UNITED
        STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON,
        D.C. 20549
 Form
        10-QSB/A
 (Amendment
        No. 2)
 
 (Mark
        One)
 
 T           QUARTERLY
        REPORT PURSUANT TO SECTION 13 OR 15(D) OF
 THE
        SECURITIES EXCHANGE ACT OF 1934
 
 For
        the
        period ended June 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 jurisdiction of incorporation or organization)
                      (I.R.S.
                          Employer Identification
                          No.)
 
 1300
                        North Northlake WaySeattle,
                        WA 98103(Address
                        of principal executive
                        offices)
 
 (206)
                        633-1852(Issuer's
                        telephone number)
 
 N/A(Former
                        Address of principal executive
                        offices)
 
 
 Check
        whether the issuer (1) filed all reports required to be filed by Section
        13 or
        15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
        (or
        for such shorter period that the registrant was required to file such reports),
        and (2) has been subject to such filing requirements for the past 90 days. 
Yes T  
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
        T
  As
        of
        August 15, 2006, 22,512,863 shares of our common stock, $0.001 par value
        per share, and 2,903,229 shares of our Series A preferred stock, $0.001 par
        value per share, which shares of Series A preferred stock, were, at August
        15,
        2006, convertible into an aggregate of 2,903,229 shares of our common stock,
        were outstanding. Our common stock currently trades on the OTC Bulletin Board
        under the symbol “IMMG”.
 
 Transitional
        Small Business Disclosure Format (check one):  Yes £  
No
        T
  
 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 June 30, 2006 to amend in its entirety our Quarterly Report on Form
        10-QSB
        for the quarter ended June 30, 2006 originally filed with the U.S. Securities
        and Exchange Commission on August 21, 2006 and as amended on December 19,
        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 June 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.  As a result of this
        reclassification of intangible assets and goodwill, our net losses for the
        three
        and six months ended June 30, 2006 decreased by approximately $420,000 and
        $535,000, 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. 2 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. 2
        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*)
 June
        30,
        2006
 (UNAUDITED)
 
 ASSETS
 
 Current
                        assetsCash
                    
                    $
                    406,459Accounts
                        receivable, net
                    
                    
                    4,630,344Inventory
                    
                    
                    477,366Prepaid
                        expenses and other current assets
                    
                    
                    1,978,884Total
                        current assets
                    
                    
                    7,493,053Fixed
                        assets, net (Note 7)
                    
                    
                    1,437,639Other
                        AssetsGoodwill
                        (Note 8)
                    
                    
                    2,359,418Intangible
                        assets, net (Note  8)
                    
                    
                    3,705,584Deferred
                        financing costs, net (Note 10)
                    
                    
                    2,183,446Other
                        Assets
                    
                    
                    64,013Total
                        other assets
                    
                    
                    8,312,461Total
                        assets
                    
                    $
                    17,243,153LIABILITIES
                        AND STOCKHOLDERS' EQUITYCurrent
                        liabilitiesAccounts
                        payable
                    
                    $
                    7,195,828Accrued
                        liabilities
                    
                    
                    429,070Customer
                        deposits
                    
                    
                    85,534Lines
                        of credit (Note 10)
                    
                    
                    657,137Note
                        payable
                    
                    
                    100,000Note
                        payable - related parties (Note 9)
                    
                    
                    190,766Capital
                        lease obligation - current portion
                    
                    
                    21,330Stock
                        issuance payable (Note 5)
                    
                    
                    743,360Other
                        liabilities
                    
                    
                    203,215Total
                        current liabilities
                    
                    
                    9,626,240Capital
                        lease obligation - long term
                    
                    
                    92,328Total
                        liabilities
                    
                    
                    9,718,568Commitments
                        and contingencies (Notes 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, 21,828,299
                        shares
                        issued and outstanding
                    
                    
                    21,834Additional
                        paid-in capital
                    
                    
                    17,255,586Accumulated
                        deficit
                    
                    
                    (9,755,738
                    )Total
                        stockholders' equity
                    
                    
                    7,524,585Total
                        liabilities and stockholders' equity
                    
                    $
                    17,243,153
 
 *
        (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*)
 June
        30,
        2006
 
 For
                        the Three
                      Months
                        Ended
                      June
                        30, 2006
                    
                    
                    For
                        the Three
                      Months
                        Ended
                      June
                        30, 2005
                    
                    
                    For
                        the Six
                      Months
                        Ended
                      June
                        30, 2006
                    
                    
                    For
                        the Six
                      Months
                        Ended
                      June
                        30, 2005RevenuesEquipment
                        sales
                    
                    $
                    634,553
                    
                    
                    $
                    850,251
                    
                    
                    $
                    1,159,189
                    
                    
                    $
                    1,734,037Managed
                        subscription
                    
                    
                    108,031
                    
                    
                    
                    -
                    
                    
                    
                    261,130
                    
                    
                    
                    -Consulting
                        and design services
                    
                    
                    100,565
                    
                    
                    
                    166,715
                    
                    
                    
                    206,428
                    
                    
                    
                    173,291Media
                        Services
                    
                    
                    583,188
                    
                    
                    
                    -
                    
                    
                    
                    1,022,334
                    
                    
                    
                    -Total
                        revenues
                    
                    
                    1,426,337
                    
                    
                    
                    1,016,966
                    
                    
                    
                    2,649,081
                    
                    
                    
                    1,907,328Cost
                        of revenues
                    
                    
                    703,287
                    
                    
                    
                    613,125
                    
                    
                    
                    1,291,728
                    
                    
                    
                    1,311,573Gross
                        profit
                    
                    
                    723,050
                    
                    
                    
                    403,841
                    
                    
                    
                    1,357,353
                    
                    
                    
                    595,755General
                        and administrative expensesProfessional
                        and consulting
                    
                    
                    966,184
                    
                    
                    
                    27,341
                    
                    
                    
                    1,572,736
                    
                    
                    
                    59,257Selling
                        and marketing
                    
                    
                    266,175
                    
                    
                    
                    31,213
                    
                    
                    
                    336,372
                    
                    
                    
                    69,632Depreciation
                        and amortization
                    
                    
                    321,521
                    
                    
                    
                    7,389
                    
                    
                    
                    544,602
                    
                    
                    
                    13,013Wages
                        and salaries
                    
                    
                    1,027,151
                    
                    
                    
                    229,225
                    
                    
                    
                    2,372,031
                    
                    
                    
                    434,506Rent
                        expense
                    
                    
                    109,718
                    
                    
                    
                    53,652
                    
                    
                    
                    198,183
                    
                    
                    
                    107,213Other
                        general and administrative expenses
                    
                    
                    589,921
                    
                    
                    
                    32,560
                    
                    
                    
                    1,294,319
                    
                    
                    
                    75,584Total
                        general and administrative expenses
                    
                    
                    3,280,670
                    
                    
                    
                    381,380
                    
                    
                    
                    6,318,243
                    
                    
                    
                    759,205Income
                        (loss) from operations
                    
                    
                    (2,557,620
                    )
                    
                    
                    22,461
                    
                    
                    
                    (4,960,890
                    )
                    
                    
                    (163,450
                    )Other
                        income (expense)Other
                        income and expense, net
                    
                    
                    (14,052
                    )
                    
                    
                    10,176
                    
                    
                    
                    -
                    
                    
                    
                    23,866Gain
                        on retirement of notes payable
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    106,423
                    
                    
                    
                    -Interest
                        expense
                    
                    
                    (269,436
                    )
                    
                    
                    (5,845
                    )
                    
                    
                    (715,277
                    )
                    
                    
                    (21,208
                    )Net
                        Income (loss)
                    
                    $
                    (2,841,108
                    )
                    
                    $
                    26,792
                    
                    
                    $
                    (5,569,744
                    )
                    
                    $
                    (160,792
                    )Net
                        Income (Loss) - Common Stockholders:Net
                        Loss
                    
                    $
                    (2,841,108
                    )
                    
                    $
                    26,792
                    
                    
                    $
                    (5,569,744
                    )
                    
                    $
                    (160,792
                    )Beneficial
                        conversion feature of Series A preferred stock
                    
                    
                    
                    
                    
                    
                    --
                    
                    
                    
                    (933,873
                    )
                    
                    
                    --Accretion
                        of dividends on Series A preferred stock
                    
                    
                    (80,675
                    )
                    
                    
                    --
                    
                    
                    
                    (104,125
                    )
                    
                    
                    --Net
                        earnings (loss) - available to common stockholders
                    
                    $
                    (2,921,783
                    )
                    
                    $
                    26,792
                    
                    
                    $
                    (6,607,742
                    )
                    
                    $
                    (160,792
                    )Basic
                        and diluted earnings (loss) per common share
                    
                    $
                    (0.13
                    )
                    
                    $
                    0.01
                    
                    
                    $
                    (0.33
                    )
                    
                    $
                    (0.03
                    )Basic
                        and Diluted weighted average common shares outstanding
                    
                    
                    21,750,103
                    
                    
                    
                    4,828,831
                    
                    
                    
                    20,097,470
                    
                    
                    
                    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*)
 June
        30,
        2006
 
 For
                        the six
                      months
                      Ended
                      June
                        30, 2006
                    
                    
                    For
                        the six
                      months
                      Ended
                      June
                        30, 2005Cash
                        flows from operating activities:Net
                        loss
                    
                    $
                    (5,569,744
                    )
                    
                    $
                    (160,792
                    )Adjustments
                        to reconcile net loss to net cash used by operating
                        activities:Issue
                        common stock for non-cash consulting expense
                    
                    
                    1,000,000
                    
                    
                    
                    --Issue
                        warrants for services
                    
                    
                    343,765
                    
                    
                    
                    --Non-cash
                        compensation expense
                    
                    
                    355,637
                    
                    
                    
                    --Non-cash
                        stock compensation expense
                    
                    
                    91,022
                    
                    
                    
                    --Non-cash
                        interest expense
                    
                    
                    264,041
                    
                    
                    
                    --Gain
                        on retirement of notes payable
                    
                    
                    (106,423
                    )
                    
                    
                    --Depreciation
                        and amortization
                    
                    
                    537,602
                    
                    
                    
                    13,013Other
                    
                    
                    13,148
                    
                    
                    
                    --Changes
                        in operating assets and liabilities net of acquired assets
                        and liabilities
                        due to acquisitions:Accounts
                        receivable
                    
                    
                    (3,869,595
                    )
                    
                    
                    421,940Inventory
                    
                    
                    6,172
                    
                    
                    
                    (25,632
                    )Prepaid
                        expenses and other current assets
                    
                    
                    (1,457,703
                    )
                    
                    
                    100Other
                        assets
                    
                    
                    440,527
                    
                    
                    
                    --Accounts
                        payable
                    
                    
                    3,975,794
                    
                    
                    
                    (362,810
                    )Accrued
                        liabilities
                    
                    
                    1,975,520
                    
                    
                    
                    (40,335
                    )Customer
                        deposits
                    
                    
                    
                    
                    
                    
                    119,834Net
                        cash used by operating activities
                    
                    
                    (2,000,237
                    )
                    
                    
                    (34,682
                    )Cash
                        flows from investing activities:Cash
                        paid in acquisitions
                    
                    
                    (500,000
                    )
                    
