UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION


Washington,
      D.C. 20549




FORM
      10-KSB





(Mark
      One)


T
            ANNUAL
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934





For
      the
      Fiscal Year Ended: December 31, 2006





£
            TRANSITION
                REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT
                OF
                1934





For
      the
      Transition Period from __________ to __________





Commission
      File Number: 0-09358





**IMPART
      MEDIA GROUP, INC.**


(Exact
      name of small business issuer in its charter)





Nevada
            
            88-0441338(State
                or other jurisdictionof
                incorporation or organization)
              
              1300
                North Northlake Way
              Seattle,
                WA
            
            (IRS
                EmployerIdentification
                No.)
              
              
              98103Address
                of principal executive offices)
            
            (Zip
                Code)





(206)
      633-1852





(Issuer’s
      telephone number)





Securities
      registered pursuant to Section 12(b) of the Act:





None












(Title
      of
      Class)





Not
      Applicable





(Name
      of
      each exchange on which registered)





Securities
      registered pursuant to Section 12(g) of the Exchange Act:





Common
      Stock, par value $.001





(Title
      of
      Class)





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





Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      regulation S-B contained in this form, and no disclosure will be contained,
      to
      the best of the registrant’s knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-KSB or any
      amendment to this Form 10-KSB. £





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





Revenues
      for the fiscal year ended December 31, 2006 were $6,594,857.





The
      aggregate market value of shares of our common stock held by non-affiliates
      as
      of March 15, 2007 was $9,775,883 based upon the average bid and asked prices
      of
      our common stock on the OTC Bulletin Board on March 15, 2007. Shares of common
      stock held by each executive officer or director and by each person who
      beneficially owns more than 5% of our outstanding common stock have been
      excluded in that such persons may under certain circumstances be deemed to
      be
      affiliates. This determination of affiliate status is not necessarily a
      conclusive determination of affiliate status for any other
      purpose.


2




As
      of
      March 15, 2007, 22,689,751 shares of our common stock and 2,903,229 shares
      of
      our Series A convertible preferred stock, or the Series A Preferred
      Stock, $.001 par value per share, which shares of Series A Preferred Stock
      were, at March 15, 2007, convertible into an aggregate of 2,903,229 shares
      of our common stock, were outstanding. Our common stock currently trades on
      the
      OTC Bulletin Board under the symbol “IMMG.”





Transitional
      Small Business Disclosure Format (Check
      one):  Yes £ No T








**DOCUMENTS
      INCORPORATED BY REFERENCE**





Portions
      of the registrant’s definitive proxy statement for fiscal year ended December
      31, 2006 to be issued in conjunction with the registrant’s annual meeting of
      stockholders expected to be held on June 14, 2007 are incorporated by reference
      in Part III of this Form 10-KSB. The definitive proxy statement will be filed
      by
      the registrant with the Securities and Exchange Commission, or the Commission,
      not later than 120 days from the end of the registrant’s fiscal year ended
      December 31, 2006.


3




**FORWARD-LOOKING
      STATEMENTS**





This
      Annual Report on Form 10-KSB and the documents incorporated herein by reference
      contain forward-looking statements within the meaning of Section 27A of the
      Securities Act of 1933, an amended (the “Securities Act”), and Section 21E of
      the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These
      forward-looking statements reflect our current views with respect to future
      events or our financial performance, and involve certain known and unknown
      risks, uncertainties and other factors, including those identified below, which
      may cause our or our industry’s actual or future results, levels of activity,
      performance or achievements to differ materially from those expressed or implied
      by any forward-looking statements or from historical results. We intend such
      forward-looking statements to be covered by the safe harbor provisions for
      forward-looking statements contained in Section 27A of the Securities Act of
      1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking
      statements include information concerning our possible or assumed future results
      of operations and statements preceded by, followed by, or that include the
      words
“may,” “will,” “could,” “would,” “should,” “believe,” “expect,” “plan,”
“anticipate,” “intend,” “estimate,” “predict,” “potential” or similar
      expressions.





Forward-looking
      statements are inherently subject to risks and uncertainties, many of which
      we
      cannot predict with accuracy and some of which we might not even anticipate.
      Although we believe that the expectations reflected in such forward-looking
      statements are based upon reasonable assumptions at the time made, we can give
      no assurance that such expectations will be achieved. Future events and actual
      results, financial and otherwise, may differ materially from the results
      discussed in the forward-looking statements. Readers are cautioned not to place
      undue reliance on these forward-looking statements. We have no duty to update
      or
      revise any forward-looking statements after the date of this report or to
      conform them to actual results, new information, future events or
      otherwise.





The
      following factors, among others, could cause our or our industry’s future
      results to differ materially from historical results or those anticipated:
      (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.




We
      assume
      no obligation to update and supplement forward-looking statements that become
      untrue because of subsequent events.


4




**PART
      I**





**ITEM
                1.**
            **DESCRIPTION
                OF BUSINESS**





**Overview**





Since
      1995, we have provided end-to-end networked digital signage solutions for the
      enhanced delivery of information, brand marketing, merchandising and
      advertising. We provide these solutions by designing, fabricating, integrating,
      adding information technology infrastructure, provisioning broadband Internet
      connectivity, installing, and managing customized digital signage or interactive
      media networks for our clients. We also sell or facilitate placement time on
      these networks for the display of advertising and other media content (such
      as
      promotional or branded messages, news, weather, way-finding, customer service
      announcements and informational or infotainment segments) for near real-time
      delivery to networked digital elements (such as flat-panel plasma, LCD, or
      LED
      video displays) that we manage, and also to non-networked and/or non-managed
      displays. Users of our products and services primarily consist of out-of-home,
      business-to-consumer media compatible, transactional consumer environments
      and
      properties (such as banks, airports, shopping malls, supermarkets, big-box
      discounters, specialty retail stores, and hotels) that seek the economical
      benefits and cost efficiencies of a digital signage or interactive media network
      installed within their media properties. These venues, in conjunction with
      advertisers, brands, and other content providers that seek to control their
      messages to the end customer with targeted information or relevant advertising
      to a desired demographic and environment-actionable audience typically represent
      our target market. We believe our digital signage solutions enable our clients
      to cost-effectively deliver visually stimulating and relevant communication,
      content and targeted advertising with high message awareness, to their desired
      consumer audiences.





In
      February 2006, we purchased all of the assets of E&M Advertising, Inc., or
      E&M Advertising, a New York based advertising and direct response, or DR,
      company, and certain of its affiliates. As a result of these acquisitions,
      we
      created our advertising division, which offers a wide range of services relating
      to direct-to-consumer marketing, including:


·
              the
                  placement of advertising in television, internet and print media
                  outlets;
 
 ·
              the
                  production of advertising content, including television and radio
                  commercials and web design services;
                  and
  5
  ·
              advertising
                  and marketing consulting services relating to our customers’ marketing
                  campaigns.




Through
      our advertising division, we also offer DR media services to our digital media
      customers whereby we can offer DR media capability in connection with our media
      content, such as commercials and infomercials, to the video displays in the
      networks we manage. We provide our DR media services under the name E&M
      Advertising for creative and media planning and buying services, NextReflex
      for
      on-line media and design services, and Camelot for long-form infomercial media
      services.





As
      of
      March 15, 2007, we have sold digital media systems (networked and non-networked)
      to more than 860 media properties across the United States, with over 2,300
      displays, and we have current commitments for new installations at more than
      180
      additional media properties, with approximately 220 displays. As of March 15,
      2007, we network manage more than 500 media properties in total.





We
      also
      provide directory services, advertising, brand marketing messages and
      informative entertainment content to and on behalf of many of our media
      properties and location partners, via our historical core competencies and
      newly-developed, web-based portal services.





Our
      principal executive offices are located at 1300 North Northlake Way, Seattle,
      Washington 98103 and our telephone number at that address is (206) 633-1852.
      We
      maintain an Internet website at www.impartmedia.com .
      Information on our website is not part of this Annual Report.





**Sources
      of Revenue**





**Digital
      Signage Solutions.** We
      derive our revenues for digital signage/interactive media systems and legacy
      audio-visual component sales primarily from a combination of (i) the sale of
      hardware components (e.g. Impart IQ ® players/servers, displays and mounts, custom enclosures and fixtures,
      touchscreens, cabling, power protection, **** and
      audio-video-data accessories); (ii) the provision of subscription management
      services for contracted managed digital media properties (e.g. status
      monitoring, content management, server/web hosting); (iii) the provision of
      creative repurposing, production, video encoding, HTML coding, scripting,
      content aggregation; (iv) the provision of portal web services ( *e.g.* ,
      royalties, fees, commissions for Impart IQ Streams ® and the
      planned Impart IQ Ads ® );
      (v)
      the provision and resale of Broadband IP connectivity; and (vi) the provision
      of
      consulting, installation, freight/warehousing/material logistics, on-site
      maintenance, and other custom design services.


6




**Direct
      Response Media Services.** We
      generate revenues from the fees and commissions we receive from the placement
      of
      advertising, the production of advertising content and the delivery of
      advertising and marketing consulting services. Our primary sources of revenue
      are the commissions we receive from media buying services and the fees we charge
      for the planning and execution of advertising programs in various media.





In
      most
      instances, we act as the principal buyer of the media and, as such, we pay
      the
      media charges with respect to contracts for advertising time or space that
      we
      place on behalf of our clients. To reduce our risk of a client’s non-payment, we
      generally pay media charges only after we have received funds from our clients.
      In some instances, we agree with the media provider that we will only be liable
      for payment to the media after the client has paid us for its media charges.
      When we act as the client’s agent rather than the primary obligor, we are not
      responsible to the media provider if a client fails to pay such media provider.
      Our clients pay us the gross rate billed by the media provider and we pay the
      media provider at a lower net rate. The difference is the commission that we
      earned, which usually ranges from 7% to 15%.





The
      revenues we derive from the creation, planning and placement of advertising
      are
      primarily based on a negotiated fee and, to a lesser extent, on a commission.
      Fees are usually calculated to reflect hourly rates plus proportional overhead
      and a mark-up. Commissions are earned based on services provided, and are
      generally reflected as a percentage or fee over the total cost and expense
      to
      complete an assignment.





The
      amount of the fees and commissions varies depending on the level of client
      spending or time we incur performing the specific services required by a client,
      plus the reimbursement of other costs. Furthermore, our revenue is dependent
      upon the advertising, marketing and corporate communications requirements of
      our
      clients, which tend to be higher in the second half of the calendar year as
      a
      result of the holiday season. As is customary in the industry, contracts for
      our
      services generally provide for termination by either party on relatively short
      notice, usually 30 to 90 days prior notice.




7




Competitive
      Strengths





We
      believe our competitive strengths include the following:




·
            We
                offer an attractive alternative to traditional media. We believe
                our
                digital signage and interactive media networks provide an attractive
                alternative to traditional media, such as print and television, and
                other
                out-of-home media, such as static billboards and other static outdoor
                displays. Some of the many benefits of digital signage and interactive
                media include its visually-stimulating content, its targeted message
                delivery, its ability to increase traffic and brand awareness, its
                ease of
                changing or updating content, message audience relevance, message
                awareness, actionable response from consumer, and its lower cost
                to
                advertisers.





Furthermore,
      unlike traditional advertising media, our digital signage and interactive media
      networks carry the advertiser’s message into the store or other property, where
      an estimated 75% of all purchasing decisions are made.





·
            Our
                customers are out-of-home transactional media properties and national
                brands, which leads to opportunities for greater profitability. We
                market
                our digital signage and interactive products and services to large
                media
                properties (such as airports, commercial, and retailing environments)
                and
                national brands that have significant merchandising or brand marketing
                budgets and use several types of media to deliver their messages.
                Not only
                are our customers often more willing to experiment with new and
                sophisticated media, such as digital signage and interactive media,
                but
                they often seek to create networks having a larger number of video
                displays and run their messages for longer periods on more displays
                than
                smaller media properties and local or regional advertisers. These
                factors
                lead to greater hardware and software sales and opportunities for
                future
                advertising revenue with our web service product offerings of Impart
                IQ
                Streams®and
                the planned Impart IQ Ads®.
                Finally, we typically generate revenues from content creation for
                our
                contracted networks because their messages are more sophisticated
                and
                technologically complex to be contextual and relevant in the out-of-home
                space.





·
            We
                offer flexible business models to suit our digital signage or interactive
                media customers’ needs. The appropriate digital signage or interactive
                media solution for a particular customer depends on the customer’s needs
                and desired level of involvement with the operation and management
                of the
                digital signage or interactive media network. Historically, we have
                derived our revenues under our “utility” model under which we sell to a
                customer and install a fully-integrated signage or interactive media
                system and the customer furnishes us with the content that we create
                (or
                “digitize”) for display on the network. Under this model, we provide
                system design, hardware, software, integration, fabrication, quality
                assurance, installation, service and ongoing support and maintenance,
                as
                well as the necessary content creation, hosting, distribution, monitoring,
                and network management.


8




We
      do
      offer our “hybrid” model to out-of-home media properties and brands that wish to
      exercise a significant degree of control over their brand messaging,
      merchandising, information, or advertising to consumers. Under this model,
      the
      corporate brand or network property sponsor purchases from us a turnkey digital
      signage or interactive media system and displays their own content on the
      system, which we manage. In addition, we will secure and provide complementary
      advertising content via our future Impart IQ Ads ® web
      service, that complements the brands’ products to fill unused advertising time
      on the video displays in the network. With Impart IQ Ads ® ,
      we will
      share a portion of the total advertising revenue receipts with the brand,
      network property owner, and the ad agency or media placement
      company.  For
      a
      more detailed discussion of our two primary models, see “--Business
      Models.”





·
            We
                have state-of-the-art Network Operations Centers, or NOCs, in Seattle
                and
                San Antonio, scalable proprietary firmware (Impart IQ®),
                enabling hardware, and a unique support Internet Protocol, or IP,
                infrastructure architecture. Our state-of-the-art digital signage
                network
                ensures the timely and reliable delivery of information, brand marketing,
                merchandising, and advertising content to the video displays in the
                networks we manage for our customers or where they assume management
                control. We (or the media property owner upon its request) can manage
                content either locally at the media property or remotely from our
                headquarters in Seattle, Washington, our NOC in San Antonio, Texas
                or from
                any other location we (or the media property owner) select. Our
                proprietary Impart IQ®platform is based on architecture that is scalable and utilizes enabling
                playback plug-ins or device drivers that can be configured for multiple
                frames on a screen to incorporate stock and news “tickers”, message
                “faders” and “TV” feeds in a “picture-in-picture” type appearance, or to
                integrate more advanced interactive or web based, DHTML/XML/RSS/CSS
                applications. Our family of Impart IQ®media players and servers can be configured to provide content to
                one or
                multiple video displays.





·
            We
                have a dedicated sales force with a proven ability to aggregate future
                advertising placement for Impart IQ Ads®.
                As a result of our acquisition of E&M Advertising. (Currently
                operating as Impart Media Advertising, Inc.) and its affiliated entities,
                we have an experienced sales force with over 25 years of experience
                in
                advertising sales and placement. We believe E&M’s experience and
                reputation in the industry will give us a greater ability to develop,
                communicate, and contractually aggregate media placement into our
                future
                web service offering, Impart IQ Ads®.


9





·
            We
                believe our iPoint (Information Point) Travel Network system is the
                industry standard-bearer for stand-alone interactive digital information
                points. Our iPoint Travel Network is a first-of-its-kind narrowcasting
                system that includes passive and interactive content in a single,
                stand-alone, wireless unit. To date, we have marketed our iPoint
                solution
                to airports in which a vast array of important and relevant information
                is
                exposed to the traveling consumer. Our iPoint Travel Network combines
                the
                display of dynamic information in any increment of time that the
                advertiser desires, with the ability to have users find more information
                with the simple touch of the screen. It also is designed to enable
                the
                airport itself to publish, monitor and manage its own content, and
                provides the only visual emergency alert system on the market today
                that
                can simultaneously broadcast an alert message to every iPoint in
                our
                airport network. As of March 15, 2007, we have placed 16 of our
                proprietary iPoint Travel Network kiosks at the Detroit Metropolitan
                Airport.





As
      part
      of our growth strategy, effective March 1, 2007, we now market iPoint Travel
      Network in collaboration with Clear Channel Airports pursuant to the terms
      of
      our strategic agreement.





·
            Our
                management team is among the most experienced management teams in
                the
                industry engaged in the out-of-home digital signage and interactive
                media
                industry. The six (6) members of our top management team have an
                aggregate
                of over 125 years of experience in the field of digital signage and
                interactive media, as well as in telecommunications, information
                technology systems, creative production, computer and display
                manufacturing and data storage. Members of our management team were
                pioneers and leaders in the development of the digital signage industry.
                Collectively, they have helped to execute over 5,000 audio/video
                systems
                integration projects for retail, financial and corporate clients,
                both
                networked and non-networked. These projects included shelf-talkers
                (displays attached to retail shelves), interactive kiosks, large
                video-wall projects and multi-channel merchandising systems, among
                others.
                In 1984, Laird Laabs, Chief Sales Officer and one of our directors,
                and
                Steven Corey, our Chief Strategy Officer, co-founded Impart, Inc.,
                the
                privately-held digital signage company we acquired in June 2005.
                In 1994,
                Messrs. Laabs and Corey, along with Thomas C. Muniz, our President
                and
                Chief Operating Officer, co-founded Media SideStreet Corporation,
                which
                developed pioneering and innovative methods for remotely managing
                and
                delivering information to digital displays over the just-then burgeoning
                Internet.


10




The
      managers of our advertising division have been engaged in the direct response
      media industry for over 25 years. As discussed above, in February 2006, we
      acquired the assets of E&M Advertising, a private direct response media
      company formed in 1981. In connection with the acquisition, Michael Medico,
      its
      founder, joined our company as President of Impart Media Advertising, our
      advertising unit. Mr. Medico manages a staff of 31 experienced media
      professionals.


·
              We
                  provide our customers with enterprise solutions rather than just
                  a product
                  or service. We believe our complete solutions approach, which incorporates
                  our proprietary firmware and services solutions, generates competitive
                  advantages from a sales, delivery and financial perspective. A
                  complete
                  solution for our customers typically includes the following
                  components:
 
 ·
              Hardware,
                  software, and firmware products and
                  services;
 ·
              Outsourcing
                  solutions - automated/remote status monitoring, content management,
                  web
                  and data server hosting, installation, and onsite maintenance
                  services;
 ·
              Professional
                  services - engineering/operations/technology/helpdesk
                  assistance;
 ·
              IP
                  networking and connectivity provisioning;
 ·
              Creative
                  content, DHTML/CSS/XML, editing, and encoding;
                  and
 ·
              Capital/financing
                  solutions.




Rather
      than offering one or two “packaged” products for digital signage or interactive
      systems, we develop a “custom,” unique and scalable solution for each
      application. We work with our clients to determine the outcomes they envision
      as
      the ideal end-result and we design solutions to match our clients’ objectives.





Likewise,
      we believe that our advertising division offers a complete solution approach
      (our “360 degree” solutions) to our direct response marketing services. We work
      with clients on all aspects of developing a complete solution, including
      strategic planning, the creation and production of media content, the
      negotiation and purchase of media planning, the development of optimization
      and
      analysis processes, trafficking and consultation on the telemarketing,
      order/lead processing and fulfillment components.


11




Growth Strategy




Our
      objective is to establish our company as the leading provider of complete
      digital signage and interactive media solutions in the United States and to
      develop a strong international presence. The key elements of our growth strategy
      include the following:


·
              Accelerate
                  contracting with airports, retail outlets and commercial buildings,
                  among
                  other environments, in order to rapidly increase our base of serviced
                  media properties and national brand sponsors or
                  advertisers;
 
 ·
              Securing
                  agreements with network media properties or with brand sponsorships
                  in
                  U.S. cities in which we do not currently operate;
 
 ·
              Establishing
                  and participating in a national advertiser base by our planned
                  release of
                  our Impart IQ Ads®web service and transforming our E&M Advertising subsidiary from
                  Direct Response to Digital Advertising aggregation and inventory
                  support
                  of the planned web service;
 
 ·
              Identifying
                  and securing agreements with additional ‘high-quality’ media properties,
                  such as commercial office buildings, retail malls, airports and
                  large
                  retailers;
 
 ·
              Continuing
                  to develop and improve our technology and intellectual property
                  assets;
 
 ·
              Expand
                  into international markets, such as mainland China, Mexico and
                  the United
                  Kingdom;
 
 ·
              Hiring
                  additional managerial, technical and administrative personnel to
                  support
                  our planned growth;
 
 ·
              Continuing
                  to expand our products and service offerings to meet our customers’
                  demands; and
 
 ·
              With
                  our new strategic collaborative market agreement that transfers
                  airport
                  property contracting efforts, Capital Expenditure, or CAPEX, and
                  advertising revenue share functions to Clear Channel Airports,
                  we expect
                  to accelerate deployment of the iPoint Travel Network into more
                  domestic
                  airports.




12
  **Industry**





According
      to an industry study published by Universal McCann, the U.S. major media
      advertising market in 2006 was approximately a $283 billion industry. The study
      also projected that marketers would spend $7.2 billion on outdoor ads on 2007,
      compared with $6.7 billion in 2006.





While
      overall advertising spending is expected to slow in 2007, forecasts for spending
      on out-of-home, also called outdoor ,
      advertising rank second, behind the Internet, as the second-fastest growing
      marketing sector.





The
      outdoor market includes advertising in newspapers, magazines and direct mail,
      on
      network and cable television, the Internet, the radio and outdoor, or
      out-of-home, displays. While we are engaged in the out-of-home advertising
      segment of the industry, we have focused our business on the emerging digital
      advertising market within the out-of-home advertising segment (known also as
      digital signage, narrowcasting, placed-based media, interactive kiosk, or
      captive audience).





Out-of-home
      advertising includes displays on urban buildings, trains, taxis, buses, benches
      and bus shelters, and displays inside movie theaters, airports, malls,
      supermarkets and retail stores.





According
      to the Outdoor Advertising Association of America, or OAAA, in 2006, there
      were
      an estimated 614,000 out-of-home advertising displays in the United States,
      operated by more than 630 companies.





