UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 FORM
10-KSB
 
 x
    ANNUAL
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934

For the
Fiscal Year Ended: December 31, 2004

 ̈
    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
 
 LIMELIGHT
MEDIA GROUP, INC.
 (Exact
name of small business issuer as specified in its charter)
 
 Nevada
    
    88-0441338(State
      or other jurisdiction
    
    (IRS
      Employerof
      incorporation or organization)
    
    Identification
      No.)
 
 8000
      Centerview Parkway, Suite 115Memphis,
      TN
    
    38018(Address
      of principal executive offices)
    
    (Zip
      Code)
 
 
 (901)
757-0195
 (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 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 x 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.  ̈
 
 Revenues
for the fiscal year ended December 31, 2004 were $18,672.
 
 The
aggregate market value of shares of our common stock held by non-affiliates as
of April 8, 2005 was $9,854,894 based upon the average bid and asked prices of
our common stock on the OTC Bulletin Board on April 8, 2005. 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.
 
 As of
April 8, 2005, we had 132,641,944 shares of common stock outstanding. Our common
stock currently trades on the OTC Bulletin Board under the symbol
"LMMG."
 
 Transitional
Small Business Disclosure Format (Check one):    Yes  ̈ No x
 
 
 
 *When
used in this Report, the words "believes", "anticipates", "expects" and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties that could cause actual results
to differ materially from those projected.*
 
 *Our
business and results of operations are affected by a wide variety of factors
that could materially and adversely affect our company and our actual results,
including, but not limited to: (1) the availability of additional funds to
enable us to successfully pursue our business plan; (2) the uncertainties
related to the effectiveness of our technologies and the development of our
products and services; (3) our ability to maintain, attract and integrate
management personnel; (4) our ability to complete the development of our
proposed services in a timely manner; (5) our ability to effectively market and
sell our services to current and new customers; (6) our ability to negotiate and
maintain suitable strategic licenses and corporate relationships; (7) the
intensity of competition; and (8) general economic conditions. As a result of
these and other factors, we may experience material fluctuations in future
operating results on a quarterly or annual basis, which could materially and
adversely affect our business, financial condition, operating results and stock
price.*
 
 *These
forward-looking statements speak only as of the date hereof. We undertake no
obligation to publicly release the results of any revisions to these
forward-looking statements that may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated
events.*
  
 
 **PART
I**
 
 **ITEM
1.   DESCRIPTION OF BUSINESS**
 
 
 **General**
 
 Limelight
Media Group, Inc. plans to compete in the out-of-home advertising market by
providing location hosts (initially supermarkets) the ability to display
targeted advertising within their stores. We intend to distribute digital
advertising content to shoppers in supermarkets that elect to use our digital
media network. We plan to offer advertising time on our network to local,
regional and national advertisers that wish to target shoppers at the point of
purchase, where it is estimated that approximately 75% of all purchasing
decisions are made. We believe that our network will enable advertisers to
cost-effectively deliver highly-relevant and targeted advertising content to
captive audiences within the supermarkets using our network. We intend to
display our customers' advertising content on large video displays (usually
40-inch LCD or plasma video displays) that we plan to install above high traffic
aisles (typically deli, dairy, produce and meat) of the supermarkets that elect
to become one of our location hosts. Through the use of digital and broadband
technology, we have the ability to add, change, remove or otherwise centrally
manage advertising content on our network from our headquarters in Memphis,
Tennessee.
 
 We intend
to derive our revenues from the sale of advertising time on our network, which
we plan to sell in ten second intervals. We plan to charge advertisers a fee for
our services that will be negotiated after taking into account factors such as
the number of supermarkets in which the advertising content will be displayed
and the number of cash register transactions at such supermarkets, among others.
We intend to enter into license agreements with supermarket chains that desire
to become location hosts, pursuant to which we will pay to the location hosts a
percentage of the advertising revenue we derive from the display of digital
advertising content in their stores.
 
