**UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**


**Form
      10-QSB/A**


Amendment
      No. 1


(Mark
      One)




S
        QUARTERLY
        REPORT PURSUANT TO SECTION 13 OR 15(D) OF
 THE
        SECURITIES EXCHANGE ACT OF 1934
 For
        the
        period ended September 30, 2006
 
 £
        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
                      jurisdictionof
                      (incorporation or
                      organization)
                  
                  (I.R.S.
                      EmployerIdentification
                      No.)





1300
      North Northlake Way


Seattle,
      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
S No
£




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 £ No
S




As
      of
      November 17, 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 November 17,
      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 £ No
S







1





*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.*





**Explanatory
      Note Regarding Amendment**





We
      are
      filing this amendment to our Quarterly Report on Form 10-QSB/A for the quarter
      ended September 30, 2006 to amend in its entirety our Quarterly Report on Form
      10-QSB for the quarter ended September 30, 2006 originally filed with the U.S.
      Securities and Exchange Commission on November 21, 2006, to correct the
      following items:





1.
            Part
                I, Item 1: Financial Statements and Notes to Financial Statements;
                and


2.
            Part
                I, Item 2: Management’s Discussion and Analysis of Financial Condition and
                Results of Operations.





As
      reported in our Current Report on Form 8-K, dated March 22, 2007, our management
      determined that our unaudited financial statements included in our Quarterly
      Report on Form 10-QSB for the quarter ended September 30, 2006 should be
      restated in order to correct amounts allocated to intangible assets, the related
      amortization expenses, and the accounting classification between goodwill and
      other intangible assets in connection with our purchase of substantially all
      of
      the assets of E&M Advertising, Inc. and its affiliated companies in February
      2006. As a result of the errors, the balances of intangible assets and the
      balance of Additional Paid in Capital allocated to the purchase on the
      Consolidated Balance Sheets included in our Quarterly Report were overstated
      by
      approximately $600,000.  Further, approximately $3.9 million of value
      previously allocated to customer lists, amortizable over five years, has been
      re-allocated to trade names and goodwill, which are subject to periodic reviews
      for impairment in value, but are not amortized. Also, in preparing the
      restatements to this Quarterly Report on Form 10-QSB for the quarter ended
      September 30, 2006, our management determined that Other General and
      Administrative Expenses for the 3 months ended September 30, 2006 were also
      overstated and required correction. As a result of this reclassification of
      intangible assets and goodwill and the adjustment to Other General and
      Administrative Expenses, our net losses for the three and nine months ended
      September 30, 2006 decreased by approximately $624,000 and $956,000,
      respectively, from the amounts originally reported.





Pursuant
      to Rule 1b-15 promulgated under the Securities Exchange Act of 1934, as amended
      (the “Exchange Act”), this Amendment No. 1 presents new certifications pursuant
      to Rule 13a-14(a)/15d-14(a) and Rules 13a-14(b)/15d-14(b) under the Exchange
      Act.  Except as described above, no substantive change has been made
      to the Quarterly Report as originally filed.  This Amendment No. 1
      does not reflect events occurring after the filing of the Quarterly Report
      as
      originally filed or modify or update those disclosures affected by subsequent
      events.





2




PART
        I.
        FINANCIAL INFORMATION
 
 ITEM
        1.
        FINANCIAL STATEMENTS.
  IMPART
        MEDIA GROUP, INC.
 (FORMERLY
        KNOWN AS LIMELIGHT MEDIA GROUP, INC.)
 CONSOLIDATED
        BALANCE SHEET (RESTATED*)
 September
        30, 2006
 (UNAUDITED)
   ASSETSCurrent
                        assetsCash
                    
                    $
                    195,067Accounts
                        receivable,
                        net
                    
                    
                    3,900,431Inventory
                    
                    
                    920,899Prepaid
                        expenses and other
                        current assets
                    
                    
                    1,591,221Total
                        current assets
                    
                    
                    6,607,618Fixed
                        assets, net (Note 7)
                    
                    
                    1,396,977Other
                        AssetsGoodwill
                        (Note 8)
                    
                    
                    2,359,418Intangible
                        assets, net
                        (Note  8)
                    
                    
                    2,773,669Deferred
                        financing costs, net
                        (Note 10)
                    
                    
                    2,005,267Other
                        Assets
                    
                    
                    20,777Total
                        other assets
                    
                    
                    7,159,131Total
                        assets
                    
                    $
                    15,163,726LIABILITIES
                        AND STOCKHOLDERS' EQUITYCurrent
                        liabilitiesAccounts
                        payable
                    
                    $
                    6,703,509Accrued
                        liabilities
                    
                    
                    330,572Customer
                        deposits
                    
                    
                    44,811Lines
                        of credit (Note
                        10)
                    
                    
                    1,340,300Note
                        payable - related parties
                        (Note 9)
                    
                    
                    197,243Capital
                        lease obligation -
                        current portion
                    
                    
                    19,907Stock
                        issuance payable (Note
                        5)
                    
                    
                    274,798Other
                        liabilities
                    
                    
                    203,216Total
                        current
                        liabilities
                    
                    
                    9,114,356Capital
                        lease obligation - long
                        term
                    
                    
                    112,245Total
                        liabilities
                    
                    
                    9,226,601Commitments
                        and contingencies (Note 16,17)Stockholders'
                        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,
                        22,512,863 shares
                        issued and outstanding
                    
                    
                    22,431Additional
                        paid-in
                        capital
                    
                    
                    18,406,347Accumulated
                        deficit
                    
                    
                    (12,494,556
                    )Total
                        stockholders'
                        equity
                    
                    
                    5,937,125Total
                        liabilities and
                        stockholders' equity
                    
                    $
                    15,163,726
 
 *
        (See
        Note 1)
 See
      Notes
      to Consolidated Financial Statements





3




IMPART
        MEDIA GROUP, INC.
 (FORMERLY
        KNOWN AS LIMELIGHT MEDIA GROUP, INC.)
 CONSOLIDATED
        STATEMENTS OF OPERATIONS (RESTATED*)
 (UNAUDITED)
   For
                          the Three
                        Months
                          Ended
                        September
                          30,
                        2006
                      
                      
                      For
                          the Three
                        Months
                          Ended
                        September
                          30,
                        2005
                      
                      
                      For
                          the Nine
                        Months
                          Ended
                        September
                          30,
                        2006
                      
                      
                      For
                          the Nine
                        Months
                          Ended
                        September
                          30,
                        2005RevenuesEquipment
                          sales
                      
                      $
                      806,619
                      
                      
                      $
                      1,268,839
                      
                      
                      $
                      1,965,808
                      
                      
                      $
                      3,152,876Managed
                          subscription services
                      
                      
                      112,265
                      
                      
                      
                      117,216
                      
                      
                      
                      373,396
                      
                      
                      
                      117,216Consulting
                          and design
                          services
                      
                      
                      74,552
                      
                      
                      
                      36,726
                      
                      
                      
                      280,980
                      
                      
                      
                      60,017Media
                          Services
                      
                      
                      660,852
                      
                      
                      
                      -
                      
                      
                      
                      1,683,186
                      
                      
                      
                      -Total
                          revenues
                      
                      
                      1,654,288
                      
                      
                      
                      1,422,781
                      
                      
                      
                      4,303,370
                      
                      
                      
                      3,330,109Cost
                          of revenues
                      
                      
                      755,421
                      
                      
                      
                      984,457
                      
                      
                      
                      2,047,149
                      
                      
                      
                      2,296,031Gross
                          profit
                      
                      
                      898,867
                      
                      
                      
                      438,324
                      
                      
                      
                      2,256,221
                      
                      
                      
                      1,034,078General
                          and administrative expensesProfessional
                          and
                          consulting
                      
                      
                      243,385
                      
                      
                      
                      313,883
                      
                      
                      
                      1,816,121
                      
                      
                      
                      373,139Selling
                          and marketing
                      
                      
                      126,419
                      
                      
                      
                      21,072
                      
                      
                      
                      462,792
                      
                      
                      
                      89,214Depreciation
                          and
                          amortization
                      
                      
                      330,576
                      
                      
                      
                      103,722
                      
                      
                      
                      875,178
                      
                      
                      
                      116,735Impairment
                          of intangible
                          assets
                      
                      
                      724,489
                      
                      
                      
                      -
                      
                      
                      
                      724,489
                      
                      
                      
                      -Wages
                          and salaries
                      
                      
                      1,173,860
                      
                      
                      
                      306,475
                      
                      
                      
                      3,545,892
                      
                      
                      
                      740,981Rent
                          expense
                      
                      
                      114,082
                      
                      
                      
                      53,899
                      
                      
                      
                      312,265
                      
                      
                      
                      161,113Other
                          general and administrative
                          expenses
                      
                      
                      685,233
                      
                      
                      
                      354,903
                      
                      
                      
                      1,979,551
                      
                      
                      
                      431,977Total
                          general and administrative expenses
                      
                      
                      3,398,044
                      
                      
                      
                      1,153,954
                      
                      
                      
                      9,716,288
                      
                      
                      
                      1,913,159Loss
                          from operations
                      
                      
                      (2,499,177
                      )
                      
                      
                      (715,630
                      )
                      
                      
                      (7,460,067
                      )
                      
                      
                      (879,081
                      )Other
                          income (expense)Other
                          income and (expense),
                          net
                      
                      
                      (121
                      )
                      
                      
                      6,511
                      
                      
                      
                      (121
                      )
                      
                      
                      30,377Gain
                          on retirement of notes
                          payable
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      106,423
                      
                      
                      