Digital
      signage and interactive media represents an emerging segment of the out-of-home
      media industry. It is differentiated from traditional advertising media in
      that
      it carries the advertiser’s message into stores or other media properties where,
      according to Point of Purchase Advertising International, 75% of purchasing
      decisions are made. It also can deliver relevant, non-sales content to employees
      in media properties or passersby in public spaces. According to InfoTrends/Cap
      Ventures, depending on the type of network and application, digital signage’s
      value proposition is rooted in the content. A proper digital signage or
      interactive media solution should allow (and the customer demands) this content
      to be:


13


·
              Visually
                  stimulating: eye-catching displays with content that holds viewers’
                  attention;
 ·
              Targeted:
                  relevant to the customer, the site, geography, time and other
                  factors;
 ·
              Dynamic:
                  content that can be quickly
                  changed;
 ·
              Interactive:
                  customers can direct the content based on their interests;
                  and
 ·
              Integrated:
                  content that can be linked to other information and
                  systems.
 
 We
        believe the benefits of digital signage and interactive media to our customers
        are that our systems:
 
 ·
              drive
                  more traffic into our customers’ stores (in the case of retail stores,
                  etc.);
 ·
              can
                  drive traffic to specific locations within our customers’ media
                  properties;
 ·
              can
                  be used to more effectively “up-sell” to higher margin products and
                  services;
 ·
              can
                  be used to more effectively “cross-sell” to complementary products and
                  services;
 ·
              can
                  improve brand awareness and reduce brand “deterioration”;
                  and
 ·
              have
                  a lower average cost-per-thousand, or CPM, and/or lower web click-thru
                  rates (common industry measurements of advertising effectiveness),
                  than
                  other media.




As
      more
      retailers and product manufacturers discover the advantages of digital
      advertising, we believe companies will begin to shift a growing portion of
      their
      advertising budgets away from traditional advertising outlets (including other
      out-of-home displays) and toward digital advertising. For example, many brands
      have already revamped their budgets to place more emphasis on digital
      advertising through electronic devices in the home.





According
      to industry studies published by InfoTrends/CAP Ventures, annual revenues from
      the digital signage industry exceeded $700 million in 2006. This figure included
      revenues from the sale of display screens and other hardware, systems
      integration and installation, sales or licenses of firmware, software, network
      operation fees and the sale of advertising time. InfoTrends/CAP Ventures expects
      this market to grow at a compound annual growth rate (CAGR) of 20%, and to
      total
      $1.3 billion by 2009.


14




**Projected
      United States Narrowcasting Revenues, 2004 - 2009
      ($Millions)**









Source:
      InfoTrends/Cap Ventures 2005





According
      to InfoTrends/Cap Ventures, the largest single revenue component of the digital
      signage industry is, and will continue to be, external advertising revenues.
      An
      additional $161 million in advertising revenues were generated in 2004, and
      this
      amount was expected to increase at a CAGR of 40% and to reach $857 million
      in
      2009.






**Projected
      Additional North American Ad Revenues, 2002 - 2009 ($M)**










Source:
      InfoTrends/Cap Ventures 2005





15




We
      believe advertising is making a shift to the digital out-of-home medium. Brand
      owners and advertisers are attempting to compress the time frame from the moment
      an advertisement is viewed by a consumer to the time that it is acted upon.
      In
      essence, it is the goal of the advertiser that a consumer will receive, absorb
      and then immediately act on a message. The time element involved is critical
      because most studies reveal significant brand degradation that occurs from
      the
      moment a consumer first sees an advertisement to the time they purchase the
      product or service. This is especially true, we believe, as traditional media
      advertising is being supplanted by the distraction that is occurring with the
      advent of cable channel availability in the hundreds, personal computers and
      the
      internet, DVD’s and the increasingly challenging TiVo like DVR’s (Digital Video
      Recorders) that allow the consumer to by-pass the television advertisement
      on
      which advertisers spend a large portion of their advertising budget.





**Market
      Segmentation**





InfoTrends/Cap
      Ventures identified over 1.7 million firms and over 2.4 million sites with
      the
      potential for digital signage installations from a wide range of industries.
      While digital signage and interactive media customers vary widely, four major
      market segments were identified:


·
              **Retail
                  Sites:**Firms
                  and sites with the primary business of selling products and services
                  to
                  consumers;
 ·
              **Hospitality
                  Sites:**Firms,
                  including accommodation (hotels and motels) and dining establishments,
                  and
                  entertainment sites, such as
                  theatres;
 ·
              **Personal
                  Services:**Firms,
                  including retail services, financial services and health care services;
                  and
 ·
              **Other
                  Public Spaces:**Firms
                  and locations, including large airports, malls (public areas),
                  schools,
                  and elevators in office
                  buildings.




**Business
      Models**





We
      use
      multiple business models to attract and retain customers for our digital signage
      and interactive media products and services.





16




**Utility
      Model.** Under
      our “utility” model, a media property owner purchases the necessary hardware,
      firmware and software from us and pays us for the installation, integration
      and
      maintenance of the network, as well as a recurring fee for system operation,
      site monitoring, and content management. The media property owner supplies
      the
      content and we “digitize” or “repurpose” it for delivery to the video displays
      in the network. We believe that the benefits to the location provider include
      cutting-edge appearance, potentially higher revenues, increased customer
      satisfaction, complete ownership of the network equipment and content control.





The
      revenues we derive from installations under this model vary depending on a
      variety of factors including: (i) the number of display screens; (ii) the number
      of media players (computers); (iii) the firmware associated with the
      installation; (iv) the particular services contracted for by the customer (i.e.,
      status monitoring, content management, server hosting maintenance); (v) the
      terms of the onsite service agreement; and (vi) the level and complexity of
      the
      creative content provided by us for each installation or network.





Margins
      on the equipment we sell can vary depending on the degree of sophistication
      of
      the equipment as well as the quality of the display, such as plasma, LCD (liquid
      crystal displays), HDTV (high definition television) screens and the number
      of
      channels, among other factors. Margins on installation, subscription management
      services, and content creation and delivery can vary depending on the
      sophistication of the content and the play-time contracted for the changes
      necessary to accommodate our customers’ requirements.




**Hybrid
      Model.** Under
      our “hybrid” model, we seek to partner with key brand owners that want to
      control their message to consumers in the digital signage or interactive media
      deployment of their messaging or advertising. Our brand partner purchases from
      us all of the required hardware, firmware and software, and compensates us
      for
      the installation of the digital signage or interactive media network in a
      mutually acceptable out-of-home environment. The brand partner also pays us
      a
      recurring fee for system operation, management, monitoring, hosting, and content
      creation. The content delivered to the video displays under this model consists
      primarily of messages provided by the brand partner.




In
      2006,
      only a nominal amount of our revenues were generated using this model due to
      its
      early stage of deployment. As part of our growth strategy, we are seeking to
      increase significantly the percentage of our revenues that we derive using
      this
      model, made more enticing for brands with the web services implementation of
      our
      Impart IQ Streams ® (for
      content) and Impart IQ Ads ® (for
      complementary advertising).




17





**Hardware/Firmware/Software
      Sales**





Although
      we typically sell the necessary hardware, firmware and software for our digital
      signage networks as part of a customized, fully-integrated system, which we
      install and manage for our customers, we also offer our customers a customized,
      scalable, out-of-the-box digital signage solution that is ready for deployment
      by the customer or its own third-party installer and integrator.





**Our
      Digital Signage and Interactive Media Networks**





As
      of
      March 15, 2007, we have sold digital media systems (networked and non-networked)
      at more than 860 media properties, with over 2,300 displays, and we have current
      commitments for new installations at more than 180 additional media properties,
      with approximately 220 displays.





As
      of
      March 15, 2007, we network manage more than 500 media properties in total and
      have placed 16 of our proprietary iPoint Network kiosks at the Detroit
      Metropolitan Airport.





We
      intend
      to aggressively increase our deployments to airports in or near major cities
      throughout the U.S. in connection with our strategic marketing partner, Clear
      Channel Airports, a division of Clear Channel Outdoor. Together with Clear
      Channel Airports, we have responded with formal bid responses to Request for
      Proposals, or RFP's, for the Detroit, Michigan, San Jose, California, and
      Seattle, Washington airports in order to provide them with iPoint Network
      kiosks. We also anticipate expanding the services we provide to our current
      customers, including Dole Foods, RediClinic, Microsoft, and MediPlay, in 2007.
      We do not currently manage any networks outside of the United States, but are
      negotiating contracts and/or new distribution representation in mainland China,
      Mexico, United Kingdom and Russia.





We
      believe our complete solutions approach, which incorporates our proprietary
      firmware and services solutions, generates competitive advantages from a sales,
      delivery and financial perspective. A complete solution for our customers
      typically includes the following components:


·
              Hardware,
                  software, and firmware products and
                  services;
 ·
              Outsourcing
                  solutions - automated/remote status monitoring, content management,
                  web
                  and data server hosting, installation, and onsite maintenance
                  services;
 ·
              Professional
                  services - engineering/operations/technology/helpdesk
                  assistance;
 ·
              IP
                  networking and connectivity provisioning;
 ·
              Creative
                  content, DHTML/CSS/XML, editing, and encoding;
                  and
 ·
              Capital/financing
                  solutions.




18




The
      hardware components comprising the digital signage and interactive media
      networks we design, integrate, install and manage for our media property owners
      include a series of networked LCD or plasma video displays that are mounted
      in
      strategic locations within the property, one or more media players that deliver
      the content to the video displays, and a computer server (located either onsite,
      at a host site, or at another unrelated site via IP connection) from which
      we
      can centrally manage content and network integrity as well as communicate with
      the remote sites from our network operations center offices in Seattle,
      Washington, San Antonio, Texas or any other site that we select. The service
      allows our clients to manage and control their customized network at the level
      and to the degree they desire.




Our
      revenues are primarily a function of:


·
              The
                  sale of hardware (flat panel displays, Impart IQ®platform, and audio-video-PC
                  accessories;
 ·
              The
                  sale of direct response services with advertising agency
                  fees;
 ·
              Recurring
                  Monthly Subscriptions for content management, site monitoring,
                  and
                  web/data hosting;
 ·
              Creative
                  Production, and video editing & encoding; and
 ·
              Recurring
                  Monthly Fees from Network/Media Property Owners, Content Suppliers
                  and Ad
                  Placement companies for hosting and facilitation of Impart IQ
                  Streams®and the planned Impart IQ Ads®.




The
      benefits of our digital signage and interactive media systems include their
      flexibility, scalability and ability to directly provide relevant content and
      messages. We work together with our client media property owners to determine
      the digital signage or interactive media needs for their environments. Three
      key
      factors that we analyze in recommending our digital signage and interactive
      media products/services to our media property providers include: (i) the size
      of
      the property (in terms of revenue or square footage), (ii) the type of business
      in which it is engaged, and (iii) the projected size of the viewing audience.
      While the type of business has important tactical implications (e.g., the type
      of content that will be displayed), we believe company size has broader
      strategic implications in terms of market potential, scope of system and
      sales/service requirements. In our experience, the size measured by total
      revenues or retail square footage is often a determinant of the number of
      screens that a particular site will accommodate or require. For example, a
      typical convenience store may have a single screen in a kiosk-type installation
      or may have one or two screens at the cash register(s). On the other hand,
      a
      typical department store may need 15 screens for full coverage within its key
      departments.





19




Another
      size-related factor is the number of sites within the media property. Key
      company size categories include businesses with one to four sites, five to
      24
      sites, 25 to 99 sites and 100-plus sites. Based on our experience, we have
      found
      that, in general, as the number of sites increases, correspondingly, the sales
      approach employed increases in length and complexity. Typically, we provide
      smaller customers with cost-effective multi-tier distribution of turnkey
      systems, which are nearly identical for all small firms in that retail or
      industry segment, with a stand-alone system being the most attractive. The
      largest customers (100+ sites) can achieve significant economic scale and will
      often require fully customized systems offered in multiple
      configurations.


**Customers**





**Digital
      Signage and Interactive Media Solutions.** InfoTrend/Cap Ventures identified four key customer segments for the deployment
      of digital signage and interactive media services: retail sites, hospitality
      sites, personal services and public spaces.





We
      currently have a presence in each of these customer segments and, as part of
      our
      growth strategy; we plan to further expand our presence through superior product
      offerings and flexible business models.




**Retail
      Sites.** We have
      installed more than 32 digital signage networks in retail sites with a total
      of
      approximately 1,563 video displays. Representative customers that advertise
      in
      retail sites include AT&T, Microsoft, Dole Foods, Neiman Marcus, and Cycle
      Gear.





**Hospitality
      Sites.** We have
      installed three digital signage networks, comprising **** 6
      hospitality sites of commercial buildings **** and **** hotels
      with a total of approximately 48 video displays. An example in this market
      segment includes Equity Office Properties. Additionally, we recently entered
      into a marketing partnership with Advanced Method, a digital media, streaming
      content provider, in connection with the launch of "Concierge" interactive
      digital signage for hotels.




20




**Personal
      Services.** In this
      segment, we have deployed digital signage networks at more than 400 sites with
      a
      total of approximately 721 video displays. Representative customers in this
      area
      include Washington Mutual Bank, Citizens Bank, RediClinic, MediPlay, and Union
      Bank of California.




**Public
      Spaces.** We have
      installed two iPoint networks in public spaces. We currently manage content
      on
      16 kiosks with Detroit Metropolitan Airport and provide 17 interactive
      way-finding systems at the U.S. District Courthouse in Seattle. In this segment,
      we are particularly focused on airports because, per capita, they provide one
      of
      the best demographic populations that brands and other advertisers want to
      reach.





None
      of
      our current customers account for ten percent of our revenues when taken
      individually.





**Media
      Services.** We
      currently provide advertising and direct response media services to clients
      engaged in a wide variety of industries, including:


·
              Financial
                  Services;
 ·
              Healthcare
                  and Insurance;
 ·
              Music
                  and Entertainment;
 ·
              Retail
                  Support;
 ·
              Traditional
                  Direct Response Product Marketing;
 ·
              Drive
                  to Sites (off-line media that direct consumers on-line);
                  and
 ·
              Travel
                  and Tourism.




During
      2006, our largest customers, in terms of revenue, included Telebrands Corp.,
      Universal Technical Institute, Inc. and Piccadilly Restaurants, LLC. Current
      large customers also include A.A.R.P., Applica Incorporated (Black &
Decker ® ),
      Arista
      Records, Globe Insurance Agency, Inc., Lowestfare.com, Novartis AG, Premera
      Blue
      Cross of Washington, Rodale Inc., Showtime Networks Inc., Universal Studios
      Home
      Entertainment, and 1-800 Flowers.com. During 2006, we derived approximately
      48%
      of our revenues for this line of business from our seven **** largest
      customers.





**Products
      And Services**





**Digital
      Signage and Interactive Solutions.** We
      provide digital signage and interactive media solutions. We design, integrate,
      sell, install and manage a broad range of customized, scalable digital signage
      networks to meet our customers’ requirements. Our products and services are
      offered to our customers are part of our complete solution
      offerings.





21




**Impart
      IQ** **®** **Digital Signage Solution.** Impart
      IQ ® is our
      newest digital signage and interactive media solution containing a player/server
      interface network with content creation and management capabilities. From an
      Impart IQ Box ® or
      Impart IQ mini ® ,
      we (or
      the client, at its option) can manage one display or multiple media displays
      of
      any type (video displays, stand-alone kiosks, interactive touch screens, LCD
      screens). The complete Impart IQ ® platform
      incorporates web-based browser and interface tools enabling customers to create
      and configure their own online content with multiple video slides or, by using
      our related Impart IQ Producer ® ,
      and
      Impart IQ Link ® products.
      From one Impart IQ Box ® ,
      a
      client can transmit different programs and content to numerous screens or
      displays within one of its media properties. Further, the Impart IQ ® platform
      allows clients to immediately upload advertisements or other selected content
      upon installation of its displays and selection of a media venue. Such content
      and media can be managed remotely via the Internet and updated at any time.
      The
      Impart IQ Live ® add-on
      product adds TV or external video source overlay. The IQ Interactive ® product
      incorporates interactive themes, with touchscreen control and is the media
      engine for our branded iPoint Networks. Our Impart IQ Streams ® is a XML
      based web service that utilizes the Internet to provide content, such as weather
      reports, stock quotes, world news and sports updates. Our future web service
      called Impart IQ Ads ® will
      provide Internet portal, targeted and audience relevant selection and digital
      distribution of advertising.


**iPoint.** Our
      iPoint Travel Network platform provides digital signage and interactive dynamic
      media offerings with added content and narrowcasting capabilities. The iPoint
      System combines a rich display channel with a separate, but interconnected
      area
      of interaction. Offered as an attractive wired or wireless, standalone system,
      the display offers both a passive and interactive advertising and content
      display in a single unit. Our iPoint Travel Network solution is the first
      offering of our multi-market rollout strategy, beginning in airports where
      travelers are exposed to a vast array of important information. Like an
      operating system, iPoint holds any number of digital delivery applications;
      each
      kept or discarded at the discretion of the user. Each airport system is designed
      to have similar product interfaces and information streams so that travelers
      will know, recognize and be able to access each iPoint terminal in similar
      ways.
      Everything is held within the iPoint platform, which combines the display of
      dynamic information in a half-hour show, with the ability to have users find
      more information with the simple touch of an icon on the touch screen. It is
      designed to manage and track messaging and enable the airport itself to publish,
      monitor and manage its own content.





22




**IRIS.** Our
      comprehensive digital signage and interactive media platform offerings are
      reliant on IRIS (Impart Resident Integrated Sourcing), a proprietary management
      discipline and operations fulfillment infrastructure. IRIS provides a set of
      guidelines, rules and standards on which digital signage and interactive
      deployments reside and must adhere to. The execution structure that IRIS
      provides is crucial, as user-clients with over 100 locations need reliable
      deliverables and a logistical management solution in order to deploy, in scale,
      reliable, cost-efficient and message relevant networks.





**eyeFRAMES** **®** **.** Our
      eyeFRAMES ® digital
      signage platform provides reliable bi-directional data delivery, presentation
      impact and site playback with audit capability for customers seeking a scalable,
      in-house communications network and signage solution. We manage the network
      and
      all that is required from our customer is the enabling equipment with the raw
      message material and marketing directives. We have sold nearly 1,720 site
      licenses of eyeFRAMES ® since we
      introduced the product in 2000. This platform was discontinued on January 1,
      2007, but is still being serviced for contracted clients.





**iCES.** Our
      Impart Composer Enterprise Suite, or iCES, for digital signage was introduced
      in
      2005. This fourth generation platform provides robust flexibility for
“On-Demand” or “You-Demand” usage, security alerts, portal management
      interfacing, data-mining, true measuring and audit, two-way remote management,
      and universal IP connectivity. This platform was discontinued on January 1,
      2007, but is still being serviced for contracted clients.


**Impart
      IQ Ads** **®** .
      We
      believe our digital signage platform is a cost-effective alternative for
      advertisers. We plan to offer, via our Impart IQ Ads ® web
      service, a new media instrument that facilitates targeted advertising placement
      and revenue sharing programs through web based, XML, SOAP, and W3 open standards
      technologies. We believe that the combination of interactive advertising
      together with the design ability of web services to measure the effectiveness,
      will effectively transform the traditional advertising landscape.








**Professional
      Services.** As part
      of our complete solutions offering, we also provide the following professional
      services to our customers:


·
              Hardware,
                  software, and firmware products and
                  services;
 ·
              Outsourcing
                  solutions - automated/remote status monitoring, content management,
                  web
                  and data server hosting, installation, and onsite maintenance
                  services;
 ·
              Professional
                  services - engineering/operations/technology/helpdesk
                  assistance;
 ·
              IP
                  networking and connectivity provisioning;
 ·
              Creative
                  content, DHTML/CSS/XML, editing, and encoding;
                  and
 ·
              Capital/financing
                  solutions.




23




**Media
      Services.** Our
      advertising and direct response media services include:


·
              The
                  placement of advertising in television, internet and print media
                  outlets;
 ·
              The
                  production of advertising content, including television and radio
                  commercials, as well as web design services; and
 ·
              Advertising
                  and marketing consulting services relating to the customer's marketing
                  campaign.




As
      part
      of our advertising agency services, we use our own in-house production services
      and, in certain cases, we outsource commercial production services to
      third-party production companies.





**Sales
      And Distribution**





We
      distribute our products and services through both direct and indirect sales
      channels. The type of approach varies depending on the products or services
      being sold.





**Digital
      Signage and Interactive Media Solutions.** Our
      sales and marketing force for our digital signage and interactive networks
      consists of eight (8) full-time employee sales personnel. Our digital signage
      and interactive media sales personnel are based out of our Seattle, Washington
      headquarters office and two remote office locations in Portland, Oregon, and
      Reno, Nevada. As we continue to grow, we will, wherever practical, seek to
      maintain a local presence of direct sales personnel in key markets.





**Media
      Services.** Our
      in-house sales force generates sales for our advertising and direct response
      media division. This sales force consists of five full-time employee sales
      personnel. Four of these sales personnel are based in our New York, New York
      sales office and one is based in our Los Angeles, California sales
      office.




24


**Suppliers**


In
      connection with the sale of our customized digital signage and interactive
      media
      networks, we resell various products manufactured by third parties, including
      LCD and plasma video displays, media players and audio video accessory
      components. We believe we are able to obtain pricing for these items at
      competitive prices and from a number of different suppliers. We believe our
      relationships with our suppliers are good.





**Strategic
      Partnerships**





A
      major
      part of our advertising division’s business is generated by working with
      creative and production companies and general media buying services. Among
      these
      are:


·
              KSL
                  Media - Turtle Wax, Countrywide Home
                  Loans
 ·
              The
                  Response Shop - A.A.R.P
 ·
              International
                  Media Partners - “Premera”, “Schick
                  Shadel”
 ·
              Trainor
                  and Associates - Savings Bank Life Insurance
                  (SBLI)
 ·
              C+L
                  Marketing - Applica/Black & Decker
                  (“Littermaid”)
 ·
              Rauxa
                  Direct - AEGON (“Stonebridge Life”)
 ·
              Equals
                  Three Communications - McNeil
                  Chemical
 ·
              Zenith
                  Direct




We
      also
      have relationships with a number of telemarketing centers, each with different
      capabilities and technologies, which captures responses on our clients’
promotions. In addition, we have strategic alliances with fulfillment services
      and specialty media agencies in print and per-inquiry advertising. We believe
      we
      have good relationships with our strategic partners.





