UNITED
        STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON,
        D.C. 20549
 Form
        10-QSB
 
 (Mark
        One)
 
 x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
 THE
        SECURITIES EXCHANGE ACT OF 1934
 For
        the
        period ended June 30, 2006
 
 o TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
 SECURITIES
        EXCHANGE ACT OF 1934
 For
        the
        transition period from _______ to _______.
 
 Commission
        File Number 0-09358
 
 IMPART
                  MEDIA GROUP, INC.(Exact
                  name of small business issuer as specified in its charter)
 
 Nevada
              
              88-0441338(State
                  or other jurisdiction of (incorporation or organization)
              
              (I.R.S.
                  Employer Identification No.)
 
 1300
                  North Northlake WaySeattle,
                  WA 98103(Address
                  of principal executive offices)
  (206)
                  633-1852(Issuer's
                  telephone number)
 
 N/A(Former
                  Address of principal executive offices)
   Check
        whether the issuer (1) filed all reports required to be filed by Section
        13 or
        15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
        (or
        for such shorter period that the registrant was required to file such reports),
        and (2) has been subject to such filing requirements for the past 90 days.
        Yes x No o
  Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Securities Exchange Act of 1934) Yes o No x
  
 As
        of
        August 15, 2006, 22,512,863  shares
        of
        our common stock, $0.001 par value per share, and 2,903,229 shares of our
        Series
        A preferred stock, $0.001 par value per share, which shares of Series A
        preferred stock, were, at August 15, 2006, convertible into an aggregate
        of
        2,903,229 shares of our common stock, were outstanding. Our common stock
        currently trades on the OTC Bulletin Board under the symbol “IMMG”.
 
 Transitional
        Small Business Disclosure Format (check one): Yes o No x
  
  *When
        used in this Report, the words "believes", "anticipates", "expects" and similar
        expressions are intended to identify forward-looking statements. Such statements
        are subject to certain risks and uncertainties that could cause actual results
        to differ materially from those projected.*
 
 *Our
        business and results of operations are affected by a wide variety of factors
        that could materially and adversely affect our company and our actual results,
        including, but not limited to: (1) the availability of additional funds to
        enable us to successfully pursue our business plan; (2) the uncertainties
        related to the effectiveness of our technologies and the development of our
        products and services; (3) our ability to maintain, attract and integrate
        management personnel; (4) our ability to complete the development of our
        proposed services in a timely manner; (5) our ability to effectively market
        and
        sell our services to current and new customers; (6) our ability to negotiate
        and
        maintain suitable strategic licenses and corporate relationships; (7) the
        intensity of competition; and (8) general economic conditions. As a result
        of
        these and other factors, we may experience material fluctuations in future
        operating results on a quarterly or annual basis, which could materially
        and
        adversely affect our business, financial condition, operating results and
        stock
        price.*
 
 *These
        forward-looking statements speak only as of the date hereof. We undertake
        no
        obligation to publicly release the results of any revisions to these
        forward-looking statements that may be made to reflect events or circumstances
        after the date hereof or to reflect the occurrence of unanticipated
        events.*
  2
 
 PART
        I.
        FINANCIAL INFORMATION
 
 ITEM
                1.
              FINANCIAL
                  STATEMENTS.
 
 IMPART
        MEDIA GROUP, INC.
 (FORMERLY
        KNOWN AS LIMELIGHT MEDIA GROUP, INC.)
 CONSOLIDATED
        BALANCE SHEET
 June
        30,
        2006
 (UNAUDITED)
 ASSETSCurrent
                    assetsCash
                
                $
                406,459Accounts
                    receivable, net
                
                
                4,630,345Inventory
                
                
                477,366Prepaid
                    expenses and other current assets
                
                
                1,581,993Total
                    current assets
                
                
                7,096,163Fixed
                    assets, net
                
                
                1,437,639Other
                    AssetsIntangible
                    assets, net (Note 5, 8)
                
                
                6,121,166Deferred
                    financing costs, net (Note 10)
                
                
                2,183,446Other
                    Assets
                
                
                64,013Total
                    other assets
                
                
                8,368,625Total
                    assets
                
                $
                16,902,427LIABILITIES
                    AND STOCKHOLDERS' EQUITYCurrent
                    liabilitiesAccounts
                    payable
                
                $
                7,195,829Accrued
                    liabilities
                
                
                411,570Customer
                    deposits
                
                
                85,534Lines
                    of credit (Note 10)
                
                
                657,137Note
                    payable
                
                
                100,000Note
                    payable - related parties (Note 9)
                
                
                190,766Capital
                    lease obligation - current portion
                
                
                21,330Stock
                    issuance payable (Note 2)
                
                
                462,210Other
                    liabilities
                
                
                203,215Total
                    current liabilities
                
                
                9,327,591Capital
                    lease obligation - long term
                
                
                92,328Total
                    liabilities
                
                
                9,419,919Commitments
                    and contingenciesStockholders'
                    equityPreferred
                    stock - $.001 par value, 25,000,000 shares authorized, 2,903,229
                    shares
                    issued and outstanding
                
                
                2,903Common
                    stock - $.001 par value, 100,000,000 shares authorized, 21,828,299
                    shares
                    issued and outstanding
                
                
                21,828Additional
                    paid-in capital
                
                
                17,544,509Accumulated
                    deficit
                
                
                (10,086,732
                )Total
                    stockholders' equity
                
                
                7,482,508Total
                    liabilities and stockholders' equity
                
                $
                16,902,427
  See
        accompanying notes to consolidated financial statements.
  3
  IMPART
        MEDIA GROUP, INC.
 (FORMERLY
        KNOWN AS LIMELIGHT MEDIA GROUP, INC.)
 CONSOLIDATED
        STATEMENTS OF OPERATIONS
 (UNAUDITED)
 
 For
                    the Three
                
                For
                    the Three
                
                For
                    the Six
                
                For
                    the SixMonths
                    Ended
                
                Months
                    Ended
                
                Months
                    Ended
                
                Months
                    EndedJune
                    30, 2006
                
                June
                    30, 2005
                
                June
                    30, 2006
                
                June
                    30, 2005RevenuesEquipment
                    sales
                
                $
                634,553
                
                $
                850,251
                
                $
                1,159,189
                
                $
                1,734,037Managed
                    subscription
                
                
                108,031
                
                
                -
                
                
                261,130
                
                
                -Consulting
                    and design services
                
                
                100,565
                
                
                166,715
                
                
                206,428
                
                
                173,291Media
                    Services
                
                
                583,188
                
                
                -
                
                
                1,022,334
                
                
                -Total
                    revenues
                
                
                1,426,337
                
                
                1,016,966
                
                
                2,649,081
                
                
                1,907,328Cost
                    of revenues
                
                
                703,287
                
                
                613,125
                
                
                1,291,728
                
                
                1,311,573Gross
                    profit
                
                
                723,050
                
                
                403,841
                
                
                1,357,353
                
                
                595,755General
                    and administrative expensesProfessional
                    and consulting
                
                
                966,184
                
                
                27,341
                
                
                1,572,736
                
                
                59,257Selling
                    and marketing
                
                
                266,175
                
                
                31,213
                
                
                336,372
                
                
                69,632Depreciation
                    and amortization
                
                
                741,514
                
                
                7,389
                
                
                1,080,132
                
                
                13,013Wages
                    and salaries
                
                
                1,027,151
                
                
                229,225
                
                
                2,372,031
                
                
                434,506Rent
                    expense
                
                
                109,718
                
                
                53,652
                
                
                198,183
                
                
                107,213Other
                    general and administrative expenses
                
                
                385,385
                
                
                32,560
                
                
                1,089,783
                
                
                75,584Total
                    general and administrative expenses
                
                
                3,496,127
                
                
                381,380
                
                
                6,649,237
                
                
                759,205Income
                    (loss) from operations
                
                
                (2,773,077
                )
                
                22,461
                
                
                (5,291,884
                )
                
                (163,450
                )Other
                    income (expense)Other
                    income and expense, net
                
                
                (14,052
                )
                
                10,176
                
                
                -
                
                
                23,866Gain
                    on extinguishment of notes payable
                
                
                -
                
                
                -
                
                
                106,423
                
                
                -Interest
                    expense
                
                
                (277,925
                )
                
                (5,845
                )
                
                (715,277
                )
                
                (21,208
                )Net
                    Income (loss)
                
                $
                (3,065,054
                )
                $
                26,792
                
                $
                (5,900,738
                )
                $
                (160,792
                )Net
                    Income (Loss) - Common Stockholders:Net
                    Loss
                
                $
                (3,065,054
                )
                $
                26,792
                
                $
                (5,900,738
                )
                $
                (160,792
                )Beneficial
                    conversion feature of Series A preferred stock
                
                
                -
                
                
                -
                
                
                (933,873
                )
                
                -Accretion
                    of dividends on Series A preferred stock
                
                
                (80,675
                )
                
                -
                
                
                (104,125
                )
                
                -Net
                    earnings (loss) - available to common stockholders
                
                $
                (3,145,729
                )
                $
                26,792
                
                $
                (6,938,736
                )
                $
                (160,792
                )Basicand
                    diluted earnings (loss) per common share
                
                $
                (0.14
                )
                $
                0.01
                
                $
                (0.35
                )
                $
                (0.03
                )Basic
                    and Diluted weighted average common shares outstanding
                
                
                21,750,103
                
                
                4,828,831
                
                
                20,097,470
                
                
                4,828,831
 
 See
        accompanying notes to consolidated financial statements.
  4
 
 IMPART
        MEDIA GROUP, INC.
 (FORMERLY
        KNOWN AS LIMELIGHT MEDIA GROUP, INC.)
 CONSOLIDATED
        STATEMENTS OF CASH FLOWS
 (UNAUDITED)
  For
                    the six months
                
                For
                    the six monthsEnded
                
                EndedJune
                    30, 2006
                
                June
                    30, 2005Cash
                    flows from operating activities:Net
                    loss
                
                $
                (5,900,738
                )
                $
                (160,792
                )Adjustments
                    to reconcile net loss to net cash used by operating
                    activities:Issue
                    common stock for non-cash consulting expense
                
                
                1,000,000
                
                
                -Issue
                    warrants for servicing
                
                
                215,875
                
                
                -Non-cash
                    compensation expense
                
                
                355,637
                
                
                -Non-cash
                    stock compensation expense
                
                
                91,022
                
                
                -Non-cash
                    interest expense
                
                
                264,041
                
                
                -Gain
                    on extinguishment of notes payable
                
                
                (106,423
                )
                
                -Depreciation
                    and amortization
                
                
                1,073,131
                
                
                13,013Other
                
                
                13,148
                
                
                -Changes
                    in operating assets and liabilities net of acquired assets and
                    liabilities
                    due to acquisitions:Accounts
                    receivable
                
                
                (3,869,595
                )
                
                421,940Inventory
                
                
                6,172
                
                
                (25,632
                )Prepaid
                    expenses and other current assets
                
                
                (1,170,648
                )
                
                100Other
                    assets
                
                
                440,527
                
                
                -Accounts
                    payable
                
                
                3,975,794
                
                
                (362,810
                )Accrued
                    liabilities
                
                
                1,626,520
                
                
                (40,335
                )Customer
                    deposits
                
                
                
                
                
                119,834Net
                    cash used by operating activities
                
                
                (1,985,537
                )
                
                (34,682
                )Cash
                    flows from investing activities:Cash
                    paid out in acquisition of Intransit Media
                
                
                (500,000
                )
                
                -Acquisition
                    of E&M
                
                
                (600,000
                )
                
                -Purchase
                    of fixed assets
                
                
                (222,303
                )
                
                (190,436
                )Cash
                    acquired in reverse merger
                
                
                --
                
                
                1,968Net
                    cash (used) by investing activities
                
                
                (1,322,303
                )
                
                (188,468
                )Cash
                    flows from financing activities:Proceeds
                    from sale of common stock
                
                
                666,801Proceeds
                    from sale of Preferred stock and issuance of warrants
                
                
                3,910,505
                
                
                -Issuance
                    of common stock for exercise of warrants
                
                
                22,750
                
                
                -Deferred
                    financing costs and commitment fees
                
                
                (428,000
                )
                
                -Net
                    change in line of credit
                
                
                (38,294
                )
                
