Exhibit 99.1

	Original Amount		Accumulated Amortization			Net Amount		Weighted Average Amortization Period in months

Customer list	$	350,851	$	(268,351	)	$	82,500		33
Software technology		430,000		(57,333	)		372,667		60
Brand name		320,000		(42,667	)		277,333		60
Covenants not to compete		470,000		(176,111	)		293,889		34

	$	1,570,851	$	(544,462	)	$	1,026,389

Estimated amortization expense for the next five years and thereafter is as follows as of December 31, 2006.

2007	$	299,167
2008		331,667
2009		195,556
2010		150,000
2011		50,000
Thereafter		—

	$	1,026,389

F-10

Loan Costs

Loan costs during 2004 were related to the Dolphin Notes (see Note 4). They were amortized over the term of the notes, 22 years. The related amortization expense was $223,387 during the year ended December 31, 2004. In June 2004, the Dolphin Notes were converted to common shares of the Company’s stock and all remaining loan costs were expensed accordingly.

Goodwill

Goodwill represents the excess of cost over the value of net assets of businesses acquired pursuant to Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations” and is carried at cost unless write-downs for impairment are required. The Company evaluates the carrying value of goodwill on an annual basis and whenever events and changes in circumstances indicate that the carrying amount may not be recoverable, adjustment is then made. To date, no such impairment has been recorded.

Fair Value of Financial Instruments

The Company’s financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities are carried at cost, which approximates their fair value, due to the relatively short maturity of these instruments. As of December 31, 2006 and 2005, the Company’s bank credit line obligations and capital lease obligations have stated borrowing rates that are consistent with those currently available to the Company and, accordingly, the Company believes the carrying value of these debt instruments approximates their fair value.

Revenue Recognition

We recognize revenues in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 104 (“SAB 104”), “Revenue Recognition,” and the Financial Accounting Standards Board’s, or FASB, Emerging Issues Task Force Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables.”

1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed and collectibility of the resulting receivable is reasonably assured. If sufficient evidence of the fair values of the delivered and undelivered elements of an arrangement does not exist, revenue is deferred using revenue recognition principles applicable to the entire arrangement as if it were a single element arrangement under EITF No. 00-21 and is recognized on a straight-line basis over the term of the contract. For arrangements with multiple deliverables which are determined to have separate units of accounting, revenue is recognized upon the delivery of the separate units in accordance with EITF No. 00-21.

Revenue is derived primarily from fees for streaming media services, web hosting and managed products and services. Streaming media service fees, which are typically usage-based, are recognized as the service is provided. Web hosting and managed services fees, generally consisting of fixed monthly amounts, are also recognized as the service is provided. Our revenues primarily consist of monthly recurring revenues from contracts with terms of generally one year or more. These contracts usually have a fixed minimum commitment based on a certain level of usage with additional charges for any usage over the minimum commitment level.

F-11

In 2006, we derived revenue from our new VitalStream Advertising Services product line through the licensing of our advertising technology and software, in addition to usage-based billings which included a minimum commitment for a fixed number of available impressions over a fixed time period. We recognize revenue in accordance with Statement of Position 97-2 (“SOP 97-2”) “Software Revenue Recognition.”

To a much lesser extent, we also derive revenue from the sale of professional services usually under fixed-fee arrangements. The Company generally recognizes revenue under these arrangements based on the percentage of cost incurred to date compared to the estimated total cost to complete the project.

Cost of Revenue

Cost of revenue includes the cost of license fees for operating systems software, advertising royalties to content rights owners, advertising distribution costs, and the direct costs of operating the Company’s network, including telecommunications charges, depreciation on the Company’s data center equipment, network rent and utilities, and direct labor costs associated with operating the network.

Research and Development

Research and development costs are expensed as incurred, and totaled $1,867,493, $1,001,301, and $476,724 for the years ended December 31, 2006, 2005 and 2004, respectively.