**Research
      and Development**





We
      maintain a research and development staff that designs and develops our new
      products and services. In addition, we believe we are better equipped to
      incorporate customer preferences into our development plans. We are presently
      working on future product and services integration of RFID, GPS, 4G cellular,
      "e-Ink" type display, WiMAX broadband, interactive camera surveillance, cellular
      location ID, High Definition and 3-D displays with playback, IPTV integration
      with Impart IQ Streams ® ,
      interactive handheld displays, voice activation/recognition, and fiber optics
      backend.





25




**Patents,
      Trademarks and Licenses**





We
      create, own and distribute intellectual property domestically. It is our
      practice to protect our technology through copyrights, trade secret laws,
      restrictions on disclosure and other methods. The following logos, trade names,
      trademarks and related trademark families are among those identified with the
      product lines they represent and are assets of ours:


·
              We
                  have registered trademarks and service marks for “Impart IQ
                  Box®”
                  and “Impart IQ®”.
 
 ·
              We
                  have also applied for registration for the marks of “Impart IQ
                  Streams®,”
                  “Impart IQ Ads®”,
                  Impart IQ mini®,
                  and iPoint®Travel Network.




We
      believe our success depends more on our ability to maintain and quickly evolve
      state-of-the-art technology. Also, we market our products on a price-competitive
      and value-added basis, which we believe is more critical to our success than
      any
      legal protection that patents may provide.




We
      rely
      on trade secrets, know-how and other unpatented proprietary information in
      our
      business. Most of our employees are required to enter into confidentiality
      and
      non-competition agreements. However, there is no assurance that these agreements
      would be enforceable if they are breached or, if enforced, that they would
      adequately protect us or provide an adequate remedy for the damages that may
      be
      caused by such a breach.





**Network
      Management and Technology**





We
      have
      built a state-of-the-art digital signage infrastructure to ensure the timely
      and
      reliable delivery of information and advertising content to the video displays
      placed within the contracted media properties that elect to install our digital
      signage or interactive media products and services. Our technical personnel
      are
      capable of converting content from laserdisc, DVD, video/audio tape or
      electronic file formats into player/user compatible, data efficient with
      optimized quality, digital files that can be stored on computer servers located
      at our headquarters, co-location web hosting centers, or locally at the media
      property site. Once stored, we can easily integrate both information and
      advertising content from multiple advertisers or information providers that
      can
      be customized, scheduled and transmitted via broadband Internet to one or more
      video displays on our network. Because all content is stored on hosting servers
      or the Impart IQ Box ® player/servers, we can easily manage the content by property, region, DMA,
      network, category, location, or by individual video display type. If necessary,
      we can provide each video display with different content.





26




The
      majority of our applications are accomplished by digitally transmitting content
      to a number of networked, flat-panel plasma or LCD video displays or
      non-networked, stand-alone video displays which are installed in high traffic
      areas within our customers’ locations. Through the use of high speed Internet
      broadband connectivity, such as DSL, Ethernet LAN, WiMAX, Cable Modem, 3G and
      Wi-Fi supplied by cable companies, local telecommunications providers, cellular
      companies, property service owners or broadband providers, Wi-Fi hot-spot
      providers or satellite carriers, we have the ability to centrally manage our
      networks and the content displayed thereon either remotely from our headquarters
      in Seattle, Washington or locally by delegating such network management to
      the
      media property/network owner at their request. Rather than requiring a new
      infrastructure, we ride our customers’ existing IP communications network, with
      secure tunneling and encryption of data and securitization of player IP
      accessible ports. As the installation of digital broadband cable increases
      throughout the country and becomes ubiquitous and the cost of bandwidth
      decreases (as has been the prevailing trend), we believe our potential market
      will expand and our profits margins will increase.




Furthermore,
      our approach to the development of our proprietary firmware allows for
      relatively quick and easy changes to its functionality. The firmware “packages”
are “unwrapped” and a new firmware element is added then the “package” is
      re-wrapped” with minimal custom coding to insure interoperability. Our newer
      family of products, including the Impart IQ mini ® ,
      Impart
      IQ Interactive ® ,
      Impart
      IQ Live ® ,
      share
      the same IQ firmware “DNA”. USB peripherals are added to easily expand
      functionality and networking capabilities. Our approach means we can offer
      to
      our customer’s unique solutions at an “assembly line” price, with fast to market
      deployment.





**Competition**





**Digital
      Signage and Interactive Media Services.** We are
      engaged in the out-of-home media segment of the larger advertising market.
      As
      such, we compete on several levels.





First,
      we
      compete against other digital signage and interactive media providers, like
      our
      company. This segment of the industry is still relatively young and is
      characterized by a large number of relatively smaller participants. Most of
      these competitors, we believe, offer specialized, stand-alone (non-networked)
      systems and deliver only a single product. Examples of these companies include
      3M Digital Signage, Captivate Networks, Convergent Technologies, BroadSign,
      Scala, SignStorey, PRN/Thompson Corporation, Wireless Ronin, and WebPavement.
      Focus Media is a well-financed digital signage provider based in China that
      we
      expect will expand its operations beyond China. In addition, as part of our
      growth strategy, we plan to expand our operations internationally, which may
      include China, Mexico, United Kingdom, and Russia. Thus, we may soon be
      competing with Focus Media in certain markets for advertising customers and
      media properties. We believe our services are superior to those of Focus Media,
      due to our ‘turnkey’ system solutions and our scalable, remote network
      management capabilities, among other reasons. We are not aware of any competitor
      that provides a complete, ‘turnkey’ digital signage system with multiple
      products and service offerings, along with the facilitate web services
      advertising placement or create content for the delivery to the networks they
      install and manage.


27




Secondly,
      we compete against some of the retail stores, commercial buildings, hotels,
      restaurants and public transit systems to which we market our products and
      services as they may seek to install and operate their own flat-panel displays
      within their media properties. For example, Wal-Mart owns and operates its
      own
      in-store digital signage network.





Finally,
      with the planned introduction later this year of our Impart IQ Ads ® web
      service, we expect to be competing for advertising spending with all other
      advertising media companies, including other out-of-home advertising media,
      internet advertising and traditional advertising media, such as newspapers,
      magazines, television and radio. Some of the largest traditional advertising
      media companies include Time-Warner, Infinity Broadcasting, Viacom, and the
      major U.S. television networks. Out-of-home media includes advertising on
      billboards, bus shelters and static displays, among other forms.





We
      also
      expect that a number of traditional advertisers will soon recognize the
      opportunities within the digital media segment of the advertising market and
      will begin offering services similar to those offered by our advertising
      division and our planned Impart IQ Ads ® web
      service. Most of the above-named companies have significantly greater financial
      resources than we have.





We
      generally compete for customers on the basis of the range of services we offer,
      our brand name and industry reputation, the recurring subscription management,
      hosting, installation, and network operation fees we charge, the types and
      locations of the media properties in our networks, among other
      factors.





28




**Media
      Services.** The
      advertising and direct response media industry is highly competitive, with
      firms
      of all sizes and disciplines competing primarily on the basis of reputation
      and
      quality of service to attract and retain clients and personnel. Companies such
      as WPP Group, Omnicom Group, Interpublic Group, Digitas, ChoicePoint Precision
      Marketing and Havas generally serve large corporations with consolidated or
      business unit sales from direct marketing in excess of $100 million.
      Additionally, based on agency direct marketing revenues published in Advertising
      Age’s 2006 Agency Survey, there are approximately 28 agencies with direct
      marketing revenues ranging from $10 million to $100 million and several dozen
      agencies with direct marketing revenues ranging from at least $1 million to
      $10
      million. We intend to seek a market niche by providing a full level of service
      quality that users of direct marketing services may not receive from our larger
      competitors. Certain of our advertising clients are smaller companies that
      are
      not typically sought after by the major advertising and marketing
      companies.


**Employees**





As
      of
      March 15, 2007, we have 58 full-time employees. Of our employees, 7 are in
      executive management, 8 are in finance and administration, 18 are in sales
      and
      marketing and 25 are in operations, creative, information technology,
      development and technical support. As part of our growth strategy, we intend
      to
      hire additional employees in all areas of operation. We have 26 employees based
      out of our headquarters in Seattle, Washington. At our advertising business
      unit
      in New York, New York, we have 32 employees. None of our employees are subject
      to any collective bargaining agreement. We believe we have good relations with
      our employees.





**Regulation**





We
      are
      not aware of any material legal or other regulatory restrictions that may
      adversely affect our digital signage and interactive media business or our
      advertising and direct response media business. The furnishing of advertising
      services is subject to compliance with the Robinson-Patman Act, which prohibits
      price discrimination among purchasers of commodities that are competing in
      the
      same marketing area. Our management is aware of its responsibilities under
      the
      Robinson-Patman Act and has instructed our sales staff accordingly. We intend
      to
      provide similar terms and service quality to all venue locations and customers
      in any given market and we intend to operate our business in compliance with
      this act.




29




**Development
      of Business**





We
      were
      incorporated in the State of Nevada on May 17, 1996, under the name “Multinet
      International Corporation.” During the period from our incorporation until
      September 26, 2001, we generated no significant revenues and accumulated no
      significant assets, as we attempted to develop various business opportunities.
      On September 26, 2001, we acquired all of the outstanding capital stock of
      Limelight Media Group, Inc., a Nevada corporation, formerly known as Showintel
      Networks, Inc., that was engaged in the digital signage business. This
      transaction is commonly referred to as a “reverse acquisition” in which all of
      the outstanding capital stock of Limelight Media was effectively exchanged
      for a
      controlling interest in our company, which was a publicly-held “shell”
corporation at the time of the transaction. On October 3, 2003, we changed
      our
      name to “Limelight Media Group, Inc.” From September 2001 until June 2005, we
      conducted limited operations as we sought financing to implement our business
      strategy.




On
      June
      30, 2005, we acquired all of the outstanding capital stock of Impart, Inc.,
      a
      Washington corporation, or Impart Inc. engaged in the design, installation
      and
      sale of digital signage networks (one of our current lines of business). This
      transaction was also a “reverse acquisition” in which all of the outstanding
      capital stock of Impart-Washington was effectively exchanged for a controlling
      interest in our company. This was considered a capital transaction (a
      recapitalization) rather than a business combination. Accordingly, no goodwill
      or other intangible assets were recorded. On December 22, 2005, we changed
      our
      name to “Impart Media Group, Inc.”





On
      February 28, 2006, we purchased, through our wholly-owned subsidiary, Impart
      Media Advertising, Inc., substantially all of the assets of E&M Advertising,
      Inc., E&M West/Camelot, Inc. and NextReflex, Inc., which companies were
      engaged in the placement and marketing of direct response media.





**Business
      of Predecessor**





Impart,
      Inc. (Washington State), in which we acquired a 100% interest on June 30, 2005,
      was formed in 1984. Prior to this transaction, we conducted limited operations
      in the digital signage industry. Since Impart, Inc. 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, Inc..





30


**ITEM
                2.**
            **DESCRIPTION
                OF PROPERTY**





We
      currently lease a 16,000 square foot office building in Seattle, Washington
      at a
      rental cost of $15,000 per month. Our lease for this facility expires on
      November 30, 2018. We have an option to renew the lease for a period of nine
      and
      one-half years. We also lease an 8,600 square foot office in New York, New
      York
      at a rental cost of $18,667 per month. The lease for this office expires on
      June
      30, 2011. In addition, we own miscellaneous office furniture and equipment,
      including computers and video displays used in our operations. We believe our
      current facilities are adequate for our existing operations and that all of
      our
      properties are adequately covered by insurance. We have granted a security
      interest in all of our assets, tangible and intangible, to Laurus Master Fund,
      Ltd., as security for our payment of amounts due under our existing revolving
      line of credit.




**ITEM
                3.**
            **LEGAL
                PROCEEDINGS**





Claims
      and lawsuits have been filed against us and our subsidiaries from time to time.
      Although the results of pending claims are always uncertain, we do not believe
      the results of any such actions, individually or in the aggregate, will have
      a
      material adverse effect on our financial position or results of operation.
      Additionally, we believe that we have insurance coverage in respect of these
      claims, but no assurance can be given as to the sufficiency of such insurance
      in
      the event of any unfavorable outcome resulting from these actions.





**ITEM
                4.**
            **SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY HOLDERS**





There
      were no matters submitted to the vote of security holders through the
      solicitation of proxies or otherwise during the fourth quarter of the fiscal
      year ended December 31, 2006.


31


**PART
      II**





**ITEM
                5.**
            **MARKET
                FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS**





Our
      common stock is currently quoted on the OTC Bulletin Board under the symbol
      “IMMG.” The following table sets forth the high and low bid prices for our
      common stock, par value $0.001 per share, for each fiscal quarter within our
      last two fiscal years, as reported by the National Quotation Bureau. The prices
      set forth below represent interdealer quotations, without retail markup,
      markdown or commission and may not be reflective of actual transactions. In
      addition, where applicable, such quotations have been adjusted to give effect
      to
      the one-for-20 reverse stock split effected on December 22, 2005.





HIGH
                BID
            
            LOW
                BIDYear
                ended December 31, 2005First
                Quarter
            
            $
            2.20
            
            $
            0.60Second
                Quarter
            
            
            2.40
            
            
            0.80Third
                Quarter
            
            
            1.80
            
            
            1.00Fourth
                Quarter
            
            
            1.58
            
            
            0.40Year
                ended December 31, 2006First
                Quarter
            
            $
            4.24
            
            $
            0.66Second
                Quarter
            
            
            2.90
            
            
            1.42Third
                Quarter
            
            
            1.75
            
            
            0.57Fourth
                Quarter
            
            
            1.28
            
            
            0.36








On
      March
      15, 2007, the closing price of our common stock as reported on the
      Over-the-Counter Bulletin Board was $0.65.





As
      of
      March 15, 2007, there were 22,689,751 shares
      of
      our common stock outstanding held by approximately 157 shareholders of record.
      In addition, as of March 15, 2007, there were 2,903,229 shares of our Series
      A
      convertible Preferred Stock, par value $0.001 per share, or the Series A
      Preferred Stock, outstanding, which shares are convertible into an aggregate
      of
      2,903,229 shares of our common stock. The number of our shareholders of record
      excludes any estimate by us of the number of beneficial owners of shares held
      in
      street name, the accuracy of which cannot be guaranteed.


32




**Dividends**





We
      have
      not declared any cash dividends on any class of common equity during the years
      ended December 31, 2006 or 2005 and we do not anticipate paying any dividends
      on
      our outstanding common stock in the foreseeable future. Under the terms of
      our
      Series A Preferred Stock, we are required to pay (in cash or shares) a
      semi-annual dividend on our outstanding shares of Series A Preferred Stock
      at a
      rate of 7% per annum on the liquidation preference of our outstanding shares
      of
      the Series A Preferred Stock (initially $4.5 million).





The
      terms
      of our Series A Preferred Stock further provide that, for so long as any shares
      of Series A Preferred Stock are outstanding, we may not declare or pay dividends
      on our common stock (or any other junior stock) unless all accrued dividends
      on
      the Series A Preferred Stock have been paid.





Under
      the
      terms of our financing agreement with Laurus Master Fund, Ltd., we may not,
      without Laurus’ consent, declare or pay dividends on any class of our capital
      stock, other than pursuant to the terms of our Series A Preferred
      Stock.





**Securities
      Authorized for Issuance under Equity Compensation Plans**





Information
      regarding securities authorized for issuance under our equity compensation
      plans
      is disclosed in the section captioned, “Item 11. Security Ownership of Certain
      Beneficial Owners and Management and Related Stockholder Matters.”





**Repurchases
      of Equity Securities**





None.





**ITEM
                6.**
            **MANAGEMENT’S
                DISCUSSION AND ANALYSIS OR PLAN OF OPERATION**





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 Annual Report. As a result of our acquisition of
      all
      of the outstanding capital stock of Impart, Inc., a Washington corporation
      (“Impart, Inc.”), on June 30, 2005, as we previously reported in our Current
      Report on Form 8-K filed with the Commission on July 7, 2005, pursuant to which
      Impart, Inc. 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, Inc.


33


**Critical
      Accounting Estimates and New Accounting Pronouncements**





Critical
      Accounting Estimates





The
      preparation of financial statements in accordance with accounting principles
      generally accepted in the United States requires management to make estimates
      and assumptions that affect reported amounts and related disclosures in the
      financial statements. Management considers an accounting estimate to be critical
      if it:




•
              requires
                  assumptions to be made that were uncertain at the time the estimate
                  was
                  made, and
 •
              changes
                  the estimate or different estimates that could have been selected
                  may have
                  made a material impact on our consolidated results of operations
                  or
                  financial condition.




*Share-Based
      Payments* - Prior
      to January 1, 2006, we accounted for stock options to employees under the fair
      value provision of SFAS 123. On January 1, 2006, we adopted SFAS 123(R),
“Share-Based Payment”, which establishes standards for share-based transactions
      in which an entity receives employee’s services for (a) equity instruments of
      the entity, such as stock options, or (b) liabilities that are based on the
      fair
      value of the entity’s equity instruments or that may be settled by the issuance
      of such equity instruments. SFAS 123(R) supersedes the option of accounting
      for
      share-based compensation transactions using APB Opinion No. 25, “Accounting for
      Stock Issued to Employees”, and requires that companies expense the fair value
      of stock options and similar awards, as measured on the awards’ grant date. SFAS
      123(R) applies to all awards granted after the date of adoption, and to awards
      modified, repurchased or cancelled after that date. We have elected to apply
      SFAS 123(R) using the modified prospective application, under which compensation
      cost is recognized only for the portion of awards outstanding for which the
      requisite service has not been rendered as of the adoption date.





We
      grant
      options to purchase our common stock to our employees and directors under our
      2006 Equity Incentive Plan. The benefits provided under this plan are
      share-based payments subject to the provisions of SFAS 123(R). Share-based
      compensation expense recognized under SFAS 123(R) through the year ended
      December 31, 2006 was $440,000. At December 31, 2006, total unrecognized
      estimated compensation expense related to unvested stock options granted prior
      to that date was $1.2 million.


34




We
      estimate the value of stock option awards on the date of grant using the
      Black-Scholes option-pricing model (the “Black-Scholes model”). The
      determination of the fair value of share-based payment awards on the date of
      grant is affected by our stock price as well as assumptions regarding a number
      of complex and subjective variables. These variables include our expected stock
      price volatility over the term of the awards, expected term, risk-free interest
      rate, expected dividends and expected forfeiture rates.





If
      factors change and we employ different assumptions in the application of SFAS
      123(R) in future periods, the compensation expense that we record under SFAS
      123(R) may differ significantly from what we have recorded in the current
      period. There is a high degree of subjectivity involved when using option
      pricing models to estimate share-based compensation under SFAS 123(R).
      Consequently, there is a risk that our estimates of the fair values of our
      share-based compensation awards on the grant dates may bear little resemblance
      to the actual values realized upon the exercise, expiration, early termination
      or forfeiture of those share-based payments in the future. Employee stock
      options may expire worthless or otherwise result in zero intrinsic value as
      compared to the fair values originally estimated on the grant date and reported
      in our financial statements. Alternatively, value may be realized from these
      instruments which is significantly in excess of the fair values originally
      estimated on the grant date and reported in our financial statements.





The
      guidance in SFAS 123(R) and the Commission’s Staff Accounting Bulletin No. 107
      (SAB 107) is relatively new and best practices are not well established. There
      are significant differences among valuation models, and there is a possibility
      that we will adopt a different valuation model in the future. Theoretical
      valuation models are evolving and may result in lower or higher fair value
      estimates for share-based compensation. The timing, readiness, adoption, general
      acceptance, reliability and testing of these methods is uncertain. Sophisticated
      mathematical models may require voluminous historical information, modeling
      expertise, financial analyses, correlation analyses, integrated software and
      databases, consulting fees, customization and testing for adequacy of internal
      controls. The uncertainties and costs of these extensive valuation efforts
      may
      outweigh the benefits to investors.





*Revenue
      Recognition* -
      Revenue from design and installation contracts is recognized using the
      completed-contract method under which the amount of revenue recognized is the
      lower of the percentage complete applied to expected contractual payments or
      the
      total non-refundable cash received to date. Changes in the projected hours
      or
      cost to complete the project could significantly change the amount of revenue
      recognized. There were no significant contracts in process during the year
      ended
      December 31, 2006.


35




In
      addition, after consultation with our auditors, we account for revenue
      attributable to contracts acquired in conjunction with our acquisition of
      E&M on a net basis, as opposed to gross basis. Historically, over a twenty
      year period, E&M’s management had recorded revenue on a gross basis, but to
      insure compliance with GAAP and upon other accounting considerations, we have
      elected to utilize the more conservative net revenue recognition calculations.
      This method of net revenue recognition will have no effect on any recognition
      of
      net profits. As
      a
      result of the change in the conversion price of our Series A Preferred Stock,
      our 2.9 million outstanding shares of Series A Preferred Stock were, at March
      30, 2007, convertible into 4.5 million shares of our common stock.




**Recent
      Developments**





As
      previously reported in our Current Report on Form 8-K filed with the Commission
      on March 28, 2007, we and the holders of our Series A Preferred Stock
      executed a Waiver and Amendment, or the Waiver, to the Certificate of
      Designation of Series A Convertible Preferred Stock, Warrants and Registration
      Rights Agreement. Pursuant to the Waiver, such holders agreed to waive certain
      rights (including without limitation, a right of redemption and the payment
      of
      accrued dividends) under the Certificate of Designation relating to our Series
      A Preferred Stock and the registration rights agreement executed in
      connection with our original sale of Series A Preferred Stock. In consideration
      of such waivers, we agreed to amend certain terms of the Certificate of
      Designation, the registration rights agreement and warrants issued to the
      holders of our Series A Preferred Stock, to provide for, among other things,
      the
      reduction in the conversion price of our Series A Preferred Stock from $1.55
      to
      $1.00 per share, a reduction in the exercise price of the warrants to $.01
      per
      share and a revised timeline for filing and having declared effective the
      registration statement covering the underlying shares of common stock. As a
      result of the change in the conversion price of our Series A Preferred
      Stock, our 2.9 million outstanding shares of Series A Preferred Stock were,
      at March 30, 2007, convertible into 4.5 million shares of our common stock.




