Fluid Media

Item 21. Exhibits

The following exhibits are furnished as exhibits to this information statement/prospectus:

Exhibit Number and Exhibit Title

2.1(3)		Contribution Agreement, dated as of May 17, 2007, by and between Fluid Media Networks, Inc., a Delaware corporation, and Fluid Media Networks USA, Inc., a Delaware corporation.
2.2(3)		Agreement and Plan of Merger, dated as of May 17, 2007, by and between Fluid Media Networks, Inc., a Delaware corporation, and FMN Merger Co., a Nevada corporation.
2.3(3)		Certificate of Ownership and Merger dated May 17, 2007 by and between Fluid Media Networks, Inc, a Delaware corporation, and FMN Merger Co., a Nevada corporation.
2.4(3)		Articles of Merger of Fluid Media Networks, Inc., a Delaware corporation, and FMN Merger Co., a Nevada corporation.
3.1(3)		Articles of Incorporation of FMN Merger Co., a Nevada corporation.
3.2(3)		Certificate of Amendment to Articles of Incorporation of FMN Merger Co., a Nevada corporation, changing the name of FMN Merger Co. to Fluid Media Networks, Inc.
3.3(3)		Bylaws of Fluid Media Networks, Inc., a Nevada corporation (f/k/a FMN Merger Co.).
4.1(2)		Form of common stock certificate of Fluid Media Networks, Inc.
4.2(3)		Certificate of Designation of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock of FMN Merger Co. dated April, 2007.
4.3		Form of 12% Unsecured Convertible Debenture
5.1*		Opinion of Goodmans LLP.
10.1(2)		Lease of the registrant’s principal executive offices, as amended.
10.2(2)#		Agreement dated March 8, 2005 between Fremantlemedia North America, Inc. and Fluid Media Networks, Inc. (f/k/a Fluid Audio Networks, Inc.).
10.3(2)		Stock Restriction Agreement dated March 15, 2006, by and between Fluid Audio and Robert Buch.
10.4(2)		Stock Purchase Agreement dated September 30, 2004, by and between Fluid Audio and Robert Buch.
10.5(2)		Fluid Audio Stock Option Plan dated July, 2005.
10.6		Consulting Agreement, dated January 1, 2005, between Fluid Audio Network, Inc. and VIZX Corporation.
10.7		Employment Agreement, dated February 21, 2006, between Fluid Audio Network, Inc. and David Williams.
10.8		Employment Agreement, dated April 15, 2005, between Fluid Audio Network, Inc. and Michael Raeford.
10.9		Employment Agreement, dated January 1, 2007, between Fluid Audio Network, Inc. and Michael Cassara.
10.10		Employment Agreement, dated March 21, 2005, between Fluid Audio Network, Inc. and Steve Parks.
10.11		Employment Agreement, dated April 15, 2005, between Fluid Audio Network, Inc. and James Williams.
10.12		Employment Agreement, dated March 9, 2007, between Fluid Audio Network, Inc. and Dragan Kovacevic.
10.13		Stock Option Agreement between Fluid Media Networks, Inc. and Hank Torbert, dated as of February 1, 2007.
10.14		Stock Option Agreement between Fluid Media Networks, Inc. and Andre Brousseau, dated as of February 12, 2007.
16.1(2)		Letter from Conner and Associates, PC, dated February 14, 2007.
16.2(2)		Letter from Stonefield Josephson, Inc. dated February 14, 2007.
21.1		Subsidiaries of the Registrant.
23.1		Consent of Stonefield Josephson, Inc.
23.2		Consent of Singer Lewak Greenbaum & Goldstein LLP.
24		Power of attorney (reference is made to the signature page hereto).

_______________

(1)	Incorporated by reference from the Company’s Registration Statement on Form 10SB (SEC File No.: 000-52118) filed with the Commission July 7, 2006.
(2)	Incorporated by reference from the Company’s Current Report on Form 8-K (SEC File No.: 000-52118) filed with the Commission on February 21, 2007.
(3)	Incorporated by reference from the Company’s Current Report on Form 8-K (SEC File No.: 000-52118) filed with the Commission on May 23, 2007.

* To be filed by amendment.

# Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

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Item 22. Undertakings.

The undersigned registrant hereby undertakes:

1.	To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement:

	(a)	to include any prospectus required by Section 10(a)(3) of the Securities Act;

	(b)	to reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information set forth in this Registration Statement; provided that any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in the volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and

	(c)	to include any material information with respect to the plan of distribution.

2.	That, for the purpose of determining any liability under the Securities Act, each such post- effective amendment shall be deemed to be a new registration statement relating to the securities offered herein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

3.	To remove from registration by means of a post-effective amendment any of the securities being registered hereby which remain unsold at the termination of the offering. (a) To respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this Registration Statement, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of this Registration Statement through the date of responding to the request. (b) To supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. (c) For determining liability of the Company under the Securities Act to any purchaser in the initial distribution of the securities, in a primary offering of the Company’s securities pursuant to this Registration Statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the Company will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser: (i) Any preliminary prospectus or prospectus of the Company relating to the offering required to be filed pursuant to Rule 424; (ii) Any free writing prospectus relating to the offering prepared by or on behalf of the Company or used or referred to by the Company; (iii) The portion of any other free writing prospectus relating to the offering containing material information about the Company or its securities provided by or on behalf of the Company; and (iv) Any other communication that is an offer in the offering made by the undersigned small business issuer to the purchaser.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the provisions above, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable.

-74-

In the event that a claim for indemnification against such liabilities, other than the payment by us of expenses incurred or paid by one of our directors, officers, or controlling persons in the successful defense of any action, suit or proceeding, is asserted by one of our directors, officers, or controlling persons in connection with the securities being registered, we will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification is against public policy as expressed in the Securities Act, and we will be governed by the final adjudication of such issue.

Each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

-75-

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Culver City, California on July 17, 2007.

	FLUID MEDIA NETWORKS, INC.


	By:	/s/ Justin F. Beckett Chief Executive Officer, President and Chairman

POWER OF ATTORNEY

We, the undersigned directors and officers of Fluid Media Networks, Inc. (the “Company”) severally constitute and appoint Justin F. Beckett with full power of substitution, our true and lawful attorney and agent, to do any and all things and acts in our names in the capacities indicated below which Justin F. Beckett may deem necessary or advisable to enable the Company to comply with the Securities Act of 1933, and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with the registration statement on Form S-4 relating to the Plan of Conversion dated as of July 13, 2007, including specifically but not limited to, power and authority to sign for us or any of us in our names in the capacities indicated below the registration statement and any and all amendments (including post-effective amendments) thereto; and we hereby ratify and confirm all that said Justin F. Beckett shall do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.

Signature	Title	Date

/s/ Justin F. Beckett Justin F. Beckett	Chief Executive Officer and President (principal executive officer and Director)	July 17, 2007

/s/ David J. Williams David J. Williams	Chief Financial Officer (principal accounting officer)	July 17, 2007

/s/ Hank Torbert Hank Torbert	Director	July 17, 2007

/s/ William Stephney William Stephney	Director	July 17, 2007

-76-

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the board of directors and Shareholders

Fluid Media Networks, Inc. and Subsidiary

Culver City, California

We have audited the consolidated balance sheet of Fluid Audio Network, Inc. and subsidiary (collectively, the “Company”) as of December 31, 2006, and the related consolidated statements of operations, shareholders’ deficit and cash flows for the year ended December 31, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Fluid Audio Network, Inc. and subsidiary as of December 31, 2006, and the results of their operations and their cash flows for the year ended December 31, 2006, in conformity with US generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations and has an accumulated deficit of $9,379,068 as of December 31, 2006. The available cash as of December 31, 2006 might not be sufficient for year 2007 operations. This raises substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Singer Lewak Greenbaum & Goldstein LLP
Los Angeles, California
April 26, 2007	CERTIFIED PUBLIC ACCOUNTANTS

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the board of directors

Fluid Audio Network, Inc.

Culver City, California

We have audited the accompanying balance sheets of Fluid Audio Network, Inc. (a development stage company) as of December 31, 2005 and 2004 and the related statements of operations, shareholders’ deficit and cash flows for the years ended December 31, 2005 and 2004 and the period from March 15, 2002 (inception) through December 31, 2005. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Fluid Audio Network, Inc. as of December 31, 2005 and 2004 and the results of their operations and their cash flows for the years ended December 31, 2005 and 2004 and the period from March 15, 2002 (inception) through December 31, 2005, in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company incurred net losses of $2,792,681 and $155,169 for the years ended December 31, 2005 and 2004, respectively, used cash for operations in the amount of $2,181,568, during the year ended December 31, 2005 and had an accumulated deficit of $3,084,264 at December 31, 2005. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments to asset carrying amounts or the amount and classification of liabilities that might result from the outcome of this uncertainty.

/s/ Stonefield Josephson, Inc. Los Angeles, California
June 1, 2006	CERTIFIED PUBLIC ACCOUNTANTS

F-2

FLUID AUDIO NETWORK, INC.

CONSOLIDATED BALANCE SHEETS

	December 31, 2006		December 31, 2005

Assets
Current assets:
Cash and cash equivalents	$	108,475	$	120,184
Accounts receivable		18,415		—
Preferred stock subscription receivable		—		250,000
Other receivables		3,931		15,000
Deferred expenses		185,005		199,046
Prepaid expenses		11,422		3,948
Note receivable, short-term portion		4,483		41,969

Total current assets		331,731		630,147

Website development costs, net of amortization		370,534		162,064
Equipment and fixtures, net of depreciation		61,088		77,063
Investment in affiliate		625,000		—
Advertising rights		680,000		—
Note receivable, long-term portion		24,081		—
Loan origination costs		67,327		—
Internet URLs		—		10,433
Other assets		7,896		11,844

Total assets	$	2,167,657	$	891,551

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

F-3

FLUID AUDIO NETWORK, INC.

CONSOLIDATED BALANCE SHEETS (continued)

	December 31, 2006			December 31, 2005

Liabilities, Convertible Redeemable Preferred Stock, and Shareholders’ Deficit
Current liabilities:
Line of credit	$	100,000		$	—
Short-term loans from shareholders		335,334			54,011
Accounts payable		479,477			35,554
Accrued expenses		343,995			50,609
Accrued wages and fees		44,732			13,351
Accrued interest expense		42,374			—
Deferred revenue		194,049			234,802

Total current liabilities		1,539,961			388,327
Convertible debenture		1,000,000			—
Dividends payable		470,205			99,213

Total liabilities	$	3,010,166		$	487,540

Commitments and contingencies
Convertible redeemable preferred stock: (Note 11)
Series A Preferred Stock ($1.00 par value; 1,800,000 shares authorized; 1,800,000 and 1,800,000 shares issued and outstanding at December 31, 2006 and 2005, respectively; 5% cumulative dividends)	$	1,800,000		$	1,800,000
Series B Preferred Stock ($1.75 par value; 1,500,000 shares authorized; 1,044,124 and 1,017,447 shares issued and outstanding at December 31, 2006 and 2005, respectively; 5% cumulative dividends)		1,703,904			1,657,219
Series C Preferred Stock ($2.00 par value; 1,200,000 shares authorized; 1,084,980 and 0 shares issued and outstanding at December 31, 2006 and 2005, respectively; 5% cumulative dividends)		2,006,791			—
Series D Preferred Stock ($2.00 par value; 500,000 shares authorized; 525,000 and 0 shares issued and outstanding at December 31, 2006 and 2005, respectively; 5% cumulative dividends)		1,050,000			—
Series E Preferred Stock ($2.00 par value; 1,300,000 shares authorized; 1,078,000 and 0 shares issued and outstanding at December 31, 2006 and 2005, respectively; 5% cumulative dividends)		1,975,721			—

Total convertible redeemable preferred stock		8,536,416			3,457,219

Shareholders’ deficit:
Common Stock, $.001 par value; 20,000,000 shares authorized, 4,272,338 and 4,773,219 shares issued and outstanding at December 31, 2006 and 2005, respectively		143			643
Additional paid-in-capital		—			30,413
Accumulated deficit		(9,379,068	)		(3,084,264	)

Total shareholders’ deficit		(9,378,925	)		(3,053,208	)

Total liabilities, convertible redeemable preferred stock, and shareholders’ deficit	$	2,167,657		$	891,551

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

F-4

FLUID AUDIO NETWORK, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

	Year Ended December 31, 2006			Year Ended December 31, 2005

Revenue
Artist services	$	1,193,770		$	66,114
Advertising/sponsorship		3,102,272			201,560
Other revenue		3,625			—

Total revenue		4,299,667			267,674
Cost of revenue		1,655,131			91,134

Gross profit		2,644,536			176,540

Operating expenses:
Sales and marketing		4,486,810			1,231,067
General and administrative		2,089,000			1,085,205
Research and development		445,321			339,066
Fremantle operating license		980,516			300,000
Depreciation and amortization		455,027			15,526

Total operating expenses		8,456,674			2,970,864

Loss from operations		(5,812,138	)		(2,794,324	)
Other income (expense)
Interest expense		(185,226	)		—
Interest income		6,389			4,303

Loss before provision for income taxes		(5,990,975	)		(2,790,021	)
Provision for income taxes		1,600			2,660

Net loss	$	(5,992,575	)	$	(2,792,681	)
Preferred stock dividends		(370,992	)		(131,423	)

Net loss attributable to common shareholders	$	(6,363,567	)	$	(2,924,104	)

Weighted average common stock, basic and diluted		4,367,839			4,398,788

Net loss per share attributable to common shareholders, basic and diluted	$	(1.46	)	$	(0.66	)

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

F-5

FLUID AUDIO NETWORK, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICIT

	Common Stock
	Shares			Amount			Additional Paid-in Capital			Accumulated Deficit			Total Shareholders’ Deficit

Balance at December 31, 2004		4,131,338		$	2		$	1,000		$	(291,583	)	$	(290,581	)
Issuance of common stock for services		641,881			641			128,627			—			129,268
Issuance of warrants to purchase Series B
Preferred Stock for offering cost		—			—			32,209			—			32,209
Accretion of discount on Series B
Preferred Stock		—			—			(32,209	)		—			(32,209	)
Accrued undeclared preferred stock dividends		—			—			(99,214	)		—			(99,214	)
Net loss		—			—			—			(2,792,681	)		(2,792,681	)

Balance at December 31, 2005		4,773,219			643			30,413			(3,084,264	)		(3,053,208	)
Repurchase of common stock		(552,724	)		(552	)		(82,357	)		—			(82,909	)
Stock-based compensation		—			—			56,053			—			56,053
Issuance of common stock for services		141,000			141			61,899			—			62,040
Issuance of warrants to purchase common stock with convertible debenture		—			—			2,615			—			2,615
Issuance of warrants to purchase common stock with loan from shareholder		—			—			51			—			51
Cancellation of common stock		(89,157	)		(89	)		89			—			—
Accrued undeclared preferred stock dividends		—			—			(68,763	)		(302,229	)		(370,992	)
Net loss		—			—			—			(5,992,575	)		(5,992,575	)

Balance at December 31, 2006		4,272,338		$	143		$	—		$	(9,379,068	)	$	(9,378,925	)

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

F-6

FLUID AUDIO NETWORK, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended December 31, 2006			Year Ended December 31, 2005

Cash flows used in operating activities:
Net loss	$	(5,992,575	)	$	(2,792,681	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		544,485			20,123
Write-off capitalized internet URLs		10,433			—
Revenue from barter transactions		(2,617,003	)		(222,852	)
Expenses relating to barter transactions		2,617,003			222,852
Write-off on other receivable		11,969			—
Amortization on loan origination costs		16,251			—
Series E Preferred Stock issued for consulting fees		1,640			—
Stock-based compensation expense		56,053			—
Issuance of common stock for services		62,040			129,268
Series A Preferred Stock issued for services		—			300,000
Interest expense from issuance of warrants		2,666			—
Interest expenses for accretion of preferred stock financing costs		59,419			—
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable		(18,415	)		(15,000	)
Other receivables		11,069			(41,969	)
Prepaid expenses		(7,474	)		(15,792	)
Deferred expenses		14,041			(199,046	)
Other assets		3,948			—
Increase (decrease) in liabilities:
Accounts payable		443,923			35,554
Accrued expenses		293,386			50,609
Accrued wages and fees		31,381			13,351
Accrued interest expense		42,374			—
Deferred revenue		(40,753	)		234,802

Net cash used in operating activities		(4,454,139	)		(2,280,781	)

Cash flows used in investing activities:
Acquisition of advertising rights		(1,100,000	)		—
Investment in affiliate		(625,000	)		—
Website development costs		(297,929	)		(166,662	)
Purchase of equipment and fixtures		(19,051	)		(92,589	)
Internet URLs		—			(8,745	)

Net cash used in investing activities	$	(2,041,980	)	$	(267,996	)

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

F-7

FLUID AUDIO NETWORK, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

	Year Ended December 31, 2006			Year Ended December 31, 2005

Cash flows provided by financing activities:
Preferred stock subscription receivable	$	250,000		$	(250,000	)
Proceeds from loans from shareholders		507,562			54,500
Payments of principal on loans from shareholders		(137,398	)		(5,332	)
Proceeds from line of credit		100,000			—
Proceeds from convertible debenture		1,000,000			—
Payments on loan origination costs		(33,577	)		—
Payments from note receivable		1,436			—
Proceeds from issuance of:
Series A Preferred Stock		—			1,200,000
Series B Preferred Stock		46,685			1,722,163
Series C Preferred Stock		2,028,000			—
Series D Preferred Stock		999,999			—
Series E Preferred Stock		2,065,519			—
Offering costs from issuance of:
Series B Preferred Stock		—			(64,944	)
Series C Preferred Stock		(61,723	)		—
Series E Preferred Stock		(199,184	)		—
Repurchase of common stock		(82,909	)		—

Net cash provided by financing activities		6,484,410			2,656,387

Net increase (decrease) in cash and cash equivalents		(11,709	)		107,610
Cash and cash equivalents, beginning of period		120,184			12,574

Cash and cash equivalents, end of period	$	108,475		$	120,184

Interest expense and income taxes:
For the year ended December 31, 2006, $62,643 of interest expense and $800 of income taxes were paid. For the year ended December 31, 2005, there were no payments of interest expense and payments of $2,660 for income taxes.

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

F-8

FLUID AUDIO NETWORK, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

	Year Ended December 31, 2006			Year Ended December 31, 2005

Supplemental Disclosures of Non-Cash Financing Activities:
Conversion of $300,000 of loan from shareholder into 300,000 shares of Series A Preferred Stock	$	—		$	300,000
Issuance of warrants to purchase 43,354 shares of Series B	$	—
Preferred Stock as offering cost	$	—		$	32,209
Accretion of discount on Preferred Stock	$	—		$	(32,209	)
Issuance of 32,354 shares of Series B Preferred Stock as offering costs	$	—		$	58,370
Accrued undeclared dividends on Preferred Stock	$	(370,992	)	$	(99,214	)
Issuance of 70,980 shares of Series C Preferred Stock as offering costs	$	141,960		$	—
Issuance of 25,000 shares of Series D Preferred Stock as offering costs incurred in connection with convertible debenture	$	50,001		$	—
Issuance of 44,421 shares of Series E Preferred Stock as partial payment of loans from shareholders	$	88,841		$	—
Issuance of warrants to purchase 70,980 shares of Series C Preferred Stock as offering cost	$	34,504		$	—
Issuance of warrants to purchase 71,980 shares of Series E Preferred Stock as offering cost	$	35,397		$	—
Issuance of warrants to purchase 166,667 shares of Common Stock with convertible debenture	$	2,615		$	—
Issuance of warrants to purchase 50,000 shares of Common Stock with loan from shareholder	$	51		$	—
Issuance of note receivable from other receivable	$	30,000		$	—

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

F-9

FLUID AUDIO NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2006 and 2005

1. THE COMPANY AND NATURE OF OPERATIONS

Fluid Audio Network, Inc. (the ”Company”) is a music services company focused on serving the needs of emerging artists and their listeners via online and offline, media-based properties.

On March 15, 2002, the Company began its research and development activities, utilizing the expertise its founder acquired in prior, successful and progressive Internet properties. On September 20, 2004, the Company incorporated in the State of Delaware.

In March 2005, the Company entered into a multi-year licensing agreement with Fremantle Media North America, Inc. (“Fremantle Media”), licensors of the American Idol brand, granting the Company the exclusive right to use and exploit the American Idol TV show format, and related trademarks, over the Internet.

For the next several months, the Company focused on developing a suite of services for its launch of the AmericanIdolUnderground.com website. In October 2005, the website was launched and principal operations began.

Though partnerships were consummated and revenue was generated during the remaining two months of 2005, revenue had not reached a level of significance so that the Company was considered a development stage enterprise, through December 31, 2005.

In 2006, revenue continued to grow from the Company’s website. That growth was further augmented with the revenue earned from the Company’s first acquisition: the purchase of customer-related intangibles and advertising rights of the American Idol Magazine.

These financial statements have been prepared with the assumption that the Company will continue as a going concern which contemplates the realization of assets and the satisfaction of liabilities, in the normal course of business.

Going Concern Issue

The deficit accumulated by the Company through December 31, 2006 was $9,379,068. For the year ended December 31, 2006, the Company’s net loss from operations was $5,992,575 on revenue of $4,299,667 and cash used in operating activities amounted to $4,454,139.

These factors raise substantial doubt of the Company’s ability to continue as a going concern. The consolidated financial statements presented herein do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Management intends to achieve success and profitability through on-going deployment of new and innovative services, successful promotional strategies, financial prudence, and strategic acquisitions. Management acknowledges that fundraising is an integral component of becoming successful and plans to make each raise through the sale of the Company’s equity in the public markets (see Note 15).

When these Notes refer to “we,” “us,” “our,” “the Company,” or “FAN,” we mean Fluid Audio Network, Inc., the Delaware corporation, parent of its wholly-owned subsidiary, Fluid Audio Media, LLC, a limited liability company formed under the laws of the State of Delaware and referred to as “FAM” in these Notes.

F-10

FLUID AUDIO NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the Years Ended December 31, 2006 and 2005

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation — Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, after eliminating inter-company transactions and balances. These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and reflect all normal, recurring adjustments that are, in the opinion of management, necessary to present fairly the consolidated financial position and consolidated results of operations for the periods presented.

Reclassifications

Certain reclassifications to prior year balances have been made, none of which affected results of operations, to present the consolidated financial statements on a consistent basis.

Use of Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities.

On an ongoing basis, we evaluate our estimates, including those related to impairment of equipment and fixtures, intangible assets, deferred tax assets and fair value computation of options using Black-Scholes option pricing model. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions; however, we believe that our estimates, including those for the above-described items, are reasonable.

We use estimates to determine the values to be booked in our Deferred Revenue and Deferred Expense accounts from barter transactions. Those estimates follow the requirements of Statements of Financial Accounting Standards (“SFAS”) No. 153, “Exchanges of Nonmonetary Assets” (“SFAS 153”), whereby unrealized revenue (Deferred Revenue) and unrealized expense (Deferred Expense) is recorded at either the fair value of the assets acquired or the assets relinquished, whichever is more readily determinable.

Accounts Receivable

The Company’s accounts receivable are recorded at the invoiced amount and are non-interest bearing. The Company evaluates each open invoice on a monthly basis to determine whether an allowance for doubtful accounts is needed. The Company believed that no allowance was necessary at December 31, 2006 and 2005.

When determining that an invoice is potentially uncollectible, the Company views the creditworthiness and payment history of each customer with an outstanding invoice greater than 45 days. If determined uncollectible, a charge to the current period is taken and the receivable is assigned to a collection agency for further attempts at collection.

F-11

FLUID AUDIO NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the Years Ended December 31, 2006 and 2005

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Cash and Cash Equivalents

Cash and cash equivalents are short-term, highly liquid investments with original or remaining maturities of three months or less when purchased.

Fair Value of Financial Instruments

The carrying amounts of FAN’s financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, line of credit, and accrued liabilities are recorded at approximate fair value because of their short maturities.

Loans from shareholders and convertible debenture are recorded at approximate fair value as they bear interest commensurate with their risk.

Fixed Assets

Depreciation of equipment, furniture and fixtures and computer software is provided for by the straight-line method over their estimated useful lives of three years. FAN assesses the recoverability of its fixed assets and by determining whether the undepreciated balance over the assets remaining life can be recovered through undiscounted forecasted cash flows. If undiscounted forecasted cash flows indicate that the undepreciated amounts will not be recovered, an adjustment will be made to reduce the net amounts to an amount consistent with forecasted future cash flows discounted at a rate commensurate with the risk associated when achieving future discounted cash flows. Future cash flows are based on trends of historical performance and FAN’s estimate of future performances, giving consideration to existing and anticipated competitive and economic conditions.

Website Development Costs

FAN capitalizes website development costs in accordance with Emerging Issues Task Force (“EITF”) No. 00-2, “Accounting for Web Site Development Costs” and Statements of Position No. 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use,” whereby costs related to the preliminary project stage of development are expensed and costs relating to the application development stage are capitalized. The development costs capitalized for the year ended December 31, 2005 were $166,662. Any additional costs for upgrades and enhancements which result in additional functionality will be capitalized. These costs are being amortized over a five-year period, which approximately coincides with our licensing agreement and options with Fremantle Media. Management believes that its core technology has an expected useful life that is longer than the remaining term of its licensing agreement and that this core technology will provide a common, technological base for other websites the Company may choose to develop.

The development costs capitalized for the year ended December 31, 2006 were $297,929, of which $268,514 was placed in service and $29,415 remained in development. These costs are being amortized over a four-year period to coincide with our licensing agreement and options, mentioned below. Total amortization expense for website development costs for the years ended December 31, 2006 and 2005 was $89,458 and $4,597, respectively.

F-12

FLUID AUDIO NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the Years Ended December 31, 2006 and 2005

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Management applies significant judgment when determining whether products under development are technologically feasible or whether it is probable that they will result in additional functionality. These judgments include assessments of our development progress and expected performance. Additionally, the future realizability of capitalized software costs is subject to regular review by management, who consider expected future benefits. The estimates of expected future benefits include judgments about growth in demand for our products, performance by our strategic partners and fair values for related services. Changes in these estimates could require us to write down the carrying value of these capitalized amounts and could materially impact our financial position and results of operations.

Revenue Recognition

FAN’s revenues are derived from Internet advertising services and artist services fees. FAN recognizes revenue from its online sales of spin cards and corporate advertising (including banner, buttons and email), whereby revenue is recognized in the period(s) in which FAN’s obligation is fulfilled. All sales are negotiated at arm’s length, with unrelated third parties.

In accordance with United States Securities Exchange Commission (“SEC”) Staff Accounting Bulletins (“SAB”) No. 104, “Revenue Recognition” (“SAB 104”), the Company considers the following four characteristics in determining whether revenue exists that can be recognized: 1) persuasive evidence of an arrangement exists, 2) delivery has occurred or services have been rendered, 3) seller’s price to the buyer is fixed or determinable, and 4) collectibility is reasonably assured.

FAN recognizes revenue for non-cash sponsorship sales, or barter transactions, in accordance with SFAS 153, whereby revenue is recorded at the fair value of the assets acquired or the assets relinquished, whichever is the most readily determinable, during the period in which the contest or event that is being sponsored occurs.

FAN believes that EITF No. 99-17, “Accounting for Advertising Barter Transactions” (“EITF 99-17”), does not apply to its barter transactions because EITF 99-17 applies to exchanges of advertising for advertising. In each of FAN’s barter contracts, something other than advertising is either received or relinquished.

For the year ended December 31, 2006, of the $4,299,667 in total revenue, revenue derived from barter transactions amounted to $2,617,003. Of that amount, $2,304,871 was recognized from online (website) transactions and $312,132 was recognized from offline (magazine) transactions, leaving $1,682,664 revenue derived from cash sales.

For the year ended December 31, 2005, total barter revenue was $222,852 and comprised 83% of total revenue whereas in 2006, total barter revenue comprised 61% or $2,617,003 of total revenue.

Deferred Revenue and Deferred Expenses

F-13

FLUID AUDIO NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the Years Ended December 31, 2006 and 2005

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Company’s deferred revenue and deferred expenses were $194,049 and $185,005, respectively, as of December 31, 2006. Deferred revenue and deferred expenses were $234,802 and $199,046, respectively, as of December 31, 2005.

Accounting for Stock-based Compensation

On January 1, 2006, the Company adopted SFAS No. 123(R), “Share-Based Payments” (“SFAS 123(R)”), which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors based on estimated fair values. SFAS 123(R) requires companies to estimate the fair value of share-based awards to employees and directors on the date of grant using an option pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company’s consolidated statements of operations. Stock-based compensation is attributed to expense using the straight-line single option method. SFAS 123(R) requires that forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimated. Because forfeitures are immaterial, the Company is currently providing for forfeitures as they occur.

In August 2005, the Company recognized $129,268 as compensation expense in connection with the issuance of 641,881 shares of restricted common stock to a consultant. This grant contained a conditional repurchase option that was exercised by the Company in 2006 (see Note 12) which allowed the Company to repurchase a total of 552,724 of those shares in 2006, and accordingly the Company had recorded compensation expense with respect to the 89,157 shares which ultimately were retained by this consultant. The Company did not record any compensation expense under this award in 2006 because it has determined the amount to be insignificant. The Company accounts for stock awards under SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), and EITF No. 96-18, “Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling, Goods or Services,” based on the fair value at the dates that the shares were vested.

Prior to 2006, the Company had not issued any stock options to employees or consultants for compensation. During 2006, the Company granted options to acquire 659,669 shares of common stock to certain employees and board members. The weighted-average grant-date fair value of options granted was $0.14 per share.

The Company determines fair value of share-based payment awards using the Black-Scholes model, which is affected by the Company’s stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the Company’s expected stock price volatility over the expected term of the awards, and actual and projected employee stock option exercise behaviors. The Company estimates its expected volatility by industry comparables of peer companies. The Company estimated its expected term by estimating the average expected length of employment.

The Company engaged an outside appraiser to help determine its common stock fair value for 2006, which was generally determined to be $0.44. Throughout the year, the Company adjusted the $0.44 per share value for specific transactions and events that transpired during the year to arrive at a per share fair value at different points in time during 2006.

The following assumptions were used in the Black-Scholes pricing model when valuing the options granted in 2006: 49% for expected volatility, from 2 to 5 years expected term, from 0.0% to 5.0% for expected dividend rate, from 4.35% to 5.12% risk-free interest rate, and from $0.26 to $0.44 per share underlying stock price.

F-14

FLUID AUDIO NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the Years Ended December 31, 2006 and 2005

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Advertising Costs

Advertising costs are expensed as incurred and are included in Sales and marketing expenses in the accompanying consolidated statement of operations. Advertising costs, shown within sales and marketing expenses included in the Company’s consolidated statement of operations, were $2,550,992 for the year ended December 31, 2006 of which $1,653,950 originated through barter transactions. Total sales and marketing expenses included for the year ended December 31, 2005 were $196,392 of which $130,000 originated from barter transactions.

Recently Issued Accounting Standards

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections” (“SFAS 154”), which replaces Accounting Principles Board Opinion (“APB”) No. 120, “Accounting Changes” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements.” SFAS 154 changes the requirements for accounting and reporting a change in accounting principle, and applies to all voluntary changes in accounting principles, as well as changes required by an accounting pronouncement. In the unusual instance it does not include specific transition provisions. Specifically, SFAS 154 requires retrospective application to prior periods’ consolidated financial statements, unless it is impracticable to determine the period-specific effects or the cumulative effect of the change. When it is impracticable to determine the effects of the change, the new accounting principle must be applied to the balances of assets and liabilities as of the beginning of the earliest period for which retrospective application is practicable and a corresponding adjustment must be made to the opening balance of retained earnings for that period rather than being reported in an income statement. When it is impracticable to determine the cumulative effect of the change, the new principle must be applied as if it were adopted prospectively from the earliest date practicable. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. SFAS 154 does not change the transition provisions of any existing pronouncements. The Company has evaluated the impact of SFAS 154 and does not expect the adoption of this statement to have a significant impact on its statement of income or financial condition.