1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Other Income (Expense)

In the fourth quarter of 2005, we recorded a one-time write down of $613,772 on certain older network equipment with an original cost value of $1,315,799 net of accumulated depreciation of $702,027 that was replaced during our network architecture upgrade. This was offset by a one-time gain of approximately $200,000 from the sale of certain smaller non-core business hosting accounts to a third party in the first quarter of 2005.

F-12

Net Loss Per Share

Net loss per common share is computed using the weighted average number of common shares outstanding during the periods presented. Warrants and options to purchase shares of the Company’s stock under its stock option plans, may have a dilutive effect on the Company’s earnings per share in the future but are not included in the calculation for 2006, 2005 and 2004 because they have an antidilutive effect in those periods.

Advertising Costs

Advertising and promotional materials are expensed when incurred. Total advertising costs were $621,591, $570,209 and $343,434 for the years ended December 31, 2006, 2005 and 2004, respectively.

Stock-Based Compensation

Prior to January 1, 2006, the Company accounted for employee stock option grants in accordance with APB No. 25, and adopted the disclosure-only provisions of SFAS No.123, Accounting for Stock-Based Compensation, amended by SFAS No. 148 Accounting for Stock-Based Compensation - Transition and Disclosure.

In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123 (revised 2004) Share-Based Payment (“SFAS No. 123R”), which replaces SFAS No. 123 and supersedes APB No. 25. SFAS No. 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values beginning with the first annual period after June 15, 2005. Subsequent to the effective date, the pro forma disclosures previously permitted under SFAS No. 123 are no longer an alternative to financial statement recognition.

1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Effective January 1, 2006, the Company adopted SFAS No. 123R using the modified prospective method. Under this method, compensation cost recognized during the twelve months ended December 31, 2006 includes: (a) compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123 amortized over the options’ vesting period, and (b) compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123R amortized on a straight-line basis over the options’ vesting period.

Income Taxes

The Company uses the liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to the carrying amounts on the financial statements of existing assets and liabilities, and their respective tax bases and operating loss and tax credit carryforwards. The measurement of deferred tax assets and liabilities is based on provisions of applicable tax law. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance based on the portion of tax benefits that more likely than not, will not be realized based on available evidence.

F-13

Recent Accounting Pronouncements

In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the accounting for uncertainty in income tax positions. The provisions of FIN 48 are effective for the Company on January 1, 2007, with the cumulative effect of the change in accounting principle, if any, recorded as an adjustment to opening retained earnings. The Company is currently evaluating the impact of adopting FIN 48 but does not believe the adoption of FIN 48 will have a material impact on our consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), which clarifies the definition of fair value, establishes guidelines for measuring fair value, and expands disclosures regarding fair value measurements. SFAS 157 does not require any new fair value measurements and eliminates inconsistencies in guidance found in various prior accounting pronouncements. SFAS 157 will be effective for the Company on January 1, 2008. The Company is currently evaluating the impact of adopting SFAS 157 but does not believe the adoption of SFAS 157 will have a material impact on our consolidated financial statements.

1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans-an amendment of FASB Statements No. 87, 88, 106, and 132(R),” (“SFAS 158”), which requires the recognition of the overfunded or underfunded status of a defined benefit postretirement plan in a company’s balance sheet. This portion of the new guidance is effective on December 31, 2006. We do not have any defined benefit pension or postretirement plans that are subject to SFAS 158. As such, we do not expect the pronouncement to have a material impact on our consolidated financial statements.

In September 2006, the Securities and Exchange Commission (“SEC”) released Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB 108 provides interpretive guidance on the SEC’s views on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. The provisions of SAB 108 are effective for the Company for the fiscal year ended December 31, 2006. The application of SAB 108 did not have a material effect on the consolidated financial statements of the Company.

F-14

In February 2007, the FASB issued SFAS No. 159 “The Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159). SFAS 159 permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of adopting SFAS 159 but does not believe the adoption of SFAS 159 will have a material impact on our consolidated financial statements.