                      -Interest
                          expense
                      
                      
                      (239,521
                      )
                      
                      
                      (112,348
                      )
                      
                      
                      (954,797
                      )
                      
                      
                      (133,557
                      )Net
                          Loss
                      
                      $
                      (2,738,819
                      )
                      
                      $
                      (821,467
                      )
                      
                      $
                      (8,308,562
                      )
                      
                      $
                      (982,261
                      )Net
                          Loss - Common Stockholders:Net
                          Loss
                      
                      $
                      (2,738,819
                      )
                      
                      $
                      (821,467
                      )
                      
                      $
                      (8,308,562
                      )
                      
                      $
                      (982,261
                      )Beneficial
                          conversion feature of
                          Series A preferred stock
                      
                      
                      
                      
                      
                      
                      --
                      
                      
                      
                      (933,873
                      )
                      
                      
                      --Accretion
                          of dividends on Series
                          A preferred stock
                      
                      
                      (78,750
                      )
                      
                      
                      --
                      
                      
                      
                      (182,875
                      )
                      
                      
                      --Net
                          loss - available to common stockholders
                      
                      $
                      (2,817,569
                      )
                      
                      $
                      (821,467
                      )
                      
                      $
                      (9,425,310
                      )
                      
                      $
                      (982,261
                      )Basic
                          and diluted loss per common share
                      
                      $
                      (0.13
                      )
                      
                      $
                      (0.17
                      )
                      
                      $
                      (0.45
                      )
                      
                      $
                      (0.20
                      )Basic
                          and Diluted weighted
                          average common sharesoutstanding
                      
                      
                      22,303,275
                      
                      
                      
                      4,828,831
                      
                      
                      
                      20,831,865
                      
                      
                      
                      4,828,831
  *
        (See
        Note 1)


See
      Notes
      to Consolidated Financial Statements




4




IMPART
        MEDIA GROUP, INC.
 (FORMERLY
        KNOWN AS LIMELIGHT MEDIA GROUP, INC.)
 CONSOLIDATED
        STATEMENTS OF CASH FLOWS (RESTATED*)
 (UNAUDITED)
   For
                          the nine months
                        Ended
                        September
                          30, 2006
                      
                      
                      For
                          the nine months
                        Ended
                        September
                          30, 2005Cash
                          flows from operating activities:Net
                          loss
                      
                      $
                      (8,308,562
                      )
                      
                      $
                      (982,261
                      )Adjustments
                          to reconcile net loss to net cash used by operating
                          activities:Issuance
                          of common stock for non-cash consulting expense
                      
                      
                      1,790,191
                      
                      
                      
                      --Issuance
                          of warrants for services
                      
                      
                      467,804
                      
                      
                      
                      --Non-cash
                          compensation expense
                      
                      
                      355,637
                      
                      
                      
                      --Non-cash
                          stock compensation expense
                      
                      
                      215,624
                      
                      
                      
                      190,050Non-cash
                          interest expense
                      
                      
                      559,610
                      
                      
                      
                      --Gain
                          on retirement of notes payable
                      
                      
                      (106,423
                      )
                      
                      
                      --Depreciation
                          and amortization
                      
                      
                      875,178
                      
                      
                      
                      116,735Impairment
                          of intangible assets
                      
                      
                      724,489Other
                      
                      
                      8,056
                      
                      
                      
                      --Changes
                          in operating assets and liabilities net of acquired assets
                          and liabilities
                          due to acquisitions:Accounts
                          receivable
                      
                      
                      (3,288,874
                      )
                      
                      
                      281,733Inventory
                      
                      
                      (437,362
                      )
                      
                      
                      11,716Prepaid
                          expenses and other
                          current assets
                      
                      
                      (1,179,876
                      )
                      
                      
                      2,600Other
                          assets
                      
                      
                      366,372
                      
                      
                      
                      4,051Accounts
                          payable
                      
                      
                      4,170,397
                      
                      
                      
                      (230,024
                      )Accrued
                          liabilities
                      
                      
                      981,967
                      
                      
                      
                      210,053Customer
                          deposits
                      
                      
                      
                      
                      
                      
                      61,819Other
                          liabilities
                      
                      
                      
                      
                      
                      
                      88,914Net
                          cash used by operating
                          activities
                      
                      
                      (2,805,772
                      )
                      
                      
                      (244,614
                      )Cash
                          flows from investing activities:Cash
                          paid in acquisitions
                      
                      
                      (500,000
                      )
                      
                      
                      --Acquisition
                          of E&M
                      
                      
                      (600,000
                      )
                      
                      
                      --Purchase
                          of fixed assets
                      
                      
                      (298,566
                      )
                      
                      
                      (217,937
                      )Cash
                          acquired in reverse merger
                      
                      
                      --
                      
                      
                      
                      1,968Net
                          cash used by investing
                          activities
                      
                      
                      (1,398,566
                      )
                      
                      
                      (215,969
                      )Cash
                          flows from financing activities:Proceeds
                          from sale of common stock
                      
                      
                      766,801
                      
                      
                      
                      --Net
                          proceeds 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
                      
                      
                      551,347
                      
                      
                      
                      103,653Proceeds
                          from notes payable
                      
                      
                      --
                      
                      
                      
                      70,000Principal
                          payments on notes payable
                      
                      
                      (607,600
                      )
                      
                      
                      (25,170
                      )Net
                          change in bank overdraft
                      
                      
                      --
                      
                      
                      
                      19,449Proceeds
                          from Sales-leaseback transaction
                      
                      
                      --
                      
                      
                      
                      62,000Change
                          in due to related parties
                      
                      
                      --
                      
                      
                      
                      133,174Proceeds
                          from notes payable - related parties
                      
                      
                      150,000
                      
                      
                      
                      56,000Proceeds
                          from receivable related to issuance of common stock
                      
                      
                      --
                      
                      
                      
                      5,000Principal
                          payments on capital lease obligations
                      
                      
                      (33,039
                      )
                      
                      
                      --Net
                          cash provided by financing
                          activities
                      
                      
                      4,332,764
                      
                      
                      
                      424,106Net
                          change in cash
                      
                      
                      128,426
                      
                      
                      
                      (36,477
                      )Cash,
                          beginning of period
                      
                      
                      66,641
                      
                      
                      
                      36,477Cash,
                          end of period
                      
                      $
                      195,067
                      
                      
                      $
                      --Supplementary
                          cash flow information:Cash
                          payments for income taxes
                      
                      $
                      --
                      
                      
                      $
                      --Cash
                          payments for interest
                      
                      $
                      138,335
                      
                      
                      $
                      40,323Schedule
                          of non-cash investing and financing activities:Common
                          stock issued for acquisition
                      
                      $
                      572,500
                      
                      
                      $
                      --
  *
        (See
        Note 1)


See
      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 “Impart Media Group” or "the
“Company") sells dynamic digital media solutions consisting of monitors, media
      servers, and associated technological hardware, web services, and software.
      The
      Company provides design, integration, fabrication, assembly, quality assurance,
      creative production, installation, and onsite maintenance services throughout
      the United States. As a result of the Company’s acquisition of E&M
      Advertising, Inc. and its affiliates in February 2006, Impart Media Group,
      Inc.
      now provides advertising capability to the digital elements it deploys for
      its
      customers.





Impart
      Media Group has developed and offers for sale a digital media network that
      is
      based on a unique architecture called Impart IQ, a web-based portal suite of
      services, coupled with enabling, proprietary hardware, that the Company believes
      no other company in the sector provides. The 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 either by the Company
      or
      its customers.





The
      Company is currently marketing its product and network offerings into multiple
      vertical markets, to potentially to realize revenue from multiple sources.
      For
      example, airports, mass transit facilities, malls, financial institutions,
      retail stores and government agencies can be media property venue owners for
      directory services and the distribution of advertisements, marketing messages
      and information and entertainment content. Revenues are derived from network
      monitoring, server 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
      media property venue owners or the owners may receive a portion of the
      advertising revenue on a negotiated basis.





For
      the
      three month period and nine month period ended September 30, 2006, the Company’s
      primary source of revenue was derived from media services, equipment sales,
      and
      managed subscription services. For the three month period and nine month period
      ended September 30, 2005, the Company’s primary source of revenue was derived
      from equipment sales and managed subscription services.





**History.**The Company was incorporated in the State of Nevada on May 17, 1996
      under the name "Multinet International Corporation." On October 3, 2003, the
      Company’s name was changed to "Limelight Media Group, Inc." ("Limelight"). On
      June 30, 2005, the Company changed its name to Impart Media Group,
      Inc.





On
      June
      30, 2005, Limelight acquired all of the outstanding capital stock of Impart,
      Inc., a Washington corporation ("Impart, Inc.” and the “Impart 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 Limelight.





Immediately
      prior to the Impart Transaction, Impart, Inc. purchased all of the assets of
      iPoint Networks, LLC, a Washington limited liability company ("iPoint"),
      pursuant to an asset purchase agreement. Impart, Inc issued a promissory note
      in
      the amount of $250,000 to the seller of iPoint and issued shares of common
      stock
      having an aggregate value of $750,000.





Prior
      to
      the Impart Transaction, Limelight was a public company with nominal operations,
      which 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 the Company’s common stock, a
      receivable related to the issuance of its common stock totaling $125,000 and
      7.1
      million shares of common stock issued with 6.9 million shares
      outstanding.




6




As
      the
      Company 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 of Limelight shares to be issued to owners of
      Impart, Inc. and iPoint. During the 4th quarter of 2005, the Company entered
      into agreements to convert the 2.9 million Holdback Shares into a liability
      totaling $4.6 million. This balance later was satisfied in exchange for the
      issuance of the same number of shares as was originally defined as the Holdback
      Shares.