In December 2004, the FASB issued SFAS 153, which amended APB No. 29, “Accounting for Nonmonetary Transactions” (“APB 29”). The amendments made by SFAS 153 are based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. Further, the amendments eliminate the narrow exception for nonmonetary exchanges of similar productive assets and replace it with a broader exception for exchanges of nonmonetary assets that do not have commercial substance. Previously, APB 29 required that the accounting for an exchange of a productive asset for a similar productive asset or an equivalent interest in the same or similar productive asset should be based on the recorded amount of the asset relinquished. APB 29 provided an exception to its basic measurement principle (fair value) for exchanges of similar productive assets. SFAS 153 provides that the Board believes that exception required that some nonmonetary exchanges, although commercially substantive, be recorded on a carryover basis. By focusing the exception on exchanges that lack commercial substance, SFAS 153 further provides that the Board believes SFAS 153 produces financial reporting that more faithfully represents the economics of the transactions. SFAS 153 is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. Earlier application is permitted for nonmonetary asset exchanges occurring in fiscal periods beginning after the date of issuance. The provisions of SFAS 153 are to be applied prospectively. The Company adopted SFAS 153 in 2006, which did not significantly impact the Company’s overall results of operations or financial position.

F-15

FLUID AUDIO NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the Years Ended December 31, 2006 and 2005

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments” (“SFAS 155”), which amends SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”) and SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities” (“SFAS 140”). SFAS 155 amends SFAS 133 to narrow the scope exception for interest-only and principal-only strips on debt instruments to include only such strips representing rights to receive a specified portion of the contractual interest or principal cash flows. SFAS 155 also amends SFAS 140 to allow qualifying special-purpose entities to hold a passive derivative financial instrument pertaining to beneficial interests that itself is a derivative instruments. The Company is currently evaluating the impact of SFAS 155, but believes that it will not have a material impact on the Company’s financial position, results of operations or cash flows. The Company adopted SFAS 155 on January 1, 2007.

In September 2006, the SEC staff issued SAB No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). In SAB 108, the SEC staff established an approach that requires quantification of financial statement misstatements based on the effects of the misstatements on a company’s financial statements and the related financial statement disclosures. SAB 108 permits existing public companies to initially apply its provisions either by (i) restating prior financial statements, or (ii) recording the cumulative effect as adjustments to the carrying values of assets and liabilities with an offsetting adjustment recorded to the opening balance of retained earnings. The Company is required to adopt SAB 108 by the end of 2007 and does not expect adoption to have a significant impact on the Company’s results of operations or financial condition.

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statement No. 87, 88, 106, and 132R” (“SFAS 158”). SFAS 158 requires an employer to recognize the over-funded or under-funded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and recognize changes in that funded status in the year in which the changes occur through comprehensive income. SFAS 158 also requires an employer to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions. Under SFAS 158, the Company is required to initially recognize the funded status of a defined benefit postretirement plan and to provide the required disclosures as of the end of 2007. The Company is evaluating the impact this statement will have on its consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements. The Company is required to adopt SFAS 157 effective at the beginning of 2009. The Company is evaluating the impact this statement will have on its consolidated financial statements.

F-16

FLUID AUDIO NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the Years Ended December 31, 2006 and 2005

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”), that provides companies with an option to report selected financial assets and liabilities at fair value. SFAS 159 is effective as of the beginning of an entity’s first fiscal year beginning after November 15, 2007. Early adoption is permitted as of the beginning of the previous fiscal year provided that the entity makes that choice in the first 120 days of that fiscal year and also elects to apply the provisions of SFAS 157. The Company is evaluating the potential impact of the adoption of SFAS 159 on its future consolidated financial statements.

In June 2006, the FASB issued FASB Interpretation Number (FIN) No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB statement No. 109” (“FIN 48”). The interpretation contains a two-step approach to recognizing and measuring uncertain tax positions accounted for in accordance with SFAS No. 109, “Accounting for Income Taxes” (“SFAS 109”). The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount which is more than 50% likely of being realized upon ultimate settlement. The Company is required to adopt FIN 48 effective at the beginning of 2008. The Company is evaluating the impact this statement will have on its consolidated financial statements.

3. LOSS PER COMMON SHARE

Because of the Company’s net loss, the following common stock equivalents are excluded from 2006 diluted earnings per share, as their effect is considered anti-dilutive: Preferred Stock convertible into 5,800,902 shares of common stock, warrants to purchase convertible redeemable Preferred Stock into 173,911 shares of common stock, stock options issued to employees and directors to acquire up to 659,669 shares of common stock, warrants to purchase up to 216,667 shares of common stock and a convertible debenture convertible into up to 500,000 shares of common stock.

Because of the Company’s net loss, the following common stock equivalents are excluded from 2005 diluted earnings per share, as their effect is considered anti-dilutive: Preferred Stock convertible into 2,817,447 shares of common stock, and warrants to purchase Preferred Stock convertible into 43,354 shares of common stock. In 2005, the fair value attributed to the warrants connected with Series B Preferred Stock of $32,209 was immediately amortized in a manner similar to a dividend.

4. INVESTMENT IN AFFILIATE AT COST

In 2006, the Company purchased a 7.25% interest in a privately-held entity for $625,000, which operates in a complimentary industry. FAN accounts for the investment under the cost method as required by APB No. 18, “The Equity Method Of Accounting for Investments in Common Stock” (“APB 18”). APB 18 requires that “other-than-temporary” impairments be recognized when they occur. Further, FASB Staff Position (“FSP”) No. FAS 115-1 and FAS 124-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” (as amended) provides guidance as to the meaning of other-than-temporary impairment and is applicable to “cost-method” investments. These pronouncements require cost-method investment to be assessed for impairment generally when an impairment indicator is present. Should the investment be considered more than temporarily impaired, the investment will be written down to fair value, as a deduction against current period income. During 2006, an impairment charge was not recognized on this investment.

F-17

FLUID AUDIO NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the Years Ended December 31, 2006 and 2005

4. INVESTMENT IN AFFILIATE AT COST (continued)

The Company has evaluated this investment under the guidelines promulgated under FIN No. 46, “Consolidation of Variable Interest Entities,” which explains how to apply the controlling financial interest criterion in Accounting Review Bulletin 51 to variable interest entities. The Company has determined that its investment did not meet the requirements for consolidating the affiliated company’s statement of financial position or results from operations due to the fact that the Company neither absorbs a majority of the entity’s expected losses nor receives a majority of its expected residual returns.

5. ADVERTISING RIGHTS

In February 2006, FAN, through its wholly-owned subsidiary, FAM, purchased advertising rights for the American Idol Magazine in a sublicensing agreement from the original licensee, approved by the licensor, Fremantle Media. The cost of this investment was $1,100,000, plus all on-going production costs. The remaining term of the original license acquired in this transaction was 15¹/₂ months at the acquisition date, February 18, 2006. However, the license offers the licensee the option to renew the license for an additional year and the Company intends to do so. The Company does not anticipate significant cost of renewing the license therefore, the Company is amortizing this investment over 27¹/₂ months as follows:

2006	$	420,000
2007		480,000
2008		200,000

	$	1,100,000

6. NOTE RECEIVABLE

The Company has one signed, promissory note made with a former employee. The terms of the note provide for 10% interest per annum interest over 120 months, with payments of $374 per month, starting in November 2006. As of December 31, 2005, the balance determined to be collectible was $41,979. In 2006, a more extensive examination of that balance was made from which $11,969 was determined to be non-attributable to the former employee and was, therefore, written-off. As of December 31, 2006, total payments of $1,436 were made on the note leaving a total of $28,564 owed to the Company. Of that amount $4,483 is due to be collected in 2007 and therefore classified as a current asset on the accompanying consolidated balance sheet. The remaining balance of $24,081 is classified as non-current.

F-18

FLUID AUDIO NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the Years Ended December 31, 2006 and 2005

7. EQUIPMENT AND FIXTURES

A summary of the Company’s equipment and fixtures on December 31, 2006 and 2005, is as follows:

	2006			2005

Computer Hardware	$	43,388		$	34,291
Computer Software		25,819			25,819
Office Equipment		30,045			20,091
Furniture & Fixtures		12,388			12,388

		111,640			92,589
Less: Accumulated Depreciation		(50,552	)		(15,526	)

	$	61,088		$	77,063

Depreciation expense was $35,026 and $15,526 for the years ended December 31, 2006 and 2005, respectively.

8. LINE OF CREDIT

The Company obtained a $100,000 line of credit with Bank of America and uses it for working capital between rounds of financing. Interest payments are paid monthly, automatically deducted from the Company’s general checking account on the second of each month, for balance activity of the prior month. The term of this line of credit is monthly, auto-renewing, at a variable interest rate averaging approximately 13.9% per annum. There are no financial covenants associated with this line of credit.

9. CONVERTIBLE DEBENTURE

On May 29, 2006, the Company issued a convertible debenture (the “Debenture”) in the principal amount of $1,000,000 with interest payable quarterly at 15% per annum. The Debenture is due on May 29, 2009. The agreement provides that the interest rate of 15% will increase to 20% per annum with interest on unpaid principal and interest after the maturity date of the Debenture. In the event of any conversion of the Debenture, in whole or in part, prior to the payment of quarterly interest, interest is accrued up to the conversion date.

Broker’s fees incurred in connection with the issuance of the Debenture were paid in-full with the issuance of 16,667 shares of Series D Preferred Stock, which was later adjusted in accordance with the terms of an agreement between the Company and the holders of the Series D Preferred Stock to 25,000 shares of Series D Preferred Stock (see Note 11).

The Debenture holder has filed a UCC claim on all assets of the Company including all intangibles. The agreement provides for the Company to restrict from use $200,000 of cash at all times. The Company was granted a waiver for the month of December 2006. This restriction increases to $1,000,000 at such time the Company completes an initial public offering of its securities or certain reorganizations under a reverse merger.

F-19

FLUID AUDIO NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the Years Ended December 31, 2006 and 2005

9. CONVERTIBLE DEBENTURE (continued)

The Debenture is convertible in whole or in part at any time for the outstanding principal at the sole and exclusive option of the Debenture holder. The agreement originally provided for a conversion of debt to equity at a conversion price of $3.00 per share or up to 333,334 shares of common stock, being the per share price of the round of financing that preceded the Debenture issuance (Series D Preferred Stock). The Debenture’s conversion price was adjusted to $2.00 per share which is convertible into up to 500,000 shares of common stock in accordance with the terms of the Debenture.

The issuance of the Debenture also provided for the issuance of transferable warrants to the Debenture holder for the purchase of up to 166,667 shares of common stock at an exercise price of $3.00 per share (which was likewise subsequently reduced to $2.00 per share for the reasons described above). The value of these warrants was calculated by the Black-Scholes model and determined to be $2,615.

10. RELATED PARTY TRANSACTIONS

As of December 31, 2005, the Company owed Justin Beckett, the Company’s President and Chief Executive Officer and a shareholder, $54,011. During the year ended December 31, 2006, the Company borrowed a total of $257,562 from Mr. Beckett comprised of cash loans, a direct vendor payment and a delayed payment of a monthly consulting fee. The interest rates charged on these short-term loans ranged from 6.75% to 12% per annum.

Payments made during the year ended December 31, 2006 towards the balance owed to Mr. Beckett included $137,398 in cash and $88,841 worth of Series E Preferred Stock (at its issuance price). In November 2006, another shareholder made a $250,000 short-term loan to the Company. In addition to its 15% interest rate per annum, the terms of the loan provided for the issuance of warrants to purchase up to 50,000 shares of common stock at an exercise price of $1.50 per share. The loan matures on the earlier to occur of the closing of a merger of the Company or February 15, 2007 and was partially paid in 2007 (see Note 15). The value of the warrants was calculated by the Black-Scholes model and determined to be $51.

In August 2006, Mr. Beckett made a contribution of 89,157 shares of common stock to the Company. As a result, the Company recorded a contribution of $89 and retired the shares. Mr. Beckett was issued 820 shares of Series E Preferred Stock in satisfaction of consulting services for a total of $1,640.

The total amount owed to both shareholders at December 31, 2006 was $335,334. All but $125,000 of this amount due was paid to the shareholders in the first quarter of 2007 (see Note 15).

11. CONVERTIBLE REDEEMABLE PREFERRED STOCK

The Company has authorized Preferred Stock of 10,000,000 shares of which 1,800,000 shares are designated as Series A Preferred Stock, 1,500,000 shares as Series B Preferred Stock, 1,200,000 shares as Series C Preferred Stock, 500,000 shares as Series D Preferred Stock, and 1,300,000 shares as Series E Preferred Stock, leaving 3,700,000 authorized Preferred Stock as undesignated. The board of directors, without further action by the shareholders, has the authority to designate any authorized but undesignated Preferred Stock and to establish the rights, preferences and restrictions of such Preferred Stock.

F-20

FLUID AUDIO NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the Years Ended December 31, 2006 and 2005

11. CONVERTIBLE REDEEMABLE PREFERRED STOCK (continued)

Pursuant to the terms of its agreement with the holders of the outstanding Series D Preferred Stock, the Company became obligated to issue to such holders an additional 175,000 shares of Series D

Preferred Stock in connection with the Company’s subsequent sale and issuance of shares of Series E Preferred Stock at a per share purchase price that was lower than the per share purchase price of the Series D Preferred Stock. As a result, the Company became obligated to issue an aggregate of 525,000 shares of Series D Preferred Stock, which is in excess of the authorized number of shares of Series D Preferred Stock.

In accordance with the terms and conditions of the Certificate of Designations for each of the Series C Preferred Stock and Series D Preferred Stock, the Company became obligated on December 1, 2006 to observe shareholders’ liquidity entitlement for the Company’s common stock at a ratio of 1.1:1 (instead of 1:1) because no liquidity event (as defined therein) had occurred on or before November 30, 2006.

All Preferred Shareholders are entitled to receive 5% cumulative and compounding dividends, when and if declared by the board of directors, prior and in preference to any dividends on common stock. For the years ended December 31, 2006 and 2005, the Company accrued dividends of $370,992 and $99,213, respectively, on all shares of Preferred Stock. There were no dividends accrued for prior to 2005. As of December 31, 2006, no dividends have been declared or paid.

In the event of liquidation or dissolution of the Company, Preferred Shareholders will be entitled to receive, on a pro rata basis but prior and in preference to any of the assets of the Company to the holders of the common stock, an amount per share equal to the issuance price per share, subject to adjustment for any stock, splits, stock dividends, combinations, recapitalizations or the like, plus any unpaid dividends. Shares of Preferred Stock automatically convert into shares of common stock on the receipt of a majority vote of the applicable series, on a one-to-one ratio which is subject to adjustments for stock splits, stock dividends, mergers, consolidations, reorganizations and similar transactions, and certain other events. Additionally, shares of Series A though Series D Preferred Stock are automatically converted into shares of common stock at a one-to-one ratio, subject to adjustments for stock splits, stock dividends, mergers, consolidations, reorganizations and similar transactions, and certain other events, upon the closing of an underwritten equity offering of at least $5,000,000 as defined.

Shares of Series C and Series D Preferred Stock are also automatically converted into shares of common stock upon the Company becoming listed on a public exchange, as defined, and upon the occurrence of an acquisition, merger, reverse merger, take over or liquidating event, as defined.

Shares of Series E Preferred Stock are automatically converted into shares of common stock at a one-to-one ratio, subject to adjustments for stock splits, stock dividends, mergers, consolidations, reorganizations and similar transactions, and certain other events, upon the listing of the Shares of Series E Preferred Stock or common stock on a public exchange, as defined, or the occurrence of an acquisition, merger, reverse merger, take over or liquidating event, as defined.

Subsequent to December 31, 2006, the Company consummated a reverse merger (see Note 15). As a result, the shares of Series C and Series D Preferred Stock were automatically converted into shares of common stock at that time.

If not converted into common stock previously, shares of Preferred Stock are redeemable at the holder’s option beginning five years after issuance for cash at the higher of the original issuance price (liquidation value) or the fair market value as determined by an independent third party, plus all accrued but unpaid dividends thereon.

F-21

FLUID AUDIO NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the Years Ended December 31, 2006 and 2005

11. CONVERTIBLE REDEEMABLE PREFERRED STOCK (continued)

Preferred Shareholders are entitled to vote on all matters presented to the shareholders of the Company on a basis equal to the number of shares of the common stock then issuable upon conversion of the Preferred Shares.

In accordance with SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity,” and Topic D-98 and Accounting Series Release 298, because the Company’s Preferred Stock contains a conditional obligation to redeem for cash, they are classified on the consolidated balance sheet between Liabilities and Equity under Convertible Redeemable Preferred Stock.

Series A Preferred Stock

During 2005, a total of 1,800,000 shares of Series A Preferred Stock were issued. From this the Company received $1,200,000 in cash at its $1.00 per share issuance price. A total of 300,000 shares were issued as payment toward a debt owed to our President and Chief Executive Officer and 300,000 shares were issued to the Company’s Chairman of the board of directors as compensation for past services rendered. From these two transactions, a $300,000 reduction of debt was recognized and a $300,000 expense to compensation was recorded in the accompanying financial statements for the year ended December 31, 2005.

Series B Preferred Stock

During 2005, the Company received gross cash proceeds of $1,722,163 from the sale of shares of its Series B Preferred Stock. Offering costs of $64,944 were incurred for legal fees and agent expenses. Additionally, agents and brokers involved with the sale were issued 33,354 shares of Series B Preferred Stock, valued at $1.75 per share, or $58,370, and warrants to purchase up to 43,354 shares of Series B Preferred stock at an exercise price of $1.75 per share, valued at $32,209. The Company issued an aggregate of 1,017,447 shares of its Series B Preferred Stock in connection with this offering.

In November 2006, a total of 26,677 shares of Series B Preferred Stock were issued in connection with the exercise by warrant holders at an exercise price of $1.75 per share, yielding $46,685 of net proceeds to the Company.

Series C Preferred Stock

On February 8, 2006, the Company issued 1,084,980 shares of Series C Preferred Stock at $2.00 per share, raising $2,028,000 in gross proceeds. Offering costs of $61,723 were incurred for legal fees and agent expenses. Additionally, agents and brokers involved with the sale were issued 70,980 shares of Series C Preferred Stock, valued at $2.00 per share, or $141,960, and warrants to purchase up to 70,980 shares of Series C Preferred Stock at an exercise price of $2.00 per share. The fair value of these warrants was determined to be $34,504.

F-22

FLUID AUDIO NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the Years Ended December 31, 2006 and 2005

11. CONVERTIBLE REDEEMABLE PREFERRED STOCK (continued)

Series D Preferred Stock

On May 4, 2006, the Company sold 333,333 shares of Series D Preferred Stock at $3.00 per share, raising $999,999 in gross proceeds. In connection with the financing, the Company agreed to adjust

the conversion price of the Series D Preferred Stock in the event that a subsequent round of financing was completed at an offering price of less than $3.00 per share. Accordingly, as a result of the subsequent Series E Preferred Stock financing at a purchase price of $2.00 per share, the Series D conversion price was changed from $3.00 to $2.00 per share, and an additional 166,667 shares of Series D Preferred Stock were issued to the holders thereof.

The Company also issued 16,667 shares of Series D Preferred Stock for payment of broker’s fees associated with the issuance of the Debenture (see Note 9). Pursuant to the Company’s agreement to adjust the conversion price of the Series D Preferred Stock as aforesaid, the Company issued an additional 8,333 shares of Series D Preferred Stock to the holder thereof.

Series E Preferred Stock

On July 28, 2006, the Company issued 1,078,000 shares of Series E Preferred Stock for $2.00 per share, raising $2,065,519 in gross proceeds. In addition, $88,841 was credited to the amount owed to Mr. Beckett, as partial payment towards his purchase of 50,000 shares of Series E Preferred Stock at its $2.00 per share issuance price and $1,640 towards an unpaid consulting fee. The remaining $9,519 owed to the Company for this purchase was paid by Mr. Beckett in October 2006. Offering costs related to this offering for legal, commissions and agent expenses totaled $199,184. In addition to these fees, brokers associated with the sale were issued warrants to acquire up to 71,960 shares of Series E Preferred stock at an exercise price of $2.00 per share, which the Company values at $35,397.

12. SHAREHOLDERS’ DEFICIT, STOCK OPTIONS AND WARRANTS

Common Stock

The Company has authorized 20,000,000 shares of common stock.

In August 2005, FAN issued 641,881 fully-vested shares of common stock with a conditional repurchase right in exchange for services to be performed by a consultant over a three year period of time. In March and May 2006, the Company exercised its repurchase right in respect of 552,724 shares of common stock from the former consultant at a price of $0.15 per share, a price that was negotiated and agreed upon in August 2005, when the consultant was first engaged.

In August 2006, Mr. Beckett made a contribution of 89,157 shares of common stock to the Company which were then cancelled by the Company. The Company recorded this contribution at its par value of $89.

In December 2006, a total of 141,000 shares of common stock were issued. 41,000 of these shares were issued to a consultant for services rendered and 100,000 shares were issued under a liquidation damages clause associated with a failed merger. The 141,000 shares were valued at $62,040 and expensed in December 2006 when issued.

F-23

FLUID AUDIO NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the Years Ended December 31, 2006 and 2005

12. SHAREHOLDERS’ DEFICIT, STOCK OPTIONS AND WARRANTS (continued)

Stock Options

Our 2005 Stock Incentive Plan (the ”Plan”) has authorized the grant of both incentive and non-qualified stock options, as well as stock appreciation rights and restricted stock, to officers,

employees, directors and consultants of the Company. At no time shall the total number of shares of common stock issuable upon the exercise of all outstanding options granted under the Plan, together with all other options and restricted stock then outstanding, exceed 30% of the then outstanding shares of common stock. The terms of the plan limit the reserved pool to 13% of the Company’s issued and outstanding stock.

The Plan is administrated by a committee designated by the Company’s board of directors. The committee has the authority to determine the specific terms of each award granted under the Plan, subject to certain IRS limitation to the extent the award is designated as an incentive stock option. However, options awarded to employees under the Plan must be fully vested within five years from the date of grant.

All options granted under the plan have been approved by the board of directors.

The following table summarizes stock option activity for the year ended December 31, 2006:

Options	Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term

Outstanding at January 1, 2006		—		—		—
Granted		659,669	$	0.59		7.8 years
Exercised		—		—		—
Forfeited		—		—		—

Outstanding at December 31, 2006		659,669	$	0.59		7.8 years

Exercisable at December 31, 2006		526,669	$	0.66		7.4 years

Vested or expected to vest at December 31, 2006		659,669	$	0.59		7.8 years

There were no stock option grants prior to 2006.

As of December 31, 2006, there was $34,977 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over 1.5 years. The total fair value of options vested during 2006 was $56,053.

F-24

FLUID AUDIO NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the Years Ended December 31, 2006 and 2005

12. SHAREHOLDERS’ DEFICIT, STOCK OPTIONS AND WARRANTS (continued)

Warrants

In May 2006, in connection with the issuance of the Debenture (Note 9), the Company issued to the holder warrants to purchase up to 166,667 shares of common stock at an exercise price of $3.00 per share which was subsequently reduced to $2.00 per share as explained in Note 9. These warrants expire in May 2009. The Company accounted for these warrants by expensing the fair value at the $3.00 exercise price and expensing the difference for the modified fair value at the $2.00 exercise price.

In November 2006, in connection with amounts loaned to the Company by a shareholder (see Note 10), the Company issued to the lender warrants to purchase up to 50,000 shares of common stock at an exercise price of $1.50 per share. These warrants expire upon the earlier of (i) three years from the date of issuance, and (ii) a public listing of the Company. The Company accounted for these warrants by expensing the fair value at the $1.50 exercise price (see Note 10).

During 2005 and 2006, and in connection with the issuance of Preferred Stock (see Note 11), the Company issued brokers and dealers warrants to acquire up to the following:

43,354 shares of Series B Preferred stock at an exercise price of $1.75 per share

70,980 shares of Series C Preferred stock at an exercise price of $2.00 per share

71,960 shares of Series E Preferred stock at an exercise price of $2.00 per share

Of the 43,354 warrants issued to acquire shares of Series B Preferred Stock, warrants to acquire 26,677 shares were exercised in 2006 and the Company received cash proceeds of $46,685.

The warrants to acquire Series B Preferred stock expire in 2007 and warrants to acquire Series C and Series E Preferred Stock expire in 2008.

13. INCOME TAXES

The Company accounts for income taxes under the provisions of SFAS 109, “Accounting for Income Taxes,” using the liability method. SFAS 109 requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the current consolidated financial statements or tax returns.

The components of the income tax provision (benefit) for the years ended December 31, 2006 and 2005 were as follows:

	2006		2005

Current	$	1,600	$	2,660
Deferred		—		—

Total	$	1,600	$	2,660

F-25

FLUID AUDIO NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the Years Ended December 31, 2006 and 2005

13. INCOME TAXES (continued)

Income tax expense (benefit) for the years ended December 31, 2006 and 2005 differed from the amounts computed applying the federal statutory rate of 34% to pre-tax income as a result of:

	2006			2005

Computed tax benefit	$	(2,016,729	)	$	(948,607	)
Non-deductible items		1,432			—
Change in valuation allowance		2,460,516			1,108,728
Return to provision		(98,850	)		—
State and local income taxes, net of tax benefit		(344,769	)		(162,781	)

Total	$	1,600		$	2,660

Significant components of the Company’s deferred tax assets and liabilities for federal income taxes at December 31, 2006 and 2005 consisted of the following:

Deferred tax assets	2006			2005

Net operating loss carryforward	$	3,739,861		$	1,155,919
Deferred revenue		79,256			—
Accrued vacation		12,994			—
Equity compensation and interest		51,733			—
Valuation allowance		(3,884,660	)		(1,155,919	)
Current year state tax		816			—

Total deferred tax assets		—			—
Deferred tax liabilities
State tax		—			—

Net deferred tax assets/liabilities	$	—		$	—

As of December 31, 2006, the valuation allowance for deferred tax assets totaled $3,884,660. For the year ended December 31, 2006, the net change in the valuation allowance was an increase of $2,460,516.

As of December 31, 2006, the Company had net operating loss carryforwards for federal and state income tax purposes of $8,729,999 and $8,729,199, respectively. The net operating loss carryforwards expire through 2026. The utilization of net operating loss carryforwards may be limited under the provisions of Internal Revenue Code Section 382 and similar state provisions due to a change in ownership.

The net deferred tax asset has been completely offset by a valuation allowance, as its realization is not reasonably assured.

F-26

FLUID AUDIO NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the Years Ended December 31, 2006 and 2005

14. COMMITMENTS AND CONTINGENCIES

Operating Lease — Rent

The Company leases office and equipment, under non-cancellable operating lease expiring at various dates through 2008. The following is a schedule of future minimum lease payments for rent under a non-cancellable operating lease:

2007	$	50,140
2008		12,634

Total	$	62,774

During the first six months of 2006, the Company maintained two office locations as its development staff outgrew the available office space. Consequently, rent expense for the year ended December 31, 2006 was $58,292. Rent expense for the year ended December 31, 2005 was $35,000.

Hosting Services

Hosting services were provided by Savvis Communications Corporation through a series of dedicated servers. In November 2006, the Company changed hosting providers in an effort to conserve cash and reduce costs. The Company has not decided whether it will enter into a long-term relationship with its new hosting service provider.

For the year ended December 31, 2006, the charge for hosting services was $309,505. This amount is classified on the Company’s consolidated statement of operations as a cost of revenue. For the year ended December 31, 2005, the charge for hosting services was $74,189.

Fremantle Media License — Website

On March 11, 2005, FAN entered into a three-year license agreement with Fremantle Media for $1,400,000 to obtain the exclusive right to use and exploit the American Idol TV show format and related trademarks on the Internet. FAN believes that this is an operating license and, therefore, neither capitalizes the license or reports the future liability of its minimum payment obligations on its balance sheet. Over the term of the license, each year FAN is required to pay the higher of a) royalties of 25% of revenue from the use of the American Idol trademark including music upload fees, promotions, subscriptions and advertising sponsorships, less a 5% administrative fee, and b) an annual, guaranteed minimum payment, per the following schedule:

In 2007, FAN may exercise its right to renew its license for the subsequent calendar year for a minimum royalty fee of $800,000, if all prior years’ minimum payments have been made. For that year, as in all years past, FAN will be required to pay the higher of a) the minimum royalty payment, and b) royalties of 25% of revenue from the use of the American Idol trademark, including music upload fees, promotions, subscriptions and advertising sponsorships, less 5% administrative fee.

In 2008, FAN may exercise its right to renew its license for the subsequent calendar year for a minimum royalty fee of $1,000,000, if all prior years’ minimum payments have been made. For that year, as in all years past, FAN will be required to pay the higher of a) the minimum royalty payment, and b) royalties of 25% of revenue from the use of the American Idol trademark including music upload fees, promotions, subscriptions and advertising sponsorships, less 5% administrative fee.

In 2006, the licensing fee the Company paid to Fremantle Media for use of related trademarks on the Company’s website was $500,000. In 2005, the licensing fee paid to Fremantle Media for use of related trademarks on the website was $300,000.

F-27

FLUID AUDIO NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the Years Ended December 31, 2006 and 2005

14. COMMITMENTS AND CONTINGENCIES (continued)

Fremantle Media License — Magazine

Licensing fees are paid for use of the American Idol brand in the magazine at the rate of $70,000 per issue, $55,000 for the annual Red Carpet party and two free pages in each issue of the magazine.

For the year ended December 31, 2006, the Company recorded licensing fees of $480,516, comprised of $335,000 payable in cash and $145,516 recognized for the bartered component.

Additionally, the terms of the licensing agreement provide for 20% commissions to be paid on sales made to American Idol sponsors and other licensees. For the year ended December 31, 2006, $56,689 was paid for on account of such commissions.

15. SUBSEQUENT EVENTS

(a)

Convertible Debenture Placement

On January 31, 2007, the Company issued and sold 12% unsecured convertible debentures (the “Convertible Debentures”) to several investors in a private placement offering. The gross proceeds from this offering were $2,600,000 and the related agent commissions and expenses were $229,080.

The principal and accrued interest for the Convertible Debentures is due on January 31, 2008. The debt bears interest at the rate of 12%, calculated and compounded annually, accruing until maturity or upon conversion. The holders have the right to elect to receive the accrued interest either in cash separately or to accumulate it to the Convertible Debentures.

All Convertible Debentures will be convertible, at the option of the holder, at any time following the completion of a Liquidity Event and prior to the maturity date into shares of common stock of the Company or common shares of the successor company (the “Conversion Shares”). A “Liquidity Event” means the Company obtaining a listing or quotation of its shares of common stock (or, in the event that the Company undergoes a corporate reorganization whereby the Company becomes a wholly-owned subsidiary of another company, the common shares of such successor company) on Toronto Stock Exchange or the TSX Venture Exchange and, at the option of the Company, in addition thereto, Nasdaq or the Alternative Investment Market of the London Stock Exchange, by way of an initial public offering (“IPO”) or any other transaction which provides holders of the Company’s shares of common stock with comparable liquidity that such holders would have received if such listing or quotation was obtained, including by means of a reverse take-over, merger, amalgamation, arrangement, take-over bid, insider bid, reorganization, joint venture, sale of all or substantially all of the Company’s assets, exchange of assets or similar transaction or other combination with a reporting issuer or a reporting company, with the result that, after giving effect to the occurrence of such Liquidity Event, the Conversion Securities issued upon conversion of the Convertible Debentures and exercise of the Warrants will become freely-tradable by the holders thereof under applicable securities laws in Canada (subject to usual control person restrictions).

The number of the Conversion Securities into which the Convertible Debentures will be converted is the principal amount of the Convertible Debentures, plus accrued and unpaid interest, divided by 90% of the IPO price per share or 90% of the equivalent price per share for other kinds of Liquidity Events based on the value of FAN as determined in good faith by the board of directors of FAN in connection with such Liquidity Event (the “Liquidity Event Price”).

F-28

FLUID AUDIO NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the Years Ended December 31, 2006 and 2005

15. SUBSEQUENT EVENTS (continued)

The Company agreed to issue share purchase warrants of the Company (the “Warrants”) to the subscribers for Convertible Debentures concurrently with the issuance of the Convertible Debentures. Each Warrant entitles the holder to purchase such number of shares of common stock as is equal to the number of common stock issued upon conversion of the Convertible Debentures (including, if applicable, any additional Conversion Securities issued as a result of the liquidity penalty described below), at an exercise price per share (if applicable, the Canadian dollar equivalent) equal to 50% of the Liquidity Event Price. The Warrants will only be exercisable (i) following the occurrence of a Liquidity Event on or prior to the Maturity Date, (ii) to the extent as the holder’s Convertible Debentures are converted into Conversion Securities, and (iii) during the 12 month period following the date of completion of the Liquidity Event.