 We are
currently in negotiations relating to proposed host license agreements with two
supermarket chains for the delivery of digital advertising content to an
aggregate of approximately 55 supermarkets and involving approximately 200 video
displays. All of these supermarkets are located in the vicinity of St. Louis,
Missouri. We plan to aggressively seek additional location host license
agreements with supermarket chains in other geographic markets and our growth
plans include seeking similar licensing arrangements with regional malls, mass
merchants, large discount retailers, movie theaters and other retailers. We
currently have agreements with approximately 10 advertisers for the display of
advertising content in supermarkets located in the vicinity of St. Louis,
Missouri. We intend to begin distributing such content once we execute host
licenses with one or both of the supermarket chains with which we are currently
negotiating. We plan to aggressively add personnel to our sales force in an
effort to increase substantially the amount of additional advertising content on
our network.
 
 On March
11, 2005, we acquired a majority ownership interest in OTR Media, Inc., a Nevada
corporation that sells advertising space on mobile billboards placed on the
sides of tractor-trailers ("OTR Media"). We intend to operate OTR Media as an
independent subsidiary of our company. This acquisition enables us to enter the
emerging mobile media segment of the out-of-home advertising industry. We
expect, however, that our primary focus in the near term will be on our core
business of digitally distributing in-store advertising content.
 
 2
 
 **Industry
Overview**
 
 According
to industry studies published by Universal McCann, the U.S. major media
advertising market in 2004 was a $266 billion industry that is projected to grow
to $342 billion in 2005. This market includes advertising in newspapers,
magazines and direct mail, on network and cable television, on the internet and
the radio and on 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 in-store, digital advertising market of that segment.
 
 According
to the Outdoor Advertising Association of America ("OAAA"), revenues generated
by the out-of-home advertising industry were more than $18 billion in 2004.
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 OAAA, in 2004, there were an
estimated 560,000 out-of-home advertising displays in the United States,
operated by more than 500 companies.
 
 In-store,
digital signage is an emerging segment of the out-of-home advertising industry.
It is differentiated from traditional advertising media in that it that carries
the advertiser's message into the store where, according to Point of Purchase
Advertising International, 75% of purchasing decisions are made. We believe
other advantages of in-store digital signage include its lower CPM, or cost per
thousand, and its ability to directly communicate with consumers with a targeted
message. As more retailers and product manufacturers discover the advantages of
in-store digital advertising, we believe companies will begin to shift a portion
of their advertising budgets away from traditional advertising outlets
(including other out-of-home displays) and toward in-store digital advertising.
Because this segment of the industry is new, there is a lack of research on the
effectiveness of in-store digital media networks. A lack of such data may delay
acceptance of this advertising segment by retailers and advertisers.
 
 **Growth
Strategy**
 
 Our
strategy is to establish our company as a leading distributor of digital,
in-store advertising content in the United States. Our short-term goals are to
finalize negotiations and execute host licenses with two supermarket chains in
the St. Louis, Missouri vicinity, maximize sales of available advertising time
on the video displays to be installed in supermarkets upon our execution of the
aforementioned host licenses, and expand our network to include new supermarket
chains located in other geographic markets. Over the longer term, we also to
seek to apply our business model to other types of retail stores and venues. The
key elements of our growth strategy include the following:
 
 ·
    Acquire
      complementary businesses having existing agreements with supermarket
      chains and other retail outlets in order to rapidly increase our base of
      customers and location hosts; and
 
 3
 
 ·
    Increase
      our advertising sales force by adding independent contractor and employee
      salespeople;
 
 ·
    Secure
      additional location host license agreements with supermarket chains in new
      geographic markets;
 
 ·
    Increase
      our customer base of local advertisers while steering additional resources
      toward the attraction of regional and national
  advertisers;
 
 ·
    Identify
      and develop new location host licensing opportunities with other stores
      and venues, such as regional malls, mass merchants, large discount
      retailers and movie theaters;
 
 ·
    Continue
      to develop and improve our technology and intellectual property
      assets;
 
 ·
    Hire
      additional managerial, technical and administrative personnel to support
      our planned growth; and
 
 ·
    As
      additional funding becomes available to OTR Media, lend direction and
      support to OTR Media to assist OTR Media in implementing its business
      plan.
 
 In order
to implement our growth strategy, we will require additional financing of at
least $1 million. In the event we are unable to raise such amount, we may have
to delay our acquisition strategy and/or elements of our growth strategy.
 
