)		F-7 — F-11
Combined Statements of Cash Flows for the years ended December 31, 2005 and 2004 as (restated)		F-12 — F-13
Notes to Combined Financial Statements		F-14 — F-36

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and
Shareholders of iMedia International, Inc.

We have audited the accompanying combined balance sheet of iMedia International, Inc. and subsidiaries as of December 31, 2005, and the related combined statements of operations and comprehensive loss, shareholders’ equity (deficit) and cash flows for the year ended December 31, 2005. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of iMedia International, Inc. and subsidiaries as of December 31, 2005, and the results of their operations and their cash flows for the year ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. However, the Company incurred a loss of $12,271,114 and used $ $5,995,711 of cash in operating activities during the year ended December 31, 2005, and had a Shareholders’ deficit of $5,047,854 as of December 31, 2005. These factors, among others, as discussed in Note 3 to the financial statements, raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Weinberg & Co. P.A.

Los Angeles, California
April 17, 2006

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors
iMedia International, Inc.
Santa Monica, CA

We have audited the accompanying combined balance sheet of iMedia International, Inc. and affiliates as of December 31, 2004 (restated), and the related combined statements of operations, shareholders’ deficit, and cash flows for the year ended December 31, 2004 (restated). These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

In our opinion, the combined financial statements referred to above present fairly, in all material respects, the combined financial position of iMedia International, Inc and affiliates as of December 31, 2004 (restated), and the results of their operations and their cash flows for the year ended December 31, 2004 (restated) in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. However, during the year ended December 31, 2004, the Company incurred significant losses from operations and was highly dependent on equity and debt financing. These factors, among others, as discussed in Note 3 to the financial statements, raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

As described in Note 2 to the financial statements, the Company has restated its financial statements for the year ended December 31, 2004 to include the combination of affiliated companies that were previously excluded and disclosed in the financial statement footnotes.

SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
February 25, 2005 except Note 2,
as to which the date is April 17, 2006

F-2

IMEDIA INTERNATIONAL, INC.

COMBINED BALANCE SHEETS

DECEMBER 31, 2005 AND DECEMBER 31, 2004


	December 31,		December 31,
	2005		2004
			(Restated note 2)
Assets

Current assets:

Cash	$	1,397,904	$	453,304
Accounts receivable, net of allowance for doubtful accounts of $25,000 and $0		1,820,483		46,444
Work in process		27,779		—
Prepaid expense		13,562		554


Total current assets		3,259,728		500,302

Property and equipment, net		140,486		78,211
Investment in available for sale securities		—		1,066,461


Total assets	$	3,400,214	$	1,644,974


Liabilities and shareholders’ deficit

Current liabilities:

Accounts payable and accrued expenses	$	1,124,761	$	906,779
Accrued liquidated damages		1,209,518		—
Deferred revenue and customer deposits		90,440		—
Due to affiliate		46,669		—
Notes payable		—		950,022
Note payable – related party		8,483		130,000


Total current liabilities		2,479,871		1,986,801

Warrant liability		5,115,306		—

Total liabilities		7,595,177		—


Commitments and contingencies
Mandatory redeemable convertible preferred stock, net of discount of $2,187,109		852,891		—

(continued)

F-3

IMEDIA INTERNATIONAL, INC.
COMBINED BALANCE SHEETS
DECEMBER 31, 2005 AND DECEMBER 31, 2004
(CONTINUED)


	December 31,			December 31,
	2005			2004
				(Restated note 2)
Shareholders’ deficit

Preferred and common stock — affiliated company

Preferred stock – iPublishing, no par value, 6% dividend 5,000 units authorized 450 units issued and outstanding		71,196			71,196
Common stock – iPublishing, no par value 100,000 shares authorized, 30,000 shares issued and outstanding		—			—
Due from Shareholder		(40,000	)		(55,047	)

Preferred stock – authorized 20,000,000 shares:

Series A – Convertible preferred stock subject to mandatory redemption, convertible into 7,600,000 shares of common, $0.001 par value, 6% dividend, authorized 7,200 shares: 3,040 shares issued and outstanding as of December 31, 2005 none outstanding as of December 31, 2004 net of discount of $2,187,109		—			—

Series B – Convertible preferred stock, net of offering costs of $1,098,468 convertible into 12,300,000 shares of common stock, $0.001 par value, 6% dividend through August 22, 2009, 9% dividend for the year ended August 22, 2010 and 14% thereafter, authorized 6,000 shares; 4,920 shares issued and outstanding as of December 31, 2005, none outstanding as of December 31, 2004.
		3,753,486			—

Common stock, $.001 par value, authorized, 500,000,000 shares; 72,793,746 issued and outstanding as of December 31, 2005 and 65,627,913 issued and outstanding as of December 31, 2004		72,794			65,627

Common stock committed- none at December 31, 2005 and 710,000 shares as of December 31, 2004		—			674,900

Common stock subscription receivable		—			(530,000	)
Deferred compensation		(50,785	)		(149,246	)
Additional paid in capital		16,874,026			9,320,368
Accumulated deficit		(25,728,571	)		(8,609,174	)
Accumulated other comprehensive loss		—			(1,130,451	)


Total shareholders’ deficit		(5,047,854	)		(341,827	)


Total liabilities and shareholders’ deficit	$	3,400,214		$	1,644,974

The accompanying notes are an integral part of these combined financial statements.

F-4

IMEDIA INTERNATIONAL, INC.

COMBINED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004


	Years Ended
	December 31,
	2005			2004
				(Restated note 2)
Net sales	$	5,931,626		$	2,290,534

Cost of sales		5,061,153			2,542,579


Gross profit (loss)		870,473			(252,045	)


Operating expenses:
Selling		2,775,346			1,100,737
General and administrative		5,609,575			2,112,412
Management and consulting fees-related party		581,000			507,000


Total operating expenses		8,965,921			3,720,149


Loss from operations		(8,095,448	)		(3,972,194	)


Other expenses:
Interest on fixed conversion feature and amortization of discount		126,204			851,418
Warrants issued for extension on Convertible note payable		340,478			—
Loss on revaluation of derivative instruments		533,737			—
Liquidated damages on late filing of registration statement		1,379,757			—
Interest expense, net		61,246			86,922
Loss on investment		573,975			—
Impairment loss on investment in available for sale securities		1,156,269			—


Total other expenses		4,171,666			938,340


Loss before provision for income taxes		(12,267,114	)		(4,910,534	)


Provision for income taxes		4,000			3,260


Net loss		(12,271,114	)		(4,913,794	)

Beneficial conversion feature on the Series B convertible preferred stock		3,753,485			—
Interest on fixed conversion feature and amortization of debt discount on Series A redeemable preferred stock		852,891			—
Preferred stock dividends Series A and B		214,907			—

F-5

IMEDIA INTERNATIONAL, INC.
COMBINED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004
(CONTINUED)


	Years Ended
	December 31,
	2005			2004
				(Restated note 2)
Preferred stock dividends – iPublishing		27,000			27,000

Net loss allocable to common shareholders	$	(17,119,397	)	$	(4,940,794	)

Other comprehensive loss, net of tax unrealized holding loss on securities		—		$	(1,130,451	)

Comprehensive loss	$	(17,119,397	)	$	(6,071,245	)

Net loss per common share allocated to common shareholders – Basic and Diluted	$	(0.24	)	$	(0.08	)

Weighted average common outstanding shares, Basic and Diluted		70,552,192			61,655,666

The accompanying notes are an integral part of these combined financial statements.

F-6

iMedia International, Inc.

Combined Statement of Shareholders’ Equity (Deficit) and Accumulated Other Comprehensive loss
For the years ending December 31, 2004 and 2005


	Preferred Stock
	Affiliated Company																					Deferred					Accumulated
	iPublishing, Inc.																					Compensation/		Additional			Other
	(Note - 1)				Preferred Stock Series B				Common Stock				Subscription			Committed						Due from		Paid-in			Comprehensive		Accumulated
	Shares		Amount		Shares		Amount		Shares		Amount		Receivable			Shares			Amount			Shareholder		Capital			Losses		Deficit			Total
Balance December 31, 2003 - as originally stated		—		—		—		—		59,183,262	$	59,183	$	(680,000	)		578,667		$	691,520		$	—	$	4,185,230		$	—	$	(3,637,300)			$618,633

Issuance of common stock for additional founders shares										60,000		60													(60	)							—
Issuance of Publishing preferred shares for net assets transferred from the Modern Company upon reorganization		450		71,196																													71,196
Change in net income attributable to Affiliated/Predecessor Companies prior to 2003																														(336,538	)		(336,538	)
Issuance of Preferred Stock Dividends - - iPublishing																														(16,850	)		(16,850	)
Change in net loss for the year ended December 31, 2003																														322,308			322,308

Balance December 31, 2003 as Restated - - Note 2		450	$	71,196		—	$	—		59,243,262	$	59,243	$	(680,000	)		578,667		$	691,520		$	—	$	4,185,170		$	—		$(3,668,380)			$658,749

Issuance of common stock for cash										1,661,993		1,662													1,251,338								1,253,000
Issuance of common stock for consulting services										202,325		202													151,005								151,207
Issuance of committed shares										320,333		320		370,000			(320,333	)		(381,520	)				381,200								370,000
Common stock committed for consulting services																	50,000			50,000													50,000
Subscription cancellations														30,000			(25,000	)		(30,000	)												—
Subscription receivable														(250,000	)		296,666			250,000													—
Offering costs paid in cash																									*(189,790	)							(189,790	)

F-7

iMedia International, Inc.
Combined Statement of Shareholders’ Equity (Deficit) and Accumulated Other Comprehensive loss
For the years ending December 31, 2004 and 2005 — Continued

Preferred Stock

Affiliated Company

Deferred

Accumulated

iPublishing, Inc.

Compensation/

Additional

Other

(Note – 1)

Preferred Stock Series B

Common Stock

Subscription

Committed

Due from

Paid-in

Comprehensive

Accumulated

Amount

Receivable

Amount

Shareholder

Capital

Losses

Deficit

Total

Issuance of warrants for Micro-Capital debt conversion

*247,473

247,473

Beneficial conversion feature related to convertible Micro-Capital note payable

*464,140

464,140

Beneficial conversion feature related to extension of convertible Micro-Capital note payable

*62,937

62,937

Issuance of warrants for Augustine Fund debt conversion

*54,026

54,026

Beneficial conversion feature related to convertible Augustine Fund note payable

*54,026

54,026

Beneficial conversion feature related to related parties note payable

*31,753

31,753

Warrants issued for services

434,378

Common stock committed for interest on related parties note payable

130,000

94,900

*(63,267

)

31,633

Issuance of common stock for shares in Langley Park Investment-Common stock for Langley

4,000,000

4,000

2,308,539

2,312,539

Offering costs paid with Langley Park shares

(261,627

)

(261,627

)

Issuance of common stock for offering costs on Langley Park shares

200,000

200

145,800

146,000

F-8

iMedia International, Inc.
Combined Statement of Shareholders’ Equity (Deficit) and Accumulated Other Comprehensive loss
For the years ending December 31, 2004 and 2005 — Continued


	Preferred Stock
	Affiliated Company																					Deferred					Accumulated
	iPublishing, Inc.																					Compensation/			Additional		Other
	(Note – 1)				Preferred Stock Series B				Common Stock				Subscription			Committed						Due from			Paid-in		Comprehensive			Accumulated
	Shares		Amount		Shares		Amount		Shares		Amount		Receivable			Shares			Amount			Shareholder			Capital		Losses			Deficit			Total

Deferred compensation																							*(85,979	)										(85,979	)
Advances to Shareholder																							(55,047	)										(55,047	)
Unrealized holding loss on Langley Park securities																												(1,130,451	)					(1,130,451	)
Dividends on Preferred dividends of iPublishing																															(27,000	)		(27,000	)

Net loss																															(4,913,794	)		(4,913,794	)

Balance December 31, 2004 – restated note 2		450	$	71,196		—	$	—		65,627,913	$	65,627	$	(530,000	)		710,000		$	674,900		$	(204,293	)	$	9,320,368	$	(1,130,451	)	$	(8,609,174	)	$	(341,827	)

Cancellation of subscription receivable														530,000			(580,000	)		(580,000	)					50,000								—
Issuance of common stock upon exercise of warrants										2,874,119		2,874														1,132,086								1,134,960
Issuance of common stock for cash										30,000		30														14,970								15,000
Issuance of common stock for services										2,894,350		2,894														1,997,916								2,000,810
Issuance of common stock for interest payable to related parties										130,000		130					(130,000	)		(94,900	)					94,770								—
Issuance of common stock for liquidated damages and interest for delay in filing of SB-2										335,686		336														119,504								119,840
Issuance of common stock for signing bonus’ to employees										125,000		125														29,875								30,000

Issuance of common stock for dividend and series A preferred stock dividend and interest										377,331		378														110,511								110,889

F-9

iMedia International, Inc.
Combined Statement of Shareholders’ Equity (Deficit) and Accumulated Other Comprehensive loss
For the years ending December 31, 2004 and 2005 — Continued


	Preferred Stock
	Affiliated Company														Deferred						Accumulated
	iPublishing, Inc.														Compensation/			Additional			Other
	(Note - 1)		Preferred Stock Series B					Common Stock				Subscription	Committed		Due from			Paid-in			Comprehensive		Accumulated
	Shares	Amount	Shares		Amount			Shares		Amount		Receivable	Shares	Amount	Shareholder			Capital			Losses		Deficit			Total

Issuance of common stock for dividend and series B preferred stock dividend and interest									399,347		400								73,401								73,801
Issuance of warrants for services																(50,785	)		481,872								431,087
Amortization of deferred compensation on warrants for services																149,246											149,246
Permanent impairment on investment in available for sale securities																						1,130,451					1,130,451
Issuance of warrants to investors for delay transfer from pink sheets to the Bulletin Board																			810,563								810,563
Warrants issued for offering costs for Series A Preferred Stock																			437,637	��							437,637
Issuance of warrants to MicroCapital for debt extension																			340,478								340,478
Issuance of Preferred series B				4,920		4,166,331													—								4,166,331
Warrants issued for offering costs for Series B Preferred Stock						(412,845	)												412,845								—
Beneficial conversion feature on Series B preferred shares																			1,447,233					(3,753,485	)		(2,306,252	)
Interest on fixed conversion feature and amortization of debt discount on Series A redeemable preferred stock																								(852,891	)		(852,891	)
Repayments on Advances to Shareholders																15,047											15,047

F-10

iMedia International, Inc.
Combined Statement of Shareholders Equity (Deficit) and Accumulated Other Comprehensive loss
For the years ending December 31, 2004 and 2005 — Continued


	Preferred Stock
	Affiliated Company																		Deferred					Accumulated
	iPublishing, Inc.																		Compensation/			Additional		Other
	(Note - 1)				Preferred Stock Series B				Common Stock				Subscription		Committed				Due from			Paid-in		Comprehensive		Accumulated
	Shares		Amount		Shares		Amount		Shares		Amount		Receivable		Shares		Amount		Shareholder			Capital		Losses		Deficit			Total

Issuance of Preferred Stock Dividends - - iPublishing																											(27,000	)		(27,000	)
Issuance of Preferred Stock Dividends Series A and B																											(214,907	)		(214,907	)
Net loss																											(12,271,114	)		12,271,114	)

Balance December 31, 2005		450	$	71,196		4,920	$	3,753,486		72,793,746	$	72,794	$	—		—	$	—	$	(90,785	)	$	16,874,026	$	—	$	(25,728,571	)	$	(5,047,854	)


* -		As part of the restatement of the 2004 financial statements (note 2) these items were split out in greater detail to better reflect the individual amounts disclosed in the respective footnotes.

The accompanying notes are an integral part of these combined financial statements.

F-11

The IMEDIA INTERNATIONAL, INC.

COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004


	2005			2004
				(Restated Note 2)
Net loss	$	(12,271,114	)	$	(4,913,794	)

Adjustments to reconcile net loss to net cash used in operating activities:
Interest on fixed conversion feature and amortization of debt discount		62,936			851,419
Depreciation		46,716			48,111
Allowance for doubtful accounts		25,000			—
Loss on sales of investments		599,793			—
Impairment loss on investment for sale securities		1,130,451			—
Issuance of additional warrants to investors		810,563			—
Issuance of warrants for services		481,870			434,378
Issuance of warrants for extension of notes payable		340,478			—
Common stock issued for services		2,050,811			151,208
Common stock issued for liquidated damages		119,840			—
Common stock issued for preferred stock dividends		184,690			—
Common stock issued to employees for signing bonus’		30,000			—
Common stock issued for extension of related parties notes payable		94,900			—
Net change in derivative instruments due to revaluation		533,737			—
Net change in deferred compensation		98,461			(149,246	)
Changes in assets and liabilities Accounts receivable		(1,799,039	)		(46,444	)
Work in process		(27,779	)		71,056
Prepaid expenses and other assets		(13,007	)		2,841
Accounts payable and accrued expenses		205,024			612,532
Accrued liquidated damages		1,209,518			—
Deferred revenue and customer deposits		90,440			—


Net cash used in operating activities		(5,995,711	)		(2,937,939	)


Cash flows from Investing activities

Purchase of equipment		(108,993	)		(74,488	)
Due from shareholder		15,047			(55,047	)
Due to related parties		—			(41,875	)
Due to/from affiliates, net		46,669			—
Proceeds from sale of investment in available for sale securities		466,668			—


Net cash provided by (used in) investing activities		419,391			(171,410	)


Cash flows from financing activities

Common stock committed for interest on related party notes		(94,900	)		94,900
Issuance (cancellation) of committed shares		(50,000	)		50,000
Payments on notes payable — related parties		(130,000	)		(14,254	)

F-12

IMEDIA INTERNATIONAL, INC.
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004
(CONTINUED)


	2005			2004
				(Restated Note 2)
Payments on notes payable		(1,000,000	)		(251,035	)
Proceeds from notes payable — related parties		8,483			144,349
Proceeds on notes payable		—			1,250,000
Proceeds from issuance of redeemable Series A preferred stock, net		2,712,953			—
Proceeds from issuance of Series B preferred stock, net		4,166,331			—
Proceeds from issuance of common stock from exercise of warrants, net		1,134,960			1,253,000
Proceeds from issuance of common stock for cash		15,000			—
Proceeds from collection of subscription receivable		—			370,000
Offering costs paid with common stock		—			(189,790	)
Dividend on iPublishing preferred stock		(27,000	)		(27,000	)
Dividends on Series A and B preferred stock		(214,907	)		—


Net cash provided by financing activities		6,520,920			2,680,170


Increase (decrease) in cash		944,600			(429,179	)

Cash, beginning of year		453,304			882,483


Cash, end of year	$	1,397,904		$	453,304


Supplemental disclosures of cash flow information:
Income taxes paid	$	4,000		$	2,400
Interest paid	$	118,391		$	55,000

Supplemental schedule of disclosure of non-cash financing activities:

During the year ended December 31, 2004, the Company exchanged 4,000,000 shares of common stock, valued at $2,312,539 for 4,185,022 shares of the Langley Park Investments Plc Mutual Fund based in London, England.

The accompanying notes are an integral part of these combined financial statements.

F-13

IMEDIA INTERNATIONAL, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS

December 31, 2005

1. ORGANIZATION

General

Pursuant to an Agreement and Plan of Merger dated as of August 18, 2003 (the “Merger Agreement”), a wholly owned subsidiary of the Company’s corporate predecessor, Irvine Pacific Corporation (“IPC”) merged with and into Hollywood Previews, Inc. (“HPI”), on August 29, 2003, resulting in HPI becoming a wholly owned subsidiary of IPC (the “Acquisition”). HPI was a member of an affiliated group including Modern Companies LLC (“Modern Companies”), MOD Studio’s, Inc. (“MOD Studio’s) and iPublishing, Inc. (“iPublishing”).

As consideration for the Acquisition, the shareholders of HPI were issued 55,179,581 shares of IPC common stock which, immediately following the Acquisition, represented 96.18% of the issued and outstanding common stock of IPC (after giving effect to the conversion of all of IPC’s outstanding notes immediately prior to the Acquisition). Although HPI became a wholly owned subsidiary following the Acquisition, because the transaction resulted in a change of control, the transaction was recorded as a “reverse merger” whereby HPI is considered to be the accounting acquirer of the Company. Immediately prior to the Acquisition IPC had only nominal assets and liabilities and no current business operations.

Effective November 25, 2003, IPC completed a statutory merger effected for the purpose of changing its state of incorporation from Colorado to Delaware by merging into a newly formed Delaware corporation, iMedia International, Inc. (the “Company”). This change in IPC’s state of incorporation and corporate name was approved by the holders of a majority of IPC’s outstanding shares of common stock at a special meeting of shareholders on November 21, 2003.

At the time of the Acquisition HPI held an exclusive license from iPublishing to use iPublishing’s intellectual property (the “License”). iPublishing’s three shareholders, David MacEachern, Scott Kapp and Franklin Unruh (each of whom own approximately 33% of the outstanding securities of iPublishing), are each officers and directors of the Company. Due to its common ownership and management the activity of iPublishing is included in these combined financial statements. Pursuant to the License, iPublishing receives annual royalties of 5% of Gross Margin generated by discs produced by the Company using iPublishing technology. Because the License is exclusive, iPublishing may not license or assign any of its intellectual property to any other party and may not compete with the Company. The royalties between iPublishing and the Company are eliminated in consolidation. In connection with the exclusive license, HPI purchased all of iPublishing’s property and equipment, which iPublishing had previously purchased from one of its shareholders and officers. The purchase transaction has been accounted for at the carry-over basis of the assets at which they were obtained by the shareholder/officer of iPublishing. HPI has since transferred the exclusive license to its parent, the Company. The intellectual property covered by the License consists of various proprietary procedures, codes, technologies, copyrights, trademarks and brands, along with the proprietary suite of mastering software used to create our CD-ROM and DVD-ROM products.

The majority of our revenues to date have been generated from the sale of custom publications and special edition discs. We continue to pursue the procurement of paid advertising sponsorships, licensing, content placements, and e-commerce fees from Hollywood Previews™ Entertainment iMagazine™. We also intend to begin sales efforts of our proprietary data and Usage Report that monitors the navigation and use of Hollywood Previews™ Entertainment iMagazine™ by its audience.

F-14

The Company is a holding company doing business through various operating subsidiaries. We formed iMedia US, LLC, a California limited liability company on December 24, 2003 to serve as our primary operating unit.

Predecessor Companies

The combined financial statements include the activity of the following predecessor entities:

	•		HPI, incorporated on July 22, 2002 in the state of California.

	•		I-Publishing, Inc., incorporated on May 6, 2003 in the state of California.

	•		MOD Studios Inc., incorporated on January 8, 2001 in the state of Delaware.

	•		The Modern Company LLC, a Nevada limited liability company organized on February 25, 1999.

The following events detail the evolution of the Company’s predecessor’s activities:

On January 9, 2001, the members of CD Video Magazine, LLC, a California Limited liability company, unanimously ratified a plan or reorganization pursuant to the Internal Revenue Service Code section 351. Under the plan or reorganization, each member exchanged his/her membership interest into common stock of MOD Studios. MOD Studios produced CD media magazines for which it primarily generated advertising revenue. The main product was the Hollywood Previews Magazine, a highly interactive magazine which contains movie trailers and other upcoming movie events.

On April 5, 2003, the following events occurred:

A shareholder/secured creditor/officer of I-Publishing, MOD Studios and the Modern Company foreclosed on the physical assets of MOD Studios with a book value of $71,196 and the intellectual property with a book value of $0 due to the non-payment of certain notes payable totaling $393,331 at the time of foreclosure. The assets, consisting of property and equipment and intellectual property, were used as collateral for the note payable. In addition to the forbearance of the notes payable, MOD Studios is to receive 5% of all revenues paid to the shareholder directly for the use of the “Hollywood Previews” name or trademark from any third party to whom the shareholder sells, licenses, assigns, or transfers the “Hollywood Preview” name. Effective April 5, 2003 Mod Studios, Inc. and Modern Company had formally ceased historical operations and, in the case of MOD Studios, Inc. were formally dissolved. As such, the Company eliminated the net assets, liabilities and common stock of the Modern Company from its combined financial statements.

The shareholder contributed the repossessed property and equipment and intellectual property to I-Publishing in exchange for 450 shares of Series A — preferred stock valued at $71,196. The transaction was accounted for at the carry-over basis of the related assets. As such I-Publishing has recorded the assets at the transferred cost of $71,196.

I-Publishing licensed to HPI the exclusive rights to use I-Publishing’s intellectual property. I-Publishing receives annual royalties for each CD distributed. In addition, I-Publishing sold the physical assets to HPI in exchange for a note receivable with a value of $71,196.

2. RESTATEMENT OF FINANCIALS FROM JULY 22, 2002 (inception) TO DECEMBER 31, 2004

The Company is a member of an affiliated group (the “affiliated group”), which includes I-Publishing, MOD Studios, Inc. (“MOD Studios”), and The Modern Company, LLC (“The Modern Company”). The Company originally accounted for the affiliated group by providing a separate footnote which described the nature of the relationships and included the pro forma impact on the Company’s consolidated financial condition and results of operations as if the consolidated financial statements were presented on a combined basis with the affiliated group for each period presented up to and including the fiscal year ended December 31, 2003. For periods subsequent to December 31, 2003 the Company excluded the results of the affiliated group. Upon further evaluation of its accounting methodology for the affiliated companies the Company determined that it made an error in its application of the relevant accounting principals and determined that it should have combined the affiliated group with the consolidated financials of iMedia International, Inc. and Subsidiaries. In addition, during May 2005 the Company classified its Series A redeemable convertible preferred stock as a long-term liability. Upon further evaluation of its accounting methodology the Company determined that redemption is conditional (i.e., the holder can convert before the shares are redeemed); therefore management concluded that the redeemable convertible preferred stock should be classified as mezzanine financing outside of equity. In addition the Company has determined that the related interest on the fixed conversion feature and amortization of debt discount and the dividends on the Series A redeemable preferred stock should classified as an adjustment in the calculation of the net loss available to common shareholders as opposed to the original classification under other income (expense) as interest expense.

F-15

Accordingly, the Company has determined the effect of the correction on its previously issued financial statements and has recorded the cumulative effects in the Combined Statement of Stockholders Equity (Deficit) and Other Comprehensive loss in accordance with SFAS 154 and has restated these financial statements as of and for the year ended 2004 to include the combined operations of the predecessor companies through April 5, 2003 and iPublishing from April 6, 2003. In addition the Company has restated the financials as of and for the three, six and nine month periods ended March 31, June 30, and September 30, 2004 to incorporate the aforementioned combining of iPublishing along with the reclassification of the mandatory redeemable convertible preferred stock as mezzanine financing and related interest on the fixed conversion feature and amortization of debt discount and the dividends on the Series A redeemable preferred stock as an adjustment in the calculation of the net loss available to common shareholders.

The effects of the restatement on net sales, cost of sales, gross profit, operating expenses, net loss, net loss allocable to common shareholders, comprehensive loss, basic and diluted loss per common share, net comprehensive loss per share, cash, due from affiliate, accounts payable and accrued expenses, due to affiliate, preferred stock iPublishing and accumulated deficit as of and for the year ended December 31, 2004 is as follows:


	As
	Originally			Restatement			As
	Reported			Adjustments			Restated
Net sales	$	2,290,534		$	—		$	2,290,534
Cost of sales		2,565,646			(23,068	)		2,542,578
Gross profit (loss)		(275,112	)		23,068			(252,044	)
Operating expenses		3,698,664			21,485			3,720,149
Net loss		(4,914,516	)		723			(4,913,793	)
Net loss allocable to common shareholders		(4,914,516	)		(26,277	)		(4,940,793	)
Comprehensive loss	$	(6,044,967	)	$	(26,277	)	$	(6,071,244	)

Loss per common share from operations
Basic and diluted	$	0.08		$	—		$	0.08
Net comprehensive loss per common share	$	0.10		$	—		$	0.10

Cash	$	358,969		$	94,335		$	453,304
Accounts payable and accrued expenses		(757,633	)		(149,146	)		(906,779	)
Due to affiliate		(13,602	)		13,602			—
Preferred stock — iPublishing		—			(71,196	)		(71,196	)
Common Stock		(65,568	)		(60	)		(65,627	)
Due from Shareholder		—			55,047			55,047
Additional Paid in Capital		(9,320,428	)		60			(9,320,368	)
Accumulated deficit	$	8,551,816		$	57,358		$	8,609,174

The effects of the restatement on net sales, cost of sales, gross profit, operating expenses, net loss, preferred dividends — iPublishing, net loss allocable to common shareholders, basic and diluted loss per common share, cash, due from affiliate, due from Shareholder, accounts payable and accrued expenses, due to affiliate, preferred stock iPublishing and accumulated deficit as of and for the three months ended March 31, 2004 is as follows:


	As
	Originally						As
	Reported			Restatement			Restated
	(Unaudited)			Adjustments			(Unaudited)
Net sales	$	25,500		$	—		$	25,500
Cost of sales		4,700			—			4,700
Gross profit		20,800			—			20,800
Operating expenses		890,512			(6,782	)		883,730
Net loss		(872,112	)		6,782			(865,330	)
Preferred dividends — iPublishing		—			6,750			6,750
Net loss allocable to common shareholders		(872,112	)		32			(872,080	)

F-16


	As
	Originally						As
	Reported			Restatement			Restated
	(Unaudited)			Adjustments			(Unaudited)
Loss per common share from operations
Basic and diluted	$	0.01		$	—		$	0.01

Cash	$	266,648		$	10,802		$	277,450
Due from affiliate		137,489			(137,489	)		—
Accounts payable and accrued expenses		(84,022	)		(14,413	)		(98,435	)
Due to affiliate		(293,213	)		152,073			(141,140	)
Preferred stock — iPublishing		—			(71,196	)		(71,196	)
Common Stock		(59,541	)		(60	)		(59,601	)
Due from Shareholder		—			40,000			40,000
Additional Paid in Capital		(4,604,392	)		60			(4,604,332	)
Accumulated deficit	$	4,509,412		$	20,223		$	4,529,635


	As
	Originally						As
	Reported			Restatement			Restated
	(Unaudited)			Adjustments			(Unaudited)
Net sales	$	925,175		$	—		$	925,175
Cost of sales		771,109			—			771,109
Gross profit		154,066			—			154,066
Operating expenses		2,170,329			(37,511	)		2,132,818
Net loss		(2,113,707	)		37,511			(2,076,196	)
Preferred dividends — iPublishing		—			6,750			6,750
Net loss allocable to common shareholders		(2,113,707	)		24,011			(2,089,696	)

Loss per common share from operations
Basic and diluted	$	(0.04	)	$	0.01		$	(0.03	)

Cash	$	278,477		$	36,349		$	314,826
Advances receivable		—			55,000			55,000
Accounts payable and accrued expenses		(261,560	)		(169,626	)		(431,186	)
Due to affiliate		(92,356	)		92,356			—
Notes payable		(231,992	)		(5,000	)		(236,992	)
Preferred stock — iPublishing		—			(71,196	)		(71,196	)
Common Stock		(60,983	)		(60	)		(61,043	)
Due from Shareholder		—			55,047			55,047
Additional Paid in Capital		(5,896,982	)		60			(5,896,992	)
Accumulated deficit	$	5,751,007		$	7,070		$	5,758,077

The effects of the restatement on net sales, cost of sales, gross profit, operating expenses, net loss, net loss allocable to common shareholders, basic and diluted loss per common share, cash, due from shareholder, accounts payable and accrued expenses, due to affiliate, preferred stock iPublishing and accumulated deficit as of and for the nine months ended September 30, 2004 is as follows:

F-17


	Originally						As
	Reported			Restatement			Restated
	(Unaudited)			Adjustments			(Unaudited)
Net sales	$	1,681,969		$	—		$	1,681,969
Cost of sales		1,439,109			—			1,439,109
Gross profit		242,860			—			242,860
Operating expenses		3,288,800			(35,998	)		3,252,802
Net loss		(3,379,151	)		35,138			(3,344,013	)
Preferred dividends — iPublishing		—			(20,250	)		(20,250	)
Net loss allocable to common shareholders		(3,379,151	)		14,888			(3,364,263	)

Loss per common share from operations
Basic and diluted	$	(0.06	)	$	—		$	(0.06	)

Cash	$	808,943		$	47,957		$	856,900
Accounts payable and accrued expenses		(581,635	)		(156,003	)		(737,638	)
Due to affiliate		(108,003	)		108,003			—
Preferred stock — iPublishing		—			(71,196	)		(71,196	)
Common Stock		(65,512	)		(60	)		(65,572	)
Due from Shareholder		—			55,047			55,047
Additional Paid in Capital		(9,121,034	)		60			(9,120,974	)
Accumulated deficit	$	7,016,451		$	16,192		$	7,032,643

3. GOING CONCERN

For the year ended December 31, 2005 the accompanying combined financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. During the year ended December 31, 2005 the Company incurred a net loss of $12,271,114 and utilized cash in operating activities of $5,995,711 and had a shareholders’ deficit of $5,047,854 December 31, 2005. These factors raise substantial doubt about its ability to continue as a going concern.

During the year ended December 31, 2005 the Company raised approximately $8,029,000 in net proceeds from investment funds through the issuance of Series A and B — Preferred Stock, the issuance of common stock and the exercise of warrants for common stock. As of December 31, 2005 our cash balance is approximately $1,398,000 and we have receivables in the amount of approximately $1,820,000. Based on our historical cash burn and considering current revenues we believe the Company has adequate cash or cash equivalents to fund operations for the next six months. Although there can be no assurance, we believe that investments being made in sales and marketing during the fourth quarter of 2005 and into the first quarter of 2006 will result in a significant increase in revenues during the second half of 2006.