2.	PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

	December 31,
	2006		2005

Computers and office equipment	$	1,533,626	$	1,344,947
Data center equipment		16,426,138		10,075,603
Furniture and fixtures		77,987		256,953
Leasehold improvements		432,822		740,901

		18,470,573		12,418,404
Less accumulated depreciation and amortization		6,990,323		4,616,126

	$	11,480,250	$	7,802,278

In the fourth quarter of 2005, we recorded a net book value write down of $613,772 on certain older network equipment with an original cost value of $1,315,799 net of accumulated depreciation of $702,027 that was replaced during our network architecture upgrade.

During 2006, we recorded a net book value write down of $163,397 on certain older network equipment with an original cost value of $1,981,945 net of accumulated depreciation of $1,818,548.

3.	FACTORING AGREEMENTS

On June 30, 2003, the Company obtained two accounts receivable factoring lines of credit with Alliance Bank that allowed the Company to sell up to an aggregate $1,000,000 in accounts receivable to the bank. Pursuant to certain provisions of the Factoring and Security Agreements (“Factoring Agreements”), the bank advanced between 60% and 80% of the face amount of the invoice, at interest rates ranging from 13 1/2% to 15 1/2%. Effective September 30, 2004, we terminated our Factoring Agreements with Alliance Bank and the related security interest in substantially all of our assets that had secured the Company’s financial obligations under the agreement.

F-15

4.	NOTES PAYABLE AND DEBT RESTRUCTURING

On November 1, 2002, VHI entered into a Convertible Note and Warrant Purchase Agreement with Dolphin Communications Fund II, L.P. and Dolphin Parallel Fund II (Netherlands), L.P. (collectively, “Dolphin”). On January 15, 2003, the Initial Note

Purchase Agreement was terminated and superseded by the Amended and Restated Note Purchase Agreement (the “Amended Note Purchase Agreement”). The transaction contemplated by the Amended Note Purchase Agreement was consummated on January 16, 2003.

Pursuant to the Amended Note Purchase Agreement, Dolphin invested $1.1 million in VHI in exchange for $1.1 million in 10% Convertible Promissory Notes (the “Old Dolphin Notes”) and warrants to purchase common stock of VHI (the “Dolphin Warrants”). The proceeds of the Old Dolphin Notes were used in part, to pay the $200,000 cash portion of the purchase price under the Amended and Restated Asset Purchase Agreement with Epoch, described in Note 12, and related transaction expenses. Dolphin indirectly owned an equity interest of approximately 95% in Epoch, and one of the Dolphin representatives, was elected to the board of directors of VHI on January 9, 2003.

In connection with the Amended Note Purchase Agreement, VHI entered into a Registration Agreement under which VHI agreed to register the re-sale of any shares issued to Dolphin pursuant to the conversion of the Dolphin Notes or upon the exercise of the Dolphin Warrants. Pursuant to an investor rights agreement, VHI granted Dolphin Equity Partners a preemptive right on future issuances of preferred equity securities, which would allow Dolphin to maintain its ownership percentage at the same level after the issuance of such preferred equity securities and, together with certain shareholders, agreed to appoint or elect a Dolphin appointee to VHI’s board of directors.

F-16

4.	NOTES PAYABLE AND DEBT RESTRUCTURING (Continued)

Pursuant to a Securities Exchange and Purchase Agreement dated September 30, 2003, (the “Purchase Agreement”), the Company and Dolphin exchanged the Old Dolphin Notes for $1.1 million in 7% Convertible Promissory Notes (the “Dolphin Notes”) with different terms than the Old Dolphin Notes and amended various agreements and covenants associated with the Old Dolphin Notes.

On June 16, 2004, the Company and the holder of the Dolphin Notes agreed to convert the Dolphin Notes into common stock in exchange for the Company’s agreement to pay in cash all interest on the Dolphin Notes that had accrued or would have accrued through September 30, 2004 and to pay a conversion premium equal to 14% of the outstanding principal (including accrued but unpaid interest through September 30, 2003) under the Dolphin Notes. Upon conversion of the Dolphin Notes, the holder of the Dolphin Notes was issued an aggregate of 1,379,103 shares of common stock and an aggregate cash payment of $267,131.