                11,494Proceeds
                    from notes payable
                
                
                -
                
                
                70,000Net
                    change in bank overdraft
                
                
                -
                
                
                95,531Change
                    in due to related parties
                
                
                -
                
                
                (10,250
                )Principal
                    payments on notes payable
                
                
                (607,600
                )
                
                -Proceeds
                    from notes payable - related parties
                
                
                150,000
                
                
                36,000Principal
                    payments on notes payable
                
                
                -
                
                
                (16,102
                )Principal
                    payments on capital lease obligations
                
                
                (28,504
                )
                
                -Net
                    cash provided by financing activities
                
                
                3,647,658
                
                
                186,673Net
                    change in cash
                
                
                339,818
                
                
                (36,477
                )Cash,
                    beginning of period
                
                
                66,641
                
                
                36,477Cash,
                    end of period
                
                $
                406,459
                
                $
                -Supplementary
                    cash flow information:Cash
                    payments for income taxes
                
                $
                -
                
                $
                -Cash
                    payments for interest
                
                $
                138,335
                
                $
                23,455Schedule
                    of non-cash investing and financing activities:Common
                    stock issued for acquisition
                
                $
                572,500
                
                $
                -
  See
        accompanying notes to consolidated financial statements.
  5
 
 **IMPART
        MEDIA GROUP, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **1.
        Description of Business and History**
 
 **Description
        of Business.** Impart
        Media Group, Inc. (formerly known as Limelight Media Group, Inc. and hereinafter
        referred to as "we", "us" or the "Company") sells dynamic digital media
        solutions consisting of monitors, media servers, and associated technological
        hardware and software. We provide design, integration, fabrication, assembly,
        QA
        (quality assurance), creative production, and installation services throughout
        the United States. As a result of our acquisition of E&M Advertising, Inc.
        and its affiliates in February 2006, we now provide advertising capability
        to
        the digital elements and other media services we deploy for our
        customers.
 
 We
        have
        developed and offer for sale a digital media network that is based on a unique
        architecture called Impart IQ, a web-based service that we believe no other
        company in the sector provides. Our products are targeted to businesses desiring
        digital signage and interactive media systems in one or more locations. This
        centrally managed network has the capability to deliver relevant information
        to
        any location where a message benefits from real time delivery to one or numerous
        displays. The network may be managed by our customers or by us.
 
 We
        are
        currently developing products and networks for multiple markets, thereby
        providing the potential to realize revenue from multiple sources. For example,
        airports, mass transit facilities, malls, financial institutions, retail
        stores
        and government agencies can be location partners for directory services and
        the
        distribution of advertisements, marketing messages and information and
        entertainment content. Revenues are derived from network monitoring, hosting,
        equipment sales, maintenance and installation fees, content management, creative
        development fees, advertising sales and sponsorships. Advertising revenue
        may be
        used to offset the costs of deployment for location partners or the partners
        may
        receive a portion of the advertising revenue on a negotiated basis.
 
 For
        the
        three month period and six month period ended June 30, 2006, our primary
        source
        of revenue was derived from media services, equipment sales, and managed
        subscription services. For the three month period and six month period ended
        June 30, 2005, our primary source of revenue was derived from equipment sales
        and consulting and design services.
 
 **History.** We
        were
        incorporated in the State of Nevada on May 17, 1996 under the name "Multinet
        International Corporation." On October 3, 2003, we changed our name to
        "Limelight Media Group, Inc."
 
 On
        June
        30, 2005, we acquired all of the outstanding capital stock of Impart, Inc.,
        a
        Washington corporation (the "Impart, Inc. Transaction"). Impart, Inc. was
        a
        privately-held company that sold dynamic media solutions consisting of monitors,
        computers, mounting systems, and associated technological hardware. The
        acquisition of the Impart, Inc. stock was a "reverse acquisition" in which
        all
        of the outstanding capital stock of Impart, Inc. was effectively exchanged
        for a
        controlling interest in our company. On June 30, 2005, immediately prior
        to the
        Impart, Inc. Transaction, Impart, Inc. purchased all of the assets of
        iPoint Networks, LLC, a Washington limited liability company ("iPoint"),
        pursuant to an asset purchase agreement (the "iPoint Transaction"). As
        consideration for the asset purchase, Impart, Inc. issued a promissory note
        in
        the amount of $250,000 to the seller of iPoint and issued shares of our common
        stock having an aggregate value of $750,000.
 
 Prior
        to
        the Impart, Inc. Transaction, we were a public company with nominal
        operations, and had $106,000 in assets (including cash totaling $2,000);
        liabilities totaling $891,000; a cash equivalent credit valued at $125,000
        previously purchased through the issuance of shares of our common stock
        and a receivable related to the issuance of our common stock totaling
        $12,500.
 
 As
        we did
        not have a sufficient number of duly authorized shares on the date of the
        acquisition, the parties agreed to holdback 2.9 million shares ("Holdback
        Shares") of the 8.1 million shares of our common stock to be issued to
        the owners of Impart, Inc. and iPoint. During the fourth quarter of 2005,
        we entered into agreements to convert the 2.9 million Holdback Shares into
        a
        liability totaling $4.6 million. This liability later was satisfied in
        exchange for the issuance of the same number of shares as was originally
        defined
        as the Holdback Shares.
  6
 
 The
        following table reflects the stock issued in relation to the Impart, Inc.
        Transaction and the iPoint Transaction:
 
 Impart
                  Transaction1
              
              iPoint
                  Transaction2
              
              TotalTotal
                  consideration
              
              
              7,656,250
              
              
              468,750
              
              
              8,125,000Holdback
                  shares
              
              
              (2,709,135
              )
              
              (165,865
              )
              
              (2,875,000
              )Total
                  common stock issuance
              
              
              4,947,115
              
              
              302,885
              
              
              5,250,000
  In
        addition to the shares described above, we issued 81,000 shares of our common
        stock as part of the Impart, Inc. Transaction that are held in escrow. Some
        or
        all of these shares will be used to settle liabilities that were outstanding
        at
        the time of the transaction and that are still being negotiated.
 
 On
        June 30, 2005, immediately prior to the consummation of the Impart, Inc.
        Transaction, Impart, Inc. purchased all of the assets of Media Sidestreet
        Corporation ("MSSCO") pursuant to an asset purchase agreement. In exchange
        for
        the purchase of all the assets of MSSCO, Impart, Inc. issued
        promissory notes in the aggregate principal amount of $1 million to the sellers
        of MSSCO. We satisfied such notes in January of 2006 by issuing our common
        stock
        at a value of $1.00 per share. The satisfaction of the notes through the
        issuance of our common stock resulted in a gain on retirement of debt of
        $106,000. Prior to the Impart, Inc. Transaction, the majority owners of Impart,
        Inc. were the owners of MSSCO. As a result, this acquisition was a
        related party transaction. Accordingly, our financial statements include
        the
        combined historical financial statements of Impart, Inc. and MSSCO.
 
 On
        February 2, 2006, we purchased from Marlin Capital Partners II, LLC (doing
        business as InTransit Media) all of the assets used in its digital advertising
        services business, including the right to manage the PATHVISION digital signage
        system owned by the Port Authority’s PATHVISION broadcasting system, and the
        equipment, computer servers and software used by them in the delivery of
        such
        services.
 
 On
        February 28, 2006, we purchased substantially all of the assets E&M
        Advertising, Inc., E&M West/Camelot, Inc. and NextReflex, Inc.
        (collectively, “E&M”), through a newly formed subsidiary, Impart Media
        Advertising, Inc. E&M was engaged in the placement and marketing of direct
        response media. In consideration for the purchase of the assets, we agreed
        (i)
        to pay an aggregate of $800,000, of which $200,000 was paid on the closing
        date,
        $400,000 was paid in March 2006 and the remaining $200,000 is required to
        be
        paid on the first anniversary of the closing date and (ii) to issue an aggregate
        of 1.6 million restricted shares of our common stock. In April 2006, we issued
        1.47 million of the 1.6 million restricted shares. The fair value of the
        shares
        issued at the measurement date was approximately $4.8 million.
  **2.
        Basis of Presentation**
 
 In
        the
        opinion of management, the accompanying unaudited condensed consolidated
        financial statements reflect all adjustments, consisting of normal recurring
        adjustments, necessary to present fairly the financial position of our company
        as of June 30, 2006, its cash flows for the six months ended June 30, 2006
        and
        2005 and its results of operations for the three and six months ended June
        30,
        2006 and 2005. Pursuant to the rules and regulations of the U.S. Securities
        and
        Exchange Comission (the "SEC"), certain information and disclosures normally
        included in financial statements prepared in accordance with accounting
        principles generally accepted in the United States of America have been
        condensed or omitted from these financial statements unless significant changes
        have taken place since the end of the most recent fiscal year. Accordingly,
        these unaudited condensed consolidated financial statements should be read
        in
        conjunction with the Audited Financial Statements and the other information
        also
        included in the Annual Report on Form 10-KSB for the year ended December
        31,
        2005.
  
 1
              The
                  Impart, Inc. Transaction is considered to be a capital transaction
                  in
                  substance, rather than a business combination. As such, the Impart,
                  Inc.
                  Transaction is equivalent to the issuance of stock by a private
                  company
                  (Impart, Inc.) for the net monetary assets of a public shell company
                  (Limelight Media Group, Inc.), accompanied by a recapitalization.
                  Thus,
                  the 4.95 million shares (net of Holdback Shares) of common stock
                  issued to
                  the shareholders of Impart, Inc. are retroactively applied. The
                  accounting
                  for the Impart, Inc. Transaction is identical to that resulting
                  from a
                  reverse acquisition, except that neither goodwill nor other intangible
                  assets was recorded. Accordingly, these financial statements are
                  the
                  historical financial statements of Impart, Inc. Impart, Inc. was
                  incorporated on June 19, 1984, in the State of
                  Washington.
  2
              The
                  Ipoint Transaction resulted in the acquisition of certain fixed
                  assets in
                  exchange for 302,885 shares (net of Holdback Shares) and a promissory
                  note
                  totaling $250,000. The note was satisfied in January
                  2006.
  7
  The
        results of our operations for the three months and the six months ended June
        30,
        2006 are not necessarily indicative of the results of operations for the
        full
        year ending December 31, 2006.
  **3.
        Liquidity: Going Concern**
 
 The
        accompanying financial statements have been prepared on a going concern basis,
        which contemplates the realization of assets and the satisfaction of liabilities
        in the normal course of business. We have incurred net losses of approximately
        $5.9 million and $161,000 for the six months ended June 30, 2006 and June
        30,
        2005, respectively. Our current liabilities exceeded our current assets by
        approximately $2.2 million as of June 30, 2006. Our net cash used in operating
        activities approximated $2.1 million for the six months ended June 30, 2006.
 
 At
        June
        30, 2006, total cash was approximately $406,000. In the first quarter of
        2006,
        we entered into a $6 million secured, revolving credit facility
        (the “Laurus Facility”) with Laurus Master Fund, Ltd., a Cayman
        Islands corporation (“Laurus”). The term of the Laurus Facility is three years
        and interest accrues on any unpaid principal plus interest at a rate per
        annum
        equal to the “prime rate” plus three percent (3%). The maximum principal amount
        of all borrowings under the Laurus Facility cannot exceed ninety percent
        of our
        eligible accounts receivable minus such reserves that Laurus may in good
        faith
        deem necessary and appropriate. As of June 30, 2006, the amount available
        to us
        to draw down under the Laurus facility was $1.2 million.
 
 We
        anticipate that our existing capital resources, including the $1.2 million
        that
        was available to us under the Laurus Facility, will not enable us to continue
        operations past September of 2006, or earlier if unforeseen events or
        circumstances arise that negatively affect our liquidity. These circumstances
        may adversely affect our ability to raise additional capital. If we fail
        to
        raise additional capital or obtain substantial cash inflows from product
        sales
        prior to September 2006, we will be forced to cease operations. If we raise
        additional capital through the sale of equity or convertible debt securities,
        the issuance of such securities would result in dilution to our existing
        stockholders. We are actively working with investment bankers concerning
        our
        financing options. We cannot assure you that financing will be available
        to
        us on favorable terms or at all.
 
