UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION


WASHINGTON,
      D.C. 20549


Form
      10-QSB





(Mark
      One)





x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF


THE
      SECURITIES EXCHANGE ACT OF 1934


For
      the
      period ended March 31, 2006





o TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE


SECURITIES
      EXCHANGE ACT OF 1934


For
      the
      transition period from _______ to _______.





Commission
      File Number 0-09358





IMPART
      MEDIA GROUP, INC.


(Exact
      name of small business issuer as specified in its charter)





Nevada
            
            88-0441338(State
                or other jurisdiction of (incorporation or organization)
            
            (I.R.S.
                Employer Identification No.)





1300
      North Northlake Way


Seattle,
      WA 98103


(Address
      of principal executive offices)





(206)
      633-1852


(Issuer's
      telephone number)





N/A


(Former
      Address of principal executive offices)








Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
      (or
      for such shorter period that the registrant was required to file such reports),
      and (2) has been subject to such filing requirements for the past 90 days.
      Yes x No o





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Securities Exchange Act of 1934) Yes o No x




As
      of
      June 12, 2006, 21,936,243  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 June 12, 2006, convertible into an aggregate of
      2,903,229 shares of our common stock, were outstanding. Our common stock
      currently trades on the OTC Bulletin Board under the symbol “IMMG”.





Transitional
      Small Business Disclosure Format (check one): Yes o No x











*When
      used in this Report, the words "believes", "anticipates", "expects" and similar
      expressions are intended to identify forward-looking statements. Such statements
      are subject to certain risks and uncertainties that could cause actual results
      to differ materially from those projected.*





*Our
      business and results of operations are affected by a wide variety of factors
      that could materially and adversely affect our company and our actual results,
      including, but not limited to: (1) the availability of additional funds to
      enable us to successfully pursue our business plan; (2) the uncertainties
      related to the effectiveness of our technologies and the development of our
      products and services; (3) our ability to maintain, attract and integrate
      management personnel; (4) our ability to complete the development of our
      proposed services in a timely manner; (5) our ability to effectively market
      and
      sell our services to current and new customers; (6) our ability to negotiate
      and
      maintain suitable strategic licenses and corporate relationships; (7) the
      intensity of competition; and (8) general economic conditions. As a result
      of
      these and other factors, we may experience material fluctuations in future
      operating results on a quarterly or annual basis, which could materially and
      adversely affect our business, financial condition, operating results and stock
      price.*





*These
      forward-looking statements speak only as of the date hereof. We undertake no
      obligation to publicly release the results of any revisions to these
      forward-looking statements that may be made to reflect events or circumstances
      after the date hereof or to reflect the occurrence of unanticipated
      events.*





2





PART
      I.
      FINANCIAL INFORMATION





ITEM
      1.
      FINANCIAL STATEMENTS.


IMPART
        MEDIA GROUP, INC.
 (FORMERLY
        KNOWN AS LIMELIGHT MEDIA GROUP, INC.)
 CONSOLIDATED
        BALANCE SHEET
 MARCH
        31,
        2006
 (UNAUDITED)
 
 ASSETS
 
 Current
                  assetsCash
              
              $
              1,440,543Accounts
                  receivable, net
              
              
              2,135,248Inventory
              
              
              449,980Prepaid
                  expenses and other current assets
              
              
              974,500Total
                  current assets
              
              
              5,000,270Fixed
                  assets, net
              
              
              1,490,548Other
                  AssetsIntangible
                  assets, net
              
              
              6,748,584Deferred
                  financing costs, net
              
              
              2,355,780Other
                  Assets
              
              
              339,265Total
                  other assets
              
              
              9,443,629Total
                  assets
              
              $
              15,934,447LIABILITIES
                  AND STOCKHOLDERS' EQUITY (DEFICIT)Current
                  liabilitiesAccounts
                  payable
              
              $
              1,998,662Accrued
                  liabilities
              
              
              70,642Customer
                  deposits
              
              
              755,221Lines
                  of credit
              
              
              1,583,647Note
                  payable
              
              
              100,000Note
                  payable - related parties
              
              
              188,060Capital
                  lease obligation - current portion
              
              
              20,873Stock
                  issuance payable
              
              
              5,531,694Other
                  liabilities
              
              
              204,000Total
                  current liabilities
              
              
              10,452,799Capital
                  lease obligation - long term
              
              
              109,663Total
                  liabilities
              
              
              10,562,462Commitments
                  and contingenciesStockholders'
                  equity (deficit)Preferred
                  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, 19,998,869
                  shares
                  issued and outstanding
              
              
              19,998Additional
                  paid-in capital
              
              
              12,379,251Accumulated
                  deficit
              
              
              (7,030,167
              )Total
                  stockholders' equity (deficit)
              
              
              5,371,985Total
                  liabilities and stockholders' deficit
              
              $
              15,934,447


See
      Notes
      to Consolidated Financial Statements




3


IMPART
          MEDIA GROUP, INC.
 (FORMERLY
          KNOWN AS LIMELIGHT MEDIA GROUP, INC.)
 CONSOLIDATED
          STATEMENTS OF OPERATIONS
 (UNAUDITED)
 
 For
                    the Three Months Ended
                
                For
                    the Three Months EndedMarch
                    31, 2006
                
                March
                    31, 2005RevenuesEquipment
                    sales
                
                $
                524,636
                
                $
                951,670Managed
                    subscription
                
                
                153,100
                
                
                --Consulting
                    and design services
                
                
                105,863
                
                
                78,612Media
                    Services
                
                
                439,146
                
                
                --Total
                    revenues
                
                
                1,222,744
                
                
                1,030,282Cost
                    of revenues
                
                
                588,441
                
                
                737,549Gross
                    profit
                
                
                634,303
                
                
                292,733General
                    and administrative expensesProfessional
                    and consulting
                
                
                606,553
                
                
                32,423Selling
                    and marketing
                
                
                70,198
                
                
                39,996Depreciation
                
                
                338,619
                
                
                5,624Wages
                    and salaries
                
                
                1,344,880
                
                
                281,911Rent
                    expense
                
                
                88,464
                
                
                53,562Other
                    general and administrative expenses
                
                
                704,398
                
                
                58,779Total
                    general and administrative expenses
                
                
                3,153,111
                
                
                472,295Income
                    (loss) from operations
                
                
                (2,518,808
                )
                
                (179,562
                )Other
                    income (expense)Other
                    income
                
                
                8,489
                
                
                13,690Gain
                    on retirement of notes payable
                
                
                106,423
                
                
                --Interest
                    income
                
                
                5,563
                
                
                --Interest
                    expense
                
                
                (445,840
                )
                
                (16,530
                )Net
                    loss
                
                $
                (2,844,173
                )
                $
                (182,402
                )Net
                    Loss - Common Stockholders:Net
                    Loss
                
                $
                (2,844,173
                )
                $
                --Beneficial
                    conversion feature of series A preferred stock
                
                
                (933,873
                )
                
                --Accretion
                    of dividends on series A preferred stock
                
                
                (23,450
                )
                
                --Net
                    loss - common stockholders
                
                $
                (3,801,496
                )
                $
                (182,402
                )Basic
                    earnings (loss) per common share
                
                $
                (0.21
                )
                $
                (0.04
                )Basic
                    and Diluted weighted average common shares outstanding
                
                
                18,426,475
                
                
                4,828,831
 See
        Notes
        to Consolidated Financial Statements




4


IMPART
          MEDIA GROUP, INC.
 (FORMERLY
          KNOWN AS LIMELIGHT MEDIA GROUP, INC.)
 CONSOLIDATED
          STATEMENTS OF CASH FLOWS
 (UNAUDITED)
 
 For
                    the three months Ended
                
                For
                    the three months EndedMarch
                    31, 2006
                
                March
                    31, 2005Cash
                    flows from operating activities:Net
                    loss
                
                $
                (2,844,173
                )
                $
                (182,402
                )Adjustments
                    to reconcile net loss to net cash used by operating
                    activities:Issue
                    common stock for non-cash consulting expense
                
                
                1,000,000
                
                
                --Issue
                    warrants for servicing
                
                
                215,875
                
                
                --Non-cash
                    compensation expense
                
                
                355,637
                
                
                --Non-cash
                    stock compensation expense
                
                
                48,064
                
                
                --Non-cash
                    interest expense
                
                
                157,197
                
                
                --Gain
                    on retirement of notes payable
                
                
                (106,423
                )
                