5.	INCOME TAXES

The primary difference between the Company’s effective income tax rate and the statutory federal tax rate for the year ended December 31, 2006, relates primarily to losses incurred for which no tax benefit was recognized, due to the uncertainty of their

realization. The Company recorded a valuation allowance for 100% of its deferred tax benefit, which is mainly comprised of its loss carryforwards. Deferred tax liability is related to goodwill

At December 31, 2005, the Company has available for federal and state income tax purposes, net operating loss carryforwards of approximately $21,100,000 and $12,300,000, respectively, which begin to expire in 2007. The Company is in the process of determining the amount of net operating loss carryforwards generated in 2006. Because of statutory “ownership changes,” the amount of net operating losses which may be utilized in future years is subject to significant limitations. Deferred tax assets relating to these loss carryforwards are offset by valuation allowances of approximately the same amount.

A reconciliation of income tax expense that would result from applying the domestic federal statutory rate to pre-tax income from continuing operations, with income tax expense presented in the financial statements is as follows:

6.	INCOME TAXES (Continued)

	2006			2005			2004

Income tax at the Federal Statutory rate (34%)	$	(4,481,000	)	$	(1,360,000	)	$	(510,000	)
State franchise tax at 8.84%		(1,165,000	)		(354,000	)		(130,000	)
Rebate for franchise tax		396,000			120,000			44,000
Valuation allowance		5,604,810			1,595,713			598,400

	$	354,810		$	1,713		$	2,400

F-17

6.	FINANCING AGREEMENT

Effective September 30, 2004, we terminated our Factoring and Security Agreement with Alliance Bank and the related security interest in substantially all of our assets that had secured the Company’s financial obligations under the agreement.

On October 7, 2004, we entered into a one-year $4,000,000 secured credit agreement (the “Loan and Security Agreement”) with Comerica Bank (“Comerica”). The Loan and Security Agreement included a term line of credit of up to $2,000,000 to finance equipment purchases made prior to September 30, 2005 with interest payable based on a rate equal to Comerica’s published prime rate plus 0.50% and a revolving line of credit of up to $2,000,000 for general working capital needs with interest payable based on a rate equal to Comerica’s published prime rate.

On December 31, 2005, we entered into an amended loan and security agreement (the “First Amendment”) with Comerica Bank. The First Amendment amended the Loan and Security Agreement dated as of October 7, 2004. The First Amendment increased the revolving line of credit from $2,000,000 up to $2,235,000 for general working capital needs with interest payable based on a rate equal to Comerica’s published prime rate plus

0.50% until the maturity date of December 31, 2006. At December 31, 2006, the Company had borrowed $2,000,000 of the available line.

The First Amendment also revised the term line of credit of up to $2,000,000 to finance equipment purchases made prior to September 30, 2005 to a fixed term amount of $1,900,607 with principal and interest payable monthly based on a rate equal to Comerica’s published prime rate plus 0.50% with a maturity date of September 30, 2007. At December 31, 2006, the Company had an outstanding balance of $743,716, all of which is due in 2007.

F-18

6.	FINANCING AGREEMENT (Continued)

The First Amendment added to the Loan and Security Agreement a fixed term loan of $2,000,000 to finance equipment purchases. Interest accrues on the term loan at Comerica’s published prime rate plus 1.00% with a maturity date of March 31, 2008. At December 31, 2006, the Company had an outstanding balance of $1,250,000, $1,000,000 of which is due in 2007, and $250,000 of which is due in 2008.

On July 17, 2006, we entered into a second amendment to our Loan and Security Agreement (the “Second Amendment”) with Comerica Bank. The Second Amendment eliminated the minimum EBITDA requirement, and increased the permitted levels of liens and debt relative to equipment purchases from $500,000 to $3,500,000. In addition, the Second Amendment added (a) a requirement that we maintain a liquidity ratio of not less than 1.40 to 1.00, which is defined as cash and cash equivalents plus net trade accounts receivable (with net trade accounts receivable comprising no more than 50% of the sum), divided by the sum of all loans, capital leases and non-cash secured letters of credit, and (b) a provision allowing us to obtain letters of credit from Comerica under the revolving line, subject to a letter of credit sub-limit of $1,000,000.