 We
        anticipate that we will generate significant losses from operations for the
        foreseeable future. As of June 30, 2006, our accumulated deficit was $10.1
        million. Our net loss was $3.1 million for the three months ended June
        30, 2006 and $5.9 million for the six month period ending June 30, 2006.
        We have
        limited capital resources, and operations to date have been funded with the
        proceeds from product sales, accounts receivable based financings, public
        and
        private equity and debt financings and income earned on investments. These
        conditions raise substantial doubt about our ability to continue as a going
        concern. The audit report prepared by our independent registered public
        accounting firm relating to our consolidated financial statements for the
        year
        ended December 31, 2005 includes an explanatory paragraph expressing the
        substantial doubt about our ability to continue as a going concern.
 
 Our
        ability to continue as a going concern is dependent on additional sources
        of
        capital and the success of our operating plan. The financial statements do
        not
        include any adjustments that might be necessary if we are unable to continue
        as
        a going concern.
 
 To
        realize our growth strategy and business plans, we will likely seek additional
        borrowings under the Laurus Facility (Note 10) or through sales of additional
        shares of our capital stock to institutional investors, or a combination
        of
        both.
 
 **4.
        Summary of Significant Accounting Policies**
 
 **Use
        of estimates.** The
        preparation of financial statements in conformity with accounting principles
        generally accepted in the United States of America requires management to
        make
        estimates and assumptions that affect reported amounts of assets and liabilities
        as of the dates of the condensed consolidated balance sheets and reported
        amount
        of revenues and expenses for the periods presented. Accordingly, actual results
        could materially differ from those estimates.
  8
 
 **Principles
        of Consolidation.** The
        accompanying consolidated financial statements include the accounts of our
        company and its subsidiaries. All significant intercompany accounts and
        transactions have been eliminated.
 
 **Accounts
        Receivable.** Accounts
        receivables are reviewed quarterly to determine whether their carrying value
        has
        become impaired. We consider the assets to be impaired if the balances are
        more
        than one year old. We have established an allowance for doubtful accounts
        of
        $42,000 as of June 30, 2006. When accounts are written off, they are charged
        against the allowance. Generally, we do not assign past due status to
        receivables. Also, receivables generally are not collateralized and do not
        bear
        interest.
 
 **Concentration
        of Credit Risk.** Financial
        instruments, which potentially subject us to concentrations of credit risk,
        consist principally of accounts
        receivable. As of June 30, 2006, two customers represented approximately
        28% of
        accounts receivable. These two customers represented 11% and 11% and 12%
        and 13%
        of total revenues during the three and six months ending June 30, 2006 and
        2005,
        respectively.
 
 **Inventory.** Inventory
        is stated at lower of cost or market. Cost is principally determined by using
        the average cost method. Inventory consists of raw materials as well as finished
        goods held for sale. We monitor our inventory for excess and obsolete items
        and
        make necessary valuation adjustments when required.
 
 **Fixed
        Assets.** Fixed
        assets are stated at cost less accumulated depreciation. Depreciation is
        calculated principally on the straight-line method over the estimated useful
        lives of the assets, which are generally 3 to 10 years. The cost of repairs
        and
        maintenance is charged to expense as incurred. Expenditures for property
        betterments and renewals are capitalized.
 
 We
        periodically evaluate whether events and circumstances have occurred that
        may
        warrant revision of the estimated useful lives of fixed assets or whether
        the
        remaining balance of fixed assets should be evaluated for possible impairment.
        We use an estimate of the related undiscounted cash flows over the remaining
        life of the fixed assets in measuring their recoverability. No impairment
        was
        deemed to exist as of June 30, 2006.
 
 Fixed
        assets acquired through the E&M Acquisition were recorded at their estimated
        fair value at the time of acquisition. Depreciation is recorded using the
        straight-line method with useful lives of approximately 3 years.
 
 **Intangibles.** Intangible
        assets are recorded in accordance with Statement of Financial Accounting
        Standards (“SFAS”) No. 141, “Business Combinations.” Infinite lived assets
        consist of goodwill, which is subject to an impairment test at least annually.
        Finite lived assets consist of customer lists and contractual rights, which
        we
        amortize over a period of 3 and 2 years, respectively.
 
 **Net
        Loss per Common Share.** Net
        loss
        per common share excludes any dilutive effects of options, warrants and
        convertible securities. Net loss per share is computed using the
        weighted-average number of outstanding common shares and common stock equivalent
        shares during the applicable period. Common stock equivalent shares are excluded
        from the computation if their effect is antidilutive.
 
 **Income
        Taxes.** We
        account for income taxes in accordance with SFAS No. 109, “Accounting for Income
        Taxes,” which requires recognition of deferred tax assets and liabilities for
        future tax consequences attributable to differences between the financial
        statement carrying amounts of existing assets and liabilities and their
        respective tax bases and tax credit carry forwards. 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
        be
        recovered or settled. 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.
 
 **Comprehensive
        Loss.** SFAS
        No.
        130, “Reporting of Comprehensive Income,” establishes standards for reporting
        comprehensive income (loss) and its components in financial statements.
        Comprehensive loss, as defined, includes all changes in equity (net assets)
        during a period from non-owner sources. To date, we have not had any significant
        transactions that are required to be reported in other comprehensive
        loss.
 
 **Segment
        Information.** In
        accordance with SFAS No. 131, “Disclosures about Segments of an Enterprise and
        Related Information,” which uses the management approach to determine reportable
        segments. We operate under one segment.
 
 **Advertising
        Costs.** We
        recognize advertising expenses in accordance with Statement of Position 93-7
        “Reporting on Advertising Costs.” Accordingly, we expense the costs of producing
        advertisements at the time production occurs, and expense the costs of
        communicating advertisements in the period in which the advertising space
        or
        airtime is used.
  9
  **Stock-based
        Compensation.** Prior
        to
        January 1, 2006, we accounted for stock-based compensation under the recognition
        and measurement principles of SFAS No. 123, “Accounting for Stock-Based
        Compensation.” Effective January 1, 2006, we began recording compensation
        expense associated with stock options and other equity-based compensation
        in
        accordance with SFAS No. 123 (revised 2004), “Share-Based Payment”. We recognize
        these compensation costs on a straight-line basis over the requisite service
        period of the award. Total compensation cost recognized for fair value options
        issued was $91,000 and $0 for the six months ended June 30, 2006 and 2005,
        respectively. There was no compensation cost recognized for the fair value
        options for the three months ended June 30, 2006 and 2005,
        respectively.
 
 SFAS
        No.
        123R requires that cash flows resulting from tax deductions in excess of
        the
        cumulative compensation cost recognized for options exercised (excess tax
        benefits) be classified as cash inflows from financing activities and cash
        outflows from operating activities. Due to our net loss position, no tax
        benefits have been recognized in the cash flow statement.
 
 We
        also
        apply SFAS No. 123R and the consensus in Emerging Issues Task Force No. 96-18
        "Accounting for Equity Instruments That Are Issued to Other Than Employees
        for
        Acquiring, or in Conjunction with Selling, Goods or Services" for stock based
        compensation to non-employees.
 
 **Revenue
        Recognition.** We
        derive
        substantially all of our advertising revenue from fees for services.
        Additionally, commissions are earned based upon the placement of advertisements
        in various media. Revenue is realized when the service is performed in
        accordance with the terms of each client arrangement and upon completion
        of the
        earnings process. Revenue recognition policies are in compliance with the
        Securities and Exchange Commission’s Staff Accounting Bulletin (SAB) 101,
“Revenue and Recognition in Financial Statements”, as updated by SAB 104. In
        July 2000, the Emerging Issues Task Force (EITF) of the Financial Accounting
        Standards Board (FASB) released Issue 99-19 (EITF 99-19). This Issue summarized
        the EITF’s views on when revenue should be recorded at the gross amount billed
        because revenue has been earned from the sale of goods or services, or the
        net
        amount retained because revenue has been earned from a fee or commission.
        We
        typically act as an agent on behalf of our clients in their primary lines
        of
        business. Accordingly, most revenues are recorded based upon the net commissions
        earned. We record non-media and Internet services at a gross billing amount,
        due
        to the actual services we perform or provide. The net billing amounts included
        in operating revenues for the three months and six months ended June 30,
        2006
        and 2005 were approximately $494,000 and $0, and $277,000 and $0, respectively.
 
 Revenue
        from product sales is generally recognized when our products are shipped
        and/or
        the revenue is fully earned and ownership has passed to the customer. Revenue
        from management fees is recorded in the month the service is provided. Revenue
        from design and installation contracts is recognized using the
        completed-contract method. Due to the short term nature of the contracts,
        there
        were no significant contracts in process at June 30, 2006.
 
 **5.
        Acquisitions**
  InTransit
        Media
 
 On
        February 6, 2006, we purchased from Marlin Capital Partners II, LLC (doing
        business as InTransit Media) all of the assets used in its digital advertising
        services business, including the right to manage the PATHVISION digital signage
        system owned by the Port Authority of New York and New Jersey. In consideration
        for the assets, we paid $500,000 in cash and delivered 146,762 shares of
        our
        common stock valued at $572,372 for total consideration of $1,072,372. The
        purchased assets consisted of the assets used in InTransit Media’s digital
        advertising services business, including its exclusive right to provide digital
        advertising services to the Port Authority of New York and New Jersey for
        the
        Port Authority's PATHVISION broadcasting system, and the equipment, computer
        servers and software used in the delivery of such services.
 
 We
        consolidated the operations of InTransit as of the date of acquisition. The
        unaudited pro forma financial information presented herein reflects the
        estimated pro forma effect of the InTransit transaction as if it occurred
        on
        January 1, 2006 and 2005, respectively.
  10
 
 The
        unaudited pro forma condensed financial statements include specific assumptions
        and adjustments related to the purchase of the assets. These pro forma
        adjustments have been made to illustrate the anticipated financial effect
        of the
        purchase of the assets. The adjustments are based upon available information
        and
        assumptions that we believe are reasonable as of the date of this filing.
        However, actual adjustments may differ materially from the information
        presented. Assumptions underlying the pro forma adjustments are described
        in the
        accompanying notes, which should be read in conjunction with the unaudited
        pro
        forma condensed financial statements.
 
 The
        unaudited pro forma financial statements are presented for informational
        purposes only and do not purport to be indicative of the financial position
        which would actually have been obtained if the transaction had occurred in
        the
        periods indicated below or which may exist or be obtained in the future.
        The
        information is not representative of future results of operations or financial
        position. The unaudited condensed pro forma financial information is qualified
        in its entirety and should be read in conjunction with the more detailed
        information and financial data appearing in our historical financial statements
        and notes thereto included herein. In the opinion of management, all material
        adjustments necessary to reflect the acquisition of the assets by us have
        been
        made.
 
 Proforma
        Statement of Operations (Unaudited)
 
 For
                  the Six Months Ended June 30, 2006Actual
              
              Adjustments
                  *
              
              ProformaRevenues
              
              $
              2,649,081
              
              $
              9,000
              
              $
              2,658,081Operating
                  loss
              
              
              (5,291,884
              )
              
              (58,620
              )
              
              (5,350,504
              )Net
                  loss
              
              
              (5,900,738
              )
              
              (58,620
              )
              
              (5,959,358
              )Beneficial
                  Conversion Feature of Series A Preferred
              
              
              (933,873
              )
              
              -
              
              
              (933,873
              )Accretion
                  of Dividends on Series A Preferred Stock
              
              
              (104,125
              )
              
              -
              
              
              (104,125
              )Net
                  loss - Common Stockholders
              
              
              (6,938,736
              )
              
              (58,620
              )
              
              (6,997,356
              )Loss
                  per share - basic and diluted
              
              $
              (0.35
              )
              
              
              
              $
              (0.35
              )
 
 *
        The
        proforma adjustment to the historical financial statements reflects an increase
        in revenue of $9,000 and operating expenses of $20,000 from January 1, 2006
        through February 5, 2006, as well as an increase in amortization expense
        of
        $47,620 related to the acquisition.
 