                --Depreciation
                
                
                338,619
                
                
                2,153Other
                
                
                5,204
                
                
                --Changes
                    in operating assets and liabilities net of acquired assets and
                    liabilities
                    due to acquisitions:Accounts
                    receivable
                
                
                (1,368,298
                )
                
                409,074Inventory
                
                
                33,559
                
                
                (21,839
                )Prepaid
                    expenses and other current assets
                
                
                (563,155
                )
                
                15,701Other
                    assets
                
                
                47,884
                
                
                13,430Accounts
                    payable
                
                
                370,152
                
                
                (211,593
                )Accrued
                    liabilities
                
                
                361,832
                
                
                (46,889
                )Net
                    cash used by operating activities
                
                
                (1,948,027
                )
                
                (22,365
                )Cash
                    flows from investing activities:Cash
                    paid out in acquisitions
                
                
                (500,000
                )
                
                --Acquisition
                    of E&M
                
                
                (600,000
                )
                
                --Purchase
                    of fixed assets
                
                
                (166,366
                )
                
                --Proceeds
                    from sale of assets
                
                
                --
                
                
                57,915Net
                    cash provided (used) by investing activities
                
                
                (1,266,367
                )
                
                57,915Cash
                    flows from financing activities:Proceeds
                    from sale of common stock
                
                
                666,801
                
                
                --Proceeds
                    from sale of Preferred stock and issuance of warrants
                
                
                3,910,505
                
                
                --Issuance
                    of common stock for exercise of warrants
                
                
                20,000
                
                
                --Deferred
                    financing costs and commitment fees
                
                
                (428,000
                )
                
                --Net
                    change in line of credit
                
                
                888,217
                
                
                110,494Proceeds
                    from notes payable
                
                
                --
                
                
                308,460Principal
                    payments on notes payable
                
                
                (607,600
                )
                
                --Proceeds
                    from notes payable - related parties
                
                
                150,000
                
                
                167,310Principal
                    payments on notes payable - related parties
                
                
                --
                
                
                (655,734
                )Principal
                    payments on capital lease obligations
                
                
                (11,627
                )
                
                --Net
                    cash provided (used) by financing activities
                
                
                4,588,296
                
                
                (69,470
                )Net
                    change in cash
                
                
                1,373,902
                
                
                (33,920
                )Cash,
                    beginning of period
                
                
                66,641
                
                
                62,345Cash,
                    end of period
                
                $
                1,440,543
                
                $
                28,425Supplementary
                    cash flow information:Cash
                    payments for income taxes
                
                $
                --
                
                $
                --Cash
                    payments for interest
                
                $
                --
                
                $
                --Schedule
                    of non-cash investing and financing activities:Common
                    stock issued for acquisition
                
                $
                572,500
                
                $
                --Issuance
                    of common stock for accrued compensation
                
                $
                --
                
                $
                268,346
 See
        Notes
        to Consolidated Financial Statements


5


**NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
  **Note
          1. Description of Business, History and Summary of Significant
          Policies**
 
 **Description
          of Business**
 
 Impart
          Media Group, Inc. (formerly known as Limelight Media Group, Inc.) (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 for the growing Out-of-Home (OOH) digital signage and interactive
          self
          service industries. We provide design, integration, fabrication, assembly,
          QA,
          creative production, and turnkey 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 we deploy and other media services.
 
 We
          have
          developed a digital OOH media network based on a unique architecture called
          Impart IQ, with web-based services that we believe no other company in
          the
          sector provides. This centrally managed (by us or the client) solution
          has the
          capability to deliver relevant information for businesses desiring digital
          signage and interactive media systems to any location where a message benefits
          from real time delivery to one or numerous displays.
 
 Our
          company is currently developing networks in multiple vertical markets.
          By
          diversifying the markets, we may realize revenue from multiple sources.
          Airports, mass transit, malls, financial institutions, retail stores and
          government agencies can be location partners for way-finding, 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.
 
 For
          the
          quarter ended March 31, 2006, our primary source of revenue was derived
          from
          media services, equipment sales, and managed subscription services. For
          the
          quarter ended March 31, 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." ("Limelight").
 
 On
          June
          30, 2005, we acquired all of the outstanding capital stock of Impart, Inc.,
          a
          Washington corporation ("Impart, Inc. Transaction"). This transaction 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.
          Also,
          on June 30, 2005, concurrently with the Impart, Inc. Transaction, we entered
          into an Agreement with iPoint Networks, LLC, a Washington limited liability
          company, ("iPoint") whereby we purchased the assets of iPoint ("iPoint
          Transaction"). The total consideration for these transactions was 8,125,000
          shares ("Merger Consideration") of our common stock and a promissory note
          of
          $250,000.
  6
  As
          we did
          not have a sufficient number of duly authorized shares on the date of the
          acquisition, the parties agreed to holdback 2,875,000 shares ("Holdback
          Shares")
          of the 8,125,000 to be issued to owners of Impart, Inc. and iPoint not
          later
          than ten days following the later of (i) the effective date of a merger
          by
          Impart, Inc. with and into a Nevada corporation to be formed by Limelight
          or
          (ii) Limelight's receipt of audited financial statements of Impart, Inc.
          Prior
          to the Impart, Inc. Transaction, Limelight was a public company with nominal
          operations, that had $105,868 in assets (including cash totaling $1,968);
          liabilities totaling $890,924, a cash equivalent credit valued at $125,000
          previously purchased through the issuance of shares of our common stock,
          a
          receivable related to the issuance of our common stock totaling $12,500
          and
          7,081,425 shares of common stock issued and 6,941,483 shares outstanding.
          Impart, Inc. was a privately-held company that sold dynamic media solutions
          consisting of monitors, computers, mounting systems, and associated
          technological hardware. The following table reflects the stock issued in
          relation to the Impart, Inc. Transaction and iPoint Transaction:
 
 Impart
                    Transaction1
                
                iPoint
                    Transaction2
                
                TotalTotal
                    consideration
                
                
                7,656,250
                
                
                468,750
                
                
                8,125,000Holdback
                    shares
                
                
                (2,709,135
                )
                
                (165,865
                )
                
                (2,875,000
                )Total
                    common stock issuance
                
                
                4,947,115
                
                
                302,885
                
                
                5,250,000
 
 During
          the 4th quarter of 2005, we entered into agreements to transfer the Holdback
          Shares into a liability totaling $4.6 million; however this balance was
          satisfied in exchange for the same number of shares as was originally defined
          as
          the Holdback Shares. The issuance of these Holdback Shares has been included
          in
          the accompanying Statements of Stockholders' Deficit for the consideration
          of
          these related transactions. The Holdback Shares of 2,709,135 for the Impart,
          Inc. Transaction have been included as part of the consideration for the
          acquisition of Impart, Inc. during the year ended December 31,
          2005.
 
 ____________________
 1  The
          Impart Transaction is considered to be a capital transaction in substance,
          rather than a business combination. Inasmuch, the Impart Transaction is
          equivalent to the issuance of stock by a private company (Impart) for the
          net
          monetary assets of a public shell company (Limelight), accompanied by a
          recapitalization. Thus, the 98,942,308 shares (net of Holdback Shares)
          of common
          stock issued to the shareholders of Impart are retroactively applied. The
          accounting for the Impart Transaction is identical to that resulting from
          a
          reverse acquisition, except that neither goodwill nor other intangible
          assets
          will be recorded. Accordingly, these financial statements are the historical
          financial statements of Impart. Impart was incorporated on June 19, 1984,
          in the State of Washington.
 2  The
          Ipoint Transaction resulted in the acquisition of certain fixed assets
          in
          exchange for 6,057,692 shares (net of Holdback Shares) and a promissory
          note
          totaling $250,000. The note was satisfied in January 2006.
  7
  We
          issued
          81,440 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 outstanding at the time of the transaction that are still being
          negotiated.
 
 On
          June 30, 2005, we entered into an agreement with Media Sidestreet Support
          Corporation ("Media Sidestreet") whereby we purchased the assets of Media
          Sidestreet in exchange for the issuance of notes in the aggregate principal
          amount of $1,027,965 to the owners of Media Sidestreet ("Media Sidestreet
          Asset
          Acquisition"). The notes were satisfied in January of 2006 with issuance
          of our
          common stock at a value of $1.00 per share. This transaction resulted in
          a gain
          on retirement of debt of $ 106,423. Prior to the Impart, Inc. Transaction,
          the
          majority owners of Impart, Inc. were also owners in Media Sidestreet, thus
          this
          is a related party transaction. Accordingly, these financial statements
          include
          the combined historical financial statements of Impart, Inc. and Media
          Sidestreet.
 