The Company agreed to use its reasonable commercial efforts to complete the Liquidity Event on or prior to July 31, 2007. If the Liquidity Event does not occur by the close of business on or prior to July 31, 2007, the Convertible Debentures shall be convertible into the number of Conversion Securities referred to above, multiplied by 1.1.

In addition to the commissions disclosed above, the brokers received warrants to purchase up to 7% of the aggregate number of shares that are issuable upon conversion of all the Convertible Debentures sold pursuant to the offering, exercisable at 50% of the Liquidity Event Price per share for a period of 12 months following the date of completion of the Liquidity Event.

(b)

Merger and Redemption Agreements

On February 14, 2007, FAN entered into a Subscription Agreement and a Plan and Agreement of Merger with Freedom 20, Inc. (“Freedom 20”). On the same day, Freedom 20 entered into a Redemption Agreement with its sole shareholder, Getting You There, LLC, pursuant to which Freedom 20 redeemed all of its issued and outstanding shares, being an aggregate of 100,000 shares of Freedom 20’s Common Stock, par value $0.0001 per share, in consideration of an aggregate payment consisting of $1.00 and 82,500 shares of common stock of the Company.

Concurrently with the execution and pursuant to the terms of the Merger Agreement, FAN purchased one share of Freedom 20 Common Stock for an aggregate purchase price of $1.00 and Freedom 20 became a wholly-owned subsidiary of the Company (the ”Sale”). Following the Sale and pursuant to the terms of the Merger Agreement, Freedom 20 effected a short-form parent-subsidiary merger (the “Merger”) of FAN with and into Freedom 20, pursuant to which the separate existence of FAN was terminated, and Freedom 20, as the surviving entity, changed its name to “Fluid Media Networks, Inc.”

(c)

Conversion of Series C and Series D Preferred Stock

Upon completion of the Merger, on February 14, 2007, a total of 1,609,980 shares of Preferred Stock (all from Series C and D) were automatically converted into shares of common stock on a 1.1:1 basis, for a total of 1,770,978 shares (see Note 11).

(d)

Loan Renewal and Conversion

In February 2007, the Company paid $125,000 toward its $250,000 short-term loan from a shareholder. The Company expects that the remaining balance due will either be paid in cash or paid in shares of common stock (see Note 10).

F-29

FLUID AUDIO NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the Years Ended December 31, 2006 and 2005

15. SUBSEQUENT EVENTS (continued)

(e)

Related Party Transactions

In January 2007, the Company’s President and Chief Executive Officer loaned the Company an additional $244,000. This amount and the amount owed to him at year end ($85,334) were repaid in full on February 5, 2007 (see Note 10).

(f)

Stock Option Grants

In February 2007, the Company granted stock options to certain of its employees to purchase a total of up to 222,170 shares of its common stock. A total of 32,000 options were granted fully-vested and the remaining 190,170 options will be vested over four years in equal, monthly amounts. The exercise price of each of these options is $0.30 per share.

In February 2007, the Company obtained approval of the board of directors to grant stock options to a consultant to purchase up to 50,000 shares of common stock for partial payment of services.

In February 2007, the Company obtained approval of the board of directors to grant stock options to a Board member to purchase up to 50,000 shares of common stock.

In March 2007, the Company issued an employment offer letter to an executive officer that included the grant of stock options to purchase up to 100,000 shares of common stock as part of the officer’s compensation.

(g)

Investment in Affiliate

On March 6, 2007, the Company made a $250,000 investment in the privately-held company referred to in Note 4. This additional investment constituted a purchase of 487,091 additional, newly issued shares bringing the Company’s total percentage ownership in the affiliate company to 10.1%.

(h)

Stock Grants

In March 2007, the Company issued 23,250 shares of common stock to consultants for services rendered. These shares have been valued at $4.00 per share and have been expensed when issued.

Additionally, in April 2007 the Company issued a total of 62,000 shares of common stock to consultants for services rendered. These shares have also been valued at $4.00 per share and have been expensed when issued.

(i)

Conversion of Shares of Series A Preferred Stock and Shares of Series B Preferred Stock

The Certificate of Designations of the Company provides that all outstanding shares of Series A Preferred Stock and Series B Preferred Stock will automatically convert into shares of common stock upon, among other things, the affirmative vote or written consent of a majority of the then outstanding shares of Series A Preferred Stock voting separately as a single class or Series B Preferred Stock voting separately as a single class. On April 11, 2007, the holders of each of the shares of Series A Preferred Stock and Series B Preferred Stock, each voting separately as a single class, approved the conversion of the Series A Preferred Stock and the Series B Preferred Stock, as applicable, into shares of common stock. As a result, the Company issued an aggregate of 2,844,124 shares of common stock to such holders, reflecting the conversion of one share of Series A Preferred Stock or Series B Preferred Stock, as applicable, for one share of common stock.

F-30

FLUID AUDIO NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the Years Ended December 31, 2006 and 2005

15. SUBSEQUENT EVENTS (continued)

(j)

Proposed Redomicile of the Company

On April 11, 2007, the board of directors of the Company unanimously approved, and shareholders holding a majority of the shares of common stock outstanding and beneficially owned approved, the issuance and sale of shares of common stock by way of an initial public offering in Canada. In

connection with the proposed offering, the Board and the shareholders have also approved a corporate reorganization of the Company whereby:

(i)

The Company would form a wholly-owned subsidiary under the laws of the State of Delaware (the “US Subsidiary”) and transfer all the current business operations of the Company to the US Subsidiary in exchange for all of the capital stock of the US Subsidiary; and

(ii)

The place of incorporation of the Company would be changed from Delaware to Nevada as part of an overall plan to ultimately change the place of incorporation of the Company to Canada.

After the consummation of the proposed actions, the Company, as the parent of the US Subsidiary, will become a company organized under the laws of Nevada for a short interim period until the Company completes its change of domicile to Canada, and all business operations formerly conducted by the Company will at that time be conducted by the US Subsidiary.

F-31

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the board of directors

Fluid Audio Network, Inc.

Culver City, California

/s/ Stonefield Josephson, Inc. Los Angeles, California
June 1, 2006	CERTIFIED PUBLIC ACCOUNTANTS

F-32

FLUID AUDIO NETWORK, INC.

A Development Stage Company

BALANCE SHEETS

	December 31, 2005			December 31, 2004
Assets
Current assets:
Cash and cash equivalents	$	120,184		$	12,574
Preferred stock subscription receivable (see Note 5)		250,000			—
Prepaid expense		3,948			—
Other receivables		56,969			—
Deferred expenses		199,046			—

Total current assets		630,147			12,574

Fixed assets:
Website development costs, net of accumulated amortization of $4,597		162,064			—
Equipment and fixtures, net of depreciation		77,063			—

Total fixed assets		239,127			—

Other assets:
Internet URL purchases		10,433			1,688
Rent deposit		11,844			—

Total other assets		22,277			1,688

	$	891,551		$	14,262

Liabilities, Convertible Redeemable Preferred Stock and Shareholders’ Deficit
Current liabilities:
Accounts payable	$	35,554		$	—
Accrued expenses		50,609			—
Accrued vacation		13,351			—
Deferred revenue		234,802			—

Total current liabilities		334,316			—
Long-term liabilities:
Due to shareholder		54,011			304,843
Dividend payable		99,213			—

Total liabilities		487,540			304,843

Commitments and contingencies (Note 8)
Convertible redeemable preferred stock
Preferred Series A ($1,800,000, with liquidation preference)		1,800,000			—
Preferred Series B ($1,780,532, with liquidation preference)		1,657,219			—

Total convertible redeemable preferred stock		3,457,219			—

Shareholders’ Deficit:
Common Stock, $.001 par value; 10,000,000 authorized, 4,773,219 shares issued and outstanding in 2005 and 4,131,338 shares in 2004		643			2
Additional paid-in-capital		30,413			1,000
Deficit accumulated during the development stage		(3,084,264	)		(291,583	)

Total shareholders’ deficit		(3,053,208	)		(290,581	)

	$	891,551		$	14,262

The accompanying notes form an integral part of these financial statements.

F-33

FLUID AUDIO NETWORK, INC.

A Development Stage Company

STATEMENT OF OPERATIONS

	Year Ended December 31, 2005			Year Ended December 31, 2004			Period from Inception (March 15, 2002) to December 31, 2005

Revenue
Artist services	$	66,114		$	—		$	66,114
Advertising/sponsorship		201,560			—			201,560

Total revenue		267,674			—			267,674
Cost of goods sold		86,537			—			86,537

Gross profit		181,137			—			181,137

Expenses:
Marketing and promotions		775,679			4,439			798,648
Office and administration		232,948			2,871			237,084
Professional and consulting		876,494			147,859			1,132,638
Salaries and payroll taxes		770,217			—			778,551
Fremantle operating license		300,000			—			300,000
Depreciation and amortization		20,123			—			20,123

Total expenses		2,975,461			155,169			3,267,044

Loss from operations		(2,794,324	)		(155,169	)		(3,085,907	)
Other income
Interest income		4,303			—			4,303

Loss before income taxes		(2,790,021	)		(155,169	)		(3,081,604	)
Income taxes		2,660			—			2,660

Net loss	$	(2,792,681	)	$	(155,169	)	$	(3,084,264	)

Earnings per share
Net loss	$	(2,792,681	)	$	(155,169	)
Dividends	$	(131,423	)		—

Net loss available to common shareholders		(2,924,104	)		(155,169	)

Common stock, weighted average		4,398,788			1,377,113

Earnings per share, basic and diluted	$	(0.66	)	$	(0.11	)

The accompanying notes form an integral part of these financial statements.

F-34

FLUID AUDIO NETWORK, INC.

A Development Stage Company

STATEMENTS OF STOCKHOLDERS’ DEFICIT

Period from Inception on March 15, 2002 through December 31, 2005

	Common Stock
	Shares		Amount		Additional Paid-in Capital			Deficit Accumulated During Development Stage			Total Shareholders’ Deficit

Net loss for the period from inception March 15, 2002 to December 31, 2002	$	—	$	—	$	—		$	(57,016	)	$	(57,016	)

Balance at December 31, 2002		—		—		—			(57,016	)		(57,016	)
Net loss for the year ended December 31, 2003									(79,398	)		(79,398	)

Balance at December 31, 2003		—		—		—			(136,414	)		(136,414	)
Issuance of common stock upon incorporation (September 2004) (reflects stock split; see Note 6)		3,700,000		1		999						1,000
Issuance of common stock (September 2004) (Reflects stock split; see Note 6)		431,338		1		1						2
Net loss for the year ended December 31, 2004									(155,169	)		(155,169	)

Balance at December 31, 2004		4,131,338		2		1,000			(291,583	)		(290,581	)
Issuance of common stock for services (see Note 6) (August 2005)		641,881		641		128,627						129,268
Warrants issued in connection with Series B Preferred Stock						32,209						32,209
Accretion of discount on Series B Preferred Stock accounted for as a dividend						(32,209	)					(32,209	)
Undeclared, accrued dividends for Series A						(73,171	)					(73,171	)
Undeclared, accrued dividends for Series B						(26,043	)					(26,043	)
Net loss for the year ended December 31, 2005									(2,792,681	)		(2,792,681	)

Balance at December 31, 2005	$	4,773,219	$	643	$	30,413		$	(3,084,264	)	$	(3,053,208	)

The accompanying notes form an integral part of these financial statements.

F-35

FLUID AUDIO NETWORK, INC.

A Development Stage Company

STATEMENT OF CASH FLOWS

	Year Ended December 31, 2005			Year Ended December 31, 2004			Period from Inception (March 15, 2002) to December 31, 2005

Cash flows provided by (used for) operating activities:
Net loss	$	(2,792,681	)	$	(155,169	)	$	(3,084,264	)

Adjustments to reconcile net loss to net cash provided by (used for) operating activities:
Depreciation and amortization		20,123			—			20,123
Issuance of common stock for services		129,268			—			129,268
Issuance of preferred stock Series A for services		300,000			—			300,000
Changes in assets and liabilities:
(Increase) decrease in assets:
Other deferred receivables		(15,000	)		—			(15,000	)
Other receivables		(41,969	)		—			(41,969	)
Prepaid expenses and deposits		(15,792	)		—			(15,792	)
Deferred expenses		(199,046	)		—			(199,046	)
Increase (decrease) in liabilities:
Accounts payable and other accrued payables		86,163			—			86,163
Accrued vacation leave		13,351			—			13,351
Deferred revenue		234,802			—			234,802
Dividends payable		99,213			—			99,213

Total adjustments		611,113			—			611,113

Net cash used for operating activities		(2,181,568	)		(155,169	)		(2,473,151	)

Cash flows used for investing activities:
Equipment and fixtures		(92,589	)		—			(92,589	)
Website development costs		(166,662	)		—			(166,662	)
Internet URL purchases		(8,745	)		(994	)		(10,433	)

Net cash used for investing activities		(267,996	)		(994	)		(269,684	)

Cash flows provided by (used for) financing activities:
Preferred stock subscription receivable		(250,000	)		—			(250,000	)
Dividends		(99,213	)		—			(99,213	)
Due to shareholder loan		49,168			167,735			354,011
Issuance of Preferred Series A, net of syndication costs		1,200,000			—			1,200,000
Issuance of Preferred Series B, net of syndication costs		1,657,219			—			1,657,219
Issuance of common stock and APIC		—			1,002			1,002

Net cash provided by financing activities	$	2,557,174		$	168,737		$	2,863,019

Net increase in cash		107,610			12,574			120,184
Cash, beginning of period		12,574			—			—

Cash, end of year	$	120,184		$	12,574		$	120,184

There were no expenses charged for interest in the reporting periods and income tax paid in 2005 was $2,660.

Supplemental disclosure of non-cash financing activities:

March 2005 — Conversion of $300,000 Shareholder Debt into Series A, Preferred Stock. (see Note 5)

March 2005 — Issuance of 300,000 shares of Series A, Preferred Stock in exchange for services. (see Note 5)

August 2005 — Issuance of 89,150 shares of Common Stock in exchange for services.

The accompanying notes form an integral part of these financial statements.

F-36

FLUID AUDIO NETWORK, INC.

A Development Stage Company

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2005 and 2004

1. THE COMPANY AND NATURE OF OPERATIONS

Fluid Audio Network, Inc. (“FAN”) is a development stage company that began research and development activities on March 15, 2002 and was subsequently incorporated on September 20, 2004 in the State of Delaware. Consistent with this, FAN’s financial statements show expenses in the appropriate periods before the Company was incorporated.

FAN is an online music services company bringing together emerging artists and consumers and consists of several online and offline media-based properties, including the American Idol Underground.com website. According to a licensing agreement with FremantleMedia North America, Inc., the licensor of the American Idol brand, FAN has the exclusive right to use and exploit the American Idol TV show format and related trademarks on the Internet in a multi-year license agreement.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred significant losses since inception of $3,084,264 and used cash for operations in the amount of $2,181,568 during the year ended December 31, 2005. The Company also has a shareholders’ deficit of $3,053,208 as of December 31, 2005. These factors raise substantial doubt about the Company’s ability to continue as a going concern. During the year 2006 management intends to raise additional equity financing (including a planned IPO) to fund future operations and to provide additional working capital to increase the customer base of FAN to generate revenues sufficient to achieve profitability (see Note 9, Subsequent Events — Unaudited).

The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

When we refer to “we,” “our,” “us” or “FAN” in these Notes, we mean the current Delaware corporation (Fluid Audio Network, Inc.).

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

On an ongoing basis, we evaluate our estimates, including those related to impairment of property, plant and equipment, intangible assets, deferred tax assets and fair value computation of options using Black Scholes option pricing model. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions; however, we believe that our estimates, including those for the above-described items, are reasonable.

F-37

FLUID AUDIO NETWORK, INC.

A Development Stage Company

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the Years Ended December 31, 2005 and 2004

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

We use estimates to determine the values to be booked in our Deferred Revenue and Deferred Expense accounts from barter transactions. Those estimates follow the requirements of APB 29, Accounting for Non-Monetary Transactions, whereby unrealized revenue (Deferred Revenue) and unrealized expense (Deferred Expense) is recorded at either the fair value of the assets acquired or the recorded amount of the assets relinquished, whichever is more readily determinable.

Cash and Cash Equivalents

Cash and cash equivalents are short-term, highly liquid investments with original or remaining maturities of three months or less when purchased. Our financial instruments, including cash, cash equivalents, accounts receivable, funds receivable, accounts payable, and funds payable are carried at cost, which approximates their fair value because of the short-term maturity of these instruments.

Fair Value of Financial Instruments

The carrying amounts of FAN’s financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, are recorded at approximate fair value because of their short maturities.

Fixed Assets

Website Development Costs

FAN capitalizes website development costs in accordance with EITF 00-2, Accounting for Web Site Development Costs, and SOP 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use, whereby costs related to the preliminary project stage of development are expensed and costs relating to the application development stage are capitalized. The development costs capitalized for the year ended December 31, 2005 were $166,662. Any additional costs for upgrades and enhancements which result in additional functionality will be capitalized. These costs are being amortized over a five year period, which approximately coincides with our licensing agreement and options with FremantleMedia North America, Inc. Management believes that its core technology will outlive that licensing agreement and will provide a common, technological base for other websites the Company may chose to develop.

Amortization expense for capitalized development costs the year ended December 31, 2005 was $4,597. Future amortization expense on FAN’s currently capitalized website development costs is:

2006	$	33,332
2007	$	33,332
2008	$	33,332
2009	$	33,332
2010	$	28,734

F-38

FLUID AUDIO NETWORK, INC.

A Development Stage Company

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the Years Ended December 31, 2005 and 2004

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Revenue Recognition

FAN’s revenues are derived from Internet advertising services and artist services fees. FAN recognizes revenue from its online sales of spin cards and corporate (banner, etc.) advertising, whereby revenue is recognized in the period(s) in which the FAN’s obligation is fulfilled.

In accordance with SAB 104, Revenue Recognition, and SAB 101, Revenue Recognition in Financial Statements, the Company applies the following four characteristics in determining whether revenue exists that can be recognized: 1) persuasive evidence of an arrangement exists, 2) delivery has occurred or services have been rendered, 3) seller’s price to the buyer is fixed or determinable, and 4) collectibility is reasonably assured.

FAN recognizes revenue for non-cash sponsorship sales, or barter transactions, in accordance with APB 29, Accounting for Non-Monetary Transactions, whereby revenue is recorded at the fair value of the assets acquired or on the recorded amount of the assets relinquished, whichever is the most readily determinable, during the period in which the contest or event that is being sponsored occurs.

FAN believes that EITF 99-17, Accounting for Advertising Barter Transactions, does not apply to its barter transactions because EITF 99-17 applies to exchanges of advertising for advertising. In each of FAN’s barter contracts, something other than advertising is either received or relinquished.

Revenues from barter transactions were $222,852 for the year ended December 31, 2005 which is shown on the accompanying Income Statement in Income from Artist Services ($65,000) and Advertising/Sponsorship ($157,852). The rest of our income is derived from cash sales totaling $44,822 for the year ended December 31, 2005 and is shown on our Income Statement in Income from Artist Services ($1,113) and Advertising/Sponsorship ($43,709). Total income for 2005 is $267,674.

Deferred Revenue

According to FAN’s revenue recognition policies (SAB 104 and APB 29), mentioned above, costs and revenue to be recognized in future periods are held in these deferred accounts until FAN’s contract obligations are met. Accordingly, FAN’s deferred revenue was $234,802, as of December 31, 2005.

Accounting for Stock-based Compensation

The Company accounts for stock-based employee compensation under the requirements Financial Accounting Standards Board’s SFAS 123, Accounting for Stock-Based Compensation, and APB 25, Accounting for Stock Issued to Employees, which does not require compensation to be recorded if the consideration to be received is at least equal to fair value at the measurement date. Non-employee stock-based transactions are accounted for under SFAS 123 which requires compensation to be recorded based on the fair value of the securities issued or the services received, whichever is more reliably measurable.

SFAS 123 requires the disclosure of pro forma net income and earnings per share had the Company adopted the fair value method. Under SFAS 123, the fair value of stock-based awards to employees is calculated through the use of option-pricing models, even though such models were developed to estimate the fair value of freely tradable, fully transferable options with vesting restrictions which significantly differ from the Company’s stock option awards. These models also require subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated value. There have been no options granted under the Company’s stock option plan since the Company’s inception through December 31, 2005.

F-39

FLUID AUDIO NETWORK, INC.

A Development Stage Company

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the Years Ended December 31, 2005 and 2004

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Advertising Costs

Advertising costs are expensed as incurred and are included in the marketing and promotion lines in the accompanying statements of revenue and expenses. Advertising costs, shown within Marketing and Promotion expenses on FAN’s Income Statement, were $196,392, for year ended December 31, 2005, of which $130,000 originated through bartered transactions. The Company combines Advertising with Marketing and promotions on its Statement of Operations. There were no advertising expenses for the year ended December 31, 2004.

Earnings per Common Share

The calculation of earnings per common share is based on the weighted-average number of common shares outstanding during the period. The calculation for diluted earnings per common share reflects the effect of all dilutive potential common shares that were outstanding during the period. Because of the Company’s net loss, the following Common Stock equivalents are excluded from diluted earnings per share, as their effect is considered anti-dilutive:

Preferred Stock, Series A	1,800,000
Preferred Stock, Series B	1,017,447
Warrants	43,354

New Accounting Pronouncements

In May 2005, the FASB issued SFAS 154, Accounting Changes and Error Corrections, which replaces APB 120, Accounting Changes, and SFAS 3, Reporting Accounting Changes in Interim Financial Statements. SFAS 154 changes the requirements for accounting and reporting a change in accounting principle, and applies to all voluntary changes in accounting principles, as well as changes required by an accounting pronouncement. In the unusual instance it does not include specific transition provisions. Specifically, SFAS 154 requires retrospective application to prior periods’ financial statements, unless it is impracticable to determine the period-specific effects or the cumulative effect of the change. When it is impracticable to determine the effects of the change, the new accounting principle must be applied to the balances of assets and liabilities as of the beginning of the earliest period for which retrospective application is practicable and a corresponding adjustment must be made to the opening balance of retained earnings for that period rather than being reported in an income statement. When it is impracticable to determine the cumulative effect of the change, the new principle must be applied as if it were adopted prospectively from the earliest date practicable. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. SFAS 154 does not change the transition provisions of any existing pronouncements. The Company has evaluated the impact of SFAS 154 and does not expect the adoption of this statement to have a significant impact on its statement of income or financial condition. The Company will apply SFAS 154 in future periods, when applicable.

In December 2004, the Financial Accounting Standards Board issued SFAS 123(R), Share-Based Payment. SFAS 123(R) replaces SFAS 123, Accounting for Stock-Based Compensation, and supersedes APB 25, Accounting for Stock Issued to Employees. SFAS 123(R) requires compensation costs related to share-based payment transactions to be recognized in the financial statements over the period that an employee provides service in exchange for the award. SFAS 123(R) is effective for fiscal year beginning after June 15, 2005. The Company plans to adopt SFAS 123(R) on January 1, 2006. SFAS 123(R) eliminates the alternative to use the intrinsic value method of accounting that was provided in SFAS 123 as originally issued.

F-40

FLUID AUDIO NETWORK, INC.

A Development Stage Company

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the Years Ended December 31, 2005 and 2004

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

In December 2004, the FASB issued SFAS 153, Exchanges of Nonmonetary Assets, an amendment of APB 29, Accounting for Nonmonetary Transactions. The amendments made by Statement 153 are based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. Further, the amendments eliminate the narrow exception for nonmonetary exchanges of similar productive assets and replace it with a broader exception for exchanges of nonmonetary assets that do not have commercial substance. Previously, APB 29 required that the accounting for an exchange of a productive asset for a similar productive asset or an equivalent interest in the same or similar productive asset should be based on the recorded amount of the asset relinquished. APB 29 provided an exception to its basic measurement principle (fair value) for exchanges of similar productive assets. The Board believes that exception required that some nonmonetary exchanges, although commercially substantive, be recorded on a carryover basis. By focusing the exception on exchanges that lack commercial substance, the Board believes this Statement produces financial reporting that more faithfully represents the economics of the transactions. The Statement is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. Earlier application is permitted for nonmonetary asset exchanges occurring in fiscal periods beginning after the date of issuance. The provisions of this Statement shall be applied prospectively. The Company has evaluated the impact of the adoption of SFAS 153, and does not believe the impact will be significant to the Company’s overall results of operations or financial position.

3. FIXED ASSETS

A summary, as of December 31, 2005, is as follows:

Computer hardware	$	34,291
Computer software		25,819
Office equipment		20,091
Furniture and fixture		12,388

		92,589
Less accumulated depreciation		15,526

	$	77,063

In 2005, FAN’s depreciation expense on fixed assets was $15,526.

4. RELATED PARTY TRANSACTIONS

Justin Beckett, FAN’s Chief Executive Officer, has provided the Company with cash to cover monthly cash shortages. These transactions were recorded under a Due to Shareholder account and are non-interest bearing. As of December 31, 2004, the amount cash he loaned the company and expenses he paid on behalf of the company totaled $304,843, and by February of 2005, the amount owed to him grew to over $349,843.

In March of 2005, $300,000 of the debt owed to Mr. Beckett was converted into 300,000 shares of Series A, Preferred Stock, at its issuance price of $1.00.

F-41

FLUID AUDIO NETWORK, INC.

A Development Stage Company

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the Years Ended December 31, 2005 and 2004

4. RELATED PARTY TRANSACTIONS (continued)

Below is the list of transactions for Mr. Beckett, in 2004 and 2005:

Date	Description		Amount

01/01/04		Opening balance due to CEO	$	137,106
09/24/04		Purchase of common stock upon Incorporation		(1,000	)
12/27/04		Loan from CEO		20,997
12/31/04		Expenses, paid by CEO		147,740
01/20/05		Loan from CEO		25,000
02/22/05		Loan from CEO		20,000
03/15/05		Conversion to Series A, PS		(300,000	)
03/15/05		Repayment to CEO		(5,332	)
12/31/05		Expenses, paid by CEO		9,500

		Due to shareholder, year end	$	54,011

As of December 31, 2005, a balance of $41,969 was owed to the company from an employee and officer of the company. While that person is no longer working for the Company, we believe that payment arrangements will be forthcoming and the balance owed to FAN will be collected. The balance owed to FAN is shown as Other Receivables on FAN’s Balance Sheet.

5. CONVERTIBLE REDEEMABLE PREFERRED STOCK

During the calendar year of 2005 FAN issued two series of convertible redeemable preferred stock in a private placement to accredited investors. Shares, proceeds and syndication costs for the placement are listed below.

Preferred Stock, Series A

The proceeds from Preferred — Series A were $1,200,000 in cash and the retirement of $300,000 debt owed to Shareholder. A grant of 300,000 shares was made to Lorne Abony, the Chairman of FAN’s board of directors which as been recognized as a $300,000 expense in the accompanying financial statements for the fiscal year ending December 31, 2005. Total shares issued were 1,800,000 at $1.00 per share. There were no warrants issued.

Preferred Stock, Series B

The proceeds from Preferred — Series B were $1,722,163 from which $64,944 was deducted to cover legal fees and agent expenses and commissions. In addition to those cash payments, brokers and agents involved with the sale were given 33,354 shares, valued at $1.75 per share, or $58,370, making the total cost of equity to be $123,314. The total number of shares issued were 1,017,447 at $1.75 per share and there were 43,354 warrants, valued at $1.75 per share, given to brokers and agents.

The Black-Scholes option pricing model requires the use of subjective assumptions which can materially affect fair value estimates. Therefore, this model does not necessarily provide a reliable single measure of the fair value of the warrants granted under the Preferred, Series B round of financing. The fair value of each warrant was estimated on the date of the grant using the following assumptions for 2005: (1) expected dividend yield of 5.0%; (2) risk-free interest rate of 4.5%; (3) a volatility of 100%; and (4) term expected life of eighteen months. Consequently, a value of $32,209 was given to 43,354 outstanding warrants to purchase Series B, Preferred Stock. The resulting discount on the Convertible Redeemable Preferred Stock has been immediately amortized in a manner similar to a dividend.

F-42

FLUID AUDIO NETWORK, INC.

A Development Stage Company

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the Years Ended December 31, 2005 and 2004

5. CONVERTIBLE REDEEMABLE PREFERRED STOCK (continued)

Of the total, net cash raised on this round of financing, ($1,657,219), $250,000 was received on January 9, 2006 which is recognized as Preferred Stock Subscription Receivable in Other Current Assets.

Common Characteristics between Series A and Series B

Both Series A and Series B Preferred Stock have redemption rights which allow the holders to call for a redemption of all outstanding shares, upon a majority vote of the holders of the shares after the fifth anniversary of its issue date. Should this happen, FAN would be obligated to pay the holders of shares of the series that voted for redemption a price equal to the higher of the original issue price or the fair market value, as determined by an independent third party, for each share plus all accrued but unpaid dividends thereon, as soon as it is financially practicable for FAN to do so.

Both Series A and Series B Preferred Stock contain voting rights and a voluntary conversion feature whereby shares, at the holder’s option, may be exchanged for Common Stock on a one-per-one basis. They also contain an automatic conversion feature to common stock on a one-per-one basis upon the earliest occurrence of one of the following events: the closing of a firm commitment underwritten public offering under the Securities Act of 1933, as amended, covering the offer and sale of

Common Stock for the account of the Corporation to the public with aggregate proceeds to the Corporation of at least $5 million (before deduction for underwriters commissions and expenses), the affirmative vote or written consent of a majority of the then outstanding shares of the applicable Series (either A or B), and the conversion into Common Stock of majority of the originally issued shares of the applicable Series.

In accordance with SFAS 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, and EITF Topic D-98 and ASR 298, because FAN’s preferred stock contain a conditional obligation to redeem for cash, they are classified on the balance sheet between Liabilities and Equity in a section called Convertible Redeemable Preferred Stock.

Both Series A and Series B preferred stock earn dividends at 5%, annually. (see Note 6)

Preferred Stock, Series C and Series D

Subsequent to both Series A and Series B rounds of financing, in 2006, FAN authorized and sold shares designated as Series C and Series D, Preferred Stock (see Note 10, Subsequent Events, unaudited).

6. STOCKHOLDERS’ EQUITY

Holders of share of Common Stock generally are entitled to one vote per share. In connection with the election of directors, however, shareholders are entitled to cumulative voting. Holders of Common Stock are entitled to receive such dividends as may be declared by the Company’s board of directors out of funds legally available for dividends. In the event of a liquidation or dissolution of the Company, holders of Common Stock are entitled to share in all assets remaining after payments of debts and other liabilities and preferential rights of holders of preferred stock that may be outstanding. The Common Stock has no preemptive or other subscription rights, and there are no conversion rights or redemption and sinking fund provisions with respect to shares of Common Stock. All of the shares of Common Stock presently outstanding are fully paid and non-assessable.

All shares of Common Stock other than shares acquired upon conversion of the Series A Preferred Stock or Series B Preferred Stock are subject to a right of first refusal by the Company in the event of certain transfers by the holders of such shares.

F-43

FLUID AUDIO NETWORK, INC.

A Development Stage Company

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the Years Ended December 31, 2005 and 2004

6. STOCKHOLDERS’ EQUITY (continued)

FAN has authorized 9,000,000, par $.001, shares of Common Stock and 1,000,000, par $.001, shares of Class A Common Stock. On March 8, 2005, FAN approved and effectuated a forward stock split so that each holder of Common Stock of the Company received 1,000 shares of Class A Common Stock and 2,700 shares of Common Stock. As a result of this split, a combined total of 4,773,219 shares are currently outstanding. The effect of this stock split is given a retroactive application in the attached financial statements.

FAN’s authorized Preferred Stock consists of 5,000,000 shares, of which 1,800,000 have been designated Series A Preferred Stock and has been fully subscribed. Series B Preferred Stock consists of 1,500,000 designated shares of which 1,017,447 have been subscribed. Series C Preferred Stock consists of 1,200,000 shares designated, leaving 500,000 undesignated. The board of directors, without further action by the shareholders, has the authority to designate any authorized but undersigned Preferred Stock and to establish the rights, preferences and restrictions of such Preferred Stock.

The holders of Series A Preferred Stock and Series B Preferred Stock are entitled to receive 5% cumulative dividends, when and if declared by the board of directors, prior and in preference to any dividends on Common Stock. As of December 31, 2005, cumulative dividends were $73,171 for Series A and $26,042 for Series B, totaling $99,213 for the year ending December 31, 2005.