 Proforma
        Statement of Operations (Unaudited)
 
 For
                  the Six Months Ended June 30, 2005Actual
              
              Adjustments
                  *
              
              ProformaRevenues
              
              $
              1,907,328
              
              $
              27,000
              
              $
              1,934,328Operating
                  loss
              
              
              (163,450
              )
              
              (301,092
              )
              
              (464,542
              )Net
                  loss
              
              
              (160,792
              )
              
              (301,092
              )
              
              (461,884
              )Loss
                  per share - basic and diluted
              
              $
              (0.03
              )
              
              
              
              $
              (0.08
              )
 
 *
        The
        proforma adjustment to the historical financial statements reflects an increase
        in revenue of $27,000 and operating expenses of $60,000 as well as amortization
        expense of $268,092 related to the acquisition.
  E&M
        Advertising
 
 On
        February 28, 2006, we purchased substantially all of the assets E&M
        Advertising, Inc., E&M West/Camelot, Inc. and NextReflex, Inc. (collectively
“E&M”), through a newly formed subsidiary, Impart Media Advertising, Inc.
        E&M was engaged in the placement and marketing of direct response media. In
        consideration for the purchase of the assets, we agreed (i) to pay an aggregate
        of $800,000, of which $200,000 was paid on the closing date, $400,000 was
        paid
        in March 2006 and the remaining $200,000 is required to be paid on the first
        anniversary of the closing date and (ii) to issue an aggregate of 1.6 million
        restricted shares of our common stock.
  11
 
 In
        April
        2006, we issued 1.47 million of the 1.6 million shares of our common stock
        to be
        issued in connection with the acquisition of E&M. The fair value of the
        remaining shares to be issued as determined based on the measurement date
        is
        approximately $462,000. The fair value of these shares has been recorded
        as
“Stock Issuance Payable” as of June 30, 2006.
 
 We
        consolidated the operations of E&M as of the date of acquisition. The
        unaudited pro forma financial information presented reflects the estimated
        pro
        forma effect of the E&M transaction as if it occurred on January 1,
        2006 and 2005, respectively.
 
 The
        unaudited pro forma condensed financial statements include specific assumptions
        and adjustments related to the purchase of the assets. These pro forma
        adjustments have been made to illustrate the anticipated financial effect
        of the
        purchase of the assets. The adjustments are based upon available information
        and
        assumptions that our company believes are reasonable as of the date of this
        filing. However, actual adjustments may differ materially from the information
        presented. Assumptions underlying the pro forma adjustments are described
        in the
        accompanying notes, which should be read in conjunction with the unaudited
        pro
        forma condensed financial statements.
 
 The
        unaudited pro forma financial statements are presented for informational
        purposes only and do not purport to be indicative of the financial position
        which would actually have been obtained if the transaction had occurred in
        the
        periods indicated below or which may exist or be obtained in the future.
        The
        information is not representative of future results of operations or financial
        position. The unaudited condensed pro forma financial information is qualified
        in its entirety and should be read in conjunction with the more detailed
        information and financial data appearing in our company's historical financial
        statements and notes thereto included herein. In the opinion of management,
        all
        material adjustments necessary to reflect the acquisition of the assets by
        us
        have been made.
 
 Pro
        forma Statement of Operations (Unaudited)
 
 For
                  the Six Months Ended June 30, 2006Actual
              
              Adjustments
                  *
              
              ProformaRevenues
              
              $
              2,649,081
              
              $
              689,247
              
              $
              3,338,328Operating
                  loss
              
              
              (5,291,884
              )
              
              (49,708
              )
              
              (5,341,592
              )Net
                  loss
              
              
              (5,900,738
              )
              
              (378,622
              )
              
              (6,279,360
              )Beneficial
                  Conversion Feature of Series A Preferred
              
              
              (933,873
              )
              
              
              
              
              (933,873
              )Accretion
                  of Dividends on Series A Preferred Stock
              
              
              (104,125
              )
              
              
              
              
              (104,125
              )Net
                  loss - Common Stockholders
              
              
              (6,938,736
              )
              
              (378,622
              )
              
              (7,317,358
              )Loss
                  per share - basic and diluted
              
              $
              (0.35
              )
              
              
              
              $
              (0.37
              )
 
 *The
        proforma adjustment to historical financial statements reflects the recognition
        of amortization of approximately $329,000 from January 1 through February
        28,
        2006, related to the acquisition and total operating expenses of $410,000
        of the
        same period. The revenue adjustment reflects earned revenue by E&M of
        $689,000 from January 1 through February 28, 2006.
 
 Proforma
        Statement of Operations (Unaudited)
 
 For
                  the Six Months Ended June 30, 2005Actual
              
              Adjustments
                  *
              
              ProformaRevenues
              
              $
              1,907,328
              
              $
              2,286,129
              
              $
              4,193,457Operating
                  income ( loss)
              
              
              (163,450
              )
              
              161,369
              
              
              (2,081
              )Net
                  income (loss)
              
              
              (160,792
              )
              
              142,745
              
              
              (18,047
              )Loss
                  per share - basic and diluted
              
              $
              (0.03
              )
              
              
              
              $
              0.00
 
 *
        The
        proforma adjustment to the historical financial statements reflects an increase
        in revenue of $2,286,129 and operating expenses of $1,631,388 as well as
        amortization expense of $493,372 related to the acquisition.
  12
  **6.
        Inventory.**
  Inventory
        totaling $477,000 consisted of finished goods as of June 30, 2006.
 
 **7.
        Fixed Assets**
 
 Fixed
        assets consisted of the following as of June 30, 2006:
 
 Computer
                  and other equipment
              
              $
              837,123Furniture
                  and fixtures
              
              
              137,174Software
              
              
              977,199Leasehold
                  equipment
              
              
              3,853Less:
                  accumulated depreciation
              
              
              (517,710
              )Fixed
                  assets, net
              
              $
              1,437,639
 
 **8.
        Intangibles**
 
 Intangibles
        consisted of the following as of June 30, 2006:
  Infinited-lived:Goodwill
                
                $
                1,420,459Finite-lived:Customer
                    List
                
                
                4,500,000Contractual
                    Rights
                
                
                1,072,372Less:
                    accumulated amortization
                
                
                (871,665
                )Intangibles,
                    net
                
                $
                6,121,166
 
 **9.
        Due to/from Related Parties**
 
 Due
        to
        Related Parties totaling $191,000 as of June 30, 2006, consisted of the
        following:
 Related
                    party agreement in which stockholder will receive a revenue share
                    of
                    $18,000 per year and an additional 5% of net ad revenues as it
                    pertains to
                    a specific airport project for a period of 3 years******
                
                $
                150,000Unreimbursed
                    expenses to various stockholders, unsecured, bearing interest
                
                
                19,965Accrued
                    interest on related party loans
                
                
                20,801Total
                    due to related parties
                
                $
                190,766Due
                    from related parties totaling $256,000 as of June 30, 2006, included
                    in
                    other assets consisted of the following:Related
                    party receivable assumed as part of E&M Acquisition
                
                $
                256,423
  **10.
        Line of Credit**
 
 On
        January 27, 2006, we entered into a Security Agreement with Laurus Master
        Fund,
        Ltd., a Cayman Islands corporation (“Laurus”), pursuant to which Laurus agreed
        to provide us with a revolving credit facility of up to $6 million (“Laurus
        Facility”). The term of the Laurus Facility is three (3) years and borrowings
        under the Laurus Facility accrue interest on the unpaid principal and interest
        at a rate per annum equal to the “prime rate” published in *The
        Wall Street Journal* from
        time
        to time, plus three percent (3%). Interest on borrowings under the
        Laurus Facility is payable monthly on the first day of each month,
        commencing on February 1, 2006. All outstanding principal amounts must be
        paid
        on January 27, 2009. The maximum principal amount of all borrowings under
        the
        Laurus Facility cannot exceed ninety percent (90%) of our eligible accounts
        receivable minus such reserves that Laurus may in good faith deem necessary
        and
        appropriate.
  13
 
 On
        January 27, 2006, we obtained an initial draw under the Laurus Facility of
        $2 million, of which approximately $782,000 was used to satisfy bank loans
        in
        full. The draws under the Laurus Facility are used for general corporate
        and
        working capital purposes. As of June 30, 2006, the balance due to Laurus
        was
        approximately $657,000.
 
 In
        connection with the Laurus Facility, we paid Laurus approximately $246,000,
        comprised of a management fee of $216,000 and reimbursement of $30,000 in
        due diligence and documentation expenses. The management fee is being
        amortized to interest expense over the three-year term of the Laurus Facility.
        We also paid a cash fee of $180,000 and issued warrants to purchase 231,000
        shares of common stock to GunnAllen Financial, Inc. for investment banking
        services. The warrants were recorded at fair value totaling $442,000 using
        the
        Black-Scholes option-pricing model. These fees were recorded as deferred
        debt
        issue costs to be amortized to interest expense over the three-year term
        of the
        Laurus Facility.
  ***Warrant*** .
        We
        issued to Laurus a common stock purchase warrant, entitling Laurus to purchase
        up to 750,000 shares of our common stock, par value $.001 per share, at an
        exercise price of $.01 per share, subject to certain adjustments. We determined
        the fair value of the warrant to be $1.6 million as determined by using the
        Black-Scholes option-pricing model. This warrant was issued to obtain the
        Laurus
        Facility. As such, we recorded the full value of the warrant as deferred
        debt
        issue costs upon entering the facility agreement with Laurus. Debt issue
        costs
        are amortized to interest expense over the three-year term of the Laurus
        Facility.
 
 The
        Laurus warrant expires on January 27, 2013. In connection with the Security
        Agreement entered into in conjunction with the Facility, Laurus is restricted
        from selling any shares of common stock it receives through the exercise
        of the
        warrant prior to January 27, 2007. Additionally, Laurus agreed to certain
        restrictions to selling shares acquired through the exercise of the warrant,
        except under certain circumstances, including the continuance of an event
        of
        default under the Security Agreement.
  ***Security
        Agreement.*** The
        Facility is secured by a blanket lien on substantially all of our assets
        and
        those of our subsidiaries pursuant to the terms of a Security Agreement.
        In
        addition, we pledged the ownership interests in our subsidiaries pursuant
        to a
        stock pledge agreement executed in favor of Laurus. If an event of default
        occurs under any of the Security Agreement, the Warrant, the Stock Pledge
        Agreement, the Registration Rights Agreement or the Note (collectively, the
        “Transaction Documents”), Laurus has the right to accelerate payments under the
        Note and, in addition to any other remedies available to it, to foreclose
        upon
        the assets securing the Note. If an event of default occurs under any of
        the
        Transaction Documents, one hundred twenty-five percent (125%) of the unpaid
        principal balance, plus accrued interest and fees, will become immediately
        due
        and payable. Laurus will also be entitled to payment of a default interest
        rate
        of two percent (2%) per month on all amounts due and such other remedies
        specified in the Transaction Documents and under the Uniform Commercial Code.
 
 The
        Security Agreement contains certain negative covenants that require us to
        obtain
        the prior written consent or other actions of Laurus in order for us to take
        certain actions at any time when borrowings remain outstanding under the
        Facility.
 