Effective as of January 10, 2007, we entered into a Third Amendment to the Loan and Security Agreement (the “Third Amendment”) with Comerica Bank. The Third Amendment extended the maturity date of the revolving line of credit from December 31, 2006 to June 30, 2007.

We have pledged substantially all of our assets to secure repayment of the credit facilities made available under the Comerica Agreement. We must also maintain a cash balance at Comerica of not less than $3,000,000 when aggregate outstanding advances under the credit facilities are less than or equal to $3,000,000, and a balance of not less than $3,500,000 when aggregate outstanding advances under the credit facilities are greater than $3,000,000. The Comerica Agreement also contains various other restrictive covenants related to our future operations.

7.	COMMITMENTS AND CONTINGENCIES

Commitments

The Company leases facilities and equipment under various lease arrangements. The lease terms range from month-to-month to six years. In the third quarter of 2006, the Company signed a lease agreement for its corporate facilities to be located in Costa Mesa, California, with a lease term that expires on May 31, 2009. The Company is required to pay its pro rata share of all taxes, building maintenance costs and insurance. In connection with the acquisition of the hosting and colocation assets of Epoch (see Note 12), the Company assumed a sublease for 16,577 rentable square-feet in Los Angeles,

F-19

7.	COMMITMENTS AND CONTINGENCIES (Continued)

California. The sublease expires on February 27, 2009. We rent outsourced data center space on a per rack basis for an offsite data center located in Ashburn, Virginia. The contract with respect to such space expires on November 30, 2007, and our annual rental payments under this lease are approximately $650,000.

Operating lease expense was $1,707,232, $628,536 and $554,473 for the years ended December 31, 2006, 2005 and 2004, respectively. Assets capitalized under capital leases totaled $4,015,750 and $2,158,819 at December 31, 2006 and 2005, respectively. Amortization of assets capitalized under capital leases is included in depreciation and amortization expense.

Future minimum payments under noncancelable capital lease arrangements at December 31, 2006 are as follows:

Calendar Year		Capital leases

2007	$	2,114,983
2008		1,238,968

Totals	$	3,353,951
Less Interest		(359,718	)

		2,994,233
Less current portion		(1,934,373	)

Due after 1 year	$	1,059,860

Future minimum payments under noncancelable operating lease arrangements, contractual service agreements and long term debt at December 31, 2006 are as follows:

			Less than 1 Year		1 - 3 Years		4 - 5 Years		After 5 Years
Contract Type	Total		1/1/07- 12/31/07		1/1/08- 12/31/09		1/1/10 - 12/31/11		After 1/1/12

Operating leases	$	37,031	$	19,761	$	15,390	$	1,880	$	—
Office leases		2,979,352		1,586,868		1,333,894		58,590		—
Contractual service agreements		1,181,735		1,181,735		—		—		—
Long-term debt⁽¹⁾		3,993,716		3,743,716		250,000		—		—

Total contractual obligations	$	8,191,834	$	6,532,080	$	1,599,284	$	60,470	$	—

7.	COMMITMENTS AND CONTINGENCIES (Continued)

Contractual Commitments

The Company entered into contracts with telecommunication providers under which the Company has committed to a minimum usage to be purchased from these providers. The Company is committed to spend a minimum of $1,182,000 in 2007 under these agreements.

F-20

	PAGE

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	F-1

CONSOLIDATED BALANCE SHEETS	F-2

CONSOLIDATED STATEMENTS OF OPERATIONS	F-3

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY	F-4

CONSOLIDATED STATEMENTS OF CASH FLOWS	F-5

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	F-6 - F-33

ASSETS

	2006			2005
Current assets:
Cash	$	10,434,016		$	4,118,308
Accounts receivable, net of allowance for doubtful accounts and credit reserves of $2,691,057 and $454,182 at December 31, 2006 and 2005, respectively		3,697,939			3,123,006
Prepaid expenses		815,167			628,576
Other current assets		336,371			238,274