In the event of liquidation or dissolution of the Company, the holders of Series A Preferred stock and Series B Preferred Stock will be entitled to receive, on a pro rata basis but prior and in preference to any of the assets of the Company to the holders of the Common Stock, an amount per share equal to $1.00 per share for each Series A Preferred Stock held by them and $1.75 per share for each share of Series B Preferred Stock held by them, in each case subject to adjustment for any stock, splits, stock dividends, combinations, recapitalizations or the like, plus any unpaid dividends.

The holders of Series A Preferred Stock and Series B Preferred Stock will have the right to convert each share of Series A Preferred Stock and Series B Preferred Stock at anytime after majority vote into one share of Common Stock, subject to adjustments for stock splits, stock dividends, mergers, consolidations, reorganizations and similar transactions.

The holders of Series A Preferred Stock and Series B Preferred Stock will be entitled to that number of votes on all matters presented to the shareholders of the Company equal to the number of shares of the Common Stock then issuable upon conversion of the Series A Preferred Stock and Series B Preferred Stock.

In August 2005, FAN issued 641,881 fully-vested shares of Common Stock with a Conditional Repurchase Right in exchange for services to be performed by one consultant over a three year period of time, through July 2008. The value of those shares was determined by applying a discount to the Preferred Stock, Series B per share price of $1.75, issued in September 2005, to account for the lack of dividend rights and lack of liquidation preference that Common Stock shareholders receive. Consequently, those Common shares were valued at $1.45, for a total of $930,727.

In December 2005, the consultancy agreement mentioned above was severed, within the six-month no fault termination clause. This event provided FAN the opportunity to exercise its Conditional Repurchase Right to repurchase 552,724 shares at a declared price of $0.15 per share, or $82,908. FAN repurchased these shares over a three month period ending May 8, 2006, leaving a net of 89,157 shares that couldn’t be repurchased.

In accordance with SFAS 123, Accounting for Stock Issued to Employees, FAN recognized $129,268 as Consulting Expense in 2005 to account for the recognition of compensation relating to five months’ time elapsing over a three-year service agreement.

F-44

FLUID AUDIO NETWORK, INC.

A Development Stage Company

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the Years Ended December 31, 2005 and 2004

7. INCOME TAXES

The Company accounts for income taxes under the provisions of SFAS 109, Accounting for Income Taxes, using the liability method. SFAS 109 requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the current financial statements or tax returns.

As of December 31, 2004, the cumulative net operating loss carryforward for Federal Income Tax purposes was $291,583, which created a cumulative deferred income tax benefit of $116,633.

As of December 31, 2005, FAN has a net deferred tax asset of $1,155,919 arising from a cumulative net operating loss carryforward for Federal Income Tax purposes of $2,420,194, temporary differences provided by Deferred Revenue of $234,802 and the expense recognized for both Common Stock issued for services ($129,268) and Preferred Stock, Series A issued for services ($300,000). The net deferred tax asset has been completely offset by a valuation allowance, as its realization is not reasonably assured.

These net operating loss carryforwards begin to expire in 2020; however because of the uncertainty of when FAN will become profitable, we are required to reserve against our Deferred Tax Asset, in full. Future changes in FAN’s ownership may also result in annual limitations on the amount of carryforwards which FAN can realize in future periods.

FAN is subject to various state and local taxes, which are typically based on a minimum tax due, a capital based computation or on taxable income. State and local tax expense was $2,660 for the period reported.

8. COMMITMENTS AND CONTINGENCIES

Operating Leases

Rent

FAN leases office and equipment, under non-cancelable operating leases expiring at various dates through 2008. The following is a schedule of future minimum lease payments under noncancellable operating leases as of December 31, 2005 for the next three years:

Year ending December 31:

2006	$	46,800
2007		46,800
2008		46,800

	$	140,400

Rent expense from operations was approximately $35,000 for the year ended December 31, 2005 and no rent expense for the year ended December 31, 2004.

Hosting Services

On July 12, 2005, FAN signed a one year lease with a tier-1 provider, Savvis Communications Corporation to host and provide maintenance, support, backup and security of its co-located website servers on a 24/7, 365 basis at 99.9% service level.

F-45

FLUID AUDIO NETWORK, INC.

A Development Stage Company

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the Years Ended December 31, 2005 and 2004

8. COMMITMENTS AND CONTINGENCIES (continued)

These servers host FAN’s principal website, idolunderground.com. The total cost for this commitment, during the initial contract term, is as follows:

August - December 2005	$	74,189	— actual
January - May 2006		123,589	— actual
June and July 2006		54,000	— estimate

Total hosting fees, year 1	$	251,778

Once the initial contract term has passed, FAN’s agreement with Savvis continues on a month-to-month basis.

License Agreement

Fremantle License

On March 11, 2005, FAN entered into a three-year license agreement with FremantleMedia North America, Inc. for $1,400,000 to obtain the exclusive right to use and exploit the American Idol TV show format and related trademarks on the Internet. FAN believes that this is an operating license and, therefore, neither capitalizes the license or report the future liability of its minimum payment obligations on its Balance Sheet.

Over the term of the license, each year FAN is required to pay the higher of a) royalties of 25% of revenue from the use of the AI trademark including music upload fees, promotions, subscriptions, advertising sponsorships, less a 5% administrative fee or b) an annual, guaranteed minimum payment, per the following schedule:

Year 2005	$	300,000	— (paid in 2005)
Year 2006		500,000
Year 2007		600,000

In 2007, for the year 2008 (i.e. fourth contract year), FAN has the right to renew the license agreement for an additional year for a minimum royalty fee of $800,000, if all prior years’ minimum payments have been made. For that year, as in all years past, FAN will be required to pay the higher of a) the minimum royalty payment or b) royalties of 25% of revenue from the use of the AI trademark including music upload fees, promotions, subscriptions, advertising sponsorships, less a 5% administrative fee.

In 2008, for the year 2009 (i.e. fifth contract year), FAN has the right to renew its license for a second additional year for a minimum royalty fee of $1,000,000, if all prior years’ minimum payments have been made. For that year, as in all years past, FAN will be required to pay the higher of a) the minimum royalty payment or b) royalties of 25% of revenue from the use of the AI trademark including music upload fees, promotions, subscriptions, advertising sponsorships, less a 5% administrative fee.

9. SUBSEQUENT EVENTS

On February 8, 2006, FAN issued 1,084,980 shares of Preferred Stock, Series C for $2.00 per share, raising an additional $1,966,276, net of fees. There were 70,980 warrants at $2.00 per share given and currently, unexercised and outstanding.

On February 17, 2006, FAN, through a wholly-owned subsidiary, Fluid Audio Media, LLC, purchased the advertising rights of American Idol Magazine for $1,100,000 in a sublicensing agreement, approved by the original licensor, FremantleMedia North America, Inc.

On May 2 and 9, 2006, FAN issued 283,330 shares of Preferred Stock, Series D for $3.00 per share, raising $849,990.

F-46

FLUID MEDIA NETWORKS, INC.

Consolidated Balance Sheets

		March 31,		December 31,
	AAA	2007		2006
		Unaudited		Audited
Assets
Current assets:
Cash and cash equivalents		$	217,608	$	108,475
Restricted cash			200,000		-
Accounts receivable, net of allowance			117,260		18,415
Other receivables			6,506		3,931
Deferred expenses			773,245		185,005
Prepaid expenses			29,771		11,422
Note receivable, short-term portion			4,483		4,483
Total current assets			1,348,873		331,731

Website development costs, net of amortization			358,296		370,534
Equipment and fixtures, net of depreciation			51,785		61,088
Investment in affiliate			875,000		625,000
Advertising rights			272,000		680,000
Note receivable, long-term portion			22,480		24,081
Loan origination costs			60,332		67,327
Other assets			7,896		7,896
Total assets		$	2,996,662	$	2,167,657

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

F-47

FLUID MEDIA NETWORKS, INC.

Consolidated Balance Sheets (Continued)

	March 31			December 31,
	2007			2006
	Unaudited			Audited
Liabilities, Convertible Redeemable Preferred Stock, and Stockholders’ Deficit

Current liabilities:
Line of credit	$	100,000		$	100,000
Convertible debenture, net of discount		433,334			-
Short-term loans from stockholders		125,000			335,334
Accounts payable		479,232			479,477
Accrued expenses		705,334			343,995
Accrued wages and fees		54,501			44,732
Accrued interest expense		52,000			42,374
Deferred revenue		621,151			194,049
Total current liabilities		2,570,552			1,539,961

Convertible debenture		1,000,000			1,000,000
Dividends payable		413,376			470,205
Total liabilities	$	3,983,928		$	3,010,166
Commitments and contingencies
Convertible redeemable preferred stock:
Series A Preferred Stock ($1.00 par value; 1,800,000 shares authorized;
1,800,000 and 1,800,000 shares issued and outstanding at March 31, 2007
and December 31, 2006, respectively; 5% cumulative dividends)	$	1,800,000		$	1,800,000
Series B Preferred Stock ($1.75 par value; 1,500,000 shares authorized;
1,044,124 and 1,044,124 shares issued and outstanding at March 31, 2007
and December 31, 2006, respectively; 5% cumulative dividends)		1,709,983			1,703,904
Series C Preferred Stock ($2.00 par value; 1,200,000 shares authorized;
0 and 1,084,980 shares issued and outstanding at March 31, 2007
and December 31, 2006, respectively; 5% cumulative dividends)		-			2,006,791
Series D Preferred Stock ($2.00 par value; 500,000 shares authorized;
0 and 525,000 shares issued and outstanding at March 31, 2007
and December 31, 2006, respectively; 5% cumulative dividends)		-			1,050,000
Series E (renamed Series C) Preferred Stock ($2.00 par value; 1,300,000 shares authorized; 1,078,000 and 1,078,000 shares issued and outstanding at March 31, 2007
and December 31, 2006, respectively; 5% cumulative dividends)		1,986,933			1,975,721
Total convertible redeemable preferred stock		5,496,916			8,536,416
Stockholders’ deficit:
Common Stock, $.0001 par value; 20,000,000 shares authorized,
6,149,066 and 4,272,338 shares issued and outstanding at
March 31, 2007 and December 31, 2006, respectively		616			143
Additional paid-in-capital		6,529,302			-
Accumulated deficit		(13,014,100	)		(9,379,068	)
Total stockholders’ deficit		(6,484,182	)		(9,378,925	)
Total liabilities, convertible redeemable preferred stock,
and stockholders’ deficit	$	2,996,662		$	2,167,657

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

F-48

FLUID MEDIA NETWORKS, INC.

Consolidated Statements of Operations

(Unaudited)

	Quarter Ended			Quarter Ended
	March 31, 2007			March 31, 2006
Revenue
Artist services	$	3,790		$	255,055
Advertising/sponsorship		687,773			975,331
Total revenue		691,563			1,230,386
Cost of revenue		312,792			407,762
Gross profit		378,771			822,624
Operating expenses:
Sales and marketing		593,066			1,803,973
General and administrative		1,291,227			669,712
Research and development		59,014			106,160
Fremantle operating license		254,092			238,954
Depreciation and amortization		417,302			67,716
Total operating expenses		2,614,701			2,886,515
Loss from operations		(2,235,930	)		(2,063,891	)
Other income (expense)
Interest expense		(1,402,840	)		(6,571	)
Interest income		4,010			53
Loss before provision for income taxes		(3,634,760	)		(2,070,409	)
Provision for income taxes		272			800
Net loss	$	(3,635,032	)	$	(2,071,209	)
Preferred stock dividends		97,395			65,012
Net loss attributable to common stockholders	$	(3,732,427	)	$	(2,136,221	)
Weighted average common stock, basic and diluted		5,200,022			4,762,983
Net loss per share attributable
to common stockholders, basic and diluted	$	(0.72	)	$	(0.45	)

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

F-49

FLUID MEDIA NETWORKS, INC.

Consolidated Statements of Stockholders’ Deficit

(Unaudited)

	Common Stock				Additional Paid-in			Accumulated			Total Stockholders’
	Shares		Amount		Capital			Deficit			Deficit

Balance at December 31, 2006		4,272,338	$	143	$	-		$	(9,379,068	)	$	(9,378,925	)

Beneficial conversion features and warrants to purchase common stock issued for convertible debenture		-		-		2,110,919			-			2,110,919

Issuance of common stock in relation to reverse merger		82,500		8		(8	)		-			-

Recapitalization of common stock based on par value at $.0001		-		285		(285	)		-			-

Conversion of Series C Preferred Stock		1,193,478		120		2,603,833			-			2,603,953

Reclassification of warrants to purchase Series C Preferred Stock after conversion of Series C Preferred Stock		-		-		34,504			-			34,504

Conversion of Series D Preferred Stock		577,500		58		1,259,943			-			1,260,001

Issuance of common stock to consultants for services		23,250		2		92,998			-			93,000

Issuance of stock options to consultant for services		-		-		114,844						114,844

Stock-based compensation		-		-		255,725			-			255,725

Reclassification of accrued undeclared preferred stock dividends due to conversion of Series C Preferred Stock and Series D Preferred Stock		-		-		154,226			-			154,226

Accrued undeclared preferred stock dividends		-		-		(97,397	)		-			(97,397	)

Net loss		-		-		-			(3,635,032	)		(3,635,032	)
Balance at March 31, 2007		6,149,066	$	616	$	6,529,302		$	(13,014,100	)	$	(6,484,182	)

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

F-50

FLUID MEDIA NETWORKS, INC.

Consolidated Statements of Cash Flows

(Unaudited)

	Quarter Ended			Quarter Ended
	March 31, 2007			March 31, 2006
Cash flows used in operating activities:
Net loss	$	(3,635,032	)	$	(2,071,209	)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization		458,356			77,356
Write-off capitalized internet URLs		-			10,433
Write-off other receivables		-			10,579
Revenue from barter transactions		(354,116	)		(807,850	)
Expenses relating to barter transactions		234,795			934,967
Amortization on loan origination costs		6,995			-
Stock-based compensation expense		255,725			46,308
Issuance of common stock for services		93,000			-
Interest expense for conversion of preferred stock		841,665			-
Interest expense for accretion of convertible debenture		433,334			-
Interest expenses for accretion of preferred stock financing costs		17,290			6,351
Issuance of stock option to consultant for services		114,844			-

Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable		(98,845	)		(30,000	)
Other receivables		(2,575	)		16,254
Prepaid expenses		(18,349	)		(44,075	)
Deferred expenses		(823,035	)		(1,621,951	)

Increase (decrease) in liabilities:
Accounts payable		(245	)		291,887
Accrued expenses		101,339			693,750
Accrued wages and fees		9,769			3,813
Accrued interest expense		9,626			-
Deferred revenue		781,218			1,633,619


Net cash used in operating activities		(1,574,241	)		(849,768	)
Cash flows used in investing activities:
Acquisition of advertising rights		-			(1,100,000	)
Investment in affiliate		(250,000	)		-
Website development costs		(28,813	)		(85,784	)
Purchase of equipment and fixtures		-			(14,070	)
Net cash used in investing activities		(278,813	)		(1,199,854	)

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

F-51

FLUID MEDIA NETWORKS, INC.

Consolidated Statements of Cash Flows (Continued)

(Unaudited)

	Quarter Ended			Quarter Ended
	March 31, 2007			March 31, 2006

Cash flows provided by financing activities:
Preferred stock subscription receivable	$	-		$	250,000
Proceeds from loans from stockholders		244,000			-
Payments of principal on loans from stockholders		(454,334	)		-
Proceeds from convertible debenture		2,600,000			-
Payments on offering cost from issuance of convertible debenture		(229,080	)		-
Payments from note receivable		1,601			-
Proceeds from issuance of:
Series C Preferred Stock		-			2,028,000
Offering costs from issuance of:
Series C Preferred Stock		-			(61,067	)
Repurchase of common stock		-			(27,636	)
Net cash provided by financing activities		2,162,187			2,189,297
Net increase (decrease) in cash and cash equivalents		309,133			139,675
Cash and cash equivalents, beginning of period		108,475			120,184
Cash and cash equivalents, end of period	$	417,608		$	259,859

Interest expense and income taxes:

	For the quarter ended March 31, 2007, $47,802 of interest expense and $272 of income taxes were paid. For the quarter ended March 31, 2006, $219 of interest expense and $800 of income taxes were paid.

Supplemental Disclosures of Non-Cash Financing Activities:
Conversion of Series C Preferred Stock	$	2,603,833	$	-
Conversion of Series D Preferred Stock	$	1,260,001	$	-
Reclassification of warrants to purchase Series C Preferred Stock after conversion of Series C Preferred Stock	$	34,504	$	-
Issuance of 70,980 shares of Series C Preferred Stock as offering costs	$	-	$	141,960
Issuance of warrants to purchase 70,980 shares of Series C
Preferred Stock as offering cost	$	-	$	34,504

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

F-52

FLUID MEDIA NETWORKS, INC.

Notes to Consolidated Financial Statements

For the Three Months Ended March 31, 2007 and 2006

(Unaudited)

NOTE 1 THE COMPANY AND NATURE OF OPERATIONS

Fluid Media Networks, Inc. (the “Company”) is a diversified digital music services company providing products and services to emerging artists, as well as their fans and advertisers, in the digital music industry. The Company has developed a proprietary technology platform and multi-faceted revenue model that is designed to allow it to capitalize on the trends impacting the digital music industry. The Company has partnered with some of the world’s most recognized entertainment brands and holds the exclusive worldwide license to the American Idol Underground brand.

On March 15, 2002, the Company’s predecessor, Fluid Audio Network, Inc. (“Fluid Audio”) began its research and development activities by utilizing the expertise that its founder acquired in prior Internet properties. On September 20, 2004, Fluid Audio incorporated in the State of Delaware.

In March 2005, Fluid Audio entered into a multi-year licensing agreement with Fremantle Media North America, Inc. (“Fremantle Media”), licensors of the American Idol brand, granting Fluid Audio the exclusive right to use and exploit the American Idol TV show format, and related trademarks, over the Internet.

For the next several months, Fluid Audio focused on developing a suite of services for its launch of the AmericanIdolUnderground.com website. In October 2005, the website was launched and principal operations began.

Though partnerships were consummated and revenue was generated during the remaining two months of 2005, revenue had not reached a level of significance so that Fluid Audio was considered a development stage enterprise through December 31, 2005.

In 2006, revenue continued to grow from Fluid Audio’s website. That growth was further augmented with the revenue earned from Fluid Audio’s first acquisition: the purchase of customer-related intangibles and advertising rights of the American Idol Magazine.

On February 14, 2007, Fluid Audio entered into a Subscription Agreement and a Plan and Agreement of Merger with Freedom 20, Inc. (“Freedom 20”), a company registered with the Securities and Exchange Commission. On the same day, Freedom 20 entered into a Redemption Agreement with its sole stockholder, Getting You There, LLC, pursuant to which Freedom 20 redeemed all of the issued and outstanding shares (100,000 shares) of it’s Common Stock, par value $0.0001 per share, in consideration of an aggregate payment consisting of $1.00 and 82,500 shares of Fluid Media Networks, Inc. Common Stock.

Concurrently with the execution and pursuant to the term of the Merger Agreement, Fluid Audio purchased 1 share of Freedom 20 Common Stock for an aggregate purchase price of $1.00 and Freedom 20 became a wholly-owned subsidiary of Fluid Audio (the “Sale”). Following the Sale and pursuant to the terms of the Merger Agreement, Freedom 20 effected a short-form parent-subsidiary merger of Fluid Audio with and into Freedom 20, pursuant to which the separate existence of Fluid Audio was terminated, and Freedom 20, as the surviving entity, changed its name to “Fluid Media Networks, Inc.”

On May 17, 2007, the Company completed a corporate reorganization, pursuant to which it: (i) reincorporated in Nevada by a merger of the Company with and into its wholly-owned subsidiary, FMN Merger Co., a newly-formed Nevada corporation (the “NV Subsidiary”); and (ii) transferred of all of its current business operations to Fluid Media Networks USA, Inc., a wholly-owned and newly-formed subsidiary organized under the laws of the State of Delaware (the “DE Subsidiary”) in exchange for all of the capital stock of the DE Subsidiary. As a result of the corporate reorganization, the Company changed its legal domicile from the State of Delaware to the State of Nevada (as part of an overall plan to change its legal domicile to Canada), and began conducting all business operations formerly conducted by the Company through the DE Subsidiary.

F-53

FLUID MEDIA NETWORKS, INC.

Notes to Consolidated Financial Statements (continued)

For the Three Months Ended March 31, 2007 and 2006

(Unaudited)

NOTE 1 THE COMPANY AND NATURE OF OPERATIONS (continued)

The Company and the DE Subsidiary executed a Contribution Agreement solely to effectuate the transfer of the Company’s business operations to the DE Subsidiary on May 17, 2007. The Company filed the Articles of Merger with the Secretary of State of the State of Nevada on May 17, 2007, and a Certificate of Ownership and Merger with the Secretary of State of the State of Delaware on May 17, 2007, solely to effect the reincorporation. The Company also filed a Certificate of Amendment to its Articles of Incorporation changing its name from FMN Merger Co. to Fluid Media Networks, Inc. on May 18, 2007.

These financial statements have been prepared on the assumption that the Company will continue as a going concern which contemplates the realization of assets and the satisfaction of liabilities, in the normal course of business.

Going concern

The deficit accumulated by the Company through March 31, 2007 was $13,014,100. For the three months ended March 31, 2007, the Company’s net loss from operations was $3,635,032 on revenues of $691,563 and cash used in operating activities amounted to $1,574,241 for the same period.

These factors raise substantial doubt of the Company’s ability to continue as a going concern. The unaudited consolidated financial statements presented herein do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Management intends to achieve success and profitability through on-going deployment of new and innovative services, successful promotional strategies, financial prudence, and strategic acquisitions. Management acknowledges that fundraising is an integral component of becoming successful and plans to make future raises of capital through the sale of the Company’s equity in the public markets.

When these Notes refer to “we”, “us”, “our”, or “the Company”, we mean Fluid Media Networks, Inc., a Nevada corporation, or prior to May 17, 2007, Fluid Media Networks, Inc., a Delaware corporation, as the context requires in each case, parent of its wholly owned subsidiary, Fluid Audio Media, LLC, a limited liability company formed under the laws of the State of Delaware.

NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation - Consolidation

The accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, after eliminating inter-company transactions and balances. These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-QSB and Item 310 of Regulation S-B. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. All adjustments considered necessary for fair presentation have been included. The results of operations for the interim periods are not necessarily indicative of the results for a full year. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in Fluid Audio’s Annual Report for the year ended December 31, 2006 on Form 10-KSB filed April 2, 2007 and Current Report on Form 8-K filed February 21, 2007, as amended on March 8, 2007. Accordingly, the historical financial information of the Company will be that of Fluid Audio for reporting purposes. As at December 31, 2006 and February 14, 2007, Freedom 20 had no material assets or liabilities.

F-54

FLUID MEDIA NETWORKS, INC.

Notes to Consolidated Financial Statements (continued)

For the Three Months Ended March 31, 2007 and 2006

(Unaudited)

NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Use of Estimates

On an ongoing basis, we evaluate our estimates, including those related to impairment of equipment and fixtures, intangible assets, deferred tax assets and fair value computation of options using Black Scholes option pricing model. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions; however, we believe that our estimates, including those for the above-described items, are reasonable.

Website Development Costs

The Company capitalizes website development costs in accordance with Emerging Issues Task Force (“EITF”) No. 00-2, “Accounting for Web Site Development Costs,” and Statements of Position (SOP) No. 98-1, ”Accounting for the Costs of Computer Software Developed or Obtained for Internal Use,” whereby costs related to the preliminary project stage of development are expensed and costs relating to the application development stage are capitalized. Any additional costs for upgrades and enhancements which result in additional functionality are capitalized. Capitalized website development costs are amortized over the shorter of five years or the remaining license period for which a particular website is based upon. Management believes that its core technology, utilized in its current websites, has an expected useful life that is longer than the remaining term of its licensing agreement and that this core technology will provide a common, technological base for other websites the Company may choose to develop.

The development costs capitalized for the year ended December 31, 2006 were $297,929, of which $268,514 was placed into service and $29,415 remained in development. For the three months ended March 31, 2007, cost capitalized were $28,813, of which $0 was placed into service and total capitalized costs of $58,228 remained in development as at March 31, 2007. As of March 31, 2007, remaining unamortized website development costs will be amortized over a weighted-average period of 4 years. Total amortization expense for website development costs for the three months ended March 31, 2007 and 2006 was $41,053 and $9,641, respectively.

F-55

FLUID MEDIA NETWORKS, INC.

Notes to Consolidated Financial Statements (continued)

For the Three Months Ended March 31, 2007 and 2006

(Unaudited)

NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Revenue Recognition

The Company’s revenues are derived from Internet advertising services and artist services fees. The Company recognizes revenue from its online sales of spin cards and corporate advertising (including banner, buttons and email), whereby revenue is recognized in the period(s) in which the Company’s obligation is fulfilled. All sales are negotiated at arm’s length, with unrelated, third parties.

In accordance with United States Securities Exchange Commission (“SEC”) Staff Accounting Bulletins (“SAB”) No. 104, “Revenue Recognition” (“SAB 104”), the Company considers the following four characteristics in determining whether revenue exists that can be recognized: (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) seller’s price to the buyer is fixed or determinable, and (4) collectibility is reasonably assured.

The Company recognizes revenue for non-cash sponsorship sales, or barter transactions, in accordance with SFAS 153, whereby revenue is recorded at the fair value of the assets acquired or the assets relinquished, whichever is the most readily determinable, during the period in which the contest or event that is being sponsored occurs.

The Company believes that EITF No. 99-17, “Accounting for Advertising Barter Transactions” (“EITF 99-17”), does not apply to its barter transactions because EITF 99-17 applies to exchanges of advertising for advertising. In each of the Company’s barter contracts, something other than advertising is either received or relinquished.

For the three months ended March 31, 2007, of the $691,563 in total revenue, revenue derived from barter transactions amounted to $354,116. Of that amount, $178,714 was recognized from online (website) transactions and $175,402 was recognized from offline (magazine) transactions, leaving $337,447 in revenue derived from cash sales.

For the three months ended March 31, 2006, of the $1,230,386 in total revenue, revenue derived from online (website) barter transactions amounted to $807,850. Of that amount, $713,568 was recognized from online (website) transactions and $94,282 was recognized from offline (magazine) transactions, leaving $422,536 in revenue derived from cash sales.

Deferred Revenue and Deferred Expenses

According to the Company’s revenue recognition policies, costs and revenue to be recognized in future periods are held in these deferred accounts until contract obligations are met. Accordingly, the Company’s deferred revenue and deferred expenses were $621,151 and $773,245, respectively, as of March 31, 2007. Deferred revenue and deferred expenses were $194,049 and $185,005, respectively, as of December 31, 2006.

Accounting for Stock-based Compensation

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FLUID MEDIA NETWORKS, INC.

Notes to Consolidated Financial Statements (continued)

For the Three Months Ended March 31, 2007 and 2006

(Unaudited)

NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

During the three months ended, March 31, 2007, the Company recognized $135,357 as compensation expense in connection with the grant of stock options in February 2007 to certain of its employees to an aggregate of up to 222,170 shares of its common stock. A total of 32,000 options were granted fully-vested and the remaining 190,170 options will be vested over four years in equal, monthly amounts.

During the three months ended March 31, 2007, the Company recognized $5,523 as compensation expenses in connection with stock option grants in July 2006 to certain of its employees to an aggregate of up to 168,000 shares of its common stock. These options vest over a two year period.

During the three months ended March 31, 2007, the Company recognized $114,844 as compensation expense in connection with stock option grants in February 2007 to a Board member to purchase up to 50,000 shares of common stock.

The Company accounts for stock awards under SFAS No. 123 (R), “Shared-Based Payments” (“SFAS 123 (R)”), and EITF No. 96-18, “Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling, Goods or Services”, based on the fair value at the dates that the shares were vested.

The following assumptions were used in the Black-Scholes pricing model when valuing the options granted in 1^st quarter of 2007: 49% for expected volatility, from 2 to 5 years expected term, 0.0% for expected dividend rate, from 4.71% to 4.85% risk-free interest rate, and $4 per share for underlying stock price.

Advertising Costs

Advertising costs are expensed as incurred and are included in the Sales and Marketing expenses in the accompanying unaudited consolidated statement of operations. Advertising costs, shown within Sales and Marketing expenses included in the Company’s unaudited consolidated statement of operations, were $106,631 and $959,927 for the three months ended March 31, 2007 and 2006, respectively. Advertising costs include barter transaction costs of $0 and $338,800 for the three months ended March 31, 2007 and 2006, respectively.

Income Taxes

The Company accounts for income taxes under Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (“SFAS 109”). Under SFAS 109, deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

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FLUID MEDIA NETWORKS, INC.

Notes to Consolidated Financial Statements (continued)

For the Three Months Ended March 31, 2007 and 2006

(Unaudited)

NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

On January 1, 2007, the Company adopted the Financial Accounting Standards Board’s (“FASB”) Interpretation Number 48, “Accounting for Uncertainty in Income Taxes — An Interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 clarified the accounting for uncertainty in an enterprise’s financial statements by prescribing a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 requires management to evaluate its open tax positions that exist on the date of initial adoption in each jurisdiction. The Company did not have any unrecognized tax benefits and there was no effect on its financial condition or results of operations as a result of implementing FIN 48.

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. As of the date of adoption of FIN 48, the Company did not have any accrued interest or penalties associated with any unrecognized tax benefits, nor was any interest expense recognized during the quarter. The Company’s effective tax rate differs from the federal statutory rate primarily due to losses sustained for which no tax benefit has been recognized.

As of March 31, 2007, the Company had a valuation allowance equal to its total net deferred tax assets due to the uncertainty of ultimately realizing tax benefits of approximately $5,060,361. The Company will be filing income tax returns in the U.S. federal jurisdiction and various state jurisdictions. Once returns are filed, time limitations on examinations of returns filed will start running. The Company does not believe there will be any material changes in its unrecognized tax positions over the next 12 months.

Recently Issued Accounting Standards

In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments” (“SFAS 155”), which amends SFAS No. 133, “Accounting for Derivatives Instruments and Hedging Activities” (“SFAS 133”) and SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities” (“SFAS 140”). SFAS 155 amends SFAS 133 to narrow the scope exception for interest-only and principal-only strips on debt instruments to include only such strips representing rights to receive a specified portion of the contractual interest or principle cash flows. SFAS 155 also amends SFAS 140 to allow qualifying special-purpose entities to hold a passive derivative financial instrument pertaining to beneficial interests that itself is a derivative instrument. The Company adopted SFAS 155 on January 1, 2007, which did not have a significant impact on the Company’s results of operations or financial condition.

In September 2006, the SEC staff issued SAB No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). In SAB 108, the SEC staff established an approach that requires quantification of financial statement misstatements based on the effects of the misstatements on the Company’s financial statements and the related financial statement disclosures. SAB 108 permits existing public companies to initially apply its provisions either by (i) restating prior financial statements or (ii) recording the cumulative effect as adjustments to the carrying values of assets and liabilities with an offsetting adjustment recorded to the opening balance of retained earnings. The Company is required to adopt SAB 108 by the end of 2007 and does not expect adoption to have a significant impact on the Company’s results of operations or financial condition.

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FLUID MEDIA NETWORKS, INC.

Notes to Consolidated Financial Statements (continued)

For the Three Months Ended March 31, 2007 and 2006

(Unaudited)

NOTE 2 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 Statement No. 87, 88, 106, and 132R” (“SFAS 158”). SFAS 158 requires an employer to recognize the over-funded or under-funded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liabilities in its statement of financial position and recognize changes in that funded status in the year in which the changes occur through comprehensive income. SFAS 158 also requires an employer to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions. Under SFAS 158, the Company is required to initially recognize the funded status of a defined benefit postretirement plan and to provide the required disclosures as of the end of 2007. The Company is evaluating the impact this statement will have on its consolidated financial statements.

In February 2007, FASB issued Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”), that provides companies with an option to report selected financial assets and liabilities at fair value. This Statement is effective as of the beginning of an entity’s first fiscal year beginning after November 15, 2007. Early adoption is permitted as of the beginning of the previous fiscal year provided that the entity makes that choice in the first 120 days of that fiscal year and also elects to apply the provisions of SFAS 157. The Company is currently evaluating the potential impact of the adoption of SFAS 159 on its future consolidated financial statements.