 ***Registration
        Rights Agreement*** **.** Pursuant
        to the terms of a Registration Rights Agreement between Laurus and the Company
        (the “Registration Rights Agreement”), we are obligated to file a registration
        statement on Form SB-2 or S-3 to register the resale of the shares of Common
        Stock issuable (i) upon exercise of the Warrant and (ii) as a result of
        adjustments made to the Exercise Price pursuant to the Warrant. We were
        initially required to file the registration statement required to be filed
        in
        connection with the exercise of the Warrant (the “Original Registration
        Statement) on or prior to April 15, 2006. During the second quarter of 2006,
        we
        obtained a waiver from Laurus with respect to this requirement. Accordingly,
        the
        initial filing date of the Original Registration Statement was postponed
        to on
        or prior to July 31, 2006. We filed the Original Registration Statement with
        the
        SEC on July 31, 2006. We are also required to use our best efforts to have
        the
        Original Registration Statement declared effective by the SEC as promptly
        as
        possible after filing, on or prior to November 13, 2006. In the event of
        adjustments made to the Exercise Price pursuant to the Warrant, we are required
        to file a registration statement (the “Additional Registration Statement”)
        within thirty (30) days of (i) such event resulting in the adjustment of
        the
        Exercise Price or (ii) the actual date of the adjustment of the Exercise
        Price.
  14
 
 **11.
        Stock Option Plans and Warrants**
 
 In
        2005,
        our Board of Directors adopted an incentive stock plan for our employees
        ( “2005
        Stock Option Plan”). Options granted under the 2005 Stock Option Plan are as
        follows:
  Shares
                  Available for Grant
              
              Options
                  Outstanding
              
              Weighted
                  Average Exercise PriceBalance,
                  December 31, 2005
              
              
              1,295,000
              
              
              705,000
              
              $
              0.73Grants
              
              
              -
              
              
              -
              
              
              -Balance,
                  June 30, 2006
              
              
              1,295,000
              
              
              705,000
              
              $
              0.73Options
                  exercisable as ofJune
                  30, 2006
              
              
              
              
              
              309,998
              
              $
              0.73
 
 Options
        outstanding are summarized as follows:
 
 Range
                  of Exercise Prices
              
              Stock
                  Options Outstanding
              
              Stock
                  Options Exercisable
              
              Weighted
                  Average Exercise Price
              
              Weighted
                  Average Remaining Contractual Life$0.70
                  - $0.77
              
              705,000
              
              309,998
              
              $0.73
              
              4.99
 
 The
        weighted-average fair value for options granted during 2005 was $0.82 and
        was
        estimated using the Black-Scholes option valuation model with the following
        weighted-average assumptions:
 
 Expected
                  life in years
              
              2.50Volatility
              
              256.18%Interest
                  rate
              
              4.35%Yield
                  rate
              
              0%
 
 In
        addition, we granted warrants to non-employees as follows:
 Warrants
                  Outstanding
              
              Weighted
                  Average Exercise PriceBalance,
                  December 31, 2005
              
              
              447,566
              
              $
              0.95Granted
              
              
              4,647,877
              
              
              1.33Exercised
              
              
              (100,000
              )
              
              .20Forfeited
              
              
              -
              
              
              -Expired
              
              
              -
              
              
              -Balance,
                  June 30, 2006
              
              
              4,995,443
              
              $
              1.29Warrants
                  exercisable as of June 30, 2006
              
              
              4,995,443
              
              $
              1.29
 
 The
        weighted-average fair value for warrants granted during 2006 was $2.66 and
        was
        estimated using the Black-Scholes option valuation model with the following
        weighted-average assumptions:
 
 Expected
                  life in years
              
              3.0Volatility
              
              139%Interest
                  rate
              
              4.41%-4.75%Yield
                  rate
              
              0%
  15
  **12.
        Separation Agreements**
 
 During
        March 2006, David V. Lott resigned from his position as our Chief Executive
        Officer and from our board of directors. In accordance with his separation
        agreement dated March 15, 2006, Mr. Lott will receive a base salary of $120,000
        for a period of one year following his resignation date and the remaining
        balance is included in accrued expenses.
 
 **13.
        Series A Convertible Preferred Stock**
 
 During
        March 2006, we sold 2,903,229 shares of Series A Convertible Preferred
        Stock (“Series A Shares”) at $1.55 per share for total gross proceeds of $4.5
        million. We paid $562,000 in issuance costs, and realized net proceeds of
        $3.9
        million. In addition, the purchasers of the Series A Shares received
        warrants to purchase an aggregate of 2,903,229 shares of common stock with
        an
        exercise price of $2.25 per share and a three-year term.
 
 Each
        Series A Share is convertible into one share of common stock, subject to
        adjustment for certain dilutive events. Series A Shares are convertible by
        the holder at any time. The Series A Shares will automatically convert into
        shares of common stock, at a conversion price of $1.55 (subject to certain
        adjustments), on the third anniversary of the issuance date or upon the date
        of
        a consummation of a bona fide firm underwritten public offering of our
        securities of at least $20 million in which the price per share is at least
        $4.00 (subject to certain restrictions). The Series A Shares provide that
        the
        consent or affirmative vote of the holders of at least seventy-five percent
        (75%) of the Series A Shares is necessary to: (a) authorize, create, issue
        or
        increase the authorized or issued amount of any class or series of stock
        (with
        limited exceptions); (b) amend, alter or repeal the provisions of the Series
        A
        Shares to adversely affect the rights, preferences and voting powers of such
        Series A Shares, (c) repurchase, redeem or pay dividends on any shares of
        common
        stock; (d) amend our Articles of Incorporation or By-Laws; (e) effect any
        distribution with respect to any junior stock; (f) reclassify the our
        outstanding securities, and (g) voluntarily file for bankruptcy, liquidate
        our
        assets or change the nature of the business.
 
 The
        Series A Shares provide that dividends will accrue at an annual rate of seven
        percent (7%) of the gross issuance price of the stock ($4.5 million), payable
        semi-annually on January 1 and July 1 of each year. Dividends on the Series
        A
        Shares will be paid in either cash or shares of common stock at our discretion,
        provided that we have an effective registration statement providing for the
        resale of the shares of our common stock. If a registration is not currently
        effective, we must pay dividends in cash. Through June 30, 2006, we have
        accrued
        approximately $104,000 in dividends payable.
 
 Additionally,
        the terms of our Series A Shares also require us to pay a one-time special
        dividend, payable in additional Series A Shares to the holders thereof, if
        our
        aggregate gross revenues for the four consecutive calendar quarters commencing
        on April 1, 2006 do not equal or exceed $50 million. The number of additional
        shares issuable to each holder shall be equal to the product of (i) the number
        of Series A Shares held by such holder at such time multiplied by (ii)
        38.39%.
 
 In
        the
        event of our liquidation, dissolution or winding up, the holders of
        Series A Shares are generally entitled to receive a liquidation preference
        over the holders of common stock equal to $1.55 per Series A Share held and
        any declared but unpaid dividends.
 
 The
        Series A Shares are subject to a mandatory redemption feature at a price
        equal
        to $1.55 per share, plus any accrued and unpaid dividends and certain other
        adjustments in the event of a closing of a purchase, tender or exchange offer
        made to one person or a group in which more than fifty percent of the
        outstanding shares of common stock are tendered and accepted. In the event
        of
        the our suspension from listing, our inability to comply or intention not
        to
        comply with a request for conversion, deregistration of the our shares of
        common
        stock, the consummation of a ‘going private’ transaction or breach of the
        representation, warranty, covenant or other term or condition of agreements
        pursuant to the sale of the Series A Shares, the shares become mandatorily
        redeemable at a price equal to 120% of $1.55 per share, plus any accrued
        and
        unpaid dividends and certain other adjustments.
  Of
        the
        $4.5 million in gross proceeds from the stock sale, we allocated
        $2.8 million to the Series A Shares and $1.7 million to the
        warrants, based on their relative fair values on the date of issuance, pursuant
        to Accounting Principles Board Opinion No. 14 “Accounting for Convertible
        Debt and Debt Issued with Stock Purchase Warrants.” The fair value used to
        allocate total proceeds to the Series A Shares was based upon a valuation
        that considered, among other things, the closing price of the common stock
        on
        the date of closing, the impact of the preferred stock on market capitalization
        on an as converted basis, dividend rights, liquidation preferences and
        redemption rights. The fair value used to allocate the proceeds to the warrants
        to purchase common stock was based on a Black-Scholes valuation model and
        the
        following assumptions: exercise price $2.25; no dividends; term of 3 years;
        risk
        free interest rate of 4.75%; and volatility of 136.5%.
  16
 
 In
        accordance with the provisions of EITF 98-5 “Accounting for Convertible
        Securities with Beneficial Conversion Features or Contingently Adjustable
        Conversion Ratios” and EITF 00-27 “Application of Issue No. 98-5 to Certain
        Convertible Instruments,” we separately valued the in-the-money conversion
        feature embedded in the Series A and allocated $933,873 to this embedded
        beneficial conversion feature. As described in EITF 00-27, EITF 98-5 and
        . As
        described in EITF 00-27, EITF 98-5 and Accounting Series Release No. 268
        “Presentation in Financial Statements of Redeemable Preferred Stocks ” ,
        the
        beneficial conversion feature is amortized as a deemed dividend with a
        corresponding increase in the carrying value of the Series A Convertible
        Preferred Stock on the date of issuance as there is no stated redemption
        date
        and the shares are immediately convertible upon issuance. In light of our
        retained deficit, the deemed dividend remains in additional paid in capital.
        The
        beneficial conversion cost of $934,000 and the accreted dividends of $104,000
        are added to net loss to determine the net loss available to common
        stockholders. Accreted dividends of $81,000 are added to net loss for the
        three
        months ended June 30, 2006 to determine the net loss available to common
        stockholders.
 
 The
        following table sets forth the calculation used in determining the amount
        of the
        beneficial conversion feature (in thousands, except per share amounts):
 
 Gross
                  proceeds allocated to the Series A Convertible Preferred Stock based
                  on relative fair value (prior to the allocation of issuance
                  costs)
              
              $
              2,836Shares
                  of common stock into which the Series A Convertible Preferred Stock
                  is convertible
              
              
              2,903Effective
                  conversion price per common share
              
              
              0.98Closing
                  price of common stock on transaction dates
              
              
              3.42Intrinsic
                  spread representing the value of beneficial conversion feature
                  per
                  share
              
              
              2.44Shares
                  of common stock into which the Series A Convertible Preferred Stock
                  is convertible
              
              
              2,903Aggregate
                  value of the beneficial conversion feature, limited to proceeds
                  allocated
                  to preferred stock net of issuance costs
              
              $
              934
  **14.
        Common Stock Transactions**
 
 In
        April
        2006, we issued 1.47 million of the 1.6 million shares of our common stock
        in
        connection with the acquisition of E&M Advertising, Inc., E&M
        West/Camelot, Inc. and NextReflex, Inc. The fair value of the all shares
        to be
        issued as determined based on the measurement date is approximately $5.3
        million. The fair value of these shares was recorded as “Stock Issuance Payable”
as of June 30, 2006. In connection with the issuance of these shares the
“Stock
        Issuance Payable” balance has been decreased to $462,000.
 
 In
        April
        2006, we issued to five purchasers in a private placement, an aggregate of
        200,000 shares of our common stock at a purchase price of $1.12 per share
        pursuant to a common stock purchase agreement, together with warrants to
        purchase an aggregate of 100,000 shares of our common stock at an exercise
        price
        of $1.50 per share. The fair value of these shares was recorded as “Stock
        Issuance Payable” as of March 31, 2006. In connection with the issuance of these
        shares the “Stock Issuance Payable” balance has been decreased.
 
 In
        April
        2006, we issued 6,000 shares of our common stock to one of our board members
        for
        consulting services previously rendered. The fair market value of those shares
        is $15,000.
 
 In
        April
        2006, we issued and sold in a private placement, an aggregate of 50,000 shares
        of our common stock at $2 per share pursuant to a common stock purchase
        agreement. We received net proceeds of $100,000.
 
 In
        April
        2006, a warrant holder exercised warrants for a total of 132,500 shares of
        our
        common stock, with net proceeds to us of $28,000.
  17
 
 On
        June
        2, 2006, we received a waiver from Laurus with respect to our default of
        certain
        covenants relating to the registration of shares underlying warrants held
        by
        Laurus. In consideration of the waiver, we issued to Laurus 30,000 shares
        of our
        common stock. We filed the registration statement on July 31, 2006.
 
 **15.
        Capital Lease Obligations**
 
 We
        are
        obligated to make payments under two capital leases for equipment with a
        total
        cost of $122,000. The capital lease obligations require a minimum lease payment
        of $4,800 per month with an interest rate of approximately 31%. Future
        minimum lease payments are as follows:
 
 July
                  1, 2006 through December 31, 2006
              
              $
              25,1152007
              
              
              50,2312008
              
              
              36,5132009
              
              
              1,799113,658Less:
                  current portion
              
              
              21,330Capital
                  lease obligations - long-term portion
              
              $
              92,328
  **16.
        Commitments and Contingencies**
 
 **Leased
        Facilities** We
        utilize leased facilities under a noncancellable-operating lease. The lease
        calls for a base monthly rent of $15,000 through November 30, 2018. Total
        rent
        expense for this operating lease was $45,000 for both the three months ended
        June 30, 2006 and 2005, and $90,000 for both the six months ended June 30,
        2006
        and June 30, 2005. Certain of our officers, directors and stockholders are
        owners of the company that owns the facility.
 