As
      previously reported in our Current Report on Form 8-K filed with the Commission
      on March 28, 2007, we determined that the value of certain intangible
      assets other than goodwill that we acquired in connection with the purchase
      of
      E&M Advertising, Inc. and its affiliates, the assets of which we acquired on
      February 28, 2006, was overstated by approximately $592,000 and that such
      portion of the purchase price should have been allocated to goodwill rather
      than
      to intangible assets. As a result of the error, the balances of intangible
      assets and the balance of Additional Paid in Capital allocated to the purchase
      on our consolidated balance sheets as at March 31, June 30 and September 30,
      2006 were overstated by approximately by such amount. Also, as a result of
      the
      error, amortization expense was overstated in prior periods so that our net
      loss
      for the three months ended March 31, 2006 was overstated by approximately
      $250,000 and net losses for the three and six months ended June 31, 2006 were
      overstated by approximately $375,000 and $625,000, respectively. Net losses
      for
      the three and nine months ended September 30, 2006 were overstated by
      approximately $375,000 and $1,000,000, respectively. The error occurred as
      a
      result of omissions and mistakes in the preparation of the E&M valuation
      model. As a result of the error, our previously issued 2006 interim financial
      statements should no longer be relied upon. We will include the restated
      financial information in amendments to our Quarterly Reports on Form 10-QSB
      for
      these periods, which we intend to file as soon as practicable.


36




Effective
      as of February 28, 2007, we amended the Asset Purchase Agreement relating to
      the
      E&M assets, dated as of February 28, 2006, to provide that the remaining
      $200,000 of cash purchase price shall instead be payable on September 30, 2007
      instead of on February 28, 2007.





**Liquidity
      and Capital Resources**




We
      have
      limited capital resources. At December 31, 2006, total unrestricted cash was
      approximately $263,000. In 2006, we funded operations with the proceeds from
      sales and services, draw-downs on our $6 million accounts receivable-based
      credit facility from Laurus (the “Laurus Facility”) and proceeds from the
      issuance and sale of our equity securities. At December 31, 2006, $1.0 million
      was outstanding under the Laurus Facility and $541,000 was available for
      additional draw-down.





We
      anticipate that our existing capital resources, including amounts available
      under the Laurus Facility, will enable us to continue operations through
      December 31, 2007, assuming we meet our sales projections for the year. If
      we
      materially fail to meet such sales projections and we do not raise additional
      capital, then we may be forced to severely curtail or cease operations by
      December 31, 2007. Consequently, we are actively working with investment banks
      and institutional investors, and strategic investors to obtain additional
      capital through various financing options; however, we do not have any financing
      commitments. There can be no assurance that financing will be available on
      favorable terms or at all. If we raise additional capital through the sale
      of
      equity or convertible debt securities, the issuance of such securities may
      result in dilution to existing stockholders.





37




As
      of
      December 31, 2006, our accumulated deficit was $14.3 million. Our net loss
      in
      2006 was $10.1 million in 2006. Additionally, we anticipate that we will incur
      significant losses from operations through the end of 2007. However, many of
      the
      expense items that generated these losses are non-cash charges such as non-cash
      interest, depreciation and amortization. Accordingly, if we meet our sales
      forecast for 2007, we anticipate that we will generate positive earnings before
      interest, taxes, depreciation, and amortization (EBITDA) during the last six
      months of 2007.





Our
      limited capital resources and recurring losses from operations raise substantial
      doubt about our ability to continue as a going concern and may adversely affect
      our ability to raise additional capital. The audit report prepared by our
      independent registered public accounting firm relating to our consolidated
      financial statements for the year ended December 31, 2006 includes an
      explanatory paragraph expressing substantial doubt about our ability to continue
      as a going concern. The financial statements do not include any adjustments
      that
      might be necessary if we are unable to continue as a going concern.


**Results
      of Operations**





*Revenues*




Year
                  Ended December 31,2006
              
              2005
              
              Change
              
              %
                  Change(in
                  thousands)Revenue
              
              $
              6,595
              
              $
              4,945
              
              $
              1,650
              
              
              33
              %Cost
                  of Revenue
              
              
              3,022
              
              
              3,560
              
              
              (538
              )
              
              (15
              %)General
                  and administrative expenses
              
              
              12,587
              
              
              3,397
              
              
              9,190
              
              
              271
              %Interest
                  expense
              
              
              1,189
              
              
              322
              
              
              867
              
              
              269
              %Other
                  income and (expenses)
              
              
              106
              
              
              (86
              )
              
              192Net
                  Loss
              
              
              10,097
              
              
              2,420
              
              
              7,677
              
              
              317
              %




Revenue
      increased from 2005 primarily due to increased media services revenues of $2.8
      million derived as a result of our acquisition of E&M in February 2006, and
      increased subscription revenues and consulting and design services of $300,000,
      offset by a decrease of $1.4 million in revenues from sales of digital signage
      equipment.





The
      decrease of $1.2 million in revenues from sales of digital signage equipment
      was
      primarily due to a shift in our long-term business strategy, which we began
      implementing in the third quarter of 2005. Historically, one significant
      component of our business has been the sale and distribution of brackets and
      fixtures to support the deployment of plasma screens and LCD screens. During
      the
      third quarter of 2005, we began to reduce our emphasis on the distribution
      of
      these products and began shifting our primary focus to a full-service digital
      signage offering.


38




Additionally,
      in an effort to reduce expenditures, we have discontinued the use of our
“Network Owner” revenue model, whereby we, rather than the venue providers, pay
      for the installation of digital signage equipment and displays in venues. The
      “Network Owner” revenue model required us to expend a large amount of capital
      upfront. Many of these initial revenue arrangements were not immediately
      profitable to us. For example, in the Seattle-Tacoma airport, we were unable
      to
      facilitate a large rollout of our iPoint kiosks and hardware and, thus, were
      unable to attract large scale national advertisers, resulting in little or
      no
      return on investment. Consequently, we removed numerous iPoint kiosks and other
      related hardware and firmware originally deployed in such airport venues. In
      other airport venues, such as the Detroit Metropolitan Airport, we are working
      to modify the “Network Owner” revenue model by the strategic partnership that we
      have formed with a business partner that has the advertising rights to provide
      advertising to the airport sector and other out-of-home venues, while we focus
      on equipment sales, provision of networking services and management services
      to
      such venues. We continue to believe that the iPoint product line and related
      interactive technology offer many advantages over expensive and outdated forms
      of static and fixed signage deployments that airports currently employ. We
      will
      continue to identify ways that we and airport venue providers can jointly
      realize the benefits that the iPoint network system provides.





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





*Cost
      of Revenues* .
      Cost of
      revenues from our Impart Media Group division decreased by $900,000 from last
      year in line with the reduction in the deployment of brackets and other non-core
      equipment sales. Cost of revenues primarily consists of amounts we pay for
      hardware (i.e., video displays, media players and servers) that we integrate
      and
      install for our customers. Our advertising division’s cost of revenues was
      $405,000 in 2006 and represented 14% of the total $2.8 million of revenues
      for
      that division. This relatively low cost of sales percentage is due to the
      accounting treatment of the division where most sales are recorded at the net
      amount billed because revenue has been earned from a fee or
      commission.


39


*General
      and Administrative Expenses* .
      General
      and administrative expenses in 2006 increased by $9.2 million over 2005
      primarily due to the significant increase in compensation expenses, professional
      and consulting fees, and impairments to intangible assets acquired in the
      transaction with InTransit, and other general and administrative expenses.
      General and administrative expenses attributable to the operations of the
      acquired advertising division contributed $3.5 million to the increase in
      overall general and administrative expenses.





Wages
      and
      salary expense for 2006 was $4.7 million, an increase of $3.5 million over
      2005.
      Of this increase, $2.0 million was due to additional head count resulting from
      the acquired advertising division. $1.5 million of the increase was
      attributable mostly to the additional staff absorbed from the acquisitions
      of
      iPoint and Media SideStreet.





Professional
      and consulting expenses in 2006 were $2.0 million, an increase of $1.4 million
      over 2005. This increase was primarily due to additional legal and consulting
      expenses associated with the Laurus funding transaction, issuance of the Series
      A Preferred Stock and the purchase of E&M Advertising. Approximately
      $400,000 of the additional expenses was directly attributable to the normal
      operations of the acquired advertising division.





Depreciation
      and amortization expenses were $1.1 million for 2006, an increase of $900,000
      over 2005. The increase was primarily due to the amortization of intangible
      assets resulting from the E&M Advertising, InTransit, and iPoint
      purchases.





General
      and administrative expenses in 2006 included $700,000 of incremental charges
      over 2005 due to the impairment of certain intangible assets acquired in the
      transaction with InTransit.





Other
      general and administrative expenses were $3.0 million in 2006, an increase
      of
      $2.0 million over 2005. This increase was primarily due to increased investor
      relations expenses and additional ongoing administrative expenses attributable
      to the normal operations of the acquired advertising division.





40




*Other
      Expenses* .
      Interest expense was $1.2 million in 2006, an increase of $900,000 over 2005
      primarily due to interest expense incurred in connection with the Laurus
      Facility and interest expense resulting from the issuance of common stock
      warrants in lieu of the payment of accrued interest on loans payable.




Based
      on
      the above, we had a net loss of $10.1 million in 2006 as compared to a net
      loss
      of $2.4 million in 2005.





*Cash
      Sources and Uses*





Cash
      inflows during 2006 include net proceeds of $3.9 million from a private
      placement of shares of our Series A Preferred Stock, draw-downs under the Laurus
      Facility and proceeds from product sales. We used approximately $782,000 of
      the
      proceeds from the Laurus draw-down to satisfy in full our then-existing bank
      debt. Our remaining cash balances have been used for general corporate and
      working capital purposes. The following table summarizes 2006 and 2005 cash
      flow
      activity:


Year
                  ended December 31,2006
              
              2005(in
                  thousands)**Cash
                  Sources**Proceeds
                  from issuance of equity securities
              
              $
              4,901
              
              $
              0Proceeds
                  from notes payable - related parties
              
              
              -
              
              
              235Proceeds
                  from notes payable
              
              
              -
              
              
              287Net
                  change from line of credit
              
              
              67
              
              
              77Other
                  cash sources
              
              
              23
              
              
              7Total
                  cash sources
              
              $
              4,991
              
              $
              606**Cash
                  Uses**Cash
                  used in operating activates
              
              $
              2,435
              
              $
              378Cash
                  used in acquisitions
              
              
              1,100
              
              
              -Repayment
                  of debt obligations
              
              
              458
              
              
              16Deferred
                  financing costs
              
              
              428
              
              
              -Capital
                  expenditures
              
              
              324
              
              
              202Other
                  cash uses
              
              
              49
              
              
              6Total
                  cash uses
              
              $
              4,794
              
              $
              602(Decrease)
                  increase in cash
              
              $
              197
              
              $
              4




At
      December 31, 2006, we had liquid assets of $7.7 million consisting of restricted
      and unrestricted cash in the amount of $400,000, accounts receivable derived
      from operations in the amount of $6.2 million, prepaid expenses and other
      current assets of $600,000, and inventory in the amount of $500,000. Long-term
      assets of $8.2 million consisted primarily of goodwill and intangible assets
      of
      $5.1 million, deferred financing costs of $1.8 million and fixed assets of
      $1.3
      million, including computer servers, media players and video display equipment
      used in operations.


41




Current
      liabilities of $11.3 million at December 31, 2006 consisted primarily of $9.2
      million of accounts payable, $700,000 of accrued and other liabilities, $1.0
      million due under the Laurus Facility, and $400,000 of stock issuances
      payable.





Our
      working capital deficit was approximately $3.6 million as of December 31,
      2006.





*Financing
      Activities*





On
      January 27, 2006, we entered into a Security Agreement with Laurus, pursuant
      to
      which Laurus agreed to provide us with a revolving credit facility of up to
      $6
      million. The term of the Laurus Facility is three years and borrowings under
      the
      Laurus Facility accrue interest on the unpaid principal and interest at a rate
      per annum equal to the “prime rate” published in The Wall Street Journal from
      time to time, plus three percent (3%). Interest on borrowings under the Laurus
      Facility is payable monthly on the first day of each month during the term
      of
      the facility. All outstanding principal amounts must be paid on January 27,
      2009. The maximum principal amount of all borrowings under the Laurus Facility
      cannot exceed ninety percent of our eligible accounts receivable minus such
      reserves that Laurus may in good faith deem necessary and appropriate.
      Outstanding amounts payable under the Laurus Facility are secured by a lien
      on
      substantially all of our assets and our subsidiaries pursuant to the terms
      of a
      Security Agreement. In addition, we pledged the ownership interests in our
      subsidiaries pursuant to a stock pledge agreement executed in favor of Laurus
      securing our obligations under the Laurus Facility.





The
      Security Agreement and related documents provide that an event of default shall
      be deemed to have occurred if we default on the payment of any obligation or
      indebtedness when due, we suffer a bankruptcy or similar insolvency event or
      proceeding, we materially breach a representation or warranty or fail to observe
      any covenant or agreement, we suffer and do not discharge in a timely manner
      a
      final judgment for the payment of a sum in excess of a certain materiality
      threshold, our common stock has been delisted or trading has been suspended,
      we
      sell a substantial portion of our assets, we merge with another entity or we
      fail to timely deliver shares of our Common Stock to Laurus when due upon
      exercise of the warrants issued to Laurus in connection with the financing
      transaction. If an event of default occurs, Laurus has the right to accelerate
      payments under the Laurus Facility and, in addition to any other remedies
      available to it, foreclose upon the assets securing any outstanding amounts
      due
      to Laurus. If an event of default occurs, one hundred twenty-five percent (125%)
      of the unpaid principal balance, plus accrued interest and fees, will become
      immediately due and payable. Laurus shall also be entitled to payment of a
      default interest rate of two percent (2%) per month on all amounts due and
      such
      other remedies specified in the relevant transaction documents and under the
      Uniform Commercial Code.


42




During
      March 2006, we sold 2.9 million shares of Series A Preferred Stock at $1.55
      per
      share for total gross proceeds of $4.5 million. In addition, the purchasers
      of
      the Series A Preferred Stock received warrants to purchase an
      aggregate of 2.9 million shares of our common stock with an exercise price
      of
      $2.25 per share and a three-year term. We paid $562,000 in issuance costs,
      for
      net proceeds of $3.9 million. As described above under “Recent Developments”, in
      March 2007, we agreed to reduce the exercise price of such warrants $.01 per
      share in consideration of certain waivers granted by the holders of Series
      A
      Preferred Stock.





Also,
      as
      a result of the amendments described above under “Recent Developments”, each
      Series A Preferred Stock share is convertible into 1.55 shares of our
      common stock (subject to certain adjustments). Each Series A Preferred
      Stock share is convertible by the holder at any time. The Series A Preferred
      Stock will automatically convert into shares of our common stock at a
      conversion price of $1.00 (subject to certain adjustments) on the third
      anniversary of the issuance date or upon the date of a consummation of a bona
      fide firm underwritten public offering of our securities of at least $20 million
      in which the price per share is at least $4.00 (subject to certain
      restrictions).





The
      Series A 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. As
      described above under “Recent Developments”, the Series A Preferred Stock
      holders waived their right to any dividends with respect to the Series
      A Preferred Stock up to and including accruals through March 2, 2007 but
      will be entitled to dividends thereafter.





On
      August
      1, 2006, we filed a registration statement on Form SB-2 covering the shares
      of
      common stock underlying the Series A Preferred Stock and the warrants
      issued to the purchasers of the Series A Preferred Stock. The registration
      statement was declared effective as of September 1, 2006. On December 13, 2006,
      we notified our Series A Preferred Stock shareholders that, due to the
      restatement of our financial statements included in our Form 10-QSB for June
      30,
      2006. referenced in the registration, the registration statement was unavailable
      for the sale of their shares. In connection with the waivers described above
      under “Recent Developments”, we have additional time to amend and refile the
      registration statement and have it declared effective.




In
      the
      event of our liquidation, dissolution or winding up, the holders of Series
      A
      Shares, are generally entitled to receive a liquidation preference over the
      holders of common stock equal to $1.55 per share of Series A Share held and
      any
      declared but unpaid dividends.




43


**ITEM
                7.**
            **FINANCIAL
                STATEMENTS**


**Report
                  of Independent Registered Public Accounting Firm**
              
              45Consolidated
                  Balance Sheet as of December 31, 2006
              
              46Consolidated
                  Statements of Operations for the years ended December 31, 2006
                  and
                  2005
              
              47Consolidated
                  Statements of Cash Flows for the years ended December 31, 2006
                  and
                  2005
              
              48Consolidated
                  Statements of Stockholders’ Equity for the years ended December 31, 2006
                  and 2005
              
              50Notes
                  to Consolidated Financial Statements
              
              52
  44
  **PETERSON
                    SULLIVAN PLLC**
  **CERTIFIED
                  PUBLIC ACCOUNTANTS**
                
                **Tel**
                    206.382.7777l**Fax**
                    206.382.7700601
                  UNION STREET, SUITE 2300
                
                http://www.pscpa.comSEATTLE,
                  WASHINGTON 98101
  **REPORT
            OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
  To
            the
            Board of Directors
 Impart
            Media Group, Inc.
 Seattle,
            Washington
 
 We
            have
            audited the accompanying consolidated balance sheet of Impart Media Group,
            Inc.,
            ("the Company") as of December 31, 2006, and the related consolidated
            statements of operations, stockholders' equity, and cash flows for the
            years
            ended December 31, 2006 and 2005. These consolidated financial statements
            are the responsibility of the Company's management. Our responsibility
            is to
            express an opinion on these consolidated financial statements based on
            our
            audits.
 
 We
            conducted our audits in accordance with the standards of the Public Company
            Accounting Oversight Board (United States). Those standards require that
            we plan
            and perform the audit to obtain reasonable assurance about whether the
            financial
            statements are free of material misstatement. The Company has determined
            that it
            is not required to have, nor were we engaged to perform, an audit of
            its
            internal control over financial reporting. Our audit included consideration
            of
            internal control over financial reporting as a basis for designing audit
            procedures that are appropriate in the circumstances, but not for the
            purpose of
            expressing an opinion on the effectiveness of the Company's internal
            control
            over financial reporting. Accordingly, we express no such opinion. An
            audit
            includes examining, on a test basis, evidence supporting the amounts
            and
            disclosures in the financial statements. An audit also includes assessing
            the
            accounting principles used and significant estimates made by management,
            as well
            as evaluating the overall financial statement presentation. We believe
            that our
            audits provide a reasonable basis for our opinion.
 
 In
            our
            opinion, the consolidated financial statements referred to above present
            fairly,
            in all material respects, the financial position of Impart Media Group,
            Inc., as
            of December 31, 2006, and the results of its operations and its cash flows
            for the years ended December 31, 2006 and 2005, in conformity with
            accounting principles generally accepted in the United States.
 
 The
            accompanying consolidated financial statements have been prepared assuming
            the
            Company will continue as a going concern. As discussed in Note 2 to the
            consolidated financial statements, the Company has experienced recurring
            losses
            from operations. This raises substantial doubt about the Company's ability
            to
            continue as a going concern. Management's plans regarding this matter
            are also
            described in Note 2. The financial statements do not include any
            adjustments that might result from the outcome of this uncertainty.
 