Total current assets		15,283,493			8,108,164

Fixed assets, net		11,480,250			7,802,278
Restricted cash		902,618			200,626
Goodwill		19,404,284			3,577,678
Other intangibles		1,026,389			167,500
Other assets		160,784			172,915

TOTAL ASSETS	$	48,257,818		$	20,029,161

LIABILITIES & SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,914,280		$	1,842,440
Accrued compensation		870,127			487,604
Current portion of capital lease obligations		1,934,373			642,136
Current portion of line of credit obligations		3,743,716			2,991,621
Accrued expenses		2,541,297			807,719

Total current liabilities		11,003,793			6,771,520
Capital lease obligations		1,059,860			208,767
Line of credit obligations		250,000			743,716
Deferred rent		77,734			86,549
Deferred tax liability		350,000			—

		1,737,594			1,039,032
Commitments and contingencies, Note 7

Shareholders’ equity
Preferred stock, series A, par value $0.001; authorized shares, 10,000,000; issued and outstanding shares, 0 and 0 at December 31, 2006 and 2005, respectively		—			—

Common stock, par value $0.001; authorized shares, 290,000,000; issued and outstanding shares, 23,774,015 and 17,580,083 at December 31, 2006 and 2005, respectively		87,024			70,321

Additional paid-in capital		61,622,865			24,810,514

Accumulated deficit		(26,193,458	)		(12,662,226	)

Total shareholders’ equity		35,516,431			12,218,609

TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY	$	48,257,818		$	20,029,161

		2006			2005			2004

Revenue	$	23,748,427		$	15,880,080		$	9,972,078
Cost of revenue		13,271,150			7,921,470			4,599,905

Gross profit		10,477,277			7,958,610			5,372,173

Research & development		1,867,493			1,001,301			476,724
Sales & marketing		8,686,465			5,689,301			2,861,351
General & administrative		12,998,064			4,620,691			3,072,476

Operating loss		(13,074,745	)		(3,352,683	)		(1,038,378	)

Other income (expense):
Interest income (expense)		66,235			(228,654	)		(461,313	)
Amortization of loan costs		—			—			(39,889	)
Other income (expense)		(167,912	)		(435,376	)		(3,905	)

Net other income (expense)		(101,677	)		(664,030	)		(505,107	)

Net loss before income tax expense	$	(13,176,422	)	$	(4,016,713	)	$	(1,543,485	)
Income tax expense		(354,810	)		(1,713	)		(2,400	)
Net loss		13,531,232			4,018,426			1,545,885
Basic and diluted net loss per common share (less preferred dividends)	$	(0.61	)	$	(0.25	)	$	(0.13	)

Shares used in computing basic and diluted net loss per common share		22,082,148			15,992,540			11,841,446

	2006			2005			2004
OPERATING ACTIVITIES
NET LOSS	$	(13,531,232	)	$	(4,018,426	)	$	(1,545,885	)
Adjustments to net loss:
Depreciation & amortization		4,480,450			2,457,420			1,145,050
Loss (gain) on disposal of fixed assets		163,397			618,302			(112	)
Stock-based compensation		1,754,479			—			302,628
Bad debt expense		2,893,045			156,513			218,145
Deferred income taxes		350,000			—			—
Changes in operating assets & liabilities
Accounts receivable		(3,335,355	)		(2,356,989	)		(523,614	)
Prepaid expense		(149,958	)		(377,188	)		(76,733	)
Other assets		(85,966	)		(44,673	)		(68,235	)
Accounts payable		(312,962	)		743,044			323,218
Accrued compensation		490,233			(125,456	)		403,227
Accrued expenses		1,731,301			70,859			298,612
Deferred rent		(8,815	)		—			—

TOTAL CASH PROVIDED BY (USED IN) OPERATIONS		(5,561,383	)		(2,876,594	)		476,301

INVESTING ACTIVITIES
Additions to property & equipment		(4,642,092	)		(6,997,360	)		(1,456,740	)
Proceeds from sale of equipment		—			—			2,550
Relief of (additions to) restricted cash		(701,992	)		—			49,880
Payment for acquisition of Subsidiary, net of cash acquired		999			(497,068	)		—