During January 2006 we secured a $2.5 million factoring line of credit. We anticipate utilizing the line to fund upfront costs of expected future contracts. See note 15.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

Dissolution of Subsidiaries

The Company’s majority owned subsidiaries Las Vegas Previews, LLC and iPolitix, LLC had no operations for the year ended December 31, 2005, and these entities have been dissolved.

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Revenue Recognition

The Company’s major source of revenue is from the creation and duplication of interactive multi-media CD-ROMs from content provided by customers.

From inception through December 31, 2004 the Company was testing the market with several different contracts in order to gain acceptance for its products and services in the market place. Accordingly our initial recognition policy was to recognize revenue in full when the product, usually a CD-ROM or a production run of CDs or DVDs, was shipped to the customer or distributed to the public, provided that the other conditions of sale as established by the Securities and Exchange Commission’s Staff Accounting Bulletin (“SAB”) No. 104, were satisfied:

Persuasive evidence of an arrangement exists; delivery has occurred or services have been rendered; the seller’s price to the buyer is fixed or determinable; collectibility is reasonably assured.

Revenue from advertising contracts and agreements is deferred until the services and/or products are completed and delivered.

For contracts written during 2005 the Company was able to negotiate more specific delivery milestones and adjusted its revenue recognition policy accordingly. For all new contracts revenue is allocated to the creation of the CD-ROMs, and to the duplication of such CD-ROMs, based upon the contract terms and relative fair value of such services to the total contractual revenue. Revenue from the creation of the multi-media interactive CD-ROMs is recognized when completed and upon client acceptance. Revenue from duplication is recognized as the units are delivered.

In accordance with Emerging Issues Task Form (“EITF”) Issue 00-21, the Company believes that the multiple deliverables under our customer contracts that relate to the creation of a CD-ROM and duplication of a CD-ROM are two distinct separate units of accounting. Each unit of accounting has a value to the customer on a stand-alone basis. The Company can determine the fair value for the creation of a master and the duplication and delivery of the CD-ROM. The Company’s contracts have no right of return once they have been approved by the customer.

In accordance with EITF Issue 99-19 in the fiscal years ended December 31, 2005 and 2004, the Company recorded sales net of outside advertising agency fees. For the years ended December 31, 2005 and 2004 advertising agency fees used to offset sales were $0.00 and $91,985, respectively.

Accounts Receivable

The Company sells its products throughout North America. The Company evaluates its accounts receivable on a regular basis for collectibility and provides for an allowance for potential credit losses as deemed necessary. As of December 31, 2005 a $25,000 valuation allowance has been recorded against the accounts receivable.

Earnings (Loss) per Common Share

The Company has adopted Statement of Financial Accounting Standards (SFAS) No. 128, “Earnings per Share”, which established standards for computing and presenting earnings (loss) per share (EPS). The statement simplifies the standards for computing EPS, replaces the presentation of primary EPS with a presentation of basic EPS and requires a dual presentation of basic and diluted EPS on the face of the income statement. Basic EPS are based upon the weighted average number of common shares outstanding during the period. Diluted EPS are based upon the weighted average number of common shares if all dilutive potential common shares had been outstanding.

The Company excluded 41,499,009 and 3,182,933 potential common shares from the computation of diluted net loss per share for the years ended December 31, 2005 and 2004, respectively because the effect would have been anti-dilutive.

Property and Equipment

Property and equipment are recorded at cost, less accumulated depreciation. Depreciation is provided using the straight-line method over the estimated useful lives of three to five years. Maintenance and minor replacements are charged to expense as incurred. Gains and losses on disposals are included in the results of operations.

Cash

The Company places its cash in banks in excess of amounts insured by federal agencies. The Company does not believe that as a result of this concentration it is subject to any unusual financial risk beyond the normal risk associated with commercial banking

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relationships. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash.

Impairment of Long-Lived and Intangible Assets

The Company reviews its assets for impairment in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Estimated losses are included in the statements of operations as a component of cost of sales.

Fair Value of Financial Instruments

The Company’s financial instruments include cash, accounts receivable, and accounts payable and accrued expenses, accrued liquidated damages, customer deposits, due to affiliate and notes payable. The book values of all financial instruments are representative of their fair values due to their short term maturity.

Income Taxes

The Company utilizes SFAS No. 109, “Accounting for Income Taxes,” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The provision for income taxes represents the tax payable for the period and the change during the period in deferred tax assets and liabilities.

Estimates

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Concentrations and Uncertainties

Major Customers and Suppliers

We continue to expand and diversify our customer and marketing base so as to reduce the risk associated with sales concentration on any one or group of clients or markets. It is anticipated that over the succeeding quarters, our customer base will become more broadly diversified as we begin marketing efforts directed at newspapers as an additional distribution channel for our monthly Hollywood Previews iMagazine with the potential to create complementary weekly magazines for the sports, travel and the life science industries.

During the year ended December 31, 2005, six major customers accounted for 82% of total net sales whereas for the year ended December 31, 2004 four major customers accounted for 100% of total net sales. For the year ended December 31, 2005 one major vendor accounted for 84% of purchases, whereas for the year ended December 31, 2004, one major vendor accounted for 36% of purchases.

We continue to be dependent upon third party suppliers for the manufacturing of our goods and products. Presently we outsource our disc manufacturing and printing to a variety of vendors in strategic geographic areas. Printing and disc manufacturing is a commodity industry, and should it be necessary, these suppliers can be easily replaced without detrimentally affecting to the Company.

The Company does not believe that in the near future its earnings from sales to customers will be over concentrated to any one or to only a few customers. The Company’s business plan calls for sales to a wide variety of customers and in a wide variety of interests. Similarly, the Company’s purchases will not be over concentrated to any one or only a few vendors.

Lines of Credit

In March 2004, we cancelled a line of credit with a financial institution in the amount of $30,000.

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Marketable Securities:

The Company accounts for investments under the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” Investment securities are classified into one of three categories: held-to-maturity, available-for-sale, or trading. Securities are considered held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. These securities are recorded as either short-term investments or long-term marketable securities on the balance sheet depending upon their original contractual maturity dates. Held-to-maturity securities are stated at amortized cost, including adjustments for amortization of premiums and accretion of discounts. Securities are considered trading when bought principally for the purpose of selling in the near term. Trading securities are recorded as short-term investments and are carried at market value. Unrealized holding gains and losses on trading securities are included in operating income. Securities not classified as held-to-maturity or as trading are considered available-for-sale. Available-for-sale securities are recorded as either short-term investments or long-term marketable securities and are carried at market value with unrealized gains and losses included in other comprehensive income in stockholders’ equity (see note 5).

Comprehensive Income (Loss):

SFAS No. 130, “Reporting Comprehensive Income,” established rules for the reporting and display of comprehensive income and its components. SFAS No. 130 requires unrealized gains or losses on the Company’s available-for-sale securities, foreign currency translation adjustments and minimum pension liability adjustments to be reported as a separate component (comprehensive income/loss) of stockholders’ equity.

Stock Based Compensation

The Company currently accounts for all stock option and warrant grants issued to non-employees using the guidance of SFAS No. 123, “Accounting for Stock-Based Compensation” and EITF No. 96-18: “Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services,” whereby the fair value of such option and warrant grants is determined using the Black-Scholes option pricing model at the date of grant.

In December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment”. This Statement revises FASB Statement No. 123, “Accounting for Stock-Based Compensation” and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees”. SFAS No. 123(R) focuses primarily on the accounting for transactions in which an entity obtains employee services in share-based payment transactions SFAS No. 123(R) requires companies to recognize in the statement of operations the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of those awards (with limited exceptions). This Statement is effective as of the first fiscal year reporting period that begins after June 15, 2005 for large business issuers and December 15, 2005 for small business issuers. The Company will adopt SFAS 123(R) during of 2006. During the years ended December 31, 2005 and 2004 the Company recognized compensation expense based on the fair market value of the warrant or option issued and the vested during the period. The Company has recorded and expensed all warrants or options when issued.

Reclassifications

Certain reclassifications have been made to prior period balances in order to conform to the current period presentation

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

SFAS No. 151

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs”. SFAS No. 151 amends the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage) under the guidance in ARB No. 43, Chapter 4, “Inventory Pricing”. Paragraph 5 of ARB No. 43, Chapter 4, previously stated that “. . . under some circumstances, items such as idle facility expense, excessive spoilage, double freight, and rehandling costs may be so abnormal as to require treatment as current period charges. . . .” This Statement requires that those items be recognized as current-period charges regardless of whether they meet the criterion of “so abnormal.” In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. This statement is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Management does not expect adoption of SFAS No. 151 to have a material impact on the Company’s financial statements.

SFAS No. 152

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Time-Sharing Transactions”. SOP 04-2 applies to all real estate time-sharing transactions. Among other items, the SOP provides guidance on the recording of credit losses and the treatment of selling costs, but does not change the revenue recognition guidance in SFAS No. 66, “Accounting for Sales of Real Estate”, for real estate time-sharing transactions. SFAS No. 152 amends Statement No. 66 to reference the guidance provided in SOP 04-2. SFAS No. 152 also amends SFAS No. 67, “Accounting for Costs and Initial Rental Operations of Real Estate Projects”, to state that SOP 04-2 provides the relevant guidance on accounting for incidental operations and costs related to the sale of real estate time-sharing transactions. SFAS No. 152 is effective for years beginning after June 15, 2005, with restatements of previously issued financial statements prohibited. This statement is not applicable to the Company.

SFAS No. 153

In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets,” an amendment to Opinion No. 29, “Accounting for Nonmonetary Transactions”. Statement No. 153 eliminates certain differences in the guidance in Opinion No. 29 as compared to the guidance contained in standards issued by the International Accounting Standards Board. The amendment to Opinion No. 29 eliminates the fair value exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. Such an exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS No. 153 is effective for nonmonetary asset exchanges occurring in periods beginning after June 15, 2005. Earlier application is permitted for nonmonetary asset exchanges occurring in periods beginning after December 16, 2004. Management does not expect adoption of SFAS No. 153 to have a material impact on the Company’s financial statements.

SFAS No. 154

SFAS No. 123(R)

5. INVESTMENT IN AVAILABLE FOR SALE SECURITIES

On September 30, 2004, we closed on a Stock Purchase Agreement with Langley Park Investments LLP, a London-based institutional investment trust. Langley Park purchased 4,000,000 of the Company’s common shares at the price of $1.90 per share. In lieu of cash, Langley issued to the Company 4,185,022 of its common shares at British Pound Sterling 1.00 per share (British Pound Sterling 1.00 = US $1.81 on August 5, 2004). These shares become free-trading on the London Stock Exchange (LSE) on October 8, 2004 and opened at British Pound Sterling 0.31 per share. On September 30, 2004, we booked the corresponding value of these shares as an asset on our financial statements in the amount of $2,312,539. The asset value was calculated by multiplying the number of the Langley Shares by the first opening trade as reported on the LSE, multiplied by the U.S. dollar to British Pound Sterling exchange rate on September 30, 2004 (4,185,022 X British Pound Sterling 0.31 X $1.7825 = $2,312,539).

We paid a non-cash commission to an investment banker consisting of 209,251 Langley Park shares valued at $115,627 (209,251 x British Pound Sterling 0.31 X $1.7825), and an additional 200,000 shares of our common stock booked at FMV, and valued at $146,000 (200,000 X $0.73) for this transaction. The net fair market asset value of the Langley Park investment as of December 31, 2005 and December 31, 2004 was $0.00 and $1,066,461, respectively.

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The Langley Park shares are registered as a Unit Investment Trust on the LSE. The trading symbol for the shares is LSE:LPI. The shares are quoted in British Pound Sterling. The investment trust consists of a portfolio of common stock of 23 U.S. publicly- traded microcap companies. Langley Park must hold, and cannot sell, short or hedge against its portfolio for a period of two years. One-half of the free-trading Langley Park shares paid to iMedia and the 22 other portfolio companies is being held in an escrow account as downside protection for the trust in the case that any of the portfolio companies should lose market value. At the end of the two-year restriction period, the escrowed shares will be returned to the Company if the trading price of iMedia shares at that time exceeds $1.90, otherwise a portion or all of the escrowed shares will be returned to the trust to adjust for a market loss. If, at the end of the two-year period, the trading price of iMedia shares falls below $0.95, all the escrowed Langley shares will be lost. If, however, the trading price of iMedia shares is more than $0.95 but less than $1.90, only a proportionate amount of the escrowed shares will be lost.

The Comprehensive loss of $1,130,451 at December 31, 2004 represents the unrealized loss in the investment in Langley Park Investments Plc. Mutual Fund shares. This unrealized loss was caused by the value of the Langley Park shares as quoted on the London Stock Exchange at December 31, 2004 (Sterling 0.14 pence), declining from the cost recorded at September 30, 2004 (Sterling 0.31 pence), the date of purchase. The Company determined that its entire investment in the escrow shares became permanently impaired. In accordance with SFAS No. 115, the write down of these shares was reflected as a permanent impairment and the previously reflected unrealized loss of $1,130,451 included in accumulated other comprehensive loss as of December 31, 2004 was recorded in the statement of operations, and during 2005, the Company reflected a further impairment loss of $25,819 on the escrowed shares.

During the year ended December 31, 2005, the Company sold 1,883,260 shares of its non-escrow shares for gross proceeds totaling $466,668. In connection with the sale of these shares the Company recorded a loss for the year ended December 31, 2005 of $573,975 in the statement of operations in other expense.

As of December 31, 2005 all Langley non escrowed shares had been sold.

6. PROPERTY AND EQUIPMENT

Property and equipment at December 31, consisted of the following:


	2005		2004
Office Computers and Equipment, at cost	$	364,346	$	255,352
Less accumulated depreciation		223,858		177,141

Property and equipment, net	$	140,486	$	78,211

For the years ended December 31, 2005 and 2004, depreciation expense was $46,717 and $48,111 respectively.

7. CONVERTIBLE NOTES PAYABLE

On April 22, 2004 the Company closed a short-term convertible note payable to Augustine Fund, LLP. The amount borrowed was $250,000 payable in 90 days. The Note bore interest of 8%, compounded monthly. As an incentive to make the loan, Augustine Fund was issued a 3-year warrant to purchase up to 50,000 shares at $1.00 per share and a second one-year warrant to purchase up to 250,000 additional common shares at the same price. Pursuant to the terms of the Note, the Company had the right to repay the note at any time subject to a 10-day option to convert the Note into 250,000 shares of our Common Stock. We also had the right to extend the note for one additional 90-day period.

In accordance with generally accepted accounting principles, the difference between the conversion price and the Company’s stock price on the date of issuance of the Note to Augustine was considered to be interest expense. It was recognized in the statement of operations during the period from the date of issuance of the note to the time at which the note matured. During the year ended December 31, 2004, the Company recorded $54,026 as a debt discount and recognized $54,026 in interest expense related to the accretion of the debt discount.

The Company allocates the proceeds received from debt or convertible debt with detachable warrants using the relative fair value of the individual elements at the time of issuance. The amount allocated to the warrants as a debt discount was calculated at $54,026 and was recognized as interest expense over the period until the notes matured. During the year ended December 31, 2004, the Company recognized $54,026 in interest expense related to the accretion of the debt discount.

In July, 2004, the Company exercised its option to repay the Note and Augustine elected not to convert. The principal amount of the Note, plus $5,000 in interest was paid by the Company on July 20, 2004 and no penalty warrants were issued. The remaining interest related to the difference between the Company’s stock price and the conversion price and the warrants was recognized on that date.

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On September 1, 2004 the Company closed on two short-term convertible notes payable to MicroCapital Fund, LP and MicroCapital Fund LTD (separately and collectively “Lenders”). The Company borrowed the aggregate amount of $1,000,000 payable to Lenders in 120 days. The Note bears simple interest of 15%. As an incentive to make the loan, Lenders were issued 5-year warrants to purchase up to the aggregate of 1,111,000 shares of common stock at $0.90 per share. On December 28, 2004 the exercise price of the warrants was reset to $0.70 per the terms of a loan. The warrants are exercisable at any time from September 1, 2005 through August 31, 2009 into unregistered or registered shares upon the Lenders tendering immediately available funds. The warrants carry certain anti-dilution provisions but do not contain cashless exercise provisions. Pursuant to the terms of the Notes, the Company has the right to repay the note at maturity, or Lenders may exercise an option to convert any portion of the notes into common shares at the price of $0.60 per share up to a maximum of 1,666,666 common shares. The Company has the right to force a conversion at the price of $0.20 per share, or 5,000,000 shares subject to the Company meeting certain required disclosure conditions. We have an obligation to register the notes and warrants under a Registration Rights Agreement which we have accounted for under the provisions of EITF 00-19.