Investment in Affiliate at Cost

In 2006, the Company purchased a 7.25% interest in DiskFaktory, a privately-held provider of custom CD duplication services, for $625,000. The Company accounts for the investment under the cost method as required by APB No. 18, “The Equity Method of Accounting for Investments in Common Stock” (APB 18). APB 18 requires that “other-than-temporary” impairments be recognized when they occur. Further, FASB Staff Position (FSP) No. FAS 115-1 and FAS 124-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” (as amended) provide guidance as to the meaning of other-than-temporary impairment and is applicable to “cost-method” investments. These pronouncements require cost-method investment to be assessed for impairment generally when an impairment indicator is present. Should the investment be considered more than temporarily impaired, the investment will be written down to fair value, as a deduction against current period income. During the three months ended March 31, 2007, and prior, an impairment charge was not recognized on this investment.

On March 7, 2007, the Company made an additional investment of $250,000 bringing the total investment in this entity to $875,000. This additional investment purchased 487,091 additional, newly issued shares bringing the Company’s total percentage ownership to 10.1%.

The Company has evaluated it’s investment in DiskFaktory under the guidelines promulgated under FASB Interpretation Number (FIN) No. 46, “Consolidation of Variable Interest Entities,” which explains how to apply the controlling financial interest criterion in ARB 51 to variable interest entities. The Company has determined that its investment (10.1%) did not meet the requirements for consolidating the affiliated company’s statement of financial position or results from operations due to the fact that the Company neither absorbs a majority of the entity’s expected losses nor receives a majority of its expected residual returns.

Classification of Preferred Stock

In accordance with SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity," and Topic D-98 and Accounting Series Release 298, because the Company's Preferred Stock contains a conditional obligation to redeem for cash, they are classified on the unaudited consolidated balance sheet between Liabilities and Equity under Convertible Redeemable Preferred Stock.

NOTE 3 LOSS PER COMMON SHARE

In accordance with SFAS No. 128, “Earnings per Share” (“SFAS 128”), and SEC Staff Accounting Bulletin (“SAB”) No. 98, basic net loss per common share is computed by dividing net loss for the period by the weighted average number of common shares outstanding during the period. Under SFAS 128, diluted net income/(loss) per share is computed by dividing the net income/(loss) for the period by the weighted average number of common and common equivalent shares, such as stock options and warrants, outstanding during the period. All common equivalent shares have not been included in the computation of net loss per share as their effect would be anti-dilutive.

Common stock equivalents excluded from diluted earnings per share were as follows:

	March 31,
	2007		2006
Preferred Stock convertible into common stock		4,029,924		3,902,427
Warrants to purchase redeemable preferred stock, which in turn is convertible into common stock		71,960		114,334
Stock options and warrants to purchase common stock*		1,269,486		371,669
Debentures convertible into common stock		500,000		-

*Excludes warrants issued to debt holders and brokers to purchase common stock in connection with issuance by the Company of 12% unsecured convertible debentures (See Note 6).

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FLUID MEDIA NETWORKS, INC.

Notes to Consolidated Financial Statements (continued)

For the Three Months Ended March 31, 2007 and 2006

(Unaudited)

NOTE 4 INVESTMENT IN AFFILIATE AT COST

In 2006, the Company purchased a 7.25% interest in Innovative Diversified Technologies, Inc. d.b.a. (“DiskFaktory”), a privately-held provider of custom CD duplication services for $625,000. The Company accounts for the investment under the cost method as required by APB No. 18, “The Equity Method of Accounting for Investments in Common Stock” (“APB 18”). APB 18 requires that “other-than-temporary” impairments be recognized when they occur. Further, FASB Staff Position (FSP) No. FAS 115-1 and FAS 124-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” (as amended) provide guidance as to the meaning of other-than-temporary impairment and is applicable to “cost-method” investments. These pronouncements require cost-method investment to be assessed for impairment generally when an impairment indicator is present. Should the investment be considered more than temporarily impaired, the investment will be written down to fair value, as a deduction against current period income.

On March 6, 2007, the Company made an additional investment of $250,000 bringing the total investment in this entity to $875,000. This additional investment purchased 487,091 additional, newly issued shares bringing the Company’s total percentage ownership to 10.1%.

An impairment charge was not recognized on this investment during the three months ended March 31, 2007 as management believed there was no impairment.

The Company has evaluated this investment in Diskfaktory under the guidelines promulgated under FASB Interpretation Number (FIN) No. 46, “Consolidation of Variable Interest Entities,” which explains how to apply the controlling financial interest criterion in ARB 51 to variable interest entities. The Company has determined that its investment in Diskfaktory (10.1%) did not meet the requirements for consolidating the affiliated company’s statement of financial position or results from operations due to the fact that the Company neither absorbs a majority of the entity’s expected losses nor receives a majority of its expected residual returns.

NOTE 5 ADVERTISING RIGHTS

On February 18, 2006, the Company, through its wholly-owned subsidiary, Fluid Audio Media, LLC, purchased advertising rights for the American Idol Magazine in a sublicensing agreement from the original licensee, Corporate Sports Marketing Group, Inc. (“CSM”), approved by the licensor, Fremantle Media. The cost of this investment was $1,100,000, plus all on-going production costs. The initial term of the original license between CSM and Fremantle Media acquired in this transaction was 15½ months at the acquisition date. The license offered the licensee the option to renew the license for an additional year and initially the Company was amortizing this investment over 27½ months. However, the license expired on June 1, 2007. The Company is currently negotiating a new license contract directly with Fremantle Media, and intends to complete these negotiations before July 2007. In accordance with FAS 142 “Goodwill and Other Intangible Assets”, the Company is amortizing the remaining balance of $680,000 over five months in 2007.

NOTE 6 CONVERTIBLE DEBENTURE

May 29, 2006 Placement

On May 29, 2006, the Company’s predecessor, Fluid Audio, issued and sold a $1,000,000 Debenture with interest payable quarterly at 15% per annum. The Debenture is due and payable 36 months later on May 29, 2009. The agreement provides that the interest rate of 15% will increase to 20% per annum with interest on unpaid principal and interest after the maturity date of the Debenture. In the event of any conversion of the Debenture, in whole or in part, prior to the payment of quarterly interest, interest is accrued up to the conversion date.

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FLUID MEDIA NETWORKS, INC.

Notes to Consolidated Financial Statements (continued)

For the Three Months Ended March 31, 2007 and 2006

(Unaudited)

NOTE 6 CONVERTIBLE DEBENTURE (continued)

The Debenture holder has filed a UCC claim on all assets of the Company including all intangibles. The agreement calls for the Company to restrict from use $200,000 of cash at all times. This restriction increases to $1,000,000 at such time the Company completes an initial public offering of its securities or reorganization under a reverse merger. As of March 31, 2007, the Company was in compliance with this cash restriction.

The issuance of the Debenture also provided for the issuance of transferable warrants to the Debenture holder for the purchase of up to 166,667 shares of common stock at an exercise price of $3.00 per share (which was subsequently reduced to $2.00 per share for the reasons described above).

January 31, 2007 Placement

On January 31, 2007, the Company’s predecessor, Fluid Audio, issued and sold 12% unsecured convertible debentures of the Company to several investors in a private placement offering based upon an exemption from registration provided by Regulation S and Section 4(2) of the Securities Act of 1933, as amended, in reliance, among other things, on the size and manner of the offering and representations and warranties obtained from the investors. The gross proceeds from this debenture were $2,600,000 and the related agent commissions and expenses were $229,080.

The principal and accrued interest for this debenture is due to mature on January 31, 2008. Interest of 12% calculated and compounded annually, accruing until maturity or upon conversion. The holders shall have the right to elect to receive the accrued interest either in cash separately or to accumulate it to the Debentures.

All of the Company’s Debentures are convertible, at the option of the holder, at any time following the completion of a Liquidity Event (as hereinafter defined) and prior to the maturity date into shares of Common Stock of the Company or Common Shares of the successor company (the “Conversion Securities”). For the purposes hereof, a “Liquidity Event” means the Company obtaining a listing or quotation of its shares of Common Stock (or, in the event that the Company undergoes a corporate reorganization whereby the Company becomes a wholly-owned subsidiary of another company, the common shares of such successor company) on Toronto Stock Exchange or the TSX Venture Exchange and, at the option of the Company, in addition thereto, Nasdaq or the Alternative Investment Market of the London Stock Exchange, by way of an IPO or any other transaction which provides holders of the Company’s shares of Common Stock with comparable liquidity that such holders would have received if such listing or quotation was obtained, including by means of a reverse take-over, merger, amalgamation, arrangement, take-over bid, insider bid, reorganization, joint venture, sale of all or substantially all of the Company’s assets, exchange of assets or similar transaction or other combination with a reporting issuer or a reporting company, with the result that, after giving effect to the occurrence of such Liquidity Event, the Conversion Securities issued upon conversion of the Debentures and exercise of the Warrants will become freely-tradable by the holders thereof under applicable securities laws in Canada (subject to usual control person restrictions).

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FLUID MEDIA NETWORKS, INC.

Notes to Consolidated Financial Statements (continued)

For the Three Months Ended March 31, 2007 and 2006

(Unaudited)

NOTE 6 CONVERTIBLE DEBENTURE (continued)

The number of the Conversion Securities into which the Debentures will be converted is the principal amount of the Debentures, plus accrued and unpaid interest, divided by 90% of the IPO price per share or 90% of the equivalent price per share for other kinds of Liquidity Events based on the value of the Company as determined in good faith by the board of directors of the Company in connection with such Liquidity Event (the “Liquidity Event Price”).

The Company agreed to issue share purchase warrants of the Company (the “Warrants”) to the subscribers for Debentures concurrently with the issuance of the Debentures. Each Warrant entitles the holder to purchase such number of shares of Common Stock as is equal to the number of Conversion Securities issued upon conversion of the Debentures (including, if applicable, any additional Conversion Securities issued as a result of the Liquidity Penalty described below), at an exercise price per share (if applicable, the Canadian dollar equivalent) equal to 50% of the Liquidity Event Price. The Warrants will only be exercisable (i) following the occurrence of a Liquidity Event on or prior to the Maturity Date, (ii) to the extent as the holder’s Debentures are converted into Conversion Securities, and (iii) during the 12 month period following the date of completion of the Liquidity Event.

The Company shall use its reasonable commercial efforts to complete the Liquidity Event on or prior to July 31, 2007. If the Liquidity Event does not occur by the close of business on or prior to July 31, 2007, the Debentures shall be convertible into the number of Conversion Securities shares referred to above, multiplied by 1.1.

In addition to the commissions disclosed above, the brokers in connection with the offering of Debentures received warrants to purchase up to 7% of the aggregate number of Conversion Securities that are issuable upon conversion of all the Debentures sold pursuant to the offering, exercisable at 50% of the Liquidity Event Price per security for a period of 12 months following the date of completion of the Liquidity Event.

The Company has allocated $2,110,919 of the proceeds received to equity (additional paid-in capital) for the warrants issued and the debenture’s beneficial conversion feature. The allocation was made in accordance with Accounting Principles Board (APB) Opinion No. 14, Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants, and EITF Issue No. 98-5, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios, as amended by EITF No. 00-27, Applications of Issue No 98-5 to Certain Convertible Instruments. This allocation created a debt discount on the debentures that is being accreted to interest expense over twelve months.

The Company considered the provisions of EITF No. 00-19, “Accounting for Derivative Financial Instruments Index to, and Potentially Settled in, a Company’s Own Stock”, and concluded that the warrants and conversion options issued were within the Company’s control; and as such, liability accounting was applicable. The Company will reassess its ability to control cash settlement each quarter, and if need be, reclassify necessary derivatives from equity or preferred stock to liabilities if the Company no longer maintains control.

NOTE 7 RELATED PARTY TRANSACTIONS

Significant related party balances as of March 31, 2007 and transactions for the three months then ended were as follows:

In January 2007, the Company’s President and CEO loaned the Company $244,000. This amount and the amount owed to him at December 31, 2006 ($85,334) were paid in-full on February 5, 2007.

In November 2006, a stockholder of the Company, made a short-term loan to the Company of $250,000. In February 2007, the Company paid $125,000 toward its $250,000 short-term loan from stockholder. Under the loan, interest is due and accrues at an annual rate of 15%. The Company expects that the remaining balance due will either be paid in cash or paid in shares of common stock.

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FLUID MEDIA NETWORKS, INC.

Notes to Consolidated Financial Statements (continued)

For the Three Months Ended March 31, 2007 and 2006

(Unaudited)

NOTE 7 RELATED PARTY TRANSACTIONS (continued)

As of December 31, 2005, the Company owed Justin Beckett, the Company’s President and CEO, $54,011. There were no related party transactions during the three months ended March 31, 2006.

NOTE 8 CONVERTIBLE REDEEMABLE PREFERRED STOCK

The Company has authorized Preferred Stock of 10,000,000 shares of which 1,800,000 shares are designated as Series A Preferred Stock, 1,500,000 shares as Series B Preferred Stock, 1,200,000 shares as Series C Preferred Stock, 500,000 shares as Series D Preferred Stock, and 1,300,000 shares as Series E Preferred Stock, leaving 3,700,000 authorized Preferred Stock as undesignated. The board of directors, without further action by the stockholders, has the authority to designate any authorized but undesignated Preferred Stock and to establish the rights, preferences and restrictions of such Preferred Stock.

Pursuant to the terms of its agreement with the holders of the outstanding Series D Preferred Stock, the Company became obligated to issue to such holders an additional 175,000 shares of Series D Preferred Stock in connection with the Company’s subsequent sale and issuance of shares of Series E Preferred Stock at a per share purchase price that was lower than the per share purchase price of the Series D Preferred Stock. As a result, the Company became obligated to issue an aggregate of 525,000 shares of Series D Preferred Stock, which is in excess of the authorized number of shares of Series D Preferred Stock.

In accordance with the terms and conditions of the Certificate of Designations for each of the Series C Preferred Stock and Series D Preferred Stock, the Company became obligated on December 1, 2006 to observe stockholders’ liquidity entitlement for the Company’s Common Stock at a ratio of 1.1:1 (instead of 1:1) because no liquidity event (as defined therein) had occurred on or before November 30, 2006.

All Preferred stockholders are entitled to receive 5% cumulative and compounding dividends, when and if declared by the board of directors, prior and in preference to any dividends on Common Stock. For the three months ended March 31, 2007 and 2006, the Company accrued dividends of $97,395 and $65,012, respectively, on all shares of preferred stock. In addition, the Company reclassified $154,226 of accrued undeclared preferred stock dividends to additional paid in capital due to conversion of Series C Preferred Stock and Series D Preferred Stock. As of March 31, 2007, no dividends have been declared and paid.

In the event of liquidation or dissolution of the Company, Preferred Stockholders will be entitled to receive, on a pro rata basis but prior and in preference to any of the assets of the Company to the holders of the Common Stock, an amount per share equal to the issuance price per share, subject to adjustment for any stock, splits, stock dividends, combinations, recapitalizations or the like, plus any unpaid dividends.

Shares of Preferred Stock automatically convert into shares of Common Stock on the receipt of a majority vote of the applicable series, on a one-to-one ratio which is subject to adjustments for stock splits, stock dividends, mergers, consolidations, reorganizations and similar transactions, and certain other events. Additionally, shares of Series A though Series D Preferred Stock are automatically converted into shares of common stock at a one-to-one ratio, subject to adjustments for stock splits, stock dividends, mergers, consolidations, reorganizations and similar transactions, and certain other events, upon the closing of an underwritten equity offering of at least $5,000,000 as defined.

Shares of Series C and Series D Preferred Stock are also automatically converted into shares of Common Stock at a 1:1.1 ratio upon the Company becoming listed on a public exchange, as defined, and upon the occurrence of an acquisition, merger, reverse merger, take over or liquidating event, as defined.

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FLUID MEDIA NETWORKS, INC.

Notes to Consolidated Financial Statements (continued)

For the Three Months Ended March 31, 2007 and 2006

(Unaudited)

NOTE 8 CONVERTIBLE REDEEMABLE PREFERRED STOCK (continued)

Shares of Series E Preferred Stock are automatically converted into shares of Common Stock at a 1:1.1 ratio, subject to adjustments for stock splits, stock dividends, mergers, consolidations, reorganizations and similar transactions, and certain other events, upon the listing of the Shares of Series E Preferred Stock or Common Stock on a public exchange, as defined, or the occurrence of an acquisition, merger, reverse merger, take over or liquidating event, as defined.

On February 14, 2007, the Company consummated a reverse merger. As a result, the shares of Series C and Series D Preferred Stock were automatically converted into shares of Common Stock at that time. In addition, Series E Preferred Stock was renamed Series C Preferred Stock.

Subsequent to March 31, 2007, a majority of the stockholders of the Series A and Series B Preferred Stock elected to convert their shares into shares of Common Stock (see Note 12).

If not converted into Common Stock previously, shares of Preferred Stock are redeemable at the holder’s option beginning five years after issuance for cash at the higher of the original issuance price (liquidation value) or the fair market value as determined by an independent third party, plus all accrued but unpaid dividends thereon.

Preferred Stockholders are entitled to vote on all matters presented to the stockholders of the Company on a basis equal to the number of shares of the common stock then issuable upon conversion of the Preferred Shares.

Series A Preferred Stock

Series B Preferred Stock

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FLUID MEDIA NETWORKS, INC.

Notes to Consolidated Financial Statements (continued)

For the Three Months Ended March 31, 2007 and 2006

(Unaudited)

NOTE 8 CONVERTIBLE REDEEMABLE PREFERRED STOCK (continued)

Series C Preferred Stock

On July 28, 2006, the Company issued 1,078,000 shares of Series C Preferred Stock (formerly Series E) for $2.00 per share, raising $2,065,519 in gross proceeds. In addition, $88,841 was credited to the amount owed to Mr. Beckett, as partial payment towards his purchase of 50,000 shares of Series E Preferred Stock at its $2.00 per share issuance price and $1,640 towards an unpaid consulting fee. The remaining $9,519 owed to the Company for this purchase was paid by Mr. Beckett in October 2006. Offering costs related to this offering for legal, commissions and agent expenses totaled $199,184. In addition to these fees, brokers associated with the sale were issued warrants to acquire up to 71,960 shares of Series E Preferred stock at an exercise price of $2.00 per share, which the Company values at $35,397.

NOTE 9 STOCKHOLDERS’ DEFICIT, STOCK OPTIONS AND WARRANTS

Common Stock

The Company has authorized 20,000,000 shares of common stock.

On February 14, 2007, Fluid Audio entered into a Subscription Agreement and a Plan and Agreement of Merger with Freedom 20, Inc. (“Freedom 20”). On the same day, Freedom 20 entered into a Redemption Agreement with its sole stockholder, Getting You There, LLC, pursuant to which Freedom 20 redeemed all of its issued and outstanding shares, being an aggregate of 100,000 shares of Freedom 20’s Common Stock, par value $0.0001 per share, in consideration of an aggregate payment consisting of $1.00 and 82,500 shares of common stock of the Company.

Upon completion of the Merger, on February 14, 2007, a total of 1,609,980 shares of Series C and Series D Preferred Stock were automatically converted into shares of Common Stock on a 1.1:1 basis, for a total of 1,770,978 shares. Also, the Company recorded $285 to effect the recapitalization of Common Stock based on par value at $.0001.

In March 2007, the Company issued 23,250 shares of Common Stock to consultants for services rendered. These shares have been valued at $4.00 per share and have been expensed when issued.

Stock Options

Our 2005 Stock Incentive Plan (the ”Plan”) has authorized the grant of both incentive and non-qualified stock options, as well as stock appreciation rights and restricted stock, to officers, employees, directors and consultants of the Company. At no time shall the total number of shares of common stock issuable upon the exercise of all outstanding options granted under the Plan, together with all other options and restricted stock then outstanding, exceed 30% of the then outstanding shares of common stock. The terms of the plan limit the reserved pool to 13% of the Company’s issued and outstanding Common Stock.

All options granted under the plan have been approved by the board of directors.

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FLUID MEDIA NETWORKS, INC.

Notes to Consolidated Financial Statements (continued)

For the Three Months Ended March 31, 2007 and 2006

(Unaudited)

The following table summarizes stock option activity for the three months ended March 31, 2007:

Options	Shares	Weighted-Average Exercise Price	Weighted-Average Remaining Contractual Term

Outstanding at January 1, 2007	659,669	$0.59	7.8 years
Granted	322,170	$0.83	7.4 years
Exercised	—	—	—
Forfeited	—	—	—

Outstanding at March 31, 2007	981,839	$0.67	7.5 years
Exercisable at March 31, 2007	683,632	$0.82	6.6 years
Vested or expected to vest at March 31, 2007	981,839	$0.67	7.5 years

In March 2007, the Company issued an employment offer letter to an executive officer that included the grant of stock options to purchase up to 100,000 shares of Common Stock as part of the officer’s compensation.

Warrants

In May 2006, in connection with the issuance of the Debenture (Note 6), the Company issued to the holder warrants to purchase up to 166,667 shares of Common Stock at an exercise price of $3.00 per share which was subsequently reduced to $2.00 per share as explained in Note 8. These warrants expire in May 2009. The Company accounted for these warrants by expensing the fair value at the $3.00 exercise price and expensing the difference for the modified fair value at the $2.00 exercise price.

In November 2006, in connection with amounts loaned to the Company by a stockholder, the Company issued to the lender warrants to purchase up to 50,000 shares of Common Stock at an exercise price of $1.50 per share. These warrants expire upon the earlier of (i) three years from the date of issuance, and (ii) a public listing of the Company. The Company accounted for these warrants by expensing the fair value at the $1.50 exercise price.

During 2005 and 2006, in connection with the issuance of Preferred Stock (see Note 8), the Company issued brokers and dealers warrants to acquire up to the following:

43,354 shares of Series B Preferred stock at an exercise price of $1.75 per share

70,980 shares of old Series C Preferred stock at an exercise price of $2.00 per share

71,960 shares of Series E Preferred stock (renamed Series C) at an exercise price of $2.00 per share

Of the 43,354 warrants issued to acquire shares of Series B Preferred Stock, warrants to acquire 26,677 shares were exercised in 2006 and the Company received cash proceeds of $46,685. The remaining warrants to acquire Series B Preferred stock expired during the 1^st quarter of 2007

The warrants to acquire old Series C were reclassified to acquire Common Stock after conversion of Series C Preferred Stock expires in 2008.

The warrants to acquire Series E Preferred Stock (renamed Series C) expire in 2008.

F-66

FLUID MEDIA NETWORKS, INC.

Notes to Consolidated Financial Statements (continued)

For the Three Months Ended March 31, 2007 and 2006

(Unaudited)

NOTE 10 INCOME TAXES

The Company accounts for income taxes under the provisions of SFAS 109, “Accounting for Income Taxes”, using the liability method. SFAS 109 requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the current consolidated financial statements or tax returns.

The components of the income tax provision for the three months ended March 31, 2007 were as follow:

	2007

Current	$	1,600
Deferred		—

Total	$	1,600

Income tax expense (benefit) for the three months ended March 31, 2007 differed from the amounts computed applying the federal statutory rate of 34% to pre-tax income as a result of:

	2007

Computed tax benefit	$	(1,235,911	)
Non-deductible items		315
Change in valuation allowance		1,449,224
Return to provision		—
State and local income taxes, net of tax benefit		(212,028	)

Total	$	1,600

Significant components of the Company’s deferred tax assets and liabilities for federal income taxes at March 31, 2007 and December 31, 2006 consisted of the following:

	2007			2006

Net operating loss carryforward	$	4,219,566		$	3,739,861
Deferred revenue		486,504			79,256
Accrued vacation		12,424			12,994
Allowance for bad debts		3,213			—
Equity compensation and interest		719,259			51,733
Valuation allowance		(5,060,361	)		(3,612,194	)
Current year state tax		1,088			816

Total deferred tax assets		381,693			272,466
Deferred tax liabilities
State tax		(381,693	)		(272,466	)

Net deferred tax assets/liabilities	$	—		$	—

F-67

FLUID MEDIA NETWORKS, INC.

Notes to Consolidated Financial Statements (continued)

For the Three Months Ended March 31, 2007 and 2006

(Unaudited)

NOTE 10 INCOME TAXES (continued)

As of March 31, 2007, the valuation allowance for deferred tax assets totaled $5,060,361. For the period ended March 31, 2007, the net change in the valuation allowance was an increase of $1,448,168.

As of March 31, 2007, the Company had net operating loss carryforwards for federal and state income tax purposes of $9,849,925 and $9,848,325, respectively. The net operating loss carryforwards expire through 2027. The utilization of net operating loss carryforwards may be limited under the provisions of Internal Revenue Code Section 382 and similar state provisions due to a change in ownership.

The net deferred tax asset has been completely offset by a valuation allowance, as its realization is not reasonably assured.

NOTE 11 COMMITMENTS AND CONTINGENCIES

Operating Lease - Rent

The Company leases office and equipment, under non-cancelable operating leases expiring at various dates through 2008. The following is a schedule of future minimum lease payments for rent under a non-cancelable operating lease:

2007	$	37,901
2008		12,634
Total	$	50,535

Rent expense for the three months ended March 31, 2007 was $12,239. During the first three months of 2006, the Company maintained two office locations. Rent expense for the three months ended March 31, 2006, was $17,616.

Hosting Services

For the months ended March 31, 2007, the charge for hosting services was $22,755. For the three months ended March 31, 2006, the charge for hosting services was $88,817. This amount is classified on the Company’s unaudited consolidated statement of operations as a Cost of Revenue.

Fremantle License - Website

On March 11, 2005, the Company entered into a three-year license agreement with Fremantle Media North America, Inc. for $1,400,000 to obtain the exclusive right to use and exploit the American Idol TV show format and related trademarks on the Internet. The Company believes that this is an operating license and, therefore, neither capitalizes the license or report the future liability of its minimum payment obligations on its balance sheet.

Over the term of the license, each year the Company is required to pay the higher of (a) royalties of 25% of revenue from the use of the AI trademark including music upload fees, promotions, subscriptions, advertising sponsorships, less a 5% administrative fee or (b) an annual, guaranteed minimum payment, per the following schedule:

F-68

FLUID MEDIA NETWORKS, INC.

Notes to Consolidated Financial Statements (continued)

For the Three Months Ended March 31, 2007 and 2006

(Unaudited)

NOTE 11 COMMITMENTS AND CONTINGENCIES (continued)

In 2007, the Company may exercise its right to renew its license for the subsequent calendar year for a minimum royalty fee of $800,000, if all prior years’ minimum payments have been made. For that year, as in all years past, the Company will be required to pay the higher of (a) the minimum royalty payment or (b) royalties of 25% of revenue from the use of the AI trademark including music upload fees, promotions, subscriptions, advertising sponsorships, less a 5% administrative fee.

In 2008, the Company may exercise its right to renew its license for the subsequent calendar year for a minimum royalty fee of $1,000,000, if all prior years’ minimum payments have been made. For that year, as in all years past, the Company will be required to pay the higher of (a) the minimum royalty payment or (b) royalties of 25% of revenue from the use of the American Idol trademark including music upload fees, promotions, subscriptions, advertising sponsorships, less a 5% administrative fee.

During the three months ended March 31, 2007 and 2006, the Company incurred Fremantle Media North America royalties of $150,000 and $125,000, respectively.

Fremantle License - Magazine

The Company pays licensing fees for use of the American Idol brand in its magazine at the rate of $70,000 per issue, and $55,000 for the annual Red Carpet party and two free pages in each issue of the magazine.

For the three months ended March 31, 2007, the Company recorded licensing fees of $104,092 comprised of $70,000 payable in cash and $34,092 recognized for the bartered component. For the three months ended March 31, 2006, the Company recorded licensing fees of $113,954 comprised of $70,000 payable in cash and $43,954 recognized for the bartered component.

NOTE 12 SUBSEQUENT EVENTS

Stock Grants

In April 2007 and May 2007, the Company issued a total of 64,000 shares of common stock to consultants for services rendered. These shares have also been valued at $4.00 per share and have been expensed when issued.

Conversion of Shares of Series A Preferred Stock and Shares of Series B Preferred Stock

F-69

NOTE 12 SUBSEQUENT EVENTS (continued)

Redomicile of the Company

On April 11, 2007, the board of directors of the Company unanimously approved, and stockholders holding a majority of the shares of common stock outstanding and beneficially owned approved, the issuance and sale of shares of common stock by way of an initial public offering in Canada. In connection with the proposed offering, the Board and the stockholders have also approved a corporate reorganization of the Company whereby:

(i)	The Company would form a wholly-owned subsidiary under the laws of the State of Delaware (the “US Subsidiary”) and transfer all the current business operations of the Company to the US Subsidiary in exchange for all of the capital stock of the US Subsidiary; and

(ii)	The place of incorporation of the Company would be changed from Delaware to Nevada as part of an overall plan to ultimately change the place of incorporation of the Company to Canada.

On May 17, 2007, the Company consummated these transactions and became a company organized under the laws of Nevada for a short interim period until the Company completes its change of domicile to Canada. All business operations formerly conducted by the Company are now conducted by the US Subsidiary.

Shareholder Loans

During May 2007 and June 2007, the Company’s President and CEO loaned the Company a total of $295,711. Interest accrues at an annual rate of 12%. The outstanding principal and all accrued interest shall be due and payable at the earlier of the closing of equity or debt instruments financing or July 30, 2007.

Compensation of Directors

Following completion of the Company’s anticipated public offering, each of the directors of the Company (other than those who are officers of the Company) will be entitled to receive an annual retainer of $15,000, other than the members of the Operations Committee and the chairs of the Compensation and Governance Committee and Audit Committee, who will each be entitled to receive an annual retainer of $25,000. Additional fees may be paid to the directors of the Company in connection with certain specific projects or mandates. Directors will also be eligible to receive options under a new stock option plan which the Company intends to adopt in connection with the completion of the Offering.

Share Repurchase

Pursuant to the terms of the Stock Restrictions Agreement between the Company and Mr. Buch, dated as of March 15, 2006, the Company repurchased 211,704 shares of common stock from Mr. Buch on June 25, 2007, at a per share purchase price of $.01, for aggregate consideration of $2,117. The Company is currently assessing the impact of this transaction on its consolidated financial statements.

F-70

Appendix A

Form of Articles of Conversion

A-1

ROSS MILLER

Secretary of State

204 North Carson Street, Ste 1

Carson City, Nevada 89701-4299

(775) 684-5708

Website: secretaryofstate.biz

Articles of Conversion

(PURSUANT TO NRS 92A.205)

Page 1

Articles of Conversion

(Pursuant to NRS 92A.205)

1.	Name and jurisdiction of organization of constituent entity and resulting entity:

	Fluid Media Networks, Inc.
	Name of constituent entity

	Nevada	Corporations
	Jurisdiction	Entity type*

	and,

	Fluid Media Networks, Inc.
	Name of resulting entity

	Federal jurisdiction of Canada	Corporation
	Jurisdiction	Entity type*

2.	A plan of conversion has been adopted by the constituent entity in compliance with the law of the jurisdiction governing the constituent entity.

3.	Location of plan of conversion: (check one)

	o The entire plan of conversion is attached to these articles.

	x The complete executed plan of conversion is on file at the registered office or principal place of business of the resulting entity.

	o The complete executed plan of conversion for the resulting domestic limited partnership is on file at the records office required by NRS 88.330.

* corporation, limited partnership, limited-liability limited partnership, limited-liability company or business trust.

A-2

Ross Miller

Secretary of State

204 North Carson Street, Ste 1

Carson City, Nevada 89701-4299

(775) 64-5708

Website: secretaryofstate.biz

Articles of Conversion

(PURSUANT TO NRS 92A.205)

Page 2

4.	Forwarding address where copies of process may be sent by the Secretary of State of Nevada (if a foreign entity is the resulting entity in the conversion):

	Attn: Justin F. Beckett

	c/o Fluid Media Networks, Inc. 5813-A Uplander Way Culver City, California 90230

5.	Effective date of conversion (optional) (not to exceed 90 days after the articles are filed pursuant to NRS 92A.240)*:

6.	Signatures - must be signed by:

	1. If constituent entity is a Nevada entity: an officer of each Nevada corporation; all general partners of each Nevada limited partnership or limited-liability limited partnership; a manager of each Nevada limited-liability company with managers or all the members if there are no managers; a trustee of each Nevada business trust; a managing partner of a Nevada limited-liability partnership (a.k.a.; general partnership governed by NRS chapter 87).
	2. If constituent entity is a foreign entity: must be signed by the constituent entity in the manner provided by the law governing it.