 **Business
Model**
 
 Our core
business model involves the digital transmission of advertising content on our
proprietary network to video displays located in the main aisles of
supermarkets. Once we obtain a location host license from a supermarket chain,
we plan to install 40-inch LCD or plasma video displays over the deli, dairy,
produce and meat aisles in the supermarkets within the chain that meet our
minimum traffic requirements. At larger supermarkets that have a pharmacy, we
intend to also place a video display in that department. From our headquarters
in Memphis, Tennessee, we can remotely program each video display to run a
45-second video loop consisting of 24 to 30 photos per loop from various
advertisers. Using a sales force of two to three salespeople per geographic
market, we make sales calls to local, regional and national advertisers and
offer advertising time on our network, usually in ten second intervals. This
same sales force contacts supermarket chains meeting our predetermined criteria
and offers these chains the opportunity to become location hosts by granting us
the exclusive right to distribute digital advertising content in their stores.
 
 Advertising
content displayed on our network will likely consist of advertising for products
sold by the particular supermarket in which the content is displayed (and likely
on video displays nearest to the advertised product) and advertising by other
non-supermarket businesses within the same geographic area. We also plan to
reserve a minimum of 20% of the advertising time on our network for the display,
at no charge, of advertising content selected by our location hosts. Any unsold
time on our network within any given 45 second loop will be supplemented with
additional advertising selected by the particular supermarket or with public
services messages. We plan to pay our location hosts a percentage of the
advertising revenue that we derive from advertising content displayed in their
supermarkets.
 
 4
 
 We
believe our business model is easily transferable to other potential location
hosts, such as regional malls, mass merchants, large discount retailers and
movie theaters, and intend to seek such additional location hosts as and when
our financial resources and cash flow permit.
 
 We
believe our in-store digital advertising platform is a cost effective
alternative for advertisers. We can offer our customers an average
cost-per-thousand ("CPM") (a common industry measure of advertising
effectiveness) of approximately $0.98 for a four week ‘flight' on our video
displays. We believe our CPM is lower than that of our competitors in the
digital, in-store advertising segment of the larger advertising market. Our CPM
is also lower than the average CPM for traditional media, such as television,
magazine and outdoor billboard advertising. Of these traditional media,
billboard advertising has the lowest average CPM of $3.90, which is $2.92 more
than our CPM. The following table sets forth the average CPM for some common
advertising media as compared to the CPM of approximately $0.98 for a four week
‘flight' on our in-store, digital media network.
 
 **Media
      Type**
    
    **CPM**
      **(****Cost
      per 1,000)****Outdoor
      (e.g. billboards, street furniture, etc.)**8 sheet posters
    
    $
    0.8530
      sheet posters
    
    $
    1.78Bulletins
    
    $
    3.90**Radio**0:60
      drive time
    
    $
    5.92**Magazines**4-
      color page
    
    $
    9.62**Television**0:30
      prime time spot
    
    $
    20.54**Newspapers**1⁄2
      page black & white
    
    $
    23.32
 
 Source:
Media Vehicles, a GE Capital Company, 2001.
 
 
 We
believe advertisers electing to use our network will also have greater
flexibility to add or change content than with traditional advertising media. We
are able to change content on our video displays within minutes. If an
advertiser wishes to alter its marketing campaign or otherwise change its
advertising content, we can seamlessly insert any replacement content from that
advertiser within the appropriate 45-second video loop. The cost to the
advertiser for the new insertion generally is minimal. By contrast, the ability
of an advertiser to change content displayed on other media may involve lead
times of up to two-to-three months. Such lead times can cause advertising
down-time on the particular media or result in the display of dated content.
 
 5
 
 **Distribution**
 
 Our
in-store, digital media network is capable of delivering advertising content to
shoppers in supermarkets that elect to join our network and become a location
host to our company. We believe our location hosts (e.g. supermarkets and other
retailers) will receive a dual benefit from their relationship with our company.
First, the retailers will receive a negotiated percentage of the advertising
revenue that we will derive from the sale of advertising time on the video
displays installed in their stores. In addition, we believe the stores in which
we plan to install our video displays will experience increased store sales as a
result of the targeted advertising of products sold in their stores (on video
displays nearest to the advertised product). We also plan to reserve a minimum
of 20% of the advertising time on our network for the display of advertising
content selected by our location hosts, at no charge to our location hosts.
 