 In
          October 2003, a Certificate of Amendment to the Articles of Incorporation
          changed our company's name to Limelight Media Group, Inc. During February
          2004,
          a Certificate of Amendment to the Articles of Incorporation increased the
          authorized shares of our common stock from 25,000,000 to 100,000,000. During
          January 2005, a Certificate of Amendment to the Articles of Incorporation
          increased the authorized shares of our common stock from 100,000,000 to
          250,000,000. During December 2005, a Certificate of Amendment to the Articles
          of
          Incorporation effected a one-for-twenty reverse stock split and decreased
          the
          authorized shares of our common stock from 250,000,000 to 10,000,000. This
          amendment also changed our company’s name to "Impart Media Group, Inc." and
          created “blank check” preferred stock. The preferred stock may be divided into
          series with preferences, limitations and relative rights defined by the
          Board of
          Directors.
 
 On
          February 2, 2006, we purchased from Marlin Capital Partners II, LLC (doing
          business as InTransit Media) all of the assets used in its digital advertising
          services business, including the right to manage the PATHVISION digital
          signage
          system owned by the Port Authority’s PATHVISION broadcasting system and the
          equipment, computer servers and software used by them in the delivery of
          such
          services.
 
 On
          February 28, 2006, we purchased substantially all of the assets E&M
          Advertising, Inc., E&M West/Camelot, Inc. and NextReflex, Inc., which were
          engaged in the placement and marketing of direct response media. In conjunction
          with this acquisition, we changed the name of E&M Advertising, Inc. to
          Impart Media Advertising, Inc. 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.
          In April
          2006 we issued 1,468,532 of the 1,608,392 shares to be issued in connection
          with
          the acquisition of E&M Advertising, Inc., E&M West/Camelot, Inc. and
          NextReflex, Inc. The fair value of the shares issued at measurement date
          is
          approximately $4.8 million.
  8
  **Unaudited
          Interim Financial Statements**
 
 In
          the
          opinion of management, the accompanying unaudited condensed consolidated
          financial statements reflect all adjustments, consisting of normal recurring
          adjustments, necessary to present fairly the financial position of the
          Company
          as of March 31, 2006 and its results of operations and cash flows for the
          three
          months ended March 31, 2006 and 2005. Pursuant to the rules and regulations
          of
          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
          10-KSB.
 
 The
          results of the Company’s operations for the three months ended March 31, 2006
          are not necessarily indicative of the results of operations for the full
          year
          ending December 31, 2006.
 
 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
 
 **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 a net loss of approximately
          $2,844,000 and $182,000 for the quarters ended March 31, 2006 and March
          31,
          2005, respectively. Our company’s current liabilities exceed its current assets
          by approximately $5,453,000 as of March 31, 2006. Our company’s net cash used
          from operating activities approximated $1,948,027 during the quarter ended
          March
          31, 2006.
 
 Our
          ability to continue as a going concern is dependent on additional sources
          of
          capital and the success of our company’s 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 our line of credit with Laurus or through sales of additional
          shares of our capital stock to institutional investors, or a combination
          of
          both. Both Laurus and the investors in the Series A Financing have rights
          of
          first refusal with respect to certain new sales of our
          securities.
  9
  **Principles
          of Consolidation**
 
 The
          accompanying consolidated financial statements include the accounts at
          the
          Company and its subsidiaries. All significant intercompany accounts and
          transactions have been eliminated.
 
 **Accounts
          Receivable**
 
 Accounts
          receivables of the company are reviewed quarterly as to whether their carrying
          value has become impaired. The company considers the assets to be impaired
          if
          the balances are greater than one year old. Management regularly reviews
          accounts receivable and has established an allowance for doubtful accounts
          of
          $35,988 as of March 31, 2006. When accounts are written off, they are charged
          against the allowance. Generally, the company does not assign past due
          status to
          receivables. Also, receivables generally are not collateralized and do
          not bear
          interest.
 
 **Concentration
          of Credit Risk**
 
 Financial
          instruments, which potentially subject us to concentrations of credit risk,
          consist principally of accounts
          receivable. As of March 31, 2006, three customers represent approximately
          21% of
          accounts receivable. Two customers represented 29% and 27% of total revenues
          during the three months ending March 31, 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. Our company’s management monitors the inventory for excess
          and obsolete items and makes necessary valuation adjustments when
          required.
 
 **Fixed
          Assets**
 
 Fixed
          assets are stated at cost less accumulated depreciation. Depreciation is
          provided 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 expenses as incurred. Expenditures for property
          betterments and renewals are capitalized. Upon sale or other disposition
          of a
          depreciable asset, cost and accumulated depreciation are removed from the
          accounts and any gain or loss is reflected in other income
          (expense).
  10
  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.
 
 Fixed
          assets acquired through the E&M Acquisition are recorded at their estimated
          fair value at the time of acquisition. Depreciation is recorded utilizing
          approximately a three-year life.
 
 **Intangibles**
 
 Intangible
          assets are recorded in accordance with Statement of Financial Accounting
          Standards (“SFAS”) No 141, and if they meet certain criteria are recorded apart
          from Goodwill. Our Company recognizes customer lists and contractual rights
          apart from Goodwill in accordance with paragraph A14 (b) of (“SFAS”) No 141.
          Amortization of customer lists and contractual rights is on a straight-line
          basis over a period of 3 and 2 years, respectively.
 
 **Fair
          Value of Financial Instruments**
 
 The
          carrying amounts and estimated fair values of our company’s financial
          instruments approximate their fair value due to the short-term
          nature.
 
 **Net
          Loss per Common Share**
 
 Net
          loss
          per share excludes any dilutive effects of options, warrants and convertible
          securities. Net loss per share is computed using the weighted-average number
          of
          outstanding common shares during the applicable period. Diluted earnings
          (loss)
          per share is computed using the weighted average number of common and common
          stock equivalent shares outstanding during the period. Common stock equivalent
          shares are excluded from the computation if their effect is
          antidilutive.
 
 **Income
          Taxes**
 
 We
          account for our income taxes in accordance with Statement of Financial
          Accounting Standards (“SFAS”) No 109, 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.
  11
  **Comprehensive
          Loss**
 
 SFAS
          No.
          130 establishes standards for reporting comprehensive income (loss) and
          its
          components in financial statements. Comprehensive loss, as defined, includes
          all
          changes in equity (net assets) during a period from non-owner sources.
          To date,
          the Company has not had any significant transactions that are required
          to be
          reported in other comprehensive loss.
 
 **Segment
          Information**
 
 We
          disclose 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, the company expenses the costs of
          producing advertisements at the time production occurs, and expenses the
          costs
          of communicating advertisements in the period in which the advertising
          space or
          airtime is used.
 
 **Stock-based
          Compensation**
 
 Prior
          to
          Jan 1, 2006, we accounted for stock-compensation under the recognition
          and
          measurement principles of Statement of Financial Accounting Standards (“SFAS”)
          123, “Accounting for Stock-Based Compensation” (SFAS 123”). Effective January 1,
          2006, we began recording compensation expense associated with stock options
          and
          other equity-based compensation in accordance with SFAS 123 (revised 2004),
          “Share-Based Payment” (“SFAS 123R”). 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 $48,064
          and $0
          for the quarters March 31, 2006 and 2005, respectively.
 
 SFAS
          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.
  12
  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**
 
 Revenue
          from product sales are generally recognized when our company’s products are
          shipped and/or the revenue are fully earned and ownership has passed to
          the
          customer. Revenue from management fees are recorded in the month the service
          is
          provided. Revenue from design and installation contracts is recognized
          using the
          completed-contract method. There were no significant contracts in process
          at
          March 31, 2006.
 
 Our
          advertising division derives substantially all 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 the operating revenues for the quarters ended March 31, 2006 and 2005
          were
          approximately $276,835 and $0, respectively.
 
 **Note
          2. 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 $266,666 for a total of $677,666. The purchased
          assets
          consisted of the assets used in their 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
          by
          them in the delivery of such services.
  13
  The
          operations of InTransit are consolidated with the Company as of the date
          of
          acquisition. The unaudited pro forma financial information presented 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 our company believes are reasonable as of the date of
          this
          filing. However, actual adjustments may differ materially from the information
          presented. Assumptions underlying the pro forma adjustments are described
          in the
          accompanying notes, which should be read in conjunction with the unaudited
          pro
          forma condensed financial statements.
 
