Unassociated Document

	Income (Numerator)		Shares (Denominator)		Price per Share

Net Income	$	9,645,980
Basic Income per common share
Income available to common shareholders		9,645,980		219,727,249		0.04

Warrants				13,653,121
Convertible debentures (net of tax)		866,892		172,198,902

Diluted Income per common share
Income available to common stockholders + assumed conversions	$	10,512,872		405,579,272	$	0.03

For the year ended December 31, 2006 and the period from December 9, 2002 (Inception) through December 31, 2006, the effect of common share equivalents was anti-dilutive and not included in the calculation of diluted net loss per common share. Warrants to purchase 14,329,874 shares of common stock at prices of $0.25, $0.50, $0.75 and $1.00 were outstanding at December 31, 2005 and were not included in the computation of diluted EPS because the warrants’ exercise prices were greater than the average market price of the common shares. These warrants expire between October 31, 2009 and December 31, 2009.

(H) Advertising

Advertising costs are expensed either in the periods in which those costs are incurred or the first time the advertising takes place. For the year ended December 31, 2006 the year ended December 31, 2005 and the period from December 9, 2002 (Inception) to December 31, 2006, the Company incurred advertising costs of $141,893, $404,331, $2,134,780 respectively.

F-24

(I) Business Segments

The Company operates in one segment and therefore segment information is not presented.

(J) Cash and Cash Equivalents

The Company considers all highly liquid temporary cash investments with an original maturity of three months or less to be cash equivalents.

(K) Concentration of Credit Risk

The Company at times has cash in banks in excess of FDIC insurance limits and places its temporary cash investments with high credit quality financial institutions. At December 31 2006, the Company had no cash in excess of FDIC insurance limits.

(L) Fair Value of Financial Instruments

The carrying amounts reported in the balance sheet for cash, receivables, accrued expenses and notes payable approximate fair value based on the short-term maturity of these instruments.

(M) Stock Based Compensation

In December 2004, the FASB issued SFAS No. 123(R), "Share-Based Payment," which replaces SFAS No. 123 and supersedes APB Opinion No. 25. Under SFAS No. 123(R), companies are required to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share-based compensation arrangements include stock options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. In March 2005 the SEC issued Staff Accounting Bulletin No. 107, or "SAB 107". SAB 107 expresses views of the staff regarding the interaction between SFAS No. 123(R) and certain SEC rules and regulations and provides the staff's views regarding the valuation of share-based payment arrangements for public companies. SFAS No. 123(R) permits public companies to adopt its requirements using one of two methods. On April 14, 2005, the SEC adopted a new rule amending the compliance dates for SFAS 123R. Companies may elect to apply this statement either prospectively, or on a modified version of retrospective application under which financial statements for prior periods are adjusted on a basis consistent with the pro forma disclosures required for those periods under SFAS 123. Effective January 1, 2006, the Company has fully adopted the provisions of SFAS No. 123R and related interpretations as provided by SAB 107. As such, compensation cost is measured on the date of grant at the fair value. Such compensation amounts, if any, are amortized over the respective vesting periods of the option grant. The Company applies this statement prospectively.

(N) Long-Lived Assets, Goodwill and Intangible Assets

In accordance with SFAS 142 and 144, long-lived assets, goodwill and certain identifiable intangible assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For purposes of evaluating the recoverability of long-lived assets, goodwill and intangible assets, the recoverability test is performed using undiscounted net cash flows related to the long-lived assets.

(O) Recent Accounting Pronouncements

In July 2006, the FASB issued FASB Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes,” which prescribes a comprehensive model for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return (including a decision whether to file or not to file a return in a particular jurisdiction). The accounting provisions of FIN No.48 are effective for fiscal years beginning after December 15, 2006. The Company is currently assessing whether adoption of this Interpretation will have an impact on our financial position or results of operations.

F-25

In September 2006, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements”, which establishes a framework for reporting fair value and expands disclosures about fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The Company is currently assessing the impact of the adoption of this standard on its financial statement.

(P) Derivative Liabilities

The Company accounts for its embedded conversion features and freestanding warrants pursuant to SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" and EITF 00-19 “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock”, which require a periodic valuation of their fair value and a corresponding recognition of liabilities associated with such derivatives. The recognition of derivative liabilities related to the issuance of shares of common stock is applied first to the proceeds of such issuance, at the date of issuance, and the excess of derivative liabilities over the proceeds is recognized as other expense in the accompanying consolidated financial statements. The recognition of derivative liabilities related to the issuance of convertible debt is applied first to the proceeds of such issuance as a debt discount, at the date of issuance, and the excess of derivative liabilities over the proceeds is recognized as other expense in the accompanying consolidated financial statements. Any subsequent increase or decrease in the fair value of the derivative liabilities is recognized as other expense or other income, respectively.

NOTE 2 RESTATEMENT OF FINANCIAL STATEMENTS

Derivatives and Corresponding Liability

The Company determined that it failed to account for its embedded conversion features and freestanding warrants pursuant to: SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" and EITF 00-19 “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock”, which require a periodic valuation of their fair value and a corresponding recognition of liabilities associated with such derivatives. This failure occurred for the year ended December 31, 2004 and the year ended December 31, 2005. These restated amounts are reflected in the financial statements at December 31, 2005.

A summary of significant effects of the restatement is as follows:

	Year Ended December 31, 2005 (As Previously Reported)			Amount of Change			Year Ended December 31, 2005 Ended (As Restated)
Statement of Operations

General and administrative	$	2,220,324			(930,362	)	$	1,289,962
Total Operating Expenses		13,166,892			(930,362	)		12,236,530
Net loss from operations		(13,166,892	)		930,262			(12,236,530	)
Interest expense		(5,700,848	)		(200,000	)		(5,900,848	)
Derivative income		0			38,730,224			38,730,224
Total Other Income (Expense)		(16,647,714	)		38,530,224			21,882,510
Net income (loss)		(29,814,606	)		39,460,586			9,645,980
Income (Loss) per common share - basic	$	(0.14	)	$	0.18		$	0.04
Income (Loss) per common share - diluted	$	(0.14	)	$	0.17		$	0.03

F-26

NOTE 3 INTANGIBLE ASSETS

During 2003, the Company entered into an agreement for the signage rights to a building located in Sarasota, Florida. The agreement called for the Company to issue 942,600 shares of common stock in exchange for signage rights beginning April 1, 2004 through May 31, 2009. The shares were valued at the recent cash offering price aggregating $300,000. The Company amortized the cost over the life of the agreement. As of December 31, 2005, the Company had amortized $96,651 of expense of the signage rights. The remaining value of $203,049 was impaired in December 2005 as a result of the Company’s decision to close the Sarasota, Florida office. On June 30, 2006, the Company relinquished its signage rights, if any, as part of a settlement agreement with the landlord.

NOTE 4 PROPERTY AND EQUIPMENT

Property and equipment consisted of the following as of:

	December 31, 2006

Office equipment	$	97,190
Computer equipment		340,170
Computer software		357,922
Office furniture		110,686
Leasehold improvements		36,914
Property & Equipment, Total		942,882
Less accumulated depreciation		(278,295	)
Less impairment		(662,587	)
Property & Equipment, Net	$	2,000

Depreciation expense during the twelve months ended December 31, 2006, the twelve months ended December 31, 2005, and the period from December 9, 2002 (Inception) to December 31, 2006 was $0, $155,400and $286,765, respectively. During 2006 and 2005, the Company recognized impairment of property and equipment of $18,000 and 298,741 respectively due to the restructuring of the offices in Seattle, Washington and Sarasota, Florida.

NOTE 5 NOTES PAYABLE

(A) Notes Issued

During 2003, the Company received $275,000, net of offering costs of $25,000 in the form of a 20% secured convertible debenture that matures on February 28, 2004 and is guaranteed by the Company's Chairman. The maximum borrowings available under the debenture agreement are $750,000. The debenture is secured by all of the Company's assets and is convertible in its entirety at the option of the holder into the Company's common stock at a conversion price of $1.00. There was no beneficial conversion recognized on the issuance of the convertible notes payable as the conversion price was equal to recent cash offering price. During February 2004, the entire convertible note was repaid with cash of $275,000. At December 31, 2006, the outstanding balance on the convertible debenture was $0.

F-27

During 2003, the Company entered into a $100,000 convertible note payable in full settlement of a lawsuit. The note is non-interest bearing and was due August 11, 2004. The note is convertible at the option of the note holder at any time at the current trading price of the Company's common stock. During February 2004, the entire convertible note was repaid with cash of $100,000. At December 31, 2006, the balance on the note payable was $0.

F-28

On February 27, 2004, the Company borrowed $500,000 under a 12% secured subordinated debenture for a maximum term of 12 months This note was settled on May 16, 2005 via a Settlement Agreement which converted the entire amount of the note into common stock at a per share price of $0.14. The Company recognized a loss on the conversion of $265,500.

On April 7, 2004, the Company borrowed $500,000 under a 15% promissory note which was initially payable on December 15, 2004 and subsequently became payable on March 31, 2005 per a conversion option agreement dated November 10, 2004 that entitles the note holder to convert the amount of the note into shares of stock at a per share price of $0.10; the conversion option was treated as a $216,000 discount to the debenture and the discount was amortized over the life of the conversion option agreement. In addition, the note holder is entitled to a Stock Purchase Warrant for 200% of the number of shares obtained in the conversion at a warrant exercise price of $0.10. As additional consideration, the Company issued to the holder 200,000 shares of common stock having a fair value of $284,000. The shares were treated as a discount to the note and the discount is being amortized over the life of the note. The note is secured with the assets of the Company. On March 22, 2005, the note was paid in full via a Conversion Agreement which converted the entire amount of the note into common stock at a per share price of $0.10. The Company recognized a loss on the conversion of interest for $130,411.

On May 7, 2004, the Company borrowed $100,000 under a 15% promissory note. As additional consideration, the Company issued the holder 40,000 shares of common stock having a fair value of $55,200. The shares were treated as a discount to the note and the discount is being amortized over the life of the note. The note was fully paid off as of December 31, 2006.

On May 7, 2004, the Company borrowed $250,000 under a 15% promissory note which was initially payable on September 15, 2004 and was extended to April 30, 2005 per a conversion option agreement dated November 10, 2004 that entitles the note holder to convert the amount of the note into shares of stock at a per share price of $0.10; the conversion option was treated as a $102,500 discount to the debenture and the discount was amortized over the life of the conversion option agreement. In addition, the note holder is entitled to a Stock Purchase Warrant for 200% of the number of shares obtained in the conversion at a warrant exercise price of $0.10. As additional consideration, the Company issued to the holder 100,000 shares of common stock having a fair value of $147,500. The shares were treated as a discount to the note and the discount is being amortized over the life of the note. The note was secured with the assets of the Company. On May 7, 2005, the note was paid in full via a Conversion Agreement which converted the entire amount of the note into common stock at a per share price of $0.10. The Company recognized a loss on the conversion of $69,863 as related to the conversion of interest.

On May 19, 2004, the Company borrowed $417,260 under a 15% secured promissory note which was initially payable on June 3, 2004 but has been amended to January 15, 2005 for an additional consideration of $30,000. The additional consideration was amortized over the life of the amendment. This note was settled on May 10, 2005 via a Settlement Agreement which converted the entire amount of the note into common stock at a per share price of $0.16. The Company recognized a loss on the conversion of $158,447.

On May 28, 2004, the Company borrowed $350,000 under a 15% secured promissory note, which was payable August 1, 2004. As additional consideration, the Company issued the holder 33,000 shares of common stock having a fair value of $47,190. The shares were treated as a discount to the note and the discount was amortized over the life of the note. The note is secured with the assets of the Company. This note was settled on January 6, 2005 via a Conversion Agreement which converted the entire amount of the note into common stock at a per share price of $0.10. The Company recognized a loss on the conversion of $3,803,625.

On May 28, 2004, the Company borrowed $350,000 under a 15% promissory note which was initially payable on June 8, 2004 but has been amended to January 1, 2005 for additional consideration of $30,000. The additional consideration was amortized over the life of the amendment. As additional consideration, the Company issued the holder 7,500 shares of common stock having a fair value of $11,025. The shares were treated as a discount to the note and the discount was amortized over the life of the note. This note was settled on May 10, 2005 via a Settlement Agreement which converted the entire amount of the note into common stock at a per share price of $0.16. The Company recognized a loss on the conversion of $222,000.

F-29

On June 4, 2004, the Company borrowed $825,000 under a 15% secured convertible promissory note, which was initially due no later than June 3, 2005 but the note was amended to be payable no later than January 15, 2005. As additional consideration, the Company issued the holder 511,000 shares of common stock having a fair value of $753,725. The shares were treated as a discount to the note and the discount is being amortized over the life of the note. The entire amount of the note was convertible into shares of common stock at a price of $0.75 per share and the Company recognized beneficial conversion on the promissory note of $71,275. The beneficial conversion was treated as a discount to the note and the discount is being amortized over the life of the note. The note is secured with the assets of the Company. On February 11, 2005, the note was settled via a Settlement Agreement which converted the entire amount of the note into common stock at a per share price of $0.215. The Company recognized a loss on the settlement of $738,794.

On June 21, 2004, the Company borrowed $1,500,000 under a 15% promissory note, which was payable no later than June 22, 2005. As additional consideration, the Company issued the holder 60,000 shares of common stock having a fair value of $67,800. The shares were treated as a discount to the note and the discount is being amortized over the life of the note. As consideration for the Chairman’s personal guaranty of note, the Company compensated the Chairman $50,000. This note was settled on April 11, 2005 via a Settlement Agreement which converted the entire amount of the note into common stock at a per share price of $0.17. The Company recognized a loss on the conversion of $716,933.

On July 28, 2004, the Company borrowed $500,000 under a 15% promissory note which is payable on July 28, 2005. As consideration for the personal guaranty of note by Richard Angelotti, a Director, the Company issued the Director 800,000 shares of common stock having a fair value of $832,000. On November 1, 2005 the note and unpaid interest was assigned to a Director. On December 9, 2005 the note was amended to include accrued interest of $60,437 with simple interest due December 31, 2006. The principal and accrued interest on this note as of June 30, 2006 was $616,949. On August 4, 2006, the entire amount of the note ($560,437) plus accrued interest of $64,450 was converted at a per share price of $0.015. On August 4, 2006 the Company issued 41,659,182 shares of common stock with a fair value of $624,888 ($0.015 per share) to convert the note and accrued interest. The Company recognized no gain or loss on the conversion. Accrued interest in the amount of $17,500 remains outstanding at December 31, 2006.

On September 13, 2004, the Company borrowed $350,000 under a 15% secured promissory note, which is payable September 13, 2005. The note is secured with the assets of the Company. On January 6, 2005, the note was paid in full via a Conversion Agreement which converted the entire amount of the note into common stock at a per share price of $0.10. The Company recognized a loss on the conversion of $3,803,625.

On October 20, 2004, the Company entered into a Bridge Loan Agreement with Hazinu Ltd. pursuant to which the Lender advanced the principal amount of $300,000 to the Company on October 21, 2004 in exchange for (i) a 10% secured promissory note in such principal amount, (ii) 500,000 shares of our common stock, and (iii) warrants to purchase 500,000 shares of our common stock at an exercise price of $0.50 per share. The value of the shares and warrants of $152,500 and $147,500, respectively were treated as a discount to the note and the discount is being amortized over the life of the note. The note was due December 31, 2004 and during December 2004, the entire note was repaid with cash. At December 31, 2006, the outstanding balance on the convertible debenture was $0.

On October 27, 2004, the Company entered into a Bridge Loan Agreement with JM Investors, LLC, Fenmore Holdings, LLC, Viscount Investments Limited and Congregation Mishkan Sholom pursuant to which the Lenders advanced an aggregate principal amount of $300,000 to the Company on October 28, 2004 in exchange for (i) 10% secured promissory notes in such aggregate principal amount, (ii) 500,000 shares of our common stock and (iii) warrants to purchase an aggregate of 500,000 shares of our common stock at an exercise price of $0.50 per share. The value of the shares and warrants of $152,500 and $147,500, respectively were treated as a discount to the note and the discount is being amortized over the life of the note. The note was due December 31, 2004 and during December 2004, the entire note was repaid with cash. At December 31, 2006, the outstanding balance on the convertible debenture was $0.

F-30

On December 13, 2004, the Company entered into a Bridge Loan Agreement with 15 various entities pursuant to which the Lenders advanced an aggregate principal amount of $1,160,000 to the Company on December 16, 2004 in exchange for (i) 8% secured promissory notes in such aggregate principal amount, (ii) 250,000 shares of our common stock and (iii) warrants to purchase an aggregate of 16,312,461 shares of our common stock at exercise prices ranging from $0.10 to $1.00 per share. The value of the shares and warrants of $60,000 and $1,100,000, respectively were treated as a discount to the note and the discount is being amortized over the life of the note. The debentures are convertible into shares of common stock. The conversion price of the debentures is seventy-five percent of the lowest closing price during the five trading days ending on the trading day before the conversion date; provided, however, that in no event will such price be more than $0.10. On October 10, 2005 $20,000 of the note and $1,183 of accrued interest was converted through a settlement at a per share price of $0.029. The Company recognized a loss on the conversion of $1,300. On December 30, 2005 $59,074 of the note was converted per the conversion terms of the note at a per share price of $0.004875 and $0.005650. No gain or loss was recognized by the Company on the conversion. On March 8, 2006 $84,021 of the note and $8,232 of accrued interest was converted per the conversion terms of the note at per share prices of $0.004875, $0.00565, $0.0114825, and $0.013022. No gain or loss was recognized on the conversion. On April 10, 2006 $89,648 of the note and $1,646 of accrued interest was converted per the conversion terms of the note at per share prices of $0.004875, $0.00565, $0.0114825, and $0.013022. No gain or loss was recognized on the conversion. On May 10, 2006 $90,338 of the note and $4,269 of interest was converted per the conversion terms of the note at per share prices of $0.004875, $0.0114825, and $0.013022. No gain or loss was recognized by the Company on the conversion. On November 29, 2006 $4,836 of the note was converted per the conversion terms of the note at per share price of $0.0026145. No gain or loss was recognized by the Company on the conversion. The note was due December 16, 2005 and is currently in default and accruing default interest at the rate of 18%. At December 31, the outstanding balance on the convertible note was $812,084 plus $761,768 of accrued interest and penalties.