The
      following table reflects the stock issued in relation to the Impart, Inc.
      Transaction and iPoint Transaction:





Impart
                        Transaction
                    
                    
                    iPoint
                        Transaction
                    
                    
                    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, the Company issued 81,441 shares of
      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
      Transaction, Limelight Media Group, Inc. purchased all of the assets of Media
      Sidestreet Support Corporation ("Media Sidestreet") pursuant to an asset
      purchase agreement. In exchange for the purchase of all the assets of Media
      Sidestreet, a promissory note was issued in the aggregate principal amount
      of $1
      million to the sellers of Media Sidestreet. Impart Media Group satisfied the
      notes in January of 2006 by issuing common stock at a value of $1.00 per share.
      The satisfaction of the notes through the issuance of common stock resulted
      in a
      gain on retirement of debt of $106,000. Prior to the Impart. Transaction, the
      majority owners of Impart, Inc. were the owners of Media Sidestreet, thus this
      acquisition was a related party transaction. Accordingly, Impart Media Group’s
      financial statements include the combined historical financial statements of
      Impart, Inc. and Media Sidestreet.





On
      February 2, 2006, the Company 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 New York and New Jersey 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, the Company 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, Impart Media
      Group 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 Impart Media Group common
      stock**.**In April 2006 and July 2006****the
      Company issued 1.47 million and .047 million shares,
      respectively,****of the 1.6 million restricted shares. The
      fair value of the shares issued was approximately $4.4 million.





**Restatement.**Our management determined that our unaudited interim consolidated
      statements of operations for the three and nine months ended September 30,
      2006
      and the balance sheet as of September 30, 2006 should be restated in order
      to
      correct amounts allocated to intangible assets, the related amortization
      expenses, and the accounting classification between goodwill and other
      intangible assets in connection with our purchase of substantially all of the
      assets of E&M Advertising, Inc. and its affiliated companies in February
      2006. Our management has also determined that the statement of operations for
      the three months ended September 30, 2006 should be further restated to correct
      the reported amount of other general and administrative expenses.





The
      Statement of Operations has been restated to reflect the following changes
      to
      the three months ended September 30, 2006:





As
                          amended
                      
                      
                      As
                          previously
                        filed
                      
                      
                      Change(in
                          thousands)Depreciation
                          and amortization
                      
                      $
                      (331
                      )
                      
                      $
                      (751
                      )
                      
                      $
                      (420
                      )Other
                          general and administrative expenses
                      
                      $
                      685
                      
                      
                      $
                      889
                      
                      
                      $
                      (204
                      )Net
                          loss
                      
                      $
                      (2,739
                      )
                      
                      $
                      (3,363
                      )
                      
                      $
                      (624
                      )Loss
                          per share
                      
                      $
                      (0.13
                      )
                      
                      $
                      (0.15
                      )
                      
                      $
                      0.02




7




The
      Statement of Operations has been restated to reflect the following changes
      to
      the nine months ended September 30, 2006:





As
                          amended
                      
                      
                      As
                          previously
                        filed
                      
                      
                      Change(in
                          thousands)Depreciation
                          and amortization
                      
                      $
                      (875
                      )
                      
                      $
                      (1,831
                      )
                      
                      $
                      956Net
                          loss
                      
                      $
                      (8,308
                      )
                      
                      $
                      (9,264
                      )
                      
                      $
                      956Loss
                          per share
                      
                      $
                      (0.45
                      )
                      
                      $
                      (0.50
                      )
                      
                      $
                      0.05




The
      Balance Sheet has been restated to reflect the following changes to the balances
      as of September 30, 2006:





As
                          amended
                      
                      
                      As
                          previously
                        filed
                      
                      
                      Change(in
                          thousands)Goodwill
                      
                      $
                      2,359
                      
                      
                      $
                      --
                      
                      
                      $
                      2,359Intangible
                          assets, net
                      
                      
                      2,774
                      
                      
                      
                      4,769
                      
                      
                      
                      (1,995
                      )Stock
                          issuance payable
                      
                      
                      275
                      
                      
                      
                      308
                      
                      
                      
                      (33
                      )Accumulated
                          deficit
                      
                      
                      12,495
                      
                      
                      
                      13,450
                      
                      
                      
                      (955
                      )Additional
                        paid-in capital
                      
                      
                      18,406
                      
                      
                      
                      18,964
                      
                      
                      
                      (558
                      )




8




**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 the company
      as of September 30, 2006, its cash flows for the nine months ended September
      30,
      2006 and 2005 and its results of operations for the three and nine months ended
      September 30, 2006 and 2005. Pursuant to the rules and regulations of the U.S.
      Securities and Exchange Commission (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.





The
      results of operations for the three months and the nine months ended September
      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. The Company has incurred net losses of
      approximately $8.3 million and $982,000 for the nine months ended September
      30,
      2006 and September 30, 2005, respectively. Current liabilities exceed current
      assets by approximately $2.5 million as of September 30, 2006. Net cash used
      in
      operating activities approximated $2.8 million for the nine months ended
      September 30, 2006.





The
      Company has limited capital resources. At September 30, 2006, total cash was
      approximately $195,000. During the nine months ended September 30, 2006, the
      Company funded operations with the proceeds from sales and services, draw-downs
      on the Company’s $6 million accounts receivable-based credit facility from
      Laurus (the “Laurus Facility”) and proceeds from the issuance and sale
      of equity securities. At September 30, 2006, $1.3 million was outstanding
      under the Laurus Facility and $418,000 was available for draw-down.




The
      Company anticipates that its existing capital resources, including amounts
      available under the Laurus Facility, will enable it to continue operations
      through September 30, 2007, assuming the Company meets its sales projections
      for
      such period. If the Company materially fails to meet such sales projections
      and does not raise additional capital, then the Company may be forced to
      severely curtail or cease operations. Consequently, the Company is actively
      working with investment banks and institutional investors to obtain additional
      capital through various financing options; however, the Company does not have
      any financing commitments. There can be no assurance that financing will be
      available on favorable terms or at all. If the Company raises additional capital
      through the sale of equity or convertible debt securities, the issuance of
      such
      securities may result in dilution to existing stockholders.





As
      of
      September 30, 2006, the accumulated deficit was $12.5 million. The net loss
      was
      $2.7 million for the quarter ended September 30, 2006 and $8.3 million for
      the
      nine month period ending September 30, 2006. These conditions raise substantial
      doubt about the Company’s ability to continue as a going concern. The audit
      report prepared by the Company’s independent registered public accounting firm
      relating to the Company’s consolidated financial statements for the year ended
      December 31, 2005 includes an explanatory paragraph expressing the substantial
      doubt about the Company’s ability to continue as a going concern.





The
      Company’s ability to continue as a going concern is dependent on additional
      sources of capital and the success of its operating plan. The financial
      statements do not include any adjustments that might be necessary if it is
      unable to continue as a going concern.




9




**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.





**Principles
      of Consolidation.**The accompanying consolidated financial statements
      include the accounts of the 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. The Company considers the
      assets to be impaired if the balances are more than one year old. The Company
      has established an allowance for doubtful accounts of $50,000 as of September
      30, 2006. When accounts are written off, they are charged against the allowance.
      Generally, the Company does 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 are subjected
      to concentrations of credit risk, consist principally of accounts receivable.
      As
      of September 30, 2006, two customers represented approximately 58% of accounts
      receivable. These two customers represented 3% and 18% and 4% and 15% of total
      revenues during the three and nine months ending September 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. The Company monitors 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.





The
      Company periodically evaluates 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. The Company uses an estimate of the related undiscounted cash flows
      over the remaining life of the fixed assets in measuring recoverability. No
      impairment was deemed to exist as of September 30, 2006.





Fixed
      assets acquired through the E&M Acquisition were recorded at 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 and trade names which are subject
      to
      impairment tests at least annually. Finite lived assets consist of customer
      lists and contractual rights, which the Company amortizes over a period
      of 5 and 2 years, respectively.





**Impairment
      of Long-lived Assets.** In accordance with the provisions of Statement of
      Financial Accounting Standards No. 144, *Accounting for the Impairment or
      Disposal of Long-Lived Assets*, the Company reviews the carrying value and
      fair value of its long-lived assets whenever events or changes in business
      circumstances indicate that there may be an impairment in value. Conditions
      that
      would necessitate an impairment assessment include a significant decline in
      the
      observable market value of an asset, a significant change in the extent or
      manner in which an asset is used, or a significant adverse change that would
      indicate that the carrying amount of an asset or group of assets is not
      recoverable. Long-lived assets to be held and used, including assets to be
      disposed of other than by sale, for which the carrying amount is not recoverable
      are adjusted to their estimated fair value at the date an impairment is
      indicated, which establishes a new basis for the assets for depreciation
      purposes. Long-lived assets to be disposed of by sale are reported at the lower
      of carrying amount or fair value less cost to sell. During the nine months
      ended
      September 30, 2006, the Company recorded an asset impairment of $724,000
      related to the write-off of intangible assets due to an unexpected decrease
      in
      sold advertising. This impairment is further described in Note 5. The Company
      has not recorded any other material impairment losses.




10




**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.**The Company accounts 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, the Company
      has not had any significant transactions that are required to be reported as
      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. the Company operates under one
      segment.





**Advertising
      Costs.**The Company recognizes advertising expenses in accordance with
      Statement of Position 93-7 “Reporting on Advertising Costs.” Accordingly, the
      Company expenses 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.