In accordance with generally accepted accounting principles, the difference between the conversion price and the Company’s stock price on the date of issuance of the Note to Lenders are considered to be interest expense. It will be recognized in the statement of operations during the period from the date of issuance of the note to the time at which the note matures. During the year ended December 31, 2004, the Company recorded $464,140 as a debt discount and recognized $464,140 in interest expense related to the accretion of the debt discount. See note 12.

The Company allocates the proceeds received from debt or convertible debt with detachable warrants using the relative fair value of the individual elements at the time of issuance. The amount allocated to the warrants as a debt discount was calculated at $247,473 and will be recognized as interest expense over the period until the notes mature or are converted. During the year ended December 31, 2004, the Company recognized $247,473 in interest expense related to the accretion of the debt discount.

On December 30, 2004 Lenders agreed to extend the loan to April 30, 2005 under similar terms, except that, under the terms of the amendment, the price that Lenders may have exercised an option to convert any portion of the notes into common shares is $0.60 per share up to a maximum of 1,666,666 common shares and the Company’s right to force conversion at price is lowered to $0.16 per share, or 6,250,000 shares. Due to the amendment, the additional amount allocated to the warrants as debt discount was $62,937 and was fully amortized and recognized as interest expense during the year ended December 31, 2005.

In the second quarter of 2005, the Company was granted an additional repayment extension. The Company issued the Lender 555,556 additional warrants in connection with this extension. These warrants were valued at $340,478. The warrants have a strike price of $.40 per share and a term of three years. The warrant value was calculated using the Black-Scholes method using the following assumptions of 135% volatility, $0.69 share price, risk free interest rate of 3.65% and zero dividend yield. and are reflected as warrants issued for extension on convertible notes payable in the statement of operations during the year ended December 31, 2005. In the second quarter of 2005 these notes were repaid in their entirety.

8. PAYABLES TO RELATED PARTIES

On July 20, 2004, the Company closed three short-term loans totaling $130,000. These loans were made to the Company by parties related to the Company and/or its officers or directors and each was evidenced by a promissory note (each, a “Related Party Note”). Each Related Party Note had identical terms and conditions, although the note amounts varied. The notes had a term of 90 days and bore interest at 8% per annum. In addition, a total of 130,000 two-year warrants, convertible to common stock at the price of $0.50 per share, valued at $42,016, were issued to the lenders as an incentive to make the loans. The warrants were valued with Black Scholes assumptions of 50% volatility, $0.73 share price, risk free interest rates ranging from 2.87% to 3.7%, and exercise prices ranging from $0.50. On December 31, 2004 the Related Party Notes were amended and the loans were extended until April 30, 2005. In exchange for waiving the interest payments on the original notes, the 130,000 two year warrants were cancelled and the Company authorized the issuance of 130,000 common shares in January 2005 (see Note 11). At December 31, 2004 the committed stock was valued at $94,900. During the years ended December 31, 2005 and 2004 the deferred interest of $63,267 and $31,633 had been amortized to interest on fixed conversion feature and amortization of debt discount in the statement of operations. On May 26, 2005 the Company paid $130,000 to satisfy its “Payable to related parties”.

At December 31, 2005 the Company had a demand note balance of $8,483 due on a note payable to Frank Unruh, our Chief Operating Officer.

9. COMMITMENTS AND CONTINGENCIES

Office Lease

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The Company leases its office facilities on a month-to-month basis for $3,395. In addition we rent additional parking spaces sufficient to accommodate our current staffing levels. The additional parking has historically been on a month-to-lease. In March 2006 the Company signed a 12 month lease on parking spaces. Combined annual rent expense amounted to $71,517 and $39,145 for the years ended December 31, 2005 and December 31, 2004, respectively.

Employment and consulting agreements

The Company entered into employment agreements with Mr. MacEachern, Mr. Kapp and Mr. Unruh on August 1, 2003. Each officer is compensated $18,000 annually in addition to compensation received through I-Publishing, Inc as described below. The agreements may be terminated by the Company or employee upon 14-days written notice. Although the agreements currently may be terminated up notice the Board of Directors has contracted with an outside compensation consulting firm and has drafted new contracts which contemplate 3 year employment agreements for the 3 executive officers, tentatively expiring in January 2009. The employment agreements will be formalized upon receipt of a pending review from outside compensation consultants and approval by the Board of Directors.

The Company entered into a consulting and independent contractor agreement with iPublishing, Inc. on July 15, 2003. The agreement specifies monthly payments totaling $40,500 for the combined executive management services of the Company’s Chief Executive Officer, President and Chief Financial Officer. In October 2004, this amount was increased to $47,500 per month, in April 2005 increased to $50,000 per month and in September 2005 to $55,000 per month. The Company may terminate the agreement upon 30-days written notice. Total compensation paid for the year ended December 31, 2005 and 2004 is $581,000 and $507,000, respectively. In order for the officers to tax advantage of certain tax benefits iPublishing in turn paid a personal service corporation, The Modern Company, owned by the three executives noted above. These payments are recorded as management compensation expense in the accompanying statement of operations. The management independent contractor agreement with iPublishing, Inc is being contemplated with the above noted employment agreements and will run concurrently under the same terms and conditions as the related employment agreements.

The Company entered into consulting and independent contractor agreements on July 15, 2003 with companies owned by its shareholders, Investment Advisory Group, Inc. and Media Solutions Network, LLC. Each agreement specifies monthly payments of $13,500 each for management services for a total of $27,000 per month. The Company may terminate the agreements upon 30-days written notice. Total fees of $324,000 and $322,000 for their services are included in general and administrative or selling expenses in the statement of operations for the years ended December 31, 2005 and 2004, respectively.

On September 20, 2005 the Company signed a deal memorandum, pursuant to a formalized two-year employment agreement with Henry Williamson to serve as president of its newspaper syndication division, a non-executive officer position. The deal memorandum provides for the payment of a salary of $200,000 per year, and includes the opportunity to earn warrants or options to acquire up to 2,000,000 shares of common stock. The warrants or options shall be issued as “incentive” and “performance” stock options (or warrants) under the Company’s employee option plan. The plan has not yet been developed or formalized but is anticipated to be completed within the next 60-90 days (see note 15). The options or warrants shall be issued, “at-the-money”, with the exercise price calculated as of the VWAP of the 20-day period prior to the vesting date. The options or warrants shall contain traditional cashless exercise provisions. The options or warrants shall vest progressively over the term of the Employment Agreement. No options or warrants shall vest until Williamson has been employed for six months at which time Williamson will vest 500,000 warrants. An additional 500,000 shall be vested at the end of 12-months, 18 months and 24 months, so that provided Williamson remains employed for the entire two-year period, Williamson will have been vested with options or warrants for the entire 2,000,000 shares. Company may terminate Williamson “without Cause” subject to certain severance conditions, or “for Cause” in which case there would be no severance. Williamson may resign, but forfeits any unvested options or warrants. See note 15.

On December 16, 2005 the Company and its Chief Financial Officer, Mr. Fidaleo signed a Deal Memorandum prior to the finalization of a formal employment agreement. The employment agreement will be formalized upon receipt of a pending review from outside compensation consultants. The compensation consultants will be making recommendations to the Board of Directors with regards to all of the Company’s executive employment agreements and the Company’s executive bonus plan. Per the terms of the Deal Memorandum, Mr. Fidaleo will serve as the Company’s Chief Financial Officer for a three-year term expiring on December 31, 2008. Mr. Fidaleo will initially earn an annual base salary of $180,000, and a signing bonus grant of 100,000 shares of the restricted common stock valued at $24,000. In addition, if and when the Company adopts an employee stock option plan, Mr. Fidaleo will be granted an option to purchase 1,000,000 shares of the Company’s common stock pursuant to the terms of such plan. The options will vest proportionately on the first, second and third anniversary of the Deal Memorandum, and shall be exercisable at $0.24 per share, which was the fair market value of the Company’s underlying common shares on the day the Deal Memorandum was executed. The expiration date of options has not yet been designated. See note 15.

Service Agreement

On August 5, 2005 the Company entered into an agreement through December 31, 2010 with a newspaper content provider

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to be an exclusive representative for the Company in marketing the Company’s discs including “Hollywood Previews” to newspapers and to newspaper websites throughout the world. For these services the Company is obligated to pay a per unit fee for iMedia discs of no less than $12,000 per month against a per unit fee. The monthly payment has been suspended from November 2005 until at least April 2006, pending a pending renegotiation of the original terms and conditions to adjust the contract to reflect current market conditions. For the year ended December 31, 2005 $24,000 has been paid on this contract.

10. PREFERRED STOCK

The Company is authorized to issue 20,000,000 shares of preferred stock. The following types of preferred stock have been issued:

Series A — Redeemable Convertible Preferred Stock

On May 23, 2005, the Company’s Board of Directors authorized the issuance of 7,200 shares of Series A — Preferred Stock. On the same date, the Company entered into a Purchase Agreement with several accredited investors (the “Purchasers”) pursuant to which the Company agreed to sell, and the Purchasers agreed to purchase, 3,040 shares of Series A — Preferred Stock for an aggregate of $3,040,000. The Series A — Preferred Stock has a mandatory redeemable feature at the end of two years from its issuance date. The Series A — Preferred Stock are convertible at any time after the date of issuance by the holder and as such the redemption is considered conditional (i.e., the holder can convert before the shares are redeemed); therefore, the preferred stock is outside the scope of SFAS 150. However, pursuant to ASR 268 and EITF Topic D-98 together with rule 5.02.28 of regulation S-X the Preferred Stock is classified as mezzanine financing on the balance sheet. Net proceeds received by the Company after closing costs of $327,047, was $2,712,953. The $327,047 of closing costs has been reflected as debt discount.

The Series A — Preferred Stock contains certain conversion features and, 16,217,950 warrants at varying terms and exercise prices were issued in conjunction with the Preferred Stock pursuant to the Purchaser’s respective purchase agreements, comprised of 13,600,000 detachable warrants and 2,617,950 commission warrants. Based upon the existence of these features, the Company determined that a debt discount was required to be recorded as of the date of issuance to account for the value of the warrants and the value of the beneficial conversion feature. On August 22, 2005 the Company reset the exercise price of certain of these warrants from $0.60 per share to $0.40 per share per the terms of an anti-dilution provision contained in the Warrant Agreement. The terms required the Company to reset the exercise price to the conversion price of the Series B Convertible Preferred shares, which were issued subsequent to the Warrant Agreement. The total value of the warrants associated with this Preferred Stock offering, for purposes of calculating the accounting for the beneficial conversion feature, was valued at $9,979,966 comprised of $9,539,309 related to the detachable warrants and $437,637 related to the commission warrants. The warrants were valued with Black Scholes assumptions of volatility ranging from 120% to 125%, share prices ranging from $0.47 to $0.89, risk free interest rates ranging from 3.50% to 3.83%, and exercise prices ranging from $0.40 to $1.00. As the value of the warrants and the beneficial conversion feature exceeded the total offering proceeds, the amount allocated to the detachable warrants and the beneficial conversion feature was limited to the amount of the Series A - Preferred Stock. Therefore the Company recorded a discount of $2,712,953 relating to the issuance of the warrants. The detachable warrants were recorded as a warrant liability on the balance sheet (see warrant liabilities below) and the commission warrants were recorded in stockholders equity on the balance sheet.

The discount has been recorded as a valuation allowance against the Series A — Preferred Stock and is being amortized to retained earnings as a dividend over the redemption feature of 24 months. For the year ended December 31, 2005 amortization of the discount recorded to retained earnings is $852,891. The Company recorded Series A Preferred Stock dividends of $109,947 during the year ended December 31, 2005. In payment of such dividends during the year ended December 31, 2005 the Company issued 377,331 shares of common stock valued at $110,889, paid $4,000 in cash and has $5,025 in prepaid dividends that are netted against accrued expenses on the balance sheet.

The Company elected to withhold the filing of its registration statement for its Series A - Preferred Stock and warrants until it could close on its Series — B Preferred Stock offering. Therefore, the Company did not file its registration statement until September 29, 2005. In accordance with the Series A — Preferred Stock agreement liquidated damages were assessed at the rate of 2% per month as the registration was not filed by July 7, 2005. As such, the Company was 84 days late in filing its registration statement. See further discussion on liquidated damages at the end of the following discussion on Series B — Convertible Preferred Stock

The following is a brief descriptive summary of the principal terms, rights and obligations of the Company’s Series A-6% Convertible Preferred Stock (“ the Series A — Preferred Stock”):

Dividends. Holders of the Series A — Preferred Stock shall be entitled to receive cumulative dividends of 6% per annum, based on the stated value of $1,000 per share of Preferred Stock, payable quarterly on March 1, June 1, September 1 and December 1, with the first payment due on June 1, 2005. The Company has the right to elect to pay the 6% preferred dividend in common stock in lieu of cash. In the event Company elects to pay the preferred dividend in common stock, dividends are calculated by dividing the quarterly dividend by the sum of the discounted Value Weighted Average Pricing (“VWAP”) for the 20 trading days preceding day

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the preferred dividend is paid. If the underlying shares have been registered for trading with the Securities and Exchange Commission (the “SEC”), then the discount rate of the VWAP is 10%. If the shares have not been registered for trading with the SEC, then the discount rate of the VWAP is 30%. If for some reason the dividend is not paid within three trading days of the dividend payment date, interest accrues at the rate of 18% annually

Voting Rights. Except as otherwise required by law, a holder of shares Series A — Preferred Stock does not have the right to vote on matters that come before the Company’s stockholders. However, the Company may not authorize or create any class of stock ranking senior to, or otherwise pari passu with, Preferred Stock with respect to dividends, redemption or distribution of assets upon liquidation.

Liquidation Preference. In the event of a dissolution or winding up of the Company, each holder of the Series A — Preferred Stock is entitled to a liquidation preference of $1,000 per share of Series A — Preferred Stock held plus any declared but unpaid dividends on such share, prior to any payment to the holders of the Company’s common stock or any other stock of Company ranking junior to the Series A — Preferred Stock with regard to any distribution of assets upon liquidation, dissolution or winding up of the Company.

Conversion. Shares of the Series-A Preferred Stock may, at the option of the holder, be converted at any time or from time to time into shares of common stock at the initial conversion price of $0.40 per share, subject to adjustment; provided, that a holder of Series A — Preferred Stock may at any given time convert only up to that number of shares of Series A — Preferred Stock so that, upon conversion, the aggregate beneficial ownership of common stock of such holder and all persons affiliated with such holders does not exceed 4.99% of the then outstanding common stock. The number of shares into which one share of Stock shall be convertible shall be determined by dividing $1,000 by the then existing conversion price.

The conversion price may be reduced if the Company sells common stock or other securities convertible into or exercisable for common stock at a per share price, exercise price or conversion price lower than the conversion price then in effect (other than in connection with an acquisition of the securities, assets or business of another company, joint ventures and employee stock options).

Redemption. The Registrant is to redeem all of the then outstanding shares of Series A - Preferred Stock on May 23, 2007. If the shares underlying the Series A — Preferred Stock are registered and the Company ‘s stock price trades above $1.25 for a period of thirty consecutive days with average daily volume for 20 consecutive days of 100,000 shares per day the Company may force the holders of the Series A- Preferred Stock to convert into Common Stock.

Holders of warrants issued in the Series A — Preferred Stock may only exercise warrants with a “cashless exercise” provision if, after one year from the date of issuance of the warrants, May 24th, 2006, there is no effective registration statement or no current prospectus available for resale by the Holder of the shares underlying such warrants.

Series B — Convertible Preferred Stock

On August 22, 2005, the Company entered into a Purchase Agreement with 36 accredited investors (the “Purchasers”) pursuant to which the Company agreed to sell, and the Purchasers agreed to purchase, $4,920,000 in shares of Series B — Convertible Preferred Stock and warrants to purchase up to 14,760,000 shares of common stock resulting in net proceeds to the Company of $4,166,331 net of closing costs of $753,669. The Warrants are exercisable for five years at $0.60 per share.

The Series B Convertible Preferred Stock contains certain conversion features and 14,760,000 5-year warrants at an exercise price of $.060 per share were issued in conjunction with the Preferred Stock pursuant to the Purchaser’s respective purchase agreements. In addition 1,211,250 warrants, valued at $412,845 were issued and $753,669 of cash was paid as commissions for the placement of the Series B Convertible Preferred Stock. Based upon the existence of these conversion features and warrants issued, the Company determined that a preferred stock beneficial conversion feature was required to be recorded as of the date of issuance to account for the value of the warrants and the value of the effect of the beneficial conversion feature. The total value of the warrants attached to this Preferred Stock offering was valued at $5,981,400. The warrant value was calculated using the Black-Scholes method using the following assumptions of 108% volatility, expected life of 5 years, $.52 share price, risk free interest rate of 3.83% and zero dividend yields. The beneficial conversion feature was valued at $3,753,485. Since the warrant value was greater then the proceeds of the preferred stock offering after cash expenses and warrants for commissions, the beneficial conversion feature was limited to the net value of the preferred stock of $3,753,485. In accordance with EITF Issue 98-5 since the holders of the Series B Convertible Preferred Stock may convert at anytime, the preferred stock beneficial conversion feature of $3,753,485 has been amortized in full against retained earnings as of December 31, 2005 and reflected as an adjustment to net loss allocable to common shareholders.