 In
selecting new supermarket chains to become location hosts, we intend to first
look for supermarket chains with a minimum of 20 stores. We plan to consider
only those stores that have a minimum average number of cash register
transactions of more than 20,000 per week. Once we identify a new supermarket
chain, we plan to negotiate an exclusive license for the in-store display of
digital advertising content. We expect that material license terms generally
consist of the number and locations of the supermarkets within the chain to be
included on our network, the negotiated percentage of our advertising revenue
that we will pay to the supermarket chain and the duration of the
license.
 
 We are
currently in negotiations relating to proposed host license agreements with two
supermarket chains for the delivery of digital advertising content to an
aggregate of approximately 55 supermarkets on approximately 200 video displays.
All of these supermarkets are located in the vicinity of St. Louis, Missouri.
 
 Our
location host licensing arrangements will require no significant expenditure by
the location host. We plan to purchase and install all network equipment
(including video displays, routers and cables) in the stores of our location
hosts with minimal interruption to store operations. Our location hosts will not
be required to purchase any equipment or to provide any maintenance on our
equipment, other than the provision of electric power to our video displays.
 
 **Customers
and Marketing**
 
 We intend
to offer standard and customized advertising packages to local, regional and
national advertisers that desire to target their customers at the point of
purchase. At April 8, 2005, we had ten customers, all of which are based in the
vicinity of St. Louis, Missouri. We intend to begin displaying the advertising
content of these customers on our network once we execute host licenses with one
or both of the supermarket chains with whom we are currently negotiating.
Although our current customers are mostly local in nature, for the reasons
described below, over the long term, we plan to derive the majority of our
advertising sales revenue from regional and national advertisers.
 
 6
 
 We
currently utilize a small sales force of two experienced salespeople, each of
whom serves our company as an independent contractor. Typically, our sales
representatives telephonically contact local, regional and national advertisers
and offer advertising time on our network, usually in ten second intervals. We
pay our salespeople on a commission basis. Our sales are made pursuant to
written advertising insertion orders ("AIOs") that contain the terms of our
services. Generally, each AIO sets forth the number of supermarkets in which the
customer's advertising content will be displayed, the frequency with which the
message will be displayed within a given loop, the length of the advertising
content (i.e. the number of ten second intervals), the duration of the AIO
(typically not less than three months) and the applicable advertising rate to be
paid to us by the customer. **** Short
duration AIOs typically require advanced payment from our customers, while
longer-term AIOs are typically billed to the customer on a monthly basis. Our
advertising rates are generally based on the foregoing factors, as well as the
average weekly number of cash register transactions at the supermarket or
supermarkets that will display the customer's message.
 
 In our
opinion, local advertisers desire AIOs with short durations, typically between
three and six months, while regional and national advertisers desire AIOs with
longer durations, typically between six and twelve months. In addition, we
believe local advertisers, on average, run their messages on approximately 30%
of the video displays within our network, while regional and national
advertisers typically run their messages on all of the video displays within our
network. We anticipate that renewal rates for local advertisers will be
approximately 50%, as compared to approximately 75% for regional and national
advertisers. Due to these differences, we believe we can achieve greater
efficiency and profitability by increasing our advertising sales to regional and
national advertisers. We view this to be a essential component of our growth
strategy.
 
 **Network
Management, Technology and Intellectual Property**
 
 We have
built a state-of-the-art digital media network to ensure the timely and reliable
delivery of advertising content to the video displays placed within the stores
of supermarket chains and other retailers that elect to become one of our
location hosts. Upon our sell advertising time on our network, the advertiser
will send its advertising content to us at our headquarters in Memphis,
Tennessee. Our technical personnel are capable of converting the advertiser's
content from DVD, videotape or MP3 format into digital files that can be stored
on computer servers located at our headquarters. Once stored on our computer
servers, we can easily integrate advertising content from multiple advertisers
that can be customized, scheduled and transmitted via broadband internet to one
or more video displays on our network. Because all content is on our computer
servers, we can easily manage the content by supermarket chain, by store or by
individual video display. If necessary, we can provide each video display with
different content. As most of our current customers are local in nature, we
believe our ability to deliver targeted advertising content to the stores
located in the vicinity of such customers is especially useful and effective.
 