 The
          unaudited pro forma financial statements are presented for informational
          purposes only and do not purport to be indicative of the financial position
          which would actually have been obtained if the transaction had occurred
          in the
          periods indicated below or which may exist or be obtained in the future.
          The
          information is not representative of future results of operations or financial
          position. The unaudited condensed pro forma financial information is qualified
          in its entirety and should be read in conjunction with the more detailed
          information and financial data appearing in our company's historical financial
          statements and notes thereto included herein. In the opinion of management,
          all
          material adjustments necessary to reflect the acquisition of the assets
          by us
          have been made.
 
 **Proforma
          Statement of Operations (Unaudited)**
 
 For
                    the Quarter Ended March 31, 2006Actual
                
                Adjustments
                    *
                
                ProformaRevenues
                
                $
                1,222,744
                
                $
                9,000
                
                $
                1,231,744Operating
                    loss
                
                
                (2,518,809
                )
                
                (43,220
                )
                
                (2,562,029
                )Net
                    loss
                
                
                (2,844,173
                )
                
                (43,220
                )
                
                (2,887,420
                )Beneficial
                    Conversion Feature of Series A Preferred
                
                
                (933,873
                )
                
                -
                
                
                (933,873
                )Accretion
                    of Dividends on Series A Preferred Stock
                
                
                (23,450
                )
                
                -
                
                
                (23,450
                )Net
                    loss - Common Stockholders
                
                
                (3,801,523
                )
                
                (43,220
                )
                
                (3,844,723
                )Loss
                    per share - basic and diluted
                
                $
                (0.21
                )
                
                
                
                $
                (0.21
                )
  *
          The
          proforma adjustment to the historical financial statements reflects an
          increase
          in revenue of $9,000 and operating expenses of $4,600 from January 2006
          through
          February 5, 2006, as well as an increase in amortization expense of $47,620
          related to the acquisition.
  14
  **Proforma
          Statement of Operations (Unaudited)**
 
 For
                    the Quarter Ended March 31, 2005Actual
                
                Adjustments
                    *
                
                ProformaRevenues
                
                $
                1,030,282
                
                $
                9,000
                
                $
                1,039,282Operating
                    loss
                
                
                (179,562
                )
                
                (129,646
                )
                
                (309,208
                )Net
                    loss
                
                
                (182,402
                )
                
                (129,646
                )
                
                (312,048
                )Loss
                    per share - basic and diluted
                
                $
                (0.04
                )
                
                
                
                $
                (0.06
                )
 
 *
          The
          proforma adjustment to the historical financial statements reflects an
          increase
          in revenue of $9,000 and operating expenses of $4,600 as well as amortization
          expense of $134,046 related to the acquisition.
 
 **E&M
          Advertising**
 
 On
          February 28, 2006, we purchased substantially all of the assets E&M
          Advertising, Inc., E&M West/Camelot, Inc. and NextReflex, Inc. (collectively
“E&M”), 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 all shares to
          be issued as determined based on the measurement date is approximately
          $5,308,000. The fair value of these shares was recorded as “Stock Issuance
          Payable” as of March 31, 2006. In connection with the issuance of these shares
          the “Stock Issuance Payable” balance has been decreased as reflected in Note 16,
          Subsequent Events.
 
 The
          operations of E&M are consolidated with the Company as of the date of
          acquisition. The unaudited pro forma financial information presented reflects
          the estimated pro forma effect of the E&M transaction as if it occurred on
          January 1, 2006 and 2005, respectively.
 
 The
          unaudited pro forma condensed financial statements include specific assumptions
          and adjustments related to the purchase of the assets. These pro forma
          adjustments have been made to illustrate the anticipated financial effect
          of the
          purchase of the assets. The adjustments are based upon available information
          and
          assumptions that our company believes are reasonable as of the date of
          this
          filing. However, actual adjustments may differ materially from the information
          presented. Assumptions underlying the pro forma adjustments are described
          in the
          accompanying notes, which should be read in conjunction with the unaudited
          pro
          forma condensed financial statements.
  15
  The
          unaudited pro forma financial statements are presented for informational
          purposes only and do not purport to be indicative of the financial position
          which would actually have been obtained if the transaction had occurred
          in the
          periods indicated below or which may exist or be obtained in the future.
          The
          information is not representative of future results of operations or financial
          position. The unaudited condensed pro forma financial information is qualified
          in its entirety and should be read in conjunction with the more detailed
          information and financial data appearing in our company's historical financial
          statements and notes thereto included herein. In the opinion of management,
          all
          material adjustments necessary to reflect the acquisition of the assets
          by us
          have been made.
 
 **Proforma
          Statement of Operations (Unaudited)**
 
 For
                    the Quarter Ended March 31, 2006Actual
                
                Adjustments
                    *
                
                ProformaRevenues
                
                $
                1,222,744
                
                $
                689,247
                
                $
                1,911,991Operating
                    loss
                
                
                (2,518,809
                )
                
                (49,708
                )
                
                (2,568,517
                )Net
                    loss
                
                
                (2,844,200
                )
                
                (378,622
                )
                
                (3,222,822
                )Beneficial
                    Conversion Feature of Series A Preferred
                
                
                (933,873
                )
                
                
                
                
                (933,873
                )Accretion
                    of Dividends on Series A Preferred Stock
                
                
                (23,450
                )
                
                
                
                
                (23,450
                )Net
                    loss - Common Stockholders
                
                
                (3,801,523
                )
                
                (378,622
                )
                
                (4,180,145
                )Loss
                    per share - basic and diluted
                
                $
                (0.21
                )
                
                
                
                $
                (0.23
                )
  * The
          proforma adjustment to historical financial statements reflects the recognition
          of amortization of approximately $329,000 from January 1 through February
          28,
          2006, related to the acquisition and total operating expenses of $409,955
          of the
          same period. The revenue adjustment reflects earned revenue by E&M of
          $689,247 from January 30, through, February 28, 2006.
 
 **Proforma
          Statement of Operations (Unaudited)**
 
 For
                    the Quarter Ended March 31, 2005Actual
                
                Adjustments
                    *
                
                ProformaRevenues
                
                $
                1,030,282
                
                $
                972,616
                
                $
                2,002,898Operating
                    loss
                
                
                (179,562
                )
                
                (31,064
                )
                
                (210,626
                )Net
                    loss
                
                
                (182,402
                )
                
                (524,435
                )
                
                (706,837
                )Loss
                    per share - basic and diluted
                
                $
                (0.04
                )
                
                
                
                $
                (0.14
                )
  *
          The
          proforma adjustment to historical financial statements reflects the recognition
          of amortization of approximately $494,000 from January 1 through February
          28,
          2005, related to the acquisition and total operating expenses of $509,680
          of the
          same period. The revenue adjustment reflects earned revenue by E&M of
          $972,616 from January 30 through February 28, 2005.
  16
  **Note
          3. Inventory**
 
 Inventory
          totaling $449,980 consists of finished goods as of March 31, 2006.
 
 **Note
          4. Fixed Assets**
 
 Fixed
          assets consist of the following as of March 31, 2006:
 
 Computer
                    and other equipment
                
                $
                787,123Furniture
                    and fixtures
                
                
                131,238Software
                
                
                977,199Leasehold
                    equipment
                
                
                3,8531,899,413Less:
                    accumulated depreciation
                
                
                (408,865
                )Fixed
                    assets, net
                
                $
                1,490,548
 
 **Note
          5. Intangibles**
 
 Intangibles
          consist of the following as of March 31, 2006:
 
 Goodwill
                
                $
                1,420,459Customer
                    List
                
                
                4,500,000Contractual
                    Rights
                
                
                1,072,3726,992,831Less:
                    accumulated amortization
                
                
                (244,247
                )Intangibles,
                    net
                
                $
                6,748,584
 
 **Note
          6. Due to/from Related Parties**
 
 Due
          to
          related parties totaling $188,060 as of March 31, 2006, consist of the
          following:
 
 Related
                    party agreement in which stockholder will receive a revenue shareof
                    $18,000 per year and an additional 5% of net ad revenues as it
                    pertainsto
                    a specific airport project for a period of 3 years
                
                $
                150,000Unreimbursed
                    expenses to various stockholders, unsecured, bearing interest
                
                
                19,965Unreimbursed
                    expenses to various stockholders, unsecured, bearing interestat
                    the rate of 8.5 % due June 2, 2006
                
                
                15,794Accrued
                    interest on related party loans
                
                
                2,301Total
                    due to related parties
                
                $
                188,060
  17
  Due
          from
          related parties totaling $271,013 as of March 31, 2006, included in other
          assets
          consist of the following:
 Related
                    party receivable assumed as part of E&M Acquisition
                
                $
                271,013
 
 
 **Note
          7. Other Liabilities**
 
 **Clickplay,
          Inc** .
 
 During
          March 2006, we entered into a settlement agreement with Clickplay, Inc.
          whereby
          we settled all outstanding balances related to Clickplay, Inc. in consideration
          of our cash payment of approximately $152,000.
 