 Impart
        Media Advertising, Inc. leases its office facilities under an operating lease,
        which was extended June 2011. Total rental expense under the facilities lease
        was approximately $36,000 and $0, and $90,000 and $0 for the three and six
        months ended June 30, 2006 and June 30, 2005, respectively. We also have
        various
        non-cancelable operating leases for automobiles and equipment that expire
        at
        various dates through 2008.
 
 Future
        minimum rental payments for the leased facilities as of June 30, 2006, are
        as
        follows:
 
 July
                  1, 2006 through December 31, 2006
              
              $
              202,0002007
              
              
              406,2402008
              
              
              410,7652009
              
              
              415,3802010
              
              
              420,090Thereafter
              
              
              1,245,000$
              3,099,475
 
 **17.
        Legal Proceedings**
  On
        April
        21, 2006, an action was filed against our company in Division No. 1 of the
        Warren Circuit Court of the Commonwealth of Kentucky titled  William
        H. Funk, II and All American Investors Group, Inc. v. Limelight Media Group,
        Inc., David Lott, Impart Mobile Media division/OTR Media, Inc. and Stewart
        Layton,  case
        number 06-CI-854. Such complaint alleges that our company unfairly competed
        with
        OTR Media, Inc. by utilizing its trade secrets and other confidential
        information in our mobile media business, thus depriving the stockholders
        of OTR
        Media, Inc. of the full value of their shares and pecuniary interest in OTR
        Media, Inc. The plaintiffs in such action are seeking an injunction against
        our
        company to enjoin the alleged use and appropriation of such trade secrets,
        as
        well as monetary damages of a yet unspecified amount. On May 18, 2006, the
        action was removed to federal court in the Western District of Kentucky,
        C.V.
        No.: 1:06-CV-72-M. On June 6, 2006, we filed a motion to dismiss the complaint
        on the basis of plaintiffs’ lack of standing to bring a direct claim against us,
        plaintiffs’ failure to state a claim upon which relief may be granted and lack
        of personal jurisdiction over us and the other defendants, among other bases.
        As
        of August 15, 2006, we await a final ruling on the matter.
  18
 
 **18.
        Subsequent Events**
 
 In
        July
        2006, we issued an aggregate of 500,000 shares for two separate consulting
        agreements. In addition, we agreed to issue warrants to purchase up to 100,000
        shares of common stock at an exercise price of $1.25 per share. These warrants
        will vest based on such consultants meeting certain predetermined milestones.
 
 As
        further described in Note 11, Series A Convertible Preferred Stock, the
        conversion price of $1.55 is subject to certain adjustments in the event
        we
        issue additional equity instruments at a price below this initial conversion
        price. In July 2006, we agreed to issue warrants to purchase common stock
        at an
        exercise price of $1.25 to a third party. Under the terms of the Series A
        Convertible Preferred Stock, this grant requires an adjustment to the conversion
        price of the Series A Convertible Preferred Stock. Further, the resulting
        change
        in the conversion price triggers a remeasurement of the beneficial conversion
        feature recognized during the first quarter of 2006. Accordingly, we will
        be required to record the effect of this remeasurement in the third quarter
        of
        2006.
  During
        second quarter of 2006, we entered into a letter agreement with Crystal Research
        Associates, LLC ("Crystal") to provide certain market analyses to us. Under
        the
        terms of the agreement, we have committed to pay Crystal $35,000 and have
        committed to issue three-year warrants to purchase 200,000 shares of common
        stock at an exercise price of $2.60. Management expects to issue the warrants
        and expects the contracted services to commence during third quarter of
        2006.
  **19.
        New Accounting Pronouncements**
 
 In
        July
        2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
        (FIN) No. 48, “Accounting for Uncertainty in Income Taxes-an interpretation of
        FASB Statement No. 109.” This Interpretation provides guidance for recognizing
        and measuring uncertain tax positions, as defined in Statement of Financial
        Accounting Standards (SFAS) No. 109, “Accounting for Income Taxes.” FIN No. 48
        prescribes a threshold condition that a tax position must meet for any of
        the
        benefit of an uncertain tax position to be recognized in the financial
        statements. Guidance is also provided regarding derecognition, classification
        and disclosure of uncertain tax positions. FIN No. 48 is effective for fiscal
        years beginning after December 15, 2006. We do not expect that this
        Interpretation will have a material impact on our financial position, results
        of
        operations or cash flows.
  19
  **ITEM
                2.**
              **MANAGEMENT’S
                  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**
 
 Certain
        statements made in this Management’s Discussion and Analysis of Financial
        Condition and Results of Operations, as well as statements made from time
        to
        time by our representatives, may constitute “forward-looking statements” within
        the meaning of the Private Securities Litigation Reform Act of 1995. These
        forward-looking statements include, without limitation, statements regarding
        planned or expected contracts that we may enter into with regard to our
        proprietary hardware, *IQ
        Box,* our
        media content, *IQ
        Streams,* our
        advertising offering, *IQ
        Ads;* advertising contracts originated by our wholly-owned subsidiary, Impart Media
        Advertising, Inc.; the potential market size for our products; advantages
        of our
        products; variation in actual savings and operating improvements resulting
        from
        restructurings; and the sufficiency of our available capital resources to
        meet
        our funding needs. We do not undertake any obligation to publicly update
        any
        forward-looking statement, whether as a result of new information, future
        events, or otherwise, except as required by law. Such forward-looking statements
        involve known and unknown risks, uncertainties and other factors which may
        cause
        our actual results or achievements to be materially different from any future
        results or achievements expressed or implied by such forward-looking statements.
        Such factors include the factors described in our Annual Report on Form 10-KSB
        for the year ending December 31, 2005 under the caption “Management’s Discussion
        and Analysis of Financial Condition and Results of Operations—Risk Factors” and
        the other factors discussed in connection with any forward-looking statements.
 
 **General**
  Impart
        Media Group, Inc. (formerly known as Limelight Media Group, Inc. and hereinafter
        referred to as "we”, “us” or “our company") sells dynamic digital media
        solutions consisting of monitors, media servers, and associated technological
        hardware and software. We provide design, integration, fabrication, assembly,
        QA
        (quality assurance), creative production, and installation services throughout
        the United States. As a result of our acquisition of E&M Advertising, Inc.
        and its affiliates in February 2006, we now provide advertising capability
        to
        the digital elements and other media services we deploy for our
        customers.
 
 We
        have
        developed and offer for sale a digital media network that is based on a unique
        architecture called *Impart
        IQ* ,
        a
        web-based service that we believe no other company in the sector provides.
        Our
        products are targeted to businesses desiring digital signage and interactive
        media systems in one or more locations. This centrally managed network has
        the
        capability to deliver relevant information to any location where a message
        benefits from real time delivery to one or numerous displays. The network
        may be
        managed by our customer or us.
 
 We
        are
        currently developing products and networks for multiple markets, thereby
        providing the potential to realize revenue from multiple sources. For example,
        airports, mass transit facilities, malls, financial institutions, retail
        stores
        and government agencies can be location partners for directory services and
        the
        distribution of advertisements, marketing messages and infotainment content.
        Revenues are derived from network monitoring, hosting, equipment sales,
        maintenance & installation fees, content management, creative development
        fees, advertising sales and sponsorships. Advertising revenue may be used
        to
        offset the costs of deployment for location partners or the partners may
        receive
        a portion of the advertising revenue on a negotiated basis.
 
 *Recent
        Developments*
 
 On
        July
        31, 2006, we filed with the SEC a registration statement on Form SB-2 (the
        “Registration Statement”). The securities covered by the Registration Statement
        are shares of common stock being registered for resale by certain selling
        stockholders upon exercise of outstanding 7-year warrants, 3-year warrants
        and
        5-year warrants and an indeterminate number of shares that may be issued
        and
        resold to prevent dilution resulting from stock splits, stock dividends or
        similar transactions. Additionally, under the Registration Statement, shares
        of
        common stock are being registered for resale by certain selling stockholders
        named in the prospectus upon the conversion of outstanding shares of Series
        A
        convertible preferred stock as well as an indeterminate number of shares
        that
        may be issued and resold to prevent dilution resulting from stock splits,
        stock
        dividends or similar transactions. Finally, shares of common stock issued
        to
        certain selling stockholders are being registered pursuant to terms of
        applicable registration rights agreements covering such shares. The Registration
        Statement has not yet been declared effective by the SEC.
  20
  **Critical
        Accounting Estimates and New Accounting Pronouncements**
 
 Critical
        Accounting Estimates
 
 The
        preparation of financial statements in accordance with accounting principles
        generally accepted in the United States requires management to make estimates
        and assumptions that affect reported amounts and related disclosures in the
        financial statements. Management considers an accounting estimate to be critical
        if:
 
 •
              It
                  requires assumptions to be made that were uncertain at the time
                  the
                  estimate was made, and
 •
              Changes
                  in the estimate or different estimates that could have been selected
                  could
                  have a material impact on our consolidated results of operations
                  or
                  financial condition.
 
 *Share-Based
        Payments* **** -
        On
        January 1, 2006, we adopted SFAS 123(R), “Share-Based Payment”, which
        establishes standards for share-based transactions in which an entity receives
        employee’s services for (a) equity instruments of the entity, such as stock
        options, or (b) liabilities that are based on the fair value of the entity’s
        equity instruments or that may be settled by the issuance of such equity
        instruments. SFAS 123(R) supersedes the option of accounting for share-based
        compensation transactions using APB Opinion No. 25, “Accounting for Stock Issued
        to Employees”, and requires that companies expense the fair value of stock
        options and similar awards, as measured on the awards’ grant date. SFAS 123(R)
        applies to all awards granted after the date of adoption, and to awards
        modified, repurchased or cancelled after that date. We have elected to apply
        SFAS 123(R) using a modified version of prospective application, under which
        compensation cost is recognized only for the portion of awards outstanding
        for
        which the requisite service has not been rendered as of the adoption date,
        based
        on the grant date fair value of those awards calculated under SFAS 123 for
        pro
        forma disclosures.
 
 We
        grant
        options to purchase our common stock to our employees and directors under
        our
        stock option plans. The benefits provided under these plans are share-based
        payments subject to the provisions of SFAS 123(R). Share-based compensation
        expense recognized under SFAS 123(R) during the first half of 2006 was $91,000.
        At June 30, 2006, total unrecognized estimated compensation expense related
        to
        non-vested stock options granted prior to that date was $86,000, of which
        approximately $86,000 is expected to be recognized over the remaining six
        months
        of 2006.
 
 We
        estimate the value of stock option awards on the date of grant using the
        Black-Scholes option-pricing model (the “Black-Scholes model”). The
        determination of the fair value of share-based payment awards on the date
        of
        grant is affected by our stock price as well as assumptions regarding a number
        of complex and subjective variables. These variables include our expected
        stock
        price volatility over the term of the awards, expected term, risk-free interest
        rate, expected dividends and expected forfeiture rates.
 
 If
        factors change and we employ different assumptions in the application of
        SFAS
        123(R) in future periods, the compensation expense that we record under SFAS
        123(R) may differ significantly from what we have recorded in the current
        period. There is a high degree of subjectivity involved when using option
        pricing models to estimate share-based compensation under SFAS 123(R).
        Consequently, there is a risk that our estimates of the fair values of our
        share-based compensation awards on the grant dates may bear little resemblance
        to the actual values realized upon the exercise, expiration, early termination
        or forfeiture of those share-based payments in the future. Employee stock
        options may expire worthless or otherwise result in zero intrinsic value
        as
        compared to the fair values originally estimated on the grant date and reported
        in our financial statements. Alternatively, value may be realized from these
        instruments that is significantly in excess of the fair values originally
        estimated on the grant date and reported in our financial statements.
 