 7
 
 Upon
signing a license agreement with a supermarket chain or other retailer, we will
arrange to enter the location host's premises to install our video displays,
which we plan to purchase as and when we add new stores, rather than housing
costly inventory. We believe we will be successful in obtaining significant
pricing discounts on our purchases of video displays. Once installed, there will
never a need to enter the premises of our location hosts for the purpose of
adding or changing advertising content. Through our digital network, our servers
are able to constantly communication with each video display on our network and
will be immediately alerted to any failure of a display. An equipment failure in
one store will not affect the delivery of advertising content to any other
store, and, in most cases, a failure relating to one display will not affect the
other video displays in the same store.
 
 We plan
to deliver our digital content using broadband cable. We believe broadband is a
more reliable and cost-effective delivery system than satellite or wireless,
some of which are used by our competitors. As the installation of broadband
increases throughout the country and the cost of bandwidth decreases (as have
been the trends), we believe our potential market will expand and our profits
margins will increase.
 
 We regard
our technology, including our digital conversion software, as proprietary and
will attempt to protect our technology through patents, copyrights, trade secret
laws, restrictions on disclosure and other methods. We do not currently hold any
patents or trademark registrations.
 
 **Truck-Side
Advertising**
 
 As a
result of our acquisition of a controlling interest in OTR Media, as discussed
above, we recently became engaged in the truck-side advertising business. OTR
Media, which is based in Bowling Green, Kentucky, sells advertising space on
mobile billboards placed on the sides of tractor-trailers.  Mobile
billboards allow an advertiser to deliver its message to thousands of motorists
on the nation's highways. We believe truck-side advertising on tractor-trailers
is an untapped niche of the outdoor advertising market.  Although companies
advertise extensively on bus-sides, taxi-tops and other mobile transit,
advertising on tractor-trailers is a relatively new, and at this time, untapped
segment of the out-of-home advertising market. We believe that, as the outdoor
advertising industry grows and advertisers seek new and unique ways to
cost-effectively deliver their messages to consumers, advertisers will embrace
OTR Media's services. We further believe that OTR Media's business model will
afford advertisers a lower average CPM than most other traditional outdoor
advertising media.
 
 OTR Media
has the capability to produce high-quality, color banners that it can mount on
truck-sides using its patented mounting system. OTR intends to secure licenses
from owners of tractor-trailer fleets to permit OTR Media to mount and maintain
these banners on the sides of tractor-trailers in the fleet. A portion of the
revenue received by OTR Media from advertisers will be paid as a license fee to
the fleet owner.
 
 8
 
 **Competition**
 
 We intend
to operate within the emerging in-store, digital advertising segment of the
larger out-of-home advertising industry. We are aware of only a small number of
other companies that also provide in-store, digital advertising to supermarkets
or other retailers. These companies include World Narrowcasting Corporation,
which is based in Greenville, South Carolina, PRN Corporation, which is based in
San Francisco, California, Captive Audience, LLC, which is based in Vernon, New
Jersey, and Onvance, L.P., which is based in Atlanta, Georgia. To our knowledge,
none of these companies operates in the vicinity of St. Louis, Missouri, our
proposed initial geographic market. However, we expect that one or more of these
companies will begin offering services in our current geographic market, as well
as in those markets in which we are seeking to expand as part of our growth
strategy. In addition, we expect that some traditional advertisers will soon
recognize the opportunities within the in-store, digital advertising segment of
the advertising market and will begin offering similar services. Most of these
companies have significantly greater financial resources than we have. We also
compete for customers with traditional advertising media.
 