**Stock-based
      Compensation.**Prior to Jan 1, 2006, the Company accounted for
      stock-based compensation under the recognition and measurement principles of
      SFAS No. 123, “Accounting for Stock-Based Compensation.” Effective January 1,
      2006, the Company began recording compensation expense associated with stock
      options and other equity-based compensation in accordance with SFAS No. 123
      (revised 2004), “Share-Based Payment”. The Company adopted FAS 123(R) using the
      modified prospective method. The Company recognizes 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 $216,000 and
      $0
      for the nine months ended September 30, 2006 and 2005, respectively. Total
      compensation cost recognized for fair value options issued was $124,000 and
      $0
      for the three months ended September 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 the Company’s net loss position, no
      tax benefits have been recognized in the cash flow statement.





The
      Company also applies 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.**The Company derives substantially all 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. The Company typically acts as an agent on behalf of its clients
      in their primary lines of business. Accordingly, most revenues are recorded
      based upon the net commissions earned. The Company records non-media and
      Internet services at a gross billing amount, based on the actual services
      performed or provided. The net billing amounts included in operating revenues
      for the three months and nine months ended September 30, 2006 and 2005 were
      approximately $494,000 and $0, and $1.3 million and $0,
      respectively.




11




Revenue
      from product sales is generally recognized when 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. There were no significant contracts in process at September 30,
      2006.





**5.
      Acquisitions**





InTransit
      Media





On
      February 6, 2006, the Company purchased from Marlin Capital Partners II, LLC
      (doing business as InTransit Media) all of the assets used in InTransit Media’s
      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, and the equipment, computer servers and software used in the
      delivery of such services. In consideration for the assets, the Company paid
      $500,000 and delivered 146,762 shares of its common stock valued at $572,372,
      for total consideration of $1,072,372. The Company consolidated the operations
      of InTransit as of the date of acquisition.





In
      its
      recent review of intangible assets, the Company determined that its evaluation
      of net present value of cash flows indicates an impairment of this asset in
      its
      entirety. This impairment was caused by the accelerated and
      unexpected decrease in sold advertising. Therefore, this asset has been
      written down from the net book value of $724,000 to $0 as of September 30,
      2006.





**E&M
      Advertising**





In
      February, 2006, we purchased substantially all of the assets E&M
      Advertising, Inc., E&M West/Camelot, Inc. and NextReflex, Inc. (collectively
“E&M”), which were 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
      1,608,392 restricted shares of our common stock. The majority of these shares
      were issued during the second quarter 2006.





In
      April
      2006 and July 2006****the Company issued 1.47 million and
      .047 million shares, respectively,****of the 1.6 million
      restricted shares. The fair value of the shares issued was approximately $4.4
      million. The fair value of the remaining shares, valued at approximately
      $274,000 was recorded as “Stock Issuance Payable” as of September 30,
      2006.





The
      Company consolidated the operations of IMA as of the date of acquisition and
      has
      included IMA’s operations in the 2006 consolidated results from that date. The
      unaudited pro forma financial information presented below (in thousands)
      reflects the estimated effect of the E&M transaction as if it had occurred
      on January 1, 2006 and 2005, respectively.





For
                                  the nine months ended September 30,2006
                              
                              
                              2005Revenues
                              
                              $
                              4,993
                              
                              
                              $
                              6,910Operating
                                  income (loss)
                              
                              $
                              (7,205
                              )
                              
                              $
                              (627
                              )Net
                                  income (loss)
                              
                              $
                              (8,180
                              )
                              
                              $
                              (420
                              )Beneficial
                                  Conversion Feature of Series A Preferred
                              
                              
                              (934
                              )
                              
                              
                              -Accretion
                                  of Dividends on Series A Preferred Stock
                              
                              
                              (23
                              )
                              
                              
                              -Net
                                  income (loss) - Common Stockholders
                              
                              $
                              (9,137
                              )
                              
                              $
                              (420
                              )Income
                                  (loss) per share - basic and diluted
                              
                              $
                              (0.41
                              )
                              
                              $
                              (0.09
                              )




12




Pro
      forma Statement of Operations (Unaudited)





For
                            the Nine Months Ended September 30, 2006Actual
                        
                        
                        Adjustments
                            *
                        
                        
                        ProformaRevenues
                        
                        $
                        4,303,370
                        
                        
                        $
                        689,247
                        
                        
                        $
                        4,992,617Operating
                            loss
                        
                        
                        (7,460,067
                        )
                        
                        
                        (49,708
                        )
                        
                        
                        (7,509,775
                        )Net
                            loss
                        
                        
                        (8,308,562
                        )
                        
                        
                        (378,622
                        )
                        
                        
                        (8,687,184
                        )Beneficial
                            Conversion Feature of Series A Preferred
                        
                        
                        (933,873
                        )
                        
                        
                        
                        
                        
                        
                        (933,873
                        )Accretion
                            of Dividends on Series A Preferred Stock
                        
                        
                        (182,875
                        )
                        
                        
                        
                        
                        
                        
                        (182,875
                        )Net
                            loss - Common Stockholders
                        
                        
                        (9,425,310
                        )
                        
                        
                        (378,622
                        )
                        
                        
                        (9,803,932
                        )Loss
                            per share - basic and diluted
                        
                        $
                        (0.45
                        )
                        
                        
                        
                        
                        
                        $
                        (0.47
                        )





*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, 2006 through February 28, 2006.





Proforma
      Statement of Operations (Unaudited)





For
                          the Nine Months Ended September 30, 2005Actual
                      
                      
                      Adjustments
                          *
                      
                      
                      ProformaRevenues
                      
                      $
                      3,330,109
                      
                      
                      $
                      3,579,931
                      
                      
                      $
                      6,910,040Operating
                          loss
                      
                      
                      (879,081
                      )
                      
                      
                      (627,800
                      )
                      
                      
                      (1,506,881
                      )Net
                          loss
                      
                      
                      (982,261
                      )
                      
                      
                      (537,815
                      )
                      
                      
                      (1,520,076
                      )Loss
                          per share - basic and diluted
                      
                      $
                      (0.20
                      )
                      
                      
                      
                      
                      
                      $
                      (0.31
                      )





*
      The
      proforma adjustment to the historical financial statements reflects an increase
      in revenue of $3.6 million and operating expenses of $4.1 million which includes
      amortization expense of $1.1 million related to the acquisition. The loss per
      share is calculated using 246,749,665 shares outstanding as of September 30,
      2006 factored by the twenty to one reverse stock split effected in December
      2006.





**6.
      Inventory.**




Inventory
      totaling $921,000 consists of finished goods as of September 30,
      2006.





**7.
      Fixed Assets**





Fixed
      assets consist of the following as of September 30, 2006:





Computer
                        and other equipment
                    
                    $
                    910,736Furniture
                        and fixtures
                    
                    
                    139,825Software
                    
                    
                    977,199Leasehold
                        equipment
                    
                    
                    3,853Less:
                        accumulated depreciation
                    
                    
                    (634,636
                    )Fixed
                        assets, net
                    
                    $
                    1,396,977




13





**8.  Goodwill
      and Intangible assets**





Goodwill
      arose from the acquisition of E&M discussed in Note 5. It is not subject to
      amortization, but is periodically reviewed for impairment in value.





Intangibles
      consist of the following as of September 30, 2006 in thousands:





Customer
                        List
                    
                    $
                    1,444Trade
                        names
                    
                    
                    1,502Other
                    
                    
                    242,970Less:
                        accumulated amortization
                    
                    
                    (196
                    )Intangibles,
                        net
                    
                    $
                    2,774





**9.
      Note Payable - Related Parties**





Due
      to
      Related Parties totaling $197,000 as of September 30, 2006, consist 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 pertainsto
                      a specific airport project for
                      a period of 3 years******
                  
                  $
                  150,000Accrued
                      expenses to various stockholders, unsecured, bearing
                      interest
                  
                  
                  21,962Accrued
                      interest on related party loans
                  
                  
                  25,281Total
                      due to related parties
                  
                  $
                  197,243





**10.
      Line of Credit**





On
      January 27, 2006, the Company entered into a Security Agreement, Stock Pledge
      Agreement, Registration Rights Agreement with Laurus Master Fund, Ltd., a Cayman
      Islands corporation (“Laurus”), and issued to Laurus a Note and a Warrant
      (collectively, the “Transaction Documents”), pursuant to which Laurus agreed to
      provide the Company with a revolving credit facility of up to $6 million (the
      “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 the Company’s eligible
      accounts receivable minus such reserves that Laurus may in good faith deem
      necessary and appropriate.




On
      January 27, 2006, the Company obtained an initial draw under the Facility of
      $2
      million, of which approximately $782,000 was used to satisfy bank loans in
      full.
      The draws under the Facility are used for general corporate and working capital
      purposes. As of September 30, 2006, the balance due to Laurus was approximately
      $1.3 million.





In
      connection with the Facility, the Company paid Laurus approximately $246,000,
      comprised of a Facility management fee of $216,000 and reimbursement of $30,000
      in due diligence and documentation expenses. The Facility management fee is
      being amortized to interest expense over the three-year term of the Facility.
      The Company 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.