	Fluid Media Networks, Inc.
	Name of constituent entity

	X	Chief Executive Officer
	Signature	Title	Date

* Pursuant to NRS 92A.205(4) if the conversion takes effect on a later date specified in the articles of conversion pursuant to NRS 92A.240, the constituent document filed with the Secretary of State pursuant to paragraph (b) subsection 1 must state the name and the jurisdiction of the constituent entity and that the existence of the resulting entity does not begin until the later date. This statement must be included within the resulting entity's' articles.

Filing Fee $350.00

A-3

Appendix B

Form of Plan of Conversion

B-1

PLAN OF CONVERSION

FLUID MEDIA NETWORKS, INC.

(A Nevada Corporation)

INTO

FLUID MEDIA NETWORKS, INC.

(A Company Organized Under the Laws of the Federal Jurisdiction of Canada)

Fluid Media Networks, Inc., a Nevada corporation (the “Constituent Entity”), hereby adopts the following Plan of Conversion:

1. The name of the Constituent Entity is: Fluid Media Networks, Inc.

2. The name of the resulting entity (the “Resulting Entity”) is: Fluid Media Networks, Inc.

3. The jurisdiction of the law that governs the Constituent Entity is the State of Nevada. The jurisdiction of the law that will govern the Resulting Entity is the federal jurisdiction of Canada.

4. As soon as is practicable following approval of this Plan of Conversion by the shareholders of the Constituent Entity and all requisite corporate and regulatory action in respect of the Resulting Entity has been taken, the Constituent Entity will cause the conversion of the Constituent Entity into the Resulting Entity (the “Conversion”) to be consummated by the filing of the Articles of Conversion in the office of the Nevada Secretary of State in such form as is required by, and signed in accordance with, the applicable provisions of Chapter 92A of the Nevada Revised Statutes (“NRS”) and the execution and filing of the Articles of Continuance with the Director of Industry Canada. The date of the Certificate of Continuance issued by the Director of Industry Canada shall be the effective date of the Conversion (the “Conversion Date”).

5. As of the Conversion Date:

(a) The Constituent Entity shall be converted into the Resulting Entity which shall possess all rights, privileges, powers and franchises of a public nature and a private nature and shall be subject to all restrictions, disabilities and duties of the Constituent Entity.

(b) The title to all real estate vested by deed or otherwise under the laws of any jurisdiction, and the title to all other property, real and personal, owned by the Constituent Entity, and all debts due to the Constituent Entity on whatever account, as well as all other things in action or belonging to the Constituent Entity, shall in accordance with the NRS be vested in the Resulting Entity without reservation or impairment.

(c) The Resulting Entity shall have all of the debts, liabilities and duties of the Constituent Entity, but all rights of creditors accruing and all liens placed upon any property of the Constituent Entity up to the Conversion Date shall be preserved unimpaired, and all debts, liabilities and duties of the Constituent Entity shall attach to the Resulting Entity and may be enforced against it to the same extent as if it had incurred or contracted such debts, liabilities and duties.

(d) Any proceeding pending against the Constituent Entity may be continued as if the Conversion had not occurred or the Resulting Entity may be substituted in the proceeding in place of the Constituent Entity.

(e) Any surplus appearing on the books of the Constituent Entity shall be entered as surplus on the books of the Resulting Entity and all such surplus shall thereafter be dealt by the Resulting Entity in any lawful manner.

(f) Once the Conversion is completed, (i) the holders of shares of common stock of the Constituent Entity instead will own one common share of the Resulting Entity for each share of common stock held immediately prior to the Conversion, and (ii) the holders of shares of Series C Preferred Stock of the Constituent Entity instead will own one Series C Preferred Share of the Resulting Entity for each share of Series C Preferred Stock held immediately prior to the Conversion. All shares of common stock of the Resulting Entity will be without par value and all shares of Series C Preferred Stock will have a par value of $0.0001 per share. The currently outstanding options to purchase shares of the Constituent Entity's common stock will represent options to purchase an equivalent number of common shares of the Resulting Entity for the equivalent purchase price per share without other action by the Constituent Entity's option holders. Option holders will not have to exchange their options. Option holders who are not shareholders will not have a right to vote on the Conversion.

B-2

(g) The Conversion, if approved, will effect a change in the legal jurisdiction of incorporation of the Constituent Entity as of the effective date thereof, but the Constituent Entity will not, as a result of the change in legal jurisdiction, change its business or operations after the effective date of the Conversion as the Resulting Entity.

(h) Lorne Abony, Marc Arseneau, André Brosseau and Alain Rhéaume will be elected to the board of directors of the Resulting Entity effective as of the Conversion Date. As of the Conversion Date, the election, duties, resignation and removal of the Constituent Entity directors and officers shall be governed by the Canada Business Corporations Act, the Articles of Continuance and the Bylaws of the Resulting Entity.

(i) There is currently no liquid trading market for the Constituent Entity’s common stock and it is anticipated that immediately following the Conversion, this will be the case.

6. The full text of the Articles of Continuance and Bylaws of the Resulting Entity are attached hereto as Exhibit A and Exhibit B, respectively, and each is incorporated herein by this reference.

7. The Constituent Entity intends that this Plan of Conversion will constitute the complete Plan of Conversion referred to in Section 92A.105 of the NRS.

*********

B-3

IN WITNESS WHEREOF, the Constituent Entity has signed this Plan of Conversion as of ____________ ___, 2007.

FLUID MEDIA NETWORKS, INC.

By: __________________________

Name: ________________________

Title: _________________________

B-4

Appendix C

Form of Articles of Continuance

C-1

C-2

SCHEDULE A

The Corporation shall be authorized to issue an unlimited number of Common Shares and an unlimited number of Series C Preferred Shares. The rights, privileges and conditions attaching to the Common Shares and the Series C Preferred Shares shall be as follows:

1.	Common Shares

1.1.

Voting

The holders of the Common Shares shall be entitled to one vote for each Common Share held at all meetings of shareholders of the Corporation, other than meetings at which only the holders of another class or series of shares are entitled to vote separately as a class or series.

1.2.

Dividends

Subject to the prior rights of the holders of the Series C Preferred Shares and to any other shares ranking senior to the Common Shares with respect to priority in the payment of dividends, the holders of the Common Shares shall be entitled to receive dividends and the Corporation shall pay dividends thereon, if, as and when declared by the directors out of the moneys of the Corporation properly applicable to the payment of dividends, in such amount and in such form as the board of directors may from time to time determine, provided however, that no dividend may be declared and paid to holders of Common Shares at a rate greater than the rate at which dividends are paid to the holders of Series C Preferred Shares based on the number of Common Shares into which such Series C Preferred Shares are convertible on the date such dividend is declared and all dividends which the directors may declare on the Common Shares shall be declared and paid in equal amounts per share on all Common Shares at the time outstanding.

1.3.	Dissolution

In the event of the dissolution, liquidation or winding-up of the Corporation, whether voluntary or involuntary, or any other distribution of assets of the Corporation among its shareholders for the purpose of winding up its affairs, subject to the prior rights of the holders of the Series C Preferred Shares and to any other shares ranking senior to the Common Shares with respect to priority in the distribution of assets upon dissolution, liquidation or winding-up, the holders of the Common Shares pari passu with the holders of the Series C Preferred Shares shall be entitled to receive the remaining property and assets of the Corporation.

2.	Series C Preferred Shares

2.1.

Dividend

(a)

The holders of Series C Preferred Shares shall be entitled to receive, out of moneys of the Corporation properly applicable to the payment of dividends, cumulative dividends at an annual rate equal of five percent (5.0%) of the “Original Series C Issue Price” (as defined below) (appropriately adjusted for stock splits, subdivisions, consolidations and the like with respect to such shares), compounded quarterly, for each outstanding Series C Preferred Share held by them, payable in the event of (i) any liquidation, dissolution or winding up of the Corporation, whether voluntary or not, (ii) the sale, lease, assignment, transfer conveyance or disposal of all or substantially all of the assets of the Corporation or (iii) the acquisition of the Corporation by another entity by means of consolidation, corporate reorganizations, amalgamation or other transaction or series of related transactions in which shareholders of the Corporation immediately prior to such transaction do not hold a majority of the voting power of the outstanding securities of the successor entity (each “Liquidation Event”), a redemption at the Original Series C Issue Price (as provided in Section 2.3 below), or otherwise when and if declared by the board of directors, in preference and priority to the payment of dividends on any Common Shares (other than those payable solely in Common Shares or involving the repurchase of Common Shares from terminated directors, officers, employees, consultants or advisors of the Corporation or its subsidiaries pursuant to contractual arrangements). In the event dividends are paid to the holders of Series C Preferred Shares that are less than the full amounts to which such holders are entitled pursuant to this Sections 2.1(a), such holders shall share rateably in the total amount of dividends paid according to the respective amounts due each such holder if such dividends were paid in full.

C-3

(b)

In the event that the Corporation shall have declared but unpaid dividends outstanding immediately prior to, and in the event of, a conversion of Series C Preferred Shares (as provided in Section 2.4 below), the Corporation shall, at the option of the Corporation, pay in cash to the holders of Series C Preferred Shares subject to conversion the full amount of any such dividends or allow such dividends to be converted into Common Shares in accordance with, and pursuant to the terms specified in, Section 2.4 below.

2.2.	Liquidation Preference.

(a)

Unless the holders of a majority of the then outstanding Series C Preferred Shares, voting as a separate class, agree otherwise, in the event of a Liquidation Event, distributions to the Corporation’s Shareholders shall be made in the following manner:

(i)

Each holder of Series C Preferred Shares shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of Common Shares, the amount of $2.00 (appropriately adjusted for stock splits, subdivisions, consolidations and the like with respect to such shares) (the “Original Series C Issue Price”) for each Series C Preferred Shares then held by such holder, plus an amount equal to all declared but unpaid dividends on such Series C Preferred Shares (collectively, the “Series C Preference”). If, upon the occurrence of a Liquidation Event, the assets and funds available to be distributed among the holders of Series C Preferred Shares shall be insufficient to permit the payment to such holders of the full Series C Preference, then the entire assets and funds of the Corporation legally available for distribution to the holders of Series C Preferred Shares shall be distributed rateably based on the total Series C Preference due each such holder under this Section 2.2(a)(i).

(ii)

After payment has been made to the holders of Series C Preferred Shares of the full amounts to which they are entitled pursuant to Sections 2.2(a)(i) above, the remaining assets of the Corporation available for distribution to shareholders shall be distributed rateably among the holders of Common Shares and Series C Preferred Shares (assuming conversion of all Series C Preferred Shares).

(b)

Each holder of Series C Preferred Shares shall be deemed to have consented to distributions made by the Corporation in connection with the repurchase of Common Shares issued to or held by directors, officers, employees, consultants or advisors of the Corporation or its subsidiaries upon termination of their employment or services pursuant to agreements (whether now, existing or hereafter entered into) providing for the right of said repurchase between the Corporation and such persons.

(c)

The value of securities and property paid or distributed pursuant to this Section 2.2 shall be computed at fair market value at the time of payment to the Corporation or at the time made available to shareholders, all as determined by the board of directors in the good faith exercise of its reasonable business judgment, provided that (i) if such securities are listed on any established stock exchange or a national market system, their fair market value shall be the closing sales price for such securities as quoted on such system or exchange (or the largest such exchange) for the date the value is to be determined (or if there are no sales for such date, then for the last preceding business day on which there were sales), as reported in the Wall Street Journal or similar publication, and (ii) if such securities are regularly quoted by a recognized securities dealer but selling prices are not reported, their fair market value shall be the mean between the high bid and low asked prices for such securities on the date the value is to be determined (or if there are no quoted prices for such date, then for the last preceding business day on which that were quoted prices).

(d)

Nothing hereinabove set forth shall affect in any way the right of each holder of Series C Preferred Shares to convert such shares at any time and from time to time into Common Shares in accordance with Section 2.4 below.

C-4

2.3.	Voting Rights.

Except as otherwise required by law or hereunder, holders of each Series C Preferred Share shall be entitled to the number of votes equal to the number of Common Shares into which such Series C Preferred Shares could be converted at the record date for determination of the shareholders entitled to vote on such matters or, if no such record date is established, at the date such vote is taken or the effective date of any written consent of shareholders, such votes to be counted together with all other shares of the Corporation having general voting power and not separately as a class. Holders of Common Shares and Series C Preferred Shares shall be entitled to notice of any shareholders’ meeting in accordance with the Corporation’s by-laws.

2.4.	Conversion Rights.

The holders of Series C Preferred Shares shall have conversion rights as follows:

(a)

Right to Convert. Each share of Series C Preferred Shares shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share and, if such share is subject to redemption, prior to the date of termination of the right to convert such share, as determined in Section 2.5 below, at the office of the Corporation or any transfer agent for such Series C Preferred Shares into such number of fully-paid and non-assessable Common Shares as is determined by dividing the Original Series C Issue Price by the then effective Series C Conversion Price for each Series C Preferred Share, determined as hereinafter provided, in effect at the time of conversion. The price at which Common Shares shall be deliverable upon conversion of Series C Preferred Shares (the “Series C Conversion Price”) shall initially be the Original Series C Issue Price. The initial Series C Conversion Price shall be subject to adjustment as provided in accordance with Section 2.4(d) below.

(b)

Automatic Conversion. Each Series C Preferred Share shall automatically be converted into Common Shares at the then effective Series C Conversion Price upon the earliest of: (i) the listing of the Corporation’s Series C Preferred Shares or Common Shares on any of the Toronto Stock Exchange, the TSX Venture Exchange, Nasdaq or the Alternative Investment Market of the London Stock Exchange, or (B) a reverse take-over, amalgamation, arrangement, take-over bid, insider bid, reorganization, joint venture, sale of all or substantially all of the Corporation’s assets, exchange of assets or similar transaction or other combination with an issuer listed on any of the Toronto Stock Exchange, the TSX Venture Exchange, Nasdaq or the Alternative Investment Market of the London Stock Exchange (each event included in this Section 2.5(b)(i), a “Liquidity Event”); (ii) the affirmative vote or written consent of a majority of the then outstanding Series C Preferred Shares, and (iii) the conversion into Common Shares of a majority of the originally issued Series C Preferred Shares (each such event is an “Series C Automatic Conversion”). In the event of a Series C Automatic Conversion of Series C Preferred Shares upon a public offering as aforesaid, the person(s) entitled to receive the Common Shares issuable upon such conversion of such Series C Preferred Shares shall not be deemed to have converted such Series C Preferred Shares until immediately prior to the closing of such sale of securities.

(c)

Mechanics of Conversion. No fractional Common Shares shall be issued upon conversion of Series C Preferred Shares. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the fair value of such fractional share, as determined in good faith by the board of directors. Before any holder of Series C Preferred Shares shall be entitled to convert the same into Common Shares and to receive certificates therefor, such holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for Series C Preferred Shares and shall give written notice to the Corporation at such office that such holder elects to convert the same; provided, however, that in the event of a Series C Automatic Conversion pursuant to Section 2.4(b) above, the outstanding Series C Preferred Shares shall be converted automatically without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Corporation or its transfer agent, and provided further that the Corporation shall not be obligated to issue certificates evidencing the Common Shares issuable upon such Series C Automatic Conversion unless the certificates evidencing such Series C Preferred Shares are either delivered to the Corporation or its transfer agent, as provided above, or the holder notifies the Corporation or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates.

C-5

The Corporation shall, as soon as practicable after such delivery, or such agreement and indemnification in the case of a lost certificate, issue and deliver at such office to such holder, a certificate or certificates for the number of Common Shares to which such holder shall be entitled as aforesaid and a cheque payable to the holder in the amount of any cash amounts payable as the result of a conversion into fractional Common Shares. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the Series C Preferred Shares to be converted, or in the case of a Series C Automatic Conversion, on the date of closing of the offering, the date of the of affirmative vote or written consent or the data of conversion of Series C Preferred Shares, as applicable, and the person or persons entitled to receive the Common Shares issuable upon such conversion shall be treated for all purposes as the record holder or holders of such Common Shares on such date.

(d)

Adjustments to Conversion Price; Limited Adjustment to Original Series C Issue Price.

(i)

Adjustments for Stock Splits, Stock Dividends, Subdivisions, Combinations or Consolidations with Respect to Common Shares. In the event the outstanding Common Shares shall be increased by a stock dividend payable in Common Shares, stock split, subdivision or other similar transaction into a greater number of Common Shares, the Series C Conversion Price then in effect shall, concurrently with the effectiveness of such event, be decreased in proportion to the percentage increase in the outstanding number of Common Shares. In the event the outstanding Common Shares shall be decreased by a reverse stock split, combination, consolidation or other similar transaction into a lesser number Common Shares, the Series C Conversion Price then in effect shall, concurrently with the effectiveness of such event, be increased in proportion to the percentage decrease in the outstanding number of Common Shares.

(ii)

Adjustments for Other Distributions. In the event the Corporation at any time or from time to time makes or fixes a record data for the determination of holders of Common Shares entitled to receive, any distribution payable in securities of the Corporation other than Common Shares and other than as otherwise adjusted in this Section 2.4, then and in each such event provision shall be made so that the holders of Series C Preferred Shares shall receive upon conversion thereof, the amount of securities of the Corporation which they would have received had their Series C Preferred Shares been converted into Common Shares on the date of such event.

(iii)

Adjustments for Reclassification, Exchange and Substitution. If the Common Shares issuable upon conversion of Series C Preferred Shares shall be changed into the same or a different number of shares of any other class or classes of shares, whether by reclassification, exchange, substitution or otherwise (other than a stock split, stock dividend, subdivision, combination or consolidation of shares, provided for above), the Series C Conversion Price than in effect shall, concurrently with the effectiveness of such reclassification, exchange, substitution or other transaction, be proportionately adjusted such that Series C Preferred Shares shall be convertible into, in lieu of the number of Common Shares which the holders would otherwise have been entitled to receive, a number of shares of such other class or classes of shares equivalent to the number of Common Shares that would have been subject to receipt by the holders upon conversion of such Series C Preferred Shares immediately before that change.

(iv)

Limited Adjustment to Original Series C Issue Price for Failure to Occur of Liquidity Event. For purposes of calculating the number of fully paid and non-assessable Common Shares into which each Series C Preferred Share shall be convertible, the Original Series C Issue Price shall be multiplied by: (i) 1.06 in the event a Liquidity Event occurs after January 26, 2007; (ii) 1.08 in the event a Liquidity Event occurs after February 26, 2007; or (iii) 1.10 in the event a Liquidity Event occurs after March 26, 2007, such that, assuming no adjustments to the Series C Conversion Price pursuant to this Section 2.4(4), each Series C Preferred Shares shall be convertible into 1.06, 1.08 or 1.10 Common Shares, as applicable. Notwithstanding the foregoing, the adjustment to the Original Series C Issue Price as set forth in this Section 2.4(d)(iv) shall be solely and exclusively for the purposes of calculating an adjustment to the number of fully paid and non-assessable Common Shares into which each Series C Preferred Share shall be convertible, and shall have no effect other than as explicitly set forth in this Section 2.4(d)(iv).

C-6

(v)

Adjustment for Issuance at Less Than the Original Series C Issue Price. If the Corporation shall issue or sell, or is deemed to have issued or sold pursuant to subsections 2.4(d)(v)(A) through 2.4(d)(v)(D) below, any Additional Common Shares (as defined below) without consideration or for a consideration per share less than the Series C Conversion Price in effect immediately prior to the time of such issue or sale, then and in each such case (a “Trigger Issuance”), the then-existing Series C Conversion Price shall be reduced, as of the close of business on the effective date of the Trigger Issuance, to a price determined as follows:

Adjusted Series C Conversion Price = (A x B) + D

A+C

where

“A” equals the number of Common Shares outstanding (determined on a fully diluted, as-converted basis), including Additional Common Shares deemed to be issued hereunder, immediately preceding such Trigger Issuance;

“B” equals the Series C Conversion Price in effect immediately preceding such Trigger Issuance;

“C” equals the number of Additional Common Shares issued or deemed issued hereunder as a result of the Trigger Issuance; and

“D” equals the aggregate consideration, if any, received or deemed to be received by the Corporation upon such Trigger Issuance;

provided, however, that in no event shall the Series C Conversion Price after giving effect to such Trigger Issuance be greater than the Series C Conversion Price in effect prior to such Trigger Issuance.

For purposes of this subsection 2.4(d)(v), “Additional Common Shares” shall mean all Common Shares issued by the Corporation or deemed to be issued as set forth below, excluding any Excluded Shares (as hereinafter defined):

(A)

Issuances of Rights or Options. In case at any time the Corporation shall in any manner grant (directly and not by assumption in an amalgamation or otherwise) any warrants or other rights to subscribe for or to purchase, or any options for the purchase of, Common Shares or any shares or security convertible into or exchangeable for Common Shares (such warrants, rights or options being called “Options” and such convertible or exchangeable shares or securities being called “Convertible Securities”) whether or not such Options or the right to convert or exchange any such Convertible Securities are immediately exercisable, and the price per share for which Common Shares are issuable upon the exercise of such Options or upon the conversion or exchange of such Convertible Securities (determined by dividing (i) the sum (which sum shall constitute the applicable consideration) of (x) the total amount, if any, received or receivable by the Corporation as consideration for the granting of such Options, plus (y) the aggregate amount of additional consideration payable to the Corporation upon the exercise of all such Options, plus (z), in the case of such Options which relate to Convertible Securities, the aggregate amount of additional consideration, if any, payable upon the issue or sale of such Convertible Securities and upon the conversion or exchange thereof by (ii) the total maximum number of Common Shares issuable upon the exercise of such Options or upon the conversion or exchange of all such Convertible Securities issuable upon the exercise of such Options) shall be less than the Series C Conversion Price in effect immediately prior to the time of the granting of such Options, then the total number of Common Shares issuable upon the exercise of such Options or upon conversion or exchange of the total amount of such Convertible Securities issuable upon the exercise of such Options shall be deemed to have been issued for such price per share as of the date of granting of such Options or the issuance of such Convertible Securities and thereafter shall be deemed to be outstanding for purposes of adjusting the Series C Conversion Price. Except as otherwise provided in subsection 2.4(d)(v)(C), no adjustment of the Series C Conversion Price shall be made upon the actual issue of such Common Shares or of such Convertible Securities upon exercise of such Options or upon the actual issue of such Common Shares upon conversion or exchange of such Convertible Securities.

C-7

(B)

Issuance of Convertible Securities. In case the Corporation shall in any manner issue (directly and not by assumption in an amalgamation or otherwise) or sell any Convertible Securities, whether or not the rights to exchange or convert any such Convertible Securities are immediately exercisable, and the price per share for which Common Shares is issuable upon such conversion or exchange (determined by dividing (i) the sum (which sum shall constitute the applicable consideration) of (x) the total amount received or receivable by the Corporation as consideration for the issue or sale of such Convertible Securities, plus (y) the aggregate amount of additional consideration, if any, payable to the Corporation upon the conversion or exchange thereof, by (ii) the total number of Common Shares issuable upon the conversion or exchange of all such Convertible Securities) shall be less than the Series C Conversion Price in effect immediately prior to the time of such issue or sale, then the total maximum number of Common Shares issuable upon conversion or exchange of all such Convertible Securities shall be deemed to have been issued for such price per share as of the date of the issue or sale of such Convertible Securities and thereafter shall be deemed to be outstanding for purposes of adjusting the Series C Conversion Price, provided that (a) except as otherwise provided in subsection 2.4(d)(v)(C), no adjustment of the Series C Conversion Price shall be made upon the actual issuance of such Common Shares upon conversion or exchange of such Convertible Securities and (b) no further adjustment of the Series C Conversion Price shall be made by reason of the issue or sale of Convertible Securities upon exercise of any Options to purchase any such Convertible Securities for which adjustments of the Series C Conversion Price have been made pursuant to the other provisions of Section 2.5.

(C)

Change in Option Price or Conversion Price. Upon the happening of any of the following events, namely, if the purchase price provided for in any Option referred to in subsection 2.4(d)(v)(A) hereof, the additional consideration, if any, payable upon the conversion or exchange of any Convertible Securities referred to in subsections 2.4(d)(v)(A) or 4(d)(v)(B), or the rate at which Convertible Securities referred to in subsections 2.4(d)(v)(A) or 4(d)(v)(3) are convertible into or exchangeable for Common Shares shall change at any time (including, but not limited to, changes under or by reason of provisions designed to protect against dilution), the Series C Conversion Price in effect at the time of such event shall forthwith be readjusted to the Series C Conversion Price which would have been in effect at such time had such Options or Convertible Securities still outstanding provided for such changed purchase price, additional consideration or conversion rate, as the case may be at the time initially granted, issued or sold. On the termination of any Option for which any adjustment was made pursuant to this subsection 2.4(d)(v) or any right to convert or exchange Convertible Securities for which any adjustment was made pursuant to this subsection 2.4(d)(v) (including without limitation upon the redemption or purchase for consideration of such Convertible Securities by the Corporation), the Series C Conversion Price then in effect hereunder shall forthwith be changed to the Series C Conversion Price which would have been in effect at the time of such termination had such Option or Convertible Securities, to the extent outstanding immediately prior to such termination, never been issued.

Excluded Shares means:

(i)

any issuance for which an adjustment in the Series C Conversion Price may be made pursuant to the other provisions of this Section 2.4;

(ii)

any issuance to employees, consultants, officers or directors of the Corporation or any of its subsidiaries pursuant to any shares or option plan duly adopted by the board of directors of the Corporation;

C-8

(iii)

any issuance of Options or Convertible Securities issued prior to the date hereof, provided that such securities have not been amended since the date hereof; or

(iv)

shares, Options or Convertible Securities issued to a lender in connection with the provision of credit to the Corporation or any of its subsidiaries.

(e)

No Impairment. Except as expressly provided herein, the Corporation shall not, by articles of amendment or through any voluntary liquidation, dissolution, winding up, transfer of assets, consolidation, corporate reorganization, amalgamation or issue or sale of securities, or through any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation but shall at all times in good faith assist in the carrying out of all the provisions of this Section 2.4 and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the holders of the Series C Preferred Shares against impairment.

(f)

Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Series C Conversion Price of Series C Preferred Shares, pursuant to this Section 2.4, the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of Series C Preferred Shares a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request of any holder of Series C Preferred Shares, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Series C Conversion Price for Series C Preferred Shares at the time in effect and (iii) the number of Common Shares and the amount, if any, of other property which at the time would be received upon the conversion of Series C Preferred Shares.

(g)

Issue Taxes. The Corporation shall pay any and all issue and other taxes (other than income taxes) that may be payable in respect of any issue or delivery of Common Shares on conversion of Series C Preferred Shares pursuant hereto; provided, however, that the Corporation shall not be obligated to pay any transfer taxes resulting from any transfer requested by any holder in connection with any such conversion.

(h)

Reservation of Shares Issuable Upon Conversion. The Corporation shall at all times reserve and keep available out of its authorized but unissued Common Shares, solely for the purpose of effecting the conversion of the Series C Preferred Shares such number of its Common Shares as shall from time to time be sufficient to effect the conversion of all outstanding Series C Preferred Shares; and if at any time the number of authorized but unissued Common Shares shall not be sufficient to effect the conversion of all then outstanding Series C Preferred Shares, the Corporation shall take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued Common Shares to such number of shares as shall be sufficient for such purpose including, without limitation, engaging in best efforts to obtain the requisite shareholder approval of any necessary amendment to its Articles.

(i)

Status of Converted or Redeemed Preferred Shares. In the event that Series C Preferred Shares shall be converted pursuant to this Section 2.4 or redeemed, the shares so converted or redeemed shall resume the status of authorized but unissued Series C Preferred Shares.

C-9

2.5.	Redemption Rights.

(a)

At the election in writing by the holders of a majority of the then outstanding Series C Preferred Shares delivered to the Corporation at any time after the fifth anniversary of the date of the first issuance of Series C Preferred Shares, the Corporation shall redeem, on the terms and conditions stated herein, out of funds legally available therefor, all of the outstanding Series C Preferred Shares in three annual instalments beginning on the first anniversary of the Corporation’s receipt of the request for redemption from the holders of a majority of the then outstanding Series C Preferred Shares (the “Series C Initial Redemption Date”), and continuing thereafter on the first and second anniversaries of the Series C Initial Redemption Date (each a “Series C Redemption Date”), by paying in cash therefor a sum equal to the greater of the Original Series C Issue Price or the “Series C Fair Market Value” (as defined below) for each Series C Preferred Share, plus all accrued but unpaid dividends thereon (the “Series C Redemption Price”). The number of Series C Preferred Shares that the Corporation shall be required to redeem under this Section 2.6(a) on any one Series C Redemption Date shall be equal to the amount determined by dividing (i) the aggregate number of Series C Preferred Shares outstanding immediately prior to the Series C Redemption Date by (ii) the number of remaining Series C Redemption Dates (including the Series C Redemption Date to which such calculation applies). For purposes of this provision, the “Series C Fair Market Value” shall mean the fair market value per Series C Preferred Share agreed upon by the Corporation and by the holders of a majority of the then outstanding Series C Preferred Shares or, in the absence of such agreement, the fair market value of each Series C Preferred Share as determined by an independent third party valuator appointed by the Corporation and reasonably acceptable to the holders of a majority of the then outstanding Series C Preferred Shares.

(b)

In the event that the Corporation is unable to redeem the full number of Series C Preferred Shares to be redeemed on any Series C Redemption Date, the shares not redeemed shall be redeemed by the Corporation as provided in this Section 2.5 as soon as practicable after funds are legally available therefor. Any redemption effected pursuant to this Section 2.5(b) shall be made rateably among the holders of Series C Preferred Shares in proportion to the aggregate Series C Redemption Price to which each holder is entitled under subsection (a) of this Section 2.5.

(c)

If the holders of Series C Preferred Shares have elected to have the Series C Preferred Shares redeemed as provided in subsections (a) and (b) of this Section 2.5, then at least 30 but no more than 60 days prior to each Series C Redemption Date, the Corporation shall give written notice via personal delivery or first class mail, postage prepaid, to all holders of outstanding Series C Preferred Shares whose shares are being redeemed, at the address last shown on the records of the Corporation for such holder, stating the applicable Series C Redemption Date, Series C Redemption Price and Series C Conversion Price for such shares and the date of termination of the right to convert (which date shall not be earlier than 30 days after the written notice by the Corporation has been given), and the Corporation shall call upon such holder to surrender to the Corporation on such Series C Redemption Date at the place designated in the notice such holder’s certificate or certificates representing the shares to be redeemed. On or after the Series C Redemption Date stated in such notice, the holder of each Series C Preferred Share called for redemption shall surrender the certificate evidencing such shares to the Corporation at the place designated in such notice and shall thereupon be entitled to receive payment of the Series C Redemption Price for the shares surrendered. If less than all the shares represented by any such surrendered certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. If such notice of redemption shall have been duly given, and if on such Series C Redemption Date funds necessary for the redemption shall be available therefor, then, as to any certificates evidencing any Series C Preferred Shares so called for redemption and not surrendered, all rights of such shares so called for redemption and not surrendered shall cease with respect to such shares, except only the right of the holders to receive the Series C Redemption Price for Series C Preferred Shares called for redemption which they hold, without interest, upon surrender of their certificates therefor.

C-10

(d)

Notwithstanding anything herein to the contrary, if, on or prior to any Series C Redemption Date, (and after a redemption election has been made pursuant to this Section 2.5), the Corporation deposits, with any bank or trust company in Canada having aggregate capital and surplus in excess of US$100,000,000, as a trust fund, a sum sufficient to redeem on such Series C Redemption Date the shares called for redemption, with irrevocable instructions and authority to the bank or trust company to give the notice of redemption thereof (or to complete the giving of such notice if theretofore commenced) and to pay, on or after the Series C Redemption Date or prior thereto, the Series C Redemption Price of the shares to their respective holders upon the surrender of their share certificates, then from and after the date of the deposit (although prior to such Series C Redemption Date), the shares so called for redemption on such Series C Redemption Date (but not any subsequent Series C Redemption Date) shall be redeemed. The deposit of such sum shall constitute full payment of such shares to their holders and from and after the date of the deposit such shares shall no longer be outstanding, and the holders thereof shall cease to be shareholders with respect to such shares and shall have no rights with respect thereto except the right to receive from the bank or trust company payment of the Series C Redemption Price for Series C Preferred Shares called for redemption on such Series C Redemption Date, without interest, upon the surrender of their certificates therefor and the right to convert said shares as provided herein at any time up to but not after the close of business on the fifth day prior to the Series C Redemption Date of such shares (which conversion date shall not be earlier than 30 days after the written notice of redemption has been given). Any monies so deposited on account of the Series C Redemption Price of Series C Preferred Shares converted into Common Shares subsequent to the making of such deposit shall be repaid to the Corporation forthwith upon the conversion of such Series C Preferred Shares. Any interest accrued on any funds so deposited shall be the property of and paid to, the Corporation. If the holders of Series C Preferred Shares so called for redemption shall not, at the end of two years after the applicable Series C Redemption Date, have claimed any funds so deposited, such bank or trust company shall thereupon pay over to the Corporation such unclaimed funds, and such bank or trust company shall thereafter be relieved of all responsibility in respect thereof to such holders and such holders shall look only to the Corporation for payment of the Series C Redemption Price for Series C Preferred Shares called for redemption which they hold.