 Our
truck-side advertising services business, in which we are engaged through our
controlling interest in OTR Media, operates in an emerging segment of the
outdoor advertising market. Until recently, advertising on mobile vehicles has
consisted of providing advertising services within a particular transit district
for placement of displays on taxis or buses. This is a fragmented market
consisting of several large outdoor advertising companies with operations in
multiple markets, such as Lamar Media Corp. and Clear Channel Communications,
and many small companies that operate pursuant to one or a few agreements with
transit authorities. Typically, companies in the transit advertising business
bid for exclusive rights to provide advertising services within a particular
transit district. Although OTR Media does not provide advertising services to
transit authorities, nor does its business strategy include such services, we
expect that some companies currently providing transit advertising services will
recognize the opportunities in truck-side advertising and will begin offering
similar services. Most of these companies have significantly greater financial
resources than OTR Media.
 
 **Employees**
 
 As of
April 8, 2005, we had two full-time employees and two part-time employees. Of
our employees, two were in executive management, one was in finance and
administration and one was in technical support. We also had two
commission-based salespeople who were independent contractors. As part of our
growth strategy, we intend to hire additional employees in all areas of
operation. All of our employees are located at our headquarters in Memphis,
Tennessee. None of our employees is subject to any collective bargaining
agreement. We believe our relations with our employees are good.
 
 **Regulation**
 
 We are
not aware of any material legal or other regulatory restrictions that may
adversely affect our in-store, digital signage business. The furnishing of
in-store 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
host locations and customers in any given market and we intend to operate
our business in compliance with this Act.
 
 9
 
 Our
truck-side advertising services business, in which we intend to engage through
our controlling interest in OTR Media, is subject to extensive government
regulation at the federal, state and local levels. In general, outdoor
advertising is extensively regulated. Many jurisdictions have restrictions on
the location of outdoor advertising, the size of advertising structures (e.g.
billboards) and the illumination of displays, among others restrictions. In some
instances, governmental regulations may restrict advertising content. For
example, many states have banned the outdoor advertising of tobacco products and
advertising specifically directed to minors. We believe the operations of OTR
Media will not be materially adversely affected by any such laws or
regulations.
 
 **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 that was formerly known as
Showintel Networks, Inc. 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 September
1, 2002, we acquired all of the outstanding capital stock of Uniguest of
Tennessee, Inc., an operator of public internet access terminals. On October 3,
2003, we changed our name to "Limelight Media Group, Inc." On August 9, 2004, we
acquired substantially all of the assets of Interactive Graphic Solutions, LLC,
including contract rights to deliver digital advertising content to two
supermarket chains, other contract rights and intellectual property assets. On
March 11, 2005, we acquired majority ownership of OTR Media, Inc., a provider of
truck-side advertising services.
 
 We have
been engaged in the out-of-home advertising business since 2001. We initially
focused our business on digitally distributing in-store advertising content to
movie theaters. In the third quarter of 2004, we began to change our primary
focus from movie theaters to supermarkets. Since that time, we have been
developing and refining our business strategy and we intend to commence
operations in our new line of business once we secure a host license with a
supermarket chain. At April 8, 2005, we still provided advertising content to
one movie theater.
 
 **ITEM
2.   DESCRIPTION OF PROPERTY**
 
 We lease
a 2,850 square feet office in Cordova (Memphis), Tennessee, at a cost of
$3,237.00 per month. The lease expires on June 1, 2006. We have an option to
renew the lease for a period of three years. In addition, we own miscellaneous
office furniture and equipment, including computers and video screens 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 the our assets to David V. Lott,
our Chairman, Chief Executive Officer and President, as security for our payment
of a promissory note in the outstanding principal amount of $385,306.78 at April
8, 2005.
 
 10
 
 **ITEM
3.   LEGAL PROCEEDINGS**
 
 We are
involved in the following legal proceedings.
 
 Pending
in the State Court of Cherokee County, Georgia, is case number 02-SC-1082,
styled *D
& D Management, Inc. v. Multinet International, Inc., d/b/a Limelight Media
Group, Inc, Inc., and David V. Lott* , filed
September 9, 2002. D & D Management, Inc. has alleged it entered
into a loan agreement with our company in February 2002 for $54,000, which loan
has not been repaid. We are defending on the basis that we issued D & D
Management, Inc. a total of 89,000 shares of our common stock in lieu of
repayment and in full settlement of the loan. D & D Management, Inc. has
responded that the shares were issued for consulting services. We have denied
that services were rendered. We are pursuing settlement negotiations with D
& D Management, Inc. No known motions are outstanding and the matter remains
pending.
 