14




***The
      Warrant***. The Company issued to Laurus a common stock purchase
      warrant, entitling Laurus to purchase up to 750,000 shares of the Company’s
      common stock, par value $.001 per share at an exercise price of $.01 per share,
      subject to certain adjustments. The Company determined the fair value of the
      warrant to be $1.6 million as determined by using the Black-Scholes
      option-pricing model. The Company issued the warrant to obtain the Laurus
      Facility. As such, the Company 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
      Laurus 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 Laurus Facility is secured by a blanket lien on
      substantially all of the Company’s assets and those of its subsidiaries pursuant
      to the terms of a Security Agreement. In addition, the Company pledged the
      ownership interests in its subsidiaries pursuant to a stock pledge agreement
      executed in favor of Laurus. If an event of default occurs under any of the
      Transaction Documents, Laurus has the right to accelerate payments under the
      Note and, in addition to any other remedies available to Laurus, 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 also will be entitled to payment of a default interest rate
      of two percent (2%) per month on all amounts due, and to such other remedies
      specified in the Transaction Documents and under the Uniform Commercial Code.
      As
      of September 30, 2006, the Company is in compliance with all
      covenants.





The
      Security Agreement contains certain negative covenants that require the Company
      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 , the Company is obligated to file a registration
      statement on Form SB-2 or S-3 to register the resale of the shares of Common
      Stock issuable upon exercise of the Warrant and as a result of adjustments
      made
      to the Exercise Price of the Warrant pursuant to the Transaction Documents.
      The
      Company was required to file the registration statement 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, the Company 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
      15, 2006. The Company filed the Original Registration Statement with the SEC
      on
      July 31, 2006 and it was declared effective by the SEC as of August 15, 2006.
      In
      the event of adjustments made to the Exercise Price of the Warrant, the Company
      is required to file a registration statement (the “Additional Registration
      Statement”) within thirty (30) days of such event resulting in the adjustment of
      the Exercise Price or the actual date of the adjustment of the Exercise
      Price.





**11.
      Stock Option Plans and Warrants**





In
      2005,
      the Company’s Board of Directors adopted an incentive stock plan for its
      employees and consultants (“2006 Stock Option Plan”). Options granted under the
      2006 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
                      
                      
                      (1,255,000
                      )
                      
                      
                      1,255,000
                      
                      
                      
                      1.10Expired
                      
                      
                      
                      
                      
                      
                      (26,750
                      )
                      
                      
                      0.77Cancelled
                      
                      
                      -
                      
                      
                      
                      (74,167
                      )
                      
                      
                      0.84Balance,
                          September 30, 2006
                      
                      
                      40,000
                      
                      
                      
                      1,859,083
                      
                      
                      $
                      0.98Options
                          exercisable as of September 30, 2006
                      
                      
                      
                      
                      
                      
                      443,133
                      
                      
                      $
                      0.79




15




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
                      - $1.10
                  
                  
                  
                  1,859,083
                  
                  
                  
                  443,133
                  
                  
                  $
                  0.79
                  
                  
                  
                  4.99





The
      weighted-average fair value for options granted during 2006 and 2005 was $0.82
      and was estimated using the Black-Scholes option valuation model with the
      following weighted-average assumptions:





**2005**
                  
                  **2006**Expected
                      life in years
                  
                  2.50
                  
                  10.00Volatility
                  
                  256.18%
                  
                  141.23%Interest
                      rate
                  
                  4.35%
                  
                  4.82%Dividend
                      yield rate
                  
                  0%
                  
                  0%





In
      addition, the Company granted warrants to non-employees as follows:





Warrants
                        Outstanding
                    
                    
                    Weighted
                        Average Exercise PriceBalance,
                        December 31, 2005
                    
                    
                    447,566
                    
                    
                    $
                    0.95Granted
                    
                    
                    4,962,877
                    
                    
                    
                    1.38Exercised
                    
                    
                    (100,000
                    )
                    
                    
                    0.20Forfeited
                    
                    
                    -
                    
                    
                    
                    -Expired
                    
                    
                    -
                    
                    
                    
                    -Balance,
                        September 30, 2006
                    
                    
                    5,310,443
                    
                    
                    $
                    1.34Warrants
                        exercisable as of September 30, 2006
                    
                    
                    5,310,443
                    
                    
                    $
                    1.34





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%Dividend
                        rate
                    
                    0%





**12.
      Separation Agreements**





During
      March 2006, David V. Lott resigned from his position as the Company’s Chief
      Executive Officer and from the Company’s 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.
      The
      remaining balance is included in accrued liabilities.





**13.
      Series A Convertible Preferred Stock**





During
      March 2006, the Company sold 2,903,229 shares of Series A Convertible
      Preferred Stock (“Series A Shares”) at a price of $1.55 per share for total
      gross proceeds of $4.5 million. The Company 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 3-year
      term.




16




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 the Company’s
      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 the Articles of Incorporation or By-Laws; (e) effect any
      distribution with respect to any junior stock; (f) reclassify the outstanding
      securities, and (g) voluntarily file for bankruptcy, liquidate the Company’s
      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 are payable in either cash or shares of common stock at the Company’s
      discretion, provided that the Company has an effective registration statement
      providing for the resale of the shares of its common stock that would be paid
      as
      a dividend. The Company’s registration statement was declared effective on
      September 1, 2006. Through September 30, 2006, the Company has accrued
      approximately $183,000 in dividends payable. The Company is presently in arrears
      with respect to dividends due July 1, 2006 in the amount of approximately
      $104,000 and is in currently in discussions with shareholders regarding
      payment.





Additionally,
      the terms of the Series A Shares also require the Company to pay a one-time
      special dividend, payable in additional Series A Shares to the holders thereof,
      if the Company’s 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 the Company’s liquidation, dissolution or winding up, the holders of
      Series A Shares are generally are 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.





The
      Series A Shares become mandatorily redeemable 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 the Company’s
      suspension from listing, inability to comply or intention not to comply with
      a
      request for conversion, deregistration of the Company’s 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.




Pursuant
      to Accounting Principles Board Opinion No. 14 “Accounting for Convertible
      Debt and Debt Issued with Stock Purchase Warrants”, the Company allocated
      $2.8 million of the $4.5 million gross proceeds 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 using 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%.




17




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,” the Company 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 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 shares on the date of issuance as there is no stated redemption
      date and the shares are immediately convertible upon issuance. In light of
      the
      Company’s retained deficit, the deemed dividend remains in additional paid in
      capital. The beneficial conversion cost of $934,000 and the accreted dividends
      of $183,000 are added to net loss to determine the net loss available to common
      stockholders. Accreted dividends of $79,000 are added to net loss for the three
      months ended September 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
      the
      three months ended March 31, 2006, the company’s warrant holders exercised
      warrants for an aggregate 100,000 shares of common stock, with net proceeds
      of
      $20,000.





In
      January 2006, the Company issued and sold to eight purchasers in a private
      placement, warrants to purchase an aggregate of 216,072 shares of common
      stock at $1.12 per share pursuant to a common stock purchase agreement, together
      with warrants to purchase an aggregate of 83,479 shares of common stock at
      an
      exercise price of $1.50 per share and warrants to purchase an aggregate of
      23,066 shares of common stock at an exercise price of $3.18 per share. These
      warrants immediately vest and expire in January 2009. The Company received
      approximately $242,000 in connection with the sale and issuance of the common
      stock and related warrants. The relative fair value of the common stock was
      estimated to be approximately $172,000 and the relative fair value of the
      warrants was estimated to be $70,000 as determined based on the relative fair
      value allocation of the proceeds received. The warrants were valued using the
      Black-Scholes valuation model.





In
      January 2006 the Company issued and sold to five purchasers in a private
      placement, an aggregate of 400,002 shares of common stock at a purchase price
      of
      $.75 per share pursuant to a common stock purchase agreement for net proceeds
      of
      $300,000.





In
      January 2006, the Company issued 500,000 and 700,000 shares of common stock
      pursuant to two consulting agreements. The shares had a fair value of $1.0
      million.





In
      January 2006, the Company issued 2,394,873 shares of common stock to related
      parties in satisfaction of outstanding notes payable and other certain accrued
      expenses totaling $2.4 million. These shares had a fair value of $2.3 million.
      The difference of $106,000 has been recorded as a gain on retirement of notes
      payable.




18





In
      February 2006, the Company issued 146,762 shares of its common stock, valued
      at
      $572,372, in consideration for the transaction with Intransit.




In
      February 2006, the Company issued and sold to two purchasers in a private
      placement an aggregate of 30,137 shares of common stock at a purchase price
      of
      $2.48 per share pursuant to a common stock agreement, together with warrants
      to
      purchase an aggregate of 15,068 shares of common stock at an exercise price
      of
      $3.00 per share. These warrants immediately vest and expire in February 2009.
      The Company received approximately $74,800 in connection with the sale and
      issuance of the common stock and related warrants. The relative fair value
      of
      the common stock was estimated to be approximately $60,700 and the relative
      fair
      value of the warrants was estimated to be $14,100 as determined based on the
      relative fair value allocation of the proceeds received. The warrants were
      valued using the Black-Scholes valuation model.





In
      February 2006, the Company sold to five purchasers in a private placement,
      an
      aggregate of 199,400 shares of 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 common stock at an exercise price
      of
      $1.50 per share. These warrants immediately vest and expire in February 2009.
      The relative fair value of the common stock to be issued was estimated to be
      approximately $154,800 and the relative fair value of the warrants was estimated
      to be $69,200 as determined based on the relative fair value allocation of
      the
      proceeds received. The warrants were valued using the Black-Scholes valuation
      model. In April 2006, the Company issued the 200,000 shares of the common stock
      together with warrants to purchase an aggregate of 100,000 shares of common
      stock.




In
      March
      2006, the Company issued 141,000 shares of common stock to an institutional
      investor in full satisfaction of amounts such investor claimed were due under
      a
      convertible debenture, dated February 17, 2004. These shares had a fair value
      of
      $267,900, which we recorded as Legal Settlement Fees.