In addition, the Company paid certain offering commissions to two investment banking firms in connection with the issuance of its Series B — Preferred Stock through the issuance of warrants to purchase up to 1,211,250 shares of its common stock. The warrants were issued at strike prices of $.40 per share expiring on August 22, 2009. The value of these warrants is $412,845. The warrant value was calculated using the Black-Scholes method using the following assumptions of 108% volatility, expected life of 4

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years, $.45 share price, risk free interest rate ranging of 3.83% and a zero dividend yield.

The Company recorded Series B Preferred Stock dividends of $104,960 during the year ended December 31, 2005. In payment of such dividends during the year ended December 31, 2005 the Company issued 399,347 shares of common stock valued at $73,800, and has $30,160 in accrued dividends that are included in accrued expenses on the balance sheet.

The following is a brief descriptive summary of the principal terms, rights and obligations of the Company’s Series B Convertible Preferred Stock (“The Series B — Preferred Stock”) issued on August 22, 2005 (“Original Issue Date”):

Dividends. Holders of the Series B — Preferred Stock shall be entitled to receive cumulative dividends based on the stated value of $1,000 per share of Series B — Preferred Stock at the rate of 6% per annum until August 22, 2009, 9% per annum from August 22, 2009 until August 22, 2010 and 14% from the August 22, 2010 until the Series B- Preferred Stock is no longer outstanding. Dividends will be payable quarterly on March 1, June 1, September 1 and December 1, with the first payment due on December 1. Pursuant to the terms of the Series B-Preferred Stock Certificate of Designation, if the Company does not have in effect a policy of directors and officers liability insurance by February 20, 2006, or if the Corporation shall not have appointed a new Chief Financial Officer prior to November 18, 2005, then dividends accrue and are payable at a rate of 9% per annum in lieu of 6% per annum during the occurrence and during the continuance of either of the foregoing events. The Company entered into an agreement during November 2005 and formally hired a new Chief Financial Officer on December 16, 2005 effectively meeting the terms of the agreement with respect to any penalties resulting from the appointment of the Chief Financial Officer after the deadline of November 18, 2005. The Company has the right to elect to pay the 6% preferred dividend in common stock in lieu of cash. In the event the Company elects to pay the preferred dividend in common stock, dividends are calculated by dividing the quarterly dividend by the sum of the discounted Value Weighted Average Pricing (“VWAP”) for the 20 trading days preceding day the preferred dividend is paid. If the underlying shares have been registered for trading with the SEC, then the discount rate of the VWAP is 10%. If the shares have not been registered for trading with the SEC, then the discount rate of the VWAP is 30%. If for some reason the dividend is not paid within three trading days of the dividend payment date, then interest accrues at the rate of 18% annually.

Voting Rights. Except as otherwise required by law, a holder of shares of Series B - Preferred Stock does not have the right to vote on matters that come before the Company’s stockholders. However, the Company may not authorize or create any class of stock ranking senior to, or otherwise pari passu with, the Series B — Preferred Stock with respect to dividends, redemption or distribution of assets upon liquidation.

Liquidation Preference. In the event of a dissolution or winding up of the Registrant, each holder of the Series B- Preferred Stock is entitled to a liquidation preference of $1,000 per share of Series B — Preferred Stock held plus any declared but unpaid dividends on such share, after distribution or payment to the holders of the Company’s Series B — Preferred Stock and prior to any payment to the holders of the Company’s common stock or any other stock of the Company ranking junior to the Series B — Preferred Stock with regard to any distribution of assets upon liquidation, dissolution or winding up of the Company.

Conversion. Shares of Series B — Preferred Stock may, at the option of the holder, be converted at any time or from time to time into shares of common stock at the initial conversion price of $0.40 per share, subject to adjustment; provided, that a holder of Series B — Preferred Stock may at any given time convert only up to that number of shares of Series B — Preferred Stock so that, upon conversion, the aggregate beneficial ownership of the common stock of such holder and all persons affiliated with such holders does not exceed 4.99% of the then outstanding common stock. The number of shares into which one share of Series B Stock shall be convertible shall be determined by dividing $1,000 by the then existing conversion price.

Forced Conversion. If the shares underlying the Series B — Preferred Stock are registered and the Company’s stock price trades above $1.25 for a period of thirty consecutive days with average daily volume for 20 consecutive days of 100,000 shares per day the Company may force the holders of Series B Convertible Preferred Stock to convert into Common Stock.

Holders of warrants issued in the Series B — Preferred Stock financing may only exercise warrants with a “cashless exercise” provision if, after one year from the date of issuance of the warrants, August 28th, 2006, there is no effective registration statement or no current prospectus available for resale by the Holder of the shares underlying such warrants.

Liquidated damages

As discussed above during 2005 the Company closed financings for its Series A convertible redeemable preferred and Series B convertible preferred stock. As part of the terms and conditions of the respective registration rights agreements the Company is required to pay certain liquidated damages at 2% plus 18% interest for unpaid damages first for a delay in filing the registration

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statement and then for a delay in the effective date. During 2005 the Company elected to withhold the filing of its registration statement for its Series A — preferred stock and warrants until it could close on its Series B — preferred stock offering. Therefore, the Company did not file its registration statement until September 29, 2005. In accordance with the Series A — preferred stock agreement liquidated damages were assessed as the registration was not filed by July 7, 2005. As such, the Company was 84 days late in filing its registration statement. During 2005 the Company paid $50,400 in cash and issued 335,686 of commons stock valued at $119,840 for a combined $170,240 associated with liquidated damages for filing its registration statement late. In addition during 2005 the Securities and Exchange Commission (“Commission”) elected to review the document and submitted questions to the Company for response. During the course of responding to the Commissions questions the financial statements included in the document have gone stale pursuant to SEC rules and the registration statement cannot go effective. As such, the Company must replace the stale financial statements with the audited 2005 financials and respond to the Commissions questions, and any follow-up questions the Commission may have after reviewing our initial responses. Accordingly, we have estimated and accrued an additional $1,123,000 in estimated liquidated damages and $87,000 in related interest expense for a combined total of $1,210,000 based on our best estimate that the document will be cleared by the Commission to go effective during June of 2006.

Warrant liabilities

Quantity of

Strike

Warrant description

Warrants

Price

Contract life

Warrants issued with Series A Preferred

13,600,000

0.40

2 and 5 years

Warrants issued with Series B Preferred

14,760,000

0.60

5-years

Total warrants

28,360,000

The warrants are classified as a liability rather than equity because the respective registration rights agreements for the Series A convertible redeemable preferred and Series B convertible preferred stock have certain terms and conditions whereby the Company is required to pay liquidated damages at 2%, in cash for a delay in the effective date of the registration statement. The outstanding warrants are fair valued each reporting period and the warrant liability adjusted accordingly. At the dates of warrant issuance the estimated fair value of $2,275,316 for Series A Preferred and $2,306,052 for Series B Preferred was recorded as a total warrant liability of $4,581,568 on the consolidated balance sheet. At December 31, 2005 the total fair value of the warrant liability was estimated to be $5,115,306 and the net increase of $533,737 in warrant liability was recorded as a loss on derivative instruments in the consolidated statement of operations, The increase in the warrant liability was due primarily to the decrease in Company’s common share price from the date of issuance of $0.89 and $0.52 per common share respectively compared to $0.24 per common share at December 31, 2005 offset by the limitation to the net value of the preferred stock since the initial warrant value was greater then the proceeds of the preferred stock offering after cash expenses and warrants for commissions.

Preferred Stock — iPublishing Inc.

Total number of preferred units authorized is 5,000 of which 450 units are issued and outstanding. 1,000 of these units are designated as Series “A”. These preferred units have a par value of $1,000 per unit and a cumulative annual dividend of 4.5%. The Series A units shall be callable by the Company at any future time at par value provided that the cumulative annual dividend has been either paid in full; converted to common or preferred units; or waived by the shareholder holding the Series “A” preferred units. For the years ended December 31, 2005 and 2004 the company issued dividends of $27,000 and $27,000, respectively.

11. COMMON STOCK

Common Stock Subscriptions

As of December 31, 2004, the Company had subscriptions for 530,000 shares of common stock from investors through a private placement and recorded subscriptions receivable of $530,000.

During the year ended December 31, 2004 the Company received subscriptions of $1,253,000 for the purchase of 1,253,000

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shares of common stock from accredited investors. In addition, $370,000 was received from the prior year’s subscriptions receivable.

During the first quarter of 2005 the Company determined that the subscriptions for 580,000 shares of common stock from investors, valued at $580,000 would not be funded and accordingly cancelled the subscriptions.

Common Stock issued to Subscribers of a Previous Private Placement

During May 2004, we issued an additional 408,993 shares to investors who participated in a previous private placement dated September 2, 2003. The shares were issued to compensate for the difference between the amount paid by these prior subscribers and the amounts paid by subscribers of a subsequent private placement dated March 18, 2004, who purchased shares at a price-per-share lower than that of the previous offering.

Common Stock Issued for Services and Other

During the year ended December 31, 2004, we issued a total of 202,325 restricted shares valued at $151,207 for services rendered. Issued securities include:

	•		3,000 shares issued to a consultant for services rendered during 2004 valued at $3,000.

	•		10,000 shares issued to another consultant for services rendered during 2004, valued at $10,000.

	•		114,325 shares issued to consultants for services rendered and expensed during 2004, valued at $83,457.

	•		45,000 restricted shares issued to another consultant for services rendered valued at $32,850.

	•		30,000 restricted shares issued to another consultant for services rendered valued at $21,900.

During the year ended December 31, 2004, the Company issued the following shares of common stock:

	•		320,333 committed shares of common stock.

	•		200,000 shares as offering costs valued at $146,000.

	•		202,325 shares in exchange for services valued at $151,207

	•		4,000,000 shares for investment in Langley Park shares. (See note 5)

During the year ended December 31, 2005, the Company issued the following shares of common stock:

Warrants exercised for Common Stock converted to Common Stock

In March 2005, the Company offered holders of certain one-year warrants to purchase common stock the opportunity to exercise such warrants at discounted prices of $.030 and $.40 per share. At the time of the offer the market price of the Company’s common stock was approximately $.50 per share, and there was little trading volume. During the year ended December 31, 2005 certain warrant holders took advantage of this opportunity and exercised warrants for 1,774,600 and 1,099,519 shares of common stock, respectively. Total proceeds of $1,134,960 from these warrant conversions were as follows:

	•		2,794,119 $0.40 warrants were exercised resulting in total cash proceeds of $1,110,960

	•		80,000 $0.40 warrants were exercised resulting in total cash proceeds of $24,000

We issued 2,894,350 shares of restricted common stock for services to various consultants to promote us and ongoing financing activities and employees as performance bonuses. The total value of the common shares issued is $2,000,811 Issued securities include:

	•		2,467,500 shares valued at $1,558,751 issued to consultants for investor relations services and is recorded as compensation expense in the general and administrative expense

	•		235,000 shares valued at $293,750 issued to Employee’s as a performance bonuses and is recorded as compensation

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			expense in the general and administrative expense

	•		105,753 shares valued at $59,560 issued for legal services and is recorded as compensation expense in the general and administrative expense

	•		50,000 shares valued at $62,500 issued to consultants for investment banking services

	•		36,097 shares valued at $26,250 issued to consultants for sales commissions and is recorded as commissions in selling expense

335,686 shares of restricted common stock valued at $119,840 were issued to holders of Series A Redeemable Convertible Preferred shareholders for liquidated damages and related interest due to the delay of filing the SB-2 registration statement. See note 10.

776,678 shares of restricted common stock valued at $184,690 were issued to holders of preferred stock for preferred dividends (note 10):

	•		377,331 shares valued at $110,889 to Series A Redeemable Convertible Preferred shareholders

	•		399,347 shares valued at $73,801 to Series B Convertible Preferred shareholders

130,000 shares of restricted common stock valued at $94,900 of stock committed during 2004 was issued for interest on convertible notes payable to related parties. See note 8.

125,000 shares of restricted common stock valued at $30,000 issued to employees as signing bonuses:

	•		100,000 shares valued at $24,000 to the Chief Financial Officer, see note 9.

	•		25,000 shares valued at $6,000 to a non-executive employee

30,000 shares of restricted common stock valued at $15,000 issued to a subscriber of the Company’s common stock for cash.

12. WARRANTS

During the year ended December 31, 2004, the Company granted 3,028,927 warrants to purchase common stock. All warrants and options were valued with Black Scholes assumptions of 50% volatility, $0.73 share price, risk free interest rates ranging from 2.87% to 3.7%, and exercise prices ranging from $0.10 to $1.75. The warrants were granted as follows:

	•		Granted warrants to purchase 274,250 shares of the Company’s common stock to third parties for offering costs. The Company granted these warrants at exercise price between $0.90 and $1.00 per share, with terms expiring in four to five years. The warrants had a calculated value of $59,011, which was offset against the value of the warrants in additional paid in capital.

	•		Granted warrants or options to purchase 1,343,566 shares of the Company’s common stock to third parties for services. The Company issued these warrants at exercise prices of between $0.10 — $1.75 per share, with terms expiring in two to five years. The warrants had a calculated value of $434,378, of which $348,399 was recognized during 2004, $85,979 was deferred as of December 31, 2004 and $85,979 was recognized during 2005.

	•		Granted warrants to purchase 1,111,111 shares of the Company’s common stock to Micro-Capital at exercise prices of $0.70 per share, with terms expiring in five years. The warrants had a calculated value of $464,140 which was recognized during 2004. See note 7.

	•		Granted warrants to purchase 300,000 shares of the Company’s common stock to the Augustine Fund at an exercise price of $1.00 per share, with a term expiring in one to five years. The warrants had a calculated value of $54,026 which was recognized during 2004. See note 7.

During the year ended December 31, 2005, the Company granted the following to purchase the Company’s common stock:

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Replacement Warrants

In February 2005, the Company issued a total of 6,163,559 out-of-the-money warrants to purchase additional shares of common stock to approximately 40 investors to the Company’s prior private placements. The Company issued these warrants due to the illiquidity experienced by these investors while it was experiencing delays in obtaining its OTC-BB listing. 3,081,780 warrants are exercisable at the price of $1.00 per share, and 3,081,780 of these warrants are exercisable at the price of $1.25 per share. Each warrant issued was for a one-year term and will expire on February 2, 2006. At the date the warrants were issued, the market price of the Company’s common stock was $.80 per share. The value of the warrants was calculated at $481,458 using the Black — Scholes method and is recorded as compensation and is included in general and administrative expense in the accompanying financial statements.

In March 2005, the Company offered holders of certain one-year warrants the opportunity to exercise these warrants at a discounted price of $.40 per share, which was at a discount to the warrant exercise price. At the time of the offer, the market price of the Company’s common stock was approximately $.50 per share, and there was little or no trading volume. During the year ended December 31, 2005 certain warrant holders took advantage of this opportunity and exercised warrants for 2,874,119 shares of common stock for total proceeds to the Company of $1,134,960. As a condition to the agreement, for each warrant exercised, the Company issued a replacement warrant. In all, the Company issued to these holders of one year warrants 1,437,060 replacement warrants with an exercise price of $1.25 to these holders and 1,437,059 replacement warrants with an exercise price of $1.00. These replacement warrants will expire on September 30, 2006. The total value of the 1,437,059 warrants with a strike price of $1 per share was $181,056, calculated using the Black-Scholes method using the following assumptions of 124% volatility, $.46 share price, risk free interest rate of 3.50% and zero dividend yields. The total value of the 1,437,060 warrants with a strike price of $1.25 is $148,049, using the Black-Scholes method using the following assumptions of 124% volatility, $.46 share price, risk free interest rate of 3.50% and zero dividend yields. Total value of all warrants issued for this transaction is $329,105 and is accounted for as compensation and is included in general and administrative expense in the accompanying financial statements. There were no commissions paid in conjunction with these warrants.

Compensation Warrants

During the year ended December 31, 2005 the Company issued a total of 2,534,368 warrants to purchase common valued at $481,872 as consideration for services provided, as follows:

In January, 2005, the Company issued five year warrants to purchase 350,000 shares of its common stock to a consultant for advisory services for a two year term at an exercise price of $.40 per share. The common stock price at issue was $1.10. Total value of these warrants at December 31, 2005 is $68,854 after marking-to-market each quarter. The warrants were revalued using the Black-Scholes method at December 31, 2005 using the following assumptions of 142% volatility, $0.24 share price, risk free interest rate of 4.35% and zero dividend yields. As of December 31, 2005, $35,862 of deferred compensation associated with these warrants is on the balance sheet of the Company. For the year ended December 31, 2005 the Company amortized deferred compensation of $32,992 to compensation expense.