 There is
litigation threatened regarding Clickplay, Inc. Clickplay, Inc. has alleged
claims against us for non-payment of deposits related to a consulting services
agreement. We were unable to secure adequate financial backing to engage
Clickplay, Inc. and no services were rendered by Clickplay, Inc. However,
Clickplay, Inc. claims that deposits totaling $93,000 remain due. Clickplay,
Inc. filed suit on February 19, 2002 in the Circuit Court of Tennessee for the
Thirtieth Judicial Circuit at Memphis in an action styled *Clickplay,
Inc. v. Limelight, Inc.,* case
number 00092502D.5AD. A default judgment was entered in favor of Clickplay,
Inc. against us; however, execution of the judgment upon us has not occurred due
to jurisdictional defects stemming from the misidentification of our Company as
the defendant. We believe the claims of Clickplay, Inc. are without merit and
intend to aggressively defend against these claims. However, we are in
negotiations with Clickplay with regard to a settlement of this matter.
 
 Pending
in the Circuit Court of Tennessee, is case # CT-006990-03, styled *Terrance
Lall, Lester Hall and Heath Wilson vs., Limelight Media Group, Inc, formerly
known as Showintel Networks, Inc, David V. Lott and the David V. Lott Living
Trust,* filed
December 16, 2004. In this action, the plaintiffs have alleged that Mr. Lall
entered into a stock purchase agreement, an employment agreement and a
consultant agreement with our company on October 27, 2003, pursuant to which Mr.
Lall had the right to purchase shares of our common stock for an investment of
$150,000, with a right for further investments. We believe the claims are
without merit and will vigorously defend the lawsuit. We deny receiving the
funds from the plaintiff despite delivering the stock to Mr. Lall. We have filed
an answer to the complaint and counterclaimed against Mr. Lall for damages and
failure to perform. A hearing has been scheduled for May 2, 2005. Despite the
on-going court proceedings, we are currently in settlement negotiations with Mr.
Lall.
 
 11
 
 Pending
in the Circuit Court of the County of St. Louis, State of Missouri, is case #
05CC-000359, styled *Dierbergs
Markets, Inc. vs. Interactive Graphic Solutions, LLC and Limelight Media Group,
Inc,* filed in
January 2005. According to the complaint, the plaintiff entered into a license
agreement with Interactive Graphic Solutions, LLC ("IGS") pursuant to which IGS
granted the plaintiff a license to use IGS's system of motion media equipment
for the purpose of showing certain advertising in retail stores. Further, the
complaint asserts that IGS failed to pay approximately $72,000 to Hanenkamp
Electric Company for its services relating to the installation of IGS's media
system and that such amount was paid by to Hanenkamp by the plaintiff. In August
2004, we acquired substantially all of the assets of IGS, including the license
agreement with the plaintiff. The plaintiff is seeking damages from the
defendants in amount equal to $72,000 plus attorneys' fees, costs, expenses and
pre-judgment and post-judgment interest. In February 2005, we filed a motion to
dismiss on the basis that we are neither a party to the license agreement nor,
as the plaintiff asserted in the complaint, a permitted assignee. In addition,
we have not performed any services for the plaintiff under the license or
otherwise. We are currently in discussions with the plaintiff to settle this
matter. We are also simultaneously negotiating a new license with the plaintiff
for the installation and operation of our media system in certain of its retail
stores. There can be no assurance, however, that we will be able to settle this
litigation or to enter into a host license agreement with the plaintiff.
 
 Pending
in federal bankruptcy court in the Western District of Tennessee is case #
04-39842-K, styled *In
re: Chapter 13 David V. Lott, Debtor.* In
December 2004, David Lott, our Chairman, Chief Executive Officer and President,
filed for protection under Chapter 13 of the U.S. Bankruptcy Code. Pursuant to
the order of the bankruptcy court, Mr. Lott is required to pay to the bankruptcy
trustee $7,745 per month from the sale of shares of our common stock. Mr. Lott
intends to effect each sales on or about the last business day of each month.
Such sales may depress the market price of our common stock.
 