In
      February 2006, the Company issued 31,540 shares of common stock valued at
      $50,000 to a consultant in consideration for the provision of consulting
      services.




In
      April
      2006, the Company issued 1.47 million of the 1.6 million shares of 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 $4.7
      million. During the second quarter 2006, the Company issued 46,620 of the
      remaining common stock payable. In connection with the issuance of these shares,
      the “Stock Issuance Payable” balance has been decreased to $308,000 as of
      September 30, 2006.





In
      April
      2006, the Company issued 6,000 shares of common stock to one of its board
      members for consulting services previously rendered. The fair market value
      of
      those shares is $15,000.





In
      April
      2006, the Company issued and sold in a private placement, an aggregate of 50,000
      shares of common stock at $2 per share pursuant to a common stock purchase
      agreement. the Company received net proceeds of $100,000.





In
      April
      2006, a warrant holder exercised warrants for a total of 132,500 shares of
      common stock, with net proceeds to the Company of $2,750.





On
      June
      2, 2006, the Company received a waiver from Laurus with respect to its default
      of certain covenants relating to the registration of shares underlying warrants
      held by Laurus. In consideration of the waiver, the Company issued to Laurus
      30,000 shares of common stock. The Company filed the registration statement
      on
      July 31, 2006.





During
      second quarter 2006, the Company entered a service agreement with a one year
      term in exchange for the issuance of 150,000 shares of restricted common stock.
      As of June 30, 2006, these shares had not been issued and accordingly, the
      fair
      value of these shares was recorded as “Stock Issuance Payable” as of that date.
      The shares were issued during third quarter 2006.





During
      second quarter 2006, the Company entered a service agreement with a one year
      term in exchange for the issuance of 200,000 warrants to purchase shares of
      restricted common stock at an exercise price of $2.60 per share.





During
      third quarter 2006, the Company entered a service agreement with a one year
      term
      in exchange for the issuance of 350,000 shares of restricted common stock.
      The
      shares were issued during third quarter 2006.





19




In
      addition to the shares described above, 81,441 shares of the Company’s common
      stock as part of the Impart Transaction were held in escrow. Some or all of
      these shares may be used to settle liabilities that were outstanding at the
      time
      of the transaction and that are still being negotiated. These shares are
      considered issued as of December 31, 2005, but not outstanding.








**15.
      Capital Lease Obligations**





The
      Company is 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:





October
                      1, 2006 through December 31, 2006
                  
                  $
                  11,2352007
                  
                  
                  46,1192008
                  
                  
                  48,1332009
                  
                  
                  26,665132,152Less:
                      current portion
                  
                  
                  (19,907
                  )Capital
                      lease obligations - long-term portion
                  
                  $
                  112,245







**16.
      Commitments and Contingencies**





**Leased
      Facilities.**The Company utilizes 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 month periods ended September 30, 2006 and 2005,
      and $135,000 for both the nine month periods ended September 30, 2006 and
      September 30, 2005. Certain 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 through June 2011. Total rental expense under the facilities
      lease was approximately $36,000 and $0 for the three month periods ended
      September 30, 2006 and 2005, respectively and $90,000 and $0 for the nine month
      periods ended September 30, 2006 and 2005, respectively. The Company also has
      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 September 30, 2006,
      are
      as follows:





October
                      1, 2006 through December 31, 2006
                  
                  $
                  101,1282007
                  
                  
                  407,1272008
                  
                  
                  411,6592009
                  
                  
                  416,2822010
                  
                  
                  420,997Thereafter
                  
                  
                  1,545,136$
                  3,302,329






**17.
      Legal Proceedings**




An
      action
      was commenced on April 21, 2006 in Division No.1 of the Warren Circuit Court
      of
      the Commonwealth of Kentucky and 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
      alleging unfair competition by the Company with OTR Media, Inc. via utilization
      of trade secrets and other confidential information. On May 18, 2006, such
      action was removed to federal court in the Western District of Kentucky, titled
      Funk v. Limelight Media Group, Inc. et al., No.: 1:06-CV-72-M (W.D. Ky.)
      and on June 6, 2006, the Company filed a motion to dismiss such action. On
      October 16, 2006, the federal court in the Western District of Kentucky granted
      the Company’s motion to dismiss such action on the grounds that plaintiffs
      lacked standing to assert their claims of unfair competition and
      misappropriation of trade secrets, and that plaintiffs had not proffered any
      other viable theory of recovery in the complaint. Plaintiffs in the action
      have
      the right to appeal the judgment not later than November 15, 2006.




20




**18.
      Subsequent Events**





Effective
      September 30, 2006, the Company implemented a cost reduction program that
      focused on decreasing administrative expenses and the number of sales and
      operations staff. The Company expects these efforts to reduce expenses by
      approximately $150,000 for the third quarter of 2006 and $1.0 million in
      2007.





**19.
      New Accounting Pronouncements**





In
      June
      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. The Company does not expect that this
      Interpretation will have a material impact on the Company’s financial position,
      results of operations or cash flows.





In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No.
      157, Fair Value Measurements (“FAS 157”). FAS 157 defines fair value,
      establishes a framework for measuring fair value and expands disclosures about
      fair value measurements but does not require any new fair value measurements.
      FAS 157 is effective for financial statements issued for fiscal years beginning
      after November 15, 2007, and interim periods within those fiscal years. The
      Company has not yet determined the impact of applying FAS 157.





21




**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, including without limitation, our *Impart IQ*
      product line*;* 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 or Plan of
      Operation” 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, associated technological
      hardware, web services, and software. We provide design, integration,
      fabrication, assembly, quality assurance, creative production, installation
      and
      onsite maintenance services throughout North America. Through our Impart Media
      Advertising division (created as a result of our acquisition of E&M
      Advertising, Inc. and its affiliates (“E&M”) in February 2006), we provide
      direct response media services, as well as advertising capability to the digital
      elements we deploy for our customers.





We
      have
      developed and offer a digital media network that is based on a unique
      architecture called *Impart IQ*, a web-based portal suite of services,
      coupled with enabling, proprietary hardware, that we believe no other competitor
      in the out-of-home media sector provides. Our products are targeted to
      businesses desiring digital signage and interactive media systems in one or
      more
      locations. Our 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 either by our customers or
      by us. We believe that *Impart IQ* provides superior network and grid
      computing services with online diagnostic and network wide load balancing
      capabilities. Management believes that as traditional media transfer advertising
      and information content to the types of digital networks we deploy and company
      information system and information technology departments take advantage of
      digital media services in the out-of-home market, demand for our digital signage
      and interactive media systems will increase.





We
      are
      currently marketing products and network offerings into multiple vertical
      markets in order to potentially to realize revenue from multiple sources. For
      example, airports, mass transit facilities, malls, financial institutions,
      retail stores and government agencies can be media property venue owners for
      directory services and the distribution of advertisements, marketing messages
      and information and entertainment content. Revenues are derived from network
      monitoring, server 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 media property venue owners or the owners may receive a portion of the
      advertising revenue on a negotiated basis.





For
      the
      three-month period and nine-month period ended September 30, 2006, our primary
      source of revenue was derived from media services, equipment sales, and
      managed subscription services. For the three-month period and nine-month period
      ended September 30, 2005, our primary source of revenue was derived from
      equipment sales and managed subscription services.





22




**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:





Ÿ
            It
                requires assumptions to be
                made that were uncertain at the time the estimate was made,
                and


Ÿ
            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 prospective method,
      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(R) for pro forma disclosures.





We
      grant
      options to purchase our common stock to our employees and directors under our
      2006 Equity Incentive Plan. The benefits provided under this plan are
      share-based payments subject to the provisions of SFAS 123(R). Share-based
      compensation expense recognized under SFAS 123(R) through September 30, 2006
      was
      $216,000. At September 30, 2006, total unrecognized estimated compensation
      expense related to non-vested stock options granted prior to that date was
      $1.2
      million, of which approximately $144,000 is expected to be recognized over
      the
      remaining three 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 which 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.





23




*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 nine months ended September 30, 2006.





In
      addition, after consultation with our auditors, we account for revenue
      attributable to contracts acquired in conjunction with our acquisition of
      E&M on a net basis, as opposed to gross basis. Historically, over a twenty
      year period, E&M’s accountants had recorded revenue on a gross basis, but to
      insure compliance with GAAP and upon other accounting considerations, we have
      elected to utilize the more conservative net revenue recognition calculations.
      This method of net revenue recognition will have no effect on any recognition
      of
      net profits.




We
      have
      significant intangible assets acquired in the purchase of E&M which we have
      recorded in compliance with SFAS 142 "Goodwill and Other Intangible Assets."
      The
      accounting treatment under SFAS 142 has required significant
      estimates.




**Results
      of Operations**





*Three
      Months Ended September 30, 2006 Compared to Three Months Ended September 30,
      2005*





*Revenues*.