On December 28, 2004, the Company entered into a Bridge Loan Agreement with 14 various entities pursuant to which the Lenders advanced an aggregate principal amount of $1,000,000 to the Company on January 6, 2005 in exchange for (i) 8% secured promissory notes in such aggregate principal amount, (ii) 500,000 shares of our common stock and (iii) warrants to purchase an aggregate of 4,4687,485 shares of our common stock at an exercise price of $0.10 per share. The value of the shares and warrants of $370,000 and $630,000, respectively were treated as a discount to the note and the discount is being amortized over the life of the note. The debentures are convertible into shares of common stock. The conversion price of the debentures is seventy-five percent of the lowest closing price during the five trading days ending on the trading day before the conversion date; provided, however, that in no event will such price be more than $0.10. On October 10, 2005 $137,500 of the note and $8,875 of accrued interest was converted through a settlement at a per share price of $0.029. The Company recognized a loss on the conversion of $8,664. On December 30, 2005 $21,667 of the note was converted per the conversion terms of the note at a per share price of $0.004875. No gain or loss was recognized by the Company on the conversion. On March 8, 2006 $26,806 of the note was converted per the conversion terms of the note at per share prices of $0.004875, $0.00565, $0.0114825, and $0.013022. No gain or loss was recognized on the conversion. On April 10, 2006 $31,870 of the note was converted per the conversion terms of the note at per share prices of $0.004875, $0.00565, $0.0114825, and $0.013022. No gain or loss was recognized on the conversion. On May 10, 2006 $36,396 of the note was converted per the conversion terms of the note at per share prices of $0.004875, $0.0114825, and $0.013022 . No gain or loss was recognized by the Company on the conversion. The note was due December 28, 2005 and is currently in default and accruing default interest at the rate of 18%.. At December 31, 2006, the outstanding balance on the convertible note was $745,461 plus $628,913 of accrued interest and penalties.

F-31

On January 27, 2005, the Company borrowed $300,000 from Timothy Roberts, the Company’s Chairman, under a 15% promissory note, which was payable no later than April 27, 2005. This note was settled on June 13, 2005 via a Settlement Agreement which converted the entire amount of the note into common stock at a per share price of $0.10. The Company recognized a loss on the conversion of $95,616.

On January 28, 2005, the Company borrowed $135,000 under a 17% promissory note, which was payable no later than March 29, 2005. On September 15, 2005, the entire amount of the note was converted at a per share price of $0.05. The Company recognized a loss on the conversion of $16,926.

On January 31, 2005, the Company borrowed $175,000 under a 15% convertible promissory note, which is payable no later than May 10, 2005. The note is convertible into 1,000,000 million shares of common stock and the Company recognized beneficial conversion on the promissory note of $175,000. The beneficial conversion was treated as a discount to the note and the discount is being amortized over the life of the note. In addition, the note holder is entitled to a Stock Purchase Warrant for 200,000 shares of common stock at a warrant exercise price of $0.10 per share. On June 10, 2005, the entire amount of the note was converted at a per share price of $0.10. The Company recognized a loss on the conversion of $3,416 as related to the conversion of interest.

On January 31, 2005, the Company borrowed $100,000 under a 15% convertible promissory note, which is payable no later than May 10, 2005. The note is convertible into 1,000,000 million shares of common stock and the Company recognized beneficial conversion on the promissory note of $100,000. The beneficial conversion was treated as a discount to the note and the discount was amortized over the life of the note. In addition, the note holder is entitled to a Stock Purchase Warrant for 200,000 shares of common stock at a warrant exercise price of $0.10 per share. On June 10, 2005, the entire amount of the note was converted at a per share price of $0.10. The Company recognized a loss on the conversion of $3,309 as related to the conversion of interest.

On February 3, 2005, the Company borrowed $100,000 under a 15% convertible promissory note, which is payable no later than May 10, 2005. The note is convertible into 1,000,000 million shares of common stock and the Company recognized beneficial conversion on the promissory note of $100,000. The beneficial conversion was treated as a discount to the note and the discount was amortized over the life of the note. In addition, the note holder is entitled to a Stock Purchase Warrant for 100,000 shares of common stock at a warrant exercise price of $0.10 per share. On June 10, 2005, the entire amount of the note was converted at a per share price of $0.10. The Company recognized a loss on the conversion of $3,272 as related to the conversion of interest.

On March 9, 2005, the Company borrowed $400,000 under a 10% promissory note, which was payable no later than May 9, 2005. This note was settled on June 13, 2005 via a Settlement Agreement which converted the entire amount of the note into common stock at a per share price of $0.11. The Company recognized no gain or loss on the conversion.

On March 21, 2005, the Company borrowed $200,000 under a 17% promissory note, which was payable no later than May 20, 2005. As additional consideration, the note holder is entitled to an increase in the note holder’s previously existing Stock Purchase Warrant coverage from 150% to 200% of the number of shares obtained in the conversion at a warrant exercise price of $0.10 related to the note holder’s notes dated April 7, 2005 and May 7, 2005. The increased warrant coverage was treated as a $200,000 discount to the debenture and the discount is being amortized over the life of the note. This note was settled on June 10, 2005 via a Conversion Agreement which converted the entire amount of the note into common stock at a per share price of $0.10. The Company recognized a loss on the conversion of $62,263 as related to the conversion of interest. In conjunction with the conversion, the Company issued 6,226,359 warrants at an exercise price of $0.10 per share.

F-32

On April 7, 2005, the Company borrowed $300,000 under a 12% promissory note, which was payable no later than August 5, 2005. On September 15, 2005, the entire amount of the note was settled pursuant to 3(a)(10) of the Securities Act of 1933 at a per share price of $0.05. The Company recognized a loss on the conversion of $13,277.

On April 29, 2005, the Company borrowed $200,000 under a 17% convertible promissory note, which was payable no later than July 28, 2005. The entire amount of the note was convertible into shares of common stock at a price of $0.10 per share. The beneficial conversion was treated as a $200,000 discount to the note and the discount was amortized over the life of the note. On September 15, 2005, the entire amount of the note was settled pursuant to 3(a)(10) of the Securities Act of 1933 at a per share price of $0.05. The Company recognized a loss on the conversion of $12,693.

On June 13, 2005, the Company borrowed $68,000 under a 17% convertible promissory note, which was payable no later than August 12, 2005. The entire amount of the note was convertible into shares of common stock at a price of $0.10 per share. The beneficial conversion was treated as a $20,400 discount to the note and the discount was amortized over the life of the note. On September 15, 2005, the entire amount of the note was settled pursuant to 3(a)(10) of the Securities Act of 1933 at a per share price of $0.05. The Company recognized a loss on the conversion of $4,315.

On June 30, 2005, the Company borrowed $100,000 under a 17% promissory note, which is unsecured and was payable no later than September 28, 2005. On August 11, 2005, the entire amount of the note was settled pursuant to 3(a)(10) of the Securities Act of 1933 at a per share price of $0.05. The Company recognized no gain or loss on the conversion.

On September 7, 2005, the Company borrowed $50,000 under a 15% promissory note, which is unsecured and was payable no later than November 7, 2005. On November 16, 2005, the entire amount of the note was settled pursuant to 3(a)(10) of the Securities Act of 1933 at a per share price of $0.015. The Company recognized a loss on the conversion of $6,757.

On September 13, 2005, the Company borrowed $40,000 under a 15% promissory note, which is unsecured and was payable no later than November 13, 2005. On March 29, 2006, the entire amount of the note was settled pursuant to 3(a)(10) of the Securities Act of 1933 at a per share price of $0.019. The Company recognized a gain on the conversion of $3,229.

On September 19, 2005, the Company borrowed $100,000 under a 15% promissory note, which is unsecured and is payable no later than November 19, 2005. The note and interest are currently in default. On July 28, 2006, the entire amount of the note and accrued interest was settled pursuant to 3(a)(10) of the Securities Act of 1933 at a per share price of $0.0145. A loss of $9,662 was recognized.

On November 1, 2005, the Company borrowed $15,000 under a 15% promissory note, which is unsecured and is payable no later than January 1, 2006. The interest is currently in default. On July 28, 2006, the entire amount of the note and accrued interest was settled pursuant to 3(a)(10) of the Securities Act of 1933 at a per share price of $0.0145. A loss of $1,449 was recognized.

On November 7, 2005, the Company borrowed $25,000 under a 15% promissory note, which is unsecured and is payable no later than December 6, 2005. On January 23, 2006, the entire amount of the note was settled pursuant to 3(a)(10) of the Securities Act of 1933 at a per share price of $0.0144. The Company recognized a loss on the conversion of $13,327.

F-33

On December 1, 2005, the Company borrowed $10,000 under a 15% promissory note, which is unsecured and is payable no later than December 1, 2006. Interest is payable upon maturity. At June 30, 2006, the outstanding balance on the note was $10,871. On August 4, 2006, the entire amount of the note and accrued interest was converted at a per share price of $0.015. The Company recognized no gain or loss on the conversion.

On January 1, 2006, the Company converted to a promissory note $91,775, issued to Timothy Roberts, a Director, of related unpaid expense reimbursements incurred while Mr. Roberts was employed as a full-time employee. The note is unsecured and bears an 8% rate of interest. On October 24, 2006, the entire amount of the note and accrued interest was converted at a per share price of $0.0049. The Company recognized no gain or loss on the conversion.

On January 25, 2006, the Company borrowed $50,000 under a three year 5.25% unsecured promissory note with 5,000,000 warrants attached at an exercise price of $1.09. Pursuant to the SEC’s request, the associated registration statement was withdrawn on May 23, 2006. Accordingly, we were unable to obtain an effective registration and, as of June 23, 2006, were in default under the terms of the note. The note holder has accelerated the note, including a $15,000 penalty, which are due immediately. The note holder has also requested repayment for prepaid warrants of $285,000, but the Company disputes the associated claims with respect to these funds. At December 31, 2006, the outstanding balance on the note including interest and the penalty is $66,526. The note, interest and penalty are in default.

On June 30, 2006, the Company borrowed $100,000 under an 8% promissory note. The note was funded in three tranches: $20,000 (due upon mutual execution of the note), $35,000 (due twenty-one days after mutual execution), and $45,000 (due forty-two days after mutual execution). The note is due no later than two months following the final tranche (estimated at one hundred and two days after mutual execution of the note). The obligation to issue the collateral was conditioned upon prior written request of the note holder prior to the associated funding and the execution of an escrow agreement with the note holder’s attorney. The Company agreed to grant the note holder three certificates to collateralize the note of 4,000,000 shares, 7,000,000 shares, and 9,000,000 shares of common stock. The note holder has not made any requests to escrow the collateral and has not established the aforementioned escrow agreement and, accordingly, the collateral has not been presented. As additional consideration for the note, the Company agreed to (i) re-price certain pre-existing warrants, (ii) issue 1,357,800 new warrants, with a fair value of $13,952 (which has been recorded as a derivative with the initial amount treated as a discount to the note and amortized over the term of the note), to parties designated by the note holder and (iii) issue, subject to full performance of the funding obligations by note holder, to note holder an additional 10,000,000 new warrants with a fair value of $86,048 (which has been recorded as a derivative with the initial amount treated as a discount to the note and amortized over the term of the note) . The new warrants described herein and expire in five years from the effective grant date and have an exercise price of $.015 per share. On November 30, 2006, the entire amount of the note and accrued interest was converted at a per share price of $0.0051. The Company recognized a $158 gain on the conversion.

On December 7, 2006, the Company borrowed $50,000 under a 0% promissory note, but upon an event of default the maturity amount shall bear interest at the rate of 18% per annum, which is secured with a Stock Pledge Agreement and is payable no later than January 7, 2007.

Notes payable - face value	$	2,242,276
Notes payable - discount		0

Notes payable, net	$	2,242,276

F-34

The discount from the face value of the promissory notes is being amortized over the life of the promissory notes as additional interest expense. During the twelve month period ended December 31, 2006, the twelve month period ended December 31, 2005 and the period from December 9, 2002 (Inception) to December 31, 2006, the Company has recorded interest expense from the discounts of $150,000, $3,599,312 and $5,924,900, respectively.

All of these transactions were exempt from the registration requirements of Section 4(2) of the Securities Act as transactions not involving a public offering.

(B) Derivative Liabilities

In connection with the December 2004 Financings aggregating $2.16 million, we committed to pay penalties of 2% per month for each month after an agreed upon period (approximately three months) during which we fail to cause a resale registration statement covering the underlying shares to be declared effective by the Securities and Exchange Commission. On December 16, 2004, we closed a transaction pursuant to a Securities Purchase Agreement, dated as of December 13, 2004, with several accredited investors pursuant to which those accredited investors lent an aggregate principal amount of $1,160,000 to us in exchange for (i) 8% convertible debentures Series 04-02 in that aggregate principal amount, and (ii) Class 2004-A warrants to purchase 5,437,487 shares of our common stock, Class 2004-B warrants to purchase 5,437,487 shares of our common stock and Class 2004-C warrants to purchase 5,437,487 shares of our common stock. The debentures bear interest at 8% per annum and mature on December 16, 2005. The conversion price of the debentures means seventy-five percent of the lowest closing price during the five trading days ending on the trading day before the conversion date. Each of the warrants is exercisable until December 31, 2009, except that after the effective date of the registration statement which we have agreed to file for the resale of the lenders' shares, we may accelerate the expiration date of the Class B and Class C warrants to a date at least 3 trading days after the lender's receipt of that notice. The initial per share exercise prices of the warrants are: Class A - $.10; Class B - $0.75; and Class C - $1.00. The timely and full fulfillment of our obligations pursuant to the debentures have been personally guaranteed by Timothy M. Roberts, our Chairman and a director. In connection with this financing, we paid a finder's fee to West Hastings Limited in the amount of $92,800 and issued 232,000 warrants at an exercise price of $0.50.

On December 28, 2004, the Securities Purchase Agreement dated December 13, 2004 and related Class A warrants, Registration Rights Agreement and debentures were amended. The material provisions are as follows: Securities Purchase Agreement - If we complete the first tranche of a financing of no less than $12 million and in connection with such financing, retire or convert our debt (other than the convertible debentures), the conversion price of the debentures will be fixed at $0.10. In addition, the investors received an aggregate of 250,000 shares of common stock.

On December 28, 2004, we closed a transaction pursuant to a Securities Purchase Agreement, dated as of December 23, 2004, with several accredited investors pursuant to which those accredited investors lent an aggregate principal amount of $1,000,000 to us in exchange for (i) 8% convertible debentures Series 04-03 in that aggregate principal amount, and (ii) Class 2004-A-2 warrants to purchase 4,687,485 shares of our common stock. The debentures bear interest at 8% per annum and mature one year from issuance. The conversion price of the debentures means seventy-five percent of the lowest closing price during the five trading days ending on the trading day before the conversion date.

The warrants are exercisable until December 31, 2009. The per share exercise price of the warrants is $0.10. The timely and full fulfillment of our obligations pursuant to the debentures have been personally guaranteed by Timothy M. Roberts, our Chairman and a director. In connection with this financing, we will pay a finder's fee to West Hastings Limited in the amount of $80,000 and issued 200,000 warrants at an exercise price of $0.50.

F-35

On December 28, 2004, the Securities Purchase Agreement dated December 23, 2004 and related warrants, Registration Rights Agreement and debentures were amended. The material provisions are as follows:

Securities Purchase Agreement - If we complete the first tranche of a financing of no less than $12 million and in connection with such financing, retire or convert our debt (other than the convertible debentures), the conversion price of the debentures will be fixed at $0.10.In addition, the investors received an aggregate of 500,000 shares of common stock.

The debentures include certain features that are considered embedded derivative financial instruments, such as the conversion feature, events of default and a variable liquidated damages clause. These features are described below, as follows:

The debentures’ conversion feature is identified as an embedded derivative and has been bifurcated and recorded on the Company's balance sheet at its fair value;

The SPA contains certain events of default including not having 150% of the number of shares of Common Stock issuable as may be required to satisfy the conversion rights of the Holders of principal on all Unconverted Debentures outstanding at any time plus the number of shares issuable upon exercise of all outstanding Warrants held by all Holders as of such date, which is identified as an embedded derivative and has been bifurcated and recorded on the Company's balance sheet at its fair value;

In conjunction with the debentures, the Company issued warrants to purchase 21,431,946 shares of common stock. The accounting treatment of the derivatives and warrants requires that the Company record the warrants at their fair values as of the inception date of the agreement, which totaled $9,280,565.

The initial fair value assigned to the embedded derivatives and warrants was $14,463,615. The Company recorded the first $1,730,000 of fair value of the derivatives and warrants to debt discount which will be amortized to interest expense over the term of the debenture. The Company recorded an amortization expense for the year ended December 31, 2006, the year ended December 31, 2005 and from December 9, 2002 (Inception) through December 31, 2006 of $0, $2,104,110and $2,160,000, respectively.

The market price of the Company's common stock significantly impacts the extent to which the Company may be required or may be permitted to convert the unrestricted and restricted portions of the debenture into shares of the Company's common stock. The lower the market price of the Company's common stock at the respective times of conversion, the more shares the Company will need to issue to convert the principal and interest payments then due on the debenture. If the market price of the Company's common stock falls below certain thresholds, the Company will be unable to convert any such repayments of principal and interest into equity, and the Company will be forced to make such repayments in cash. The Company's operations could be materially adversely impacted if the Company is forced to make repeated cash payments on the debenture.