 **Note
          8. 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 the Company with a revolving
          credit
          facility of up to $6 million (“Facility”). The term of the Facility is three (3)
          years and borrowings under the Facility shall 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 Note
          is
          payable monthly on the first day of each month during the term of the Note,
          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
          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 Facility of $2
          million,
          of which approximately $682,000 and $100,000 was used to satisfy in full,
          our
          indebtedness to Key Bank National Association and Columbia State Bank,
          respectively. The balance of the initial draw, less expenses of the Facility,
          will be used for general corporate and working capital purposes. As of
          March 31,
          2006, the balance due to Laurus was approximately $1.6 million.
 
 In
          connection with the Facility, we paid Laurus approximately $246,000, comprised
          of a facility management fee of $216,000 and reimbursement of $30,000 in
          due
          diligence and documentation expenses. The facility management fee is being
          amortized to interest expense over the three-year term of the loan. We
          also paid
          a cash fee of $180,000 and issued a warrant 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 line of
          credit
  18
  ***Warrant*** .
          We
          issued 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 secure this line of credit
          from
          Laurus. As such, we recorded the full value of the warrant as deferred
          debt
          issue costs upon entering the Facility agreement with Laurus. Debt issue
          costs
          are to be amortized to interest expense over the three-year term of the
          Facility
 
 The
          Laurus warrant expires on January 27, 2013. In connection with the Security
          Agreement, Laurus is restricted from selling any shares of common stock
          it
          receives through the exercise of the warrant shares 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
          Note is secured by a blanket lien on substantially all of the assets of
          our
          company and our subsidiaries pursuant to the terms of our 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 Note. If an event of default occurs under the any of the Security
          Agreement, the Warrant (as herein defined), the Stock Pledge Agreement,
          the
          Registration Rights Agreement (as herein defined), 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 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 Transaction Documents
          and under the Uniform Commercial Code. Such events of default include,
          without
          limitation, the following:
  ·
                a
                    failure to make payments of principal and interest under the
                    Note within
                    three (3) days of when due;
 ·
                a
                    breach by us of any material representation, warranty or statement
                    contained in any of the Transaction Documents (that is not cured
                    within
                    the stated cure period);
 ·
                the
                    filing of any money judgment or similar final process against
                    us for more
                    than $100,000, which remains unvacated, unstayed or unbonded
                    for a period
                    of thirty (30) days;
  19
  ·
                if
                    we make an assignment for the benefit of our creditors, or a
                    receiver or
                    trustee is appointed for us, or any form of bankruptcy or insolvency
                    proceeding is instituted by us, or any involuntary proceeding
                    is
                    instituted against us if not vacated within thirty (30)
                    days;
 ·
                if
                    our Common Stock is suspended for five (5) consecutive days or
                    for five
                    (5) days during a ten (10) day consecutive period from a principal
                    market
                    or pursuant to a stop order issued by the Securities and Exchange
                    Commission (the “SEC”);
                    and
 ·
                a
                    failure by us to timely deliver shares of our Common Stock to
                    Laurus when
                    due upon exercise of the Warrant.
 
 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. These negative covenants include, without limitation, restrictions
          on
          our ability to:
 
 ·
                incur
                    or assume indebtedness (exclusive of trade
                    debt);
 ·
                guarantee
                    or assume any liability in connection with any obligations of
                    another
                    person or entity (except on behalf of the Subsidiary in the ordinary
                    course of business);
 ·
                pay
                    or make any dividend or distribution on any class of our capital
                    stock or
                    the capital stock of the Subsidiary or issue any preferred stock;
                    and
 ·
                enter
                    into any merger, consolidation or reorganization, with limited
                    exceptions.
 
 ***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. With respect to the registration statement required to
          be filed
          in connection with the exercise of the Warrant (the “ Original
          Registration Statement ”),
          we
          were initially required to file 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 is on or prior to July 15, 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, but
          on or
          prior to November 13, 2006. In the event of clause (ii) set forth above,
          we are
          required to file such 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.
          Each such
          Additional Registration Statement shall be declared effective within thirty
          (30)
          days following the applicable filing date of such Additional Registration
          Statement. We are obligated to use our reasonable commercial efforts to
          maintain
          the effectiveness of the Original Registration Statement and any Additional
          Registration Statement until the earliest of the date on which (i) all
          shares
          registered thereunder have been sold or (ii) all shares registered thereunder
          may be sold immediately without registration under the Act and without
          volume
          restrictions pursuant to Rule 144(k) of the Securities and Exchange Act
          of 1934
          (the “ Act ”)
          (as
          determined by a our counsel pursuant to a written opinion
          letter
  20
  **Note
          9. Notes Payable**
 
 During
          January 2006, we repaid our debt obligation to a financial institution
          for a
          long-term note payable and revolving line of credit for approximately $510,000
          and $72,000 respectively.
 
 During
          January 2006, we satisfied our debt obligation to outstanding related-party
          notes payable and other certain accrued expenses totaling $2.0 million.
          We
          issued 2.4 million shares of common stock that had a fair value of $1.9
          million.
          The difference of $106,000 has been recorded as a gain on retirement of
          notes
          payable
 
 During
          January 2006, the accrued interest on the bridge loans was satisfied in
          exchange
          for warrants to acquire 90,200 shares of our common stock for $0.20 per
          share.
          These warrants immediately vest and 75,000 expire in October 2006 with
          the
          remainder expiring in January 2009. Using the Black-Scholes valuation model
          shown in Note. 10 we recorded interest expense of $166,447 and $49,427
          respectively, during the three months ended March 31, 2006. Additionally,
          during
          1 st Quarter
          2006, we repaid our bridge loans totaling $217,000 in exchange for
          cash.
 
 **Note
          10. Stock Option Plans and Warrants**
 
 The
          Company adopted a 2005 Stock Option Plan. Options granted under the 2005
          Stock
          Option Plan:
  Shares
                    Available for Grant
                
                Options
                    Outstanding
                
                Weighted
                    Average Exercise PriceBalance,
                    December 31, 2005
                
                
                1,295,000
                
                
                705,000
                
                
                .73Grants
                
                
                -
                
                
                -
                
                
                -Cancelled
                
                
                75,000
                
                
                (75,000
                )
                
                -Balance,
                    March 31, 2006
                
                
                1,220,000
                
                
                630,000
                
                $
                0.73Options
                    exercisable as ofMarch
                    31, 2006
                
                
                
                
                
                234,998
                
                $
                0.73
  21
  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
                
                
                630,000
                
                
                234,998
                
                $
                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, our company granted warrants in 2006 (to non-employees). These
          warrants were outside the 2005 Stock Option Plan. The following are the
          warrants
          granted:
 
 Warrants
                    Outstanding
                
                Weighted
                    Average Exercise PriceBalance,
                    December 31, 2005
                
                
                447,566
                
                
                0.95Granted
                
                
                4,647,877
                
                
                1.33Exercised
                
                
                (100,000
                )
                
                .20Forfeited
                
                
                -
                
                
                -Expired
                
                
                -
                
                
                -Balance,
                    March 31, 2006
                
                
                4,995,443
                
                $
                1.29Warrants
                    exercisable as of March 31, 2006
                
                
                4,995,443
                
                $
                1.29
 
 The
          weighted-average fair value for warrants granted during 2006 was $2.66
          and was
          estimated using the Black-Scholes option valuation model with the following
          weighted-average assumptions:
 
 Expected
                    life in years
                
                3.0Volatility
                
                139%Interest
                    rate
                
                4.41%-4.75%Yield
                    rate
                
                0%
 
 **Note
          11. 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.
  22
  **Note
          12. Series A Convertible Preferred Stock**
 
 During
          March 2006, the Company sold 2,903,229 shares of our newly designated
          Series A Convertible Preferred Stock at $1.55 per share for a total of $4.5
          million. In addition, the purchasers of the Series A Convertible Preferred
          Stock received warrants to purchase an aggregate of 2,903,229 shares of
          common
          stock with an exercise price of $2.25 per share and a 3 year term. The
          company paid $562,000 in issuance costs, for net proceeds of $3.9 million.
 