**Three
                        Months Ended September 30,****2006**
                    
                    
                    **2005**
                    
                    
                    **Change**
                    
                    
                    **%
                        Change****(in
                        thousands)**Revenue
                    
                    $
                    1,654
                    
                    
                    $
                    1,423
                    
                    
                    $
                    231
                    
                    
                    
                    16
                    %Cost
                        of revenue
                    
                    
                    (755
                    )
                    
                    
                    (984
                    )
                    
                    
                    229
                    
                    
                    
                    23
                    %General
                        and administrative expenses (excluding depreciation and
                        amortization)
                    
                    
                    (3,067
                    )
                    
                    
                    (1,050
                    )
                    
                    
                    (2,017
                    )
                    
                    
                    (192
                    )%Interest
                        expense
                    
                    
                    (240
                    )
                    
                    
                    (112
                    )
                    
                    
                    (128
                    )
                    
                    
                    (114
                    )%Depreciation
                        and amortization
                    
                    
                    (331
                    )
                    
                    
                    (104
                    )
                    
                    
                    (227
                    )
                    
                    
                    (218
                    )%Other
                        income and (expenses)
                    
                    
                    0
                    
                    
                    
                    6
                    
                    
                    
                    (6
                    )
                    
                    
                    (100
                    )%Net
                        loss
                    
                    
                    (2,739
                    )
                    
                    
                    (821
                    )
                    
                    
                    (1,918
                    )
                    
                    
                    (234
                    )%




Revenue
      increased $231,000, from $1,423,000 to $1,654,000 during the three months ended
      September 30, 2006, as compared to the three months ended September 30, 2005.
      The increase was primarily due to increased media services revenues of $659,000
      derived as a result of our acquisition of E&M in February 2006, and
      increased subscription revenues of approximately $90,000 derived as a result
      our
      acquisition of Media SideStreet Corp. (“Media SideStreet”) in June 2005, offset
      by a decrease of $462,000 in revenues from sales of digital signage
      equipment.





The
      decrease of $462,000 in revenues from sales of digital signage equipment was
      primarily due to a shift in our long-term business strategy which we began
      implementing beginning in the third quarter of 2005. 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.




24




Additionally,
      as of the conclusion of the three-month period ended September 30, 2006, in
      an
      effort to reduce expenditures, we have curtailed the use of our “Network Owner”
revenue model, whereby we, rather than the venue providers, pay for the
      installation of digital signage equipment and displays in venues. The “Network
      Owner” revenue model requires us to expend a large amount of capital upfront and
      the bulk of these revenue arrangements were not immediately profitable to us.
      For example, in the Seattle-Tacoma airport, we were unable to facilitate a
      large
      roll-out of our iPoint kiosks and hardware and thus were not able to attract
      large scale national advertisers, resulting in little or no return on
      investment. Consequently, we removed numerous iPoint kiosks and other related
      hardware and firmware originally deployed in such airport venues. In other
      airport venues, such as the Detroit Metropolitan Airport, we are working to
      modify the “Network Owner” revenue model by transferring the capital expenditure
      burden to the airport, while we focus on equipment sales, provision of
      networking services and management services to such venues. We continue to
      believe that iPoint products and related technology offers many advantages
      over
      the expensive and outdated forms static and fixed signage deployments airports
      currently employ, and we intend to identify ways that we and airport venue
      providers can both realize the benefits that such iPoint network systems
      provide.





We
      are
      now focusing on placing our own proprietary *Impart IQ* hardware and
      interactive media products in selected vertical markets and venues to minimize
      initial outlay of capital and to achieve a shorter path to profitability. Many
      of our clients (such as Microsoft, AT&T, Nordstrom, RediClinic, Bell Canada)
      are currently participating in test pilot programs or are transitioning into
      large-scale deployments of our *Impart IQ* products.





During
      the third quarter, we also disbanded our truckside advertising business unit,
      which was not generating projected market revenues. However, we intend to
      maintain our strategic relationships with the traditional out-of-home billboard
      companies that we formed in connection with our truckside advertising business,
      and we hope to enter into contracts with such companies to provide digital
      signage products and services.





As
      a
      result, our sources of revenue now include site monitoring, server hosting,
      content management, subscription services, on-site service, third-party
      advertising, direct response marketing, custom development, design and
      fabrication and, to a lesser extent, integration and equipment sales. We believe
      our broad offering of products and services will maximize our earnings potential
      because it enables us to deliver a one-stop digital signage and interactive
      media 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 reliable full-service digital media
      solution provider.





*Cost
      of Revenues*. Cost of revenues primarily consists of the amounts we pay for
      hardware (e.g. video displays and components for our custom-built *IQ
      Box* media players and servers) that we integrate and install for our
      customers. Additional cost of revenues pertains to costs resulting from our
      increased revenues in media services such as server hosting and bandwidth,
      content royalties, advertising commission fees and third-party services such
      as
      installation labor costs. Our cost of revenues decreased by $229,000 during
      the
      three months ended September 30, 2006 as compared with the three months ended
      September 30, 2005 primarily due to the decrease in equipment
      sales.





*General
      and Administrative Expenses*. General and administrative expenses, excluding
      depreciation and amortization, for the quarter ended September 30, 2006
      increased by $2.0 million as compared with the quarter ended September 30,
      2005,
      from $1.1 million to $3.1 million. This increase was primarily due to the
      significant increase in compensation expenses, professional and consulting
      fees,
      the impairments to intangible assets acquired in the transaction with InTransit
      and other general and administrative expenses resulting from the doubling of
      personnel now employed by our company as a result of the acquisition of
      E&M.





Other
      general and administrative expenses were $685,000 during the three months ended
      September 30, 2006, an increase of $330,000 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.





*Wages
      and Salaries*. Wages and salary expense for the quarter ended September 30,
      2006 was $1.2 million, an increase of $867,000 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 September 30, 2005, including our acquisitions of E&M, iPoint Networks
      LLC (“iPoint”) and Media SideStreet.





25




*Other
      Expenses*. Interest expense was $240,000 for the quarter ended September 30,
      2006, an increase of $128,000 over the same period last year primarily due
      to
      interest expense incurred in connection with the line of credit from
      Laurus.





Depreciation
      and amortization costs increased by $227,000 compared to the same quarter of
      2005. This increase resulted mainly from the acquisitions of E&M, iPoint and
      InTransit.





Based
      on
      the above, we had a net loss of $2.7 million for the three months ended
      September 30, 2006 as compared to a net loss of $821,000 for the three months
      ended September 30, 2005.








*Nine
      Months Ended September 30, 2006 Compared to Nine Months Ended September 30,
      2005*





*Revenues*.




**Nine
                      Months Ended September 30,****2006**
                  
                  
                  **2005**
                  
                  
                  **Change**
                  
                  
                  **%
                      Change****(in
                      thousands)**Revenue
                  
                  $
                  4,303
                  
                  
                  $
                  3,330
                  
                  
                  $
                  973
                  
                  
                  
                  29
                  %Cost
                      of revenue
                  
                  
                  (2,047
                  )
                  
                  
                  (2,296
                  )
                  
                  
                  249
                  
                  
                  
                  11
                  %General
                      and administrative expenses (excluding depreciation and
                      amortization)
                  
                  
                  (8,840
                  )
                  
                  
                  (1,795
                  )
                  
                  
                  (7,045
                  )
                  
                  
                  (392
                  )%Interest
                      expense
                  
                  
                  (955
                  )
                  
                  
                  (134
                  )
                  
                  
                  (821
                  )
                  
                  
                  (612
                  )%Depreciation
                      and amortization
                  
                  
                  (875
                  )
                  
                  
                  (117
                  )
                  
                  
                  (758
                  )
                  
                  
                  (648
                  )%Other
                      income and (expenses)
                  
                  
                  106
                  
                  
                  
                  30
                  
                  
                  
                  76
                  
                  
                  
                  253
                  %Net
                      loss
                  
                  
                  (8,309
                  )
                  
                  
                  (982
                  )
                  
                  
                  (7,327
                  )
                  
                  
                  (746
                  )%




Revenue
      increased from the same period of 2005 primarily due to increased media services
      revenues of $1.7 million derived as a result of our acquisition of E&M in
      February 2006, and increased subscription revenues of $290,000 derived as a
      result our acquisition of Media SideStreet in June 2005, offset by a decrease
      of
      $1.2 million in revenues from sales of digital signage equipment.





The
      decrease of $1.2 million 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 September 30, 2006.





*Cost
      of Revenues*. Cost of revenues decreased from the comparable period last
      year despite increased sales revenue because we increased our sales of higher
      margin products and services with improved margins such as *Impart IQ*.
      Cost of revenues primarily consists of amounts we pay for hardware (i.e.,
      video displays, media players and servers) that we integrate and install for
      our
      customers. Our cost of revenues decreased by $249,000 during the nine months
      ended September 30, 2006 as compared with the same period in 2005 due to the
      decrease in equipment sales and the resultant costs.





*General
      and Administrative Expenses*. General and administrative expenses excluding
      depreciation and amortization for the nine months ended September 30, 2006
      increased by $7.0 million as compared with the nine months ended September
      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 nine months ended September 30, 2006 was $3.5
      million, an increase of $2.8 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 nine months ended September
      30,
      2005, including our acquisitions of E&M, iPoint and Media
      SideStreet.





26




*Other
      Expenses*. Interest expense was $955,000 for the nine months ended September
      30, 2006, an increase of $821,000 over the same period last year 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 $758,000 compared to the same quarter of
      2005. This increase resulted mainly from our acquisitions of E&M, iPoint and
      InTransit.





Based
      on
      the above, we had a net loss of $8.3 million for the nine months ended September
      30, 2006 as compared to a net loss of $982,000 for the nine months ended
      September 30, 2005.





**Liquidity
      and Capital Resources**





We
      have
      limited capital resources. At September 30, 2006, total cash was approximately
      $195,000. During the nine months ended September 30, 2006, we funded operations
      with the proceeds from sales and services, draw-downs on our $6 million accounts
      receivable-based credit facility from Laurus (the “Laurus Facility”) and
      proceeds from the issuance and sale of our equity securities. At September
      30,
      2006, $1.3 million was outstanding under the Laurus Facility and $418,000 was
      available for draw-down.