                    
                    --Acquisition
                        of E&M
                    
                    
                    (600,000
                    )
                    
                    
                    --Purchase
                        of fixed assets
                    
                    
                    (222,303
                    )
                    
                    
                    (190,436
                    )Cash
                        acquired in reverse merger
                    
                    
                    --
                    
                    
                    
                    1,968Net
                        cash used by investing activities
                    
                    
                    (1,322,303
                    )
                    
                    
                    (188,468
                    )Cash
                        flows from financing activities:Proceeds
                        from sale of common stock
                    
                    
                    681,501
                    
                    
                    
                    --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
                    
                    
                    (38,294
                    )
                    
                    
                    11,494Proceeds
                        from notes payable
                    
                    
                    --
                    
                    
                    
                    70,000Net
                        change in bank overdraft
                    
                    
                    --
                    
                    
                    
                    95,531Change
                        in due to related parties
                    
                    
                    --
                    
                    
                    
                    (10,250
                    )Principal
                        payments on notes payable
                    
                    
                    (607,600
                    )
                    
                    
                    --Proceeds
                        from notes payable - related parties
                    
                    
                    150,000
                    
                    
                    
                    36,000Principal
                        payments on notes payable - related parties
                    
                    
                    --
                    
                    
                    
                    (16,102
                    )Principal
                        payments on capital lease obligations
                    
                    
                    (28,504
                    )
                    
                    
                    --Net
                        cash provided by financing activities
                    
                    
                    3,662,358
                    
                    
                    
                    186,673Net
                        change in cash
                    
                    
                    339,818
                    
                    
                    
                    (36,477
                    )Cash,
                        beginning of period
                    
                    
                    66,641
                    
                    
                    
                    36,477Cash,
                        end of period
                    
                    $
                    406,459
                    
                    
                    $
                    --Supplementary
                        cash flow information:Cash
                        payments for income taxes
                    
                    $
                    --
                    
                    
                    $
                    --Cash
                        payments for interest
                    
                    $
                    138,335
                    
                    
                    $
                    23,455Schedule
                        of non-cash investing and financing activities:Common
                        stock issued for acquisition
                    
                    $
                    572,500
                    
                    
                    $
                    --
  *
        (See
        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 "we”, “us” or the ”company")
        sells dynamic digital media solutions consisting of monitors, media servers,
        and
        associated technological hardware and software. We provide design, integration,
        fabrication, assembly, QA (quality assurance), creative production, and
        installation services throughout the United States. As a result of our
        acquisition of E&M Advertising, Inc. and its affiliates in February 2006, we
        now provide advertising capability to the digital elements and other media
        services we deploy for our customers.
 
 We
        have
        developed and offer for sale a digital media network that is based on a unique
        architecture called Impart IQ, a web-based service that we believe no other
        company in the sector provides. Our products are targeted to businesses desiring
        digital signage and interactive media systems in one or more locations. This
        centrally managed network has the capability to deliver relevant information
        to
        any location where a message benefits from real time delivery to one or numerous
        displays. The network may be managed by our customers or by us.
 
 We
        are
        currently developing products and networks for multiple markets, thereby
        providing the potential to realize revenue from multiple sources. For example,
        airports, mass transit facilities, malls, financial institutions, retail
        stores
        and government agencies can be location partners for directory services and
        the
        distribution of advertisements, marketing messages and information and
        entertainment content. Revenues are derived from network monitoring, hosting,
        equipment sales, maintenance and installation fees, content management, creative
        development fees, advertising sales and sponsorships. Advertising revenue
        may be
        used to offset the costs of deployment for location partners or the partners
        may
        receive a portion of the advertising revenue on a negotiated basis.
 
 For
        the
        three month period and six month period ended June 30, 2006, our primary
        source
        of revenue was derived from media services, equipment sales, and managed
        subscription services. For the three month period and six month period ended
        June 30, 2005, our primary source of revenue was derived from equipment sales
        and consulting and design services.
 
 **History.**We were incorporated in the State of Nevada on May 17, 1996 under
        the
        name "Multinet International Corporation." On October 3, 2003, we changed
        our
        name to "Limelight Media Group, Inc."
 
 On
        June
        30, 2005, we acquired all of the outstanding capital stock of Impart, Inc.,
        a
        Washington corporation (the "Impart, Inc. Transaction"). Impart, Inc. was
        a
        privately-held company that sold dynamic media solutions consisting of monitors,
        computers, mounting systems, and associated technological hardware. The
        acquisition of the Impart, Inc. stock was a "reverse acquisition" in which
        all
        of the outstanding capital stock of Impart, Inc. was effectively exchanged
        for a
        controlling interest in our company. On June 30, 2005, immediately prior
        to the
        Impart, Inc. Transaction, Impart, Inc. purchased all of the assets of iPoint
        Networks, LLC, a Washington limited liability company ("iPoint"), pursuant
        to an
        asset purchase agreement (the “iPoint Transaction”). As consideration for the
        asset purchase, Impart, Inc. issued a promissory note in the amount of $250,000
        to the seller of iPoint and issued shares of our common stock having an
        aggregate value of $750,000.
 
 Prior
        to
        the Impart, Inc. Transaction, we were a public company with nominal operations
        and had $106,000 in assets (including cash totaling $2,000); liabilities
        totaling $891,000; a cash equivalent credit valued at $125,000 previously
        purchased through the issuance of shares of our common stock and a receivable
        related to the issuance of our common stock totaling $12,500.
 
 As
        we did
        not have a sufficient number of duly authorized shares on the date of the
        acquisition, the parties agreed to holdback 2.9 million shares ("Holdback
        Shares") of the 8.1 million shares of our common stock to be issued to the
        owners of Impart, Inc. and iPoint. During the fourth quarter of 2005, we
        entered
        into agreements to convert the 2.9 million Holdback Shares into a liability
        totaling $4.6 million. This liability later was satisfied in exchange for
        the
        issuance of the same number of shares as was originally defined as the Holdback
        Shares.
 6
  The
        following table reflects the stock issued in relation to the Impart, Inc.
        Transaction and the iPoint Transaction:
 
 Impart
                    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, we issued 81,441 shares of our common
        stock as part of the Impart, Inc. Transaction that are held in escrow. Some
        or
        all of these shares will be used to settle liabilities that were outstanding
        at
        the time of the transaction and that are still being negotiated.
 
 On
        June
        30, 2005, immediately prior to the consummation of the Impart, Inc. Transaction,
        Impart, Inc. purchased all of the assets of Media Sidestreet Corporation
        ("MSSCO") pursuant to an asset purchase agreement. In exchange for the purchase
        of all the assets of MSSCO, Impart, Inc. issued promissory notes in the
        aggregate principal amount of $1 million to the sellers of MSSCO. We satisfied
        such notes in January of 2006 by issuing our common stock at a value of $1.00
        per share. The satisfaction of the notes through the issuance of our common
        stock resulted in a gain on retirement of debt of $106,000. Prior to the
        Impart,
        Inc. Transaction, the majority owners of Impart, Inc. were the owners of
        MSSCO.
        As a result, this acquisition was a related party transaction. Accordingly,
        our
        financial statements include the combined historical financial statements
        of
        Impart, Inc. and MSSCO.
 
 On
        February 2, 2006, we purchased from Marlin Capital Partners II, LLC (doing
        business as InTransit Media) all of the assets used in its digital advertising
        services business, including the right to manage the PATHVISION digital signage
        system owned by the 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, we purchased substantially all of the assets E&M
        Advertising, Inc., E&M West/Camelot, Inc. and NextReflex, Inc.
        (collectively, “E&M”), through a newly formed subsidiary, Impart Media
        Advertising, Inc. E&M was engaged in the placement and marketing of direct
        response media. In consideration for the purchase of the assets, we agreed
        (i)
        to pay an aggregate of $800,000, of which $200,000 was paid on the closing
        date,
        $400,000 was paid in March 2006 and the remaining $200,000 is required to
        be
        paid on the first anniversary of the closing date and (ii) to issue an aggregate
        of 1.6 million restricted shares of our common stock. In April 2006, we issued
        1.47 million of the 1.6 million restricted shares. The fair value of the
        shares
        issued at the measurement date was approximately $4.3 million.
 
 **Restatement.**Our management determined that our unaudited interim consolidated
        statements of operations for the three and six months ended June 30, 2006
        and
        the balance sheet as of June 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.
 
 The
        Statement of Operations has been restated to reflect the following changes
        to
        the three months ended June 30, 2006:
 
 As
                            amended
                        
                        
                        As
                            previously
                          filed
                        
                        
                        Change(in
                            thousands)Depreciation
                            and amortization
                        
                        $
                        (322
                        )
                        
                        $
                        (742
                        )
                        
                        $
                        420Interest
                          expense
                        
                        $
                        (269
                        )
                        
                        
                        (278
                        )
                        
                        
                        9Net
                            loss
                        
                        $
                        (2,841
                        )
                        
                        $
                        (3,270
                        )
                        
                        $
                        429Loss
                            per share
                        
                        $
                        (0.13
                        )
                        
                        $
                        (0.15
                        )
                        
                        $
                        0.02
 
 
 The
        Statement of Operations has been restated to reflect the following changes
        to
        the six months ended June 30, 2006:
 
 As
                          amended
                      
                      
                      As
                          previously
                        filed
                      
                      
                      Change(in
                          thousands)Depreciation
                          and amortization
                      
                      $
                      (545
                      )
                      
                      $
                      (1,080
                      )
                      
                      $
                      535Net
                          loss
                      
                      $
                      (5,570
                      )
                      
                      $
                      (6,105
                      )
                      
                      $
                      535Loss
                          per share
                      
                      $
                      (0.33
                      )
                      
                      $
                      (0.36
                      )
                      
                      $
                      0.03
 7
 
 The
        Balance Sheet has been restated to reflect the following changes to the balances
        as of June 30, 2006:
 
 As
                            amended
                        
                        
                        As
                            previously
                          filed
                        
                        
                        Change(in
                            thousands)Goodwill
                        
                        $
                        2,359
                        
                        
                        $
                        --
                        
                        
                        $
                        2,359Intangible
                            assets, net
                        
                        
                        3,705
                        
                        
                        
                        6,121
                        
                        
                        
                        (2,416
                        )Stock
                            issuance payable
                        
                        
                        743
                        
                        
                        
                        794
                        
                        
                        
                        (51
                        )Accumulated
                            deficit
                        
                        
                        9,756
                        
                        
                        
                        10,291
                        
                        
                        
                        (535
                        )Additional
                            paid-in capital
                        
                        
                        17,256
                        
                        
                        
                        17,797
                        
                        
                        
                        (541
                        )
 
 **2.
        Basis of Presentation**
 
 In
        the
        opinion of management, the accompanying unaudited condensed consolidated
        financial statements reflect all adjustments, consisting of normal recurring
        adjustments, necessary to present fairly the financial position of our company
        as of June 30, 2006, its cash flows for the six months ended June 30, 2006
        and
        2005 and its results of operations for the three and six months ended June
        30,
        2006 and 2005. Pursuant to the rules and regulations of the U.S. Securities
        and
        Exchange 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 our operations for the three months and the six months ended June
        30,
        2006 are not necessarily indicative of the results of operations for the
        full
        year ending December 31, 2006.
  **3.
        Liquidity: Going Concern**
 
 The
        accompanying financial statements have been prepared on a going concern basis,
        which contemplates the realization of assets and the satisfaction of liabilities
        in the normal course of business. We have incurred net losses of approximately
        $5.6 million and $161,000 for the six months ended June 30, 2006 and June
        30,
        2005, respectively. Our current liabilities exceeded our current assets by
        approximately $2.1 million as of June 30, 2006. Our net cash used in operating
        activities approximated $2.0 million for the six months ended June 30,
        2006.
 8
  At
        June
        30, 2006, total cash was approximately $406,000. In the first quarter of
        2006,
        we entered into a $6 million secured, revolving credit facility (the Laurus
        Facility”) with Laurus Master Fund, Ltd., a Cayman Islands corporation
        (“Laurus”). The term of the Laurus Facility is three years and interest accrues
        on any unpaid principal plus interest at a rate per annum equal to the “prime
        rate” plus three percent (3%). The maximum principal amount of all borrowings
        under the Laurus Facility cannot exceed ninety percent of our eligible accounts
        receivable minus such reserves that Laurus may in good faith deem necessary
        and
        appropriate. As of June 30, 2006, the amount available to us to draw down
        under
        the Laurus facility was $1.2 million.
 