In summary, the year ended December 31, 2006, the year ended December 31, 2005 and from December 9, 2002 (Inception) through December 31, 2006, the Company recorded a gain/(loss) on derivatives of $(695,584), $20,282,457and $(2,912,528), respectively, as a result of the financing described above in accordance with guidance provided in EITF 00-19:

Promissory notes, original face amount	$	2,160,000
Conversions		602,455
Promissory notes at 12/31/06		1,557,545
Unamortized discount on Promissory notes, at 12/31/06		0
Promissory notes, at 12/31/06		1,557,545

F-36

On January 25, 2006, we completed a private placement pursuant to which we entered into a Securities Purchase Agreement with Golden Gate Investors, Inc. (“Golden Gate”) dated as of January 24, 2006, as amended by that certain Addendum to Convertible Debenture, Warrant to Purchase Common Stock and Securities Purchase Agreement dated as of January 24, 2006, for the sale of (i) a $50,000 principal amount convertible debenture and (ii) a warrant to purchase 5,000,000 shares of our common stock. Golden Gate provided us with an aggregate of $130,000 in gross proceeds upon the execution of final definitive agreements. Upon notification that the registration statement (as described below) has been filed with the SEC by February 14, 2006, Golden Gate shall wire us $150,000. If the registration statement is filed later than February 14, 2006, Golden Gate shall wire us $50,000. These amounts shall represent a prepayment towards the exercise of the warrant.

The debenture bears interest at 5¼%, mature three years from the date of issuance, is convertible into our common stock, at Golden Gate’s option. The convertible debenture is convertible into the number of our shares of common stock equal to the dollar amount of the debenture being converted multiplied by 110, less the product of the conversion price multiplied by 100 times the dollar amount of the debenture being converted, which is divided by the conversion price. The conversion price for the convertible debenture is the lesser of (i) $0.10, (ii) eighty percent of the average of the three lowest volume weighted average prices during the twenty (20) trading days prior to the conversion or (iii) eighty percent of the volume weighted average price on the trading day prior to the conversion. Beginning in the first full month that the registration statement covering the shares of common stock underlying the debenture and warrant is declared effective by the Securities and Exchange Commission, Golden Gate is obligated to convert at least 5%, but no more than 10%, of the face value of the debenture per calendar month into shares of our common stock, so long as the shares are available, registered and freely tradable. If Golden Gate converts more than 5% of the face value of the debenture in any calendar month, the excess over 5% shall be credited against the next month’s minimum conversion amount. In the event that Golden Gate does not convert at least 5% of the face value of the debenture in any calendar month, Golden Gate shall not be entitled to collect interest on the debenture for that month and shall not be entitled to receive shares of our common stock issuable upon conversion of the debenture, provided that we provide Golden Gate with written notice of such failure to convert the minimum monthly conversion amount. However, in the event that our volume weighted average price is less than $.01, we will have the option to prepay the debenture at 130% rather than have the debenture converted. If we elect to prepay the debenture, Golden Gate may withdraw its conversion notice.

In addition, beginning in the first full month that the registration statement covering the shares of common stock underlying the debenture and warrant is declared effective by the Securities and Exchange Commission, Golden Gate is obligated to exercise the warrant concurrently with the submission of a conversion notice by Golden Gate with respect to the debenture, in the same percentage of the debenture being converted. If Golden Gate exercises more than 5% of the warrants in any calendar month, the excess over 5% shall be credited against the next month’s minimum exercise amount. In the event Golden Gate does not exercise the warrant concurrently with the conversion of the debenture, it shall not be entitled to receive shares of our common stock for the portion of the debenture being simultaneously converted. The warrant is exercisable into 5,000,000 shares of common stock at an exercise price of $1.09 per share. Accordingly, if all warrants are exercised by Golden Gate, we will receive $5,450,000 in proceeds.

Golden Gate has contractually agreed to restrict its ability to convert its debenture or exercise its warrants and receive shares of our common stock such that the number of shares of common stock held by them and their affiliates after such conversion or exercise does not exceed 9.99% of the then issued and outstanding shares of common stock.

The debenture includes certain features that are considered embedded derivative financial instruments, such as the conversion feature, events of default and a variable liquidated damages clause. These features are described below, as follows:

F-37

- The debenture’s' conversion feature is identified as an embedded derivative and has been bifurcated and recorded on the Company's balance sheet at its fair value;

- The SPA includes a penalty provision based on any failure to meet registration requirements for shares issuable under the conversion of the debenture or exercise of the warrants, which represents an embedded derivative, but such derivative has a de minimus value and has not been recorded in the accompanying financial statements; and

- The SPA contains certain events of default including not having adequate shares registered to effectuate allowable conversions; in that event, the Company is required to pay a conversion default payment at 130% of the then outstanding principal balance on the debenture, which is identified as an embedded derivative, but such derivative has a de minimus value and has not been recorded in the accompanying consolidated financial statements.

In conjunction with the debenture, the Company issued warrants to purchase 5,000,000 shares of common stock. The accounting treatment of the derivatives and warrants requires that the Company record the warrants at their fair values as of the inception date of the agreement, which totaled $4,026.

The initial fair value assigned to the embedded derivatives and warrants was $473,873. The Company recorded the first $50,000 of fair value of the derivatives and warrants to debt discount which will be amortized to interest expense over the term of the debenture. The Company recorded an amortization expense for the year ended December 31, 2006, the year ended December 31, 2005 and from December 9, 2002 (Inception) through December 31, 2006 of $50,000, $0 and $50,000, respectively.

In summary, the year ended December 31, 2006, the year ended December 31, 2005 and from December 9, 2002 (Inception) through December 31, 2006, the Company recorded a gain/(loss) on derivatives of $(2,358,048), $0 and $(2,358,048), respectively, as a result of the financing described above in accordance with guidance provided in EITF 00-19:

Promissory notes - short term, original face amount	$	50,000
Conversions		-
Promissory notes - short term, at 12/31/06		50,000
Unamortized discount on Promissory notes - short term, at 12/31/06		-
Promissory notes, net - short term, at 12/31/06		50,000

Additionally, as a result of the issuance of the debenture with such terms, there is no explicit number of shares that are to be delivered upon satisfaction of conversion, the Company is unable to assert that it had sufficient authorized and unissued shares to settle such note. Accordingly, all of the Company's previously issued and outstanding instruments, such as warrants and options as well as those issued in the future, would be classified as liabilities as well, effective with the issuance of the convertible promissory note. Absent other transactions which would warrant the same accounting treatment, the Company will discontinue the recognition of derivative liabilities once it can assert that it has a sufficient amount of authorized and unissued shares to settle its obligations which can be settled in shares . Pursuant to the Securities Purchase Agreement with Golden Gate, until such time as the Company receives shareholder approval to increase its authorized shares of common stock, it’s obligation to reserve and deliver, if requested, common stock from a conversion of the debenture or warrants shall not exceed 50,000,000 shares. Pursuant to the SEC’s request, the associated registration statement was withdrawn on May 23, 2006. Accordingly, we were unable to obtain an effective registration and, as of June 23, 2006, were in default under the terms of the note. The note holder has accelerated the note, including a $15,000 penalty, which were due upon notice in July 2006. At December 31, 2006, the outstanding balance on the note including interest and the penalty is $66,526.

F-38

On September 22, 2006 an amendment to a February 2004 $1,400,000 debenture was effected allowing the noteholder the right to convert principal and accrued interest into common stock. The conversion feature allows for conversion at a 22.5% discount to market for the first $310,000 of market value and a 15% discount to market thereafter. The interest rate was amended to 17%.

The initial fair value assigned to the embedded derivatives was $464,393.

The market price of the Company's common stock significantly impacts the extent to which the Company may be required or may be permitted to convert the debenture into shares of the Company's common stock. The lower the market price of the Company's common stock at the respective times of conversion, the more shares the Company will need to issue to convert the principal and interest payments then due on the debenture. If the market price of the Company's common stock falls below certain thresholds, the Company will be unable to convert any such repayments of principal and interest into equity. The debenture is secured with the assets of the Company. The Company's operations could be materially adversely impacted if the assets are encumbered due to the default on the debenture.

In summary, the year ended December 31, 2006, the year ended December 31, 2005 and from December 9, 2002 (Inception) through December 31, 2006, the Company recorded a gain/(loss) on derivatives of $(443,138), $0 and $(443,138), respectively, as a result of the financing described above in accordance with guidance provided in EITF 00-19:

Promissory notes, original face amount	$	1,400,000
Conversions		915,269
Promissory notes at 12/31/06		484,731
Unamortized discount on Promissory notes, at 12/31/06		-
Promissory notes, at 12/31/06		484,731

As of December 31, 2006 and December 31, 2005 the fair value of all other outstanding warrants was $73,442 and $312,863, respectively. The difference of $239,421 was recorded as a gain on derivatives as provided for in EITF 00-19. In summary, the year ended December 31, 2006, the year ended December 31, 2005 and from December 9, 2002 (Inception) through December 31, 2006, the Company recorded a gain/(loss) on derivatives of $239,421, $18,447,767 and $4,280,176, respectively, as a result of all other outstanding warrants in accordance with guidance in EITF 00-19.

In summary the gain or (loss) on derivatives is as follows:

Date of Note	For the Year Ended December 31, 2006			For the Year Ended December 31, 2005		For the Period from December 9, 2002 (Inception) to December 31, 2006
December 2004	$	(695,584	)	$	20,282,457		($2,912,530	)
January 2006		(2,358,048	)		-		(2,358,048	)
February 2004 as amended September 2006		(443,138	)		-		(443,138	)
All other warrants		239,421			18,447,767		4,280,176
Total	$	(3,257,349	)	$	38,730,224	$	(1,433,540	)

F-39

In summary the notes outstanding at December 31, 2006 were:

Conversion Feature	Face Amount Of Note		Unamortized Discount	Conversions		Notes, net
Yes		2,160,000			602,455		1,557,545
Yes		50,000					50,000
Yes		1,400,000			915,269		484,731
No		50,000					50,000
No		50,000					50,000
No		50,000					50,000
Promissory notes, net - short term, at 12/31/06		3,760,000			1,517,724		2,242,276

NOTE 6 STOCKHOLDERS’ DEFICIENCY

(A) Stock Issued for Cash

During 2002, the Company issued 58,189,728 shares of common stock to its founder for $18,522 ($0.0004 per share).

During 2003, the Company issued 4,423,012 shares of common stock for cash of $526,703 ($0.12 per share).

During 2003, the Company issued 1,748,380 shares of common stock for $545,717 ($0.28 per share), net of offering costs of $11,239.

During 2003, the Company issued 420,768 shares of common stock for $66,672 ($0.16 per share).

During 2004, the Company issued 6,650,000 shares of common stock for $1,662,500 ($0.25 per share).

During 2004, the Company issued 40,000 shares of common stock for cash of $100,000 ($2.50 per share).

During 2004, the Company issued 1,900,400 shares of common stock for $475,100 ($0.25 per share). In connection with this transaction, the Company issued 2,022,900 warrants to purchase common stock exercisable at a price of $0.25. The warrants are fully exercisable at any time for a period of five years after the closing date of the sale. None of the warrants were executed, forfeited or expired in 2005. Therefore, all 2,022,900 warrants were outstanding and exercisable as of June 30, 2005.

F-40

On August 26, 2004, the Company issued 100,000 shares of common stock for $200,000 ($2.00 per share).

During 2004, the Company issued 1,649,635 shares of common stock for $264,075 ($0.16 per share).

(B) Stock Issued for Services

During 2002, the Company issued 2,957,376 shares of common stock for software development services valued for financial accounting purposes at $1,113,005 ($0.3775 per share) based upon recent cash offering prices.

During 2003, the Company issued 434,036 shares of common stock for software development services valued for financial accounting purposes at $138,640 ($0.3175 per share) based upon recent cash offering prices.

During 2003, the Company issued 942,600 shares of common stock for signature rights valued for financial accounting purposes at $300,000 ($0.3175 per share) based upon recent cash offering prices.

During 2004, the Company issued 1,750,000 shares of common stock for software development and consulting services with a fair value of $2,581,250 ($1.475 per share).

During 2004, the Company issued 279,260 shares of common stock for services with a fair value of $446,816 ($1.60 per share).

During 2004, the Company issued 830,000 shares of restricted common stock for services to three consultants having a fair value of $1,195,200 ($1.44 per share).

During 2004, the Company issued 440,000 shares of restricted common stock for services with a fair value of $404,800 ($.92 per share).

During 2004, the Company issued 100,000 shares of our restricted common stock for services with a fair value of $147,500 ($1.475 per share).

During 2004, the Company issued 1,933,224 shares to consultants for services with a fair value of $1,162,444 ($0.60 per share).

On July 28, 2004, as consideration for the personal guaranty of a note payable by Richard Angelotti, a director,, the Company issued the Director 800,000 shares of common stock having a fair value of $832,000 ($1.04 per share). The shares were restricted shares of common stock and, therefore, were not tradable at the time of issuance. These shares of common stock issued to the Director may become unrestricted on July 28, 2005.

During August 2004, the Company issued 1,000,000 shares to consultants for real estate service with a fair value of $1,130,000 ($1.13 per share).

During August 2004, the Company issued 21,460 shares to a consultant for services with a fair value of $13,734 ($0.64 per share).

During August, 2004, the Company issued 200,000 shares to a consultant for financial services with a fair value of $122,000 ($0.61 per share).

F-41

During August 2004, the Company issued 36,000 shares to a consultant for engineering services with a fair value of $21,420 ($0.60 per share).

On September 30, 2004, the Company issued 300,000 shares of restricted common stock to employees as a bonus with a fair value of $99,000 ($0.33 per share).

During 2004, the Company issued 1,790,000 shares of common stock to employees with a fair value of $565,500 ($0.32 per share) for bonuses.

During 2004, the Company issued 5,199,967 shares of common stock to employees with a fair value of $1,137,099 ($0.22 per share) as regular compensation.

During 2004, the Company issued 1,100,000 shares of common stock to executives with a fair value of $240,542 ($0.22 per share) as compensation.

During 2004, the Company issued 3,885,410 shares of common stock for consulting services with a fair value of $812,141 ($0.21 per share).

During 2004, the Company issued 1,350,000 shares of common stock for consulting services with a fair value of $377,500 ($0.28 per share).

During 2004, the Company issued 150,000 shares of common stock for advisory services with a fair value of $37,500 ($0.25 per share).

On January 4, 2005, the Company issued 40,000 shares of common stock to Richard Angelotti, a Director, for services with a fair value of $63,600 ($1.59 per share).

During January 2005, the Company issued 125,179 shares of common stock for consulting services with a fair value of $108,929 ($0.87 per share).

On January 28, 2005, the Company issued 1,200,000 shares of common stock for consulting services with a fair value of $648,000 ($0.54 per share).

On March 10, 2005, the Company issued 100,000 shares of common stock for consulting services with a fair value of $32,000 ($0.32 per share).

On March 11, 2005, the Company issued 800,000 shares of common stock to Richard Angelotti, a Director, for services with a fair value of $272,000 ($0.34 per share).

During March 2005, the Company issued 1,722,453 shares of common stock for consulting services with a fair value of $558,847 ($0.32 per share) of which $19,665 was considered deferred compensation.

On March 28, 2005, the Company issued 225,000 shares of common stock to employees with a fair value of $56,250 ($0.25 per share) as compensation.

During April 2005, the Company issued 1,423,734 shares of common stock for consulting services with a fair value of $319,955 ($0.22 per share).

During April 2005, the Company issued 100,000 shares of restricted common stock to employees as a bonus with a fair value of $23,000 ($0.23 per share).

F-42

On April 18, 2005, the Company issued 250,000 shares of restricted common stock for consulting services with a fair value of $45,000 ($0.18 per share).

During April 2005, the Company issued 601,725 shares of common stock to employees with a fair value of $90,259 ($0.15 per share) as regular compensation.

During April 2005, the Company issued 678,067 shares of common stock to employees with a fair value of $101,310 ($0.15 per share) as regular compensation.

During May 2005, the Company issued 2,255,097 shares of common stock for consulting services with a fair value of $338,775 ($0.15 per share).

During May 2005, the Company issued 962,324 shares of common stock to employees with a fair value of $143,340 ($0.15 per share) as regular compensation.

During May 2005, the Company issued 250,000 shares of common stock to an executive with a fair value of $37,500 ($0.15 per share) as compensation.

During May 2005, the Company issued 1,162,720 shares of common stock to employees with a fair value of $139,526 ($0.12 per share) as regular compensation.

During June 2005, the Company issued 2,122,675 shares of common stock to employees with a fair value of $178,400 ($0.08 per share) as regular compensation.

During June 2005, the Company issued 250,000 shares of common stock to an executive with a fair value of $25,000 ($0.10 per share) as compensation.

During June 2005, the Company issued 500,000 shares of common stock to an executive with a fair value of $50,000 ($0.10 per share) as compensation.

During June 2005, the Company issued 2,934,536 shares of common stock for consulting services with a fair value of $322,635 ($0.11 per share).

During July 2005, the Company issued 500,000 shares of common stock for consulting services with a fair value of $50,000 ($0.10 per share) of which $10,000 was considered deferred compensation.

During July 2005, the Company issued 32,000 shares of common stock for consulting services with a fair value of $3,072 ($0.096 per share).

During July 2005, the Company issued 22,000 shares of common stock for consulting services with a fair value of $1,851 ($0.084 per share).

During July 2005, the Company issued 72,223 shares of common stock for consulting services with a fair value of $6,500 ($0.09 per share).

During July 2005, the Company issued 50,000 shares of common stock for consulting services with a fair value of $4,302 ($0.086 per share).

F-43

During July 2005, the Company issued 50,000 shares of common stock to employees with a fair value of $5,000 ($0.10 per share).

During July 2005, the Company issued 2,767,036 shares of common stock to employees with a fair value of $195,292 ($0.07 per share).

During August 2005, the Company issued 182,799 shares of common stock to employees with a fair value of $12,796 ($0.07 per share).

During August 2005, the Company issued 100,000 shares of common stock to employees with a fair value of $6,500 ($0.65 per share).

During August 2005, the Company issued 1,891,655 shares of common stock to executives with a fair value of $132,416 ($0.07 per share) as compensation.

During August 2005, the Company issued 150,000 shares of common stock for consulting services with a fair value of $10,500 ($0.07 per share) as compensation.

During August 2005, the Company issued 492,940 shares of common stock for consulting services with a fair value of $39,435 ($0.08 per share) as compensation.