 /S/
            PETERSON SULLIVAN PLLC
 
 Seattle,
            Washington
 April 11,
            2007
  45


**IMPART
                MEDIA GROUP, INC.****CONSOLIDATED
                BALANCE SHEET****December
                31, 2006**ASSETSCurrent
                assetsCash
            
            $
            263,605Restricted
                cash (Note 3)
            
            
            134,998Accounts
                receivable, net
            
            
            5,291,163Inventory
            
            
            479,698Prepaid
                expenses and other current assets
            
            
            579,271Total
                current assets
            
            
            6,748,735Fixed
                assets, net (Note 6)
            
            
            1,309,354Other
                AssetsGoodwill
                (Note 7)
            
            
            2,359,418Intangible
                assets, net (Notes 4,8)
            
            
            2,700,525Deferred
                financing costs, net (Note 11)
            
            
            1,820,606Other
                assets (Note 9)
            
            
            158,672Total
                other assets
            
            
            7,039,221Total
                assets
            
            $
            15,097,310LIABILITIES
                AND STOCKHOLDERS' EQUITYCurrent
                liabilitiesAccounts
                payable
            
            $
            8,302,454Accrued
                liabilities
            
            
            360,458Customer
                deposits
            
            
            22,974Lines
                of credit (Note 11)
            
            
            998,308Note
                payable - related parties - current portion (Note 10)
            
            
            64,846Capital
                lease obligation - current portion (Note 16)
            
            
            46,122Stock
                issuance and other amounts payable to former E&M owners (Notes
                4,20)
            
            
            474,798Stock
                issuance payable to consultants (Note 20)
            
            
            155,000Total
                current liabilities
            
            
            10,424,960Notes
                payable - related parties - long-term portion (Note 10)
            
            
            150,000Capital
                lease obligation - long-term portion (Note 16)
            
            
            74,794224,794Total
                liabilities
            
            
            10,649,754Commitments
                and contingencies (Note 16,17)Stockholders'
                equityPreferred
                stock - $.001 par value, 25,000,000 shares authorized, 2,903,229
                shares
                issued and outstanding
            
            
            2,903Common
                stock - $.001 par value, 100,000,000 shares authorized, 22,469,511
                shares
                issued and outstanding
            
            
            22,470Additional
                paid-in capital
            
            
            18,705,304Accumulated
                deficit
            
            
            (14,283,121
            )Total
                stockholders' equity
            
            
            4,447,556Total
                liabilities and stockholders' equity
            
            $
            15,097,310




See
      Notes
      to Consolidated Financial Statements




46




**IMPART
                  MEDIA GROUP, INC.****CONSOLIDATED
                  STATEMENTS OF OPERATIONS****for
                  the Years Ended December 31, 2006 and 2005**2006
              
              2005RevenuesEquipment
                  sales
              
              $
              2,970,318
              
              $
              4,413,390Managed
                  subscriptions
              
              
              455,485
              
              
              372,537Consulting
                  and design services
              
              
              375,473
              
              
              158,622Media
                  services
              
              
              2,793,581
              
              
              --Total
                  revenues
              
              
              6,594,857
              
              
              4,944,549Cost
                  of revenues
              
              
              3,022,486
              
              
              3,559,955Gross
                  profit
              
              
              3,572,371
              
              
              1,384,594Other
                  operating expensesWages
                  and salaries
              
              
              4,700,701
              
              
              1,241,675Selling
                  and marketing
              
              
              642,890
              
              
              155,930General
                  and administrative expenses
              
              
              5,444,116
              
              
              1,839,788Depreciation
                  and amortization (Notes 6,8)
              
              
              1,074,327
              
              
              158,868Impairment
                  of intangible assets (Note 9)
              
              
              724,489
              
              
              --Total
                  other operating expenses
              
              
              12,586,523
              
              
              3,396,261Loss
                  from operations
              
              
              (9,014,152
              )
              
              (2,011,667
              )Other
                  income (expense)Other
                  income and expense, net
              
              
              (121
              )
              
              38,822Gain
                  on extinguishment of notes payable (Note 13)
              
              
              106,423
              
              
              --Impairment
                  of cash equivalent credits
              
              
              --
              
              
              (125,000
              )Interest
                  expense
              
              
              (1,189,278
              )
              
              (322,482
              )Net
                  Loss
              
              $
              (10,097,128
              )
              $
              (2,420,327
              )Net
                  Loss - Common Stockholders:Net
                  Loss
              
              $
              (10,097,128
              )
              $
              (2,420,327
              )Beneficial
                  conversion feature of Series A Preferred Stock
              
              
              (933,873
              )
              
              --Revaluation
                  of Series A Preferred Stock - conversion price
                  reduction
              
              
              (974,033
              )
              
              --Revaluation
                  of Series A Preferred Stock - warrant exercise price
                  reduction
              
              
              (934,856
              )
              
              --Net
                  loss - available to common stockholders
              
              $
              (12,939,890
              )
              $
              (2,420,327
              )Basic
                  and diluted loss per common share
              
              $
              (0.61
              )
              $
              (0.28
              )Basic
                  and diluted weighted average common shares outstanding
              
              
              21,298,444
              
              
              8,739,026




See
      Notes
      to Consolidated Financial Statements




47




**IMPART
        MEDIA GROUP, INC.**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 **for
        the Years Ended December 31, 2006 and 2005**


2006
            
            2005Cash
                flows from operating activities:Net
                loss
            
            $
            (10,097,128
            )
            $
            (2,420,327
            )Adjustments
                to reconcile net loss to net cash used by operating
                activities:Non-cash
                wages and salaries expense:Incentive
                stock options granted to employees
            
            
            439,709
            
            
            192,255Common
                stock issued to senior executives for services
            
            
            355,637
            
            
            274,550Non-cash
                general and administrative expense:Amortization
                of prepaid consulting expense
            
            
            1,584,235
            
            
            --Warrants
                issued for earned consulting services
            
            
            125,248
            
            
            96,430Common
                stock issued to settle legal dispute
            
            
            267,900
            
            
            --Non-cash
                interest expense:Warrants
                issued to bridge lenders
            
            
            206,186
            
            
            127,595Common
                stock issued to senior executives upon conversion of notes
                payable
            
            
            39,628
            
            
            --Amortization
                of deferred financing costs on line of credit:
            
            
            
            
            
            --Warrants
            
            
            539,294
            
            
            --Other
                deferred financing costs
            
            
            113,449
            
            
            --Common
                stock issued to Laurus for extended filing date
            
            
            51,900
            
            
            --Other
                non-cash interest expense
            
            
            24,885
            
            
            99,286Gain
                on retirement of notes payable
            
            
            (106,423
            )
            
            --Bad
                debt expense
            
            
            14,332Depreciation
                and amortization
            
            
            1,074,327
            
            
            158,868Impairment
                of intangible assets
            
            
            724,489
            
            
            --Write-off
                of cash equivalent credit
            
            
            --
            
            
            125,000Other
                adjustments
            
            
            (25,658
            )
            
            --Changes
                in operating assets and liabilities, excluding assets and liabilities
                from
                acquisitions:Accounts
                receivable
            
            
            (4,538,546
            )
            
            324,782Inventory
            
            
            3,840
            
            
            (128,942
            )Prepaid
                expenses and other current assets
            
            
            169,588
            
            
            18,201Other
                assets
            
            
            (84,304
            )
            
            --Accounts
                payable
            
            
            5,732,996
            
            
            390,150Accrued
                liabilities
            
            
            949,043
            
            
            75,645Customer
                deposits
            
            
            --
            
            
            96,537Other
                liabilities
            
            
            --
            
            
            191,648Net
                cash used by operating activities
            
            
            (2,435,373
            )
            
            (378,322
            )Cash
                flows from investing activities:Purchase
                of fixed assets
            
            
            (324,281
            )
            
            (202,135
            )Purchase
                of InTransit
                assets
            
            
            (500,000
            )
            
            --Acquisition
                of E&M
            
            
            (600,000
            )
            
            --Cash
                acquired in reverse merger
            
            
            --
            
            
            1,968Net
                cash used by investing activities
            
            
            (1,424,281
            )
            
            (200,167
            )




See
      Notes to Consolidated Financial
      Statements




48


**IMPART
        MEDIA GROUP, INC.**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 **for
        the Years Ended December 31, 2006 and 2005**
 (Continued)


2006
            
            
            2005Cash
                flows from financing activities:Proceeds
                from sale of common stock
            
            
            990,129
            
            
            --Net
                proceeds from sale of convertible preferred stock and issuance of
                warrants
            
            
            3,910,505
            
            
            --Issuance
                of common stock for exercise of warrants
            
            
            22,750
            
            
            --Net
                borrowings on lines of credit
            
            
            67,076
            
            
            77,635Principal
                payments on notes payable
            
            
            (457,600
            )
            
            (16,102
            )Deferred
                financing costs and commitment fees
            
            
            (428,000
            )
            
            --Proceeds
                from notes payable
            
            
            --
            
            
            287,000Proceeds
                from notes payable - related parties
            
            
            --
            
            
            234,696Proceeds
                from receivable related to issuance of common stock
            
            
            --
            
            
            5,000Principal
                payments on capital lease obligations
            
            
            (48,242
            )
            
            (5,444
            )Net
                cash provided by financing activities
            
            
            4,056,618
            
            
            582,785Net
                change in cash
            
            
            196,964
            
            
            4,296Cash,
                beginning of period
            
            
            66,641
            
            
            62,345Cash,
                end of period
            
            $
            263,605
            
            $
            66,641Supplemental
                cash flow informationIncome
                taxes paid
            
            $
            --
            
            $
            --Interest
                Expense:Interest
                Paid
            
            $
            213,936
            
            $
            95,601Non-cash
                Interest:Amortization
                deferred financing costs
            
            
            652,743
            
            
            --Common
                stock issued to Laurus for extended filing date
            
            
            51,900
            
            
            --Warrants
                issued to bridge and other lenders
            
            
            206,186
            
            
            127,595Common
                stock issued to senior executives upon conversion of notes payable
            
            
            39,628
            
            
            --Other
                non-cash interest expense
            
            
            24,885
            
            
            99,286Total
                Interest Expense
            
            $
            1,189,278
            
            $
            322,482Non-cash
                investing and financing activitiesConversion
                of related party and other debt:Issuance
                of common stock to repay debt, interest and wages and salaries expense
            
            $
            2,270,848
            
            $
            64,750Gain
                on extinguishment of debt
            
            
            106,423
            
            
            --Interest
                expense/accrued interest
            
            
            (39,628
            )
            
            --Compensation
                expense due to related parties
            
            
            (355,637
            )
            
            --Retirement
                of debt
            
            
            (1,982,006
            )
            
            (64,750
            )Net
                cash effect from conversion of related party debt
            
            $
            --
            
            $
            --iPoint
                asset purchase:Fixed
                assets acquired
            
            
            
            
            $
            (22,801
            )Intangible
                assets acquired
            
            
            
            
            
            (977,199
            )Common
                stock issued
            
            
            
            
            
            750,000Note
                payable issued
            
            
            
            
            
            250,000Net
                cash effect of iPoint asset purchase
            
            
            
            
            $
            --InTransit
                asset purchase:Intangible
                assets acquired
            
            $
            (1,072,372
            )Common
                stock issued
            
            
            572,372Net
                cash paid in asset purchase
            
            $
            (500,000
            )E&M
                Acquisition:Current
                assets acquired
            
            $
            (324,892
            )Fixed
                assets acquired
            
            
            (147,000
            )Intangible
                assets acquired
            
            
            (2,969,582
            )Other
                long-term assets acquired
            
            
            (44,750
            )Current
                liabilities assumed
            
            
            328,970Goodwill
                from acquisition
            
            
            (2,359,418
            )Common
                stock issued
            
            
            4,441,874Note
                payable issued
            
            
            200,000Stock
                issuance payable
            
            
            274,798Net
                cash paid in acquisition
            
            $
            (600,000
            )




See
      Notes
      to Consolidated Financial Statements




49


**IMPART
        MEDIA GROUP, INC.**
 **CONSOLIDATED
        STATEMENTS OF STOCKHOLDERS' EQUITY**
 **for
        the Years Ended December 31, 2006 and 2005**




Preferred
                Stock
            
            Common
                StockNumber
                of
              Shares
            
            Amount
            
            Number
                of
              Shares
            
            Amount
            
            Additional
                Paid-in Capital
            
            Cash
                Equivalent Credit Paid in Common Stock
            
            Receivable
                Related to Issuance of Common Stock
            
            Accumulated
                Deficit
            
            Stockholders'
                (Deficit) EquityBalances
                at January 1, 2005
            
            
            -
            
            $
            0
            
            
            3,938,427
            
            $
            3,938
            
            $
            355,197
            
            $
            0
            
            $
            0
            
            
            ($1,765,666
            )
            
            ($1,406,531
            )Issuance
                of common stock for accrued compensation
            
            
            
            
            
            
            
            
            1,008,688
            
            
            1,009
            
            
            267,337
            
            
            
            
            
            
            
            
            
            
            
            268,346Issuance
                of common stock for iPoint transaction
            
            
            
            
            
            
            
            
            468,750
            
            
            469
            
            
            749,531
            
            
            
            
            
            
            
            
            
            
            
            750,000Issuance
                of common stock for acquisition of Impart, Inc. (a
                recapitalization)
            
            
            
            
            
            
            
            
            9,650,618
            
            
            9,651
            
            
            (757,706
            )
            
            (125,000
            )
            
            (5,000
            )
            
            
            
            
            (878,055
            )Issuance
                of common stock to senior executives for services, recorded as non-cash
                wages and salaries expense
            
            
            
            
            
            
            
            
            206,250
            
            
            206
            
            
            274,344
            
            
            
            
            
            
            
            
            
            
            
            274,550Incentive
                stock options granted to employees, recorded as non-cash wages and
                salaries expense
            
            
            
            
            
            
            
            
            -
            
            
            -
            
            
            192,255
            
            
            
            
            
            
            
            
            
            
            
            192,255Issuance
                of warrants for earned consulting services, recorded as non-cash
                general
                and administrative expense
            
            
            
            
            
            
            
            
            -
            
            
            -
            
            
            96,430
            
            
            
            
            
            
            
            
            
            
            
            96,430Issuance
                of warrants to bridge lenders, recorded as non-cash interest
                expense
            
            
            
            
            
            
            
            
            -
            
            
            -
            
            
            127,595
            
            
            
            
            
            
            
            
            
            
            
            127,595Issuance
                of common stock in satisfaction of amounts owed to related
                parties
            
            
            
            
            
            
            
            
            4,750
            
            
            5
            
            
            5,695
            
            
            
            
            
            
            
            
            
            
            
            5,700Proceeds
                from receivable related to issuance of common stock
            
            
            
            
            
            
            
            
            -
            
            
            -
            
            
            -
            
            
            
            
            
            5,000
            
            
            
            
            
            5,000Issuance
                of common stock in satisfaction of convertible loan payable (including
                accrued interest of $1,040)
            
            
            
            
            
            
            
            
            10,000
            
            
            10
            
            
            11,040
            
            
            
            
            
            
            
            
            
            
            
            11,050Issuance
                of common stock in satisfaction of other liability (including interest
                expense of $12,301)
            
            
            
            
            
            
            
            
            50,000
            
            
            50
            
            
            47,950
            
            
            
            
            
            
            
            
            
            
            
            48,000Impairment
                of cash equivalent credits
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            125,000
            
            
            
            
            
            
            
            
            125,000Net
                loss for the year ended December 31, 2005
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (2,420,327
            )
            
            (2,420,327
            )Balances
                at December 31, 2005
            
            
            -
            
            
            -
            
            
            15,337,483
            
            
            15,338
            
            
            1,369,668
            
            
            -
            
            
            -
            
            
            (4,185,993
            )
            
            (2,800,987
            )Proceeds
                from the sale of common stock and warrants
            
            
            
            
            
            
            
            
            927,151
            
            
            927
            
            
            989,202
            
            
            
            
            
            
            
            
            
            
            
            990,129Proceeds
                from sale of convertible Series A Preferred Stock and issuance of
                warrants, net of cash issuance costs
            
            
            2,903,229
            
            
            2,903
            
            
            -
            
            
            -
            
            
            3,907,602
            
            
            
            
            
            
            
            
            
            
            
            3,910,505Warrants
                issued to placement agents, treated as cost of financing (see Comment
                A,
                below)
            
            
            
            
            
            
            
            
            -
            
            
            -
            
            
            -
            
            
            
            
            
            
            
            
            
            
            
            -Beneficial
                conversion feature of Series A Preferred Stock (see Comment B,
                below)
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            -
            
            
            
            
            
            
            
            
            
            
            
            -Proceeds
                from the exercise of warrants
            
            
            
            
            
            
            
            
            232,500
            
            
            232
            
            
            22,518
            
            
            
            
            
            
            
            
            
            
            
            22,750




50


**IMPART
        MEDIA GROUP, INC.**
 **CONSOLIDATED
        STATEMENTS OF STOCKHOLDERS' EQUITY**
 **for
        the Years Ended December 31, 2006 and 2005**
 (Continued)
 Preferred
                    Stock
                
                Common
                    StockNumber
                    of
                  Shares
                
                Amount
                
                Number
                    of
                  Shares
                
                Amount
                
                Additional
                    Paid-in Capital
                
                Cash
                    Equivalent Credit Paid in Common Stock
                
                Receivable
                    Related to Issuance of Common Stock
                
                Accumulated
                    Deficit
                
                Stockholders'
                    (Deficit) EquityIssuance
                    of common stock warrants in connection with line of credit, recorded
                    as
                    deferred financing costs
                
                
                
                
                
                
                
                
                -
                
                
                -
                
                
                2,044,781
                
                
                
                
                
                
                
                
                
                
                
                2,044,781Issuance
                    of common stock to Laurus in exchange for extended filing date,
                    recorded
                    as non-cash interest expense
                
                
                
                
                
                
                
                
                30,000
                
                
                30
                
                
                51,870
                
                
                
                
                
                
                
                
                
                
                
                51,900Issuance
                    of common stock to senior executives to repay debt, interest
                    and wages and
                    salaries expense
                
                
                
                
                
                
                
                
                2,394,873
                
                
                2,395
                
                
                2,268,453
                
                
                
                
                
                
                
                
                
                
                
                2,270,848Issuance
                    of common stock in exchange for consulting services, recorded
                    as prepaid
                    expenses
                
                
                
                
                
                
                
                
                1,744,000
                
                
                1,744
                
                
                1,999,156
                
                
                
                
                
                
                
                
                
                
                
                2,000,900Issuance
                    of common stock to settle legal dispute, recorded as non-cash
                    general and
                    administrative expense
                
                
                
                
                
                
                
                
                141,000
                
                
                141
                
                
                267,759
                
                
                
                
                
                
                
                
                
                
                
                267,900Issuance
                    of common stock in connection with InTransit asset purchase
                
                
                
                
                
                
                
                
                146,762
                
                
                147
                
                
                572,225
                
                
                
                
                
                
                
                
                
                
                
                572,372Issuance
                    of common stock in connection with acquisition of E&M
                
                
                
                
                
                
                
                
                1,515,150
                
                
                1,515
                
                
                4,440,359
                
                
                
                
                
                
                
                
                
                
                
                4,441,874Incentive
                    stock options granted to employees, recorded as non-cash wages
                    and
                    salaries expense
                
                
                
                
                
                
                
                
                -
                
                
                -
                
                
                439,709
                
                
                
                
                
                
                
                
                
                
                
                439,709Issuance
                    of warrants for earned consulting services, recorded as non-cash
                    general
                    and administrative expense
                
                
                
                
                
                
                
                
                -
                
                
                -
                
                
                125,248
                
                
                
                
                
                
                
                
                
                
                
                125,248Issuance
                    of warrants to bridge lenders, recorded as non-cash interest
                    expense
                
                
                
                
                
                
                
                
                -
                
                
                -
                
                
                206,186
                
                
                
                
                
                
                
                
                
                
                
                206,186Additional
                    value attributable to Series A Preferred Stock as a result of
                    reducing
                    coversion price to $1.00 per share from $1.55 per share (see
                    Comment C,
                    below)
                
                
                
                
                
                
                
                
                -
                
                
                -
                
                
                -
                
                
                
                
                
                
                
                
                
                
                
                -Additional
                    value attributable to warrants held by Preferred Stockholders
                    as a result
                    of reducing exercise price to $0.01 per share from $2.25 per
                    share (see
                    Comment D, below)
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                -
                
                
                
                
                
                
                
                
                
                
                
                -Other
                
                
                
                
                
                
                
                
                592
                
                
                1
                
                
                568
                
                
                
                
                
                
                
                
                
                
                
                569Net
                    loss for the year ended December 31, 2006
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (10,097,128
                )
                
                (10,097,128
                )Balances
                    at December 31, 2006
                
                
                2,903,229
                
                $
                2,903
                
                
                22,469,511
                
                $
                22,470
                
                $
                18,705,304
                
                $
                0
                
                $
                0
                
                
                ($14,283,121
                )
                $
                4,447,556


Comments:
 
 A.
        No
        amount is shown for this transaction. The value of the warrants ($1,312,264),
        which is an increase in additional paid-in capital, is considered to be an
        offering cost, which reduces additional paid-in capital.
 
 B.
        No
        amount is shown for this transaction. The beneficial conversion feature
        ($933,873), which increases additional paid-in capital attributable to Preferred
        Stockholders, is considered to be a deemed dividend to those Stockholders.
        Because the Company has an accumulated deficit, this dividend reduces additional
        paid-in capital rather than increasing accumulated deficit.
 
 C.
        No
        amount is shown for this transaction. The value of the change in conversion
        price ($974,033), which increases additional paid-in capital attributable
        to
        Preferred Stockholders, is considered to be a deemed dividend to those
        Stockholders. Because the Company has an accumulated deficit, this dividend
        reduces additional paid-in capital rather than increasing accumulated
        deficit.
 
 D.
        No
        amount is shown for this transaction. The value of the change in exercise
        price
        ($934,856), which increases additional paid-in capital attributable to Preferred
        Stockholders, is considered to be a deemed dividend to those Stockholders.
        Because the Company has an accumulated deficit, this dividend reduces additional
        paid-in capital rather than increasing accumulated deficit.
 
 E.
        As
        discussed in Note 12, the Preferred Stockholders waived cumulative dividends
        due
        them for 2006. Because these dividends had not been declared by the Board
        of
        Directors, they had not been recorded as liabilities and, thus, the waiver
        of
        them has no effect on this Statement.




See
      Notes
      to Consolidated Financial Statements




51







**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**







**Note
      1. Description of Business and History**





**Description
      of Business.** Impart
      Media Group, Inc. (“the Company"), headquartered in Seattle, Washington U.S.A.,
      provides digital signage in the business-to-consumer media sector. The Company's
      digital signage and interactive kiosk solutions consist of flat panel monitors,
      media players/servers, audio-video accessory components,
      enclosures/mounts/fixtures, web services, and software. The Company also
      provides consulting, design, integration, fabrication, assembly, IP
      connectivity, quality assurance, creative production, installation, onsite
      maintenance, web-data hosting, network monitoring and content management
      services throughout the United States (and in global markets through its
      authorized distributors). As a result of the Company’s acquisition of E&M
      Advertising, Inc. and its affiliates in February 2006, the Company now also
      provides offline and online direct response advertising capabilities.





**Note
      2. Going Concern**





The
      Company's financial statements are prepared consistent with accounting
      principles generally accepted in the United States applicable to a going
      concern, which contemplates the realization of assets and liquidation of
      liabilities in the normal course of business. However, as shown in the financial
      statements, the Company has sustained substantial losses and has relied
      primarily on sales of securities and proceeds from borrowings for operating
      capital, which raise substantial doubt about its ability to continue as a going
      concern.





The
      Company anticipates that its existing capital resources, including amounts
      available under its revolving credit facility, will enable it to continue
      operations through December 31, 2007, assuming the Company meets its sales
      projections for such period. If the Company materially fails to meet such sales
      projections and does not raise additional capital, then the Company may be
      forced to severely curtail or cease operations. Consequently, the Company is
      actively working with investment banks and institutional investors to obtain
      additional capital through various financing options; however, the Company
      does
      not have any financing commitments. There can be no assurance that financing
      will be available on favorable terms or at all. If the Company raises additional
      capital through the sale of equity or convertible debt securities, the issuance
      of such securities may result in dilution to existing stockholders.





The
      financial statements do not include any adjustments relating to the
      recoverability and classification of recorded asset amounts and classification
      of liabilities that might be necessary should the Company have to curtail
      operations or be unable to continue in existence .