 We
        anticipate that our existing capital resources, including amounts available
        under the Laurus Facility, will enable us to continue operations through
        June
        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.
  We
        anticipate that we will generate significant losses from operations for the
        foreseeable future. As of June 30, 2006, our accumulated deficit was $9.8
        million. Our net loss was $2.8 million for the three months ended June 30,
        2006
        and $5.6 million for the six month period ending June 30, 2006. We have limited
        capital resources, and operations to date have been funded with the proceeds
        from product sales, accounts receivable based financings, public and private
        equity and debt financings and income earned on investments. These conditions
        raise substantial doubt about our ability to continue as a going concern.
        The
        audit report prepared by our independent registered public accounting firm
        relating to our consolidated financial statements for the year ended December
        31, 2005 includes an explanatory paragraph expressing the substantial doubt
        about our ability to continue as a going concern.
 
 Our
        ability to continue as a going concern is dependent on additional sources
        of
        capital and the success of our operating plan. The financial statements do
        not
        include any adjustments that might be necessary if we are unable to continue
        as
        a going concern.
 
 To
        realize our growth strategy and business plans, we will likely seek additional
        borrowings under the Laurus Facility (Note 10) or through sales of additional
        shares of our capital stock to institutional investors, or a combination
        of
        both.
 
 **4.
        Summary of Significant Accounting Policies**
 
 **Use
        of estimates.**The preparation of financial statements in conformity
        with accounting principles generally accepted in the United States of America
        requires management to make estimates and assumptions that affect reported
        amounts of assets and liabilities as of the dates of the condensed consolidated
        balance sheets and reported amount of revenues and expenses for the periods
        presented. Accordingly, actual results could materially differ from those
        estimates.
 
 **Principles
        of Consolidation.**The accompanying consolidated financial statements
        include the accounts of our company and its subsidiaries. All significant
        intercompany accounts and transactions have been eliminated.
 
 **Accounts
        Receivable.**Accounts receivables are reviewed quarterly to determine
        whether their carrying value has become impaired. We consider the assets
        to be
        impaired if the balances are more than one year old. We have established
        an
        allowance for doubtful accounts of $42,000 as of June 30, 2006. When accounts
        are written off, they are charged against the allowance. Generally, we do
        not
        assign past due status to receivables. Also, receivables generally are not
        collateralized and do not bear interest.
 
 **Concentration
        of Credit Risk.**Financial instruments, which potentially subject us to
        concentrations of credit risk, consist principally of accounts receivable.
        As of
        June 30, 2006, two customers represented approximately 28% of accounts
        receivable. These two customers represented 11% and 11% and 12% and 13% of
        total
        revenues during the three and six months ending June 30, 2006 and 2005,
        respectively.
 
 **Inventory.**Inventory is stated at lower of cost or market. Cost is principally
        determined by using the average cost method. Inventory consists of raw materials
        as well as finished goods held for sale. We monitor our inventory for excess
        and
        obsolete items and make necessary valuation adjustments when
        required.
 9
  **Fixed
        Assets.**Fixed assets are stated at cost less accumulated depreciation.
        Depreciation is calculated principally on the straight-line method over the
        estimated useful lives of the assets, which are generally 3 to 10 years.
        The
        cost of repairs and maintenance is charged to expense as incurred. Expenditures
        for property betterments and renewals are capitalized.
 
 We
        periodically evaluate whether events and circumstances have occurred that
        may
        warrant revision of the estimated useful lives of fixed assets or whether
        the
        remaining balance of fixed assets should be evaluated for possible impairment.
        We use an estimate of the related undiscounted cash flows over the remaining
        life of the fixed assets in measuring their recoverability. No impairment
        was
        deemed to exist as of June 30, 2006.
 
 Fixed
        assets acquired through the E&M Acquisition were recorded at their estimated
        fair value at the time of acquisition. Depreciation is recorded using the
        straight-line method with useful lives of approximately 3 years.
 
 **Intangibles.**Intangible assets are recorded in accordance with Statement of
        Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations.”
Infinite lived assets consist of goodwill and trade names, which are subject
        to
        impairment tests at least annually. Finite lived assets consist of customer
        lists and contractual rights, which we amortize over a period of 5 and 2
        years, respectively.
 
 **Net
        Earnings (Loss) per Common Share.**Net loss per common share excludes
        any dilutive effects of options, warrants and convertible securities. Net
        earnings (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, which include options
        warrants and convertible securities, are excluded from the computation if
        their effect is antidilutive. There were no dilutive instruments for the
        three
        months ended June 30, 2006.
 
 **Income
        Taxes.**We account for income taxes in accordance with SFAS No. 109,
“Accounting for Income Taxes,” which requires recognition of deferred tax assets
        and liabilities for future tax consequences attributable to differences between
        the financial statement carrying amounts of existing assets and liabilities
        and
        their respective tax bases and tax credit carry forwards. Deferred tax assets
        and liabilities are measured using enacted tax rates expected to apply to
        taxable income in the years in which those temporary differences are expected
        to
        be recovered or settled. The effect on deferred tax assets and liabilities
        of a
        change in tax rates is recognized in income in the period that includes the
        enactment date.
 
 **Comprehensive
        Loss.**SFAS No. 130, “Reporting of Comprehensive Income,” establishes
        standards for reporting comprehensive income (loss) and its components in
        financial statements. Comprehensive loss, as defined, includes all changes
        in
        equity (net assets) during a period from non-owner sources. To date, we have
        not
        had any significant transactions that are required to be reported in other
        comprehensive loss.
 
 **Segment
        Information.**In accordance with SFAS No. 131, “Disclosures about
        Segments of an Enterprise and Related Information,” which uses the management
        approach to determine reportable segments. We operate under one
        segment.
 
 **Advertising
        Costs.**We recognize advertising expenses in accordance with Statement
        of Position 93-7 “Reporting on Advertising Costs.” Accordingly, we expense the
        costs of producing advertisements at the time production occurs, and expense
        the
        costs of communicating advertisements in the period in which the advertising
        space or airtime is used.
 
 **Stock-based
        Compensation.**Prior to January 1, 2006, we accounted for stock-based
        compensation under the recognition and measurement principles of SFAS No.
        123,
“Accounting for Stock-Based Compensation.” Effective January 1, 2006, we began
        recording compensation expense associated with stock options and other
        equity-based compensation in accordance with SFAS No. 123 (revised 2004),
        “Share-Based Payment”. We adopted FAS 123(R) using the modified prospective
        method. We recognize these compensation costs on a straight-line basis over
        the
        requisite service period of the award. Total compensation cost recognized
        for
        fair value options issued was $91,000 and $0 for the six months ended June
        30,
        2006 and 2005, respectively. There was no compensation cost recognized for
        the
        fair value options for the three months ended June 30, 2006 and 2005,
        respectively.
 
 SFAS
        No.
        123R requires that cash flows resulting from tax deductions in excess of
        the
        cumulative compensation cost recognized for options exercised (excess tax
        benefits) be classified as cash inflows from financing activities and cash
        outflows from operating activities. Due to our net loss position, no tax
        benefits have been recognized in the cash flow statement.
 10
  We
        also
        apply SFAS No. 123R and the consensus in Emerging Issues Task Force No. 96-18
        "Accounting for Equity Instruments That Are Issued to Other Than Employees
        for
        Acquiring, or in Conjunction with Selling, Goods or Services" for stock based
        compensation to non-employees.
 
 **Revenue
        Recognition.**We derive substantially all of our advertising revenue
        from fees for services. Additionally, commissions are earned based upon the
        placement of advertisements in various media. Revenue is realized when the
        service is performed in accordance with the terms of each client arrangement
        and
        upon completion of the earnings process. Revenue recognition policies are
        in
        compliance with the Securities and Exchange Commission’s Staff Accounting
        Bulletin (SAB) 101, “Revenue and Recognition in Financial Statements”, as
        updated by SAB 104. In July 2000, the Emerging Issues Task Force (EITF) of
        the
        Financial Accounting Standards Board (FASB) released Issue 99-19 (EITF 99-19).
        This Issue summarized the EITF’s views on when revenue should be recorded at the
        gross amount billed because revenue has been earned from the sale of goods
        or
        services, or the net amount retained because revenue has been earned from
        a fee
        or commission. We typically act as an agent on behalf of our clients in their
        primary lines of business. Accordingly, most revenues are recorded based
        upon
        the net commissions earned. We record non-media and Internet services at
        a gross
        billing amount, due to the actual services we perform or provide. The net
        billing amounts included in operating revenues for the three months and six
        months ended June 30, 2006 and 2005 were approximately $494,000 and $0, and
        $277,000 and $0, respectively.
 
 Revenue
        from product sales is generally recognized when our products are shipped
        and/or
        the revenue is fully earned and ownership has passed to the customer. Revenue
        from management fees is recorded in the month the service is provided. Revenue
        from design and installation contracts is recognized using the
        completed-contract method. Due to the short term nature of the contracts,
        there
        were no significant contracts in process at June 30, 2006.
 
 **5.
        Acquisitions**
  InTransit
        Media
 
 On
        February 6, 2006, we purchased from Marlin Capital Partners II, LLC (doing
        business as InTransit Media) all of the assets used in its digital advertising
        services business, including the right to manage the PATHVISION digital signage
        system owned by the Port Authority of New York and New Jersey. In consideration
        for the assets, we paid $500,000 in cash and delivered 146,762 shares of
        our
        common stock valued at $572,372 for total consideration of $1,072,372. The
        purchased assets consisted of the assets used in InTransit Media’s digital
        advertising services business, including its exclusive right to provide digital
        advertising services to the Port Authority of New York and New Jersey for
        the
        Port Authority's PATHVISION broadcasting system, and the equipment, computer
        servers and software used in the delivery of such services.
 
 We
        consolidated the operations of InTransit as of the date of acquisition. The
        unaudited pro forma financial information presented herein reflects the
        estimated pro forma effect of the InTransit transaction as if it occurred
        on
        January 1, 2006 and 2005, respectively.
 