 The
        guidance in SFAS 123(R) and Securities and Exchange Commission’s Staff
        Accounting Bulletin No. 107 (SAB 107) is relatively new and best practices
        are
        not well established. There are significant differences among valuation models,
        and there is a possibility that we will adopt a different valuation model
        in the
        future. Theoretical valuation models are evolving and may result in lower
        or
        higher fair value estimates for share-based compensation. The timing, readiness,
        adoption, general acceptance, reliability and testing of these methods is
        uncertain. Sophisticated mathematical models may require voluminous historical
        information, modeling expertise, financial analyses, correlation analyses,
        integrated software and databases, consulting fees, customization and testing
        for adequacy of internal controls. The uncertainties and costs of these
        extensive valuation efforts may outweigh the benefits to investors.
  21
 
 *Revenue
        Recognition* **-** Revenue
        from design and installation contracts is recognized using the
        completed-contract method under which the amount of revenue recognized is
        the
        lower of the percentage complete applied to expected contractual payments
        or the
        total non-refundable cash received to date. Changes in the projected hours
        or
        cost to complete the project could significantly change the amount of revenue
        recognized. There were no significant contracts in process during the three
        and
        six months ended June 30, 2006.
 
 **Results
        of Operations**
 
 *Three
        Months Ended June 30, 2006 Compared to Three Months Ended June 30,
        2005*
 **Three
                      Months Ended June 30,****2006**
                  
                  **2005**
                  
                  **Change**
                  
                  **%
                      Change****(in
                      thousands)**Revenue
                  
                  $
                  1,426
                  
                  $
                  1,017
                  
                  $
                  409
                  
                  
                  40
                  %Cost
                      of revenue
                  
                  
                  (703
                  )
                  
                  (613
                  )
                  
                  (90
                  )
                  
                  15
                  %General
                      and administrative expenses
                  
                  
                  (3,496
                  )
                  
                  (381
                  )
                  
                  (3,115
                  )
                  
                  (623
                  )%Interest
                      expense
                  
                  
                  (277
                  )
                  
                  (5
                  )
                  
                  (272
                  )
                  
                  (5,440
                  )%Depreciation
                      and amortization
                  
                  
                  (741
                  )
                  
                  (7
                  )
                  
                  (734
                  )
                  
                  (10,557
                  )%Net
                      Income (loss)
                  
                  
                  (3,065
                  )
                  
                  27
                  
                  
                  (3,092
                  )
 
 Revenue
        increased $409,000, from $1,017,000 to $1,426,000 during the three months
        ended
        June 30, 2006, as compared to the three months ended June 30, 2005. The increase
        was primarily due to increased media services revenues of $573,000 derived
        as a
        result of our acquisition of E&M Advertising, Inc. in February 2006, and
        increased subscription revenues of approximately $90,000 derived as a result
        our
        acquisition of Media SideStreet Corporation in June 2005, offset by a decrease
        of $215,000 in revenues from sales of digital signage equipment.
 
 The
        decrease of $215,000 in revenues from sales of digital signage equipment
        was
        primarily due to a shift in our long-term business strategy. Historically,
        one
        significant component of our business has been the sale and distribution
        of
        brackets and fixtures to support the deployment of plasma screens and LCD
        screens. During the third quarter of 2005, we began to reduce our emphasis
        on
        the distribution of these products and began shifting our primary focus to
        a
        more full-service digital media offering. For example, in the first quarter
        of
        2006 we launched several advertising-based programs whereby we derive revenue
        from the sale of advertising time on the digital signage networks that we
        manage
        for our venue providers. Advertisers pay us a negotiated fee for advertising
        time slots and for content creation and network management services and we
        often
        pay a percentage of such fees to the relevant venue provider. As a result,
        our
        revenue models now include integration and equipment sales, subscription
        and
        management services, revenues from third-party advertising and marketing
        and
        content management with development services. We believe this integration
        will
        maximize our earnings potential because it delivers a one-stop digital signage
        solution to our customers whereby they can secure all necessary equipment
        and
        services from one source rather than from multiple vendors. We believe these
        offerings will position our company as a full-service digital media solution
        provider.
 
 Cost
        of
        revenues primarily consists of the amounts we pay for hardware (e.g. video
        displays, media players and servers) that we integrate and install for our
        customers. Additional cost of revenues pertains to costs resulting from the
        increased revenues in media services.
  22
 
 General
        and administrative expenses for the quarter ended June 30, 2006 increased
        by
        $3.1 million as compared with the three months ended June 30, 2005 primarily
        due
        to the significant increase in compensation expenses, professional and
        consulting fees and other general and administrative expenses.
 
 Wages
        and
        salary expense for the quarter ended June 30, 2006 was $1.027 million, an
        increase of $798,000 over the comparable period in 2005 and was primarily
        due to
        the addition of executive, sales and administrative personnel resulting from
        acquisitions since the three months ended June 30, 2005, including our
        acquisitions of E&M Advertising, Inc., iPoint Networks, LLC and Media
        SideStreet Corporation
 
 Professional
        and consulting fees for the quarter ended June 30, 2006 was $966,000, an
        increase of $939,000 over the comparable period in 2005, and was primarily
        due
        to the incremental cost of complying with the reporting requirements of a
        public
        company as set forth by the SEC and the legal and accounting expenses we
        incurred relating to our required filings Securities and Exchange Act of
        1934 as
        well as the costs associated with the acquisition transactions that we completed
        in 2006.
 
 Other
        general and administrative expenses were $385,000 during the three months
        ended
        June 30, 2006, an increase of $352,000 over the same period in 2005 and was
        primarily due to increased investor relations expenses and additional ongoing
        administrative expenses resulting from the acquisition of E&M Advertising,
        Inc.
 
 Interest
        expense was $278,000 for the quarter ended June 30, 2006, an increase of
        $272,000 over the same period in 2005 primarily due to interest expense incurred
        in connection with the Laurus Facility.
 
 Depreciation
        and amortization costs increased by $734,000 compared to the same quarter
        of
        2005. This increase resulted primarily from acquisition
        activity.
 
 Based
        on
        the above, we had a net loss of $3.1 million for the three months ended June
        30,
        2006 as compared to a net income of $27,000 for the three months ended June
        30,
        2005.
 
 *Six
        Months Ended June 30, 2006 Compared to Six Months Ended June 30,
        2005*
  **Six
                    Months Ended June 30,****2006**
                
                **2005**
                
                **Change**
                
                **%
                    Change****(in
                    thousands)**Revenue
                
                $
                2,649
                
                $
                1,907
                
                $
                742
                
                
                39
                %Cost
                    of revenue
                
                
                (1,291
                )
                
                (1,311
                )
                
                20
                
                
                (2
                )%General
                    and administrative expenses
                
                
                (6,649
                )
                
                (759
                )
                
                (5,890
                )
                
                (776
                )%Interest
                    expense
                
                
                (715
                )
                
                (21
                )
                
                (694
                )
                
                (3,304
                )%Depreciation
                    and amortization
                
                
                (1,080,132
                )
                
                13,013
                
                
                1,067,119
                
                
                8,200
                %Net
                    loss
                
                
                (5,901
                )
                
                (161
                )
                
                (5,740
                )
                
                (3,570
                )%
 
 Revenue
        increased from the same period of 2005 primarily due to increased media services
        revenues of $1.0 million derived as a result of our acquisition of E&M
        Advertising, Inc. in February 2006, and increased subscription revenues of
        $200,000 derived as a result our acquisition of Media SideStreet Corp. in
        June
        2005, offset by a decrease of $575,000 in revenues from sales of digital
        signage
        equipment.
 
 The
        decrease of $575,000 in revenues from sales of digital signage equipment
        was
        primarily due to a shift in our long-term business strategy as referenced
        above
        in our discussion of the three months ended June 30, 2005.
  23
 
 Cost
        of
        revenues was essentially the same as the comparable period last year despite
        the
        increased sales activity because of increased sales of products and services
        with improved margins.
 
 General
        and administrative expenses for the six months ended June 30, 2006 increased
        by
        $5.8 million as compared with the six months ended June 30, 2005 primarily
        due
        to the significant increase in compensation expenses, professional and
        consulting fees and other general and administrative expenses. Wages and
        salary
        expense for the six months ended June 30, 2006 was $2.4 million, an increase
        of
        $1.9 million over the comparable period last year and was primarily due to
        the
        addition of executive, sales and administrative personnel resulting from
        acquisitions since the six months ended June 30, 2005, including our
        acquisitions of E&M Advertising, Inc., iPoint Networks, LLC and Media
        SideStreet Corp.
 
 Interest
        expense was $715,000 for the six months ended June 30, 2006, representing
        an
        increase of $694,000 over the same period in 2005 primarily due to interest
        expense incurred in connection with the Laurus Facility and due to interest
        expense resulting from the issuance of common stock warrants in lieu of the
        payment of accrued interest on loans payable.
 
 Depreciation
        and amortization costs increased by $1.1 million compared to the same quarter
        of
        the prior year. This increase resulted primarily from acquisition
        activity.
 
 Based
        on
        the above, we had a net loss of $5.9 million for the six months ended June
        30,
        2006 as compared to a net loss of $161,000 for the six months ended June
        30,
        2005.
 
 **Liquidity
        and Capital Resources**
  At
        June
        30, 2006, total cash was approximately $406,000. In the first quarter of
        2006,
        we entered into the Laurus Facility with Laurus. The term of the Laurus
        Facility is three years and interest accrues on any unpaid principal plus
        interest at a rate per annum equal to the “prime rate” plus three percent (3%).
        The maximum principal amount of all borrowings under the Laurus Facility
        cannot
        exceed ninety percent of our eligible accounts receivable minus such reserves
        that Laurus may in good faith deem necessary and appropriate. As of June
        30,
        2006, the amount available to us to draw down under the Laurus Facility was
        $1.2
        million.
 
 We
        anticipate that our existing capital resources, including the $1.2 million
        that
        was available to us under the Laurus Facility, will not enable us to continue
        operations past September of 2006, or earlier if unforeseen events or
        circumstances arise that negatively affect our liquidity. These circumstances
        may adversely affect our ability to raise additional capital. If we fail
        to
        raise additional capital or obtain substantial cash inflows from product
        sales
        prior to September 2006, we will be forced to cease operations. If additional
        capital were raised through the sale of equity or convertible debt securities,
        the issuance of such securities would result in dilution to our existing
        stockholders. We are actively working with investment bankers concerning
        our
        financing options. We cannot assure you that financing will be available
        on
        favorable terms or at all.
 
 We
        anticipate that we will generate significant losses from operations for the
        foreseeable future. As of June 30, 2006, our accumulated deficit was $10.1
        million. Our net loss was $3.1 million for the quarter ended June 30, 2006
        and
        $5.9 million and $0.2 million for the six months ended June 30, 2006 and
        2005,
        respectively. Our stockholders’ equity increased from a $2.8 million deficit as
        of December 31, 2005 to positive equity of $7.5 million as of June 30, 2006.
        We
        have limited capital resources, and operations to date have been funded with
        the
        proceeds from product sales, accounts receivable based financings, public
        and
        private equity and debt financings and income earned on investments. These
        conditions raise substantial doubt about our ability to continue as a going
        concern. The audit report prepared by our independent registered public
        accounting firm relating to our consolidated financial statements for the
        year
        ended December 31, 2005 includes an explanatory paragraph expressing the
        substantial doubt about our ability to continue as a going concern.
  24
  *Cash
        Sources and Uses*
 
 Cash
        inflows during 2006 include $3.9 million of net proceeds from a private
        placement of shares of our Series A preferred convertible stock, draw downs
        under the Laurus Facility, and proceeds from product sales. We used
        approximately $782,000 of the proceeds from the Laurus drawdown to satisfy
        in
        full our then-existing bank debt. Our remaining cash balances have been used
        for
        general corporate and working capital purposes. The following table summarizes
        cash flow activity for the six months ended June 30, 2006 and 2005:
 
 **Six
                  months ended June 30,****2006**
              
              **2005**(in
                  thousands)**Cash
                  Sources**Proceeds
                  from issuance of equity securities
              
              $
              4,600
              
              $
              -Proceeds
                  from notes payable - related parties
              
              
              150
              
              
              70Proceeds
                  from notes payable
              
              
              -
              
              
              36Other
                  cash sources
              
              
              -
              
              
              215Total
                  cash sources
              
              $
              4,750
              
              $
              1,493**Cash
                  Uses**Cash
                  used in operating activities
              
              $
              1,986
              
              $
              35Cash
                  used in acquisitions
              
              
              1,100
              
              
              -Repayment
                  of debt obligations
              
              
              608
              
              
              -Deferred
                  financing costs
              
              
              428
              
              
              -Capital
                  expenditures
              
              
              222
              
              
              190Other
                  cash uses
              
              
              67
              
              
              26Total
                  cash uses
              
              $
              4,411
              
              $
              251(Decrease)
                  increase in cash
              
              $
              339
              
              $
              (36
              )
 
 At
        June
        30, 2006, we had liquid assets of $7.1 million consisting of cash in the
        amount
        of $406,000, accounts receivable derived from operations in the amount of
        $4.6
        million, prepaid expenses and other current assets of $1.6 million and inventory
        in the amount of $477,000. Long-term assets of $9.8 million consisted primarily
        of intangible assets of $6.1 million deferred financing costs of $2.2 million
        and fixed assets, including computer servers, media players and video display
        equipment used in operations, of $1.4 million.
 