**Note
      3. Summary of Significant Accounting Policies**





**Principles
      of Consolidation.** The
      accompanying consolidated financial statements include the accounts of the
      Company and its subsidiaries. All significant intercompany accounts and
      transactions have been eliminated.





**Use
      of Estimates.** The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect reported amounts of assets and liabilities
      as of the dates of the consolidated balance sheet and reported amounts of
      revenues and expenses for the periods presented. Accordingly, actual results
      could materially differ from those estimates.





**Cash.** The
      Company maintains cash balances with financial institutions in accounts insured by
      the
      Federal Deposit Insurance Corporation up to $100,000. Occasionally there are
      balances in excess of the insured limits.





52





**Restricted
      Cash.** At
      December 31, 2006, the Company held $134,998 in cash identified as restricted.
      In connection with the Laurus credit facility (see Note 11), restricted cash
      represents cash from customer payments received into bank lockbox accounts.
      The
      restricted funds are swept from the accounts and applied against the revolving
      credit line balance.





**Financial
      Instruments.**The
      Company's financial instruments consist of cash, accounts receivable, accounts
      payable, accrued liabilities, line of credit, related party notes payable,
      and
      capital lease obligations. The fair value of all financial instruments
      approximates the recorded value based on the short-term nature and market
      interest rates of these financial instruments.





**Accounts
      Receivable.** Accounts
      receivable are reviewed quarterly to determine whether their carrying value
      has
      become impaired. In the media industry, accounts receivable are commonly paid
      over extended periods. Thus, the Company does not consider a receivable to
      be
      impaired until the balance is more than one year old. The Company has
      established an allowance for doubtful accounts of approximately $65,000 as
      of
      December 31, 2006. When receivables 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.** As
      of
      December 31, 2006, approximately 19% of accounts receivable is due from one
      customer. This customer represented 10% of total revenues during the year ended
      December 31, 2006.





**Inventory.** Inventory
      is stated at lower of cost or market. Cost is principally determined by using
      the average cost method. Inventory consists of raw materials as well as finished
      goods held for sale. The Company monitors inventory for excess and obsolete
      items and makes necessary valuation adjustments when required.





**Fixed
      Assets.** Fixed
      assets are stated at cost less accumulated depreciation. Depreciation is
      calculated principally on the straight-line method over the estimated useful
      lives of the assets, which are generally 3 to 10 years. The cost of repairs
      and
      maintenance is charged to expense as incurred. Expenditures for property
      betterments and renewals are capitalized. Gain or loss upon disposal of an
      asset
      is recorded in other operating income (expense).





The
      Company periodically evaluates whether events and circumstances have occurred
      that may warrant revision of the estimated useful lives of fixed assets or
      whether the remaining balance of fixed assets should be evaluated for possible
      impairment. The Company uses an estimate of the related undiscounted cash flows
      over the remaining life of the fixed assets in measuring recoverability. No
      impairment was deemed to exist as of December 31, 2006.





Fixed
      assets acquired through the E&M Acquisition were recorded at estimated fair
      value at the time of acquisition. Depreciation is recorded using the
      straight-line method with useful lives of approximately 3 years.





**Goodwill.** Goodwill
      arose from the E&M acquisition discussed in Note 4. It is not amortized, but
      is periodically reviewed for impairment in value.





**Intangible
      Assets.** Intangible
      assets as of December 31, 2006, arose from the E&M acquisition discussed in
      Note 4 and consist primarily of a customer list and trade names amortized over
      five years. As discussed below and in Note 9, certain other intangible assets
      were deemed to be impaired in value and were written off during the year ended
      December 31, 2006.





**Impairment
      of Long-lived Assets.** The
      Company reviews the carrying value and fair value of its long-lived assets
      whenever events or changes in business circumstances indicate that there may
      be
      an impairment in value. Conditions that would necessitate an impairment
      assessment include a significant decline in the observable market value of
      an
      asset, a significant change in the extent or manner in which an asset is used,
      or a significant adverse change that would indicate that the carrying amount
      of
      an asset or group of assets is not recoverable. Long-lived assets to be held
      and
      used, including assets to be disposed of other than by sale, for which the
      carrying amount is not recoverable are adjusted to their estimated fair value
      at
      the date an impairment is indicated, which establishes a new basis for the
      assets for depreciation purposes. Long-lived assets to be disposed of by sale
      are reported at the lower of carrying amount or fair value less cost to sell.
      As
      discussed in Note 9, during the year ended December 31, 2006, the Company
      recorded an asset impairment of $724,000 related to the write-off of
      intangible assets due to an unexpected decrease in sold advertising. The Company
      has not recorded any other material impairment losses.





53





**Loss
      per Share.** Basic
      loss per share is computed by dividing net loss attributable to common
      stockholders by the weighted average number of common stock shares outstanding
      during the period. Diluted loss per share, which would include the effect of
      the
      conversion of unexercised stock options, unexercised warrants to purchase common
      stock, and convertible Preferred Stock, is not separately computed because
      inclusion of such conversions is antidilutive. In these cases, basic and diluted
      loss per share is the same.





Basic
      and
      diluted weighted average common shares outstanding, and the potentially dilutive
      securities excluded from loss per share computations because they are
      antidilutive, are as follows for the years ended
      December 31:





2006
            
            2005Basic
                and diluted weighted average common stock shares
                outstanding
            
            
            21,298,444
            
            
            8,739,026Potentially
                dilutive securities excluded from loss per share
                computations:Convertible
                Preferred Stock
            
            
            2,903,229Common
                stock options
            
            
            1,911,250
            
            
            705,000Common
                stock purchase warrants
            
            
            5,235,694
            
            
            447,566







**Income
      Taxes.** The
      Company follows the liability method of accounting for income taxes. Under
      this
      method, deferred tax assets and liabilities are determined based ****on differences
      between the financial reporting and tax basis of assets and liabilities and
      on
      the expected future tax benefits to be derived from net operating loss
      carryforwards. Deferred tax assets and liabilities are measured using enacted
      tax rates expected to apply to taxable income in the years in which those carry
      forwards and temporary differences are expected to be recovered or settled.
      The
      effect on the deferred tax assets and liabilities of a change in tax rates
      is
      recognized in the period that includes the enactment date. A valuation allowance
      is recorded on deferred tax assets if it is more likely than not that such
      deferred tax assets will not be realized.





**Advertising
      Costs.** 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. Advertising costs were $113,000
      and $68,000 for the years ended December 31, 2006 and 2005,
      respectively.





**Share-based
      Payments.** The
      Company made share-based payments in the form of:





·
            Incentive
                stock options (“ISOs”) under its 2006 Equity Incentive Plan (“the Plan”),
                to employees, directors, and
                others;


·
            Other
                stock options and stock purchase warrants, to non-employees;
                and


·
            Issuances
                of common stock to employees and
                others.





54





*ISOs* .
      Prior
      to January 1, 2006, the Company accounted for share-based wages and salaries
      expense under the recognition and measurement principles of Statement of
      Financial Accounting Standards (“SFAS”) No. 123, *Accounting
      for Stock-Based Compensation,* of
      the
      Financial Accounting Standards Board (“the FASB”). Effective January 1, 2006,
      the Company began recording share-based wages and salaries expense in accordance
      with SFAS No. 123 (revised 2004), *Share-Based
      Payment* .
      The
      Company adopted SFAS No. 123(R) using the modified prospective method. The
      adoption of SFAS No. 123(R) did not have any affect on earnings or per share
      amounts. The Company recognizes this expense on a straight-line basis over
      the
      service period of the award.





SFAS
      No.
      123(R) requires that cash flows resulting from tax deductions in excess of
      the
      cumulative wages and salaries expense recognized for options exercised (excess
      tax benefits) be classified as cash inflows from financing activities and cash
      outflows from operating activities. Due to the Company’s net loss position, no
      tax benefits have been recorded.





*Other
      stock options, stock purchase warrants, and issuances of common
      stock.* The
      Company also applies SFAS No. 123(R) and the consensus in the FASB’s Emerging
      Issues Task Force (“EITF”) No. 96-18, *Accounting
      for Equity Instruments That Are Issued to Other Than Employees for Acquiring,
      or
      in Conjunction with Selling, Goods or Services* ,
      for
      share-based payments in the form of other stock options, warrants, and common
      stock issued to employees and non-employees.





**Revenue
      Recognition.** The
      Company recognizes revenue when it has persuasive evidence of an arrangement,
      the product has been shipped or the services have been provided to the customer,
      title and risk of loss for products has passed to the customer, the sale price
      is fixed and determinable, no significant unfulfilled Company obligations exist,
      and collectibility is reasonably assured.





Revenue
      from equipment sales is generally recognized when products are shipped and/or
      the revenue is fully earned and ownership has passed to the customer. Revenue
      from management subscriptions is recorded in the month the service is provided.
      Revenue from consulting and design services, which are all short-term, is
      recognized using the completed-contract method. There were no significant
      contracts in process at December 31, 2006.





Revenues
      from media services consist of sales of brokered advertising and certain other
      consulting, content creation, and Internet-based advertising fees. Because the
      Company typically acts as an agent on behalf of its advertising clients,
      brokered advertising revenues are recorded based on the net commissions earned.
      Media services revenues from consulting, content creation, and Internet-based
      advertising fees are recorded at their gross billing amounts.





The
      gross
      and net billing amounts included in operating revenues for the year ended
      December 31, 2006 are follows:





Consolidated
                gross revenues
            
            $
            21,222,872Direct
                cost of sales
            
            
            (14,628,015
            )Consolidated
                net revenues
            
            $
            6,594,857





During
      2005, all of the Company’s revenues were reported on a gross basis because the
      Company had no advertising related brokered sales.




**Shipping
      and Handling.** Costs
      incurred by the Company for shipping and handling are included in cost of
      revenues.




**Recent
      Accounting Pronouncements**





In
      accordance with Release No. 8760 of the Securities Act of 1933, commencing
      with
      the Company's fiscal year ending December 31, 2007, the Company will become
      subject to the requirement to include in its annual report management's
      assessment of internal controls over financial reporting. This assessment will
      require the Company to document and test its internal control procedures in
      accordance with Section 404 of the Sarbanes-Oxley Act of 2002. The Company's
      independent registered public accountants will be required to attest to the
      Company's assessment of internal controls for its fiscal year ending December
      31, 2008.





55





In
      February 2006, the FASB issued Statement No. 155, *Accounting
      for Certain Hybrid Financial Instruments* .
      SFAS
      155 is effective for all financial statements issued for fiscal years beginning
      on or after September 15, 2006, with earlier adoption permitted. The Company
      believes this statement will have no effect on its financial
      statements.





In
      July
      2006, the FASB issued FASB Interpretation No. 48, *Accounting
      for Uncertainty in Income Taxes - An Interpretation of FASB Statement No.
      109* ("FIN
      48"). FIN 48 is effective for fiscal years beginning after December 15, 2006.
      The Company believes that this interpretation will have no material effect
      on
      its financial statements.





In
      September 2006, the FASB issued SFAS No. 157, *Fair
      Value Measurements* .
      SFAS
      157 is effective for financial statements issued for fiscal years beginning
      after November 15, 2007, and interim periods within those fiscal years. The
      Company has not yet determined the effect of applying SFAS 157.





In
      September 2006, the FASB issued SFAS No. 158, *Employers'
      Accounting for Defined Benefit Pension and Other Postretirement
      Plans* .
      Portions of SFAS 158 are effective for financial statements as of December
      31,
      2006. The Company believes this statement will have no effect on its financial
      statements.





In
      September 2006, the Securities and Exchange Commission (“the SEC”) issued Staff
      Accounting Bulletin ("SAB") 108 which provides interpretive guidance on how
      the
      effects of the carryover or reversal of prior year misstatements should be
      considered in quantifying a current year misstatement. SAB 108 is effective
      for
      the first interim period following the first fiscal year ending after November
      15, 2006. The Company believes this bulletin will have no effect on its
      financial statements.





In
      February 2007, the FASB issued SFAS No. 159, *The
      Fair Value Option for Financial Assets and Financial Liabilities - Including
      an
      amendment of FASB Statement No. 115* .
      SFAS
      159 is effective for financial statements for fiscal years beginning after
      November 15, 2007, and early adoption is permitted in certain circumstances.
      The
      Company has not yet determined the effect of applying SFAS 159.





**Note
      4. E&M Acquisition**




In
      February 2006, the Company purchased substantially all of the assets of E&M
      Advertising, Inc., E&M West/Camelot, Inc. and NextReflex, Inc. (collectively
“E&M”), through a newly formed subsidiary, Impart Media Advertising, Inc
      (“IMA”). IMA is engaged in the placement and marketing of direct response media.
      The Company consummated this acquisition in order to create an advertising
      division, which offers a wide range of services relating to direct-to-consumer
      marketing. Through this division, the Company now has the opportunity to offer
      direct response media services to its digital media customers.




In
      March
      2007, the Company determined that the value assigned to the purchase price,
      the
      amounts allocated to intangible assets, the related amortization expenses,
      and
      accounting classifications were in error. As a result, the balances of
      intangible assets and the balance of Additional Paid-in Capital allocated to
      the
      purchase on the Consolidated Balance Sheets has been adjusted from approximately
      $6.1 million to $5.5 million. In addition, approximately $3.9 million of value
      previously allocated to amortizable assets has been reallocated to trade names
      and goodwill, which are not amortized. As discussed in Note 20, the Company
      filed a Form 8-K disclosing these errors and its intention to amend its interim
      filings for 2006.





56





In
      consideration for the purchase of the assets, the Company 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 was required to be paid on
      the
      first anniversary of the closing date and (ii) to issue an aggregate of 1.6
      million restricted shares of the Company’s common stock.





In
      April
      2006 and July 2006, the Company issued 1.47 million and 46,000 of the 1.6
      million shares of the Company’s common stock to be issued in connection with the
      acquisition of E&M. In March, 2007, the Company entered into an agreement
      with the former owners of E&M to further defer the remaining $200,000
      payment until September 2007. The fair value of the remaining shares was
      $274,798 and, along with the final $200,000 payment due to the former owners
      of
      E&M, is shown as “Stock Issuance and Other Amounts Payable to Former Owners
      of E&M” as of December 31, 2006. In February 2007, the Company issued 93,240
      common shares in satisfaction of the stock issuance payable.





The
      following tables summarize the estimated fair value of the assets acquired
      and
      liabilities assumed at the date of acquisition and the purchase price, in
      thousands:





Current
                assets
            
            $
            325Fixed
                assets
            
            
            147Intangible
                assets
            
            
            2,970Other
                long-term assets
            
            
            44Less:
                Current liabilities
            
            
            (329
            )Net
                assets acquired
            
            
            3,157Excess
                of purchase price over fair value: Goodwill
            
            
            2,359Total
                purchase price
            
            $
            5,516Purchase
                Price:Cash
                (including $200,000 payable in 2007)
            
            $
            800Common
                Stock (1,515,152 shares at $2.93/share)
            
            
            4,442Stock
                Issuance Payable (93,240 shares at $2.93/share)
            
            
            274Total
                purchase price
            
            $
            5,516







Of
      the
      $2.97 million of intangible assets acquired, $1,444,000 was allocated to a
      customer list, $24,000 was allocated to other intangible assets, and $1,502,000
      was allocated to trade names. The customer list and other intangible assets
      are
      amortized over five years. The trade names are not amortized, but are
      periodically reviewed for impairment in value.





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





57





For
                the Year Ended December 31,2006
            
            2005Revenues
            
            $
            6,780
            
            $
            10,346Operating
                loss
            
            $
            (9,128
            )
            $
            (1,627
            )Net
                loss
            
            $
            (10,199
            )
            $
            (2,022
            )Beneficial
                Conversion Feature of Series A Preferred
            
            
            (934
            )
            
            -Revaluation
                of Series A Preferred Stock - conversion price
                reduction
            
            
            (974
            )
            
            -Revaluation
                of Series A Preferred Stock - warrant exercise price
                reduction
            
            
            (935
            )
            
            -Net
                loss - Common Stockholders
            
            $
            (13,042
            )
            $
            (2,022
            )Loss
                per share - basic and diluted
            
            $
            (0.61
            )
            $
            (0.23
            )





**Note
      5. Inventory**





Inventory
      totaling $480,000 consists of finished goods as of December 31,
      2006.







**Note
      6. Fixed Assets**





Fixed
      assets consist of the following as of December 31, 2006:





Useful
                LifeFurniture
                and fixtures
            
            
            2-7
                years
            
            $
            139,825Computer
                and other equipment
            
            
            2-5
                years
            
            
            334,688Demo
                equipment
            
            
            3-4
                years
            
            
            72,224Kiosks
            
            
            5
                years
            
            
            412,379Other
            
            
            3-5
                years
            
            
            117,161Leased
                equipment
            
            
            4
                years
            
            
            3,8521,080,129Less:
                accumulated depreciation
            
            
            
            
            
            (454,814
            )Fixed
                assets, net
            
            
            
            
            
            625,315Acquired
                software
            
            
            5
                years
            
            
            977,199Less:
                accumulated amortization
            
            
            
            
            
            (293,160
            )Software,
                net
            
            
            
            
            
            684,039Total
                fixed assets, net
            
            
            
            
            $
            1,309,354





Total
      depreciation expense was $432,000 and $159,000 for the years ended December
      31,
      2006 and  2005, respectively.





**Note
      7. Goodwill**





Goodwill
      arose from the acquisition of E&M discussed in Note 4. It is not subject to
      amortization, but is periodically reviewed for impairment in value.








**Note
      8. Intangible Assets**





Intangible
      assets arose from the acquisition of E&M discussed in Note 4. A summary as
      of December 31, 2006, follows:




Useful
                LifeCustomer
                list
            
            
            5
                years
            
            $
            1,443,582Trade
                names
            
            
            Infinite
                Lived
            
            
            1,502,000Other
            
            
            5
                years
            
            
            24,0002,969,582Less:
                accumulated amortization
            
            
            
            
            
            (269,057
            )Intangible
                assets, net
            
            
            
            
            $
            2,700,525




58





Trade
      names are not subject to amortization, but are periodically reviewed for
      impairment in value.





Future
      amortization of intangible assets are as follows:





2007
            
            $
            293,5162008
            
            
            293,5162009
            
            
            293,5162010
            
            
            293,5162011
            
            
            24,460$
            1,198,524





Total
      amortization expense was $643,000 and $0 for the years ended December 31, 2006
      and 2005, respectively.








**Note
      9. Other Assets**





Other
      assets at December 31, 2006, consists primarily of an obligation by a funding
      placement agent to reimburse the Company for certain placement
      fees.





In
      February 2006, the Company purchased from Marlin Capital Partners II, LLC (doing
      business as InTransit Media) all of the assets used in InTransit Media’s digital
      advertising services business for $1,072,000, paid by $500,000 in cash and
      146,762 shares of common stock valued at $572,000. In its review of the
      impairment value of these assets, the net book value of which was $724,000,
      the
      Company determined that they were impaired in their entirety. As a result,
      they
      were written off in the year ended December 31, 2006.






**Note
      10. Note Payable - Related Parties**





Notes
      payable due to related parties as of December 31, 2006, are comprised of the
      following:





Related
                party agreement in which stockholder will receive a revenue share
                of
                $18,000 per year and an additional 5% of net ad revenues as it pertains
                to
                a specific airport project for a period of 3 years
            
            $
            150,000Accrued
                expenses to various stockholders, unsecured, bearing interest
            
            
            22,083Accrued
                interest on related party loans
            
            
            42,763Total
                due to related parties
            
            
            214,846Less:
                current portion of notes payable - related parties
            
            
            (64,846
            )Total
                long-term notes payable - related parties
            
            $
            150,000




**Note
      11. Lines of Credit**





On
      January 27, 2006, the Company entered into an agreement with Laurus Master
      Fund,
      Ltd. (“Laurus”) pursuant to which Laurus agreed to provide the Company with a
      revolving credit facility of up to $6 million (the “Facility”). The term of the
      Facility is three years and borrowings 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 (11.25% at December 31, 2006). Interest on
      borrowings under the Facility is payable monthly on the first day of each month,
      commencing on February 1, 2006. All outstanding principal amounts must be paid
      on January 27, 2009. The maximum principal amount of all borrowings under the
      Facility cannot exceed ninety percent (90%) of the Company’s eligible accounts
      receivable minus such reserves that Laurus may in good faith deem necessary
      and
      appropriate.





59





On
      January 27, 2006, the Company obtained an initial draw under the Facility of
      $2
      million, of which approximately $782,000 was used to satisfy bank loans in
      full.
      The draws under the Facility are used for general corporate and working capital
      purposes. As of December 31, 2006, the balance due to Laurus was $998,308.





In
      connection with the Facility, the Company paid Laurus approximately $248,000,
      comprised of a Facility management fee of $216,000 and reimbursement of $32,000
      in due diligence and documentation expenses. The Facility management fee is
      being amortized to interest expense over the three-year term of the Facility.
      The Company further issued to Laurus a seven-year warrant (“the Warrant”) valued
      at $1.6 million, entitling Laurus to purchase up to 750,000 shares of the
      Company’s common stock at an exercise price of $.01 per share, subject to
      certain adjustments. The value of the Warrant was recorded as deferred financing
      costs and is amortized as interest expense over the three-year term of the
      Facility.





The
      Company also paid a cash fee of $180,000 and issued three-year warrants valued
      at $443,000 to purchase 231,000 shares of common stock to GunnAllen Financial,
      Inc. for investment banking services. These fees were recorded as deferred
      financing costs amortized as interest expense over the three-year term of the
      Facility.





The
      total
      deferred financing costs were $2.47 million, of which $1.82 million remains
      to
      be amortized as of December 31, 2006.





Under
      the
      terms of the Facility, Laurus is restricted from selling any shares of common
      stock it receives through the exercise of the Warrant prior to January 27,
      2007.
      Additionally, Laurus agreed to certain restrictions to selling shares acquired
      through the exercise of the Warrant, except under certain circumstances,
      including the continuance of an event of default under the Facility.