 The
        unaudited pro forma condensed financial statements include specific assumptions
        and adjustments related to the purchase of the assets. These pro forma
        adjustments have been made to illustrate the anticipated financial effect
        of the
        purchase of the assets. The adjustments are based upon available information
        and
        assumptions that we believe are reasonable as of the date of this filing.
        However, actual adjustments may differ materially from the information
        presented. Assumptions underlying the pro forma adjustments are described
        in the
        accompanying notes, which should be read in conjunction with the unaudited
        pro
        forma condensed financial statements.
 
 The
        unaudited pro forma financial statements are presented for informational
        purposes only and do not purport to be indicative of the financial position
        which would actually have been obtained if the transaction had occurred in
        the
        periods indicated below or which may exist or be obtained in the future.
        The
        information is not representative of future results of operations or financial
        position. The unaudited condensed pro forma financial information is qualified
        in its entirety and should be read in conjunction with the more detailed
        information and financial data appearing in our historical financial statements
        and notes thereto included herein. In the opinion of management, all material
        adjustments necessary to reflect the acquisition of the assets by us have
        been
        made.
 11
  Proforma
        Statement of Operations (Unaudited)
 
 For
                        the Six Months Ended June 30, 2006Actual
                    
                    
                    Adjustments
                        *
                    
                    
                    ProformaRevenues
                    
                    $
                    2,649,081
                    
                    
                    $
                    9,000
                    
                    
                    $
                    2,658,081Operating
                        loss
                    
                    
                    (4,960,890
                    )
                    
                    
                    (58,620
                    )
                    
                    
                    (5,019,510
                    )Net
                        loss
                    
                    
                    (5,569,744
                    )
                    
                    
                    (58,620
                    )
                    
                    
                    (5,628,364
                    )Beneficial
                        Conversion Feature of Series A Preferred
                    
                    
                    (933,873
                    )
                    
                    
                    -
                    
                    
                    
                    (933,873
                    )Accretion
                        of Dividends on Series A Preferred Stock
                    
                    
                    (104,125
                    )
                    
                    
                    -
                    
                    
                    
                    (104,125
                    )Net
                        loss - Common Stockholders
                    
                    
                    (6,607,742
                    )
                    
                    
                    (58,620
                    )
                    
                    
                    (6,666,362
                    )Loss
                        per share - basic and diluted
                    
                    $
                    (0.33
                    )
                    
                    
                    
                    
                    
                    $
                    (0.33
                    )
 
 *
        The
        proforma adjustment to the historical financial statements reflects an increase
        in revenue of $9,000 and operating expenses of $20,000 from January 1, 2006
        through February 5, 2006, as well as an increase in amortization expense
        of
        $47,620 related to the acquisition.
 
 Proforma
        Statement of Operations (Unaudited)
 
 For
                        the Six Months Ended June 30, 2005Actual
                    
                    
                    Adjustments
                        *
                    
                    
                    ProformaRevenues
                    
                    $
                    1,907,328
                    
                    
                    $
                    27,000
                    
                    
                    $
                    1,934,328Operating
                        loss
                    
                    
                    (163,450
                    )
                    
                    
                    (301,092
                    )
                    
                    
                    (464,542
                    )Net
                        loss
                    
                    
                    (160,792
                    )
                    
                    
                    (301,092
                    )
                    
                    
                    (461,884
                    )Loss
                        per share - basic and diluted
                    
                    $
                    (0.03
                    )
                    
                    
                    
                    
                    
                    $
                    (0.10
                    )
 
 *
        The
        proforma adjustment to the historical financial statements reflects an increase
        in revenue of $27,000 and operating expenses of $60,000 as well as amortization
        expense of $268,092 related to the acquisition.
  **E&M
        Advertising**
 
 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, we issued 1,468,532 of the 1,608,392 shares of our common stock in
        connection with the acquisition of E&M. The fair value of the remaining
        shares, valued at approximately $410,000 was recorded as “Stock Issuance
        Payable” as of June 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 six months ended June 30,2006
                              
                              
                              2005Revenues
                              
                              $
                              3,338
                              
                              
                              $
                              4,193Operating
                                  income (loss)
                              
                              $
                              (4,707
                              )
                              
                              $
                              345Net
                                  income (loss)
                              
                              $
                              (5,644
                              )
                              
                              $
                              329Beneficial
                                  Conversion Feature of Series A Preferred
                              
                              
                              (934
                              )
                              
                              
                              -Accretion
                                  of Dividends on Series A Preferred Stock
                              
                              
                              (23
                              )
                              
                              
                              -Net
                                  income (loss) - Common Stockholders
                              
                              $
                              (6,601
                              )
                              
                              $
                              329Income
                                  (loss) per share - basic and diluted
                              
                              $
                              (0.33
                              )
                              
                              $
                              0.07
 
 **6.
        Inventory**
 
 Inventory
        totaling $477,000 consisted of finished goods as of June 30, 2006.
 12
  **7.
        Fixed Assets**
 
 Fixed
        assets consisted of the following as of June 30, 2006:
 
 Computer
                        and other equipment
                    
                    $
                    837,123Furniture
                        and fixtures
                    
                    
                    137,174Software
                    
                    
                    977,199Leasehold
                        equipment
                    
                    
                    3,853Less:
                        accumulated depreciation
                    
                    
                    (517,710
                    )Fixed
                        assets, net
                    
                    $
                    1,437,639
 
 **8.
        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 June 30, 2006 in thousands:
 
 Customer
                              List
                          
                          $
                          1,444Trade
                              names
                          
                          
                          1,502Contractual
                              Rights
                          
                          
                          1,072Other
                          
                          
                          244,042Less:
                              accumulated amortization
                          
                          
                          (336
                          )Intangibles,
                              net
                          
                          $
                          3,706
 
 **9.
        Due to/from Related Parties**
 
 Due
        to
        Related Parties totaling $191,000 as of June 30, 2006, consisted of the
        following:
 
 Related
                        party agreement in which stockholder will receive a revenue
                        share of
                        $18,000 per year and an additional 5% of net ad revenues
                        as it pertains to
                        a specific airport project for a period of 3 years
                    
                    $
                    150,000Unreimbursed
                        expenses to various stockholders, unsecured, bearing
                        interest
                    
                    
                    19,965Accrued
                        interest on related party loans
                    
                    
                    20,801Total
                        due to related parties
                    
                    $
                    190,766
 
 Due
        from
        related parties totaling $256,000 as of June 30, 2006, included in prepaid
        expenses and other assets consisted of the following:
 
 Related
                        party receivable assumed as part of E&M Acquisition
                    
                    $
                    256,423
 
 **10.
        Line of Credit**
 
 On
        January 27, 2006, we entered into a Security Agreement with Laurus Master
        Fund,
        Ltd., a Cayman Islands corporation (“Laurus”), pursuant to which Laurus agreed
        to provide us with a revolving credit facility of up to $6 million (“Laurus
        Facility”). The term of the Laurus Facility is three (3) years and borrowings
        under the Laurus Facility accrue interest on the unpaid principal and interest
        at a rate per annum equal to the “prime rate” published in *The Wall Street
        Journal*from time to time, plus three percent (3%). Interest on borrowings
        under the Laurus Facility is payable monthly on the first day of each month,
        commencing on February 1, 2006. All outstanding principal amounts must be
        paid
        on January 27, 2009. The maximum principal amount of all borrowings under
        the
        Laurus Facility cannot exceed ninety percent (90%) of our eligible accounts
        receivable minus such reserves that Laurus may in good faith deem necessary
        and
        appropriate.
 
 On
        January 27, 2006, we obtained an initial draw under the Laurus Facility of
        $2
        million, of which approximately $782,000 was used to satisfy bank loans in
        full.
        The draws under the Laurus Facility are used for general corporate and working
        capital purposes. As of June 30, 2006, the balance due to Laurus was
        approximately $657,000.
 13
  In
        connection with the Laurus Facility, we paid Laurus approximately $246,000,
        comprised of a management fee of $216,000 and reimbursement of $30,000 in
        due
        diligence and documentation expenses. The management fee is being amortized
        to
        interest expense over the three-year term of the Laurus Facility. We also
        paid a
        cash fee of $180,000 and issued warrants to purchase 231,000 shares of common
        stock to GunnAllen Financial, Inc. for investment banking services. The warrants
        were recorded at fair value totaling $442,000 using the Black-Scholes
        option-pricing model. These fees were recorded as deferred debt issue costs
        to
        be amortized to interest expense over the three-year term of the Laurus
        Facility.
  ***Warrant***.
        We issued to Laurus a common stock purchase warrant, entitling Laurus to
        purchase up to 750,000 shares of our common stock, par value $.001 per share
        at
        an exercise price of $.01 per share, subject to certain adjustments. We
        determined the fair value of the warrant to be $1.6 million as determined
        by
        using the Black-Scholes option-pricing model. This warrant was issued to
        obtain
        the Laurus Facility. As such, we recorded the full value of the warrant as
        deferred debt issue costs upon entering the Laurus 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 Facility is secured by a blanket
        lien on substantially all of our assets and those of our subsidiaries pursuant
        to the terms of a Security Agreement. In addition, we pledged the ownership
        interests in our subsidiaries pursuant to a stock pledge agreement executed
        in
        favor of Laurus. If an event of default occurs under any of the Security
        Agreement, the Warrant, the Stock Pledge Agreement, the Registration Rights
        Agreement or the Note (collectively, the “Transaction Documents”), Laurus has
        the right to accelerate payments under the Note and, in addition to any other
        remedies available to it, to foreclose upon the assets securing the Note.
        If an
        event of default occurs under any of the Transaction Documents, one hundred
        twenty-five percent (125%) of the unpaid principal balance, plus accrued
        interest and fees, will become immediately due and payable. Laurus will also
        be
        entitled to payment of a default interest rate of two percent (2%) per month
        on
        all amounts due and such other remedies specified in the Transaction Documents
        and under the Uniform Commercial Code.
 
 The
        Security Agreement contains certain negative covenants that require us to
        obtain
        the prior written consent or other actions of Laurus in order for us to take
        certain actions at any time when borrowings remain outstanding under the
        Facility.
 