During August 2005, the Company issued 333,340 shares of common stock for consulting services with a fair value of $30,000 ($0.09 per share) as compensation.

During August 2005, the Company issued 86,667 shares of common stock for consulting services with a fair value of $6,500 ($0.075 per share) as compensation.

During August 2005, the Company issued 250,000 shares of common stock for consulting services with a fair value of $15,000 ($0.06 per share).

During August 2005, the Company issued 100,000 shares of common stock to an employee with a fair value of $7,000 ($0.07 per share).

During August 2005, the Company issued 2,399,879 shares of common stock for consulting services with a fair value of $167,992 ($0.07 per share) of which $140,000 was considered deferred compensation.

During August 2005, the Company issued 62,500 shares of common stock for consulting services with a fair value of $5,625 ($0.09 per share).

During August 2005, the Company issued 53,571 shares of common stock for consulting services with a fair value of $3,214 ($0.06 per share).

During August 2005, the Company issued 750,000 shares of common stock for consulting services with a fair value of $52,500 ($0.07 per share).

During August 2005, the Company issued 2,600,000 shares of common stock to employees with a fair value of $182,000 ($0.07 per share).

During August 2005, the Company issued 5,000,000 shares of common stock to Richard Angelotti, a Director, with a fair value of $350,000 ($0.07 per share).

F-44

During August 2005, the Company issued 10,000,000 shares of common stock to Timothy Roberts, then the CEO and currently the Chairman and a Director, with a fair value of $700,000 ($0.07 per share).

During September 2005, the Company issued 250,000 shares of common stock for consulting services with a fair value of $15,000 ($0.06 per share).

During September 2005, the Company issued 1,629,027 shares of common stock for consulting services with a fair value of $81,451 ($0.05 per share) of which $27,505 was considered deferred compensation.

During September 2005, the Company issued 5,415,729 shares of common stock to employees with a fair value of $297,865 ($0.055 per share) of which $85,758 was considered deferred compensation.

During September 2005, the Company issued 3,045,708 shares of common stock to employees with a fair value of $152,286 ($0.05 per share) of which $44,648 was considered deferred compensation.

During September 2005, the Company issued 3,977,894 shares of common stock to employees with a fair value of $179,005 ($0.045 per share) of which $50,058 was considered deferred compensation.

During October 2005, the Company issued 264,822 shares of common stock for consulting services with a fair value of $8,474 ($0.032 per share).

During October 2005, the Company issued 500,000 shares of common stock for consulting services with a fair value of $14,500 ($0.029 per share).

During October 2005, the Company issued 1,536,850 shares of common stock for consulting services with a fair value of $30,737 ($0.02 per share).

During October 2005, the Company issued 15,299,873 shares of common stock to employees with a fair value of $382,497 ($0.025 per share) of which $112,695 was considered deferred compensation.

During October 2005, the Company issued 699,780 shares of common stock to employees with a fair value of $19,594 ($0.028 per share).

During November 2005, the Company issued 2,247,956 shares of common stock for consulting services with a fair value of $49,455 ($0.022 per share).

During November 2005, the Company issued 1,000,000 shares of common stock for consulting services with a fair value of $24,000 ($0.024 per share).

During November 2005, the Company issued 6,380,900 shares of common stock for consulting services with a fair value of $133,999 ($0.021 per share) of which $91,165 was considered deferred compensation.

During November 2005, the Company issued 2,000,000 shares of common stock for consulting services with a fair value of $30,000 ($0.015 per share).

During November 2005, the Company issued 1,134,261 shares of common stock to employees with a fair value of $24,953 ($0.022 per share) of which $5,328 was considered deferred compensation.

During December 2005, the Company issued 10,694,577 shares of common stock for consulting services with a fair value of $213,892 ($0.02 per share) of which $188,510 was considered deferred compensation.

F-45

During December 2005, the Company issued 30,342,931 shares of common stock to employees with a fair value of $595,604 ($0.02 per share) of which $176,513 was considered deferred compensation.

During January 2006, the Company issued 510,992 shares of common stock for consulting services with a fair value of $8,533 ($0.0167 per share).

During January 2006, the Company issued 2,789,474 shares of common stock for consulting services with a fair value of $58,578 ($0.021 per share).

During January 2006, the Company issued 7,030,932 shares of common stock to employees with a fair value of $133,588 ($.019 per share).

During February 2006, the Company issued 6,327,718 shares of common stock for consulting services with a fair value of $113,899 ($0.018 per share).

During February 2006, the Company issued 5,862,640 shares of common stock to employees with a fair value of $105,224 ($.018 per share).

During February 2006, the Company issued restricted common stock for 372,414 shares as a fee for obtaining financing. The fair value was $5,400 ($0.0145 per share).

During February 2006, the Company issued 6,327,718 shares of common stock for consulting services with a fair value of $113,898 ($0.018 per share).

During March 2006, the Company issued 255,319 shares of common stock for consulting services with a fair value of $6,000 ($0.0235 per share).

During March 2006, the Company issued 646,552 shares of common stock for consulting services with a fair value of $12,931 ($0.02 per share).

During March 2006, the Company issued 4,060,913 shares of common stock for consulting services with a fair value of $80,000 ($0.0197 per share).

During March 2006, the Company issued 1,724,138 shares of common stock for consulting services with a fair value of $35,000 ($0.0203 per share).

During March 2006, the Company issued restricted common stock for 243,243 shares as a fee for obtaining financing. The fair value was $4,500 ($0.0185 per share).

During March 2006, the Company issued 9,650,377 shares of common stock to employees with a fair value of $226,784 ($.0235 per share).

During March 2006, the Company returned to the Treasury 49,752 shares of common stock previously issued to employees with a fair value of $995 ($.02 per share).

During March 2006, the Company issued 5,219,112 shares of common stock to employees with a fair value of $102,817 ($.0197 per share).

During April 2006, the Company issued 589,051 shares of common stock for consulting services with a fair value of $11,533 ($0.0196 per share).

F-46

During June 2006, the Company issued 1,853,497 shares of common stock for consulting services with a fair value of $22,150 ($0.012 per share).

During June 2006, the Company issued 6,830,929 shares of common stock to employees with a fair value of $95,633 ($.014 per share).

During July 2006, the Company issued 20,000,000 shares of common stock for consulting services with a fair value of $330,000 ($0.0165 per share).

During August 2006, the Company issued 2,000,000 shares of common stock for consulting services with a fair value of $26,000 ($0.013 per share).

During September 2006, the Company issued 18,382,249 shares of common stock for consulting services with a fair value of $180,146 ($0.0098 per share).

During September 2006, the Company issued 4,318,009 shares of common stock to employees with a fair value of $42,317 ($0.0098 per share).

During October 2006, the Company issued 19,758,376 shares of common stock for consulting services with a fair value of $72,863 ($0.0037 per share).

During October 2006, the Company issued 51,479,252 shares of common stock to employees with a fair value of $273,468 ($0.0053 per share).

During November 2006, the Company issued 29,197,010 shares of common stock for consulting services with a fair value of $115,560 ($0.0040 per share).

During November 2006, the Company issued 1,454,258 shares of common stock to employees with a fair value of $4,799 ($0.0033 per share).

During November 2006, the Company issued 20,000,000 shares of common stock to Greg Koler, the CEO, with a fair value of $66,000 ($0.0033 per share).

During November 2006, the Company issued 9,000,000 shares of common stock to Greg Koler, the CEO, with a fair value of $34,200 ($0.0038 per share).

During November 2006, the Company issued 1,000,000 shares of common stock to Greg Koler, the CEO, with a fair value of $3,600 ($0.0036 per share).

(C) Unauthorized Stock Issued

During November 2006 and without the requisite approval of the Board of Directors, 56,000,000 shares of common stock were issued with a fair value of $194,800 ($0.0035 per share).

(D) Stock Issued for Legal Settlement

During February 2004, the Company issued 66,668 shares of common stock with a fair value of $98,335 ($1.475 per share) in partial settlement of a lawsuit.

On June 4, 2004, the Company issued 53,332 shares of common stock with a fair value of $77,565 in final settlement of a lawsuit ($1.455 per share).

F-47

During June 2005, the Company returned 120,000 shares of common stock with a fair value of $175,900 ($1.475 per share) were returned to Treasury in settlement of a lawsuit.

On July 26, 2006, the Company issued 4,242,820 shares of common stock with a fair value of $70,006 ($0.0165 per share) in final settlement of a lawsuit. A loss of $18,270 was recognized on the settlement. The shares were issued under a court ordered settlement pursuant to 3(a)(10) under the Securities Act of 1933.

(E) Stock Issued for Vendor Settlement

During May 2005, the Company issued 1,976,021 shares of common stock with a fair value of $316,163 ($0.16 per share) in settlement of a vendor payable.

During August 2005, the Company issued 2,549,075 shares of common stock with a fair value of $229,417 ($0.09 per share) in settlement of the 2005 rent for the Sarasota office. Of this amount $52,631 was considered deferred compensation.

During August 2005, the Company issued 368,375 shares of common stock with a fair value of $29,470 ($0.08 per share) in settlement of a vendor payable.

During September 2005, the Company settled the outstanding amounts plus related legal fees with a vendor by issuing 6,361,113 shares of common stock with a fair value of $311,695 ($0.049 per share) on the date of settlement. The shares were issued under a court ordered settlement pursuant to 3(a)(10) under the Securities Act of 1933.

During November 2005, the Company settled the outstanding amounts plus legal fees with a vendor by issuing 5,071,175 shares of common stock with a fair value of $111,566 ($0.022 per share). The shares were issued under a court ordered settlement pursuant to 3(a)(10) under the Securities Act of 1933.

During November 2005, the Company settled the outstanding amounts plus legal fees with a vendor by issuing 1,134,775 shares of common stock with a fair value of $24,965 ($0.022 per share). The shares were issued under a court ordered settlement pursuant to 3(a)(10) under the Securities Act of 1933.

During March 2006, the Company issued 2,195,905 shares of common stock in full settlement of amounts due to a vendor. The fair value was $52,702 ($0.024 per share) and a gain of $2,673 was recognized on the settlement. The shares were issued under a court ordered settlement pursuant to 3(a)(10) under the Securities Act of 1933.

During June 2006, the Company issued 30,000,000 shares of common stock with a fair value of $375,000 ($0..0125 per share) in settlement of the 2006 rent for the Sarasota office. Of this amount $94,670 was considered deferred compensation and $191,245 was an early termination fee. The shares were issued under a court ordered settlement pursuant to 3(a)(10) under the Securities Act of 1933. The party holding a majority interest in the landlord is also, on a personal basis, a past and current investor in the Company.

On August 4, 2006, the Company issued 1,663,536 shares of common stock with a fair value of $24,953 ($0.015 per share) in settlement of unreimbursed employee expenses owed to a terminated employee. No gain or loss was recognized on the conversion.

On September 25, 2006 the Company issued 9,396,064 shares of common stock with a fair value of $93,961 ($0.01 per share) in settlement of unpaid rent. A gain of $6,039 was recognized on the settlement. The shares were issued under a court ordered settlement pursuant to 3(a)(10) under the Securities Act of 1933.

F-48

(F) Stock Issued for Cash with Notes Payable

During 2004, the Company issued 560,000 shares of common stock with a fair value of $434,000 as additional consideration for a note payable. The fair value of the stock was allocated from the total proceeds received on the note payable and the resulting discount on the note payable will be amortized over the life of the note ($0.78 per share).

During 2004, the Company issued 200,000 shares of common stock with a fair value of $284,000 as additional consideration for a note payable. The fair value of the stock was allocated from the total proceeds received on the note payable and the resulting discount on the note payable will be amortized over the life of the note ($1.42 per share).

During 2004, the Company issued 100,000 shares of common stock with a fair value of $147,500 as additional consideration for a note payable. The fair value of the stock was allocated from the total proceeds received on the note payable and the resulting discount on the note payable will be amortized over the life of the note ($1.475 per share).

During 2004, the Company issued 60,000 shares of common stock with a fair value of $67,800 as additional consideration for a note payable. The fair value of the stock was allocated from the total proceeds received on the note payable and the resulting discount on the note payable will be amortized over the life of the note ($1.13 per share).

During 2004, the Company issued 33,000 shares of common stock with a fair value of $47,190 as additional consideration for a note payable. The fair value of the stock was allocated from the total proceeds received on the note payable and the resulting discount on the note payable will be amortized over the life of the note ($1.43 per share).

During 2004, the Company issued 511,000 shares of common stock with a fair value of $753,725 as additional consideration for a note payable. The fair value of the stock was allocated from the total proceeds received on the note payable and the resulting discount on the note payable will be amortized over the life of the note ($1.475 per share).

During 2004, the Company issued 7,500 shares of common stock with a fair value of $11,025 as additional consideration for a note payable. The fair value of the stock was allocated from the total proceeds received on the note payable and the resulting discount on the note payable will be amortized over the life of the note ($1.47 per share).

During 2004, the Company issued 1,750,000 shares of common stock with a fair value of $735,000 as additional consideration for notes payable. The fair value of the stock was allocated from the total proceeds received on the note payable and the resulting discount on the note payable will be amortized over the life of the notes ($0.42 per share).

(G) Stock Issued for Cash as Interest on Notes Payable

During 2004, the Company issued 375,000 shares to note payable holders for accrued interest on the notes with a fair value of $67,500 ($0.18 per share).

During August 2005, the Company issued 7,114,667 shares to a note payable holder for accrued interest on the note with a fair value of $384,192 ($0.054 per share). The Company recognized no gain or loss on this transaction.

F-49

(H) Stock Issued Under Loan Default Provisions

During 2004, the Company issued 74,999 shares to a note payable holder under a loan default provision with a fair value of $110,624 ($1.475 per share).

During 2004, the Company issued 75,000 shares to a note payable holder under a loan default provision with a fair value of $84,750 ($1.13 per share).

During 2004, the Company issued 80,000 shares to a note payable holder under a loan default provision with a fair value of $118,000 ($1.475 per share).

During 2004, the Company issued 603,038 shares to a note payable holder under a loan default provision with a fair value of $942,548 ($1.56 per share).

During 2004, the Company issued 955,312 shares to a note payable holder under a loan default provision with a fair value of $1,404,309 ($1.47 per share).

(I) Stock Issued for Conversion of Notes Payable

On January 6, 2005, the Company issued 7,043,750 shares of common stock to convert a note payable with a fair value of $8,311,625 ($1.18 per share). The note and accrued interest totaled $704,375 which was converted into equity at $0.10 per share. The Company recognized a loss of $7,607,250 ($1.08 per share) on the conversion of this note.

On February 11, 2005, the Company issued 4,925,291 shares of common stock with a fair value of $1,797,731 to convert a note payable with a fair value of $1,058,938 ($0.215 per share). The Company recognized a loss of $738,794 ($0.15 per share) on the conversion of this note.

On March 22, 2005, the Company issued 5,815,069 shares of common stock with a fair value of $711,918 to convert a note payable with a fair value of $581,507 ($0.10 per share). The Company recognized a loss of $130,411 ($0.022 per share) on the conversion of this note.

On April 11, 2005, the Company issued 13,325,000 shares of common stock with a fair value of $2,281,933 to convert a note payable with a fair value of $1,565,000 ($0.12 per share). The Company recognized a loss of $716,933 ($0.05 per share) on the conversion of this note.

During April 2005, the Company issued 2,936,644 shares of common stock to convert a note payable with a fair value of $293,664 ($0.10 per share).

On May 10, 2005, the Company issued 3,961,170 shares of common stock with a fair value of $633,787 to convert a note payable with a fair value of $475,340 ($0.12 per share). The Company recognized a loss of $158,447 ($0.04 per share) on the conversion of this note.

On May 10, 2005, the Company issued 3,700,000 shares of common stock with a fair value of $592,000 to convert a note payable with a fair value of $370,000 ($0.10 per share). The Company recognized a loss of $222,000 ($0.06 per share) on the conversion of this note.

On May 16, 2005, the Company issued 5,900,000 shares of common stock with a fair value of $826,418 to convert a note payable with a fair value of $560,918 ($0.095 per share). The Company recognized a loss of $265,500 ($0.045 per share) on the conversion of this note.

On May 16, 2005, the Company issued 12,000,000 shares of common stock with a fair value of $1,686,836 to convert a note payable with a fair value of $1,146,836 ($0.095 per share). The Company recognized a loss of $540,000 ($0.045 per share) on the conversion of this note.

F-50

During June 2005, the Company issued 3,695,339 shares of common stock to convert a note payable with a fair value of $404,011 ($0.11 per share).

On June 10, 2005, the Company issued 2,075,453 shares of common stock to convert a note payable with a fair value of $207,545 ($0.10 per share). The Company recognized a loss of $62,263 on the conversion of this note.

On June 10, 2005, the Company issued 3,187,206 shares of common stock to convert a note payable with a fair value of $318,721 ($0.10 per share). The Company recognized a loss of $95,616 on the conversion of this note.

On June 10, 2005, the Company issued 1,110,298 shares of common stock to convert a note payable with a fair value of $111,030 ($0.10 per share). The Company recognized a loss of $3,309 on the conversion of this note.

On June 10, 2005, the Company issued 1,109,069 shares of common stock to convert a note payable with a fair value of $110,907 ($0.10 per share). The Company recognized a loss of $3,272 on the conversion of this note.

On June 10, 2005, the Company issued 1,863,852 shares of common stock to convert a note payable with a fair value of $186,385 ($0.10 per share). The Company recognized a loss of $3,416 on the conversion of this note.

On August 11, 2005, the Company issued 2,096,623 shares of common stock to convert a note payable with a fair value of $104,831 ($0.05 per share). The Company recognized no gain or loss on the conversion of this note.

On September 15, 2005, the Company issued 12,882,049 shares of common stock to convert three notes payable with a fair value of $608,054 ($0.0472 per share). The Company recognized a loss of $36,048 on the conversion of these notes.

On September 15, 2005, the Company issued 3,385,259 shares of common stock to convert a note payable with a fair value of $152,337 ($0.045 per share). The Company recognized a loss of $16,926 on the conversion of this note.