 Each
          share of Series A Convertible Preferred Stock is currently convertible into
          one share of common stock, subject to adjustment for certain dilutive events.
          Shares of Series B Convertible Preferred Stock are convertible by the
          holder at any time. The Preferred Shares will automatically convert into
          shares
          of Common Stock on the third anniversary of the issuance date or mandatorily
          convert upon the date of a consummation of a bona fide firm underwritten
          public
          offering of the Company’s securities of at least $20 million in which the price
          per share is at least $4.00 (subject to certain restrictions), at a conversion
          price of $1.55 (subject to certain adjustments). The Series A Convertible
          Preferred Stock provides that the consent or affirmative vote of the holders
          of
          at least seventy-five percent (75%) of the Preferred 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 Preferred Shares to adversely affect the rights,
          preferences and voting powers of such Preferred Shares, (c) repurchase,
          redeem
          or pay dividends on any shares of Common Stock; (d) amend the Company’s Articles
          of Incorporation or By-Laws; (e) effect any distribution with respect to
          any
          junior stock; (f) reclassify the Company’s outstanding securities, and (g)
          voluntarily file for bankruptcy, liquidate the Company’s assets or change the
          nature of the business.
 
 The
          Series A Convertible Preferred Stock provides 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
          the Company’s discretion, provided that the Company has an effective
          registration statement providing for the resale of the shares of common
          stock.
          If a registration is not currently effective, the Company must pay the
          dividends
          in cash. Through March 31, 2006 the company has accreted approximately
          $23,000
          in dividends payable.
 
 In
          the
          event of our liquidation, dissolution or winding up, the holders of
          Series A Convertible Preferred Stock, are generally entitled to receive a
          liquidation preference over the holders of Common Stock equal to $1.55
          per share
          of Series A Convertible Preferred Stock held and any declared but unpaid
          dividends.
  23
  The
          shares of Series A Convertible Preferred Stock become mandatorily redeemable
          at
          a price equal to $1.55 per share, plus any accrued and unpaid dividends
          and
          certain other adjustments in the event of a closing of a purchase, tender
          or
          exchange offer made to one person or a group in which more than fifty percent
          of
          the outstanding shares of common stock are tendered and accepted. In the
          event
          of the Company’s suspension from listing, the Company’s inability to comply or
          intention not to comply with a request for conversion, deregistration of
          the
          Company’s shares of common stock, the consummation of a ‘going private’
transaction or breach of the representation, warranty, covenant or other
          term or
          condition of agreements pursuant to the Sale of the Series A Convertible
          Preferred Stock, 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 Convertible Preferred Stock 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 Convertible
          Preferred Stock 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 Convertible Preferred Stock and allocated
          $933,873 to this embedded beneficial conversion. As described in EITF 00-27,
          EITF 98-5 and ASR 268, 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 the Company’s retained deficit, the deemed dividend remains in
          additional paid in capital. The beneficial conversion cost of $933,873
          and the
          accreted dividends of $23,000 are added to net loss to determine the net
          loss
          attributable to common stockholders.
  24
 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 B Convertible Preferred Stock based
                    on relative fair value (prior to the allocation of issuance
                    costs)
                
                $
                2,836Shares
                    of common stock into which the Series B 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 B 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
  **Note
          13. Common Stock Transactions**
 
 In
          the
          three months ended March 31, 2006, our warrant holders exercised warrants
          for an
          aggregate 100,000 shares of common stock, with net proceeds to us of $20,000.
 
 In
          January 2006, we issued and sold to eight purchasers in a private placement,
          an
          aggregate of 216,072 shares of our 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 our common stock at an exercise price of $1.50 per
          share and
          an aggregate of 23,066 shares of our 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 we issued and sold to five purchasers in a private placement,
          an
          aggregate of 400,002 shares of our common stock at a purchase price of
          $.75 per
          share pursuant to a common stock purchase agreement.
 
 In
          January 2006, we issued 500,000 and 700,000 shares of our common stock
          pursuant
          to two consulting agreements. The shares had a fair value of $1.0 million.
          An
          amortization expense in the amount of $392,943 has been recorded in the
          first
          quarter of 2006. Amortization has been calculated using a straight-line
          basis
          over the 6-month and 12-month terms of the respective contracts.
 
 In
          January 2006, we issued 2.4 million shares of our common stock to related
          parties in satisfaction of outstanding notes payable and other certain
          accrued
          expenses totaling $2.0 million. These shares had a fair value of $1.9 million.
          The difference of $106,000 has been recorded as a gain on retirement of
          notes
          payable.
  25
  In
          February 2006, we issued and sold to two purchasers in a private placement
          an
          aggregate of 30,137 shares of our 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 our common stock at an exercise price
          of $3.00
          per share. These warrants immediately vest and expire in February 2009.
          The
          Company received approximately $74,800 in connection with the sale and
          issuance
          of the common stock and related warrants. The relative fair value of the
          common
          stock was estimated to be approximately $60,700 and the relative fair value
          of
          the warrants was estimated to be $14,100 as determined based on the relative
          fair value allocation of the proceeds received. The warrants were valued
          using
          the Black-Scholes valuation model.
 
 In
          February 2006, we sold to five purchasers in a private placement, an aggregate
          of 200,000 shares of our common stock at a purchase price of $1.12 per
          share
          pursuant to a common stock purchase agreement, together with warrants to
          purchase an aggregate of 100,000 shares of our common stock at an exercise
          price
          of $1.50 per share. These warrants immediately vest and expire in February
          2009.
          Due to these shares not being issued in first quarter 2006, the net proceeds
          of
          $224,000 was recorded as “Stock Issuance Payable” as of March 31, 2006. 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
          March
          2006, we issued 141,000 shares of our 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.
 
 **Note
          14. Capital Lease Obligations**
 
 We
          are
          obligated under two capital leases for equipment with a cost of $122,000
          and
          accumulated depreciation of $18,300 at March 31, 2006. Amortization of
          the
          equipment is included in depreciation expense. The capital lease obligations
          require a minimum lease payment of $4,468 per month with an interest rate
          of
          approx. 31%. Future minimum lease payments are as follows:
 
 2006
                
                $
                40,2082007
                
                
                53,6112008
                
                
                53,6112009
                
                
                31,414178,844Less:
                    amounts representing interest
                
                
                48,308130,536Less:
                    current portion
                
                
                20,873Capital
                    lease obligations - long-term portion
                
                $
                109,663
  26
  **Note
          15. 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 for the quarter ended March 31, 2006 and
          March
          31, 2005, approximated $45,000 and $55,000 respectively. The facility is
          owned
          by certain stockholders.
 
 Impart
          Media Advertising, Inc. leases its office facilities under an operating
          lease,
          which was extended through June 2011. Total rental expense under the facilities
          lease was approximately $35,800 for the quarter ended March 31, 2006. 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 March 31, 2006,
          are as
          follows:
 
 2007
                
                $
                304,7852008
                
                
                412,2002009
                
                
                415,3002010
                
                
                415,4002011
                
                
                420,100Thereafter
                
                
                1,546,200$
                3,513,985
 
 **Note
          16. Subsequent Events**
 
 On
          April
          22, 2006, an action was filed against our company in Division No. 1 of
          the
          Warren Circuit Court of the Commonwealth of Kentucky styled 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.
          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 shareholders 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. We are currently preparing our response to
          such
          complaint and plan to vigorously defend such action.
  27
  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 Advertising, Inc., E&M
          West/Camelot, Inc. and NextReflex, Inc. The fair value of the all shares
          to be
          issued as determined based on the measurement date is approximately $5,308,000.
          The fair value of these shares was recorded as “Stock Issuance Payable” as of
          March 31, 2006. In connection with the issuance of these shares the “Stock
          Issuance Payable” balance has been decreased as reflected in Note 2
          Acquisitions.
 
 In
          April
          2006, we issued to five purchasers in a private placement, an aggregate
          of
          200,000 shares of our common stock at a purchase price of $1.12 per share
          pursuant to a common stock purchase agreement, together with warrants to
          purchase an aggregate of 100,000 shares of our common stock at an exercise
          price
          of $1.50 per share. The fair value of these shares was recorded as “Stock
          Issuance Payable” as of March 31, 2006. In connection with the issuance of these
          shares the “Stock Issuance Payable” balance has been decreased.
 
 In
          April
          2006, we issued 6,000 shares of our common stock to one of our board members
          for
          consulting services already rendered. The fair market value of those shares
          is
          $15,000.
 
 In
          April
          2006, we issued to five warrant holders exercised warrants for 332,500
          shares of
          common stock, with net proceeds to us of $226,750.
 