 ***Registration
        Rights Agreement*****.** Pursuant to the terms of a
        Registration Rights Agreement between Laurus and the Company (the “Registration
        Rights Agreement”), we are obligated to file a registration statement on Form
        SB-2 or S-3 to register the resale of the shares of Common Stock issuable
        (i)
        upon exercise of the Warrant and (ii) as a result of adjustments made to
        the
        Exercise Price pursuant to the Warrant. We were initially required to file
        the
        registration statement required to be filed in connection with the exercise
        of
        the Warrant (the “Original Registration Statement) on or prior to April 15,
        2006. During the second quarter of 2006, we obtained a waiver from Laurus
        with
        respect to this requirement. Accordingly, the initial filing date of the
        Original Registration Statement was postponed to on or prior to July 31,
        2006.
        We filed the Original Registration Statement with the SEC on July 31, 2006.
        We
        are also required to use our best efforts to have the Original Registration
        Statement declared effective by the SEC as promptly as possible after filing,
        on
        or prior to November 13, 2006. In the event of adjustments made to the Exercise
        Price pursuant to the Warrant, we are required to file a registration statement
        (the “Additional Registration Statement”) within thirty (30) days of (i) such
        event resulting in the adjustment of the Exercise Price or (ii) the actual
        date
        of the adjustment of the Exercise Price.
 14
  **11.
        Stock Option Plans and Warrants**
 
 In
        2005,
        our Board of Directors adopted an incentive stock plan for our employees
        (“2005
        Stock Option Plan”). Options granted under the 2005 Stock Option Plan are as
        follows:
  Shares
                      Available
                      for
                        Grant
                    
                    
                    Options
                      Outstanding
                    
                    
                    Weighted
                      Average
                      Exercise
                        PriceBalance,
                        December 31, 2005
                    
                    
                    1,295,000
                    
                    
                    
                    705,000
                    
                    
                    $
                    0.73Grants
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Cancelled
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Balance,
                        June 30, 2006
                    
                    
                    1,295,000
                    
                    
                    
                    705,000
                    
                    
                    $
                    0.73
 
 Options
        outstanding are summarized as follows:
 
 Range
                        of
                      Exercise
                        Prices
                    
                    
                    Stock
                        Options
                      Outstanding
                    
                    
                    Stock
                        Options
                      Exercisable
                    
                    
                    Weighted
                        Average
                      Exercise
                        Price
                    
                    
                    Weighted
                        Average Remaining
                      Contractual
                        Life$
                    0.70
                        - $0.77
                    
                    
                    
                    705,000
                    
                    
                    
                    309,998
                    
                    
                    $
                    0.73
                    
                    
                    
                    4.99
 
 The
        weighted-average fair value for options granted during 2005 was $0.82 and
        was
        estimated using the Black-Scholes option valuation model with the following
        weighted-average assumptions:
 
 Expected
                          life in years
                      
                      
                      2.50Volatility
                      
                      
                      256.18%Interest
                          rate
                      
                      
                      4.35%Yield
                          rate
                      
                      
                      0%
 
 In
        addition, we granted warrants to non-employees as follows:
 
 Warrants
                      Outstanding
                    
                    
                    Weighted
                        Average
                      Exercise
                        PriceBalance,
                        December 31, 2005
                    
                    
                    447,566
                    
                    
                    $
                    0.95Granted
                    
                    
                    4,847,877
                    
                    
                    
                    1.34Exercised
                    
                    
                    (100,000
                    )
                    
                    
                    .20Forfeited
                    
                    
                    -
                    
                    
                    
                    -Expired
                    
                    
                    -
                    
                    
                    
                    -Balance,
                        June 30, 2006
                    
                    
                    5,195,443
                    
                    
                    $
                    1.31Warrants
                        exercisable as of June 30, 2006
                    
                    
                    5,045,443
                    
                    
                    $
                    1.30
 
 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
                      
                      
                      130%-139%Interest
                          rate
                      
                      
                      4.41%-5.13%Dividend
                          rate
                      
                      
                      0%
 
 **12.
        Separation Agreements**
 
 During
        March 2006, David V. Lott resigned from his position as our Chief Executive
        Officer and from our board of directors. In accordance with his separation
        agreement dated March 15, 2006, Mr. Lott will receive a base salary of $120,000
        for a period of one year following his resignation date and the remaining
        balance is included in accrued liabilities.
 
 **13.
        Series A Convertible Preferred Stock**
 
 During
        March 2006, we sold 2,903,229 shares of Series A Convertible Preferred Stock
        (“Series A Shares”) at $1.55 per share for total gross proceeds of $4.5 million.
        We paid $562,000 in issuance costs, and realized net proceeds of $3.9 million.
        In addition, the purchasers of the Series A Shares received warrants to purchase
        an aggregate of 2,903,229 shares of common stock with an exercise price of
        $2.25
        per share and a three-year term.
 15
  Each
        Series A Share is convertible into one share of common stock, subject to
        adjustment for certain dilutive events. Series A Shares are convertible by
        the
        holder at any time. The Series A Shares will automatically convert into shares
        of common stock, at a conversion price of $1.55 (subject to certain
        adjustments), on the third anniversary of the issuance date or upon the date
        of
        a consummation of a bona fide firm underwritten public offering of our
        securities of at least $20 million in which the price per share is at least
        $4.00 (subject to certain restrictions). The Series A Shares provide that
        the
        consent or affirmative vote of the holders of at least seventy-five percent
        (75%) of the Series A Shares is necessary to: (a) authorize, create, issue
        or
        increase the authorized or issued amount of any class or series of stock
        (with
        limited exceptions); (b) amend, alter or repeal the provisions of the Series
        A
        Shares to adversely affect the rights, preferences and voting powers of such
        Series A Shares, (c) repurchase, redeem or pay dividends on any shares of
        common
        stock; (d) amend our Articles of Incorporation or By-Laws; (e) effect any
        distribution with respect to any junior stock; (f) reclassify the our
        outstanding securities, and (g) voluntarily file for bankruptcy, liquidate
        our
        assets or change the nature of the business.
 
 The
        Series A Shares provide that dividends will accrue at an annual rate of seven
        percent (7%) of the gross issuance price of the stock ($4.5 million), payable
        semi-annually on January 1 and July 1 of each year. Dividends on the Series
        A
        Shares will be paid in either cash or shares of common stock at our discretion,
        provided that we have an effective registration statement providing for the
        resale of the shares of our common stock. If a registration is not currently
        effective, we must pay dividends in cash. Through June 30, 2006, we have
        accrued
        approximately $104,000 in dividends payable.
 
 Additionally,
        the terms of our Series A Shares also require us to pay a one-time special
        dividend, payable in additional Series A Shares to the holders thereof, if
        our
        aggregate gross revenues for the four consecutive calendar quarters commencing
        on April 1, 2006 do not equal or exceed $50 million. The number of additional
        shares issuable to each holder shall be equal to the product of (i) the number
        of Series A Shares held by such holder at such time multiplied by (ii)
        38.39%.
 
 In
        the
        event of our liquidation, dissolution or winding up, the holders of
        Series A Shares are generally entitled to receive a liquidation preference
        over the holders of common stock equal to $1.55 per Series A Share held and
        any
        declared but unpaid dividends.
 
 The
        Series A Shares are subject to a mandatory redemption feature at a price
        equal
        to $1.55 per share, plus any accrued and unpaid dividends and certain other
        adjustments in the event of a closing of a purchase, tender or exchange offer
        made to one person or a group in which more than fifty percent of the
        outstanding shares of common stock are tendered and accepted. In the event
        of
        the our suspension from listing, our inability to comply or intention not
        to
        comply with a request for conversion, deregistration of the our shares of
        common
        stock, the consummation of a ‘going private’ transaction or breach of the
        representation, warranty, covenant or other term or condition of agreements
        pursuant to the sale of the Series A Shares, the shares become mandatorily
        redeemable at a price equal to 120% of $1.55 per share, plus any accrued
        and
        unpaid dividends and certain other adjustments.
 
 Of
        the
        $4.5 million in gross proceeds from the stock sale, we allocated $2.8 million
        to
        the Series A Shares and $1.7 million to the warrants, based on their relative
        fair values on the date of issuance, pursuant to Accounting Principles Board
        Opinion No. 14 “Accounting for Convertible Debt and Debt Issued with Stock
        Purchase Warrants.” The fair value used to allocate total proceeds to the Series
        A Shares was based upon a valuation that considered, among other things,
        the
        closing price of the common stock on the date of closing, the impact of the
        preferred stock on market capitalization on an as converted basis, dividend
        rights, liquidation preferences and redemption rights. The fair value used
        to
        allocate the proceeds to the warrants to purchase common stock was based
        on a
        Black-Scholes valuation model and the following assumptions: exercise price
        $2.25; no dividends; term of 3 years; risk free interest rate of 4.75%; and
        volatility of 136.5%.
  In
        accordance with the provisions of EITF 98-5 “Accounting for Convertible
        Securities with Beneficial Conversion Features or Contingently Adjustable
        Conversion Ratios” and EITF 00-27 “Application of Issue No. 98-5 to Certain
        Convertible Instruments,” we separately valued the in-the-money conversion
        feature embedded in the Series A and allocated $933,873 to this embedded
        beneficial conversion feature. As described in EITF 00-27, EITF 98-5 and
        . As
        described in EITF 00-27, EITF 98-5 and Accounting Series Release No. 268
        “Presentation in Financial Statements of Redeemable Preferred Stocks”, the
        beneficial conversion feature is amortized as a deemed dividend with a
        corresponding increase in the carrying value of the Series A Convertible
        Preferred Stock on the date of issuance as there is no stated redemption
        date
        and the shares are immediately convertible upon issuance. In light of our
        retained deficit, the deemed dividend remains in additional paid in capital.
        The
        beneficial conversion cost of $934,000 and the accreted dividends of $104,000
        are added to net loss to determine the net loss available to common
        stockholders. Accreted dividends of $81,000 are added to net loss for the
        three
        months ended June 30, 2006 to determine the net loss available to common
        stockholders.
 16
  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, 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 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 million 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.
 
 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.
 17
 
 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 the aggregate of 100,000 shares of common
        stock.
 
 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
        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
        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.
 
 In
        addition to the shares described above, 81,441 shares of the Company’s common
        stock as part of the Impart, Inc. 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.
  **15.
        Capital Lease Obligations**
 
 We
        are
        obligated to make payments under two capital leases for equipment with a
        total
        cost of $122,000. The capital lease obligations require a minimum lease payment
        of $4,800 per month with an interest rate of approximately 31%. Future minimum
        lease payments are as follows:
 
 July
                        1, 2006 through December 31, 2006
                    
                    $
                    25,1152007
                    
                    
                    50,2312008
                    
                    
                    36,5132009
                    
                    
                    1,799113,658Less:
                        current portion
                    
                    
                    21,330Capital
                        lease obligations - long-term portion
                    
                    $
                    92,328
 18
  **16.
        Commitments and Contingencies**
 
 **Leased
        Facilities**We utilize leased facilities under a
        noncancellable-operating lease. The lease calls for a base monthly rent of
        $15,000 through November 30, 2018. Total rent expense for this operating
        lease
        was $45,000 for both the three months ended June 30, 2006 and 2005, and $90,000
        for both the six months ended June 30, 2006 and June 30, 2005. Certain of
        our
        officers, directors and stockholders are owners of the company that owns
        the
        facility.
 
 Impart
        Media Advertising, Inc. leases its office facilities under an operating lease,
        which was extended June 2011. Total rental expense under the facilities lease
        was approximately $36,000 and $0, and $90,000 and $0 for the three and six
        months ended June 20, 2006 and June 30, 2005, respectively. We also have
        various
        non-cancelable operating leases for automobiles and equipment that expire
        at
        various dates through 2008.
 