C-11

Appendix D

Bylaws of Fluid Media Networks, Inc., a Canadian corporation

BY-LAW NO. 1

A by-law relating generally to the regulation of the

business and affairs of

FLUID MEDIA NETWORKS, INC.

CONTENTS

One	INTERPRETATION

Two	DIRECTORS

Three	MEETINGS OF DIRECTORS

Four	COMMITTEES

Five	OFFICERS

Six	PROTECTION OF DIRECTORS, OFFICERS AND OTHERS

Seven	MEETINGS OF SHAREHOLDERS

Eight	SECURITIES

Nine	DIVIDENDS AND RIGHTS

Ten	EXECUTION OF DOCUMENTS AND VOTING OF SECURITIES

Eleven	NOTICES

D-1

SECTION ONE

INTERPRETATION

1.1	Definitions.

	In this by-law and in all other by-laws of the Corporation, unless the context otherwise requires:

	“Act” means the Canada Business Corporations Act as amended or re-enacted from time to time and includes the regulations made pursuant to it;

	“board” means the board of directors of the Corporation;

	“by-laws” means all by-laws of the Corporation;

	“director” means a director of the Corporation;

	“electronic document” means any form of representation of information or of concepts fixed in any medium in or by electronic, optical or other similar means and that can be read or perceived by a person or by any means;

	“information system” means a system used to generate, send, receive, store or otherwise process an electronic document;

	“non-business day” means Saturday, Sunday and any other day that is a holiday as defined in the Interpretation Act (Canada); and

	“number of directors” means the number of directors of the Corporation provided for in the articles or, where a minimum and maximum number of directors is provided for in the articles, the number of directors of the Corporation most recently elected by the shareholders of the Corporation.

1.2	Defined Terms. Each term used in all by-laws and defined in the Act has the meaning given to that term in the Act.

1.3	Plural/Singular. In all by-laws of the Corporation, the singular includes the plural and the plural the singular and words in one gender include all genders.

1.4	Headings. Headings used in all by-laws are for convenience of reference only and shall not affect the construction or interpretation of the by-laws.

1.5	Conflict. If any of the provisions contained in this by-law are inconsistent with those contained in the articles or a unanimous shareholder agreement, the provisions contained in the articles or unanimous shareholder agreement, as the case may be, shall prevail.

D-2

SECTION TWO

DIRECTORS

2.1	Quorum. The quorum for the transaction of business at any meeting of the board shall consist of a majority of the number of directors. If, however, the number of directors is two, both directors must be present to constitute a quorum.

2.2	Qualification. No person shall be qualified for election as a director if that person is less than 18 years of age, if that person is of unsound mind and has been so found by a court in Canada or elsewhere, if that person is not an individual or if that person has the status of a bankrupt. A director need not be a shareholder. At least 25% (or such lesser percentage as set forth in the Act) of the directors must be resident Canadians. However, if the Corporation has fewer than four directors, at least one director must be a resident Canadian.

2.3	Election and Term. The election of directors shall take place at the first meeting of shareholders and at each annual meeting of shareholders. A director not elected for an expressly stated term shall cease to hold office at the close of the first annual meeting following that director’s election or appointment. If an election of directors is not held at the proper time, the incumbent directors shall continue in office until their successors are elected or appointed.

2.4	Removal of Directors. Subject to the Act, the shareholders may by ordinary resolution passed at an annual or special meeting remove any director from office and the vacancy created by such removal may be filled at the same meeting, failing which it may be filled by the directors.

2.5	Vacation of Office. A director ceases to hold office when that director dies, is removed from office by the shareholders or ceases to be qualified for election as a director. A director also ceases to hold office when that director’s written resignation is received by the Corporation, or, if a time is specified in such resignation, at the time so specified, whichever is later.

2.6	Vacancies. Subject to the Act, a quorum of the board may fill a vacancy in the board, except a vacancy resulting from an increase in the number or minimum or maximum number of directors or from a failure of the shareholders to elect the number or minimum number of directors provided for in the articles. In the absence of a quorum of the board, or if the board is not permitted to fill such a vacancy, the board shall forthwith call a special meeting of a shareholders to fill the vacancy. If the board fails to call such a meeting or if there are no such directors then in office, any shareholder may call the meeting.

2.7	Remuneration and Expenses. The directors shall be paid such remuneration for their services as the board may from time to time determine and shall also be entitled to be reimbursed for travelling and other expenses properly incurred by them in attending meetings of the board or any committee thereof. Nothing in this by-law precludes any director from serving the Corporation in any other capacity and receiving remuneration for doing so.

D-3

SECTION THREE

MEETINGS OF DIRECTORS

3.1

Canadian Majority. The board shall not transact business at a meeting, other than filling a vacancy in the board, unless at least 25% (or such lessor percentage as set forth in the Act) of the directors present are resident Canadians, or, if the Corporation has fewer than four directors, at least one of the directors present is a resident Canadian. The board may, however, transact business at a meeting of directors where the required number of resident Canadian directors is not present if:

(a)

a resident Canadian director who is unable to be present approves in writing or by telephonic, electronic or other communication facilities, the business transacted at the meeting; and

(b)

the required number of resident Canadian directors would have been present had that director been present at the meeting.

3.2	Meetings by Communication Facilities. A director may, to the extent and in the manner permitted by law, participate in a meeting of directors or of a committee of directors by means of a telephonic, electronic or other communication facility that permits all participants to communicate adequately with each other during the meeting, but only if all the directors of the Corporation have consented to that form of participation. A director participating in such a meeting by such means is deemed for the purposes of the Act to be present at that meeting. Any such consent shall be effective whether given before or after the meeting to which it relates and may be given with respect to all meetings of the board and of committees of the board held while a director holds office.

3.3	Place of Meetings. Meetings of the board may be held at any place within or outside Canada.

3.4	Calling of Meetings. Meetings of the board may be convened at any time by the chairman of the board, the chief executive officer, the president or any director upon notice given to all directors in accordance with subsection 3.5.

3.5	Notice of Meeting. Notice of the time and place of each meeting of the board shall be given in the manner provided in subsection 11.1 to each director not less than 48 hours before the time when the meeting is to be held.

3.6	Waiver of Notice. A director may in any manner or at any time waive notice of or otherwise consent to a meeting of the board including by sending an electronic document to that effect. Attendance of a director at a meeting of the board shall constitute a waiver of notice of that meeting except where a director attends for the express purpose of objecting to the transaction of any business on the grounds that the meeting has not been properly called. No action taken at any meeting of the board shall be invalidated by the accidental failure to give notice or sufficient notice thereof to any director.

3.7	First Meeting of New Board. If a quorum of directors is present, each newly- elected board may without notice hold its first meeting immediately following the meeting of shareholders at which such board is elected.

3.8	Adjourned Meeting. Notice of an adjourned meeting of the board is not required if the time and place of the adjourned meeting is announced at the original meeting.

3.9	Regular Meetings. The board may appoint a day or days in any month or months for regular meetings of the board at a place and hour to be named. A copy of any resolution of the board fixing the place and time of such regular meetings shall be sent to each director forthwith after being passed, but no other notice shall be required for any such regular meeting except where the Act requires the purpose of that meeting or the business to be transacted at it to be specified.

3.10	Chairman. The chairman of any meeting of the board shall be the first mentioned of such of the following officers as have been appointed and who is a director, is present at the meeting and is willing to serve: chairman of the board, chief executive officer, president or a vice-president (in order of seniority). If no such officer is present and willing to serve, the directors present shall choose one of their number to be chairman.

3.11	Votes to Govern. At all meetings of the board, every question shall be decided by a majority of the votes cast on the question. In case of an equality of votes, the chairman of the meeting shall not be entitled to a second or casting vote.

3.12	Director Resolution in lieu of Meeting. Directors may take action by their unanimous written consent.


Title of each class of securities to be registered	Amount to be registered	Proposed maximum offering price per share⁽²⁾	Proposed maximum aggregate offering price⁽²⁾	Amount of registration fee⁽²⁾
Common stock, $.0001 par value	8,845,486⁽¹⁾	$0.44	$3,892,014.00	$120.00
Common stock, $.0001 par value	1,304,380⁽³⁾	N/A
Series C Preferred Stock, $.0001 par value	1,185,800	$2.00	$2,371,600.00	$73.00
Total registration fee				$193.00

⁽¹⁾	Based upon the number of shares of Fluid Media Networks, Inc., a Canadian corporation, to be issued to the existing shareholders of Fluid Media Networks, Inc., a Nevada corporation, on a one-for-one basis upon completion of the continuance described in this Registration Statement and based on 8,981,326 shares of common stock of Fluid Media Networks, Inc., a Nevada corporation, issued and outstanding as of July 13, 2007.

⁽²⁾	Pursuant to Rule 457(f)(2) under the Securities Act of 1933, as amended, the book value of the common stock and the Series Preferred Stock as of July 13, 2007 has been used as the basis for calculating this registration fee. There is currently no trading market for the common stock or the Series C Preferred Stock.

⁽³⁾	Shares of common stock issuable upon conversion of the Series C Preferred Stock, which shares are not subject to an additional fee pursuant to Rule 457(i) of the Securities Act.

	Action by Shareholders without Meeting:
	•	Under Nevada law, unless otherwise provided in the articles of incorporation or the bylaws, shareholders may act without a meeting and by written consent. No notice needs to be given to shareholders.
	•	Under the Canadian Business Corporations Act, shareholders may only act by way of a resolution passed at a duly called meeting unless all shareholders otherwise entitled to vote consent in writing.
	Charter Amendments:
	•	Under Nevada law, amendment of articles of incorporation requires approval by vote of the holders of a majority of the outstanding stock.
	•	Under the Canadian Business Corporations Act, an amendment to a corporation’s charter requires approval by a two-thirds majority vote at a duly called meeting.

	Dissenter’s Rights:
	•	Dissenter’s rights are available to shareholders under more circumstances under the Canadian Business Corporations Act than under Nevada law.

	Statutory Oppression Remedy:
	•	Shareholders have a statutory oppression remedy under the Canadian Business Corporations Act that is similar to a common law action for breach of fiduciary duty, but the remedy in the Canadian Business Corporations Act does not require shareholders to prove that the directors acted in bad faith.
	•	There is no similar statutory provision under Nevada law.

	Nevada Revised Statutes	CBCA

Removal of directors	Generally, any one or more directors may be removed by the vote of not less than two thirds of the voting power of issued and outstanding shares entitled to vote. The directors may fill vacancies on the board.	Any director, or the entire Board, may be removed by a majority vote at a meeting of shareholders called for that purpose. A vacancy created by the removal of a director may be filled at the meeting of the shareholders at which the director is removed, or, if not so filled, a quorum of directors may fill a vacancy among the directors, except a vacancy resulting from an increase in the number or the minimum or maximum number of directors provided for in the articles.

Inspection of shareholders list	Any shareholder of record of a corporation who has held his shares for more than six months or any shareholder holding at least 5% of all of its outstanding shares, is entitled to inspect, during normal business hours, the company’s stock ledger and make extracts therefrom. A company may condition such inspection right upon delivery of a written affidavit stating that inspection is not desired for any purpose not related to the shareholder’s interest in the company.	A shareholder may examine the list of shareholders during normal business hours at the registered office of the corporation or where its central securities register is maintained, as well as at the meeting of shareholders for which the list was prepared.

Transactions with officers and directors	Contracts or transactions in which a director or officer is financially interested are not automatically void or voidable if: · the fact of the common directorship, office or financial interest is known to the board of directors or committee, and the board or committee authorizes, approves or ratifies the contract or transactions in good faith by a vote sufficient for the purpose, without counting the vote or votes of the common or interested director or directors; · the fact of the common directorship, office or financial interest is known to the shareholders, and they approve or ratify the contract or transaction in good faith by a majority vote of shareholders holding a majority of the voting power; · the fact of common directorship, office or financial interest is not known to the director or officer at the time the transaction is brought before the board of directors for action; or · the contract or transaction is fair to the corporation at the time it is authorized or approved. Common or interested directors may be counted to determine presence of a quorum and if the votes of the common or interested directors are not counted at the meeting, then a majority of disinterested directors may authorize, approve or ratify a contract or transaction.	A material contract or transaction between a corporation and one or more of its directors or officers, or between a corporation and another entity in which a director or officer of the corporation is a director or officer, or in which the director or officer has a material interest in, is not invalid nor is the director or officer accountable to the corporation for any profit realized, if the director or officer has disclosed the nature and extent of his interest to the corporation, in writing or by requesting to have it entered in the minutes of a meeting of directors or a meeting of a committee of directors, and the contract or transaction has been approved by the directors. A director required to make such disclosure is not permitted to vote on any resolution to approve the contract or transaction unless the contract or transaction: (a) relates primarily to his or her remuneration as a director, officer, employee or agent of the corporation or an affiliate; (b) is for indemnity or insurance under section 124 of the CBCA; or (c) is with an affiliate.

Indemnification of officers and directors	A corporation may indemnify its directors, officers, employees and agents against all reasonable expenses (including attorneys’ fees and amounts paid in settlement) and, provided that such individual, or indemnitee, acted in good faith and for a purpose which he or she reasonably believed to be in, or not opposed to, the best interests of the corporation and, in the case of a criminal proceeding, had reasonable grounds to believe his or her conduct was lawful. A corporation may indemnify its directors, officers, employees and agents against all reasonable expenses including amounts paid in settlement and attorneys’ fees in connection with a lawsuit by or in the right of the corporation to procure a judgment in its favor if such person acted in good faith and in a manner reasonably believed to be in or not opposed to the best interest of the corporation, except that no indemnification may be paid as to any claim, issue or matter as to which such person has been adjudged liable to the corporation unless it is determined by the court making such adjudication of liability that, despite such finding, such person is fairly and reasonably entitled for such expenses deemed proper.	A corporation may indemnify a director or officer or former director or officer of the corporation, or another individual who acts or acted at the corporation’s request as a director or officer or an individual acting in a similar capacity, of another entity against costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment reasonably incurred by the individual, in respect of a civil, criminal, administrative, investigative or other proceeding to which such person was a party by reason of being or having been a director or officer, if the person: · acted honestly and in good faith with a view to the best interests of the corporation (or, as the case may be, to the best interests of the other entity for which the individual acted as a director or officer or in a similar capacity at the corporation’s request); and · in the case of a criminal or administrative proceeding enforced by a monetary penalty, he had reasonable grounds for believing his conduct was lawful.

	Nevada law also provides for discretionary indemnification made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances. The determination must be made either:
	· by the shareholders; · by the board of directors by majority vote of a quorum consisting of directors who were not parties to the actions, suit or proceeding; · if a majority vote of a quorum consisting of directors who were not parties to the action, suit or proceeding so orders, by independent legal counsel in a written opinion; or · if a quorum consisting of directors who were not parties to the action, suit or proceeding cannot be obtained, by independent legal counsel in a written opinion.
	The articles of incorporation, the bylaws or an agreement made by the corporation may provide that the expenses of officers and directors incurred in defending a civil or criminal action, suit or proceeding must be paid by the corporation as they are incurred and in advance of the final disposition of the action, suit or proceeding, upon receipt of an undertaking by or on behalf of the director or officer to repay the amount if it is ultimately determined by a court of competent jurisdiction that he is not entitled to be indemnified by the corporation. The provisions do not affect any right to advancement of expenses to which corporate personnel other than directors or officers may be entitled under any contract or otherwise by law. The indemnification and advancement of expenses authorized in or ordered by a court pursuant to Nevada law does not exclude any other rights to which a person seeking indemnification or advancement of expenses may be entitled under the articles of incorporation or any bylaw, agreement, vote of shareholders or disinterested directors or otherwise, for either an action in his official capacity or an action in another capacity while holding office, except that indemnification, unless ordered by a court or for the advancement of expenses, may not be made to or on behalf of any director or officer if his acts or omissions involved intentional misconduct, fraud or a knowing violation of the law and was material to the cause of action. In addition, indemnification continues for a person who has ceased to be a director, officer, employee or agent and inures to the benefit of the heirs, executors and administrators of such a person.

SUMMARY	1
RISK FACTORS	6
CONVERSION AND CONTINUANCE	16
DISSENTERS’ RIGHTS	19
MATERIAL UNITED STATES FEDERAL TAX CONSEQUENCES	21
MATERIAL CANADIAN TAX CONSEQUENCES	22
COMPARATIVE RIGHTS OF SHAREHOLDERS	25
EFFECT OF THE CONVERSION/CONTINUANCE	31
ACCOUNTING TREATMENT	31
ELECTION OF DIRECTORS	31
PROCEDURAL MATTERS	32
BUSINESS OF FLUID MEDIA NETWORKS, INC.	33
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	42
MANAGEMENT	55
EXECUTIVE COMPENSATION	59
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS	66
CHANGE IN CONTROL	67
DESCRIPTION OF SECURITIES	68
MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS	69
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	70
LEGAL MATTERS	71
EXPERTS	71
AVAILABLE INFORMATION	71

Notice and call of shareholder meetings	Unless otherwise provided in the articles of incorporation or bylaws, the entire board of directors, any two directors or the president may call annual and special meetings of the shareholders. Additionally, a notice of the meeting of shareholders shall be given not less than 10 nor more than 60 days before the meeting.	The directors shall call an annual meeting of shareholders to be held not later than 18 months after the date of its incorporation and subsequently not later than 15 months after holding the last preceding annual meeting, but no later than six months after the end of the corporation’s preceding financial year, and may at any time call a special meeting of shareholders. A notice of the time and place of a meeting of shareholders shall be sent not less than 21 days and not more than 60 days before the meeting. However, public companies are also subject to the requirements of National Instrument 54-101 - Communication with Beneficial Owners of Securities of a Reporting Issuer, which provides for minimum notice periods greater than the minimum 21 day period provided by the CBCA.

Voting rights with respect to extraordinary corporate transactions	Approval of mergers, conversion, amendments to the articles of incorporation, and sales, leases or exchanges of all of the property or assets of a corporation, whether or not in the ordinary course of business, requires the affirmative vote or consent of the holders of a majority of the outstanding shares entitled to vote, except that, unless required by the articles of incorporation, no vote of shareholders of the corporation surviving a merger is necessary if: · the merger does not amend the articles of incorporation of the surviving corporation; · each outstanding share immediately prior to the merger is to be an identical share after the merger; · the number of voting shares outstanding immediately after the merger, plus the number of voting shares issued as a result of the merger, either by the conversion of securities issued pursuant to the merger or the exercise of rights and warrants issued pursuant to the merger, will not exceed by more than 20 percent the total number of voting shares of the surviving domestic corporation outstanding immediately before the merger; and · the number of participating shares outstanding immediately after the merger, plus the number of participating shares issuable as a result of the merger, either by the conversion of securities issued pursuant to the merger or the exercise of rights and warrants issued pursuant to the merger, will not exceed by more than 20 percent the total number of participating shares outstanding immediately before the merger.	For certain fundamental changes, the approval of not less than two-thirds of the votes cast by shareholders is required. Fundamental changes include amendments to a corporation’s articles of incorporation to, amongst other things: · change its name; · vary any restrictions on the business that the corporation may carry on; · change the maximum number of shares that the corporation is authorized to issue or vary its stated capital or effect a stock split or consolidation; · create a new class of shares or vary the rights, privileges, restrictions or conditions of any shares; · vary restrictions on the issue, transfer or ownership of shares; and · constrain (or vary the constraint regarding) the issue or transfer of shares to persons who are not resident Canadians. In addition, the approval of not less than two-thirds of the votes cast by shareholders is required to approve the corporation’s amalgamation (other than a “vertical short-form” or “horizontal short-form” amalgamation) or the corporation’s proposal to sell, lease or exchange all or substantially all of its property other than in the ordinary course.

Shareholders’ consent without a meeting	Unless otherwise provided in the articles of incorporation or the bylaws, any actions required or permitted to be taken at a meeting of the shareholders may be taken without a meeting if, before or after taking the action, a written consent is signed by the shareholders holding at least a majority of the voting power, except that if a different proportion of voting power is required for such an action at a meeting, then that proportion of written consent is required. In no instance where actions is authorized by written consent need a meeting of the shareholders be called or notice given.	Any action required or permitted to be taken at a meeting of the shareholders may be taken by a written resolution signed by all the shareholders entitled to vote on such resolution.

Shareholder voting requirements		Unless the articles of incorporation or bylaws provide for different proportions, a majority of the voting power, which includes the voting power that is present in person or by proxy, regardless of whether the proxy has authority to vote on all matters, constitutes a quorum for the transactions of business. A matter other than the election of directors is approved if the number of votes cast in favor of the action exceeds the number of votes cast in opposition to the action. Under Nevada law, amendment of articles requires approval by a majority of the shares entitled to vote. Directors must be elected by a plurality of the votes cast at the election. Where a separate vote by a class or series required, a majority of the voting power of the class or series that is present in person or by proxy, regardless of whether the proxy has authority to vote on all matters, constitutes a quorum for the transaction of business. An act by the shareholders of each class or series is approved if a majority of the voting power of a quorum of the class or series votes for the action.		Unless the bylaws otherwise provide, a quorum of shareholders is present for a meeting, irrespective of the number of persons actually present at the meeting, if the holders of a majority of the shares entitled to vote at the meeting are present in person or represented by proxy. It is common practice for the by-laws of a company to provide for a quorum of shareholders to be deemed present when as little as 5% of the issued and outstanding share capital entitled to vote is present in person or represented by proxy. Except where the CBCA requires approval by a special resolution, requiring approval by a two-thirds majority of the votes cast by the shareholders who voted on a resolution, a simple majority of the votes cast by the shareholders who voted on a resolution is required to approve any resolution properly brought before the shareholders. Even where the shares of a class or series do not otherwise carry the right to vote, separate class or series voting is required on a proposal to amend a corporation’s articles of incorporation to, among other things, vary the rights or restrictions attaching to the class or another class which impacts on the first class or increase or decrease the maximum number of authorized shares of such class or increase the maximum number of authorized shares of a class having rights or privileges equal or superior to the shares of such class. In addition, a class vote is required if the corporation proposes to sell, lease or exchange all or substantially all of the property of the corporation if such class is affected by the sale in a manner different from the shares of another class. Moreover, shares that would not otherwise have voting rights are granted voting rights with respect to, amongst other things, the approval of certain amalgamations or of the sale, lease or exchange of all or substantially all of the property of the corporation.

Appraisal rights; dissenters’ rights	Subject to certain conditions, any shareholder is entitled to dissent from, and obtain payment of the fair market value of his or her shares in the event of any of the following corporate actions: · consummation of a conversion or plan of merger to which a Nevada corporation is a constituent entity; · consummation of a plan of exchange to which the Nevada corporation is a constituent entity as the corporation whose subject owner’s interests will be acquired, if his or her shares are to be acquired in the plan of exchange; · any corporate action taken pursuant to a vote of the shareholders to the extent that the articles of incorporation, bylaws or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares; or · any corporate action not described above that will result in the shareholder receiving money or scrip instead of fractional shares. A shareholder who is entitled to dissent and obtain payment may not challenge the corporate action creating his entitlement unless the action is unlawful or fraudulent with respect to him or her or the domestic corporation.	Subject to certain conditions, shareholders may dissent if, among other things, the corporation resolves to: · amend its articles to vary any provisions restricting or constraining the issue, transfer or ownership of shares of such shareholder’s class; · amend its articles to vary any restriction on the business that the corporation may carry on; · amalgamate otherwise than under a vertical or horizontal short-form amalgamation; · be continued into another jurisdiction; · sell, lease or exchange all or substantially all of its property; or · carry out a “going-private” or “squeeze-out” transaction. In addition, holders of any class or series of shares entitled to vote on a proposal to amend a corporation’s articles of incorporation for which class voting would be required, may dissent if the corporation’s articles are amended as proposed. Dissenting shareholders who comply with the requirements set out in the CBCA are entitled to be paid by the corporation the fair value of the shares in respect of which the shareholder dissents.

Statutory oppression remedy	The Nevada Revised Statutes do not provide a statutory oppression remedy.	A “complainant” (which includes a security holder, director, officer and any other person who, in the discretion of the court is a proper person to make an application) may apply to a court for relief for acts or omissions by a corporation, directors, or other affiliates that are oppressive or unfairly prejudicial to or that unfairly disregard the interests of such persons. The court may issue an order: · restraining the conduct complained of; · appointing a receiver or receiver-manager; · to regulate a corporation’s affairs by amending its articles or by-laws or creating or amending an unanimous shareholder agreement; · directing an issue or exchange of securities; · appointing directors in place of or in addition to all or any of the directors then in office; · directing a corporation, subject to repurchase restrictions related to the solvency of the corporation, or any other person to purchase securities of a security holder; · directing a corporation or any other person to pay to a security holder any part of the money paid by the security holder for securities; · varying or setting aside a transaction or contract to which a corporation is a party and compensating the corporation or any other party to the transaction or contract; · requiring a corporation, within a time specified by the court, to produce to the court or an interested person financial statements in the form required to be produced at an annual shareholders’ meeting or an accounting in any other form the court may determine; · compensating an aggrieved person; · directing rectification of the registers or other records of a corporation; · for the liquidation and dissolution of the corporation; · directing an investigation to be made of the corporation or any of its affiliated corporations; and · requiring the trial of any issue.



ARTIST SERVICES	ADVERTISING AND SPONSORSHIP	SALES AND LICENSING

• Recording Contracts • Music Sales • Streaming Royalties • Free CDs • Online Radio/Video Play • Merchandise Sales • CD and DVD Duplication • Concert Tours • Terrestrial Radio Promotion • Online Promotion • Competitions • Community	• Advertising/Sponsorship • Branding/Promotion • Music Licensing • Research Services • Affiliate Programs	• Free Online Radio/Video • CDs • Non-DRM Downloads • DRM Downloads • Royalties • Competitions • Community • Artist Merchandise • Concert Tickets

	Three Months Ended March 31, 2007 (unaudited)		%		Three Months Ended March 31, 2006 (unaudited)		%

Artist Services	$	3,790		1%	$	255,055		21%
Advertising/sponsorship		687,773		99%		975,331		79%

Total revenue	$	691,563			$	1,230,386

Name	Position with the Company	Principal Occupation (if different than position with the Company)	Director Since

Justin F. Beckett	President, Chief Executive Officer and Director	--	October 2004

Michael D. Raeford, Jr.	Chief Strategic Officer	--	--

Dragan Kovacevic	Chief Information Officer	--	--

James Williams	Chief Technology Officer	--	--

David J. Williams	Chief Financial Officer	--	--

Michael L. Cassara	Senior Vice-President	--	--

Steve Parks	Vice-President of Operations	--	--

William Stephney	Director	Chief Executive Officer, Joseph Music, Inc. and Joseph Media LLC	May 2007

Hank L. Torbert	Director	Managing Partner, Avondale Ventures, LLC	April 2005

Lorne Abony	Nominee for Director	President and Chief Executive Officer, FUN Technologies Inc.	--

Marc Arseneau	Nominee for Director	President & CEO, Kangaroo Media Inc.	--

André P. Brosseau	Nominee for Director	Deputy Chairman and President, Loewen, Ondaatje, McCutcheon Limited	--

Alain Rhéaume	Nominee for Director	Managing Partner, Trio Capital Inc.	--

Name and Principal Position	Year	Salary	Bonus	Equity Awards	All Other Compensation¹	Total

Justin F. Beckett President, Chief Executive Officer	2006	$106,000	$0	$0	$0	$106,000

Robert Buch Former Chief Operating Officer	2006	$100,000	$8,790	$0	$10,992	$119,782

David J. Williams Chief Financial Officer	2006	$111,227²	$4,500	$0	$10,555	$126,282

James Williams Chief Technology Officer	2006	$125,000	$0	$0	$9,975	$134,975

Michael D. Raeford, Jr. Chief Strategic Officer	2006	$100,000	$0	$0	$9,765	$109,765

	Option Awards
Name	Number of Securities Underlying Unexercised Options (#) Exercisable		Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)		Option Exercise Price		Option Expiration Date

Justin F. Beckett (1)		0		0		-		-

Robert Buch		0		0		-		-

David J. Williams (2)		0		0		-		-

James Williams (3)		202,001		0		$ 0.26		12/31/15
		20,000		76,000		$ 0.30		6/30/16

Michael D. Raeford, Jr. (4)		169,668		0		$ 0.26		12/31/15
		15,000		57,000		$ 0.30		6/30/16

Plan Category	Number of securities 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 securities remaining available for future issuance under equity compensation plans (excluding securities reflected in Column (a) (c))
Equity compensation plan approved by security holders	__	__	__
Equity compensation plan not approved by security holders	659,669	$0.59	162,170

Name	Fees Earned or Paid in Cash		Options Awards(4)		Total

Hank Torbert (1)	$	6,400	$	135	$	6,535

Lorne Abony (2)	$	6,400	$	270	$	6,670

Avi Greenspoon	$	800	$	0	$	800

Paul Pint (3)	$	3,200	$	135	$	3,335

Justin F. Beckett	$	0	$	0	$	0

(1)	On July 28, 2006, Mr. Torbert received fully vested options to purchase 30,000 shares of common stock at a purchase price of $2.00 per share. Unexercised options expire after 2 years.
(2)	On July 28, 2006, Mr. Abony received fully vested options to purchase 60,000 shares of common stock at a purchase price of $2.00 per share. Unexercised options expire after 2 years.
(3)	On July 28, 2006, Mr. Pint received fully vested options to purchase 30,000 shares of common stock at a purchase price of $2.00 per share. Unexercised options expire after 2 years.
(4)	The grants were determined by the management team and the board of directors. The options were expensed using a standard Black Scholes calculation for determining the value of the options.