In March, 2005, the Company issued three year warrants to purchase 500,000 shares of its common stock to a consultant for marketing services for a one year term at an exercise price of $1.00 effective March 29, 2005. The common stock price at issue was $1.03. Total value of these warrants at December 31, 2005 is $59,694 after marking-to-market each quarter. The warrant revalued using the Black-Scholes method using the following assumptions of 142% volatility, $0.24 share price, risk free interest rate of 4.35% and zero dividend yields. As of December 31, 2005, $14,923 of deferred compensation associated with these warrants is on the balance sheet of the Company. For the year ended December 31, 2005 the Company amortized deferred compensation of $44,770 to compensation expense.

In April 2005, the Company issued warrants to purchase 100,000 shares of common stock for legal services in the second quarter of 2005. Total value of this warrant is $83,584 and is recorded in general and administrative expense as compensation and is included in general and administrative on the statement of operations for the year ended December 31, 2005. The warrant has a strike price of $.40 per share and a term of three years. The warrant value was calculated using the Black-Scholes method using the following assumptions of 117% volatility, $.1.01 share price, risk free interest rate of 3.65% and zero dividend yield.

On August 15, 2005, the Company issued warrants to purchase 132,500 shares of common stock for consulting services in the third quarter of 2005. Total value of this warrant is $62,634 and is recorded in general and administrative expense as compensation in the statement of operations for year ended December 31, 2005. The warrant has a strike price of $.40 per share and a term of four years. The warrant value was calculated using the Black-Scholes method using the following assumptions of 107% volatility, $.60 share price, risk free interest rate of 3.50% and zero dividend yield.

On December 1, 2005, the Company issued warrants to purchase 1,000,000 shares of common as a part of a marketing services agreement whereby the consultant is entitled to receive 1,000,0000 warrants on December 1, 2005 and 1,000,000 warrants on December 1, 2006 to purchase shares of common stock. The shares are fully vested on the date of grant and are non-refundable to the Company should the consultant not perform once the warrants are issued. Total value of this warrant is $123,609 and is recorded in

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general and administrative expense as compensation in the statement of operations for year ended December 31, 2005. The warrant has a strike price of $0.40 per share and a term of four years. The warrant value was calculated using the Black-Scholes method using the following assumptions of 135% volatility, $0.69 share price, risk free interest rate of 3.65% and zero dividend yield.

In December 2005, the Company issued warrants to purchase 391,350 shares of common as a signing bonus to become an employee of the Company. Total value of this warrant is $74,109 and is recorded in general and administrative expense as compensation in the statement of operations for year ended December 31, 2005. The warrant has a strike price of $0.24 per share and a term of three years. The warrant value was calculated using the Black-Scholes method using the following assumptions of 142% volatility, $0.24 share price, risk free interest rate of 3.65% and zero dividend yield.

In December 2005, the Company issued warrants to purchase 50,000 shares of common to a consultant as a performance bonus. Total value of this warrant is $9,241 and is recorded in general and administrative expense as compensation in the statement of operations for year ended December 31, 2005. The warrant has a strike price of $0.40 per share and a term of three years. The warrant value was calculated using the Black-Scholes method using the following assumptions of 142% volatility, $0.25 share price, risk free interest rate of 3.65% and zero dividend yield.

In December 2005, the Company issued warrants to purchase 10,518 shares of common to a consultant as a selling commission. Total value of this warrant is $147 and is recorded in selling expenses in the statement of operations for year ended December 31, 2005. The warrant has a strike price of $0.40 per share and a term of two years. The warrant value was calculated using the Black-Scholes method using the following assumptions of 61% volatility, $0.27 share price, risk free interest rate of 4.79% and zero dividend yield.

In accordance with SFAS 123 and 148 the following table summarizes activity regarding the Company’s outstanding warrants for the years ended December 31, 2004 and 2005:


				Weighted Average
	Shares			Exercise Price
Outstanding at December 31, 2003		404,004		$	1.02

Issued		3,028,929		$	0.72
Exercised		—			—
Forfeited/Cancelled		(250,000	)		—

Outstanding at December 31, 2004		3,182,933		$	0.73
Issued		44,316,802		$	0.62
Exercised		(2,874,119	)	$	0.40
Forfeited		(303,906	)	$	1.03

Outstanding at December 31, 2005		44,321,710		$	.60

Warrants exercisable at December 31, 2004		3,182,933		$	0.73
Warrants exercisable at December 31, 2005		44,321,710		$	0.60
Weighted average fair value of warrants issued in 2004				$	0.72
Weighted average fair value of warrants issued in 2005				$	0.62

The following table summarizes the outstanding warrants, all of which are currently exercisable, to purchase Common Stock at December 31, 2005:


Number		Exercise Price		Expiration Date
	41,667	$	0.10	January 2006
	6,205,226	$	0.10-$1.25	February 2006
	41,667	$	0.10	March 2006
	116,667	$	0.10-$1.00	April 2006

F-33


	Number		Exercise Price		Expiration Date
		108,334	$	0.10-$1.00	May 2006
		2,260,866	$	0.40-$1.00	June 2006
		25,000	$	1.00	September 2006
		1,325,950	$	0.40-$1.00	November 2006
		50,000	$	1.00	December 2006
		50,000	$	1.00	April 2007
		6,000,000	$	0.40	May 2007
		60,000	$	1.00	July 2007
		60,000	$	1.00	August 2007
		25,000	$	1.00	September 2007
		25,000	$	1.00	October 2007
		506,750	$	1.00-$1.75	December 2007
		350,000	$	1.00	January 2008
		500,000	$	1.00	March 2008
		205,100	$	0.40-$1.00	May 2008
		468,677	$	0.25-$1.00	December 2008
		267,950	$	0.40	May 2009
		44,150	$	1.00	June 2009
		2,299,167	$	0.40-$0.90	August 2009
		83,289	$	1.00	September 2009
		7,700,000	$	0.40	May 2010
		15,501,250	$	0.40-$0.60	August 2010

Warrants outstanding at December 31, 2005		44,321,710

During the year ended December 31, 2005 warrant holders exercised 2,874,119 warrants for which the company received net proceeds of $1,134,960.

All warrants and options have been recorded as compensation expense (or deferred compensation) and paid in capital. Therefore there is no pro-forma disclosure necessary.

During fiscal years ended December 2005 and 2004 the Company did not grant any stock options to employees. See subsequent event footnote 15.

13. INCOME TAXES

The components of the provision for income taxes included in the consolidated statements of operations are as follows:


	2005		2004
Current:
Federal	$	—	$	—
State		4,000		3,260

		4,000		3,260

Deferred:
Federal		—		—
State		—		—

State		—		—

	$	4,000	$	3,260

F-34

The provision for income taxes differs from the amount that would result from applying the federal statutory rate for the years ended December 31, 2005 and 2004 as follows:


	2005			2004
Statutory regular federal income benefit rate		(34.0	)%		(34.0	)%
State income taxes, net of federal benefit		(5.8	)		(8.8	)
Change in valuation allowance		36.6			42.6
Other		3.2			0.2

Total		—	%		—	%

The primary components of temporary differences which give rise to the Company’s deferred income tax assets and deferred tax liabilities at December 31, 2005 and 2004 are as follows:


	2005			2004
Net operating loss carry-forwards	$	8,235,506		$	2,668,226
Reserve for loan receivable		—			343,669
State taxes		—			252,528
Depreciation and amortization		(24,016	)
Accrued liabilities		483,807
Impairment loss on investment		462,508
Warrants issued for services		343,017
Warrants exercised		(453,984	)
Other		10,000			267,051

		9,056,838			3,531,474
Valuation allowance		(9,056,838	)		(3,531,474	)


Total	$	—		$	—

The valuation allowance increased by approximately $5,525,364 during the year ended December 31, 2005. As of December 31, 2005, the Company had federal and state net operating loss carry forwards of approximately $20.0 million. The net operating loss carry forwards begin expiring in 2024. The utilization of net operating loss carry forwards may be limited due to the ownership change provisions of Internal Revenue Code Section 382 and similar state provisions.

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax benefit carry-forwards. Deferred tax liabilities and assets at the end of each period are determined using enacted tax rates. The Company records deferred tax assets arising from temporary timing differences between recorded net income and taxable net income when and if it believes that future earnings will be sufficient to realize the tax benefit. For those jurisdictions where the expiration date of tax benefit carry-forwards or the projected taxable earnings indicate that realization is not likely, a valuation allowance is provided.

The provisions of SFAS No. 109, “Accounting for Income Taxes,” require the establishment of a valuation allowance when, based on currently available information and other factors, it is more likely than not that all or a portion of a deferred tax asset will not be realized. SFAS No. 109 provides that an important factor in determining whether a deferred tax asset will be realized is whether there has been sufficient income in recent years and whether sufficient income is expected in future years in order to utilize the deferred tax asset.

The Company has determined, based upon its operating loss since inception, that it is more likely than not that it would not be in a position to fully realize all of its deferred tax assets in future years. Accordingly, the Company has recorded a valuation allowance equal to its deferred tax assets since its inception. As noted above, the Company intends to maintain a valuation allowance

F-35

for its deferred tax assets until sufficient evidence exists to support the reversal or reduction of the allowance. At the end of each quarter, the Company will review supporting evidence, including the performance against sales and income projections, to determine if a release of the valuation allowance is warranted. If in future periods it is determined that it is more likely than not that the Company will be able to recognize all or a greater portion of its deferred tax assets, the Company will at that time reverse or reduce the valuation allowance.

14. RELATED PARTY TRANSACTIONS

Licensing Agreement

I-Publishing licensed to the iMedia International Inc. the exclusive rights to use its intellectual property. iMedia International, Inc. is obliged to pay I-Publishing a royalty of 5% of the gross margin, defined as gross revenues less cost of goods, associated with revenue earned that uses or relies upon the Licensor’s intellectual property in any form. During the periods ended December 31, 2005 and December 31, 2004 the Company paid royalties of $56,369 and $17,707, respectively to iPublishing. These royalties were eliminated in consolidation.

Licensor may not sell, provide or otherwise assign a similar license to any other company, nor become a competitor for as long a period of time as iMedia International Inc. remains in operation. There are no minimum performance stipulations in the License Agreement. The license term is for ninety-nine years beginning April, 2003.

Executive Compensation paid to Affiliate

Due from Shareholder through iPublishing

The Company’s Chief Executive Officer, David MacEachern, was advanced approximately $55,000 for personal expenses during the year ended December 31, 2004 from iPublishing an affiliated privately held combined entity. During the year ended December 31, 2005 approximately $15,000 was repaid leaving an ending amount due of $40,000. There is no formal repayment agreement and there have been no amounts repaid since the first quarter of 2005, accordingly, the receivable has been classified as a contra-equity in the balance sheet.

15. SUBSEQUENT EVENTS

During January 2006, the Board of directors approved a formal employee stock compensation program. The plan will allow the Board to grant up to 10,000,000 in options to purchase the Company’s common stock. The plan is in the process of being drafted and reviewed for final adoption by the Board of Directors. Once the plan is finalized the options committed via deal memorandums with the President of Newspaper Syndication and the Chief Financial Officer will be completed. It is intended for the plan to be approved by a vote of the holders of the Company’s Common stock within 12 months.

During January 2006 we secured a $2.5 million factoring line of credit. Under the terms of the agreement we may sell conforming accounts receivable balances to the lender in return for 70% of the face value of the receivable. The lender will “hold back” 29% and retain 1% as a discount. The discount is subject to increases depending on when the factor receives payment on the receivable. In addition the borrowed amounts are charged interest at prime plus 1%. We anticipate utilizing the line to fund upfront costs of expected future contracts. The Company presently has no additional open lines of credit.

Between January 1 and March 31, 2006 the Company issued 200,000 restricted common shares valued at $76,000 to consultants for services and 160,993 restricted common shares as payment on Series A and B Convertible Preferred stock for the fourth quarter dividend due on March 1, 2006, valued at $40,731.

F-36

64,258,787 Shares of Common Stock of iMedia International, Inc.

All dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus.

No person is authorized to give any information or to make any representation other than those contained in this prospectus, and if made such information or representation must not be relied upon as having been given or authorized. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities other than the securities offered by this prospectus or an offer to sell or a solicitation of an offer to buy the securities in any jurisdiction to any person to whom it is unlawful to make such offer or solicitation in such jurisdiction.

The delivery of this prospectus shall not, under any circumstances, create any implication that there have been no changes in the affairs of the company since the date of this prospectus. However, in the event of a material change, this prospectus will be amended or supplemented accordingly.

[—], 2006

PART II

INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Delaware General Corporation Law allows a company to indemnify our officers, directors, employees, and agents from any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative, except under certain circumstances. Indemnification may only occur if a determination has been made that the officer, director, employee, or agent acted in good faith and in a manner, which such person believed to be in the best interests of the Registrant. A determination may be made by the stockholders; by a majority of the directors who were not parties to the action, suit, or proceeding confirmed by opinion of independent legal counsel; or by opinion of independent legal counsel in the event a quorum of directors who were not a party to such action, suit, or proceeding does not exist. See “Disclosure of Commission Position of Indemnification for Securities Act Liabilities” for a description of Section 145 of the Delaware General Corporation Law.

OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the estimated costs and expenses, which we expect to incur with respect to the offering and sale or distribution of common shares under this registration statement. We have agreed to pay all of these expenses.


SEC registration fee	$	4,246.66
Financial printer fees to EDGARize and print registration statement	*$	10,000
Transfer Agent Fees, including Printing and Engraving Stock Certificates	*$	1,000
Legal fees and expenses	*$	50,000
Accounting fees and expenses	*$	75,000
Miscellaneous	*$	5,000

Total	*	145,246.66

estimated

II-1

RECENT SALES OF UNREGISTERED SECURITIES

We have sold or issued the following securities not registered under the Securities Act by reason of the exemption afforded under Section 4(2) of the Securities Act of 1933, within the past three years. Except as stated below, no underwriting discounts or commissions were payable with respect to any of the following transactions. The offer and sale of the following securities was exempt from the registration requirements of the Securities Act under Rule 506 insofar as (1) except as stated below, each of the investors was accredited within the meaning of Rule 501(a); (2) the transfer of the securities were restricted by the company in accordance with Rule 502(d); (3) there were no more than 35 non-accredited investors in any transaction within the meaning of Rule 506(b), after taking into consideration all prior investors under Section 4(2) of the Securities Act within the twelve months preceding the transaction; and (4) none of the offers and sales were effected through any general solicitation or general advertising within the meaning of Rule 502(c).

On March 21, 2006 we issued the aggregate total of 100,011 shares of common stock to 19 holders of our Redeemable Convertible Series A Preferred shares for payment of 4th quarter 2005 preferred dividends. The transaction was valued at $36,145.

On March 21, 2006 we issued the aggregate total of 60,983 shares of common stock to 37 holders of our Convertible Series A Preferred shares for payment of 4th quarter 2005 preferred dividends. The transaction was valued at $22,041.

On January 26, 2006 we issued 100,000 common shares to D. Paul Cohen for financial consultancy. The transaction was valued at $38,000

On January 26, 2006 we issued 50,000 common shares to Gary Huber for sales consultant services. The transaction was valued at $19,000

On January 26, 2006 we issued 50,000 common shares to Rick Ladendorf for sales consultant services. The transaction was valued at $19,000

On December 31, 2005, we issued to Jason Ghandi, an employee, a three-year warrant to purchase up to 391,350 shares of common stock at an exercise price of $0.25, for programming services. We valued the warrant at $74,109, using the Black-Scholes method.

On December 16, 2005, we issued 100,000 common shares to Anthony J. Fidaleo, our Chief Financial Officer as a signing bonus. We valued these shares at $24,000.

On December 16, 2005, we issued 30,000 common shares to Julie Rytand as a signing bonus. We valued these shares at $6,000.

On December 15, 2005, we issued to Brda and Company, LLC, a three-year warrant to purchase up to 50,000 shares of common stock at an exercise price of $0.40, as consideration for sales and marketing services. We valued the warrant at $9,241, using the Black-Scholes method.

On December 6, 2005 we issued 246,753 common shares to holders of our Series A Preferred Stock as dividend payments.

On December 6, 2005 we issued 399,247 common shares to holders of our Series B Preferred Stock as dividend payments.

On December 1, 2005, we issued to Rosaland Davidowitz, an assignee of J. Morton Davis, a one-year warrant to purchase up to 1,000,000 shares of common stock at an exercise price of $0.40, as consideration for financial consulting and marketing services. We valued the warrant at $123,609, using the Black-Scholes method.

II-2

On November 2, 2005 we issued a total of 60,000 shares of common stock valued at $60 to six original shareholders of Hollywood Previews Inc. The six shareholders held a corresponding number of Hollywood Previews Inc. shares that were never exchanged or recorded at the time of the Company’s reverse merger. The shares were originally issued as founder’s shares and valued at par. The shares were incorporated and recorded in the Company’s restated Combined Statement of Shareholder’s Equity as of December 31, 2003.