 Future
        minimum rental payments for the leased facilities as of June 30, 2006, are
        as
        follows:
 
 July
                          1, 2006 through December 31, 2006
                      
                      $
                      202,0002007
                      
                      
                      406,2402008
                      
                      
                      410,7652009
                      
                      
                      415,3802010
                      
                      
                      420,090Thereafter
                      
                      
                      1,245,000$
                      3,099,475
 
 **17.
        Legal Proceedings**
  On
        April
        21, 2006, an action was filed against our company in Division No. 1 of the
        Warren Circuit Court of the Commonwealth of Kentucky titled William H. Funk,
        II and All American Investors Group, Inc. v. Limelight Media Group, Inc.,
        David
        Lott, Impart Mobile Media division/OTR Media, Inc. and Stewart Layton, case
        number 06-CI-854. Such complaint alleges that our company unfairly competed
        with
        OTR Media, Inc. by utilizing its trade secrets and other confidential
        information in our mobile media business, thus depriving the stockholders
        of OTR
        Media, Inc. of the full value of their shares and pecuniary interest in OTR
        Media, Inc. The plaintiffs in such action are seeking an injunction against
        our
        company to enjoin the alleged use and appropriation of such trade secrets,
        as
        well as monetary damages of a yet unspecified amount. On May 18, 2006, the
        action was removed to federal court in the Western District of Kentucky,
        C.V.
        No.: 1:06-CV-72-M. On June 6, 2006, we filed a motion to dismiss the complaint
        on the basis of plaintiffs’ lack of standing to bring a direct claim against us,
        plaintiffs’ failure to state a claim upon which relief may be granted and lack
        of personal jurisdiction over us and the other defendants, among other bases.
        As
        of August 15, 2006, we await a final ruling on the matter.
  **18.
        Subsequent Events**
 
 During
        the third quarter 2006, we issued an aggregate of 350,000 shares of common
        stock
        as consideration for services pursuant to a consulting services agreement.
        In
        addition, we agreed to issue warrants to purchase up to 100,000 shares of
        common
        stock at an exercise price of $1.55 per share. These warrants will vest based
        on
        the consultant meeting certain predetermined milestones.
 
 During
        the third quarter 2006, we issued 46,620 additional shares pertaining to
        the
        E&M purchase in the first quarter of 2006. The fair value of these shares
        determined based on the measurement date was approximately $137,000. The
        fair
        value of these shares was recorded as “Stock Issuance Payable” as of June 30,
        2006.
  **19.
        New Accounting Pronouncements**
 
 In
        July
        2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
        (FIN) No. 48, “Accounting for Uncertainty in Income Taxes-an interpretation of
        FASB Statement No. 109.” This Interpretation provides guidance for recognizing
        and measuring uncertain tax positions, as defined in Statement of Financial
        Accounting Standards (SFAS) No. 109, “Accounting for Income Taxes.” FIN No. 48
        prescribes a threshold condition that a tax position must meet for any of
        the
        benefit of an uncertain tax position to be recognized in the financial
        statements. Guidance is also provided regarding derecognition, classification
        and disclosure of uncertain tax positions. FIN No. 48 is effective for fiscal
        years beginning after December 15, 2006. We do not expect that this
        Interpretation will have a material impact on our financial position, results
        of
        operations or cash flows.
 19
  **ITEM
                  2.**
              **MANAGEMENT’S
                  DISCUSSION AND
                  ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                  OPERATIONS**
 
 Certain
        statements made in this Management’s Discussion and Analysis of Financial
        Condition and Results of Operations, as well as statements made from time
        to
        time by our representatives, may constitute “forward-looking statements” within
        the meaning of the Private Securities Litigation Reform Act of 1995. These
        forward-looking statements include, without limitation, statements regarding
        planned or expected contracts that we may enter into with regard to our
        proprietary hardware, *IQ Box,* our media content, *IQ Streams,*
        our advertising offering, *IQ Ads;* advertising contracts originated by
        our wholly-owned subsidiary, Impart Media Advertising, Inc.; the potential
        market size for our products; advantages of our products; variation in actual
        savings and operating improvements resulting from restructurings; and the
        sufficiency of our available capital resources to meet our funding needs.
        We do
        not undertake any obligation to publicly update any forward-looking statement,
        whether as a result of new information, future events, or otherwise, except
        as
        required by law. Such forward-looking statements involve known and unknown
        risks, uncertainties and other factors which may cause our actual results
        or
        achievements to be materially different from any future results or achievements
        expressed or implied by such forward-looking statements. Such factors include
        the factors described in our Annual Report on Form 10-KSB for the year ending
        December 31, 2005 under the caption “Management’s Discussion and Analysis of
        Financial Condition and Results of Operations—Risk Factors” and the other
        factors discussed in connection with any forward-looking
        statements.
 
 **General**
  Impart
        Media Group, Inc. (formerly known as Limelight Media Group, Inc. and hereinafter
        referred to as "we”, “us” or “our company") sells dynamic digital media
        solutions consisting of monitors, media servers, and associated technological
        hardware and software. We provide design, integration, fabrication, assembly,
        QA
        (quality assurance), creative production, and installation services throughout
        the United States. As a result of our acquisition of E&M Advertising, Inc.
        and its affiliates in February 2006, we now provide advertising capability
        to
        the digital elements and other media services we deploy for our
        customers.
 
 We
        have
        developed and offer for sale a digital media network that is based on a unique
        architecture called *Impart IQ*, a web-based service that we believe no
        other company in the sector provides. Our products are targeted to businesses
        desiring digital signage and interactive media systems in one or more locations.
        This centrally managed network has the capability to deliver relevant
        information to any location where a message benefits from real time delivery
        to
        one or numerous displays. The network may be managed by our customer or
        us.
 
 We
        are
        currently developing products and networks for multiple markets, thereby
        providing the potential to realize revenue from multiple sources. For example,
        airports, mass transit facilities, malls, financial institutions, retail
        stores
        and government agencies can be location partners for directory services and
        the
        distribution of advertisements, marketing messages and infotainment content.
        Revenues are derived from network monitoring, hosting, equipment sales,
        maintenance & installation fees, content management, creative development
        fees, advertising sales and sponsorships. Advertising revenue may be used
        to
        offset the costs of deployment for location partners or the partners may
        receive
        a portion of the advertising revenue on a negotiated basis.
 
 *Recent
        Developments*
 
 On
        July
        31, 2006, we filed with the SEC a registration statement on Form SB-2 (the
        “Registration Statement”). The securities covered by the Registration Statement
        are shares of common stock being registered for resale by certain selling
        stockholders upon exercise of outstanding 7-year warrants, 3-year warrants
        and
        5-year warrants and an indeterminate number of shares that may be issued
        and
        resold to prevent dilution resulting from stock splits, stock dividends or
        similar transactions. Additionally, under the Registration Statement, shares
        of
        common stock are being registered for resale by certain selling stockholders
        named in the prospectus upon the conversion of outstanding shares of Series
        A
        convertible preferred stock as well as an indeterminate number of shares
        that
        may be issued and resold to prevent dilution resulting from stock splits,
        stock
        dividends or similar transactions. Finally, shares of common stock issued
        to
        certain selling stockholders are being registered pursuant to terms of
        applicable registration rights agreements covering such shares. The Registration
        Statement has not yet been declared effective by the SEC.
 20
 
 **Critical
        Accounting Estimates and New Accounting Pronouncements**
 
 Critical
        Accounting Estimates
 
 The
        preparation of financial statements in accordance with accounting principles
        generally accepted in the United States requires management to make estimates
        and assumptions that affect reported amounts and related disclosures in the
        financial statements. Management considers an accounting estimate to be critical
        if:
 
 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 version of prospective
        application, under which compensation cost is recognized only for the portion
        of
        awards outstanding for which the requisite service has not been rendered
        as of
        the adoption date, based on the grant date fair value of those awards calculated
        under SFAS 123 for pro forma disclosures.
 
 We
        grant
        options to purchase our common stock to our employees and directors under
        our
        stock option plans. The benefits provided under these plans are share-based
        payments subject to the provisions of SFAS 123(R). Share-based compensation
        expense recognized under SFAS 123(R) during the first half of 2006 was $91,000.
        At June 30, 2006, total unrecognized estimated compensation expense related
        to
        non-vested stock options granted prior to that date was $86,000, of which
        approximately $86,000 is expected to be recognized over the remaining six
        months
        of 2006.
 
 We
        estimate the value of stock option awards on the date of grant using the
        Black-Scholes option-pricing model (the “Black-Scholes model”). The
        determination of the fair value of share-based payment awards on the date
        of
        grant is affected by our stock price as well as assumptions regarding a number
        of complex and subjective variables. These variables include our expected
        stock
        price volatility over the term of the awards, expected term, risk-free interest
        rate, expected dividends and expected forfeiture rates.
 
 If
        factors change and we employ different assumptions in the application of
        SFAS
        123(R) in future periods, the compensation expense that we record under SFAS
        123(R) may differ significantly from what we have recorded in the current
        period. There is a high degree of subjectivity involved when using option
        pricing models to estimate share-based compensation under SFAS 123(R).
        Consequently, there is a risk that our estimates of the fair values of our
        share-based compensation awards on the grant dates may bear little resemblance
        to the actual values realized upon the exercise, expiration, early termination
        or forfeiture of those share-based payments in the future. Employee stock
        options may expire worthless or otherwise result in zero intrinsic value
        as
        compared to the fair values originally estimated on the grant date and reported
        in our financial statements. Alternatively, value may be realized from these
        instruments that is significantly in excess of the fair values originally
        estimated on the grant date and reported in our financial
        statements.
 
 The
        guidance in SFAS 123(R) and Securities and Exchange Commission’s Staff
        Accounting Bulletin No. 107 (SAB 107) is relatively new and best practices
        are
        not well established. There are significant differences among valuation models,
        and there is a possibility that we will adopt a different valuation model
        in the
        future. Theoretical valuation models are evolving and may result in lower
        or
        higher fair value estimates for share-based compensation. The timing, readiness,
        adoption, general acceptance, reliability and testing of these methods is
        uncertain. Sophisticated mathematical models may require voluminous historical
        information, modeling expertise, financial analyses, correlation analyses,
        integrated software and databases, consulting fees, customization and testing
        for adequacy of internal controls. The uncertainties and costs of these
        extensive valuation efforts may outweigh the benefits to investors.
 21
 
 *Revenue
        Recognition***-** Revenue from design and installation
        contracts is recognized using the completed-contract method under which the
        amount of revenue recognized is the lower of the percentage complete applied
        to
        expected contractual payments or the total non-refundable cash received to
        date.
        Changes in the projected hours or cost to complete the project could
        significantly change the amount of revenue recognized. There were no significant
        contracts in process during the three and six months ended June 30,
        2006.
 