 In
          April
          2006, we issued and sold in a private placement, an aggregate of 50,000
          shares
          of our common stock at $2 per share pursuant to a common stock purchase
          agreement. We received net proceeds of $100,000.
 
 In
          April
          2006, a warrant holder exercised warrants for a total of 132,500 shares
          of our
          common stock, with net proceeds to us of $2,750.
 
 On
          June
          2, 2006, we received a waiver from Laurus Master Fund Ltd. with respect
          to our
          default of certain debt covenants. As part of that waiver, we are now required
          to file a registration statement in connection with the January 27, 2006,
          Laurus
          transaction by July 15, 2006 and issue 30,000 shares of our common
          stock.
  
 28




ITEM
      2.
      MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.







**General**





The
      following discussion and analysis of the financial condition and results of
      operations should be read in conjunction with our financial statements and
      notes
      appearing elsewhere in this Report. As a result of our acquisition of all of
      the
      outstanding capital stock of Impart, Inc., a Washington corporation (“Impart”),
      on June 30, 2005, as we previously reported on our Current Report on Form 8-K
      filed with the Securities and Exchange Commission (the “Commission”) on July 7,
      2005, upon which Impart was considered to be the acquirer for financial
      reporting purposes, our historical financial statements for any period prior
      to
      June 30, 2005 are those of Impart.






**Results
      of Operations - Three months ended March 31, 2006 compared to the three months
      ended March 31, 2005.**





***Revenue.***  For the
      three months ended March 31, 2006, we had revenues of $1,222,744 as compared
      to
      $1,030,282 for the three months ended March 31, 2005, representing an increase
      of $192,462, or 18.7%. Historically, our revenues have been derived primarily
      from a combination of (i) the sale price of hardware components and software
      products used in our proprietary digital signage network and(iii) the fees
      we
      receive in connection with the delivery of consulting, maintenance and other
      digital signage services to our customers. As a result of our acquisition of
      substantially all of the assets and operating business of E&M Advertising,
      Inc., an advertising and direct response media company, and its affiliated
      companies on February 28, 2006, we also derive a portion of our revenue from
      fees and commissions received from the media services we provide, including
      the
      placement of advertising, production of advertising content and delivery of
      advertising and marketing services. In most instances, we recognize the net
      amount we receive from the sale of media spots to our customers after
      subtracting the price we pay to acquire such media spots.





The
      overall increase in our revenues for the three months ended March 31, 2006
      as
      compared to the comparable period in 2005 was primarily due to increased media
      services revenues of $439,146 derived as a result of our acquisition of E&M
      Advertising, Inc. in February 2006 and increased subscription revenues of
      $153,100 derived as a result our acquisition of Media SideStreet Corp. in June
      2005, offset by a decrease of $427,034 in revenues from sales of digital signage
      equipment. During the three months ended March 31, 2005, we did not generate
      revenues from media services or subscription services as our business model
      did
      not include such services during that period.





The
      decrease in equipment sales for the three months ended March 31, 2006, as
      compared to the comparable period in 2005 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, we recently launched
      several advertising-based revenue models whereby w e
      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, in addition to integration and equipment sales, our revenue models
      now
      include subscription and management services, revenues from third-party
      advertising and marketing and content management with development services.
      We
      believe this vertical and horizontal integration will equate to a one-stop
      digital signage solution for 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. As we had not fully implemented our new advertising-based
      revenue models during the three months ended March 31, 2006, we received nominal
      revenues from such models during this period.





29





***Cost
      of Revenue.*** For the
      three months ended March 31, 2006, the cost of sales was $588,441 as compared
      to
      $737,549 for the three months ended March 31, 2005, representing a decrease
      of
      $149,108, or 20.2%. 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. The decrease was primarily the result of the decrease in the revenues
      from equipment sales outlined above. With such a decrease in revenue from
      equipment sales, the cost of revenue from equipment sales similarly
      decreased.  We have also experienced a reduction in the cost of plasma
      screens, LCD screens and other network digital components that we sell to our
      customers under our “turn-key” (or “utility”) model. In this model, we purchase
      standard, off-the-shelf hardware components that we integrate and custom
      configure before deployment to our customers and we earn a profit on the
      difference between the sale price and our cost, in addition to the fees we
      receive for integrating, installing and operating the customer’s digital signage
      network.





***General
      and Administrative Expenses.*** For the
      three months ended March 31, 2006, we incurred general and administrative
      expenses of $3,153,111 as compared to $472,295 for three months ended March
      31,
      2005, an increase of $2,680,816. This increase was primarily attributable to
      significant increases we incurred in wages and salaries expense, professional
      and consulting fees and other general and administrative expenses.





We
      incurred an increase of $1,062,969 in wages and salaries expense, to $1,344,880
      for the three months ended March 31, 2006 from $281,911 for the three months
      ended March 31, 2005. This increase was primarily due to the addition of
      executive, sales and administrative personnel resulting from acquisitions since
      the three months ended March 31, 2005, including our acquisitions of E&M
      Advertising, Inc., iPoint Technologies, Inc. and Media SideStreet
      Corp.





We
      incurred an increase of $574,130 professional and consulting fees expense,
      to
      $606,553 for the three months ended March 31, 2006 from $32,423 for the three
      months ended March 31, 2005. This increase was primarily due to the legal and
      accounting expenses we incurred relating to our filings with the Commission
      related to our reporting obligations under the Securities and Exchange Act
      of
      1934 and in connection with several significant acquisition and financing
      transactions in the three months ended March 31, 2006 and to the amortization
      of
      a portion of stock issuances to two investor relations consulting firms during the
      three
      months ended March 31, 2006 .





In
      addition, we incurred an increase of $645,619 in other general and
      administrative expenses, to $704,398 during the three months ended March 31,
      2006 from $58,779 during the three months ended March 31, 2005. This increase
      was primarily due our payment of finders’ fees in connection with our two
      financing transactions during the three months ended March 31, 2006.





30





***Interest
      Expense.*** Interest
      expense was $445,840 for the three months ended March 31, 2006, as compared
      to
      $16,530 for the three months ended March 31, 2005, resulting in an increase
      of
      $429,310. This increase was primarily due to interest expense of $215,875
      resulting from the issuance of common stock warrants in lieu of the payment
      of accrued interest on loans payable. This amount represents the difference
      between the fair market value of our common stock at the time of issuance and
      the exercise price of the warrants multiplied by the number of shares issuable
      pursuant to such warrants. We also incurred interest expense of $117,001 under
      our credit facility with Laurus.





***Beneficial
      Conversion Feature of Series A Preferred Stock.*** During
      the three months ended March 31, 2006, we incurred an expense of $933,873
      resulting from the recognition of the beneficial conversion feature (the right
      to convert debt into shares of our capital stock at a discount to the fair
      market value of our capital stock) of our outstanding shares of Series A
      convertible preferred stock. During the three months ended March 31, 2006,
      we
      issued 2,903,229 shares of our Series A convertible preferred stock in
      connection with a private placement having gross proceeds to us of $4.5 million.
      During the three months ended March 31, 2005, we did not issue any shares of
      our
      Series A convertible preferred stock or any other securities having a beneficial
      conversion feature.





***Net
      Income (Loss).*** For the
      reasons described above, we had a net loss of $3,801,496 for the three months
      ended March 31, 2006 as compared to a net loss of $182,402 for the three months
      ended March 31, 2005.








**Liquidity
      and Capital Resources**





At
      March
      31, 2006, we had a cash balance of $1.4 million. Since 2002, our principal
      sources of liquidity have been revenue from operations, the issuance of debt
      and
      equity securities and borrowings from related parties. In the three months
      ended
      March 31, 2006, we consummated two financing transactions, a $6 million secured,
      revolving credit facility with Laurus (the “Laurus Facility”) and a private
      placement of shares of our Series A preferred convertible stock for gross
      proceeds of $4.5 million (the “Series A Financing”).





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%). 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 requested and Laurus agreed
      to lend an initial draw under the Laurus Facility of $2 million, of which
      approximately $782,000 was used to satisfy in full, our then-existing bank
      debt.
      The balance of the initial draw, less expenses of the Laurus Facility, is being
      used for general corporate and working capital purposes.





Under
      the
      Series A Financing, which was consummated on March 3, 2006, we received gross
      proceeds of $4.5 million from the sale of 2,903,229 shares of our Series A
      convertible preferred stock to six institutional investors, along with
      three-year warrants to purchase a like number of shares of our common stock.
      The
      net proceeds of the financing are being used for general corporate and working
      capital purposes.