On October 10, 2005, the Company issued 7,246,455 shares of common stock to convert notes payable with a fair value of $210,148 ($0.029). The Company recognized a loss of $9,964 on the partial conversion of the notes.

On November 16, 2005, the Company issued 7,948,856 shares of common stock to convert notes payable with a fair value of $119,233 ($0.015 per share). The Company recognized a loss of $13,513 on the conversion of the notes.

On December 30, 2005, the Company issued 16,000,000 shares of common stock to convert notes payable in the amount of $80,741 as per the conversion terms of the note. No gain or loss was recognized on the conversion.

On January 23, 2006, the Company issued 2,900,000 shares of common stock with a fair value of $41,760 ($.0144 per share) in settlement of a note and accrued interest. The shares were issued under a court ordered settlement pursuant to 3(a)(10) under the Securities Act of 1933.

On March 29, 2006, the Company issued 1,636,330 shares of common stock in full settlement of a note and accrued interest. The fair value was $31,090 ($0.019 per share) and a gain of $3,229 was recognized on the settlement. The shares were issued under a court ordered settlement pursuant to 3(a)(10) under the Securities Act of 1933.

F-51

On March 9, 2006, the Company issued 10,000,000 shares of common stock and on March 21, 2006 an additional 30,000,000 shares of common stock in partial conversion of a note and accrued interest. The fair value was $860,000 (10,000,000 shares at $0.026 and 30,000,000 shares at $0.02 per share) and a loss of $285,498 was recognized on the conversion.

On March 8, 2006, the Company issued 19,999,999 shares of common stock in partial conversion of notes and accrued interest. Principal and interest in the amount of $119,059 was converted per the conversion terms of the note (the various conversion prices were $0.004875, $0.00565, $0.0114825 and $0.013022 per share). No gain or loss was recognized on the conversion.

On April 10, 2006, the Company issued 15,000,000 shares of common stock in partial conversion of notes and accrued interest. Principal and interest in the amount of $123,164 was converted per the conversion terms of the note (the various conversion prices were $0.004875, $0.00565, $0.0114825 and $0.013022 per share). No gain or loss was recognized on the conversion.

On May 10, 2006, the Company issued 15,000,000 shares of common stock in partial conversion of notes and accrued interest. Principal and interest in the amount of $131,302 was converted per the conversion terms of the note (the various conversion prices were $0.004875, $0.0114825 and $0.013022 per share). No gain or loss was recognized on the conversion.

On August 3, 2006, the Company issued 10,027,731 shares of common stock in full settlement of notes and accrued interest. The fair value was $145,402 ($0.0145 per share). Principal and interest in the amount of $131,791 were converted. A loss of $11,111 was recognized on the conversion. The shares were issued under a court ordered settlement pursuant to 3(a)(10) under the Securities Act of 1933.

On August 4, 2006, the Company issued 42,393,246 shares of common stock in full settlement of notes and accrued interest. The fair value was $635,898 ($0.015 per share). Principal and interest in the amount of $635,898 were converted and no gain or loss was recognized.

On September 6, 2006, the Company issued 10,000,000 shares of common stock in partial settlement of a note and accrued interest. The fair value was $120,000 ($0.012 per share). Principal and interest in the amount of $89,551 were converted and a loss of $30,449 was recognized on the conversion.

On September 29, 2006, the Company issued 1,100,000 shares of common stock in partial settlement of principal. Principal in the amount of $8,056 was converted and no gain or loss was recognized.

During October 2006, the Company issued 69,172,000 shares of common stock in partial settlement of principal and interest aggregating $315,535 ($0.0046 per share). Principal in the amount of $301,967 and interest in the amount of $13,568 was converted and no gain or loss was recognized.

During November 2006, the Company issued 49,728,000 shares of common stock in partial settlement of principal and interest aggregating $203,589 ($0.0041 per share). Principal in the amount of $199,751 and interest in the amount of $3,838 was converted and no gain or loss was recognized.

During November 2006, the Company issued 20,000,000 shares of common stock in full settlement of a note and accrued interest. The fair value was $102,000 ($0.0051 per share). Principal and interest in the amount of $102,158 was converted and a $158 gain was recognized.

During November 2006, the Company issued 19,940,582 shares of common stock in full settlement of a note and accrued interest. The fair value was $97,709 ($0.0049 per share) and no gain or loss was recognized.

F-52

During November 2006, the Company issued 1,849,568 shares of common stock in partial settlement of principal. Principal in the amount of $4,836 ($0.0026 per share) was converted and no gain or loss was recognized.

(J) In Kind Contribution

During 2004, 1,191,450 shares of common stock were returned to the Company by a stockholder and recorded as an In Kind Contribution.

(K) Stock Dividend

During January 2004, the Company declared a 4 for 1 common stock dividend effected to stockholders of record on January 19, 2004. Per share and weighted average share amounts have been retroactively restated in the accompanying financial statements and related notes to reflect this dividend.

(L) Stock Split

During May 2004, the Company declared a 4 for 1 common stock split effected to stockholders of record on May 5, 2004. Per share and weighted average share amounts have been retroactively restated in the accompanying financial statements and related notes to reflect this dividend.

(M) Stock Issued in Reverse Merger

On January 5, 2004, the Company issued 16,156,000 shares of common stock for all the outstanding shares of Global Business Resources.

All of these transactions were exempt from registration requirements of Section 4(2) of the Securities Act as transactions not involving a public offering.

(N) Obligation to Reserve Stock

As of December 31, 2006, the Company had an obligation to reserve 3,362,020,967 shares of common stock issuable upon conversion of debentures. In addition, as of December 31, 2006, the Company had outstanding warrants totaling 76,686,612 shares of common stock.

(O) Amendment to Articles of Incorporation

On February 24, 2005, the Company amended its Articles of Incorporation to provide for an increase in its authorized share capital. The authorized capital stock increased to 600,000,000 common shares at a par value of $0.0001 per share.

On July 13, 2006, the Company amended its Articles of Incorporation to provide for an increase in its authorized share capital. The authorized capital stock increased from 600,000,000 to 1,200,000,000 common shares at a par value of $0.0001 per share.

NOTE 7 INCOME TAXES

Income tax expense (benefit) is summarized as follows:

F-53

	Year Ended December 31, 2006		Year Ended December 31, 2005		December 9, 2002 (Inception) through December 31, 2006
Current:
Federal	$	-	$	-	$	-
State		-		-		-
Deferred - Federal and State		-		-		-
Income tax expense (benefit)	$	-	$	-	$	-

The Company's tax expense differs from the "expected" tax expense as follows:

	Year Ended December 31, 2006			Year Ended December 31, 2005			December 9, 2002 (Inception) through December 31, 2006

U.S. Federal income tax expense (benefit)	$	(2,233,989	)	$	(6,515,075	)	$	(22,400,407	)
Effect on net operating loss carryforward		2,233,989			6,515,075			22,400,407
	$	-		$	-		$	-

The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities are as follows:

	December 31, 2006			December 31, 2005
Deferred tax assets:
Net operating loss carry forward	$	22,400,407		$	20,166,418
Total gross deferred tax assets		22,400,407			20,166,418
Less valuation allowance		(22,400,407	)		(20,166,418	)

Net deferred tax assets	$	-		$	-

At December 31, 2006, the Company had a net operating loss carry forward of $59,528,055 for U.S. Federal income tax purposes available to offset future taxable income expiring through 2026. The net change in the valuation allowance during the year ended December 31, 2006 was an increase of $2,233,989.

NOTE 8 COMMITMENTS AND CONTINGENCIES

(A) Distribution Agreements

Riverdeep, Inc .

Infinium signed a distribution agreement with Riverdeep, Inc. ("Riverdeep") dated October 23, 2003 that was intended to allow Infinium to market Riverdeep's catalog of award-winning video games and edutainment software on the Phantom Game System. The agreement expired on March 30, 2006 and when in place authorized Infinium to distribute Riverdeep's products, via the Phantom Game Service or pre-load, onto the Phantom Game Receiver. The titles were intended to be available to subscribers of the Phantom Game Service on both a pay-per-play and pay-to-own basis.

F-54

The agreement with Riverdeep required Infinium to make the following guaranteed, non-refundable, irrevocable, non-transferable license fees as follows:

March 30, 2004	$	50,000
September 30, 2004		50,000
September 30, 2004		125,000

Total	$	225,000

In addition, Infinium would have incurred license fees with respect to each unit of product distributed. These per unit license fees would have applied against the aforementioned guaranteed license fees. If the guaranteed license fees would have been earned down and recouped by Infinium, then Infinium would have paid directly to Riverdeep the per unit license fees for every unit of product it distributes. The per unit unlimited license (pay-to-own) fee ranges from $6.50 to $28.00 per title. The per unit limited license (pay-per-play) fee equals fifty percent (50%) of Infinium's revenue realized from the limited licenses granted to end users.

As the Company has not commenced sales of the game system and there is no definitive way to determine the future economic benefit associated with the payments for the guaranteed license fees, the company has expensed the guaranteed license fees as incurred. From December 9, 2002 (inception) through December 31, 2006, $225,000 of guaranteed license fees had been accrued and reported on the accompanying financial statements.

In the event that the per unit license fees were to exceed the guaranteed license fees, those per unit license fees will be expensed as incurred. Accordingly, the corresponding revenue related to the product distribution will be recognized as earned.

The Company is currently in default of this agreement.

Codemasters Software Company Ltd.

Infinium signed a distribution agreement with The Codemasters Software Company Ltd. (“Codemasters”) dated December 3, 2004 that will allow Infinium to market Codemasters’ catalog of video games software on the Phantom Game System. The agreement expired on December 31, 2005 and authorized Infinium to distribute Codemasters’ products, via the Phantom Game Service or pre-load, onto the Phantom Game Receiver. The titles were to be available to subscribers of the Phantom Game Service on both a pay-per-play and pay-to-own basis.

The agreement with Codemasters required Infinium to make the following advance royalty payments as follows:

November 21, 2004	$	25,000
Upon receipt of the Licensor Deliverables		25,000

Total	$	50,000

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In addition, Infinium would have incurred royalty fees with respect to each unit of product distributed. These per unit royalty fees shall be applied against the aforementioned advance royalty payments. If the advance royalty payments have been earned down and recouped by Infinium, then Infinium would have been required to pay directly to Codemasters the per unit royalty fees for every unit of product it distributes. The per unit royalty fee ranged from 25% to 50% of Infinium’s net receipts with a minimum per unit royalty fee ranging from $1.25 to $7.16 per title.

As the company has not commenced sales of the game system and there is no definitive way to determine the future economic benefit associated with the advance payments, the company has expensed the advance royalty payments as incurred. From December 9, 2002 (inception) through December 31, 2006, $50,000 of guaranteed license fees had been accrued and reported on the accompanying financial statements.

In the event that the per unit royalty fees were to exceed the advance royalty payments, those per unit royalty fees will be expensed as incurred. Accordingly, the corresponding revenue related to the product distribution will be recognized as earned. The Company is currently in default of this agreement.

Atari, Inc.

Infinium signed a distribution agreement with Atari, Inc. (“Atari”) dated September 14, 2004 that will allow Infinium to market Atari’s catalog of video games software on the Phantom Game System. The agreement expires on September 14, 2007 and authorizes Infinium to distribute Atari’s products, via the Phantom Game Service or pre-load, onto the Phantom Game Receiver. The titles will be available to subscribers of the Phantom Game Service on both a pay-per-play and pay-to-own basis.

The agreement with Atari requires Infinium to make the following non-refundable advance royalty payments as follows:

September 19, 2004	$	300,000
September 29, 2004		200,000

Total	$	500,000

In addition, Infinium incurs royalty fees with respect to each unit of product distributed. These per unit royalty fees shall be applied against the aforementioned advance royalty payments. Once the advance royalty payments have been earned down and recouped by Infinium, then Infinium shall pay directly to Atari the per unit royalty fees for every unit of product it distributes. The per unit royalty fee ranges from $5.00 to $15.00 per title.

As the company has not commenced sales of the game system and there is no definitive way to determine the future economic benefit associated with the advance payments, the company has expensed the advance royalty payments as incurred. From December 9, 2002 (inception) through December 31, 2006, $500,000 of guaranteed license fees had been accrued and reported on the accompanying financial statements.

In the event that the per unit royalty fees exceed the advance royalty payments, those per unit royalty fees will be expensed as incurred. Accordingly, the corresponding revenue related to the product distribution will be recognized as earned. The Company is currently in default of this agreement.

Eidos Inc.

Infinium signed a distribution agreement with Eidos Inc. (“Eidos”) dated September 21, 2004 that would have allowed Infinium to market Eidos’s catalog of video games software on the Phantom Game System. The agreement expired on December 31, 2005 and authorizes Infinium to distribute Eidos’s products, via the Phantom Game Service or pre-load, onto the Phantom Game Receiver. The titles would have been available to subscribers of the Phantom Game Service on both a pay-per-play and pay-to-own basis.

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The agreement with Eidos required Infinium to make the following non-refundable advance royalty payments as follows:

September 25, 2004	$	62,500
Upon receipt of the Licensor Deliverables		62,500

Total	$	125,000

In addition, Infinium would have incurred royalty fees with respect to each unit of product distributed. These per unit royalty fees shall be applied against the aforementioned advance royalty payments. If the advance royalty payments would have been earned down and recouped by Infinium, then Infinium would have been required to pay directly to Eidos the per unit royalty fees for every unit of product it distributes. The per unit royalty fee ranges from 25% to 50% of Infinium’s net receipts

As the company has not commenced sales of the game system and there is no definitive way to determine the future economic benefit associated with the advance payments, the company has expensed the advance royalty payments as incurred. From December 9, 2002 (inception) through December 31, 2006, $125,000 of guaranteed license fees had been accrued and reported on the accompanying financial statements.

Enlight Inc.

Infinium signed a distribution agreement with Enlight Interactive Inc. (“Enlight”) dated September 21, 2004 that will allow Infinium to market Enlight’s catalog of video games software on the Phantom Game System. The agreement expires on September 2, 2009 and authorizes Infinium to distribute Enlight’s products, via the Phantom Game Service or pre-load, onto the Phantom Game Receiver. The titles will be available to subscribers of the Phantom Game Service on both a pay-per-play and pay-to-own basis.

The agreement with Enlight requires Infinium to make the following non-refundable advance royalty payments as follows:

October 2, 2004	$	5,000
Upon receipt of the Licensor Deliverables		5,000

Total	$	10,000

In addition, Infinium incurs royalty fees with respect to each unit of product distributed. These per unit royalty fees shall be applied against the aforementioned advance royalty payments. Once the advance royalty payments have been earned down and recouped by Infinium, then Infinium shall pay directly to Enlight the per unit royalty fees for every unit of product it distributes. The per unit royalty fee ranges from 30% to 50% of Infinium’s net receipts.

As the company has not commenced sales of the game system and there is no definitive way to determine the future economic benefit associated with the advance payments, the company has expensed the advance royalty payments as incurred. From December 9, 2002 (inception) through December 31, 2006, $10,000 of guaranteed license fees had been accrued and reported on the accompanying financial statements.

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Vivendi International

Infinium signed a letter of intent with Vivendi Universal Games, Inc. (“Vivendi”) dated September 20, 2004 that will allow Infinium to market and distribute certain games on the Phantom Game Service to future end-users, if any, through a sale, license, subscription or on a time basis. The agreement expires two years from delivery of the gold master for each Vivendi Game although Vivendi has the right to terminate the agreement as of September 5, 2005 as Infinium did not commercially release the Phantom Game Service. For such right, Infinium was to pay Vivendi $125,000 within five (5) days after execution of the letter of intent, $125,000 after a definitive agreement was signed and $250,000 upon delivery of a master CD with Vivendi Games. Infinium did not remit the initial $125,000 due to Vivendi and no definitive agreement was ever negotiated. Infinium is currently in default under the letter of intent.

As the company has not commenced sales of the game system and there is no definitive way to determine the future economic benefit associated with the advance payments, the company has expensed the advance royalty payments as incurred. From December 9, 2002 (inception) through December 31, 2006, $175,000 of guaranteed license fees had been accrued and reported on the accompanying financial statements.

The letter of intent with Vivendi requires Infinium to make the following non-refundable payments:

September 25, 2004		$	125,000
Total		$	125,000

(B) Development Agreement

The company has a development agreement dated October 11, 2004 in place with BIOSTAR for the Phantom Game Receiver mainboard and graphics adapter. Terms are: $156,000 due at signing; $78,000 due before ship of pilot production units from Biostar; $78,000 due on acceptance of pilot units. The end design product will be wholly owned by the company. From December 9, 2002 (inception) through December 31, 2006, $337,139 of expenses have been accrued and reported on the accompanying financial statements. During September 2005, the Company settled the outstanding amounts plus related legal fees with Biostar by issuing 6,361,113 shares of common stock with a fair value of $311,695 on the date of settlement. The shares were issued under a court ordered settlement pursuant to 3(a)(10) under the Securities Act of 1933.

(C) Lease

Phantom Entertainment, Inc. leases office space in Luxembourg (starting May 1, 2006) under an operating lease that expired on December 31, 2006 but also requires a three month notice to terminate the lease. Minimum future rental payments under this lease are as follows:

Year Ending December 31,
2007		6,208
2008		-
2009		-
2010		-
Thereafter		-
Total	$	6,208

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Rent expense for the year ended December 31, 2006, the year ended December 31, 2005, and the period from December 9, 2002 (Inception) to December 31, 2006 was $460,600, $572,107and $1,410,157, respectively.

(D) Litigation

Beshara v. Infinium Labs Corporation, No. 2005 CA 005103 NC. In May 2005, Beshara sued us in the Circuit Court for Sarasota County, Florida, alleging default of a promissory note and seeking damages of approximately $1,400,000.00. On October 25, 2005, we settled accrued interest through October 31, 2005, together with reasonable attorneys’ fees, in the amount of $384,192 through issuance of 7,114,667 shares of our stock. On March 17, 2006, we entered into a conversion agreement with Beshara in order to reduce a portion of the outstanding principal and interest with 40,000,000 shares of common stock (as of May 22, 2006). In September 2006, the parties amended the promissory note to add for conversion of debt into equity. As of September 30, 2006, the remaining principal on the debt is approximately $986,449. So long as Beshara continues to convert debt into equity the foregoing action shall be abated.