 **Results
        of Operations**
 
 *Three
        Months Ended June 30, 2006 Compared to Three Months Ended June 30,
        2005*
 
 **Three
                        Months Ended June 30,****2006**
                    
                    
                    **2005**
                    
                    
                    **Change**
                    
                    
                    **%
                        Change****(in
                        thousands)**Revenue
                    
                    $
                    1,426
                    
                    
                    $
                    1,017
                    
                    
                    $
                    409
                    
                    
                    
                    40
                    %Cost
                        of revenue
                    
                    
                    (703
                    )
                    
                    
                    (613
                    )
                    
                    
                    (90
                    )
                    
                    
                    15
                    %General
                        and administrative expenses (excluding depreciation and
                        amortization)
                    
                    
                    (2,959
                    )
                    
                    
                    (374
                    )
                    
                    
                    (2,585
                    )
                    
                    
                    (691
                    )%Interest
                        expense
                    
                    
                    (269
                    )
                    
                    
                    (6
                    )
                    
                    
                    (263
                    )
                    
                    
                    (4,383
                    )%Depreciation
                        and amortization
                    
                    
                    (322
                    )
                    
                    
                    (7
                    )
                    
                    
                    (315
                    )
                    
                    
                    (4,500
                    )%Net
                        Income (loss)
                    
                    
                    (2,841
                    )
                    
                    
                    27
                    
                    
                    
                    (2,868
                    )
                    
                    
                    (10,622
                    )%
 
 Revenue
        increased $409,000, from $1,017,000 to $1,426,000 during the three months
        ended
        June 30, 2006, as compared to the three months ended June 30, 2005. The increase
        was primarily due to increased media services revenues of $573,000 derived
        as a
        result of our acquisition of E&M Advertising, Inc. in February 2006, and
        increased subscription revenues of approximately $90,000 derived as a result
        our
        acquisition of Media SideStreet Corporation in June 2005, offset by a decrease
        of $215,000 in revenues from sales of digital signage equipment.
 
 The
        decrease of $215,000 in revenues from sales of digital signage equipment
        was
        primarily due to a shift in our long-term business strategy. Historically,
        one
        significant component of our business has been the sale and distribution
        of
        brackets and fixtures to support the deployment of plasma screens and LCD
        screens. During the third quarter of 2005, we began to reduce our emphasis
        on
        the distribution of these products and began shifting our primary focus to
        a
        more full-service digital media offering. For example, in the first quarter
        of
        2006 we launched several advertising-based programs whereby we derive revenue
        from the sale of advertising time on the digital signage networks that we
        manage
        for our venue providers. Advertisers pay us a negotiated fee for advertising
        time slots and for content creation and network management services and we
        often
        pay a percentage of such fees to the relevant venue provider. As a result,
        our
        revenue models now include integration and equipment sales, subscription
        and
        management services, revenues from third-party advertising and marketing
        and
        content management with development services. We believe this integration
        will
        maximize our earnings potential because it delivers a one-stop digital signage
        solution to our customers whereby they can secure all necessary equipment
        and
        services from one source rather than from multiple vendors. We believe these
        offerings will position our company as a full-service digital media solution
        provider.
 
 Cost
        of
        revenues primarily consists of the amounts we pay for hardware (e.g. video
        displays, media players and servers) that we integrate and install for our
        customers. Additional cost of revenues pertains to costs resulting from the
        increased revenues in media services.
 22
 
 General
        and administrative expenses, excluding depreciation and amortization expenses,
        for the quarter ended June 30, 2006 increased by $2.6 million as compared
        with
        the three months ended June 30, 2005 primarily due to the significant increase
        in compensation expenses, professional and consulting fees and other general
        and
        administrative expenses.
 
 Wages
        and
        salary expense for the quarter ended June 30, 2006 was $1.027 million, an
        increase of $798,000 over the comparable period in 2005 and was primarily
        due to
        the addition of executive, sales and administrative personnel resulting from
        acquisitions since the three months ended June 30, 2005, including our
        acquisitions of E&M Advertising, Inc., iPoint Networks, LLC and Media
        SideStreet Corporation.
 
 Professional
        and consulting fees for the quarter ended June 30, 2006 was $966,000, an
        increase of $939,000 over the comparable period in 2005, and was primarily
        due
        to the incremental cost of complying with the reporting requirements of a
        public
        company as set forth by the SEC and the legal and accounting expenses we
        incurred relating to our required filings Securities and Exchange Act of
        1934
        and as well as the costs associated with the acquisition transactions that
        we
        completed in 2006.
 
 Other
        general and administrative expenses were $590,000 during the three months
        ended
        June 30, 2006, an increase of $557,000 over the same period in 2005 and was
        primarily due to increased investor relations expenses and additional ongoing
        administrative expenses resulting from the acquisition of E&M Advertising,
        Inc.
 
 Interest
        expense was $269,000 for the quarter ended June 30, 2006, an increase of
        $263,000 over the same period in 2005 primarily due to interest expense incurred
        in connection with the Laurus Facility.
 
 Depreciation
        and amortization costs increased by $315,000 compared to the same quarter
        of
        2005. This increase resulted primarily from acquisition activity.
 
 Based
        on
        the above, we had a net loss of $2.8 million for the three months ended June
        30,
        2006 as compared to a net income of $27,000 for the three months ended June
        30,
        2005.
 
 *Six
        Months Ended June 30, 2006 Compared to Six Months Ended June 30,
        2005*
  **Six
                        Months Ended June 30,****2006**
                    
                    
                    **2005**
                    
                    
                    **Change**
                    
                    
                    **%
                        Change****(in
                        thousands)**Revenue
                    
                    $
                    2,649
                    
                    
                    $
                    1,907
                    
                    
                    $
                    742
                    
                    
                    
                    39
                    %Cost
                        of revenue
                    
                    
                    (1,291
                    )
                    
                    
                    (1,311
                    )
                    
                    
                    20
                    
                    
                    
                    (2
                    )%General
                        and administrative expenses (excluding depreciation and
                        amortization)
                    
                    
                    (5,774
                    )
                    
                    
                    (746
                    )
                    
                    
                    (5,028
                    )
                    
                    
                    (674
                    )%Interest
                        expense
                    
                    
                    (715
                    )
                    
                    
                    (21
                    )
                    
                    
                    (694
                    )
                    
                    
                    (3,304
                    )%Depreciation
                        and amortization
                    
                    
                    (545
                    )
                    
                    
                    (13
                    )
                    
                    
                    (532
                    )
                    
                    
                    (4,092
                    )%Net
                        loss
                    
                    
                    (5,570
                    )
                    
                    
                    (161
                    )
                    
                    
                    (5,409
                    )
                    
                    
                    (3,360
                    )%
 
 Revenue
        increased from the same period of 2005 primarily due to increased media services
        revenues of $1.0 million derived as a result of our acquisition of E&M
        Advertising, Inc. in February 2006, and increased subscription revenues of
        $200,000 derived as a result our acquisition of Media SideStreet Corp. in
        June
        2005, offset by a decrease of $575,000 in revenues from sales of digital
        signage
        equipment.
 
 The
        decrease of $575,000 in revenues from sales of digital signage equipment
        was
        primarily due to a shift in our long-term business strategy as referenced
        above
        in our discussion of the three months ended June 30, 2005.
 23
  Cost
        of
        revenues was essentially the same as the comparable period last year despite
        the
        increased sales activity because of increased sales of products and services
        with improved margins.
 
 General
        and administrative expenses, excluding depreciation and amortization, for
        the
        six months ended June 30, 2006 increased by $5.0 million as compared with
        the
        six months ended June 30, 2005 primarily due to the significant increase
        in
        compensation expenses, professional and consulting fees and other general
        and
        administrative expenses. Wages and salary expense for the six months ended
        June
        30, 2006 was $2.4 million, an increase of $1.9 million over the comparable
        period last year and was primarily due to the addition of executive, sales
        and
        administrative personnel resulting from acquisitions since the six months
        ended
        June 30, 2005, including our acquisitions of E&M Advertising, Inc., iPoint
        Networks, LLC and Media SideStreet Corp.
 
 Interest
        expense was $715,000 for the six months ended June 30, 2006, representing
        an
        increase of $694,000 over the same period in 2005 primarily due to interest
        expense incurred in connection with the Laurus Facility and due to interest
        expense resulting from the issuance of common stock warrants in lieu of the
        payment of accrued interest on loans payable.
 
 Depreciation
        and amortization costs increased by $532,000 compared to the same quarter
        of the
        prior year. This increase resulted primarily from acquisition
        activity.
 
 Based
        on
        the above, we had a net loss of $5.6 million for the six months ended June
        30,
        2006 as compared to a net loss of $161,000 for the six months ended June
        30,
        2005.
 
 **Liquidity
        and Capital Resources**
 
 At
        June
        30, 2006, total cash was approximately $406,000. In the first quarter of
        2006,
        we entered into the Laurus Facility with Laurus. The term of the Laurus Facility
        is three years and interest accrues on any unpaid principal plus interest
        at a
        rate per annum equal to the “prime rate” plus three percent (3%). The maximum
        principal amount of all borrowings under the Laurus Facility cannot exceed
        ninety percent of our eligible accounts receivable minus such reserves that
        Laurus may in good faith deem necessary and appropriate. As of June 30, 2006,
        the amount available to us to draw down under the Laurus Facility was $1.2
        million.
 
 We
        anticipate that our existing capital resources, including amounts available
        under the Laurus Facility, will enable us to continue operations through
        June
        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.
  We
        anticipate that we will generate significant losses from operations for the
        foreseeable future. As of June 30, 2006, our accumulated deficit was $9.8
        million. Our net loss was $2.8 million for the quarter ended June 30, 2006
        and
        $5.6 million and $0.2 million for the six months ended June 30, 2006 and
        2005,
        respectively. Our stockholders’ equity increased from a $2.8 million deficit as
        of December 31, 2005 to positive equity of $7.5 million as of June 30, 2006.
        We
        have limited capital resources, and operations to date have been funded with
        the
        proceeds from product sales, accounts receivable based financings, public
        and
        private equity and debt financings and income earned on investments. These
        conditions raise substantial doubt about our ability to continue as a going
        concern. The audit report prepared by our independent registered public
        accounting firm relating to our consolidated financial statements for the
        year
        ended December 31, 2005 includes an explanatory paragraph expressing the
        substantial doubt about our ability to continue as a going concern.
 24
  *Cash
        Sources and Uses*
 
 Cash
        inflows during 2006 include $3.9 million of net proceeds from a private
        placement of shares of our Series A preferred convertible stock, draw downs
        under the Laurus Facility, and proceeds from product sales. We used
        approximately $782,000 of the proceeds from the Laurus drawdown to satisfy
        in
        full our then-existing bank debt. Our remaining cash balances have been used
        for
        general corporate and working capital purposes. The following table summarizes
        cash flow activity for the six months ended June 30, 2006 and 2005:
 
 **Six
                          months ended June 30,****2006**
                      
                      
                      **2005**(in
                          thousands)**Cash
                          Sources**Proceeds
                          from issuance of equity securities
                      
                      $
                      4,615
                      
                      
                      $
                      -Proceeds
                          from notes payable - related parties
                      
                      
                      150
                      
                      
                      
                      70Proceeds
                          from notes payable
                      
                      
                      -
                      
                      
                      
                      36Other
                          cash sources
                      
                      
                      -
                      
                      
                      
                      109Total
                          cash sources
                      
                      $
                      4,765
                      
                      
                      $
                      215**Cash
                          Uses**Cash
                          used in operating activities
                      
                      $
                      2,000
                      
                      
                      $
                      35Cash
                          used in acquisitions
                      
                      
                      1,100
                      
                      
                      
                      -Repayment
                          of debt obligations
                      
                      
                      608
                      
                      
                      
                      -Deferred
                          financing costs
                      
                      
                      428
                      
                      
                      
                      -Capital
                          expenditures
                      
                      
                      222
                      
                      
                      
                      190Other
                          cash uses
                      
                      
                      67
                      
                      
                      
                      26Total
                          cash uses
                      
                      $
                      4,425
                      
                      
                      $
                      251(Decrease)
                          increase in cash
                      
                      $
                      340
                      
                      
                      $
                      (36
                      )
 
 At
        June
        30, 2006, we had liquid assets of $7.5 million consisting of cash in the
        amount
        of $406,000, accounts receivable derived from operations in the amount of
        $4.6
        million, prepaid expenses and other current assets of $2.0 million and inventory
        in the amount of $477,000. Long-term assets of $9.8 million consisted primarily
        of goodwill of $ 2.4 million, intangible assets of $3.7 million deferred
        financing costs of $2.2 million and fixed assets, including computer servers,
        media players and video display equipment used in operations, of $1.4
        million.
 