On October 14, 2005 we issued 35,000 shares of common stock to CEO Cast. We valued the transaction at $12,501 and recorded as payment for investor relations services.

On October 13, 2005, we issued 335,686 common shares valued at $119,504 to holders of our Series A Preferred Stock as payment for liquidated damages.

On September 16, 2006 we issued 6,097 shares to DS Consulting Inc. as sales commissions. The transaction was valued at $2,500.

On September 23, 2005, we issued 62,500 shares of common stock to Richardson & Patel LLP in consideration for legal services rendered. The transaction was valued at $37,501.

On September 1, 2005, we issued 142,278 common shares to holders of our Series A Preferred Stock as dividend payments and liquidated damages. We valued the transaction at $69,241. On November 16, 2005 we cancelled 11,701 of these shares valued at $4,083 that were rejected by the holder and reversed. The shareholder was compensated with cash. Accordingly, the net value of the common stock issued was $65,158.

On August 25, 2005 we issued to The Shemano Group, and its assigns, 43,252 common shares valued at $22,016 to settle a dispute over outstanding investment banking over-ride commissions.

On August 24, 2005 we issued to Axiom Capital Management Inc. and Atlas Capital Services Inc. (or their assigns or designees), 4-year warrants to purchase the aggregate of 1,211,250 common shares, at the exercise price of $0.40 per share for placement agent commissions on the Company’s Series B Preferred stock offering. We valued the warrants at $412,845 using the Black-Scholes method

On August 22, 2005, in consideration for $4,920,000, the Registrant issued to 4,920 shares of Series B 6% Convertible Preferred Stock convertible into 4,920,000 shares of common stock and warrants to purchase up to 14,760,000 shares of common stock to 37 accredited investors.

On August 19, 2005 we issued to Richardson & Patel LLP a three-year warrant to purchase up to 100,000 shares of common stock at the exercise price of $0.40 per share. The warrants were valued at $83,854, and issued as consideration for legal services rendered.

On August 15, 2005 we issued to Brda and Company LLC a four-year warrant to purchase up to 43,750 shares of common stock at the exercise price of $0.40 per share. The warrants were issued as consideration for sales and marketing consulting services rendered, and we valued the warrant at $20,681 using the Black-Scholes method.

On August 15, 2005 we issued to KBK Ventures, Inc. a four-year warrant to purchase up to 43,750 shares of common stock at the exercise price of $0.40 per share. The warrants were issued as consideration for investor relations consulting services rendered, and we valued the warrant at $20,681 using the Black-Scholes method.

On August 15, 2005 we issued to DermaPlus, Inc. a four-year warrant to purchase up to 45,000 shares of common stock at the exercise price of $0.40 per share. The warrants were issued as consideration for investor relations consulting services rendered, and we valued the warrant at $21,272 using the Black-Scholes method.

On June 2, 2005, the we issued to our investment bankers, placement agent and their assigns, warrants to purchase the aggregate of 2,617,950 shares of common stock at an exercise price of $0.40 for a period of up to 4-years. We valued the warrant at $412,845, using the Black-Scholes method.

II-3

On May 31, 2005, as consideration for MicroCapital Funds granting loan extensions on certain notes closed on September 1, 2004, we issued an aggregate of 555,556 five-year warrants at $0.40 per share, and reduced the exercise price for the existing 1,111,000 warrants previously issued to MicroCapital Funds from $0.90 to $0.40. The underlying notes have subsequently been fully repaid.

On May 23, 2005, in consideration for $3,040,000, the Registrant issued to 3,040,000 shares of Series A 6% Convertible Preferred Stock convertible into 3,040,000 shares of common stock and warrants to purchase up to 7,600,000 shares of common stock to 19 accredited investors, and a warrant to Crestview Capital Master Fund, LLC to purchase up to $1,200,000 in Series A 6% Convertible Preferred Stock and a warrant based on the same terms and conditions as the warrants to the purchasers of the Series A 6% Convertible Preferred Stock.

On March 31, 2005, we issued 5,000 shares of common stock to DS Consulting, in consideration for the provision of Sales and Marketing services. We valued the common stock at $5,000.

On March 31, 2005, we issued 25,000 shares of common stock to Virtus Media Sales, in consideration for the provision of Sales and Marketing services. We valued the common stock at $18,750.

On March 31, 2005, we issued 75,000 shares of common stock to CEO Cast, Inc., in consideration for the provision of Investor Relations services. We valued the common stock at $75,000.

On March 23, 2005, we issued 500,000 shares of common stock to Salzwedel Financial Communications, in consideration for the provision of Investment Relations services. We valued the common stock at $545,000.

On March 9, 2005 we sold the aggregate of 30,000 shares at $0.50 per share to one accredited investor. The placement was sold as a unit of two common shares and warrants to purchase two common shares at $0.75 and $1.00 respectively. The Company received a gross total of $15,000. There were no commissions paid in conjunction with this offering.

In March 2005, we offered holders of certain one-year warrants the opportunity to exercise these warrants at $0.40 per share, which was at a discount to the warrant face exercise price. At the time of the offer, the market price of the Company’s common stock was approximately $0.50 per share, and there was little trading volume. 20 warrant holders took advantage of this opportunity and exercised warrants for 2,874,119 common shares. In exchange we received net proceeds of $1,134,962. As a condition to the agreement, for each warrant exercised, we issued a replacement warrant having the same term, expiration and strike price of those of the original warrant. In all, we issued 1,437,061 warrants with an exercise price of $1.00 and 1,437,058 warrants with an exercise price of $1.25 to these holders. These replacement warrants will expire on February 2, 2006. There were no commissions paid in conjunction with these warrants.

On February 28, 2005, we issued 1,300,000 shares of common stock to KBK Ventures, in consideration for the provision of Investment Relations services. We valued the common stock at $520,000.

On February 22, 2005, we issued 350,000 shares of common stock to K-Com Communications, in consideration for the provision of Investment Banking. We valued the common stock at $150,500.

On February 2, 2005 we issued a total of 6,163,559 out-of-the-money warrants to purchase additional shares of common stock to approximately 40 investors to the Company’s prior private placements. We issued these warrants to compensate for the illiquidity experienced by these investors while the Company was delayed in obtaining its OTC-BB listing. 3,054,617 warrants are exercisable at the price of $1.00 per share, and 3,108,942 of these warrants are exercisable at the price of $1.25 per share. Each warrant issued was for a one-year term and will expire on February 2, 2006. The value of the warrants was calculated at $481,458.

On January 4, 2005, we issued 32,500 shares of common stock to Andrew Walkinshaw, in consideration for the provision of Employee Bonus. We valued the common stock at $40,625.

II-4

On January 4, 2005, we issued 32,500 shares of common stock to Brian Hunkins, in consideration for the provision of Employee Bonus. We valued the common stock at $40,625.

On January 4, 2005, we issued 25,000 shares of common stock to Jeff Thomas, in consideration for the provision of Employee Bonus. We valued the common stock at $31,250.

On January 4, 2005, we issued 25,000 shares of common stock to Alex Ranarivelo, in consideration for the provision of Employee Bonus. We valued the common stock at $31,250.

On January 4, 2005, we issued 15,000 shares of common stock to David Reynolds, in consideration for the provision of Employee Bonus. We valued the common stock at $18,750.

On January 4, 2005, we issued 15,000 shares of common stock to Kenneth Bennett, in consideration for the provision of Employee Bonus. We valued the common stock at $18,750.

On January 4, 2005, we issued 15,000 shares of common stock to Damon O’Stein, in consideration for the provision of Employee Bonus. We valued the common stock at $18,750.00.

On January 4, 2005, we issued 15,000 shares of common stock to Francis Magana, in consideration for the provision of Employee Bonus. We valued the common stock at $18,750.

On January 4, 2005, we issued 15,000 shares of common stock to James Leger, in consideration for the provision of Employee Bonus. We valued the common stock at $18,750.

On January 4, 2005, we issued 15,000 shares of common stock to Nida Borja, in consideration for the provision of Employee Bonus. We valued the common stock at $18,750.

On January 4, 2005, we issued 10,000 shares of common stock to Star Michael, in consideration for the provision of Employee Bonus. We valued the common stock at $12,500.

On January 4, 2005, we issued 10,000 shares of common stock to Matteo Indelicato, in consideration for the provision of Employee Bonus. We valued the common stock at $12,500.

On January 4, 2005, we issued 10,000 shares of common stock to Edward Hwang, in consideration for the provision of Employee Bonus. We valued the common stock at $12,500.

On January 4, 2005, we issued 62,000 shares of common stock to Baxter Capital Advisors, Inc., in consideration for the provision of Investment Banking services. We valued the common stock at $77,500.

On January 4, 2005, we issued 15,500 shares of common stock to Mid South Capital, Inc., in consideration for the provision of Investment Banking services. We valued the common stock at $19,375.

On January 4, 2005, we issued 127,500 shares of common stock to ROI Group Associates, in consideration for the provision of Investor Relations services. We valued the common stock at $159,375.

On January 4, 2005, we issued 23,875 shares of common stock to vFinance Investments, Inc., in consideration for the provision of Investment Banking services. We valued the common stock at $29,843.

On January 4, 2005, we issued 21,375 shares of common stock to Vince Calicchia, in consideration for the provision of Investment Banking services. We valued the common stock at $26,718.

On January 4, 2005, we issued 4,750 shares of common stock to John Rich, in consideration for the provision of Investment Banking services. We valued the common stock at $5,937.

II-5

On January 5, 2005 we issued an aggregate of 130,000 shares of our common stock valued at $65,289 to three individual accredited investors in consideration for the extension of the maturity date of notes held by the three investors and cancellation of warrants issued to the investors on July 29, 2004, to purchase up to 130,000 shares of common stock at an exercise price of $0.50 for a period of up to 2-years. We valued the warrants at $94,900, using the Black-Scholes method.

On December 31, 2004, we issued 30,000 shares of common stock to Bernie Luskin, in consideration for the provision of Advisory Board services. We valued the common stock at $21,900.

On December 14, 2004 we issued a two-year warrant to purchase 50,000 shares at $1.00 per share to Sanshin LLC for sales consulting services. We valued the warrant at $6,870 using the Black-Scholes Method.

On December 9, 2004, we issued to Ross Goodman, a warrant to purchase up to 228,375 shares of common stock at an exercise price of $1.00 for a period of up to 3-years, in consideration for the provision of Advisory Board Services. We valued the warrant at $43,871, using the Black-Scholes method.

On December 9, 2004, we issued to Michael Mack, a warrant to purchase up to 228,375 shares of common stock at an exercise price of $1.00 for a period of up to 3-years, in consideration for the provision of Advisory Board Services. We valued the warrant at $43,871, using the Black-Scholes method.

On September 30, 2004, we issued 200,000 shares of common stock to Intercapital Group, LLC, in consideration for the provision of Investment Banking services. We valued the common stock at $146,000.

On September 24, 2004, we issued 15,000 shares of common stock to Nida Borja, in consideration for the provision of Employee Bonus. We valued the common stock at $10,950.

On September 24, 2004, we issued 20,000 shares of common stock to James Leger, in consideration for the provision of accounting services. We valued the common stock at $14,600.

On September 24, 2004, we issued 25,000 shares of common stock to Steven Levy, in consideration for the provision of Sales and Marketing services. We valued the common stock at $18,250.

On September 24, 2004, we issued 45,000 shares of common stock to Bryan Altman, in consideration for the provision of Programming Services. We valued the common stock at $32,850.

On September 1, 2004, we issued to Reed Fryermuth, a warrant to purchase up to 15,000 shares of common stock at an exercise price of $0.90 for a period of up to 5-years, in consideration for the provision of Offering Commissions. We valued the warrant at $4,440, using the Black-Scholes method.

On September 1, 2004, we issued to Gary Shemano, a warrant to purchase up to 15,000 shares of common stock at an exercise price of $0.90 for a period of up to 5-years, in consideration for the provision of Offering Commissions. We valued the warrant at $4,440, using the Black-Scholes method.

On September 1, 2004 we closed on two short-term convertible notes payable to MicroCapital Fund, LP and MicroCapital Fund LTD (separately and collectively “Lenders”) accredited investors. We borrowed the aggregate amount of $1,000,000 payable to Lenders in 120 days. The Note bore simple interest of 15%. As an incentive to make the loan, Lenders were issued 5-year warrants to purchase up to the aggregate of 1,111,000 shares of common stock at $0.90 per share. On December 28, the notes were extended for an additional four months and the exercise price of these warrants reset to $0.70. On April 28, 2005, the loan was again extended for an additional 30 days. As a concession to the Lenders for these extensions, on May 31, 2005 we issued an aggregate of 555,556

II-6

additional 5-year warrants at $0.40 per share, and reduced the exercise price for the existing 1,111,000 warrants from $0.90 to $0.40. The notes have subsequently been fully repaid.

Between August 8, 2004 and September 23, 2004 we sold the aggregate of 195,000 shares at $1.00 per share, to four accredited investors. The placement was sold as a unit of two common shares and (1) a three-year warrant to purchase two additional common shares at $1.00. The Company received a gross total of $195,000, and paid $14,300 in commissions and fees. We issued 195,000 warrants in conjunction with this offering and valued these warrants at $36,853 using the Black-Scholes Method.

On August 6, 2004 we issued a two-year warrant to purchase 54,325 shares at $1.00 per share to Jason Gandhi for programming services. The warrant was committed to be issued on November 4, 2003 but was not issued until 2004. We valued the warrant at $16,015 using the Black-Scholes method.

On August 4, 2004, we issued a two-year warrant to purchase 271,625 shares of common stock at $1.00 per share to Riccobono and Associates for advisory board services. We valued the warrant at $37,321 using the Black-Scholes method.

On August 3, 2004, we issued 54,325 shares of common stock to Rick Riccobono, in consideration for the provision of consulting services. We valued the common stock at $39,657.

On July 20, 2004, we closed on three short-term loans totaling $130,000. These loans were made to the Company by parties related to the Company and/or its officers or directors. The Company issued a promissory note to each lender. Each note had identical terms and conditions, although the note amounts varied. The notes had a term of 90-days and bore interest at 8% annually. In addition, a total of 130,000 two-year warrants, convertible to common stock at the price of $0.50 per share were issued to the lenders as an incentive to make the loans. We valued the warrants at $94,900, using the Black-Scholes method. The loans were extended at the same terms for an additional 90-days, however, as a concession to the lenders on January 5, 2005 we issued an aggregate of 130,000 shares of common stock valued at $65,289 as consideration for these extensions. We thereafter cancelled the 130,000 warrants previously issued. The underlying Notes have subsequently been fully paid.

On July 1, 2004, we issued to Bombay Investments, a warrant to purchase up to 41,666 shares of common stock at an exercise price of $0.10 for a period of up to 2-years, in consideration for the provision of Investor Relations services. We valued the warrant at $37,647, using the Black-Scholes method.

On June 30, 2004, we issued to Francisco Magana, a warrant to purchase up to 10,866 shares of common stock at an exercise price of $1.00 for a period of up to 2-years, in consideration for the provision of employee bonus. We valued the warrant at $1,533, using the Black-Scholes method.

On June 30, 2004, we issued to Soloman Grey Financial Services, a warrant to purchase up to 44,150 shares of common stock at an exercise price of $1.00 for a period of up to 3-years, in consideration for the provision of Offering Costs. We valued the warrant at $12,274, using the Black-Scholes method.

On June 1, 2004, we issued to Bombay Investments, a warrant to purchase up to 41,666 shares of common stock at an exercise price of $0.10 for a period of up to 2-years, in consideration for the provision of Investor Relations services. We valued the warrant at $37,647, using the Black-Scholes method.

On May 25, 2004, we issued to Gabe Bauman, a warrant to purchase up to 90,000 shares of common stock at an exercise price of $1.00 for a period of up to 4-years, in consideration for offering costs. We valued the warrant at $17,946, using the Black-Scholes method.

On May 25, 2004, we issued to Gabe Bauman, a warrant to purchase up to 3,570 shares of common stock at an exercise price of $1.00 for a period of up to 4-years, in consideration for the provision of Investor Relations services. We valued the warrant at $703, using the Black-Scholes method.

II-7

On May 25, 2004, we issued to Jean Jacquentin, a warrant to purchase up to 765 shares of common stock at an exercise price of $1.00 for a period of up to 4-years, in consideration for offering costs. We valued the warrant at $151, using the Black-Scholes method.

On May 25, 2004, we issued to Per Headblom, a warrant to purchase up to 510 shares of common stock at an exercise price of $1.00 for a period of up to 4-years, in consideration for offering costs. We valued the warrant at $100, using the Black-Scholes method.

On May 25, 2004, we issued to Jean Jacquentin, a warrant to purchase up to 5,000 shares of common stock at an exercise price of $1.00 for a period of up to 4-years, in consideration for the provision of Investor Relations services. We valued the warrant at $997, using the Black-Scholes method.