Black Rocket Euro RSCG, LLC v. Phantom Entertainment, Inc., No. 2005 CA 5008 NC. In May 2005, Black Rocket sued us in the Circuit Court for Sarasota County, Florida, alleging breach of contract and seeking damages in the amount of $95,272.00. Due to an administrative error, our attorney neglected to file a notice of appearance and on January 25, 2006, Black Rocket obtained a default judgment in the amount of $104,629. We have recorded $104,629 as well as $4,977 in accrued interest, as of September 30, 2006, in accounts payable.

CDW Corporation v. Infinium Labs Corporation, No. 05-M1-131484. In May 2005, CDW sued us in the Circuit Court of Cook County, Illinois, alleging that the Company placed orders for goods, failed to pay for such orders and thus breached the contract and seeking damages in the amount of $26,958. Due to financial constraints, we may not be able to replace local counsel. On February 7, 2006, the court entered judgment for $26,958 and we have recorded $27,932, including interest through September 30, 2006, in accounts payable.

GMR Marketing, LLC, v. Phantom Entertainment, Inc., No. 20050CA-10535NC. In January 2006, GMR sued us in the District Court of Florida, Sarasota County, alleging that it rendered advertising services and that the Company failed to pay for such services thereby breaching the contract. GMR sought damages in the amount of $107,544. Due to an error with our Florida counsel an answer to the complaint was not filed and on February 1, 2005 GMR received a default judgment in the amount of $107,883. Through September 30, 2006, the Company has recorded a total of $114,284, including interest, in accounts payable. On October 25, 2006, the parties entered into a settlement agreement whereby the Company agreed to pay GMR $71,000 no later than December 20, 2006 in exchange for a full release of all previous claims.

Longview Special Finance, Inc. v. Phantom Entertainment, Inc., No. 06 CV 1772. In March 2006, Longview sued us in United States District in the Southern District of New York alleging breach of contract and requesting, in part, issuance of all remaining shares requested in prior conversion notices. The March complaint contained various errors. The parties entered into a negotiated settlement related to a portion of Longview’s claims on April 7, 2006. Under the terms of the agreement, the Company converted a portion of Longview’s requested conversion request and Longview agreed to dismiss the aforementioned matter in May 2006 and standstill on any further request for conversion or bring any additional claim on with respect to the Company’s failure to reserve adequate shares for Longview or deliver shares under a conversion. Although the Company has materially performed, Longview has not dismissed the action. In November 2006, Plaintiff submitted an amended complaint with similar claims and requested a hearing, currently scheduled for late November, on its request for an injunction. The Company intends to respond vigorously to these claims and file counterclaims as well. On March 30, 2007, the Company and the Holders completed the settlement of the Action and entered into a Settlement Agreement (the “Agreement”) dated as of March 22, 2007 with the Holders pursuant to which the Company agreed to issue 425,000,000 shares of free-trading common stock to the Holders in exchange for the Holders agreeing to enter into general releases and to petition the Court to dismiss the Action with prejudice. On March 30, 2007, the Court so ordered the adoption of the Agreement and general releases were executed and delivered by the parties. See Current Report on Form 8-K filed with the SEC on April 3, 2007.

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Merrill Lynch, Pierce, Fenner & Smith v. Phantom Entertainment, Inc., No. 06-2-05618-3 SEA. In February 2005, we entered into a Stipulation and Order for Entry of Judgment with Merrill Lynch pertaining to our default in rent of $127,312 due under our lease with Merrill Lynch (for our former corporate headquarters). The foregoing matter was adjudicated in the Superior Court for the State of Washington, in and for the County of King. In partial consideration of the entry of the judgment the lease, originally set to expire in August 2006, terminated on February 28, 2006 with no further monetary obligations. Subsequent to the entry of the order the parties entered into a settlement agreement that provided for a payment schedule of $5,000 per month with a final balloon payment due in July 2006. The Company intended on using proceeds from an SB-2 registration, but was unable to do so after the SB-2 was withdrawn on May 23, 2006. The Company was in default on the settlement agreement when it failed to make the balloon payment by July 31, 2006. In September 2006, Merrill Lynch assigned its rights to enforce the settlement agreement, and all other rights, to Fred Niedrich, a third party. On September 20, 2006, the parties entered into a new settlement agreement whereby the total debt due of $118,289 was settled for $100,000 pursuant to 3(a)(10) of the Securities Act of 1933.

Morley and Campbell v. Timothy Roberts and Phantom Entertainment, Inc., No. D-1-GN-06-000851. In April 2006, Morley and Campbell sued Timothy Roberts individually and the Company in the District Court, 200 Judicial District, Travis County, Texas for breach of contract in failing to perform the remainder of an Asset Purchase Agreement and Assignment of Rights between plaintiffs and Roberts. The total claim is for $30,000. Phantom is defending itself vigorously in this suit and has retained local counsel in order to do so. No contingency has been accrued as of September 30, 2006. As of the date of this Annual Report, the plaintiff has not pursued any further remedies, and the Company believes that the action has been dropped.

M. Tyler Boles v. Phantom Entertainment, Inc., No. V06-30. In January 2006, M. Tyler Boles sued us in the General District Court for Nelson County, Delaware, alleging a claim for money and seeking damages in the amount of $1,200. A judgment was entered in March 2006 for $1,254 and we have recorded $1,300, including interest through September 30, 2006, in accounts payable.

Oracle USA, Inc. v. Phantom Entertainment, Inc. , No. C05-5049. In December 2005, Oracle USA sued us in the United States District Court, Northern District of California, San Francisco Division, alleging that the Company placed orders for software, failed to pay for such orders and thus breached the contract and seeking damages in the amount of $198,818. In March 2006 judgment was entered against the Company in the aforementioned court for $199,068 and, as of September 30, 2006, this amount has been recorded in accounts payable.

Ronald Westman v. Phantom Entertainment, Inc. , No. 2006 CA 010711 NC. In November 2006, Ronald Westman filed an action in the Circuit Court for Sarasota County, Florida. The Company has not been served with the summons and complaint and, therefore, can not provide any further detail.

SBI USA, LLC v. Phantom Entertainment, Inc., No. 05CC10694. In November 2005, SBI USA, LLC, sued us in the Superior Court of California, Orange County, alleging breach of contract and seeking damages in the amount of $58,000. Judgment was entered against the Company in the aforementioned court in April 2006 for $55,000 and we have recorded $59,213, including interest through September 30, 2006, in accounts payable.

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Walter Dorwin Teague Associates v. Phantom Entertainment, Inc., No. 05-9-35846-2. In December 2005, Teague Associates entered an arbitration award in the Superior Court for King County, Washington. The judgment is for $51,843 and we have recorded $55,734, including interest through September 30, 2006, in accounts payable. Teague & Associates was retained in 2004 to assist and support various industrial design requirements associated with hardware for the Phantom Game Service. The Company defaulted on its payment obligations and this resulted in the associated arbitration award.

In the Matter of Certain Fax Blasts, SF-2926. In approximately January 2005, we received subpoenas for documents from the Securities and Exchange Commission (“SEC”) in an investigation entitled In the Matter of Certain Fax Blasts. In compliance with other SEC issued subpoenas, several former employees, including our Chairman of the Board of Directors, have given testimony to the SEC’s staff while several current employees have participated in off-record interviews with the SEC staff.

Timothy M. Roberts, the Company's Chairman of the Board of Directors, received a “Wells Notice” from the SEC in 2005. The Wells Notice was received by Mr. Roberts in a personal capacity. This Wells Notice was issued in connection with the SEC’s investigation relating to “phony fax scams” in which several penny stocks, including ours, were promoted to potential investors and resulted in charges filed by the SEC against two stock promoters. Under the SEC's procedures, the Wells Notice indicates that the staff of the SEC intends to recommend that the SEC bring a civil enforcement action against Mr. Roberts alleging violations of federal securities laws. Recipients of Wells Notices have the opportunity to respond to the SEC staff before any formal recommendation is made.

In May 2006, Mr. Roberts, in his personal capacity, was served with a complaint from the SEC in the matter entitled Securities and Exchange Commission vs. Timothy M. Roberts in the US District Court for the Middle District of Florida, Orlando Division, pursuant to which the SEC alleges that Mr. Roberts made false statements with regard to the Company’s prospects while at the same time selling his shares of the Company’s common stock for personal gain through his alleged participation in a “phony fax scam”. The SEC seeks judgment against Mr. Roberts enjoining him from future violations of securities laws, requiring that he disgorge any gain or benefit he received from past violations, and imposing penalties for the violations. Further, the SEC seeks a judgment prohibiting Mr. Roberts from serving in the future as an officer or director of a public company and from participating in any offering of “penny stocks”. While the Board of Directors has currently agreed to indemnify Mr. Roberts’ legal expenses specifically related to this matter, no accrual has been made as of September 30, 2006. On May 9, 2007, the Board of Directors agreed to authorize and directed the Company to (i) fully indemnify Mr. Roberts against the nature of the action arising out of the SEC Complaint and (ii) enter into a settlement agreement whereby the total debt due of $2,062.50 was to be settled for the same amount pursuant to 3(a)(10) of the Securities Act of 1933. On the same date, the Company entered into the aforementioned settlement agreement.

John Fife v. Phantom Entertainment, Inc. , No. 2006 CA 012309 NC. In December 2006, John Fife filed an action in the Circuit Court for Sarasota County, Florida. Subsequently, the Board of Directors agreed to authorize and directed the Company to enter, and the Company entered, into a settlement agreement whereby the total debt due of $166,000.00 was settled for the same amount pursuant to 3(a)(10) of the Securities Act of 1933.

Phantom Investors LLC v. Phantom Entertainment, Inc. , No. 2005 CA 001211 NC. In February 2005, Phantom Investors LLC filed an action in the Circuit Court for Sarasota County, Florida. Subsequently, the Board of Directors agreed to authorize and directed the Company to enter, and the Company entered, into a settlement agreement whereby the amount agreed to by the parties was settled pursuant to 3(a)(10) of the Securities Act of 1933.

Federal Insurance Company v. Phantom Entertainment, Inc. , No. 2006 CA 005201 NC. In June 2006, Federal Insurance Company filed an action in the Circuit Court for Sarasota County, Florida. The Company intends to vigorously defend itself in this action.

The Motley Fool Inc. v. Phantom Entertainment, Inc. , No. 2006 CA 002132 NC. In March 2006, The Motley Fool Inc., filed an action in the Circuit Court for Sarasota County, Florida. Subsequently, the Board of Directors agreed to authorize and directed the Company to enter, and the Company entered, into a settlement agreement whereby the amount agreed to by the parties was settled pursuant to 3(a)(10) of the Securities Act of 1933.

Centerpointe Property LLC v. Phantom Entertainment, Inc., No. 2006 CA 001216 NC. In February 2006, Centerpointe Property LLC filed an action in the Circuit Court for Sarasota County, Florida. Subsequently, the Board of Directors agreed to authorize and directed the Company to enter, and the Company entered, into a settlement agreement whereby the amount agreed to by the parties was settled pursuant to 3(a)(10) of the Securities Act of 1933.

Beshara Edward C v. Phantom Entertainment, Inc., No. 2006 CA 000206 NC. In January 2006, Edward Beshara filed an action in the Circuit Court for Sarasota County, Florida. Subsequently, the Board of Directors agreed to authorize and directed the Company to enter, and the Company entered, into a settlement agreement whereby the amount agreed to by the parties was settled pursuant to 3(a)(10) of the Securities Act of 1933.

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Beshara James v. Phantom Entertainment, Inc., No. 2005 CA 011388 NC. In November 2005, James Beshara filed an action in the Circuit Court for Sarasota County, Florida. Subsequently, the Board of Directors agreed to authorize and directed the Company to enter, and the Company entered, into a settlement agreement whereby the amount agreed to by the parties was settled pursuant to 3(a)(10) of the Securities Act of 1933.

Beshara Edward C and Beshara Sharon M v. Phantom Entertainment, Inc., No. 2005 CA 010933 NC. In November 2005, Edward Beshara and Sharon Beshara filed an action in the Circuit Court for Sarasota County, Florida. Subsequently, the Board of Directors agreed to authorize and directed the Company to enter, and the Company entered, into a settlement agreement whereby the amount agreed to by the parties was settled pursuant to 3(a)(10) of the Securities Act of 1933.

GMR Marketing, LLC, v. Phantom Entertainment, Inc., No. 20050CA-010535 NC. In October 2005, GMR filed an action in the Circuit Court of Florida, Sarasota County.

Tops Staffing Services v. Phantom Entertainment, Inc., No. 2005 CC 5829 NC. In 2005, Tops Staffing Services filed an action in the Circuit Court for Sarasota County, Florida. On January 26, 2007, plaintiff obtained a Final Default Judgment against the Company.

John W. Anderson and Adam Goldblatt v. Phantom Entertainment, Inc. In 2007, John W. Anderson and Adam Goldblatt filed an action in the Superior Court for Seattle County, Washington. On January 30, 2007, plaintiff obtained a Default Judgment against the Company for unpaid compensation and related damages in the aggregate amount of 106,109.19.

From time to time, we may become party to litigation or other legal proceedings that we consider to be a part of the ordinary course of our business. We may become involved in material legal proceedings in the future.

(E) Licenses

As detailed above in Note 8 (A), the Company has entered into agreements with a number of publishers to provide content for our Phantom Game Service . These agreements provide that we pay an advance to each publisher, which is recoupable by us against future royalties payable to these publishers under their respective agreements. As of December 31, 2006, the Company currently owes an aggregate of $845,000 to these publishers pursuant to these agreements and, if we fail to pay these advances, these agreements may be terminated.

(F) Payroll Taxes

The Company has accrued applicable employment taxes for individuals that were initially deemed and paid as independent contractors during the twelve months ended December 31, 2003 and the three months ended March 31, 2004 but, subsequently, reclassified as employees by the Company. In addition, the Company has recorded an estimate for interest and penalties that are due for the Company’s failure to timely file and pay taxes for these individuals as well as for the Company’s failure to timely file and/or pay payroll taxes for the third quarter of 2004 and the first, second, third and fourth quarters of 2005. The amount recorded in accrued payroll and payroll taxes consists of the following:

	As of
	December 31, 2006
Payroll	$	238,627
Payroll taxes		1,365,162
Penalties and interest		874,417
Accrued payroll and payroll taxes	$	2,478,206

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(G) Employment Agreements

On January 11, 2006, we entered into an Employment Agreement with Greg Koler, our Chief Executive Officer and Interim Chief Financial Officer. Pursuant to the Employment Agreement, we will employ Mr. Koler commencing January 11, 2006 and his employment will be at-will. Mr. Koler will be paid an annual base salary of $250,000 (the “Base Salary”). In addition, on a quarterly basis, Mr. Koler will be eligible to earn a bonus of up to 35% of Base Salary based on meeting performance objectives and bonus criteria. In addition, Mr. Koler shall be entitled to receive the pro-rata amount of Base Salary due from November 18, 2005 through the January 10, 2006, as compensation for Mr. Koler’s role as our Interim Chief Executive Officer and Interim Chief Financial Officer beginning on November 18, 2005.

Mr. Koler will be granted an aggregate of 5,000,000 restricted shares of our common stock, in accordance with the following vesting schedule: (i) 1,000,000 shares will be fully vested upon execution of the Employment Agreement, and the Stock Vesting Agreement dated as of January 11, 2006; and (ii) the remaining 4,000,000 shares of common stock shall vest quarterly over two years, 1/8 per quarter, to the extent Mr. Koler is employed with us at the pertinent vesting date and that our shareholders have authorized additional common stock. As of August 18, 2006, the related expense has been accrued under this agreement but no shares have been issued.

In addition, on January 11, 2006 we entered into a Confidential Information, Inventions, Non-Solicitation and Non-Competition Agreement with Mr. Koler. The non-competition and non-solicitation provisions shall remain in effect for two years following termination while the balance of this agreement survives any termination, subject to standard exceptions.

NOTE 9 STOCK OPTIONS AND WARRANTS

(A) Stock Options Issued Under Qualified Stock Option Plan

The Company's 2004 Omnibus Incentive Compensation Plan required shareholder consent which has not been obtained and will not be requested. As such, any options granted under the Plan are not effective.

(B) Warrants Issued and Outstanding

Stock Purchase Warrants

For the year ended December 31, 2006, the Company granted warrants to purchase 16,357,800 shares of common stock in conjunction with two notes payable which were treated as a discount to the notes payable.