 Current
        liabilities of $9.6 million at June 30, 2006 consisted primarily of $7.2
        million
        of accounts payable, $657,000 due under the Laurus Facility and $743,000
        of
        stock issuances payable.
 
 Our
        working capital deficit was $2.2 million as of June 30, 2006.
 
 *Financing
        Activities*
 
 On
        January 27, 2006, we entered into a Security Agreement with Laurus, pursuant
        to
        which Laurus agreed to provide us with a revolving credit facility of up
        to $6
        million. The term of the Laurus Facility is three years and borrowings under
        the
        Laurus Facility accrue interest on the unpaid principal and interest at a
        rate
        per annum equal to the “prime rate” published in The Wall Street Journal from
        time to time, plus three percent (3%). Interest on borrowings under the Laurus
        Facility is payable monthly on the first day of each month during, commencing
        on
        February 1, 2006. All outstanding principal amounts must be paid on January
        27,
        2009. The maximum principal amount of all borrowings under the Laurus Facility
        cannot exceed ninety percent of our eligible accounts receivable minus such
        reserves that Laurus may in good faith deem necessary and appropriate.
        Outstanding amounts payable under the Laurus facility are secured by secured
        by
        a blanket lien on substantially all of our assets and our subsidiaries pursuant
        to the terms of a Security Agreement. In addition, we pledged the ownership
        interests in our subsidiaries pursuant to a stock pledge agreement executed
        in
        favor of Laurus securing our obligations under the Laurus Facility.
 25
  The
        Security Agreement and related documents provide that an event of default
        shall
        be deemed to have occurred if we default on the payment of any obligation
        or
        indebtedness when due, we suffer a bankruptcy or similar insolvency event
        or
        proceeding, we materially breach a representation or warranty or fail to
        observe
        any covenant or agreement, we suffer and do not discharge in a timely manner
        a
        final judgment for the payment of a sum in excess of a certain materiality
        threshold, our common stock has been delisted or trading has been suspended,
        we
        sell a substantial portion of our assets, we merge with another entity or
        we
        fail to timely deliver shares of our Common Stock to Laurus when due upon
        exercise of the warrants issued to Laurus in connection with the financing
        transaction. If an event of default occurs, Laurus has the right to accelerate
        payments under the Laurus Facility and, in addition to any other remedies
        available to it, to foreclose upon the assets securing any outstanding amounts
        due to Laurus. If an event of default occurs, one hundred twenty-five percent
        (125%) of the unpaid principal balance, plus accrued interest and fees, will
        become immediately due and payable. Laurus shall also be entitled to payment
        of
        a default interest rate of two percent (2%) per month on all amounts due
        and
        such other remedies specified in the relevant transaction documents and under
        the Uniform Commercial Code.
 
 During
        March 2006, we sold 2.9 million shares of Series A convertible preferred
        stock
        (the “Series A Shares”) at $1.55 per share for total gross proceeds of $4.5
        million. In addition, the purchasers of the Series A Shares received warrants
        to
        purchase an aggregate of 2.9 million shares of common stock with an exercise
        price of $2.25 per share and a 3 year term. We paid $562,000 in issuance
        costs,
        for net proceeds of $3.9 million.
 
 Each
        Series A Share is convertible by the holder, at any time, into one share
        of
        common stock, subject to adjustment for certain dilutive events. The Series
        A
        Shares will automatically convert into shares of common stock at a conversion
        price of $1.55 (subject to certain adjustments) on the third anniversary
        of the
        issuance date or upon the date of a consummation of a bona fide firm
        underwritten public offering of the our securities of at least $20 million
        in
        which the price per share is at least $4.00 (subject to certain
        restrictions).
 
 The
        Series A Shares provide that dividends will accrue at an annual rate of seven
        percent (7%) of the gross issuance price of the stock ($4.5 million), payable
        semi-annually on January 1 and July 1 of each year. Dividends on the preferred
        stock will be paid in either cash or shares of common stock at our discretion,
        provided that we have an effective registration statement providing for the
        resale of the shares of common stock. If a registration is not then effective,
        we must pay the dividends in cash. Accrued dividends payable through June
        30,
        2006 are approximately $23,000.
 
 On
        July
        31, 2006, we filed a registration statement on Form SB-2 covering the shares
        of
        common stock underlying the Series A Shares and the warrants issued to the
        purchasers of the Series A Shares. The registration statement has not been
        declared effective as of August 15, 2006.
 
 In
        the
        event of our liquidation, dissolution or winding up, the holders of Series
        A
        Shares are generally entitled to receive a liquidation preference over the
        holders of common stock equal to $1.55 per share of Series A Shares held
        and any
        declared but unpaid dividends.
 
 **ITEM
                  3.**
              **CONTROLS
                  AND
                  PROCEDURES**
 
 DISCLOSURE
        CONTROLS AND PROCEDURES.****** Our management, with
        the participation of our chief executive officer and chief financial officer
        along with senior accounting staff have evaluated the effectiveness of our
        disclosure controls and procedures (as such term is defined in Rules 13a-15(e)
        and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the
        "Exchange Act")) as of the end of the period covered by this Report. Based
        on
        such evaluation, our chief executive officer and chief financial officer
        has
        concluded that, as of the end of such period, our disclosure controls and
        procedures are effective in recording, processing, summarizing and reporting,
        on
        a timely basis, information required to be disclosed by us in the reports
        that
        we file or submits under the Exchange Act.
 
 INTERNAL
        CONTROL OVER FINANCIAL REPORTING***.***As previously
        reported in our Quarterly Report on Form 10-QSB for the quarter ended March
        31,
        2006, we were actively recruiting additional financial and accounting personnel
        to better implement effective internal control over our financial reporting
        procedures. During the three months ended June 30, 2006, we engaged a consultant
        to provide services as an acting chief financial officer, hired a new vice
        president of finance and controller and engaged a sufficient number of
        supporting financial and accounting personnel. As of June 30, 2006 and for
        the
        period covered by this Report, the retention of these additional experienced
        financial and accounting personnel has materially affected, and is reasonably
        likely to materially affect, our internal control over financial reporting
        (as
        such term is defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange
        Act).
 26
  **PART
        II**
 
 **ITEM
                  1.**
              **LEGAL
                  PROCEEDINGS**
  On
        April
        21, 2006, an action was filed against our company in Division No. 1 of the
        Warren Circuit Court of the Commonwealth of Kentucky titled William H. Funk,
        II and All American Investors Group, Inc. v. Limelight Media Group, Inc.,
        David
        Lott, Impart Mobile Media division/OTR Media, Inc. and Stewart Layton, case
        number 06-CI-854. Such complaint alleges that our company unfairly competed
        with
        OTR Media, Inc. by utilizing its trade secrets and other confidential
        information in our mobile media business, thus depriving the stockholders
        of OTR
        Media, Inc. of the full value of their shares and pecuniary interest in OTR
        Media, Inc. The plaintiffs in such action are seeking an injunction against our
        company to enjoin the alleged use and appropriation of such trade secrets,
        as
        well as monetary damages of a yet unspecified amount. On May 18, 2006, the
        action was removed to federal court in the Western District of Kentucky,
        C.V.
        No.: 1:06-CV-72-M. On June 6, 2006, we filed a motion to dismiss the complaint
        on the basis of plaintiffs’ lack of standing to bring a direct claim against us,
        plaintiffs’ failure to state a claim upon which relief may be granted and lack
        of personal jurisdiction over us and the other defendants, among other bases.
        As
        of August 15, 2006, we await a final ruling on the matter.
  **ITEM
                  2.**
              **UNREGISTERED
                  SALES OF EQUITY
                  SECURITIES AND USE OF
                  PROCEEDS.**
  In
        June
        2006, we issued 30,000 shares of our common stock to Laurus in consideration
        for
        its waiver and amendment of various terms of a registration rights agreement
        with our company. The shares were issued on the exemption provided by Section
        4(2) of the Securities Act of 1933, as amended (the “Act”), on the basis that
        its issuance did not involve a public offering, no underwriting fees or
        commissions were paid by us in connection with such issuance and Laurus
        represented to us that it is an “accredited investor” as defined in Regulation D
        under the Act.
 
 In
        May
        2006, we issued 150,000 shares of our common stock to a consultant as
        consideration for the performance of consulting services. The shares were
        issued
        on the exemption provided by Section 4(2) of the Act, on the basis that the
        issuance of such shares did not involve a public offering, no underwriting
        fees
        or commissions were paid by us in connection with such issuance and such
        consultant represented to us that it is an “accredited investor” as defined in
        Regulation D under the Act.
 
 During
        the second quarter 2006, we issued common stock purchase warrants to a
        consultant as consideration for the performance of services. The warrants
        provide for the purchase of up to 200,000 shares of our common stock at an
        exercise price of $2.60 per share. The warrants expire in 2009. The warrants
        were issued in reliance on the exemption from registration provided by Section
        4(2) of the Act, on the basis that their issuance did not involve a public
        offering, no underwriting fees or commissions were paid by us in connection
        with
        such issuance and certain representations were made to us by the
        consultants.
 
 In
        April
        2006, we issued and sold 50,000 shares of our common stock to an investor
        for a
        purchase price of $100,000. The shares were issued in reliance on the exemption
        from registration provided by Section 4(2) of the Act, on the basis that
        its
        issuance did not involve a public offering, no underwriting fees or commissions
        were paid by us in connection with such sale and issuance and certain
        representations were made to us by the investor that he was an “accredited
        investor” as defined in Regulation D under the Act.
 
 In
        April
        2006, we issued a three-year warrant to purchase 145,162 shares of our common
        stock exercisable at $1.55 per share, to a consulting firm in consideration
        for
        services rendered in connection with our Series A Preferred Financing. The
        warrant was issued in reliance on the exemption from registration provided
        by
        Section 4(2) of the Act, on the basis that the issuance did not involve a
        public
        offering and the consultant represented to us that it was an “accredited
        investor," as defined in Regulation D under the Act.
 
 In
        April
        2006, we issued 6,000 shares of our common stock to one of the members of
        our
        board of directors for consulting services previously rendered. These shares
        were issued in reliance on the exemption from the registration provided by
        Section 4(2) of the Act, on the basis that its issuance did not involve a
        public
        offering, no underwriting fees or commissions were paid by us in connection
        with
        such sale and issuance and certain representations were made to us by such
        director that he is an “accredited investor” as defined in Regulation D under
        the Act.
 
 **ITEM
                  6.**
              **EXHIBITS.**
 
 The
        exhibits required by this item are listed on the Exhibit Index attached
        hereto.
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  **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)
 28
  **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.


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