NET CASH USED IN INVESTING ACTIVITIES		(5,343,085	)		(7,494,428	)		(1,404,310	)

FINANCING ACTIVITIES
Payments on notes payable		—			—			(36,223	)
Payments on capital leases		(981,433	)		(878,460	)		(746,404	)
Proceeds from exercise of stock options and warrants		3,943,230			2,667,435			233,288
Proceeds from issuance of common stock, net of offering expenses		14,000,000			—			10,082,313
Payments of dividends associated with conversion of preferred stock		—			—			(101,062	)
Proceeds from (payments on) line of credit, net		258,379			2,424,033			1,131,635
Proceeds from (payments on) factoring line, net		—			—			(132,359	)

NET CASH PROVIDED BY FINANCING ACTIVITIES		17,220,176			4,213,008			10,431,188

NET INCREASE (DECREASE) IN CASH		6,315,708			(6,158,014	)		9,503,179
Cash at the beginning of the period		4,118,308			10,276,322			773,143

Cash at the end of the period	$	10,434,016		$	4,118,308		$	10,276,322
Supplementary disclosure of cash paid during the period for:
Interest	$	573,103		$	292,051		$	593,514
Income taxes	$	4,810		$	1,713		$	2,400
Equipment acquired under capital leases and other financing	$	3,124,762		$	—		$	1,608,372

	2006	2005	2004
Risk free interest rate	4.47% to 5.04%	3.63% to 4.55%	3.28% to 3.74%
Stock volatility factor	38% — 59%	14% — 79%	12% — 36%
Weighted average expected option life	3.75 years	6 years	5 years
Expected dividend yield	None	None	None

											Additional
	Common Stock				Series A preferred stock						paid-in			Deferred		Accumulated
	Shares		Amount		Shares			Amount			Capital			Compensation		Deficit			Total
Balance at December 31, 2003		7,936,978	$	31,748		900		$	1		$	8,438,038		$	—	$	(6,996,853	)	$	1,472,934

Issuance of common stock upon exercise of stock options		207,016		828		—			—			232,460			—		—			233,288
Conversion of Dolphin note to common stock		1,379,103		5,516		—			—			1,094,484			—		—			1,100,000
Stock-based compensation		—		—		—			—			302,628			—		—			302,628
Conversion of Series A preferred stock		957,447		3,830		(900	)		(1	)		(3,830	)		—		—			(1	)
Amortization of capitalized fees related to note		—		—		—			—			(219,141	)		—		—			(219,141	)
Cash dividends paid on conversion of Series A preferred shares to common stock		—		—		—			—			—			—		(101,062	)		(101,062	)
Issuance of common stock related to PIPE transaction		4,526,649		18,107		—			—			10,981,893			—		—			11,000,000
Legal fees/commissions related to PIPE transaction		—		—		—			—			(921,933	)		—		—			(921,933	)
Net loss, December 31, 2004		—		—		—			—			—			—		(1,545,885	)		(1,545,885	)
Balance at December 31, 2004		15,007,193		60,029		—			—			19,904,599			—		(8,643,800	)		11,320,828
Issuance of common stock upon exercise of stoc k options		498,719		1,995		—			—			800,940			—		—			802,935
Issuance of common stock and warrants upon acquisition of Playstream		937,500		3,750		—			—			2,245,022			—		—			2,248,772
Issuance of common stock upon exercise of warrants		1,136,671		4,547		—			—			1,859,953			—		—			1,864,500
Net loss, December 31, 2005		—		—		—			—			—			—		(4,018,426	)		(4,018,426	)
Balance at December 31, 2005		17,580,083		70,321		—			—			24,810,514			—		(12,662,226	)		12,218,609
Issuance of common stock upon exercise of stock options		991,900		1,185		—			—			2,083,057			—		—			2,084,242
Stock-based compensation		—		—		—			—			1,754,479			—		—			1,754,479
Issuance of common stock bonus		24,074		96		—			—			129,904			—		—			130,000
Issuance of common stock upon exercise of warrants		738,338		2,906		—			—			1,856,082			—		—			1,858,988
Issuance of common stock - PIPE		2,692,308		10,769		—			—			13,989,231			—		—			14,000,000
Issuance of common stock for the acquisition of Eonstreams		1,747,312		1,747		—			—			16,999,598			—		—			17,001,345
Net loss, December 31, 2006		—		—		—			—			—			—		(13,531,232	)		(13,531,332	)
Balance at December 31, 2006		23,774,015	$	87,024		—		$	—		$	61,622,865		$	—	$	(26,193,458	)	$	35,516,431