 Current
        liabilities of $9.3 million at June 30, 2006 consisted primarily of $7.2
        million
        of accounts payable, $657,000 due under the Laurus Facility and $462,000
        of
        stock issuances payable.
 
 Our
        working capital deficit was $2.2 million as of June 30, 2006.
 
 *Financing
        Activities*
 
 On
        January 27, 2006, we entered into a Security Agreement with Laurus, pursuant
        to
        which Laurus agreed to provide us with a revolving credit facility of up
        to $6
        million. The term of the Laurus Facility is three years and borrowings under
        the
        Laurus Facility accrue interest on the unpaid principal and interest at a
        rate
        per annum equal to the “prime rate” published in The Wall Street Journal from
        time to time, plus three percent (3%). Interest on borrowings under the Laurus
        Facility is payable monthly on the first day of each month during, commencing
        on
        February 1, 2006. All outstanding principal amounts must be paid on January
        27,
        2009. The maximum principal amount of all borrowings under the Laurus Facility
        cannot exceed ninety percent of our eligible accounts receivable minus such
        reserves that Laurus may in good faith deem necessary and appropriate.
        Outstanding amounts payable under the Laurus facility are secured by secured
        by
        a blanket lien on substantially all of our assets and our subsidiaries pursuant
        to the terms of a Security Agreement. In addition, we pledged the ownership
        interests in our subsidiaries pursuant to a stock pledge agreement executed
        in
        favor of Laurus securing our obligations under the Laurus
        Facility.
  25
 
 The
        Security Agreement and related documents provide that an event of default
        shall
        be deemed to have occurred if we default on the payment of any obligation
        or
        indebtedness when due, we suffer a bankruptcy or similar insolvency event
        or
        proceeding, we materially breach a representation or warranty or fail to
        observe
        any covenant or agreement, we suffer and do not discharge in a timely manner
        a
        final judgment for the payment of a sum in excess of a certain materiality
        threshold, our common stock has been delisted or trading has been suspended,
        we
        sell a substantial portion of our assets, we merge with another entity or
        we
        fail to timely deliver shares of our Common Stock to Laurus when due upon
        exercise of the warrants issued to Laurus in connection with the financing
        transaction. If an event of default occurs, Laurus has the right to accelerate
        payments under the Laurus Facility and, in addition to any other remedies
        available to it, to foreclose upon the assets securing any outstanding amounts
        due to Laurus. If an event of default occurs, one hundred twenty-five percent
        (125%) of the unpaid principal balance, plus accrued interest and fees, will
        become immediately due and payable. Laurus shall also be entitled to payment
        of
        a default interest rate of two percent (2%) per month on all amounts due
        and
        such other remedies specified in the relevant transaction documents and under
        the Uniform Commercial Code.
 
 During
        March 2006, we sold 2.9 million shares of Series A convertible preferred
        stock
        (the “Series A Shares”) at $1.55 per share for total gross proceeds of $4.5
        million. In addition, the purchasers of the Series A Shares received warrants
        to
        purchase an aggregate of 2.9 million shares of common stock with an exercise
        price of $2.25 per share and a 3 year term. We paid $562,000 in issuance
        costs,
        for net proceeds of $3.9 million.
 
 Each
        Series A Share is convertible by the holder, at any time, into one share
        of
        common stock, subject to adjustment for certain dilutive events. The Series
        A
        Shares will automatically convert into shares of common stock at a conversion
        price of $1.55 (subject to certain adjustments) on the third anniversary
        of the
        issuance date or upon the date of a consummation of a bona fide firm
        underwritten public offering of the our securities of at least $20 million
        in
        which the price per share is at least $4.00 (subject to certain
        restrictions).
 
 The
        Series A Shares provide that dividends will accrue at an annual rate of seven
        percent (7%) of the gross issuance price of the stock ($4.5 million), payable
        semi-annually on January 1 and July 1 of each year. Dividends on the preferred
        stock will be paid in either cash or shares of common stock at our discretion,
        provided that we have an effective registration statement providing for the
        resale of the shares of common stock. If a registration is not then effective,
        we must pay the dividends in cash. Accrued dividends payable through June
        30,
        2006 are approximately $23,000.
 
 On
        July
        31, 2006, we filed a registration statement on Form SB-2 covering the shares
        of
        common stock underlying the Series A Shares and the warrants issued to the
        purchasers of the Series A Shares. The registration statement has not been
        declared effective as of August 15, 2006.
 
 In
        the
        event of our liquidation, dissolution or winding up, the holders of Series
        A
        Shares are generally entitled to receive a liquidation preference over the
        holders of common stock equal to $1.55 per share of Series A Shares held
        and any
        declared but unpaid dividends.
  **ITEM
                3.**
              **CONTROLS
                  AND PROCEDURES**
 
 DISCLOSURE
        CONTROLS AND PROCEDURES. ****** Our
        management, with the participation of our chief executive officer and chief
        financial officer along with senior accounting staff have evaluated
        the effectiveness of our disclosure controls and procedures (as such term
        is
        defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act
        of
        1934, as amended (the "Exchange Act")) as of the end of the period covered
        by
        this Report. Based on such evaluation, our chief executive officer and chief
        financial officer has concluded that, as of the end of such period, our
        disclosure controls and procedures are effective in recording, processing,
        summarizing and reporting, on a timely basis, information required to be
        disclosed by us in the reports that we file or submits under the Exchange
        Act.
 
 INTERNAL
        CONTROL OVER FINANCIAL REPORTING ***.*** As
        previously reported in our Quarterly Report on Form 10-QSB for the quarter
        ended
        March 31, 2006, we were actively recruiting additional financial and accounting
        personnel to better implement effective internal control over our financial
        reporting procedures. During the three months ended June 30, 2006, we engaged
        a
        consultant to provide services as an acting chief financial officer, hired
        a new
        vice president of finance and controller and engaged a sufficient number
        of
        supporting financial and accounting personnel. As of June 30, 2006 and for
        the
        period covered by this Report, the retention of these additional experienced
        financial and accounting personnel has materially affected, and is reasonably
        likely to materially affect, our internal control over financial reporting
        (as
        such term is defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange
        Act).
  26
  **PART
        II**
  **ITEM
                1.**
              **LEGAL
                  PROCEEDINGS**
  On
        April
        21, 2006, an action was filed against our company in Division No. 1 of the
        Warren Circuit Court of the Commonwealth of Kentucky titled  William
        H. Funk, II and All American Investors Group, Inc. v. Limelight Media Group,
        Inc., David Lott, Impart Mobile Media division/OTR Media, Inc. and Stewart
        Layton,  case
        number 06-CI-854. Such complaint alleges that our company unfairly competed
        with
        OTR Media, Inc. by utilizing its trade secrets and other confidential
        information in our mobile media business, thus depriving the stockholders
        of OTR
        Media, Inc. of the full value of their shares and pecuniary interest in OTR
        Media, Inc. The plaintiffs in such action are seeking an injunction against
        our
        company to enjoin the alleged use and appropriation of such trade secrets,
        as
        well as monetary damages of a yet unspecified amount. On May 18, 2006, the
        action was removed to federal court in the Western District of Kentucky,
        C.V.
        No.: 1:06-CV-72-M. On June 6, 2006, we filed a motion to dismiss the complaint
        on the basis of plaintiffs’ lack of standing to bring a direct claim against us,
        plaintiffs’ failure to state a claim upon which relief may be granted and lack
        of personal jurisdiction over us and the other defendants, among other bases.
        As
        of August 15, 2006, we await a final ruling on the matter.
  **ITEM
                2.**
              **UNREGISTERED
                  SALES OF EQUITY SECURITIES AND USE OF
                  PROCEEDS.**
  In
        June
        2006, we issued 30,000 shares of our common stock to Laurus in consideration
        for
        its waiver and amendment of various terms of a registration rights agreement
        with our company. The shares were issued on the exemption provided by Section
        4(2) of the Securities Act of 1933, as amended (the “Act”), on the basis that
        its issuance did not involve a public offering, no underwriting fees or
        commissions were paid by us in connection with such issuance and Laurus
        represented to us that it is an “accredited investor” as defined in Regulation D
        under the Act.
 
 In
        May
        2006, we issued 150,000 shares of our common stock to a consultant as
        consideration for the performance of consulting services. The shares were
        issued
        on the exemption provided by Section 4(2) of the Act, on the basis that the
        issuance of such shares did not involve a public offering, no underwriting
        fees
        or commissions were paid by us in connection with such issuance and such
        consultant represented to us that it is an “accredited investor” as defined in
        Regulation D under the Act.
 
 In
        May
        2006, we issued a common stock purchase warrant to two consultants as
        consideration for the performance of consulting services. Each of the warrants
        provide for the purchase of up to 40,000 shares of our common stock at an
        exercise price of $1.00 per share. The warrants expire on May 1, 2009. The
        warrants were issued in reliance on the exemption from registration provided
        by
        Section 4(2) of the Act, on the basis that their issuance did not involve
        a
        public offering, no underwriting fees or commissions were paid by us in
        connection with such issuance and certain representations were made to us
        by the
        consultants.
 
 In
        April
        2006, we issued and sold 50,000 shares of our common stock to an investor
        for a
        purchase price of $100,000. The shares were issued in reliance on the
        exemption from registration provided by Section 4(2) of the Act, on the basis
        that its issuance did not involve a public offering, no underwriting fees
        or
        commissions were paid by us in connection with such sale and issuance and
        certain representations were made to us by the investor that he was an
“accredited investor” as defined in Regulation D under the Act .
 
 In
        April
        2006, we issued a three-year warrant to purchase 145,162 shares of our common
        stock exercisable at $1.55 per share, to a consulting firm in consideration
        for
        services rendered in connection with our Series A Preferred Financing. The
        warrant was issued in reliance on the exemption from registration provided
        by
        Section 4(2) of the Act, on the basis that the issuance did not involve a
        public
        offering and the consultant represented to us that it was an “accredited
        investor," as defined in Regulation D under the Act.
  27
 
 In
        April
        2006, we issued 6,000 shares of our common stock to one of the members of
        our
        board of directors for consulting services previously rendered. These shares
        were issued in reliance on the exemption from registration provided by Section
        4(2) of the Act, on the basis that its issuance did not involve a public
        offering, no underwriting fees or commissions were paid by us in connection
        with
        such sale and issuance and certain representations were made to us by such
        director that he is an "accredited investor" as defined in Regulation D under
        the Act.
 
 **ITEM
                6.**
              **EXHIBITS.**
 
 The
        exhibits required by this item are listed on the Exhibit Index attached
        hereto .
  28
  **SIGNATURES**
 
 In
        accordance with the requirements of the Exchange Act, the registrant has
        caused
        this report to be signed on its behalf by the undersigned, thereunto duly
        authorized.
 
 Dated:
                  August 21, 2006
              
              
              IMPART
                  MEDIA GROUP, INC.By:
              /s/Joseph
                  F. MartinezJoseph
                  F. MartinezChief
                  Executive Officer(principal
                  executive officer)Chief
                  Accounting Officer(principal
                  financial officer)
  29
  **EXHIBIT
        INDEX**
 
 
 31.1
              Certification
                  of Chief Executive Officer and Chief Financial Officer pursuant
                  to 18
                  U.S.C. 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley
                  Act
                  of 2002.
 
 32.1
              Certification
                  of Chief Executive Officer and Chief Financial Officer pursuant
                  to 18
                  U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
                  Act
                  of 2002.
  30