	December 31, 2006		December 31, 2005
Warrants for common stock issued to a note holder. The term of the warrants are five years expiring November 10, 2009. The warrants are exercisable at $0.10 per share		5,873,288		5,873,288

Warrants for common stock issued to a note holder. The term of the warrants are five years expiring November 10, 2009. The warrants are exercisable at $0.10 per share.		11,630,138		11,630,138

Warrants issued with subscription agreements. The term of the warrants are five years expiring November 10, 2009 and are exercisable at $0.10 per share.		678,900		678,900

Warrants issued with subscription agreements. The term of the warrants are five years expiring November 10, 2009 and are exercisable at $0.25 per share.		1,344,000		1,344,000

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Warrants issued with subscription agreements. The term of the warrants are five years expiring November 10, 2009 and are exercisable at $0.10 per share.	3,084,181	3,084,181

Warrants issued in conjunction with convertible notes. The term of the warrants are five years expiring December 31, 2009 and are exercisable at $0.50 per share.	232,000	232,000

Warrants issued in conjunction with convertible notes. The term of the warrants are five years expiring December 31, 2009 and are exercisable at $0.50 per share.	200,000	200,000

Warrants for common stock issued to note holders. The term of the warrants are five years expiring October 22, 2009. The warrants are exercisable at $0.50 per share.	500,000	500,000

Warrants for common stock issued to note holders. The term of the warrants are five years expiring October 27, 2009. The warrants are exercisable at $0.50 per share.	500,000	500,000

Warrants for common stock issued to note holders. The term of the warrants are five years expiring December 31, 2009. The warrants are exercisable at $0.10 per share.	5,437,487	5,437,487

Warrants for common stock issued to note holders. The term of the warrants are five years expiring December 31, 2009. The warrants are exercisable at $0.75 per share.	5,437,487	5,437,487

Warrants for common stock issued to note holders. The term of the warrants are five years expiring December 31, 2009. The warrants are exercisable at $1.00 per share.	5,437,487	5,437,487

Warrants for common stock issued to note holder. The term of the warrants is three years expiring February 4, 2008. The warrants are exercisable at $0.10 per share.	200,000	200,000

Warrants for common stock issued to note holder. The term of the warrants is three years expiring February 4, 2008. The warrants are exercisable at $0.10 per share.	200,000	200,000

Warrants for common stock issued to note holder. The term of the warrants is three years expiring February 4, 2008. The warrants are exercisable at $0.10 per share.	100,000	100,000

Warrants for common stock granted to note holder. The terms of the warrants are three years expiring April 29, 2008. The warrants are exercisable at $0.10 per share.	400,000	400,000

Warrants for common stock issued to note holders. The term of the warrants are five years expiring December 31, 2009. The warrants are exercisable at $0.10 per share.	4,687,485	4,687,485

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Warrants for common stock issued to an investor. The term of the warrants are five years expiring June 10, 2010. The warrants are exercisable at $0.10 per share.	6,226,359	6,226,359

Warrants for common stock issued to an investor. The term of the warrants is three years expiring September 19, 2008. The warrants are exercisable at $0.10 per share.	8,160,000	8,160,000

Warrants for common stock issued to a note holder. The term of the warrants are three years expiring January 25, 2009. The warrants are exercisable at $1.09 per share.	5,000,000	-

Warrants for common stock issued parties identified by noteholder as additional consideration for a note. The term of the warrants is five years expiring June 30, 2011. The warrants are exercisable at $0.015 per share.	1,357,800	-

Warrants for common stock issued parties identified by noteholder as additional consideration for a note. The term of the warrants is five years expiring August 18, 2011. The warrants are exercisable at $0.015 per share.	10,000,000

Total	76,686,612	60,328,812

NOTE 10 GOING CONCERN

As reflected in the accompanying financial statements, the Company is in the development stage with no sales and has recurring losses from inception of $73,550,242, has a working capital deficiency of $18,344,236, a stockholders’ deficiency of $18,627,236, has a negative cash flow from operations of $15,654,926 from inception and notes payable in default of $2,242,276. This raises substantial doubt about its ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise additional capital and implement its business plan. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Management believes that actions presently being taken to obtain additional funding, settle notes payable currently in default and implement its business plan provide the opportunity for the Company to continue as a going concern.

NOTE 11 RELATED PARTY TRANSACTIONS

On January 5, 2004, our wholly owned subsidiary merged with and into Infinium Labs Operating Corporation, with Infinium Labs Operating Corporation surviving as our wholly-owned subsidiary. In connection with such merger, Timothy M. Roberts, our former Chief Executive Officer and one of our directors, received 36,199,220 shares of our common stock as merger consideration based on the shares he owned in Infinium Labs Operating Corporation immediately prior to the merger. Also in connection with the merger, Mr. Roberts' mother, sister and brother received, respectively, 3,141,660, 31,400 and 31,400 shares of our common stock as merger consideration.

On June 21, 2004, the Company compensated Timothy M. Roberts, our former Chief Executive Officer $50,000 as consideration for his personal guaranty at that time of a commercial promissory note payable secured by a real estate mortgage encumbering the his residence. The note is for $1,500,000 with interest calculated at fifteen percent (15%) per annum up to the maximum amount allowed by law in the event of default. The note also permits a late charge in the amount of five percent (5%).

F-65

On July 28, 2004, the Company issued Richard Angelotti, a director, 800,000 shares of common stock as consideration for his personal guaranty of a promissory note payable secured by a real estate mortgage encumbering the director's residence. The note, effective on July 28, 2004 and expiring on July 27, 2005, was payable to Stephen A. Witzer, Trustee U/A dated February 7, 1985. The principal is for $500,000 with interest calculated at fifteen percent (15%) per annum, plus a five percent (5%) penalty, if applicable, for any late payment. In the event of an uncured default, the interest increases to eighteen percent (18%) per annum. On December 9, 2005, this promissory note was assigned by Witzer to Richard Angelotti. The terms of the promissory note were subsequently amended to provide that as of November 1, 2005, principal and accrued interest totaled $560,437. With respect to the revised principal, commencing November 2, 2005, simple interest at a rate of fifteen percent (15%) per annum will accrue on a monthly basis until December 31, 2006 (maturity date), at which time the entire remaining principal and all accrued and unpaid interest are due in full.

On November 2, 2004, the Company issued 200,000 shares of common stock with a fair value of $43,735 ($0.2187 per share) in lieu of cash compensation to Kevin Bachus as our President and Chief Operating Officer.

On November 2, 2004, the Company issued 300,000 shares of common stock with a fair value of $65,603 ($0.2187 per share) in lieu of cash compensation to Timothy Roberts, as CEO (Mr. Roberts was also the CFO and Chairman).

On December 8, 2004, the Company issued 300,000 shares of common stock with a fair value of $65,603 ($0. 2187 per share) in lieu of cash compensation to Kevin Bachus as our President and Chief Operating Officer.

On December 8, 2004, the Company issued 200,000 shares of common stock with a fair value of $43,735 ($0. 2187 per share) in lieu of cash compensation to Timothy Roberts, as CEO (Mr. Roberts was also the CFO and Chairman).

On December 8, 2004, the Company issued 100,000 shares of common stock with a fair market value of $21,866 ($0. 2187 per share) in lieu of cash compensation to Richard Angelotti, Director.

On January 27, 2005, the Company borrowed $300,000 from Timothy Roberts, our former CEO and the Chairman and a Director of our company, under a 15% promissory note, which was payable no later than April 27, 2005. The note was subsequently transferred by Mr. Roberts to parties unaffiliated with us. On or about May 10 through 12, 2005, this note was assigned by Mr. Roberts to the following individuals with corresponding amounts: (1) Gerard Dariano, $100,000; (2) Fred Niedrich, $50,000; (3) Gary Fears, $50,000; and (4) John Landino, $100,000.On June 13, 2005, the full principal and interest was settled at $0.10 per share in consideration for our issuance of 3,187,206 shares of common stock to the holders, valued at $318,721. The Company recognized a loss on the conversion of $95,616.

On March 11, 2005, the Company issued 800,000 shares of common stock with a fair value of $272,000 ($.34 per share) in lieu of cash compensation to Richard Angelotti, Director.

On May 10, 2005, the Company issued 250,000 shares of common stock with a fair value of $37,500 ($0.15 per share) in lieu of cash compensation to Kevin Bachus as our President and Chief Operating Officer.

On June 3, 2005, the Company issued 250,000 shares of common stock with a fair value of $25,000 ($0.10 per share) in lieu of cash compensation to Kevin Bachus as our President and Chief Operating Officer.

F-66

On June 13, 2005, the Company issued 1,700,000 shares of common stock with a fair value of $221,000 ($0.13 per share) to Timothy Roberts. These shares were an indemnification to Mr. Roberts as the guarantor on a $400,000, 6% promissory note between the Company and Nite Capital. The note was collateralized with Mr. Roberts’ personal holdings of Company stock.

On June 22, 2005, the Company issued 500,000 shares of common stock with a fair value of $50,000 ($0.10 per share) in lieu of cash compensation to Timothy Roberts, as our CEO (Mr. Roberts was also the CFO and Chairman).

On August 11, 2005, the Company issued 882,398 shares of common stock with a fair value of $61,768 ($0.07 per share) in lieu of cash compensation to Timothy Roberts, as our CEO (Mr. Roberts was also the CFO and Chairman).

On August 11, 2005, the Company issued 712,960 shares of common stock with a fair value of $49,907 ($0.07 per share) in lieu of cash compensation to Kevin Bachus as our President and Chief Operating Officer. Mr. Bachus became CEO, CFO and a Director on August 15, 2005.

On August 11, 2005, the Company issued 296,297 shares of common stock with a fair value of $20,741 ($0.07 per share) to Richard Angelotti, Director.

On August 18, 2005, the Company issued 5,000,000 shares of common stock to Richard Angelotti, with a fair value of $350,000 ($0.07 per share).

On August 18, 2005, the Company issued 10,000,000 shares of common stock to Timothy M. Roberts, our former Chief Executive Officer, with a fair value of $700,000 ($0.07 per share).

On December 9, 2005, this the July 28, 2004 promissory note for $500,000 was assigned by Mr. Witzer to a Dick Angelotti, a Director. The terms of the promissory note were subsequently amended to provide that as of November 1, 2005, principal and accrued interest totaled $560,437.43. With respect to the revised principal, commencing November 2, 2005, simple interest at a rate of fifteen percent (15%) per annum will accrue on a monthly basis until December 31, 2006 (maturity date), at which time the entire remaining principal and all accrued and unpaid interest are due in full.

On January 1, 2006, the Company converted $91,775 owed under employee expense reimbursements into a promissory note to Timothy Roberts, a former employee, and the current Chairman and a Director. The note is unsecured and bears an 8% rate of interest. During November 2006, the Company issued 19,940,582 shares of common stock in full settlement of the promissory note and accrued interest. The fair value was $97,709 ($0.0049 per share) and no gain or loss was recognized.

On January 11, 2006, Greg Koler, our Chief Executive Officer, was granted 1,000,000 shares of common stock under the terms of his employment agreement. As of June 30, 2006, such shares have not been issued.

On February 14, 2006, the company issued Greg Koler, our Chief Executive Officer, 1,021,239 of common stock with a fair market value of $18,382 ($.018 per share) for services performed by Mr. Koler, prior to November 18, 2005, in his capacity as an independent contractor prior to becoming the CEO.

On July 26, 2006, the Company issued 20,000,000 shares of common stock with a fair value of $325,814.02 ($.01629 per share) to Timothy Roberts, Chairman, for consulting services rendered in 2006 and to be rendered for the balance of 2006.

On August 4, 2006, the Company issued 41,659,182 shares of common stock with a fair value of $624,887.73 ($.015 per share) to convert a promissory note held by Richard Angelotti, a Director, and accrued interest. No gain or loss was recognized on the conversion.

F-67

During November 2006, the Company issued 20,000,000 shares of common stock to Greg Koler, the CEO, with a fair value of $66,000 ($0.0033 per share).

During November 2006, the Company issued 9,000,000 shares of common stock to Greg Koler, the CEO, with a fair value of $34,200 ($0.0038 per share).

During November 2006, the Company issued 1,000,000 shares of common stock to Greg Koler, the CEO, with a fair value of $3,600 ($0.0036 per share).

During November 2006, the Company issued 19,940,582 shares of common stock in full settlement of a promissory note held by Timothy Roberts, Chairman, and accrued interest. The fair value was $97,709 ($0.0049 per share) and no gain or loss was recognized.

NOTE 12 SUBSEQUENT EVENTS

(A) Common Stock Issuances

During March 2007, the Company issued 425,000,000 shares of common stock in full settlement of notes and accrued interest. Principal and interest in the amount of $3,103,895 was converted ($0.0073 per share).

During March 2007, the Company issued 179,800,000 shares of common stock in full settlement of notes and accrued interest. Principal and interest in the amount of $152,400 was converted ($0.00085 per share).

During March 2007, the Company issued 9,990,909 shares of common stock in partial conversion of a note. Principal in the amount of $91 was converted ($0.0000091 per share).

During March 2007, the Company issued 9,091 shares of common stock for warrants exercised. Warrants in the amount of $9,909 were exercised ($1.09 per share).

During March 2007, the Company issued 116,057,264 shares of common stock for consulting services with a fair value of $145,072 ($0.00125 per share).

During March 2007, the Company issued 5,000,000 shares of common stock for consulting services with a fair value of $5,625 ($0.001125 per share).

During April 2007, the Company issued 11,000,000 shares of common stock for consulting services with a fair value of $12,375 ($0.001125 per share).

(B) Amendment to Articles of Incorporation

On March 16, 2007, the Company amended its Articles of Incorporation to provide for an increase in its authorized share capital. The authorized capital stock increased from 1,200,000,000 to 2,400,000,000 common shares at a par value of $0.0001 per share.

F-68

Delaware (State or other jurisdiction of incorporation or organization)		65-1048794 (I.R.S. Employer Identification No.)
222 Grace Church St., Suite 302 Port Chester, NY 10573 (Address of principal executive offices) (Zip Code)

(866) 452-9883 (Issuer’s telephone number)

		Page Number

PART I		1

Item 1.	Description of Business	1

Item 2.	Description of Property	13

Item 3.	Legal Proceedings	13

Item 4.	Submission of Matters to a Vote of Security Holders	15

PART II		16

Item 5.	Market for Common Equity and Related Stockholder Matters	16

Item 6.	Management’s Discussion and Analysis or Plan of Operation	20

Item 7.	Financial Statements	25

Item 8.	Changes In and Disagreements With Accountants on Accounting and Financial Disclosure	25

Item 8A.	Controls and Procedures	26

Item 8B.	Other Information	26

PART III		26

Item 9.	Directors, Executive Officers, Promoters, Control Persons and Corporate Governance; Compliance with Section 16(a) of the Exchange Act	26

Item 10.	Executive Compensation	29

Item 11.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	31

Item 12.	Certain Relationships and Related Transactions, and Director Independence	33

Item 13.	Exhibits	36

Item 14.	Principal Accountant Fees and Services	38

Plan Category	Number of Shares to Be Issued upon Exercise of Outstanding Options, Warrants and Rights (a)	Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights (b)	Number of Shares Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Shares Reflected in Column (a)) (c)

Equity Compensation plans approved by stockholders	0	N/a	0
Equity Compensation plans not approved by stockholders	392,000,000	N/a	392,000,000
Total	392,000,000	N/a	392,000,000

	·	discuss our future expectations;
	·	contain projections of our future results of operations or of our financial condition; and
	·	state other "forward-looking" information.

Purchase of property and equipment	$	990,467

Development costs (costs net applicable payables)		2,336,375

Advertising (expenses net applicable payables)		1,294,778

Salary expense (expense net shares issued for employee services and wages/taxes payable)		5,925,926

Consultants and professional fees (expenses net shares issued for services and applicable payables)		1,781,164

General and administrative (expenses net non cash expenses [i.e. depreciation] and applicable payables)		3,811,916

Cash repayments of notes payable		1,075,000

Cash interest payments		534,093

Total cash utilized	$	17,749,719


o	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Quarter Ended	High		Low
12/31/06	$	0.01	$	0.003
09/30/06	$	0.01	$	0.009
06/31/06	$	0.03	$	0.009
03/31/06	$	0.46	$	0.012
12/31/2005	$	0.04	$	0.001
09/30/2005	$	0.12	$	0.04
06/30/2005	$	0.28	$	0.09
03/31/2005	$	1.60	$	0.24

Name	Age	Position	Director Since
Greg Koler	50	Chief Executive Officer, Interim Chief Financial Officer and Director	2006
Richard Angelotti	62	Director	2004
Timothy Roberts	36	Chairman of the Board of Directors	2004

Name & Principal Position	Year	Salary ($)	Bonus ($)	Stock Awards($)	Option Awards ($)	Non-Equity Incentive Plan Compensation ($)	Change in Pension Value and Non-Qualified Deferred Compensation Earnings ($)	All Other Compensation ($)	Total ($)
Timothy M. Roberts Chairman, Chief	2006	$327,000	Nil	Nil	Nil	Nil	Nil	Nil	$327,000
Executive Officer and Director(1)	2005	$142,594 ²	Nil	Nil	Nil	Nil	Nil	Nil	$142,594
Greg Koler Chief Executive Officer	2006	$250,000 ³	Nil	$45,716 *	Nil	Nil	Nil	Nil	$295,716
and Interim Chief Financial Officer(5)	2005	$29,487 ⁶	Nil	Nil	Nil	Nil	Nil	Nil	$29,487
Kevin Bachus Former President and	2006	Nil	Nil	Nil	Nil	Nil	Nil	Nil	Nil
Former Chief Operating Officer(7)	2005	$158,050 ⁸	Nil	Nil	Nil	Nil	Nil	Nil	$158,050
Richard S. Skoba Former Executive (9)	2006	Nil	Nil	Nil	Nil	Nil	Nil	Nil	Nil
Vice President of Sales	2005	$136,896 ¹⁰	Nil	Nil	Nil	Nil	Nil	Nil	$136,896
Tyrol Graham Former Vice President	2006	$34,732	Nil	Nil	Nil	Nil	Nil	Nil	$34,732
Development (11)	2005	$217,333 ¹²	Nil	Nil	Nil	Nil	Nil	Nil	$217,333

1	Resigned as an officer of our company on August 15, 2005.
2	Includes 1,382,298 shares of S-8 stock issued in lieu of cash compensation.
3	Includes 30,000,000 shares of S-8 stock issued in lieu of cash compensation. $146,200 of this amount is currently payable but has been deferred.
4	Includes 500,000 shares of S-8 stock issued in lieu of cash compensation.
5	Appointed as an officer and director of our company on November 18, 2005.
6	For his role as a director and officer Mr. Koler was compensated solely in cash.
7	Resigned as an officer and director of our company on November 17, 2005.
8	Includes 1,212,960 shares of S-8 stock issued in lieu of cash compensation.
9	Resigned from our company on April 30, 2005.
10	includes 1,722,598 shares of S-8 stock issued in lieu of cash compensation.
11	Resigned from our company on February 24, 2006.
12	includes 4,719,739 shares of S-8 stock issued in lieu of cash compensation.