	Common Stock		Series C Preferred Stock

	Amount and Nature of Beneficial Ownership**	Percent of Class	Amount and Nature of Beneficial Ownership**	Percent of Class

Justin F. Beckett CEO, Pres., and Chairman	3,251,162 (1)	35.95 %	55,000	4.64 %

David J. Williams Chief Financial Officer	39,583 (2)	*	0	--

James Williams Chief Technology Officer	238,001(3)	2.58 %	0	--

Michael D. Raeford, Jr. Chief Metrics Officer	355,851 (4)	3.87 %	0	--

Dragan Kovacevic Chief Information Officer	0	--	0	--

Hank T. Torbert Director	143,026 (5)	1.58 %	0	--

William Stephney Director	0	--	0	--

Pinetree Capital, Ltd. 30E Lower Halcyon Heights Lascelles, St. James Barbados BBS10WI	846,757 (6)	9.26 %	165,000	13.91 %

AGF Funds, Inc. Toronto Dominion Bank Tower 66 Wellington Street West, 31st Floor Toronto, ON M5K 1E9	990,000 (7)	10.39 %	550,000	46.38 %

PFH Investments Limited 2 Sheppard Avenue East, Suite 700 Toronto, ON M2N 5Y7	666,667 (8)	6.91 %	0	--

	(1)	Includes (i) 2,690,012 shares of common stock held by VIZX Corporation of which Mr. Beckett has voting and dispositive control, (ii) 500,000 shares of common stock held by Dorika Mamboleo, Mr. Beckett’s spouse, (iii) 55,000 shares of common stock issuable upon conversion of 55,000 shares of Series C Preferred Stock held by Mr. Beckett and (iv) 6,150 shares of common stock issuable upon exercise of vested options granted on February 6, 2007 at an exercise price of $0.30 per share held by Mr. Beckett. Excludes 36,020 shares of common stock issuable pursuant to options granted to Mr. Beckett on February 6, 2007, at an exercise price of $0.30, which options vest in equal monthly increments over a four year period. Unexercised options expire after ten years.
	(2)	Includes 39,583 shares of common stock issuable upon the exercise of vested options granted on February 6, 2007 at an exercise price of $0.30 per share. Excludes 85,417 shares of common stock issuable pursuant to options granted February 6, 2007, to purchase common stock at an exercise price of $0.30 per share, which options vest in equal monthly increments over a four year period. Unexercised options expire after ten years.
	(3)	Includes 202,001 shares of common stock issuable upon the exercise of vested options at a price of $0.26 per share and 36,000 shares of common stock (reflects forfeiture of 60,000 options in April 2007) issuable upon the exercise of vested options at a price of $0.30 per share. Unexercised options expire after 2 years.
	(4)	Includes 169,668 shares of common stock issuable upon the exercise of vested options granted on January 1, 2006 at an exercise price of $0.26 per share; 42,000 shares of common stock issuable upon the exercise of options granted on July 1, 2006 at an exercise price of $0.30 per share; and 2,917 shares of common stock issuable upon the exercise of options granted on February 6, 2007 at an exercise price of $0.30 per share. Does not include 30,000 shares of common stock issuable upon the exercise of options granted on July 1, 2006, at an exercise price of $0.30 per share. Options that were granted on July 1, 2006 vest at a rate of 3,000 shares per month until June 2008. Does not include 17,083 shares of common stock issuable upon the exercise of options granted on February 6, 2007, at an exercise price of $0.30 per share, which options vest in equal monthly increments over a four year period. Unexercised options expire after ten years.
	(5)	Includes 30,000 shares of common stock issuable upon the exercise of vested options granted on July 28, 2006 currently exercisable at a price of $2.00 per share; 50,000 shares of common stock issuable upon the exercise of vested options granted February 1, 2007 at an exercise price of $2.00 per share. Unexercised options expire after ten years.
	(6)	Includes 165,000 shares of common stock issuable upon conversion of 165,000 shares of Series C Preferred Stock.
	(7)	Includes (i) 440,000 shares of common stock held by Jayvee, (ii) 424,930 shares of common stock issuable upon conversion of 424,930 shares of Series C Preferred Stock held by Mac & Co., (iii) 24,640 shares of common stock issuable upon conversion of 24,640 shares of Series C Preferred Stock held by GWL Growth Equity, and (iv) 100,430 shares of common stock issuable upon conversion of 100,430 shares of Series C Preferred Stock held by London Life Growth Equity, all of which are affiliates of AGF Funds, Inc. Excludes an indeterminable amount of common stock issuable upon the conversion of an aggregate amount of $270,000 Debentures. See “Item 3.02. Unregistered Sales of Equity Securities; The Debenture Offering.”
	(8)	Includes (i) 500,000 shares of common stock issuable upon the conversion of a debenture in the principal amount of $1,000,000, at a conversion price of $2.00 per share, (ii) 166,667 shares of common stock issuable upon the exercise of certain warrants at a per share price of $2.00.
	(9)	Includes 50,000 shares of common stock issuable upon conversion of certain warrants issued on November 21, 2006 at an exercise price of $1.50 per share.
	(10)	Includes the shares of common stock listed in above footnotes (1) through (5).

•	We would not be able to pay our debts as they become due in the usual course of business; or
•	Our total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy the rights of shareholders who have preferential rights superior to those receiving the distribution.

Industry Canada	Industrie Canada	FORM 11	FORMULAIRE 11
Canada Business	Loi canadienne sur les	ARTICLES OF CONTINUANCE	CLAUSES DE PROROGATION
Corporations Act	sociétés par actions	(SECTION 187)	(ARTICLE 187)


1 -- Name of the Corporation	Dénomination sociale de la societe	2 -- Taxation Year End
Fluid Media Networks, Inc.		Fin de l'année d'imposition
		12/31


3 -- The province or territory in Canada where the registered office is to be situated		La province ou le territoire au Canada où se situera le siége social
Ontario

4 -- The classes and the maximum number of shares that the corporation is authorized to issue		Catégories et le nombre maximal d'actions que la societe est autorisee a emettre
Please see the attached Schedule A.

5 -- Restrictions, if any, on share transfers		Restrictions sur le transfert des actions, s'il y a lieu
None.

6 -- Number (or minimum and maximum number) of directors		Nombre (ou nombre minimal et maximal) d'administrateurs
Minimum 3; maximum 20;

7 -- Restrictions, if any, on business the corporation may carry on		Limites imposées à l'activité commerciale de la société s'll y a lieu
None.

8 -- (1) If change of name effected, previous name		(1) S'il a changement de dénomination sociale, indiquer is dénomination sociale antéieure

(2) Details of incorporation		(2) Details de la constitution
Merged in Nevada on May 17, 2007.

9 -- Other provisions, if any		Autres dispositions, s'il y a lieu

(a) The directors may appoint one or more directors, who shall hold office for a term expiring not later than the close of the next annual meeting of shareholders, but the total number of directors so appointed may not exceed one third of the number of directors elected at the previous annual meeting of shareholders.


Signature	Printed name - Nom en lettres moultes	10 -- Capacity of - En qualite de	11 -- Tel No. No de tel.
	Justin F. Beckett	Director	310-665-9878

4.1	Committee of Directors. The board may appoint from their number one or more committees of the board, however designated, and delegate to such committee any of the powers of the board except those which, under the Act, a committee of the board has no authority to exercise.

4.2	Audit Committee. If the Corporation is an offering corporation the board shall, and otherwise the board may, constitute an audit committee composed of not fewer than three directors, at least a majority of whom are not officers or employees of the Corporation or any of its affiliates, and who shall hold office until the next annual meeting of shareholders. The audit committee shall have the powers and duties provided in the Act.

4.3	Transaction of Business. The powers of a committee of the board may be exercised by a meeting at which a quorum is present or by resolution in writing signed by all the members of such committee who would have been entitled to vote on that resolution at a meeting of the committee. Meetings of such committee may be held at any place within or outside Canada.

4.4	Procedure. Unless otherwise determined by the board, each committee shall have the power to fix its quorum at not less than a majority of its members, to elect its chairman and to regulate its procedure. To the extent that the board or the committee does not establish rules to regulate the procedure of the committee, the provisions of this by-law applicable to meetings of the board shall apply mutatis mutandis.


SECTION FIVE
OFFICERS

5.1	Appointment. The board may appoint such officers of the Corporation as the board may from time to time determine. The board may delegate to such officers powers to manage the business and affairs of the Corporation. One person may hold more than one office and, except for the chairman of the board, an officer need not be a director.

5.2	Powers and Duties of Officers. Every officer shall have such powers and duties as the board or the chief executive officer may specify from time to time. Any of the powers and duties of an officer to whom an assistant has been appointed may be exercised and performed by such assistant, unless the board or the chief executive officer otherwise directs.

5.3	Variation of Powers and Duties. Subject to the provisions of the Act, the board may from time to time vary, add to or limit the powers and duties of any officer.

5.4	Term of Office. The board, in its discretion, may remove any officer of the Corporation, without prejudice to such officer’s rights under any employment contract. Otherwise, each officer appointed by the board shall hold office until a successor is appointed, except that the term of office of the chairman of the board shall expire when that individual ceases to be a director.

5.5	Agents and Attorneys. The board shall have power from time to time to appoint agents or attorneys for the Corporation in or out of Canada with such powers of management or otherwise (including the power to sub-delegate) as may be thought fit.

5.6	Fidelity Bonds. The board may require such officers, employees and agents of the Corporation as the board deems advisable to furnish bonds for the faithful discharge of their duties, in such form and with such surety as the board may from time to time prescribe.

5.7	Conflict of Interest. An officer shall not be disqualified by reason only of his office contracting with the Corporation. Subject to the provisions of the Act, an officer shall not by reason only of his office be accountable to the Corporation or to its shareholders for any profit or gain realized from a contract or transaction in which he has an interest, and such contract or transaction shall not be voidable by reason only of such interest, provided that, if a declaration and disclosure of such interest is required by the Act, such declaration and disclosure shall have been made.

SECTION SIX
PROTECTION OF DIRECTORS, OFFICERS AND OTHERS

6.1	Limitation of Liability. No director or officer shall be liable (i) for the acts, receipts, neglects or defaults of any other director, officer, employee, or agent, (ii) for joining in any receipt or other act for conformity, (iii) for any loss, damage or expense happening to the Corporation through the insufficiency or deficiency of title to any property acquired for or on behalf of the Corporation, (iv) for the insufficiency or deficiency of any security in or upon which any of the moneys of the Corporation shall be invested, (v) for any loss or damage arising from the bankruptcy, insolvency or tortuous acts of any person with whom any of the moneys, securities or effects of the Corporation shall be deposited, (vi) for any loss occasioned by any error of judgment or oversight on the part of that person, (vii) for any other loss, damage or misfortune whatever which happen in the execution of the duties of that person’s office or in relation thereto, unless the same are occasioned by that person’s own willful neglect or default. Nothing in this by-law, however, relieves any director or officer from the duty to act in accordance with the Act or from liability for any breach of the Act.

6.2	Indemnity. The Corporation agrees to indemnify each director and officer of the Corporation, each former director and officer of the Corporation and each individual who acts or acted at the Corporation’s request as a director or officer, or each individual acting in a similar capacity, of another entity, against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, reasonably incurred by the individual in respect of any civil, criminal, administrative, investigative or other proceeding in which the individual is involved because of that association with the Corporation or other entity.

6.3	Advance of Costs. The Corporation may advance moneys to a director, officer or other individual for the costs, charges and expenses of a proceeding referred to in subsection 6.2. The individual shall repay the moneys if the individual does not fulfil the conditions of subsection 6.4.

6.4	Limitation in Indemnity. The Corporation’s indemnity granted in subsection 6.2 applies, however, only to the extent that the individual seeking indemnity:

	(a) acted honestly and in good faith with a view to the best interests of the Corporation, or, as the case may be, to the best interests of the other entity for which the individual acted as director or officer or in a similar capacity at the Corporation’s request; and

	(b) in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, the individual had reasonable grounds for believing that the individual’s conduct was lawful.

6.5	Insurance. Subject to the limitations contained in the Act, the Corporation may purchase and maintain such insurance for the benefit of any person referred to in subsection 6.2, as the board may from time to time determine.

SECTION SEVEN
MEETINGS OF SHAREHOLDERS

7.1	Annual Meetings. The annual meeting of shareholders shall be held at such time in each year and, subject to subsection 7.3, at such place as the board may from time to time determine. Such meetings shall be held for the purpose of considering the financial statements and reports required by the Act to be placed before the annual meeting, electing directors, appointing auditors and fixing or authorizing the board to fix their remuneration and for the transaction of such other business as may properly be brought before the meeting.

7.2	Special Meetings. The board or, subject to compliance with the Act, the holders of not less than five percent (5%) of the issued shares of the Corporation that carry the right to vote at a meeting sought, shall have power to call a special meeting of shareholders at any time.

7.3	Place of Meetings. Meetings of shareholders shall be held at the place where the registered office of the Corporation is situated or, if the board so determines, at some other place within or outside Canada or, if all the shareholders entitled to vote at the meeting so agree, at some place outside Canada.

7.4	Meetings by Telephone, Electronic or Other Communication Facility. Any person entitled to attend a meeting of shareholders may participate in the meeting, to the extent and in the manner permitted by law, by means of a telephonic, electronic or other communication facility that permits all participants to communicate adequately with each other during the meeting, if the Corporation makes available such a communication facility. A person participating in a meeting by such means is deemed for the purposes of the Act to be present at the meeting. The directors or the shareholders of the Corporation who call a meeting of shareholders pursuant to the Act may determine that the meeting shall be held, to the extent and in the manner permitted by law, entirely by means of a telephonic, electronic or other communication facility that permits all participants to communicate adequately with each other during the meeting.

7.5	Notice of Meetings. Notice of the time and place of each meeting of shareholders (and of each meeting of shareholders adjourned for an aggregate of 30 days or more) shall be given in the manner provided in subsection 11.1 not less than 21 days and not more than 60 days before the date of the meeting, to each director, to the auditor and to each shareholder who at the close of business on the record date for notice, if any, is entered in the securities register as the holder of one or more shares carrying the right to vote at the meeting. Notice of a meeting of shareholders called for any purpose other than consideration of the financial statements and auditor’s report, election of directors and appointment of the auditor shall state the nature of such business in sufficient detail to permit a shareholder to form a reasoned judgment thereon and shall state the text of any special resolution or by-law to be submitted to the meeting. A shareholder and any other person entitled to attend a meeting of shareholders may in any manner and at any time waive notice of or otherwise consent to a meeting of shareholders. Attendance of any such person at a meeting of shareholders shall constitute a waiver of notice of the meeting except where that person attends a meeting for the express purpose of objecting to the transaction of any business on the grounds that the meeting is not lawfully called.

7.6	List of Shareholders Entitled to Notice. For every meeting of shareholders, the Corporation shall prepare a list of shareholders entitled to receive notice of the meeting, arranged in alphabetical order and showing the number of shares entitled to vote at the meeting held by each shareholder. If a record date for the meeting is fixed pursuant to subsection 7.7, the shareholders listed shall be those registered at the close of business on the record date and such list shall be prepared not later than 10 days after such record date. If no record date is fixed, the list shall be prepared at the close of business on the day immediately preceding the day on which notice of the meeting is given, or where no such notice is given, the day on which the meeting is held and shall list all shareholders registered at such time. The list shall be available for examination by any shareholder during usual business hours at the registered office of the Corporation or at the place where the securities register is kept and at the place where the meeting is held.

7.7	Record Date for Notice. The board may fix in advance a record date, preceding the date of any meeting of shareholders by not more than 60 days and not less than 21 days, for the determination of the shareholders entitled to notice of the meeting. Notice of any such record date shall be given not less than seven days before such record date by newspaper advertisement in the manner provided in the Act. If no record date is so fixed, the record date for the determination of the shareholders entitled to notice of the meeting shall be the close of business on the day immediately preceding the day on which the notice is given.

7.8	Meetings Without Notice. A meeting of shareholders may be held without notice at any time and place permitted by the Act:

	(a) if all the shareholders entitled to vote at that meeting are present in person or represented by proxy or if those not present or represented by proxy waive notice of or otherwise consent to such meeting being held; and

	(b) if the auditor and the directors are present or waive notice of or otherwise consent to such meeting being held.

	At such meeting, any business may be transacted which the Corporation at a meeting of shareholders may transact.

7.9	Chairman, Secretary and Scrutineers. The chairman of any meeting of shareholders shall be the first mentioned of such of the following officers as have been appointed and who is present at the meeting: chairman of the board, chief executive officer, president, or a vice-president, in each case, who is a shareholder. If no such officer is present within 15 minutes from the time fixed for holding the meeting, the persons present and entitled to vote shall choose one of their number to be chairman. If the secretary of the Corporation is absent, the chairman shall appoint some person, who need not be a shareholder, to act as secretary of the meeting. If desired, one or more scrutineers, who need not be shareholders, may be appointed by a resolution or by the chairman with the consent of the meeting.

7.10	Persons Entitled to be Present. The only persons entitled to be present at a meeting of the shareholders shall be those entitled to vote at that meeting, the directors and auditor of the Corporation and others who, although not entitled to vote, are entitled or required under any provision of the Act, the articles or the by-laws to be present at the meeting. Any other person may be admitted only on the invitation of the chairman of the meeting or with the consent of the meeting.

7.11	Quorum. A quorum for the transaction of business at any meeting of shareholders shall be two persons, present in person, each being a shareholder entitled to vote at that meeting or a duly appointed proxy for a shareholder so entitled.

7.12	Right to Vote. Subject to the provisions of the Act as to authorized representatives of any other body corporate, at any meeting of shareholders in respect of which the Corporation has prepared the list referred to in subsection 7.6, every person who is named in such list shall be entitled to vote the shares shown thereon opposite the name of that person except to the extent that such person has transferred any shares after the date on which the list is prepared or, where a record date has been fixed, after the record date and the transferee, upon producing properly endorsed certificates evidencing such shares or otherwise establishing that the person owns such shares, demands at any time prior to the meeting that the name of that person be included to vote the transferred shares at the meeting. In the absence of such a list, every person shall be entitled to vote at the meeting who at the time is entered in the securities register as the holder of one or more shares carrying the right to vote at such meeting.

7.13	Proxies. Every shareholder entitled to vote at a meeting of shareholders may appoint a proxyholder, or one or more alternate proxyholders, who need not be shareholders, to attend and act at the meeting in the manner and to the extent authorized and with the authority conferred by the proxy. A proxy shall be in writing executed by the shareholder or the attorney of that shareholder and shall conform with the requirements of the Act.

7.14	Time for Deposit of Proxies. The board may specify in a notice calling a meeting of shareholders a time, preceding the time of such meeting by not more than 48 hours exclusive of non-business days, before which time proxies to be used at such meeting must be deposited. A proxy shall be acted upon only if, prior to the time so specified, it shall have been deposited with the Corporation or an agent thereof specified in such notice or, if no such time is specified in such notice, unless it has been received by the secretary of the Corporation or by the chairman of the meeting or any adjournment thereof prior to the time of voting.

7.15	Joint Shareholders. If two or more persons hold shares jointly, any one of them present in person or represented by proxy at a meeting of shareholders may, in the absence of the other or others, vote the shares; but if two or more of those persons are present in person or represented by proxy and vote, they shall vote as one the shares jointly held by them.

7.16	Votes to Govern. At any meeting of shareholders every question shall, unless otherwise required by law, be determined by the majority of the votes cast on the question. In the case of an equality of votes either upon a show of hands or upon a ballot, the chairman of the meeting shall not be entitled to a second or casting vote.

7.17	Show of Hands. Subject to the Act, any question at a meeting of shareholders shall be decided by a show of hands unless a ballot thereon is required or demanded as hereinafter provided. Upon a show of hands, every person who is present and entitled to vote shall have one vote. Whenever a vote by show of hands has been taken upon a question, unless a ballot thereon is so required or demanded, a declaration by the chairman of the meeting as to the result of the vote upon the question and an entry to that effect in the minutes of the meeting shall be prima facie evidence of the fact without proof of the number or proportion of the votes recorded in favour of or against any resolution or other proceeding in respect of such question, and the result of the vote so taken shall be the decision of the shareholders upon such question.

7.18	Ballots. On any question proposed for consideration at a meeting of shareholders, and whether or not a show of hands has been taken thereon, any shareholder or proxyholder entitled to vote at the meeting may demand a ballot. A ballot so demanded shall be taken in such manner as the chairman shall direct. A demand for a ballot may be withdrawn at any time prior to the taking of the ballot. The result of the ballot so taken shall be the decision of the shareholders upon the question.

7.19	Adjournment. The Chairman at a meeting of shareholders may, with the consent of the meeting and subject to such conditions as the meeting decides, adjourn the meeting from time to time and from place to place.

7.20	Electronic Voting by Shareholders. Any vote at a meeting of the shareholders may be held, to the extent and in the manner permitted by law, entirely by means of a telephonic, electronic or other communication facility, if the Corporation makes available such a communication facility.

7.21	Voting while Participating Electronically. Any person participating in a meeting of shareholders by electronic means as provided in subsection 7.4 and entitled to vote at that meeting may vote, to the extent and in the manner permitted by law, by means of the telephonic, electronic or other communication facility that the Corporation has made available for that purpose.

7.22	Resolution in Writing. A resolution in writing signed by all of the shareholders entitled to vote on that resolution at a meeting of shareholders is as valid as if it had been passed at a meeting of the shareholders.

SECTION EIGHT
SECURITIES

8.1	Allotment. Subject to the articles, shares of the Corporation may be issued at such times and to such persons and for such consideration as the board may determine and the board may fro time to time allot or grant options or other rights to purchase any of the shares of the Corporation at such times and to such persons and for such consideration as the board shall determine.

8.2	Registration of Transfer. Subject to the Act, no transfer of shares shall be registered in a securities register except upon presentation of the certificate representing such shares with a transfer endorsed thereon or delivered therewith duly executed by the registered holder or by the attorney of that holder or successor duly appointed, together with such reasonable assurance or evidence of signature, identification and authority to transfer as the board may from time to time prescribe, upon payment of all applicable taxes and any fees prescribed by the board and upon compliance with such restrictions on transfer as are authorized by the articles.

8.3	Transfer Agents and Registrars. The board may from time to time appoint a registrar to maintain the securities register and a transfer agent to maintain the register of transfers and may also appoint one or more branch registrars to maintain branch securities registers and one or more branch transfer agents to maintain branch registers of transfers, but one person may be appointed both registrar and transfer agent. The board may at any time terminate any such appointment.

8.4	Security Certificates. Every holder of securities of the Corporation shall be entitled, at the option of that holder, to a security certificate, or to a non-transferable written acknowledgement of the right to obtain a security certificate, stating the number and designation, class or series of securities held by that holder as shown on the securities register. Security certificates and acknowledgements of a securities holder’s right to a security certificate, respectively, shall be in such form as the board shall from time to time approve. Any security certificate shall be signed in accordance with subsection 10.1. A security certificate shall be signed manually by at least one director or officer of the Corporation or by or on behalf of the transfer agent and/or registrar. Any additional signatures required may be printed or otherwise mechanically reproduced. A security certificate executed as aforesaid shall be valid notwithstanding that one of the directors or officers whose signatures (whether manual or facsimile) appear thereon no longer holds office at the date of issue of the certificate.

8.5	Replacement of Security Certificates. The board, any officer or any agent designated by the board has the discretion to direct the issue of a new security certificate in lieu of and upon cancellation of a security certificate that has been mutilated. In the case of a security certificate claimed to have been lost, destroyed or wrongfully taken, the board, any officer or any agent designated by the board shall issue a substitute security certificate if so requested before the Corporation has notice that the security has been acquired by a bona fide purchaser. The issuance of the substitute security certificate shall be on such reasonable terms as to indemnity, reimbursement of expenses and evidence of loss and of title as the board or the officer or the agent designated by the board responsible for such issuance may from time to time prescribe, whether generally or in any particular case.

8.6	Joint Shareholders. If two or more persons are registered as joint holders of any security, the Corporation shall not be bound to issue more than one certificate in respect thereof, and delivery of such certificate to one of such persons shall be sufficient delivery to all of them. Any one of such persons may give effectual receipts for the certificate issued in respect thereof or for any dividend, bonus, return of capital or other money payable or warrant issuable in respect of such security.

8.7	Deceased Security Holders. In the event of the death of a holder of any security, the Corporation shall not be required to make any entry in the securities register in respect thereof or to make payment of any dividends thereon except upon production of all such documents as may be required by law and upon compliance with the reasonable requirements of the Corporation, which reasonable requirements shall in the discretion of the board not necessarily include the production of letters probate or letters of administration.

SECTION NINE
DIVIDENDS AND RIGHTS

9.1	Dividends. Subject to the Act, the board may from time to time by resolution declare and the Corporation may pay dividends to the shareholders according to their respective rights and interests in the Corporation.

	Dividends may be paid in money or property, subject to the restrictions on the declaration and payment thereof under the Act, or by issuing fully paid shares of the Corporation or options or rights to acquire fully paid shares of the Corporation.

9.2	Dividend Cheques. A dividend payable in cash shall be paid by cheque drawn on the Corporation’s bankers or one of them to the order of each registered holder of shares of the class or series in respect of which it has been declared and mailed by prepaid ordinary mail to such registered holder at the recorded address of that holder, unless such holder otherwise directs. In the case of joint holders, the cheque shall, unless such joint holders otherwise direct, be made payable to the order of all of such joint holders and mailed to them at their recorded address. The mailing of such cheque, unless the same is not paid on due presentation, shall satisfy and discharge the liability for the dividend to the extent of the sum represented thereby plus the amount of any tax which the Corporation is required to and does withhold.

9.3	Non-receipt of Cheques. If any person entitled to receive a dividend cheque notifies the Corporation that the cheque has not been received, the Corporation shall issue to such person a replacement cheque for a like amount on such terms as to indemnity, reimbursement of expenses and evidence of non-receipt and of title as the board may from time to time prescribe, whether generally or in any particular case.

9.4	Record Date for Dividends and Rights. The board may fix in advance a date as a record date for the determination of the persons entitled to receive payment of dividends and to subscribe for securities of the Corporation. Such record date shall not precede by more than 60 days the particular action to be taken. Notice of any such record date shall be given not less than seven days before such record date, by newspaper advertisement in the manner provided in the Act. If the shares of the Corporation are listed for trading on one or more stock exchanges in Canada, notice of such record date shall also be sent to such stock exchanges. Where no record date is fixed in advance, the record date for the determination of the persons entitled to receive payment of any dividend or to exercise the right to subscribe for securities of the Corporation shall be at the close of business on the day on which the resolution relating to such dividend or right to subscribe is passed by the board.

9.5	Unclaimed Dividends. Any dividend unclaimed after a period of six years from the date on which it has been declared to be payable shall be forfeited and shall revert to the Corporation.


SECTION TEN
GENERAL

10.1	Execution of Instruments. Contracts, documents and other instruments in writing may be signed on behalf of the Corporation by such person or persons as the board may from time to time designate by resolution. In the absence of an express designation as to the persons authorized to sign either contracts, documents or instruments in writing generally or to sign specific contracts, documents or instruments in writing, any one of the directors or officers of the Corporation may sign contracts, documents or instruments in writing on behalf of the Corporation. The corporate seal, if any, of the Corporation may be affixed to any contract, obligation or instrument in writing requiring the corporate seal of the Corporation by any person authorized to sign the same on behalf of the Corporation.

	The phrase “contracts, documents and other instruments in writing” as used in this provision shall include deeds, mortgages, hypothecs, charges, conveyances, transfers and assignments of property, real or personal, immovable or movable, agreements, releases, receipts and discharges for the payment of money or other obligations, conveyances, transfers and assignments of securities, all paper writings, all cheques, drafts or orders for the payment of money and all notes, acceptances and bills of exchange.

10.2	Banking Arrangements. The banking business of the Corporation including, without limitation, the borrowing of money and the giving of security therefore, shall be transacted with such banks, trust companies or other persons as may from time to time be designated by or under the authority of the board. Such banking business or any part thereof shall be transacted under such agreements, instructions and delegation of powers as the board may from time to time approve or authorize.

10.3	Voting Rights in other Corporations. All securities carrying voting rights of any other corporation held from time to time by the Corporation may be voted at any and all meetings of shareholders, bond holders, debenture holders or holders of other securities (as the case may be) of such other corporation and in such manner as the board may from time to time determine. Any person or persons authorized to sign on behalf of the Corporation may also from time to time (i) execute and deliver proxies for and on behalf of the Corporation, and (ii) arrange for the issuance of voting certificates or other evidence of the right to vote for and on behalf of the Corporation in such names as they may determine.

10.4	Discovery of Information. No shareholder shall be entitled to discovery of any information respecting any details or orders of the Corporation’s business which, in the opinion of the board, it would be inexpedient in the interests of the shareholders or the Corporation to communicate to the public. The board may from time to time determine whether and to what extent and at what time and place and under what conditions or regulations the accounts, records and documents of the Corporation or any of them shall be open to the inspection of shareholders and no shareholder shall have any right to inspect any accounts, records, documents of the Corporation except as conferred by the Act or authorized by the board.

10.5	Corporate Seal. The corporate seal of the Corporation shall be in such form as the directors from time to time shall determine.


SECTION ELEVEN
NOTICES

11.1	Method of Sending Notice. Any notice (which term includes any communication or document) to be sent pursuant to the Act, the articles, the by-laws or otherwise to a shareholder, director, officer or to the auditor shall be sufficiently sent if (i) delivered personally to the person to whom it is to be sent, (ii) delivered to the recorded address or mailed to the recorded address of that person by prepaid mail (iii) sent to that person at the recorded address by any means of prepaid transmitted or recorded communication or (iv) provided as an electronic document to the information system of that person. A notice so delivered shall be deemed to have been sent when it is delivered personally or to the recorded address. A notice so mailed shall be deemed to have been sent when deposited in a post office or public letter box and shall be deemed to have been received on the fifth day after so depositing. A notice so sent by any means of transmitted or recorded communication or provided as an electronic document shall be deemed to have been sent when dispatched by the Corporation if it uses its own facilities or information system and otherwise when delivered to the appropriate communication company or agency or its representative for dispatch. Notices sent by any means of transmitted or recorded communication or provided as an electronic document shall be deemed to have been received on the business day on which such notices were sent, or on the next business day following, if sent on a day other than a business day. The secretary of the Corporation may change or cause to be changed the recorded address, including any address to which electronic communications of any kind may be sent, of any shareholder, director, officer or auditor in accordance with any information believed by the secretary to be reliable. The recorded address of a director shall be the latest address of that director as shown in the records of the Corporation or in the most recent notice filed under the Corporations Information Act (Ontario), whichever is the more current.

11.2	Notice by Electronic Document. A requirement under the Act or this by-law to provide a person with a notice, document or other information is not satisfied by the provision of an electronic document unless:

	(a) the addressee has consented, in the manner prescribed under the Act, and has designated an information system for the receipt of the electronic document;

	(b) the electronic document is provided to the designated information system, unless otherwise prescribed in the Act;

	(c) the Act has been complied with;

	(d) the information in the electronic document is accessible by the sender so as to be usable for subsequent reference; and

	(e) the information in the electronic document is accessible by the addressee and capable of being retained by the addressee, so as to be usable for subsequent reference.

	An addressee may revoke consent to receive electronic documents in the manner prescribed in the Act.

	A requirement under the Act for one or more copies of a document to be provided to a single addressee at the same time is satisfied by the provision of a single version of the electronic document. A requirement under the Act to provide a document by registered mail is not satisfied by the sending of an electronic document unless prescribed under the Act.

11.3	Signature by Electronic Document. A requirement under the Act for a signature or for a document to be executed, except with respect to a statutory declaration or an affidavit, is satisfied if, in relation to an electronic document, the requirements prescribed under the Act are met and if the signature results from the application by a person of a technology or a process that permits the following to be proven:

	(a) the signature resulting from the use by a person of the technology or process is unique to the person;

	(b) the technology or process is used by a person to incorporate, attach or associate the person’s signature to the electronic document; and

	(c) the technology or process can be used to identify the person using the technology or process.

11.4	Notice to Joint Shareholders. If two or more persons are registered as joint holders of any share, any notice shall be addressed to all of such joint holders but notice sent to one of such persons shall be sufficient notice to all of them.

11.5	Computation of Time. In computing the date when notice must be sent under any provision requiring a specified number of days notice of any meeting or other event, the date of sending the notice shall be excluded and the date of the meeting or other event shall be included.

11.6	Undelivered Notices. If any notice sent to a shareholder pursuant to subsection 11.1 is returned on three consecutive occasions because the shareholder cannot be found, the Corporation shall not be required to give any further notices to such shareholder until that shareholder informs the Corporation in writing of a new address.

11.7	Omissions and Errors. The accidental omission to send any notice to any shareholder, director, officer or to the auditor or the non-receipt of any notice by any such person or any error in any notice not affecting the substance thereof shall not invalidate any action taken at any meeting held pursuant to such notice or otherwise founded thereon.

11.8	Persons Entitled by Operation of Law. Every person who, by operation of law, transfer or by any other means whatever, shall become entitled to any share, shall be bound by every notice in respect of such share which shall have been duly sent to the shareholder from whom that person derives title to such share prior to the name and address of that person being entered on the securities register (whether such notice was given before or after the happening of the event upon which that person became so entitled).

11.9	Deceased Shareholders. Any notice duly sent to any shareholder shall be deemed to have been duly served in respect of the shares held by the shareholder (whether held solely or with other persons), notwithstanding that such shareholder is then deceased and whether or not the Corporation has notice of such death, until some other person is entered in place of that person in the securities register of the Corporation as the holder or as one of the holders thereof and such service shall for all purposes be deemed a sufficient service of notice to the heirs, executors or administrators of that person and all persons, if any, interested with that person in such shares.

11.10	Waiver of Notice. Any shareholder (or the duly appointed proxyholder of that shareholder), director, officer or auditor may at any time waive any notice, or waive or abridge the time for any notice, required to be given to that shareholder under any provisions of the Act, the regulations thereunder, the articles, the by-laws or otherwise and such waiver or abridgement shall cure any default in the giving or in the time of such notice, as the case may be. Any such waiver or abridgement shall be in writing except a waiver of notice of a meeting of shareholders or of the board which may be given in any manner.

11.11	Execution of Notices. The signature of any director or officer of the Corporation to any notice may be written, stamped, typewritten or printed or partly written, stamped, typewritten or printed.

11.12	Proof of Service. A certificate of any officer or director of the Corporation in office at the time of making of the certificate or of an agent of the Corporation as to facts in relation to the sending of any notice to any shareholder, director, officer or auditor or publication of any notice shall be conclusive evidence thereof and shall be binding on every shareholder, director, officer or auditor of the Corporation, as the case may be.