31





To
      realize our growth strategy and business plans, we will likely seek additional
      borrowings under our line of credit with Laurus or through sales of additional
      shares of our capital stock to institutional investors, or a combination of
      both. Both Laurus and the investors in the Series A Financing have rights of
      first refusal with respect to certain new sales of our securities. In the event
      that our operations do not generate sufficient cash flow, or we cannot obtain
      additional funds if and when needed, we may be forced to curtail or cease our
      activities, which would likely result in the loss to investors of all or a
      substantial portion of their investment.





There
      can
      be no assurance that we will be able to consummate any of additional financing
      transactions, or that any such transaction will be consummated on terms
      favorable to us. If we are unsuccessful in our efforts to raise additional
      capital when needed, we may not be able to implement certain aspects of our
      growth strategy. Even if we successfully obtain such financing, we will still
      require additional capital to execute our growth strategy of expanding our
      digital signage network, developing our direct response media business,
      facilitating additional investments in research and development and consummating
      strategic acquisitions of such digital signage companies that we believe are
      financially accretive with our company, of which there can be no assurance.





At
      March
      31, 2006, we had liquid assets of $5 million, consisting of cash in the amount
      of $1.4 million, accounts receivable derived from operations in the amount
      of
      $2.1 million, prepaid expenses and other current assets of 1.0 million and
      inventory in the amount of $0.5 million. Long-term assets of $10.9 million
      consisted primarily of intangible assets of $6.7 million, deferred financing
      costs of $2.3 million and fixed assets, including computer servers, media
      players and video display equipment used in operations, of $1.5 million.





Current
      liabilities of $10.4 million at March 31, 2006 consisted primarily of $2.0
      million of accounts payable, $1.5 million due under the Laurus Facility and
      $5.5
      million of stock issuances payable, the majority of which was payable to E&M
      Advertising, Inc. or its designees as a result of our acquisition of the assets
      E&M Advertising, Inc. in the three months ended March 31, 2006.





Our
      working capital deficit was $5.4 million as of March 31, 2006 for the reasons
      described above.





During
      the three months ended March 31, 2006, we used cash of $1.9 million in operating
      activities, primarily as a result of the net loss we incurred during this
      period.





During
      the three months ended March 31, 2006, we used cash of $1.3 million in investing
      activities, primarily in connection with our acquisition of the media services
      assets of E&M Advertising, Inc. and the digital signage assets of Marlin
      Capital Partners, II LLC.





Financing
      activities, consisting primarily of proceeds from the Laurus Facility and the
      Series A Financing, provided net cash of $4.6 million during the three months
      ended March 31, 2006.





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ITEM
      3.
      CONTROLS AND PROCEDURES.





DISCLOSURE
      CONTROLS AND PROCEDURES. In connection with the preparation and review of our
      financial statements included in this Report, our management, including our
      chief executive officer/chief financial officer, 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 quarter ended March 31, 2006. Based on such
      evaluation, our management has concluded that, at March 31, 2006, our disclosure
      controls and procedures were not effective to ensure that the information
      required to be disclosed by us is recorded, processed, summarized and reported
      on a timely basis. Since reaching such conclusions, our management has taken
      immediate steps to improve the effectiveness of our disclosure controls and
      procedures.





Management
      determined that the ineffectiveness of our disclosure controls and procedures,
      at March 31, 2006, was primarily due to delays in consolidating our books and
      records and certain corporate functions following our acquisition of Impart,
      Inc. in June 2005, as well as a general shortage of qualified financial and
      accounting personnel.





From
      June
      2005 until March 15, 2006, copies of certain contracts, securities, ledgers,
      receipts and other corporate records relating to our company were maintained
      at
      our former executive offices in Memphis, Tennessee and at our former chief
      executive officer’s home office, rather than at our current executive and
      operational offices in Seattle, Washington. Thus, such materials were not
      readily accessible to the financial, accounting and managerial personnel that
      required access to them. Upon the resignation of our former chief executive
      officer on March 15, 2006, the books and records were consolidated and, in
      the
      future, we plan to maintain all such materials at our executive offices where
      they will be available and accessible to the appropriate parties within our
      company.





During
      the quarter ended March 31, 2006, we lacked a sufficient number of qualified
      financial and accounting personnel to timely record and process the numerous
      corporate transactions we consummated during such period and to prepare the
      reports required of us as a public company. Once management recognized this
      shortcoming, we began to recruit experienced personnel. We hired a new vice
      president of finance in February 2006 and four independent certified public
      accountants on a consulting basis. We also retained an outside accounting firm
      to provide us with accounting consulting services to meet our short-term needs.
      Management is working closely with one of our directors who serves as a
      financial officer with a large public company to design and implement more
      stringent disclosure controls and procedures and internal controls over
      financial reporting that are similar to those found in larger public companies.
      Finally, management is seeking to hire a chief financial officer who will
      oversee all financial and accounting functions and all reporting obligations
      to
      the Securities and Exchange Commission. The new chief financial officer will
      assume these duties from Mr. Joseph Martinez who has been acting as our chief
      executive officer and chief financial officer since March 15, 2006. We believe
      that the corrective actions described above will greatly improve our disclosure
      controls and procedures.





INTERNAL
      CONTROL OVER FINANCIAL REPORTING. The deficiencies described above with regard
      to our disclosure controls and procedures at March 31, 2006, as well as the
      corrective actions we have undertaken and continue to undertake, have materially
      affected, or are reasonably likely to materially affect, our internal control
      over financial repo rting
      (as
      such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
      Act).





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PART
      II.
      OTHER INFORMATION





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 styled 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 shareholders 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.
      We
      plan to vigorously defend such action.




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




In
      January 2006, we issued and sold to eight purchasers in a private placement,
      an
      aggregate of 216,072 shares of our 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 our common stock at an exercise price of $1.50 per share
      and
      warrants to purchase an aggregate of 23,066 shares of our common stock at an
      exercise price of $3.18 per share. Such securities 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 sale and certain
      investor representations were made to us by the purchasers in the purchase
      agreement.





In
      January 2006, we issued warrants to purchase an aggregate of up to 90,200 shares
      of our common stock at an exercise price of $0.20 per share to thirteen
      purchasers in connection with their investment in our company. 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
      sale
      and, certain representations were made to us by the purchasers.





In
      January 2006, we sold an aggregate of 400,002 shares of our common stock at
      a
      purchase price of $0.75 per share pursuant to a common stock purchase agreement.
      The shares 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 sale and, certain representations were made to us by the
      purchasers in the purchase agreement.





In
      January 2006, we issued 1,200,000 shares of our common stock as consideration
      for the performance of consulting services pursuant to two consulting
      agreements. The shares 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 sale and, certain representations were
      made to us by the consulting firms in the consulting agreements.





34





In
      January 2006, we issued 2,400,000 shares of our common stock to certain of
      our
      officers and shareholders in satisfaction of outstanding notes payable and
      other
      accrued expenses. The shares 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 sale and, certain representations were
      made to us by such related parties.




In
      February 2006, we issued and sold to five purchasers in a private placement,
      an
      aggregate of 200,000 shares of our common stock at a purchase price of $1.12
      per
      share pursuant to a common stock purchase agreement, together with warrants
      to
      purchase an aggregate of 100,000 shares of our common stock at an exercise
      price
      of $1.50 per share. Such securities 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 sale and certain investor
      representations were made to us by the purchasers in the purchase
      documents.




In
      February 2006, we issued and sold to two purchasers in a private placement,
      an
      aggregate of 30,137 shares of our common stock at a purchase price of $2.48
      per
      share pursuant to a common stock purchase agreement, together with warrants
      to
      purchase an aggregate of 15,068 shares of our common stock at an exercise price
      of $3.00 per share. Such securities 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 sale and certain investor
      representations were made to us by the purchasers in the purchase agreement.





In
      March
      2006, we issued 141,000 shares of our common stock to an institutional investor
      in full satisfaction of amounts such investor claimed were due under a
      convertible debenture, dated February 17, 2004. The shares were issued in
      reliance on the exemption from registration provided by Section 4(2) of the
      Securities Act, on the basis that the issuance did not involve a public
      offering, no underwriting fees or commissions were paid by us in connection
      with
      such sale and the investor made certain representations to us that it was an
      "accredited investor," as defined in the Securities Act.




ITEM
      6.
      EXHIBITS.





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





35




**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:
                June 22, 2006
            IMPART
                MEDIA GROUP, INC.By:
            /s/Joseph
                F. MartinezJoseph
                F. MartinezChief
                Executive Officer(principal
                executive officer)Chief
                Financial Officer(principal
                financial officer)




36





**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.


37