Option Awards						Stock Awards
Name	Number of Securities Underlying Unexercised Options (#) Exercisable	Number of Securities Underlying Unexercised Options (#) Unexercisable	Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)	Option Exercise Price ($)	Option Expiration Date	Number of Shares or Units of Stock That Have Not Vested (#)	Market Value of Shares or Units of Stock That Have Not Vested ($)	Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)	Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)
Nil	Nil	Nil	Nil	Nil	Nil	Nil	Nil	Nil	Nil

Name	Fees Earned or Paid in Cash ($)	Stock Awards ($)	Option Awards ($)	Non-Equity Incentive Plan Compensation ($)	Change in Pension Value and Nonqualified Deferred Compensation Earnings	All Other Compensation ($)	Total ($)
Greg Koler	Nil	Nil	Nil	Nil	Nil	Nil	Nil
Timothy Roberts	Nil	Nil	Nil	Nil	Nil	Nil	Nil
Richard Angelotti	$69,333 (1)	Nil	Nil	Nil	Nil	Nil	$69,333

Name and Address of Beneficial Owner	Amount Beneficially Owned (1)	Percent of Class (1)
Timothy M. Roberts	0	*
Greg Koler	29,000,000	1.61%
Richard Angelotti	28,291,182	1.57%
Golden Gate Investors, Inc. (2)	179,763,398	9.99%
All Officers and Directors as a group (3 persons)	57,291,182	3.18%

Exhibit #	Exhibit Name

3.1	Certificate of Incorporation ( Incorporated by Reference to Exhibit 3.0 to Form SB-2 (Registration No. 333-67990) filed with the SEC on August 20, 2001 ).

3.2	Certificate of Amendment to Certificate of Incorporation (Incorporated by reference to Exhibit 3.2 to the Company's Form 10-KSB for the year ended December 31, 2003 ).

3.3	Certificate of Amendment to Certificate of Incorporation ( Incorporated by reference to Exhibit 3.3 to the Company's Form 10-KSB for the year ended December 31, 2003 ).

3.4	Certificate of Amendment to Certificate of Incorporation of the Company (Incorporated by reference to Exhibit 1 to Definitive 14-A filed with the SEC on June 6, 2006)

3.5	Bylaws (Incorporated by reference to Exhibit 3.4 to the Company's Form 10-KSB for the year ended December 31, 2003 ).

4.1	Company’s 2006 Executive Compensation Plan - A (Incorporated by reference to Exhibit 4.1 to Form S-8 filed with the SEC on November 9, 2006).

4.2	Company’s 2006 Employee Compensation Plan C (Incorporated by reference to Exhibit 4.2 to Form S-8 filed with the SEC on November 9, 2006).

10.1+	Employment agreement between the Company and Greg Koler dated January 11, 2006 (Incorporated by reference to Exhibit 10.1 to the Form 8-K filed with the SEC on January 13, 2006).

10.2	Stockholder vesting agreement between the Company and Greg Koler dated January 11, 2006 (Incorporated by reference to Exhibit 10.2 to the Form 8-K filed with the SEC on January 13, 2006).

10.3	Securities Purchase Agreement dated as of January 24, 2006 by and between Infinium Labs, Inc. and Golden Gate Investors, Inc. (Incorporated by reference to Exhibit 10.1 to the Form 8-K filed with the SEC on January 31, 2006).

10.4	Registration Rights Agreement dated as of January 24, 2006 by and between Infinium Labs, Inc. and Golden Gate Investors, Inc. (Incorporated by reference to Exhibit 10.2 to the Form 8-K filed with the SEC on January 31, 2006).

10.5	5¼% Convertible Debenture of Infinium Labs, Inc. dated as of January 24, 2006. (Incorporated by reference to Exhibit 10.3 to the Form 8-K filed with the SEC on January 31, 2006 ).

10.6	Warrant to Purchase Common Stock of Infinium Labs, Inc. dated as of January 24, 2006 (Incorporated by reference to Exhibit 10.4 to the Form 8-K filed with the SEC on January 31, 2006).

10.7	Addendum to Convertible Debenture, Warrant to Purchase Common Stock and Securities Purchase Agreement dated as of January 24, 2006 by and between Infinium Labs, Inc. and Golden Gate Investors, Inc. (Incorporated by reference to Exhibit 10.5 to the Form 8-K filed with the SEC on January 31, 2006 ).

10.8	8% Promissory Note between the Company and Timothy Roberts, dated January 1, 2006 (filed herewith).

10.9	Securities Purchase Agreement dated January 24, 2006 between the Company and Golden Gate Investors, Inc. (Incorporated by reference to Exhibit 10.1 to the Form 8-K filed with the SEC on January 31, 2006).

10.10	Registration Rights Agreement dated January 24, 2006 between the Company and Golden Gates Investors, Inc. (Incorporated by reference to Exhibit 10.2 to the Form 8-K filed with the SEC on January 31, 2006).

10.11	5 ¼ % Convertible Debentures (Incorporated by reference to Exhibit 10.3 to the Form 8-K filed with the SEC on January 31, 2006).

10.12	Warrant to Purchase Common Stock issued by the Company to Golden Gate Investors, Inc. (Incorporated by reference to Exhibit 10.4 to the Form 8-K filed with the SEC on January 31, 2006).

10.13	Addendum to Convertible Debenture, Warrant to Purchase Common Stock and Securities Purchase Agreement dated January 24, 2006 between the Company and Golden Gate Investors, Inc.

10.14	Stockholder Vesting Agreement dated January 11, 2006 between the Company and Greg Koler (Incorporated by reference to Exhibit 10.2 to the Form 8-K filed with the SEC on January 13, 2006).

10.15	Conversion Agreement dated August 4, 2006 between Phantom Entertainment, Inc. and Richard Angelotti (Incorporated by reference to Exhibit 10.3 to 10-QSB filed with the SEC on August 21, 2006).

10.15	Stock Purchase Warrant dated June 30, 2006 (Incorporated by reference to Exhibit 10.2 to Form 10-QSB filed with the SEC on August 21, 2006).

10.16	Non-negotiable Promissory Note between the Company and Ronald Westman in the amount of $100,000 (Incorporated by reference to Exhibit 10.1 to Form 10-QSB filed with the SEC on August 21, 2006).

10.17	Manufacturing and Supply Agreement, dated November 6, 2006 between the Company and Itron Technology, Inc. (Incorporated by reference to Exhibit 10.1 to Form 8-K filed with the SEC on November 8, 2006).

10.18	Amendment to Secured Debentures between the Company and James Beshara dated September 22, 2006 (Incorporated by reference to Exhibit 10.1 to Form 10-QSB filed with the SEC on November 20, 2006).

10.19	Conversion Agreement dated October 23, 2006 by the Company and Timothy Roberts (Incorporated by reference to Exhibit 10.2 to Form 10-QSB filed with the SEC on November 20, 2006).

10.20	Original Issue Discount Secured Note dated December 7, 2006 in the aggregate face amount of $83,333 between Phantom Entertainment, Inc. and John Fife (Incorporated by reference to Exhibit 10.1 to Form 8-K filed with the SEC on December 8, 2006).

10.21	Original Issue Discount Secured Note dated December 7, 2006 in the aggregate face amount of $83,333 between Phantom Entertainment, Inc. and John Fife (Incorporated by reference to Exhibit 10.2 to Form 8-K filed with the SEC on December 8, 2006).

10.22	Original Issue Discount Secured Note dated December 7, 2006 in the aggregate face amount of $83,333 between Phantom Entertainment, Inc. and John Fife (Incorporated by reference to Exhibit 10.3 to Form 8-K filed with the SEC on December 8, 2006).

10.23	Stock Pledge Agreement between the Company and John Fife, dated December 7, 2006 (Incorporated by reference to Exhibit 10.4 to Form 8-K filed with the SEC on December 8, 2006).

10.24	Guaranty dated December 7, 2006 by Timothy Roberts in favor of John Fife (Incorporated by reference to Exhibit 10.5 to Form 8-K filed with the SEC on December 8, 2006).

10.25	Employment Agreement between Phantom Entertainment, Inc. and Terrance Taylor dated December 4, 2006 (Incorporated by reference to Exhibit 10.6 to Form 8-K filed with the SEC on December 8, 2006).

10.26	Settlement Agreement dated March 22, 2007 between the Company and Longview Special Finance, Inc. (Incorporated by reference to Exhibit 10.1 to Form 8-K filed with the SEC on April 3, 2007).

10.27	Product Licensing Agreements with Ione Technology Inc. with the effective date of the Agreements being July 1, 2007 (Incorporated by reference to Exhibits 10.1 and 10.2 to Form 8-K filed with the SEC on May 1, 2007).

21.1	List of Subsidiaries. (Filed herewith)

31.1	Certification by Chief Executive Officer and Interim Chief Financial Officer pursuant to Sarbanes-Oxley Section 302 (Filed herewith).

32.1	Certification by Chief Executive Officer and Interim Chief Financial Officer pursuant to 18 U.S.C. Section 1350 (Filed herewith).

	2006		2005
Audit Fees	$	55,000	$	63,758
Audit-Related Fees	$	0	$	0
All Other Fees		—		—


	PHANTOM ENTERTAINMENT, INC.

Date: May 18, 2007	By:	/s/ Greg Koler
		Name: Greg Koler
		Title: Chief Executive Officer (Principal Executive Officer) and Interim Chief Financial Officer (Principal Accounting and Financial Officer)

SIGNATURE	TITLE	DATE

/s/ *Greg Koler*	Chief Executive Officer and	May 18, 2007
Greg Koler	Interim Chief Financial Officer

/s/ *Timothy Roberts*	Chairman of the Board of Directors	May 18, 2007
Timothy Roberts

/s/ *Richard Angelotti*	Director	May 18, 2007
Richard Angelotti

PAGE	F-1 - F-2	Reports of Independent Registered Public Accounting Firms

PAGE	F-3	Balance Sheet as of December 31, 2006

PAGE	F-4	Consolidated Statements of Operations for the Year Ended December 31, 2006 and 2005 (Restated) and for the Period from December 9, 2002 (Inception) to December 31, 2006

PAGES	F-5 - F-21	Consolidated Statement of Changes in Stockholders’ Deficiency for the Period from December 9, 2002 (Inception) Through December 31, 2006

PAGE	F-22	Consolidated Statements of Cash Flows for the Year Ended December 31, 2006 and 2005 (Restated) and for the Period from December 9, 2002 (Inception) to December 31, 2006

PAGES	F-23 - F-68	Notes to Consolidated Financial Statements

	December 31, 2006 (Consolidated)
ASSETS
Current Assets:
Cash	$	57,051
Prepaid Expenses		1,000
Total Current Assets		58,051

Property and Equipment, Net		2,000

Total Assets	$	60,051

LIABILITIES AND STOCKHOLDERS' DEFICIENCY

Current Liabilities:
Accounts payable	$	4,233,387
Due to developers		845,000
Accrued interest expense		1,435,569
Other accrued expense		220,994
Accrued payroll and payroll taxes (Note 8(F))		2,478,206
Derivatives (Note 5(B))		6,946,855
Promissory notes (Note 5(A))		2,242,276
Total Current Liabilities		18,402,287

Long Term Liabilities:
Deposits		285,000
Total Long Term Liabilities		285,000

Total Liabilities		18,687,287

Commitments and Contingencies		-

Stockholders’ Deficiency:
Preferred stock, $0.001 par value, 10,000,000 shares authorized, none issued and outstanding		-
Common stock, $0.0001 par value, 1,200,000,000 shares authorized, 1,052,576,151 shares issued and outstanding (Note 6)		105,258
Additional paid-in capital (Note 6)		54,840,265
Subscription receivable		(22,517	)
Accumulated deficit during development stage		(73,550,242	)

Total Stockholders’ Deficiency		(18,627,236	)

Total Liabilities and Stockholders’ Deficiency	$	60,051

	For the Year Ended December 31, 2006 Consolidated			For the Year Ended December 31, 2005 Consolidated			For the Period from December 9, 2002 (Inception to December 31, 2006) Consolidated
				Restated - Note 2
Operating Expenses:
Development costs	$	311,052		$	(13,927	)	$	3,833,329
Advertising		141,893			404,331			2,134,780
Salary expense		1,433,205			5,677,365			14,268,476
Professional fees		607,738			1,265,317			5,577,658
Consultants		957,800			3,111,392			14,011,213
Impairment of assets		18,000			502,090			872,389
General and administrative		984,895			1,289,962			6,505,763
Total Operating Expenses		4,454,583			12,236,530			47,203,608
Net Loss from Operations		(4,454,583	)		(12,236,530	)		(47,203,608	)

Other Income (Expense):
Other income / (expense)		(670	)		383			1,647
Gain / (Loss) on sale of equipment		22,126			(5,011	)		16,667
Gain / (Loss) on conversion of notes		(330,872	)		(10,671,647	)		(11,002,519	)
Gain / (Loss) on vendor settlement		(1,235	)		-			(1,235	)
Gain / (Loss) on stock issued for payroll taxes		(79,983	)		(62,269	)		(142,252	)
Interest expense		(1,259,226	)		(5,900,848	)		(12,866,112	)
Derivatives income (expense)		(3,257,349	)		38,730,224			(1,433,540	)
Payroll Tax Penalties & Interest		(163,154	)		(208,322	)		(919,290	)
Total Other Income (Expense)		(5,070,363	)		21,882,510			(26,346,634	)

Income (Loss) before Income Taxes		(9,524,946	)		9,645,980			(73,550,242	)

Income Taxes		-			-			-
Net Income (Loss)	$	(9,524,946	)	$	9,645,980		$	(73,550,242	)

Per Common Share

Income (Loss) per common share - basic and diluted	$	(0.02	)	$	0.04		$	(0.29	)

Income (Loss) per common share - basic and diluted	$	(0.02	)	$	0.03		$	(0.29	)

Weighted average - basic		633,186,446			219,727,249			256,783,699

Weighted average - diluted		633,186,446			405,579,272			256,783,699

	Preferred Stock				Common Stock				Additional Paid-In			Accumulated Deficit During Development			Stock Subscriptions			Deferred
	Shares		Amount		Shares		Amount		Capital			Stage			Receivable			Compensation		Total
Stock issued to founders ($0.0004 per share)		-	$	-		58,189,728	$	5,819	$	12,703		$	-		$	(18,517	)	$	-	$	5

Stock issued for cash ($0.12 per share)		-		-		4,423,012		442		526,261			-			-			-		526,703

Stock issued for services ($0.3775 per share)		-		-		2,957,376		296		1,112,709			-			-			-		1,113,005

Net loss for the period from December 9, 2002 (inception) to October 31, 2003		-		-		-		-		-			(2,270,129	)		-			-		(2,270,129	)
							$	$				$	$					$	$	$
Balance, October 31, 2003		-		-		65,570,116		6,557		1,651,673			(2,270,129	)		(18,517	)		-		(630,416	)

Stock issued for cash ($0.28 per share)		-		-		2,169,148		217		612,172			-			(145,000	)		-		467,389

Stock issued for signage rights ($0.3175 per share)		-		-		942,600		94		299,906			-			-			-		300,000

Stock issued for services ($0.3175 per share)		-		-		434,036		43		138,597			-			-			-		138,640

Net loss for the two months ended December 31, 2003		-		-		-		-		-			(674,945	)		-			-		(674,945	)
							$	$				$	$					$	$	$
Balance, December 31, 2003 (Restated - Note 2)		-		-		69,115,900		6,911		2,702,348			(2,945,074	)		(163,517	)		-		(399,332	)

Recapitalization of Global Business Resources		-		-		16,156,000		1,615		(1,615	)		-			-			-		-

	For the Year Ended December 31, 2006 (Consolidated)			For the Year Ended December 31, 2005 (Consolidated)			For the Period from December 9, 2002 (Inception) to December 31, 2006
				Restated - Note 2
Cash Flows from Operating Activities:
Net loss	$	(9,524,946	)	$	9,645,980		$	(73,550,242	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		-			208,547			382,895
Impairment of assets		18,000			502,090			872,389
Loss on disposal of assets		-			5,011			5,459
Common stock issued for services		1,564,606			4,493,531			15,762,127
Common Stock issued to employees		1,087,432			2,821,858			5,951,431
Common Stock embezzled		194,800			-			194,800
Common stock issued for legal settlements		-			(175,900	)		-
Common stock issued for interest		379,328			1,243,314			4,350,373
Common stock issued for loan guarantee		-			-			832,000
Common stock issued for vendor settlement		622,662			1,020,353			1,643,015
(Gain)/Loss on vendor settlement		-			(27,367	)		(27,367	)
Loss on conversion of notes payable		330,872			10,671,647			11,002,519
Legal fees on conversion of notes payable		13,465			40,131			53,596
Legal fees on vendor settlement		-			28,483			28,483
Amortization of interest expense		150,000			3,599,312			5,924,900
Derivatives (income) expense		3,257,349			(38,730,224	)		1,433,540
Changes in operating assets and liabilities:
Decrease (increase) in current assets:
Prepaid expenses and other receivables		6,071			59,925			(1,000	)
Deferred costs		-			-			-
Deposits		-			5,440			-
Increase (decrease) in current liabilities:
Accounts payable		382,113			240,389			4,221,387
Due to developers		-			(140,000	)		845,000
Deposits-prepaid warrants		285,000			-			285,000
Accrued interest		589,432			544,722			1,435,569
Other accrued expense		214,488			(98,494	)		220,994
Accrued payroll and payroll taxes		114,001			698,436			2,478,206
Net Cash Used in Operating Activities		(315,327	)		(3,342,816	)		(15,654,926	)

Cash Flows from Investing Activities:
Purchase of property and equipment		(20,000	)		10,310			(980,157	)
Sale of property and equipment		-			5,660			17,415
Increase in restricted cash		-			894,910			-
Net Cash Used in Investing Activities		(20,000	)		910,880			(962,742	)

Cash Flows from Financing Activities:
Repayments of notes payable		-			-			(1,075,000	)
Proceeds from stockholder		-			-			4,940
Payments to stockholder		-			-			(4,940	)
Proceeds from sale of common stock, net		150,000			795,400			9,677,147
Promissory note		241,775			1,633,037			8,072,572
Net Cash Provided by Financing Activities		391,775			2,428,437			16,674,719

NET INCREASE (DECREASE) IN CASH		56,448			(3,499	)		57,051

CASH AT BEGINNING OF PERIOD		603			4,102			-

CASH AT END OF PERIOD	$	57,051		$	603		$	57,051

Supplemental Disclosure of Cash Flow Information:

Cash paid for interest	$	255		$	18,750		$	534,093