On May 25, 2004, we issued to Mark Sansom, a warrant to purchase up to 5,000 shares of common stock at an exercise price of $1.00 for a period of up to 4-years, in consideration for the provision of Investor Relations services. We valued the warrant at $997, using the Black-Scholes method.

On May 25, 2004, we issued to Mark Sansom, a warrant to purchase up to 255 shares of common stock at an exercise price of $1.00 for a period of up to 4-years, in consideration for offering costs. We valued the warrant at $50, using the Black-Scholes method.

On May 25, 2004, We issued to Bombay Investments, a warrant to purchase up to 41,671 shares of common stock at an exercise price of $0.10 for a period of up to 2-years, in consideration for the provision of Investor Relations services. We valued the warrant at $37,648, using the Black-Scholes method.

On May 20, 2004, we closed on a $250,000 short-term convertible note payable to Augustine Fund, LLP. As an incentive to make the loan, Augustine Fund was issued a 3-year warrant to purchase up to 50,000 shares at $1.00 per share and a second one-year warrant to purchase up to 250,000 additional common shares at $1.00 which has since expired. The note has been repaid without penalty or conversion. We valued the warrants at $18,008 and $90,043 respectively, using the Black-Scholes method.

On May 11, 2004 we issued a total of 408,993 bonus shares to the 40 accredited investors who purchased shares through private placements between September 16, 2003 and December 15, 2003. The shares were issued to compensate subscribers who had previously purchased shares at $1.20 per share, when the Company later offered subscriptions at a lower price per share and valuation that that of its previous offering.

On May 8, 2004, we issued to Mark Livingston, a warrant to purchase up to 25,000 shares of common stock at an exercise price of $1.00 for a period of up to 2-years, in consideration for the provision of Sales and Marketing services. We valued the warrant at $7,478, using the Black-Scholes method.

On April 15, 2004 we issued a two-year warrant to purchase 25,000 shares at $1.00 per share to Steven Levy for sales consulting services. We valued the warrant at $7,368 using the Black-Scholes Method.

On April 15, 2004 we issued a two-year warrant to purchase 50,000 shares at $1.00 per share to Steven Levy for sales consulting services. We valued the warrant at $14,735 using the Black-Scholes Method.

On April 1, 2004, we issued to Bombay Investments, a warrant to purchase up to 41,666 shares of common stock at an exercise price of $0.10 for a period of up to 2-years, in consideration for the provision of Investor Relations services. We valued the warrant at $37,648, using the Black-Scholes method.

Between March 23, 2004 and April 23, 2004 we sold 1,058,000 shares at $1.00 per share to 26 accredited investors. The Company received a gross total of $1,058,000, and paid $175,490 in commissions and fees.

On March 31, 2004, we issued 10,000 shares of common stock to Shai Stern, in consideration for Investor Relations services. We valued the common stock at $10,000.

II-8

On March 1, 2004, we issued to Bombay Investments, a warrant to purchase up to 41,666 shares of common stock at an exercise price of $.10 for a period of up to 2-years, in consideration for the provision of Investor Relations services. We valued the warrant at $37,648, using the Black-Scholes method.

On February 4, 2004 we issued 208,333 common shares to an accredited investor in exchange for $250,000 in cash. The subscription was originally executed in November 2003, and recorded as a “subscription receivable” but remained unfunded until February 4, 2004.

On February 4, 2004 we issued 12,000 common shares to an accredited investor in exchange for $11,520 in cash. The shares were originally recorded as a “subscription receivable” in 2003 but remained unfunded February 4, 2004.

On February 1, 2004, we issued to Bombay Investments, a warrant to purchase up to 41,667 shares of common stock at an exercise price of $0.10 for a period of up to 2-years, in consideration for the provision of Investor Relations services. We valued the warrant at $37,648, using the Black-Scholes method.

On January 31, 2004, we issued 3,000 shares of common stock to Maier and Company, Inc., in consideration of Investor Relations services. We valued the common stock at $3,000.

On January 12, 2004, we issued 100,000 common shares to an accredited investor in exchange for $120,000 in cash. The subscription was originally executed on September 30, 2003, and recorded as a “subscription receivable” but remained unfunded until January 12, 2004.

On January 1, 2004, we issued to Vince Calicchia, a warrant to purchase up to 21,375 shares of common stock at an exercise price of $1.75 for a period of up to 3-years, in consideration for the provision of consulting services. We valued the warrant at $4,057, using the Black-Scholes method.

On January 1, 2004, we issued to Jonathan Rich, a warrant to purchase up to 4,750 shares of common stock at an exercise price of $1.75 for a period of up to 3-years, in consideration for the provision of consulting services. We valued the warrant at $902, using the Black-Scholes method.

On January 1, 2004, we issued to vFinance Investments, Inc., a warrant to purchase up to 23,875 shares of common stock at an exercise price of $1.75 for a period of up to 3-years, in consideration for the provision of Investment Banking services. We valued the warrant at $4,531, using the Black-Scholes method.

On December 31, 2003, the Registrant committed to issue 12,000 shares of common stock to Maier and Company, Inc., in consideration for the provision of Investor Relations. The Registrant valued the common stock at $11,520.

On December 31, 2003, the Registrant issued to Soloman Grey Financial Services, a warrant to purchase up to 5,800 shares of common stock at an exercise price of $1.00 for a period of up to 3-years, in consideration for the provision of Offering Commissions. The Registrant valued the warrant at $928, using the Black-Scholes method.

On December 31, 2003, the Registrant issued to Soloman Grey Financial Services, a warrant to purchase up to 11,009 shares of common stock at an exercise price of $1.00 for a period of up to 3-years, in consideration for the provision of Offering Commissions. The Registrant valued the warrant at $4,624, using the Black-Scholes method.

On November 13, 2003, the Registrant issued to Brian Hunkins, a warrant to purchase up to 3,906 shares of common stock at an exercise price of $3.15 for a period of up to 2-years, in consideration for the provision of Employee Bonus. The Registrant valued the warrant at $234, using the Black-Scholes method.

On November 4, 2003, the Registrant issued to Riccobono & Associates, Inc., a warrant to purchase up to 250,000 shares of common stock at an exercise price of $1.00 for a period of up to 3-years, in consideration for the provision of Sales and Marketing. The Registrant valued the warrant at $37,500, using the Black-Scholes method. The warrant was cancelled on August 4, 2004 and a two-year replacement warrant for 271,625 shares was issued at the same exercise price in its place.

II-9

On October 15, 2003 we issued 2,716,250 shares to the Ranger Trust for payment of $50,000 in accrued interest.

On October 15, 2003 we issued the aggregate of 2,716,250 shares to Massoud Kharazzian and his designee Robert Dettle Trust in exchange for $15,000 cash.

On October 15, 2003 we issued 2,000,000 shares to Edgar Alacan for investment banking services rendered. The shares were issued at par, and we valued the transaction at $2,000.

On October 1, 2003, the Registrant issued to Emil Rensing, a warrant to purchase up to 50,000 shares of common stock at an exercise price of $1.00 for a period of up to 2-years, in consideration for the provision of Sales and Marketing. The Registrant valued the warrant at $8,000, using the Black-Scholes method.

On September 30, 2003, the Registrant issued to Soloman Grey Financial Services, a warrant to purchase up to 40,000 shares of common stock at an exercise price of $1.00 for a period of up to 3-years, in consideration for the provision of Offering Commissions. The Registrant valued the warrant at $6,400, using the Black-Scholes method.

On September 30, 2003, the Registrant issued to Soloman Grey Financial Services, a warrant to purchase up to 43,289 shares of common stock at an exercise price of $1.00 for a period of up to 3-years, in consideration for the provision of Offering Commissions. The Registrant valued the warrant at $8,225, using the Black-Scholes method.

Between September 24, 2003 and December 15, 2003 we sold 1,736,630 shares at $1.20 per share to 30 accredited investors. The Company received a gross total of $2,083,941, and paid $159,714 in commissions and fees.

Between September 24, 2003 and December 15, 2003 we sold 578,667 shares at $1.20 per share to five accredited investors. The Company recorded a subscription receivable of $680,000. The Company later cancelled $30,000 of these subscriptions that remained unfunded in 2004, and $580,000 of these subscriptions in 2005.

Between April 16, 2003 and September 10, 2003 we sold 1,768,480 shares of common stock (on a post Acquisition basis) to 27 accredited investors. The Company received a gross total of $1,564,975, and paid $153,899 in commissions and fees.

Between February 17, 2003 and February 27, 2003 we sold 688,117 shares to three accredited investors at $0.75 per share. The Company received $475,000 in gross proceeds, and paid $35,043 in commissions and fees.

On January 14, 2003 we sold 461,763 shares (on a post acquisition basis) to one accredited investor at $0.53 per share. The Company received $225,000 in gross proceeds, and paid $16,582 in commissions and fees.

On August 28, 2003 we issued 527,546 shares (on a post acquisition basis) of common stock to approximately 276 holders of Irvine Pacific Company common stock. The stock was issued pursuant to the Company’s reverse merger agreement with Hollywood Previews, Inc. The stock was issued at par, and we valued the transaction at $528.

On August 28, 2003 we issued 1,689,500 founders shares (on a post acquisition basis) to Sussex Financial Group in settlement of a note payable. The settlement was in conjunction with the Company’s Agreement and Plan of Merger with Hollywood Previews, Inc. The stock was issued at par, and we valued the transaction at $1,690.

On January 3, 2003 we issued 60,000 founders shares (on a post acquisition basis) to six designees of an original founder. The shares were issued for previous services rendered, and valued at a par value of $60.

On January 3, 2003 we issued 44,661,421 founders shares (on a post acquisition basis) to the original founders, employees and various designees and assigns of these founders. The shares were issued for previous services rendered, and valued at a par value of $44,661.

On January 1, 2003 we issued 217,300 shares of common stock to Bill Doeren in exchange for converting $150,000 in outstanding notes.

II-10

EXHIBITS


No.		Description
2.1		Agreement and Plan of Merger dated August 18, 2003.*

3.1		Articles of Incorporation.⁽⁶⁾

3.2		By-laws.⁽⁶⁾

3.3		Certificate of Designation of Series A 6% Convertible Preferred Stock.⁽⁶⁾

3.4		Certificate of Designation of Series B 6% Convertible Preferred Stock.⁽⁵⁾

5.1		Opinion on Legality. *

10.1		Employment Agreement dated February 27, 2004, between Hollywood Previews, Inc., as the Company, and David G. MacEachern, as the Employee.⁽¹⁾

10.2		Employment Agreement dated February 27, 2004, between Hollywood Previews, Inc., as the Company, and Scott Kapp, as the Employee.⁽¹⁾

10.3		Employment Agreement dated February 27, 2004, between Hollywood Previews, Inc., as the Company, and Frank H. Unruh, as the Employee.⁽¹⁾

10.4		Employment Agreement dated February 27, 2004, between Hollywood Previews, Inc., as the Company, and Kelly Konzelman, as the Employee.⁽¹⁾

10.5		Employment Agreement dated February 27, 2004, between Hollywood Previews, Inc., as the Company, and Kevin Plate, as the Employee.⁽¹⁾

10.6		Consulting Agreement dated July 3, 2003, between Hollywood Previews, Inc., as the Company, and I-Publishing, Inc., as Consultant.⁽¹⁾

10.7		Consulting Agreement dated July 3, 2003, between Hollywood Previews, Inc., as the Company, and Media Solutions Network LLC, as Consultant.⁽¹⁾

10.8		Consulting Agreement dated July 3, 2003, between Hollywood Previews, Inc., as the Company, and Investment Advisory Group, Inc., as Consultant.⁽¹⁾

10.9		License Agreement and Use of Intellectual Properties Agreement between I-Publishing and Hollywood Previews, Inc. as the Company dated April 5, 2003.⁽¹⁾

10.10		Assignment and Alteration of License Agreement and Use of Intellectual Properties Dated December 12, 2003 between iMedia International, Inc. as the Company, and Hollywood Previews, Inc. and I-Publishing, Inc.⁽¹⁾

10.11		Stock Purchase Agreement Dated July 14, 2004 between the Company and Langley Park Investments, PLC.⁽²⁾

10.12		Form of Securities Purchase Agreement dated September 1, 2004, with MicroCapital Funds.⁽³⁾

10.13		Form of Convertible Bridge Note dated September 1, 2004, with MicroCapital Funds.⁽⁶⁾

10.14		Form of Warrant dated September 1, 2004, with MicroCapital Funds.⁽⁶⁾

10.15		Form of Registration Rights Agreement dated September 1, 2004, with MicroCapital Funds.⁽⁶⁾

10.16		Term Loan Agreement Dated April 22, 2004 between the Company and Augustine Fund, L.P.

10.17		Form of Purchase Agreement, dated as of May 23, 2005, between iMedia International, Inc., and the Purchaser of Series A 6% Convertible Preferred Stock.⁽⁶⁾

10.18		Registration Rights Agreement dated as of May 23, 2005, between iMedia International, Inc., and the Purchasers of Series A 6% Convertible Preferred Stock.⁽⁶⁾

10.19		Form of Long-Tern Warrant issued to the Purchasers of Series A 6% Convertible Preferred Stock.⁽⁴⁾

10.20		Form of Short Term Warrant issued to Crestview Capital Master Fund, LLC.⁽⁴⁾

10.21		Form of Purchase Agreement, dated as of August 22, 2005, between iMedia International, Inc., and the Purchaser of Series B 6% Convertible Preferred Stock.⁽⁶⁾

10.22		Registration Rights Agreement, dated as of August 22, 2005, between iMedia International, Inc., and the Purchasers of Series B 6% Convertible Preferred Stock.⁽⁶⁾

10.23		Form of Warrant issued to holders of Series B 6% Convertible Preferred Stock.⁽⁵⁾

14.1		Code of Ethics for Principle Executive Officers and Chief Financial Officer.⁽¹⁾

21.1		Subsidiaries of the Company.⁽¹⁾

23.1		Consent of Weinberg & Co. P.A., Independent Registered Public Accounting Firm.*

23.2		Consent of Singer Lewak Greenbaum & Goldstein LLP, Independent Registered Public Accounting Firm.*

23.3		Consent of Legal Counsel (included in Exhibit 5.1 hereto).*


(*)		Filed herewith

(1)		Previously filed as an exhibit to our Annual Report for the fiscal year ended December 31, 2003 filed with the Commission on March 23, 2004, and incorporated herein by this reference.

(2)		Previously filed as an exhibit to our Quarterly Report for the period ended June 30, 2004 filed with the Commission on August 23, 2004, and incorporated herein by this reference.

(3)		Previously filed as an exhibit to our Quarterly Report for the period ended September 30, 2004 filed with the Commission on November 19, 2004, and incorporated herein by this reference.

(4)		Previously filed as an exhibit to our Current Report on Form 8-K filed with the Securities and Exchange Commission on May 24, 2005, and incorporated herein by this reference.

(5)		Previously filed as an exhibit to our Current Report on Form 8-K filed with the Securities and Exchange Commission on August 23, 2005, and incorporated herein by this reference.

(6)		Previously filed as an exhibit to our Annual Report for the fiscal year ended December 31, 2005 filed with the Commission on April 19, 2006, and incorporated herein by this reference.

II-11

UNDERTAKINGS

We hereby undertake to:

File, during any period in which it offers or sells securities, a post-effective amendment to this registration statement to:

	i.		Include any prospectus required by Section 10(a)(3) of the Securities Act;

	ii.		Reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement; and Notwithstanding the forgoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation From the low or high end of the estimated maximum offering range may be reflected in the form of prospects filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in the volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement.

	iii.		Include any additional or changed material information on the plan of distribution.

2.		For determining liability under the Securities Act, treat each post-effective amendment as a new registration statement of the securities offered, and the offering of the securities at that time to be the initial bona fide offering.

3.		File a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering.

4.		Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the “Act”) may be permitted to directors, officers and controlling persons of the small business issuer pursuant to the foregoing provisions, or otherwise, the small business issuer has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable.

5.		In the event that a claim for indemnification against such liabilities (other than the payment by the small business issuer of expenses incurred or paid by a director, officer or controlling person of the small business issuer in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the small business issuer will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

II-12

SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form SB-2 and authorized this registration statement to be signed on its behalf by the undersigned, in the City of Santa Monica, State of California on May 4, 2006.


		iMedia International, Inc.

		By:		/S/ DAVID G. MACEACHERN

				David G. MacEachern
				Chief Executive Officer
				(Principal Executive Officer)

		By:		/S/ ANTHONY J. FIDALEO Anthony J. Fidaleo
				Chief Financial Officer
				(Principal Financial and Accounting Officer)

In accordance with the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates stated:


Name		Position	Date

By:	/S/ DAVID G. MACEACHERN David G. MacEachern	Director	May 4, 2006

By:	/S/ FRANKLIN H. UNRUH Franklin H. Unruh	Director	May 4, 2006

By:	/S/ SCOTT KAPP Scott Kapp	Director	May 4, 2006

II-13

Imedia International Inactive SB-2/ARegistration of securities for small business issuer (amended)