The
      Facility is secured by a blanket lien on substantially all of the Company’s
      assets and those of its subsidiaries. In addition, the Company pledged the
      ownership interests in its subsidiaries pursuant to a stock pledge agreement
      executed in favor of Laurus. If an event of default occurs, Laurus has the
      right
      to accelerate payments under the Facility and, in addition to any other remedies
      available to Laurus, foreclose upon the assets securing the Facility. If an
      event of default occurs, one hundred twenty-five percent (125%) of the unpaid
      principal balance of the Facility, plus accrued interest and fees, will become
      immediately due and payable. Among other remedies, Laurus also will be entitled
      to payment of a default interest rate of two percent (2%) per month on all
      amounts due. The Facility also contains certain negative covenants that require
      the Company to obtain the prior written consent or other actions of Laurus
      in
      order for the Company to take certain actions at any time when borrowings remain
      outstanding.





Pursuant
      to the terms of the Facility, the Company was obligated to file a registration
      statement on Form SB-2 or S-3 to register the shares of common stock issuable
      upon exercise of the Warrant or as a result of adjustments made to the exercise
      price of the Warrant. The Company was required to file the registration
      statement in connection with the exercise of the Warrant on or prior to April
      15, 2006. During the second quarter of 2006, the Company issued 30,000 shares
      of
      common stock valued at $51,900, recorded as non-cash interest expense, to obtain
      a waiver from Laurus with respect to this requirement. The Company filed a
      registration statement on July 31, 2006, which was declared effective on October
      3, 2006. In the event of adjustments made to the exercise price of the Warrant,
      the Company is required to file an amended registration statement within 30
      days
      of such event.





As
      of
      December 31, 2006, the Company concludes that it is in compliance with all
      covenants of the Facility and that the lapse of its registration statement
      discussed in Note 12 does not constitute a breach of the
      Facility.





60





**Note
      12. Series A Preferred Stock**





During
      March 2006, the Company sold 2,903,229 shares of Series A Preferred
      Stock at a price of $1.55 per share for total gross proceeds of $4.5
      million. Further, the purchasers of the Series A Preferred Stock received
      three-year warrants to purchase 2,903,229 shares of common stock at $2.25 per
      share. The Company allocated $2.8 million of the $4.5 million gross
      proceeds to the Series A Preferred Stock and $1.7 million to the
      warrants, based on their relative fair values. The Company paid $589,500 in
      cash
      issuance costs and realized net cash proceeds of $3.9 million. In addition,
      five-year warrants to purchase 290,323 shares of common stock at $2.25 per
      share, valued at $903,000, were issued to a placement agent and 3-year warrants
      to purchase 145,162 shares of common stock at $2.25 per share, valued at
      $409,000, were issued to a second placement agent. The values of the warrants
      issued to the placement agents, which are an increase in additional paid-in
      capital, were recorded as a cost of the financing, which reduces additional
      paid-in capital.





In
      accordance with the provisions of EITF 98-5, *Accounting
      for Convertible Securities with Beneficial Conversion Features or Contingently
      Adjustable Conversion Ratios,* and EITF
      00-27, *Application
      of Issue No. 98-5 to Certain Convertible Instruments* ,
      the
      Company determined that there was a beneficial conversion feature of $934,000
      at
      the time the Series A Preferred Stock was sold due to the conversion price
      being less than the market price of the Company’s common stock. The calculation
      of this beneficial conversion feature follows (in thousands):





Gross
                proceeds allocated to the Series A Preferred Stock based on
                relative fair value (prior to the allocation of issuance
                costs)
            
            $
            2,836Shares
                of common stock into which the Series A Preferred Stock is
                convertible
            
            $
            2,903Effective
                conversion price per common share
            
            $
            0.98Closing
                price of common stock on transaction dates
            
            
            3.42Intrinsic
                value of beneficial conversion feature per share
            
            $
            2.44Shares
                of common stock into which the Series A Preferred Stock is
                convertible
            
            $
            2,903Aggregate
                value of the beneficial conversion feature, limited to proceeds allocated
                to preferred stock net of issuance costs
            
            $
            934





This
      beneficial conversion feature increases additional paid-in capital attributable
      to the holders of the Series A Preferred Stock and, at the same time,
      is considered to be a deemed dividend to those holders. Because the Company
      has
      an accumulated deficit, this dividend reduces additional paid-in capital rather
      than increases the accumulated deficit. This amount also increases net loss
      attributable to common stockholders.





The
      Series A 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 Series A Preferred Stock are payable in either cash or shares
      of common stock at the Company’s discretion, provided that the Company has an
      effective registration statement providing for the resale of the shares of
      its
      common stock that would be paid as a dividend.





In
      the
      event of the Company’s liquidation, dissolution or winding up, the holders of
      Series A Preferred Stock are generally entitled to receive a liquidation
      preference over the holders of common stock equal to $1.00 per share of
      Series A Preferred Stock held plus any declared but unpaid dividends.





The
      Series A Preferred Stock is convertible by the holder at any time and
      automatically converts to common stock three years from the date of issuance
      or
      in the event of an underwritten public offering of $20 million or more at a
      stock price of $4.00 or more. The Series A Preferred Stock is subject to
      mandatory conversion and mandatory redemption in certain circumstances, but
      only
      if the share price is higher than the conversion price. The Series A Preferred
      Stock is further subject to mandatory redemption in certain other circumstances.





61





The
      Company registered the Series A Preferred Stock in a Form SB-2 that went
      effective October 3, 2006. On December 13, 2006, the Company determined that
      the
      registration had lapsed and the Company was in violation of the Series A
      Preferred Stock Purchase agreement. As a result, the Series A Preferred
      Stock was determined to be subject to mandatory redemption into common shares.
      In addition, the holders of the Series A Preferred Stock became
      entitled to certain liquidated damages.





Effective
      March 23, 2007, the holders of the Series A Preferred Stock granted a
      waiver to the Company in consideration for a decrease in the conversion price
      of
      the Series A Preferred Stock from $1.55 to $1.00 and a reduction in the
      warrant exercise price from $2.25 to $0.01. This waiver also extended the time
      period the Company has in order to file another registration statement and
      have
      it declared effective by the SEC.





In
      return
      for the consideration described above, the holders of the Series
      A Preferred Stock:





**•** Waived
      their right to receive convertible preferred stock as a one-time dividend to
      holders of the stock in the event of the Company’s failure to achieve aggregate
      gross revenues of $50,000,000 or more during the four (4) calendar quarters
      commencing on April 1, 2006, and ending on March 31, 2007;





• Waived
      any and all breaches and the right to receive liquidated damages and redemption
      rights related to the Company’s failure to obtain an effective registration
      statement as mandated by the original registration rights agreement that was
      executed in connection with the issuance of the Series A Preferred Stock;





• Agreed
      to
      a reduction in the Series A Preferred Stock redemption price from 200% of the
      liquidation preference amount to 100% of such amount; and





• Waived
      their right to any dividends with respect to the Series A Preferred Stock up
      to
      and including accruals through March 2, 2007, but will be entitled to dividends
      thereafter.





As
      a
      result of the reduction in the conversion price, the holders of the Series
      A
      Preferred Stock can convert the preferred shares into an additional 1,596,775
      shares. The value related to the reduction in the conversion price was
      determined to be $974,033.





The
      value
      of the reduction of the exercise price of the warrants was determined to be
      $934,856. This incremental value is measured as the difference between (a)
      the
      fair value of the modified warrant and (b) the value of the old warrant
      immediately before the terms were modified, determined based on the remaining
      expected life of the warrant.





The
      values of the reductions of the Series A Preferred Stock conversion price and
      the exercise price of the warrants increase additional paid-in capital
      attributable to the holders of the Series A Preferred Stock and, at the same
      time, are considered to be deemed dividends to those holders. As with the
      beneficial conversion feature, because the Company has an accumulated deficit,
      these dividends reduce additional paid-in capital rather than increase the
      accumulated deficit. These amounts also increase net loss attributable to common
      stockholders.




The
      Company has reviewed its Series A Preferred Stock in accordance with SFAS 150, *Accounting
      for Certain Financial Instruments with Characteristics of both Liabilities
      and
      Equity,* and
      has
      determined that such shares are properly classified in Stockholders’ Equity as
      of December 31, 2006.




62




Note
      13. Share-Based
      Payments




***Stock
      Option Plans***





As
      discussed in Note 3, the Company made share-based payments in the form
      of:





·
            Incentive
                stock options (“ISOs”) under its 2006 Equity Incentive Plan (“the Plan”),
                to employees, directors, and
                others;


·
            Other
                stock options and stock purchase warrants, to non-employees;
                and


·
            Issuances
                of common stock to employees and
                others.





These
      payments are recorded in the financial statements as follows, for the years
      ended December 31 (in thousands):





63





Recorded
                in Balance Sheets (other than asset purchases and
                acquisitions):Paid
                to
            
            Recorded
                as
            
            2006
            
            2005Other
                stock options and warrantsLaurus
            
            
            Deferred
                financing costs
            
            $
            2,045
            
            $
            -Total
                other stock options and warrants
            
            2,045
            
            
            -Issuances
                of common stockEmployees
            
            
            Payment
                of accrued compensation
            
            
            -
            
            
            268Related
                parties
            
            
            Payment
                amounts owed
            
            
            -
            
            
            6Other
                parties
            
            
            Payment
                of convertible loan
            
            
            -
            
            
            11Other
                parties
            
            
            Payment
                of other liability
            
            
            -
            
            
            48Senior
                executives
            
            
            Repayment
                of debt less wages and salaries and interest
            
            
            1,875
            
            
            -Consultants
            
            
            Prepaid
                expense
            
            
            2,001
            
            
            -Total
                issuances of common stock
            
            
            
            
            
            3,876
            
            
            333Total
                share-based payments recorded in Balance Sheets
            $
            5,921
            
            $
            333Recorded
                in Statements of Operations:





Paid
                to
            
            Recorded
                as
            
            2006
            
            2005Incentive
                stock optionsEmployees
                and directors
            
            
            Wages
                and salaries
            
            $
            440
            
            $
            192Total
                incentive stock options
            
            
            
            
            
            440
            
            
            192Other
                stock options and warrantsConsultants
            
            
            General
                and administrative
            
            
            125
            
            
            96Bridge
                lenders
            
            
            Interest
            
            
            206
            
            
            128Laurus
            
            
            Interest
                (amortization of deferred financing costs)
            
            
            539
            
            
            -Total
                other stock options and warrants
            
            870
            
            
            224Issuances
                of common stockConsultants
            
            
            General
                and administrative (amortization of prepaid expense)
            
            
            1,584
            
            
            -Instituional
                investor
            
            
            General
                and administrative (settle legal dispute)
            
            
            268
            
            
            -Senior
                executives
            
            
            Wages
                and salaries
            
            
            356
            
            
            275Senior
                executives
            
            
            Interest
            
            
            40
            
            
            -Laurus
            
            
            Interest
                (extended filing date)
            
            
            52
            
            
            -Total
                issuances of common stock
            
            
            
            
            
            2,300
            
            
            275Total
                share-based payments recorded in Statements of Operations
            $
            3,610
            
            $
            691




64





***Incentive
      Stock Options***





Options
      were granted during 2006 and 2005 under the Plan at exercise prices ranging
      from
      $.70 to $1.10 as follows:





Shares
                Available for Grant
            
            Options
                Outstanding
            
            Weighted
                Average Exercise PriceBalance,
                January 1, 2005
            
            
            -
            
            
            -
            
            $
            -Plan
                adoption
            
            
            2,000,000
            
            
            -
            
            
            -Granted
            
            
            (705,000
            )
            
            705,000
            
            
            0.73Exercised
            
            
            -
            
            
            -
            
            
            -Forfeited
            
            
            -
            
            
            -
            
            
            -Expired
            
            
            -
            
            
            -
            
            
            -Balance,
                December 31, 2005
            
            
            1,295,000
            
            
            705,000
            
            
            0.73Granted
            
            
            (1,255,000
            )
            
            1,255,000
            
            
            1.10Exercised
            
            
            -
            
            
            -
            
            
            -Forfeited
            
            
            _
            
            
            (19,583
            )
            
            1.00Expired
            
            
            -
            
            
            (29,167
            )
            
            0.87Balance
                at December 31, 2006
            
            
            40,000
            
            
            1,911,250
            
            
            0.97Options
                exercisable as of December 31, 2006
            
            
            
            
            
            670,612
            
            $
            0.84





At
      December 31, 2006, the weighted average remaining contractual lives of
      outstanding and exercisable options is 7.5 years and 5.3 years, respectively.
      As
      of December 31, 2006, the market price of the Company’s common stock was less
      than the exercise price on all outstanding options. Therefore, such options
      had
      no intrinsic value at that date.





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





2006
            
            2005Expected
                life in years
            
            
            5.0
            
            
            2.5Volatility
            
            
            141
            %
            
            256
            %Interest
                rate
            
            
            4.8
            %
            
            4.35
            %Yield
                rate
            
            
            0
            %
            
            0
            %







Of
      the
      1,255,000 options granted in 2006, 825,000 were issued to directors and
      officers.





A
      summary
      of the Company’s unvested stock grants and changes during the years ended
      December 31, 2006 and 2005, is as follows:





Shares
            
            Weighted
                Average Grant Date Fair ValueOutstanding
                at January 1, 2005
            
            
            -
            
            $
            -Granted
                during 2005
            
            
            705,000
            
            
            0.73Vested
                during 2005, and other changes
            
            
            (235,000
            )Unvested
                at December 31, 2005
            
            
            470,000
            
            
            0.73Granted
                during 2006
            
            
            1,255,000
            
            
            1.10Vested
                during 2006, and other changes
            
            
            (484,362
            )Unvested
                at December 31, 2006
            
            
            1,240,638
            
            $
            1.04




65





As
      of
      December 31, 2006, the Company has $1.2 million of total unrecognized
      compensation cost related to unvested stock options and unvested stock grants,
      which is expected to be recognized over a weighted average period of 1.3
      years.





***Warrants***





Warrants
      to purchase common stock were issued in 2006 and in 2005 as
      follows:





Warrants
                Outstanding
            
            Weighted
                Average Exercise PriceBalance,
                January 1, 2005
            
            
            -
            
            $
            -Assumed
                in Impart, Inc. transaction
            
            
            4,000
            
            
            5.00Granted
            
            
            443,566
            
            
            0.91Exercised
            
            
            -
            
            
            -Forfeited
            
            
            -
            
            
            -Expired
            
            
            -
            
            
            -Balance,
                December 31, 2005
            
            
            447,566
            
            
            0.95Granted:Series
                A Preferred Stock transaction
            
            
            3,338,714
            
            
            1.64Laurus
                revolving line of credit
            
            
            981,000
            
            
            0.48Other
            
            
            643,164
            
            
            1.67Exercised
            
            
            (113,750
            )
            
            0.20Forfeited
            
            
            -
            
            
            -Expired
            
            
            (58,500
            )
            
            5.00Other
                adjustments
            
            
            (2,500
            )
            
            -Balance,
                December 31, 2006
            
            
            5,235,694
            
            
            1.44Warrants
                exercisable as of December 31, 2006
            
            
            4,985,694
            
            $
            1.44





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





Expected
                life in years
            
            
            2
                yrsVolatility
            
            
            139%Interest
                rate
            
            
            4.7%Yield
                rate
            
            
            0%





***Issuances
      of Common Stock***





During
      2006, the Company issued 1,744,000 shares of common stock pursuant to seven
      consulting agreements. The shares had a fair value of $2.0 million and were
      recorded as prepaid expenses, of which $1.6 million was recognized as non-cash
      general and administrative expenses in the year ended December 31,
      2006.




During
      2006, the Company issued 2.4 million shares of common stock to related parties
      in satisfaction of outstanding notes payable totaling $2.0 million, related
      accrued interest totaling approximately $40,000 and accrued wages and salaries
      expense totaling approximately $356,000 for an aggregate total of $2.4 million.
      These shares had a fair value of $2.3 million. The difference of $106,000 has
      been recorded as a gain on extinguishment of notes payable.





In
      March
      2006, the Company issued 141,000 shares of common stock to an institutional
      investor in full satisfaction of amounts such investor claimed were due under
      a
      convertible debenture, dated February 17, 2004. These shares had a fair value
      of
      $267,900 and were recorded as non-cash general and administrative
      expense.





66





As
      discussed in Note 11, in July 2006, the Company issued 30,000 shares of common
      stock, valued at $51,900, to Laurus in exchange for Laurus agreeing to extend
      a
      filing due date. This value was recorded as non-cash interest
      expense.





**Note
      14. Sale of Common Stock and Warrants**





In
      the
      year ended December 31, 2006, the Company issued 927,151 shares in private
      placements pursuant to common stock purchase agreements. The common stock was
      sold at prices ranging from $0.75 to $2.48 per share. In connection with these
      common stock sales, the Company issued warrants to purchase an aggregate of
      221,613 shares of common stock at an exercise price ranging from $1.50 to $3.18
      per share. The warrants vest immediately and expire at varying dates in 2009.
      The Company received approximately $990,000 in connection with these sales
      and
      issuance of common stock and the related warrants. The Company allocated
      $836,700 of the $990,000 gross proceeds to common shares sold and $153,300
      to
      the warrants, based on their relative fair value.




**Note
      15. Income Taxes**





The
      Company has not recorded income tax expense or benefit for the years ended
      December 31, 2006 and 2005. At December 31, 2006, the Company has net
      operating loss carryforwards of approximately $20.2 million for federal tax
      purposes. Such losses may not be fully deductible due to the significant amounts
      of non-cash service costs and the change in ownership rules under Section 382
      of
      the Internal Revenue Code. The federal net operating loss carryforwards expire
      between 2018 and 2026. At December 31, 2006, deferred income tax balances
      and the related valuation allowance are as follows:





Deferred
                income tax assets resulting from:Net
                operating loss carryforwards
            
            $
            6,869,000Unearned
                stock compensation
            
            
            652,000Other
            
            
            246,000Total
            
            
            7,767,000Less:
                valuation allowance
            
            
            (7,767,000
            )Deferred
                tax asset, net
            
            $
            -





A
      full
      valuation allowance has been established for deferred income tax assets, as
      it
      is more likely than not that the deferred tax assets will not be realized.





A
      reconciliation between the federal income tax rate (34%) and the effective
      rate
      of income tax expense for the years ended December 31, follows:





2006
            
            2005Tax
                (benefit) at statutory tax rate
            
            $
            (3,433,000
            )
            $
            (823,000
            )Amounts
                passed directly to stockholders
            
            
            -
            
            
            47,000Net
                operationg loss received in merger
            
            
            -
            
            
            (3,558,000
            )Increase
                in valuation allowance
            
            
            3,433,000
            
            
            4,334,000Tax
                expense (benefit)
            
            $
            -
            
            $
            -




67





**Note
      16. Capital Lease Obligations**





The
      Company is obligated under two capital leases for equipment with a cost of
      $122,000 and accumulated depreciation of $36,600 at December 31, 2006.
      Amortization of the equipment is included with depreciation expense. The capital
      lease obligations require a minimum lease payment of approximately $4,800 per
      month with an interest rate of approximately 8.3%. Future minimum lease
      payments, including interest, are as follows:





2007
            
            $
            46,1222008
            
            
            48,1332009
            
            
            26,661120,916Less:
                current portion
            
            
            46,122Capital
                lease obligations - long-term portion
            
            $
            74,794




**Note
      17. Commitments and Contingencies**





**Leased
      Facilities**





The
      Company utilizes leased facilities under a noncancellable-operating lease.
      The
      lease calls for a base monthly rent of $17,000 through November 30, 2018. Total
      rent expense for this operating lease was $200,000 for both of the years ended
      December 31, 2006 and 2005. Certain officers, directors and stockholders are
      owners of the company that owns the facility.





The
      Company leases office facilities for IMA under an operating lease, which was
      extended through June 2011. Rental expense for this lease was approximately
      $205,000 for the year ended December 31, 2006. The Company also has various
      non-cancelable operating leases for automobiles and equipment that expire at
      various dates through 2008.





Total
      rent expense for the years ended December 31, 2006 and 2005, was $422,000 and
      $215,000, respectively.





Future
      minimum rental payments for the leased facilities as of December 31, 2006,
      are
      as follows:





2007
            
            $
            429,7252008
            
            
            434,2572009
            
            
            438,8802010
            
            
            443,5952011
            
            
            304,139Thereafter
            
            
            1,421,784$
            3,472,380





**Note
      18. Employment Agreements**





The
      Company entered into employment agreements with the following executives for
      a
      term of three years from June 30, 2005, subject to termination provisions.
      Each
      receives an annual base salary of $120,000, plus benefits.





Joseph
      Martinez - Chairman of the Board, Chief Executive Officer


Laird
      Laabs - Chief Marketing Officer


Thomas
      Muniz - President, Chief Operating Officer


Steven
      Corey - Chief Strategy Officer





68





On
      February 28, 2006, the Company entered into an employment agreement with Michael
      Medico, the Company’s Executive Vice President and President of the Company’s
      IMA division, for a term beginning February 28, 2006, and expiring on December
      31, 2008, subject to termination provisions. He will receive an annual base
      salary of $125,000, plus benefits, sales commissions, and yearly bonus based
      on
      the division’s performance.





On
      September 6, 2006, the Company entered into an employment agreement with Todd
      Weaver, the Company’s Chief Technology Officer, for a term of three years from
      September 1, 2006, subject to termination provisions. He will receive an annual
      base salary of $120,000, plus benefits.





**Note
      19. Related Party Transactions**





See
      Note
      4 regarding the extension of the due date for amounts owing to the former owners
      of E&M, one of whom is the Company’s current president of the IMA
      division.





See
      Note
      10 for notes payable to related parties.





See
      Note
      13 regarding stock option grants issued to certain senior executives, directors,
      and stockholders.





See
      Note
      17 regarding facilities leased from certain officers, directors, and
      stockholders.





See
      Note
      20 pertaining to a subsequent event where the Company’s Board of Directors
      approved additional 2007 compensation to a certain director, officer, and
      stockholder.




**Note
      20. Subsequent Events**





As
      reported in the Company’s Form 8-K dated January 22, 2007, the Company’s Board
      of Directors approved an amendment to the Plan increasing the number of common
      shares available for awards from 2,000,000 shares to 5,000,000
      shares.