We
      anticipate that our existing capital resources, including amounts available
      under the Laurus Facility, will enable us to continue operations through
      September 30, 2007, assuming we meet our sales projections for such
      period. If we materially fail to meet such sales projections and we do not
      raise additional capital, then we may be forced to severely curtail or cease
      operations. Consequently, we are actively working with investment banks and
      institutional investors to obtain additional capital through various financing
      options; however, we do not have any financing commitments. There can be no
      assurance that financing will be available on favorable terms or at all. If
      we
      raise additional capital through the sale of equity or convertible debt
      securities, the issuance of such securities may result in dilution to existing
      stockholders.




As
      of
      September 30, 2006, our accumulated deficit was $12.5 million. Our net loss
      was
      $2.7 million for the quarter ended September 30, 2006 and $8.3 million for
      the
      nine-month period ending September 30, 2006. Additionally, we anticipate that
      we
      will incur significant losses from operations through the end of 2007. However,
      many of the expense items that will generate these losses are non-cash charges
      such as non-cash interest, depreciation and amortization. Accordingly, if we
      meet our sales forecast for 2007, we anticipate that we will generate positive
      earnings before interest, taxes, depreciation, and amortization (EBITDA) during
      the first six months of 2007.





Our
      limited capital resources and recurring losses from operations raise substantial
      doubt about our ability to continue as a going concern and may adversely affect
      our ability to raise additional capital. In addition, 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 substantial doubt about our ability to
      continue as a going concern. The financial statements do not include any
      adjustments that might be necessary if we are unable to continue as a going
      concern.





*Cash
      Sources and Uses*





Cash
      inflows during the nine months ended September 30, 2006 include net proceeds
      of
      $3.9 million 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
      draw-down 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 nine months ended
      September 30, 2006 and 2005:




27




**Nine
                            months ended September 30,****2006**
                        
                        
                        **2005**(in
                            thousands)**Cash
                            Sources**Proceeds
                            from issuance of equity securities
                        
                        $
                        4,677
                        
                        
                        $
                        0Proceeds
                            from notes payable - related parties
                        
                        
                        150
                        
                        
                        
                        56Proceeds
                            from notes payable
                        
                        
                        -
                        
                        
                        
                        70Net
                            change due to related parties
                        
                        
                        -
                        
                        
                        
                        133Net
                            change from line of credit
                        
                        
                        551
                        
                        
                        
                        104Other
                            cash sources
                        
                        
                        23
                        
                        
                        
                        89Total
                            cash sources
                        
                        $
                        5,401
                        
                        
                        $
                        452**Cash
                            Uses**Cash
                            used in operating activities
                        
                        $
                        2,805
                        
                        
                        $
                        245Cash
                            used in acquisitions
                        
                        
                        1,100
                        
                        
                        
                        -Repayment
                            of debt obligations
                        
                        
                        608
                        
                        
                        
                        25Deferred
                            financing costs
                        
                        
                        428
                        
                        
                        
                        -Capital
                            expenditures
                        
                        
                        298
                        
                        
                        
                        218Other
                            cash uses
                        
                        
                        33
                        
                        
                        
                        -Total
                            cash uses
                        
                        $
                        5,272
                        
                        
                        $
                        488(Decrease)
                            increase in cash
                        
                        $
                        129
                        
                        
                        $
                        (36
                        )





At
      September 30, 2006, we had liquid assets of $6.6 million consisting of cash
      in
      the amount of $0.2 million, accounts receivable derived from operations in
      the
      amount of $3.9 million, prepaid expenses and other current assets of $1.6
      million and inventory in the amount of $0.9 million. Long-term assets of $6.8
      million consisted primarily of goodwill of $2.4 million,  intangible assets
      of $2.8 million, deferred financing costs of $2.0 million and fixed assets
      of
      $1.4 million, including computer servers, media players and video display
      equipment used in operations.





Current
      liabilities of $9.1 million at September 30, 2006 consisted primarily of $6.7
      million of accounts payable, $0.3 million of accrued liabilities, $1.3 million
      due under the Laurus Facility and $0.3 million of stock issuances
      payable.





Our
      working capital deficit was $2.5 million as of September 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.





28




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 our common stock with an exercise
      price of $2.25 per share and a three-year term. We paid $562,000 in issuance
      costs, for net proceeds of $3.9 million.





Each
      Series A Share is convertible into one share of common stock, subject to
      adjustment for certain dilutive events. Each Series A Share is convertible
      by
      the holder at any time. The Series A Shares will automatically convert into
      shares of our 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 September
      30, 2006 are approximately $183,000. We are presently in arrears with respect
      to
      dividends due July 1, 2006 in the amount of approximately $104,000 and currently
      are in discussions with the holders of Series A Shares regarding
      payment.





On
      August
      1, 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 was declared
      effective as of September 1, 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, chief financial officer and 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.





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INTERNAL
      CONTROLS OVER FINANCIAL REPORTING. During the quarter ended September 30, 2006,
      our management and financial staff has implemented several additive internal
      controls including the increased oversight and required approval by management
      and senior financial personnel of all financial transactions, consistent and
      mandated communications with our independent registered public accountants,
      and
      improvements in cataloging and retention of all financial documents and
      instruments. As of September 30, 2006 and for the period covered by this Report,
      the implementation of these controls has materially affected, and is reasonably
      likely to materially affect, in a positive manner, 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).







**PART
      II**





**OTHER
      INFORMATION**








**ITEM
      1. LEGAL PROCEEDINGS**





As
      previously reported in our Current Report on Form 8-K, dated October 16, 2006,
      filed with the U.S. Securities and Exchange Commission on October 19, 2006,
      an
      action was commenced on April 21, 2006 in Division No.1 of the Warren Circuit
      Court of the Commonwealth of Kentucky and 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 alleging unfair competition by our company with OTR Media, Inc. via
      utilization of trade secrets and other confidential information. On May 18,
      2006, such action was removed to federal court in the Western District of
      Kentucky, titled Funk v. Limelight Media Group, Inc. et al., No.:
      1:06-CV-72-M (W.D. Ky.) and on June 6, 2006, our company filed a motion to
      dismiss such action. On October 16, 2006, the federal court in the Western
      District of Kentucky granted our company’s motion to dismiss such action on the
      grounds that plaintiffs lacked standing to assert their claims of unfair
      competition and misappropriation of trade secrets, and that plaintiffs had
      not
      proffered any other viable theory of recovery in the complaint. Plaintiffs
      in
      the action have the right to appeal the judgment not later than November 15,
      2006.






**ITEM
        2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
        PROCEEDS.**


In
      July
      2006, we issued 350,000 shares of our common stock together with three-year
      warrants to purchase 100,000 shares of our common stock at an exercise price
      of
      $1.55 per share, to a consulting firm for financial advisory and public
      relations services. These shares and warrants were issued in reliance on the
      exemption from registration provided by Section 4(2) of the Act, on the basis
      that the issuances 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.








**ITEM
      5. OTHER INFORMATION.**





On
      February 6, 2006, as previously reported in our Current Report on Form 8-K,
      filed with the SEC on February 7, 2006, we purchased from Marlin Capital
      Partners II, LLC d/b/a InTransit Media (“InTransit”) all of the assets related
      to InTransit’s digital advertising services business, including the right to
      manage the PATHVision digital signage network owned by the Port Authority of
      New
      York and New Jersey (the “PATH”) along with the equipment, computer servers and
      software utilized in connection with the delivery of such advertising services.
      In consideration for such assets and the assignment of the PATHVision contract,
      we paid $500,000 in cash and issued 146,762 shares of our common stock valued
      at
      $572,372 as of the transaction date for a total purchase price of
      $1,072,372.





Upon
      our
      most recent review of the intangible assets acquired from InTransit, which
      was
      performed in connection with the preparation of our financial statements for
      the
      third quarter of 2006, we determined that our initial calculation of the net
      present value of cash flow from the PATHVision network and related intangible
      assets indicates a material impairment of these assets. Such impairment is
      attributable to an accelerated and significant decrease in advertising time
      sold
      to both historical and future projected advertisers, due to the severely
      compromised image and screen quality of the technologically-outdated and
      often-malfunctioning 270 cathode ray tube (CRT) displays comprising the
      PATHVision network.





30




At
      the
      time we consummated the asset acquisition with InTransit, to realize the maximum
      value of the PATHVision system, we anticipated that technological and hardware
      updates would be required. Accordingly, we sought a commitment by PATH to
      refurbish the network but PATH declined. In the summer of 2006, we proposed
      to
      extend the term of the PATHVision contract until April 2012 from its current
      expiration date of April 2008. In consideration for such an extension of the
      PATHVision contract, we offered to assume all capital expenditures and labor
      costs related to the replacement of the antiquated CRT displays and obsolete
      network control center with state-of-the-art flat panel LCD displays along
      with
      our *Impart IQ* digital signage platform and network. PATH declined our
      offer.




As
      a
      result, as of the three and nine months ended September 30, 2006, the net book
      value of such intangible assets is $0, representing a decrease of $724,000
      from
      its previous net book valuation.







**ITEM
      6. EXHIBITS.**





The
      exhibits required by this item are listed on the Exhibit Index attached
      hereto.




31




**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:
                      April 20, 2007
                  IMPART
                      MEDIA GROUP, INC.By:
                  /s/Joseph
                      F. MartinezJoseph
                      F. MartinezChief
                      Executive Officer(principal
                      executive officer)Chief
                      Accounting Officer(principal
                      financial
                      officer)




32




**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.






33