	2005			2004

Net loss reported	$	(4,018,426	)	$	(1,545,885	)

Basic and diluted net loss per common share as reported		(0.25	)		(0.13	)

Add back stock-based employee compensation cost, net of related tax effect included in the determination of net loss as reported		—			302,628

Total stock-based employee compensation, net of related tax effect that would have been included in the determination of net loss if the fair value-based method would have been applied to all awards		(542,171	)		(367,499	)

Pro forma net loss as if the fair value- based method had been applied to all awards		(4,560,597	)		(1,610,756	)

Pro forma basic and diluted loss per share as if the fair value method had been applied to all awards	$	(0.29	)	$	(0.14	)

	December 31, 2006				December 31, 2006				December 31, 2006
	Options			Weighted average exercise price	Options			Weighted average exercise price	Options			Weighted average exercise price

Outstanding - beginning of year	2,748,015		$	2.66	1,362,344		$	2.04	1,146,153		$	1.64
Granted	1,725,099		$	8.56	1,990,876		$	2.88	487,250		$	2.80
Contingent options earned	—		$	—	—						$	—
Exercised	(991,900	)	$	2.20	(341,540	)	$	1.60	(207,016	)	$	1.12
Forfeited	(141,439	)	$	4.78	(263,665	)	$	2.68	(64,044	)	$	1.92

Outstanding - end of period	3,339,775		$	5.77	2,748,015		$	2.64	1,362,344		$	2.04

Exercisable at the end of period	547,927		$	3.26	769,992		$	2.04	727,472		$	1.64

Weighted average fair value of options granted during the year			$	6,087,489			$	3,254,558			$	323,537

	Options Outstanding						Options Exercisable
Range of Exercisable prices	Number Outstanding		Remaining Contractual Life (in years)		Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price

$0.80 - $3.14		1,286,230		6.19	$	2.3821		412,921	$	2.4944
$3.14 - $5.48		408,446		3.66	$	4.8990		106,881	$	5.0436
$5.48 - $7.82		153,224		4.11	$	6.2845		11,719	$	6.0800
$7.82 - $10.16		1,485,625		4.54	$	8.8597		16,406	$	8.8800
$10.16 - $12.50		6,250		4.27	$	12.5000
Total		3,339,775		5.05	$	5.7693		547,927	$	3.2595

	Twelve Months Ended Ended December 31,
	2006		2005
Cost of sales	$	23,080	$	6,460
Research & development		55,999		12,614
Sales & marketing		470,337		91,380
General & administrative		1,205,066		431,717
Total	$	1,754,482	$	542,171

Total consideration:
Common stock issued	$	17,001,346
Total purchase consideration	$	17,001,346
Allocation of the purchase consideration
Current assets, including cash of $999	$	170,256
Fixed assets		253,854
Identifiable intangible assets		1,160,000
Goodwill		15,826,606
Total assets acquired		17,410,716
Fair value of liabilities assumed		(409,370	)
	$	17,001,346

	Amount		Amortization Period
			(In years)
Customer relationships	$	90,000		3
Software technology		430,000		5
Brand name		320,000		5
Covenants not to compete		320,000		3
Total	$	1,160,000

	For the Twelve Months Ended December 31,
	2006			2005
Revenues	$	24,082,520		$	17,318,309
Net loss	$	(13,974,221	)	$	(4,997,589	)
Basic and diluted net loss per common share	$	(0.61	)	$	(0.28	)
Shares used in computing basic and diluted net loss per common share		22,747,563			17,739,852