In
      January 2007, the Company granted 2,182,500 incentive stock options to employees
      under the Plan.





In
      January 2007, the Company issued an aggregate of 100,000 common shares in
      payment for an agreement for consulting services entered into in November 2006.
      The value of the shares ($155,000) was recorded in 2006 as a prepaid expense
      and
      stock issuance payable.





In
      February 2006, the Company was assigned by Marlin Capital Partners II, LLC,
      an
      agreement (the “PATH Contract”), dated as of December 2, 2002, between Black
      Experience, Inc., BX Media Group, Inc. and Port-Authority Trans-Hudson
      Corporation (“PATH”), as amended, pursuant to which the Company obtained the
      rights to provide PATH with certain advertising and marketing services in
      connection with its PATHVision system. Effective February 2007, the Company
      and
      PATH mutually agreed to terminate the PATH Contract.





In
      February 2007, the Company issued an aggregate of 27,000 common shares to a
      consultant in payment for services to be rendered.





In
      February 2007, the Company’s Board of Directors approved a resolution
      granting the Company’s Chairman of the Board and Chief Executive Officer future
      compensation representing the approximate additional personal tax liability
      he
      incurred resulting from the issuance of restricted common stock to him as
      compensation in 2006. The approximate amount of this future compensation is
      $225,000.





69




As
      reported in the Company’s Form 8-K dated March 28, 2007, the Company determined
      that the values assigned to the E&M purchase price, the amounts allocated to
      intangible assets, the related amortization expenses, and accounting
      classifications were in error. As a result, the Company intends to file amended
      quarterly reports on Form 10-QSB/A for the quarters ended September 30,
      June 30 and March 31, 2006. See Note 4 for details.




As
      reported in the Company’s Form 8-K dated March 28, 2007, the Board of Directors
      and holders of the Series A Shares approved a waiver related to such stock.
      See
      Note 12 for details.





In
      March
      2007, the Company has received notice of a possible lawsuit against
      it by a former employee and consultant of the Company. The notice alleges
      breach of contract and wrongful termination, among other claims, and seeks
      recovery of $108,000. Since The Company has not had the opportunity to evaluate
      the merits of the claims and cannot presently determine if it will result in
      liability to the company.






**ITEM
                8.**
            **CHANGES
                IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                DISCLOSURE**





None.







**ITEM
                8A.**
            **CONTROLS
                AND PROCEDURES**




**Disclosure
        Controls and Procedures.** ****Our company’s management, with the participation of our chief executive
        officer/chief financial officer, has 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 Act) as of December 31, 2006, the end of the period
        covered by this Report. Based on such evaluation, our chief executive
        officer/chief financial officer has concluded that, as of December 31, 2006,
        our
        disclosure controls and procedures were effective in recording, processing,
        summarizing and reporting, on a timely basis, information required to be
        disclosed by our company in the reports that we file or submit under the
        Act.
 
 As
        we
        previously indicated in
        our
        Quarterly Report for the period ended March 31, 2006, our chief executive
        officer/chief financial officer concluded that, as of March 31, 2006, our
        disclosure controls and procedures were not effective. Upon reaching such
        conclusions, our management took measures to improve the effectiveness of
        our
        disclosure controls and procedures and concluded that, as of June 30, 2006
        and
        September 30, 2006, our disclosure controls and procedures were effective
        (aswe
        previously indicated in our Quarterly Reports for the periods ended June
        30,
        2006 and September 30, 2006).
 
 Our
        management is committed to maintaining the effectiveness of our disclosure
        controls and procedures. To that end, in the first quarter of 2007, we
        established a formal disclosure committee and adopted a disclosure committee
        charter for the purpose of further ensuring that information is
        communicated to our management and recorded, processed, summarized and reported
        on a timely basis.
 Our
          independent registered public accountants previously advised us that they
          found
          material weaknesses in our disclosure controls and procedures and internal
          controls during the calendar quarter ended March 31, 2006, and these findings
          led to our conclusion, discussed above, that our disclosure controls and
          procedures were not effective at that time. They have advised us that they
          expect to issue a letter to us stating that there were material weaknesses
          and
          significant deficiencies in our internal controls during the year ended
          December
          31, 2006. Their letter will note improvements in our internal controls
          during
          the year, but will conclude that some of the significant deficiencies were
          still
          present at the end of the year and in the first calendar quarter of
          2007.


**Internal
      Control Over Financial Reporting.** There
      have not been any changes in our internal control over financial reporting
      (as
      such term is defined in Rules 13a-15(f) and 15d-15(f) under the Act) during
      the
      fourth quarter of 2006 that have materially affected, or are reasonably likely
      to materially affect, our internal control over financial reporting.





**ITEM
                8B.**
            **OTHER
                INFORMATION**


Effective
        April 1, 2007, we appointed J. Scott Campbell as our new Chief Creative
        Officer.  Certain biographical information regarding Mr. Campbell is
        set forth below:


Name
            
            Age
            
            Business
              Experience During the Past Five YearsJ. Scott Campbell
            
            47
            
            Mr.
                Campbell has served as our Chief Creative Officer since April 2007. 
                From September 2005 until April 2007, Mr. Campbell served as our
                Vice
                President of Creative and Product Design. From 2001 until he joined
                our
                company in 2005, Mr. Campbell served as President of Springbrain
                Inc., a maker of customized office furniture
                systems.


We
        do not
        have a written employment agreement with Mr. Campbell. Under the terms of
        his
        employment arrangement, he receives an annual salary of $100,000 and is eligible
        to receive additional equity and non-equity compensation.
  70




**PART
      III**





**ITEM
                9.**
            **DIRECTORS,
                EXECUTIVE OFFICERS PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
                SECTION
                16(a) OF THE EXCHANGE ACT**





The
      information required by this Item is incorporated by reference to the Company’s
      Definitive Proxy Statement for its annual meeting of stockholders expected
      to be
      held on June 14, 2007.








**ITEM
                10.**
            **EXECUTIVE
                COMPENSATION**





The
      information required by this Item is incorporated by reference to the Company’s
      Definitive Proxy Statement for its annual meeting of stockholders expected
      to be
      held on June 14, 2007.








**ITEM
                11.**
            **SECURITY
                OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
                STOCKHOLDER MATTERS**





The
      information required by this Item is incorporated by reference to the Company’s
      Definitive Proxy Statement for its annual meeting of stockholders expected
      to be
      held on June 14, 2007.








**ITEM
                12.**
            **CERTAIN
                RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE**





The
      information required by this Item is incorporated by reference to the Company’s
      Definitive Proxy Statement for its annual meeting of stockholders expected
      to be
      held on June 14, 2007.








**ITEM
                13.**
            **EXHIBITS**





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


71




**ITEM
                14.**
            **PRINCIPAL
                ACCOUNTANT FEES AND
                SERVICES**





The
      information required by this Item is incorporated by reference to the Company’s
      Definitive Proxy Statement for its annual meeting of stockholders expected
      to be
      held on June 14, 2007.


72


**SIGNATURES**





In
      accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
      the
      registrant has duly caused this report to be signed on its behalf by the
      undersigned, thereunto duly authorized.





Dated:
                April 9, 2007
            
            Impart
                Media Group, Inc.By:
                /s/ Joseph MartinezJoseph
                MartinezChief
                Executive Officer








In
      accordance with the Securities Exchange Act of 1934, this report has been signed
      below by the following persons on behalf of the registrant and in the capacities
      and on the dates indicated.





Signature/Date
            
            Title/s/
                Joseph
                Martinez
            
            Chief
                Executive Officer (principal executive officer),Joseph
                Martinez
            
            Chief
                Financial
                Officer (principal accounting officer)April
                9, 2007
            
            and
                Chairman of
                the Board of Directors/s/
                Laird
                Laabs
            
            DirectorLaird
                LaabsApril 9,
                2007/s/Joachim
                Kempin
            
            DirectorJoachim
                KempinApril 9,
                2007


73




/s/Larry
                Calkins
            
            DirectorLarry
                CalkinsApril
                9, 2007/s/Ron
                Elgin
            
            DirectorRon
                ElginApril
                9, 2007


74


**EXHIBIT
      INDEX**








**Exhibit**
              **Number**
            
            **Exhibit
                Title**2.1
            
            Agreement
                and Plan of Merger, dated as of June 30, 2005, by and among our company,
                Limelight Merger II Corp. and IMPART, Inc.(incorporated
                by reference to Exhibit 2.1 to our Current Report on Form 8-K, dated
                June
                30, 2005, as filed with the Commission on July 7,
                2005).2.2
            
            Asset
                PurchaseAgreement,
                dated as of February 28, 2006, by and among our company, Impart Media
                Advertising, Inc., E&M Advertising, Inc., E&M West/Camelot Media,
                Inc. and NextReflex, Inc(incorporated
                by reference to Exhibit 2.1 to our Current Report on Form 8-K, dated
                February 28, 2006, as filed with the Commission on March 6,
                2006).3.1
            
            Articles
                of Incorporation dated as of May 17, 1996 (incorporated by reference
                to
                Exhibit 3.1 to our Current Report on Form 8-K, as filed with the
                Commission on October 27, 2000).3.2
            
            Certificate
                of Amendment to Articles of Incorporation dated as of October 3,
                2002
                (incorporated by reference to Exhibit 3.2 to our Current Report on
                Form
                8-K, dated October 2, 2002, as filed with the Commission on October
                7,
                2002).3.3
            
            Certificate
                of Amendment to Articles of Incorporation dated as of February 29,
                2004
                (incorporated by reference to Exhibit 3.3 to our Annual Report on
                Form
                10-KSB for our fiscal year ended December 31, 2004).3.4
            
            Certificate
                of Amendment to Articles of Incorporation dated as of January 6,
                2005
                (incorporated by reference to Exhibit 3.4 to our Annual Report on
                Form
                10-KSB for our fiscal year ended December 31, 2004).3.5
            
            Certificate
                of Amendment to our Articles of Incorporation dated December 22,
                2005
                (incorporated by reference to Exhibit 3.1 to our Current Report on
                Form
                8-K, dated December 22, 2005, as filed with the Commission on December
                22,
                2005).3.6
            
            Certificate
                of Designation of the Relative Rights and Preferences of the Series
                A
                Convertible Preferred Stock (incorporated by reference to Exhibit
                3.1 to
                our Current Report on Form 8-K, dated March 3, 2006, as filed with
                the
                Commission on March 7, 2006).




75


3.7
            
            By-laws
                (incorporated by reference to Exhibit 3.1 to our Current Report on
                Form
                8-K, dated September 28, 2005, as filed with the Commission on January
                6,
                2006).3.8
            
            Certificate
                of Amendment to Certificate of Designation of the Relative Rights
                and
                Preferences of the Series A Convertible Preferred Stock of Impart
                Media
                Group, Inc., dated as of March 26, 2007 (incorporated by reference
                to
                Exhibit 3.1 to our Form 8-K, dated March 22, 2007, as filed with
                the
                Commission on March 28, 2007).4.1
            
            Impart
                Media Group, Inc. 2006 Equity Incentive Plan, dated as of March 1,
                2006
                (incorporated by reference to Exhibit 10.29 to our Annual Report
                on Form
                10-KSB for our fiscal year ended December 31, 2005, as filed with
                the
                Commission on April 17, 2006).4.2
            
            Amendment
                No. 1 toImpart
                Media Group, Inc. 2006 Equity Incentive Plan, dated as of December
                29,
                2006 (incorporated by reference to Exhibit 10.2 to our Registration
                Statement on Form S-8, dated as of January 22, 2007, as filed with
                the
                Commission on January 22, 2007).10.1
            
            Registration
                Rights Agreement, dated as of June 30, 2005, among our company and
                the
                other signatory parties thereto (incorporated
                by reference to Exhibit 10.1 to our Current Report on Form 8-K, dated
                June
                30, 2005, as filed with the Commission on July 7,
                2005).10.2
            
            Lock
                Up Agreement, dated as of June 30, 2005, among our company and Laird
                Laabs, Steven Corey, Steven Boscacci, Shane Bumbalo and Stretton
                Brown
                (incorporated by reference to Exhibit 10.2 to our Current Report
                on Form
                8-K, dated June 30, 2005, as filed with the Commission on July 7,
                2005).10.3
            
            Employment
                Agreement, dated as of June 30, 2005, between our company and Laird
                Laabs(incorporated
                by reference to Exhibit 10.5 to our Current Report on Form 8-K, dated
                June
                30, 2005, as filed with the Commission on July 7,
                2005).10.4
            
            Employment
                Agreement, dated as of June 30, 2005, by and between our company
                and
                Joseph Martinez(incorporated
                by reference to Exhibit 10.6 to our Current Report on Form 8-K, dated
                June
                30, 2005, as filed with the Commission on July 7,
                2005).10.5
            
            Employment
                Agreement, dated as of June 30, 2005, by and between our company
                and
                Steven Corey (incorporated by reference to Exhibit 10.7 to our Current
                Report on Form 8-K, dated June 30, 2005, as filed with the Commission
                on
                July 7, 2005).




76


10.6
            
            Employment
                Agreement, dated as of June 30, 2005, by and between our company
                and
                Thomas Muniz (incorporated by reference to Exhibit 10.8 to our Current
                Report on Form 8-K, dated June 30, 2005, as filed with the Commission
                on
                July 7, 2005).10.7
            
            Warrant,
                dated June 30, 2005, by our company in favor of Philip Worack
                (incorporated by reference to Exhibit 10.9 to our Current Report
                on Form
                8-K, dated June 30, 2005, as filed with the Commission on July 7,
                2005).10.8
            
            Warrant,
                dated June 30, 2005, by our company in favor of Kirk Krajewski
                (incorporated by reference to Exhibit 10.10 to our Current Report
                on Form
                8-K, dated June 30, 2005, as filed with the Commission on July 7,
                2005).10.9
            
            Security
                Agreement, dated as of January 27, 2006, executed by company and
                Impart,
                Inc. in favor of Laurus Master Fund, Ltd. (incorporated by reference
                to
                Exhibit 10.1 to our Current Report on Form 8-K, dated January 27,
                2006, as
                filed with the Commission on February 1, 2006).10.10
            
            Secured
                Non-Convertible Revolving Note, dated as of January 27, 2006, executed
                by
                our company in favor of Laurus Master Fund, Ltd. (incorporated by
                reference to Exhibit 10.2 to our Current Report on Form 8-K, dated
                January
                27, 2006, as filed with the Commission on February 1,
                2006).10.11
            
            Stock
                Pledge Agreement, dated as of January 27, 2006, executed by our company
                in
                favor of Laurus Master Fund, Ltd. (incorporated by reference to Exhibit
                10.3 to our Current Report on Form 8-K, dated January 27, 2006, as
                filed
                with the Commission on February 1, 2006).10.12
            
            Subsidiary
                Guaranty, dated as of January 27, 2006, executed by IMPART, Inc.
                (incorporated by reference to Exhibit 10.4 to our Current Report
                on Form
                8-K, dated January 27, 2006, as filed with the Commission on February
                1,
                2006).10.13
            
            Registration
                Rights Agreement, dated as of January 27, 2006, between our company
                and
                Laurus Master Fund, Ltd. (incorporated by reference to Exhibit 10.5
                to our
                Current Report on Form 8-K, dated January 27, 2006, as filed with
                the
                Commission on February 1,
                2006).




77


10.14
            
            Common
                Stock Purchase Warrant, dated as of January 27, 2006, between our
                company
                and Laurus Master Fund, Ltd. (incorporated by reference to Exhibit
                10.6 to
                our Current Report on Form 8-K, dated January 27, 2006, as filed
                with the
                Commission on February 1, 2006).10.15
            
            Asset
                Purchase Agreement, dated as of February 6, 2006, between our company
                and
                Marlin Capital Partners II, LLC (incorporated by reference to Exhibit
                10.1
                to our Current Report on Form 8-K, datedFebruary
                6, 2006, as filed with the Commission on February 7, 2006).10.16
            
            Registration
                Rights Agreement, dated as of February 3, 2006, between our company
                and
                Marlin Capital Partners II, LLC(incorporated
                by reference to Exhibit 10.2 to our Current Report on Form 8-K, dated
                February 6, 2006, as filed with the Commission on February 7,
                2006).10.17
            
            Employment
                Agreement, dated as of February 28, 2006, between our company and
                Michael
                Medico (incorporated by reference to Exhibit 10.1 to our Current
                Report on
                Form 8-K, dated February 28, 2006, as filed with the Commission on
                March
                6, 2006).10.18
            
            Securities
                A Convertible Preferred Stock Purchase Agreement, dated as of March
                3,
                2006, among our company and the purchasers listed therein (incorporated
                by
                reference to Exhibit 10.1 to our Current Report on Form 8-K, dated
                March
                3, 2006, as filed with the Commission on March 7,
                2006).10.19
            
            Registration
                Rights Agreement, dated as of March 3, 2006, between our company
                and the
                purchasers listed therein (incorporated by reference to Exhibit 10.2
                to
                our Current Report on Form 8-K, dated March 3, 2006, as filed with
                the
                Commission on March 7, 2006).10.20
            
            Form
                of Warrant Certificate (incorporated by reference to Exhibit 10.3
                to our
                Current Report on Form 8-K, dated March 3, 2006, as filed with the
                Commission on March 7, 2006).10.21
            
            Form
                of Unsecured Promissory Note (incorporated by reference to Exhibit
                10.22
                to our Annual Report on Form 10-KSB for our fiscal year ended December
                31,
                2005, as filed with the Commission on April 17, 2006).




78


10.22
            
            Form
                of Warrant Certificate (incorporated by reference to Exhibit 10.23
                to our
                Annual Report on Form 10-KSB for our fiscal year ended December 31,
                2005,
                as filed with the Commission on April 17, 2006).10.23
            
            Form
                of Warrant Certificate to purchase shares of common stock (incorporated
                by
                reference to Exhibit 10.24 to our Annual Report on Form 10-KSB for
                our
                fiscal year ended December 31, 2005, as filed with the Commission
                on April
                17, 2006).10.24
            
            Absolute
                Net Lease, dated June 24, 1998 between 1300 North Northlake Way,
                LLC and
                Impart, Inc. (incorporated by reference to Exhibit 10.25 to our Annual
                Report on Form 10-KSB for our fiscal year ended December 31, 2005,
                as
                filed with the Commission on April 17, 2006).10.25
            
            Agreement
                of Lease, dated January 29, 1999, between S.I.K. Associates c/o Kaufman
                Management Company, LLC and E&M Advertising, Inc. (incorporated by
                reference to Exhibit 10.26 to our Annual Report on Form 10-KSB for
                our
                fiscal year ended December 31, 2005, as filed with the Commission
                on April
                17, 2006).10.26
            
            Extension
                of Lease Agreement, dated March 30, 2004 between S.I.K. Associates
                c/o
                Kaufman Management Company, LLC and E&M Advertising, Inc.
                (incorporated by reference to Exhibit 10.21 to our Annual Report
                on Form
                10-KSB for our fiscal year ended December 31, 2005, as filed with
                the
                Commission on April 17, 2006).10.27
            
            Joinder
                Agreement, dated as of February 9, 2006, executed by Impart Media
                Advertising, Inc. and our company in favor of Laurus Master Fund,
                Ltd.
                (incorporated by reference to Exhibit 10.28 to our Annual Report
                on Form
                10-KSB for our fiscal year ended December 31, 2005, as filed with
                the
                Commission on April 17, 2006).10.28
            
            Form
                of Common Stock Purchase Agreement (incorporated by reference to
                Exhibit
                10.29 to our Registration Statement on Form SB-2, as filed with the
                Commission on August 1, 2006).10.29
            
            Amendment
                No. 1 and Waiver to the Registration Rights Agreement between Impart
                Media
                Group, Inc. and Laurus Master Fund, Ltd., dated as of June 12, 2006
                (incorporated by reference to Exhibit 10.30 to our Registration Statement
                on Form SB-2, as filed with the Commission on August 1,
                2006).




79


10.30
            
            Amendment
                No. 2 and Waiver to the Registration Rights Agreement between Impart
                Media
                Group, Inc. and Laurus Master Fund, Ltd., dated as of July 17, 2006
                (incorporated by reference to Exhibit 10.31 to our Registration Statement
                on Form SB-2, as filed with the Commission on August 1,
                2006).10.31
            
            Employment
                Agreement, dated as of September 1, 2006, between our company and
                Todd
                Weaver (incorporated by reference to Exhibit 10.1 to our Current
                Report on
                Form 8-K, dated September 6, 2006, as filed with the Commission on
                September 12, 2006).10.32
            
            Waiver
                and Amendment to Certificate of Designation of Series A Convertible
                Preferred Stock, Warrants and Registration Rights Agreement, dated
                March
                23, 2007 (incorporated by reference to Exhibit 10.1 to our Form 8-K,
                dated
                March 22, 2007, as filed with the Commission on March 28,
                2007).10.33
            
            Form
                of Amended and Restated Series A Warrant (incorporated by reference
                to
                Exhibit 10.2 to our Form 8-K, dated March 22, 2007 as filed with
                the
                Commission on March 28, 2007).14.1
            
            Impart
                Media Group, Inc. Code of Ethics (incorporated by reference to Exhibit
                14.1 to our Annual Report on Form 10-KSB for our fiscal year ended
                December 31, 2004, as filed with the Commission on April 15, 2005).16.1
            
            Letter
                regarding Change in Certifying Accountant, dated March 9, 2006, from
                L.L.
                Bradford & Company to the company (incorporated by reference to
                Exhibit 16.1 to our Current Report on Form 8-K, dated March 9, 2006,
                as
                filed with the Commission on March 9, 2006).21.1
            
            List
                of Subsidiaries.Impart,
                Inc., a Washington corporation.Impart
                Media Advertising, Inc., a Nevada corporation.23.1
            
            Consent
                of Peterson Sullivan PLLC.31.1
            
            Certification
                of Chief Executive Officer and Chief Financial Officer pursuant to
                Section
                302 of the Sarbanes-Oxley Act of 2002.*32.1
            
            Certification
                of Chief Executive Officer and Chief Financial Officer pursuant to
                Section
                906 of the Sarbanes-Oxley Act of 2002.*


_________________





*
      Filed
      herewith