 In
November 2004, we sent a notice to Cornell Capital Partners LLP ("CCP") informing CCP of its breach of the terms of a Standby Equity Distribution
Agreement, dated February 17, 2004, between our company and CCP and demanding
the return of 9,342,778 shares of our common stock placed in escrow pursuant to
such agreement. Of such amount, 870,000 shares are held in escrow by a third
party and have not been returned to us. CCP has refused our requests for a
meeting and failed to respond to our notices. We are reviewing our legal
remedies with respect to this matter , which may include the commencement of
litigation.
 
 Under the
terms of the Standby Equity Distribution Agreement, CCP agreed to make advances
to us from time to time upon our request (through the purchase of shares of our
common stock) in an amount not to exceed $12 million in the aggregate. The price
at which CCP was entitled to purchase shares of our common stock was a price
equal to 97% of the lowest closing bid price of our common stock on the
Over-the-Counter Bulletin Board, or other principal market on which our common
stock is traded, for the five days immediately following the advance notice
date. Furthermore, we were required to file a registration statement with the
Commission covering the shares issuable to CCP under the agreement and to place
such shares in an escrow account with Lyon Partners, LLP. The registration
statement relating to the shares was filed with the Security and Exchange
Commission in May 2005 and declared effective in August 2004. However, beginning
in October 2004, CCP refused all of our draw requests and in November 2004 we
sent the notice described above. In January 2005, our agreement with CCP was
terminated.
 
 12
 
 **ITEM
4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**
 
 On
December 12, 2004, our board of directors and the holders of a majority of our
outstanding shares of common stock voted, by written consent in lieu of a
meeting, in favor of the following proposals: (i) the increase in the number of
authorized shares of our common stock from 100 million shares to 250 million
shares and (ii) the election of David V. Lott and Philip A. Worack to our board
of directors to hold office until their successors are elected at our next
annual meeting.
 
 Stockholders
beneficially owning an aggregate of 60 million shares of our common stock,
representing approximately 60% of the voting power of our company, delivered
their written consent to the proposals and there were no votes against or
abstentions from such proposals. A definitive Information Statement on Schedule
14C describing the foregoing actions was filed with the Securities and Exchange
Commission on December 17, 2004 and mailed to our stockholders of
record.
 
 13
 
 **PART
II**
 
 **ITEM
5.   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND
SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES**
 
 Our
common stock is currently quoted on the OTC Bulletin Board
under the symbol "LMMG." The following table sets forth the high and low bid
prices for our common stock 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.
 
 HIGH
      BID
    
    LOW
      BIDYear
      ended December 31, 2003First
      Quarter
    
    $
    0.24
    
    $
    0.065Second
      Quarter
    
    
    0.15
    
    
    0.05Third
      Quarter
    
    
    0.10
    
    
    0.02Fourth
      Quarter
    
    
    0.12
    
    
    0.04Year
      ended December 31, 2004First
      Quarter
    
    $
    0.78
    
    $
    0.17Second
      Quarter
    
    
    0.20
    
    
    0.11Third
      Quarter
    
    
    0.28
    
    
    0.03Fourth
      Quarter
    
    
    0.06
    
    
    0.02
 
 On April
8, 2005, the closing price of our common stock as reported on the
Over-the-Counter Bulletin Board was $0.10.
 
 As of
April 8, 2005, there were 132,631,944 shares of our common stock outstanding
held by approximately 650 shareholders of record. This number excludes any
estimate by us of the number of beneficial owners of shares held in street name,
the accuracy of which cannot be guaranteed.
 
 **Dividends**
 
 We have
not declared any cash dividends on any class of common equity during the years
ended 2003 or 2004 and we do not anticipate paying any dividends on our
outstanding common stock in the foreseeable future.
 
 **Equity
Compensation Plans**
 
 As of
December 31, 2004, we had no equity compensation plans in effect.
  14
 
 **Repurchases
of Equity Securities**
 
 None.
 
 
 **Recent
Sales of Unregistered Securities; Use of Proceeds from Registered
Securities**
 
 On
December 22, 2004, we issued 5 million shares of our common stock to American
Marketing Complex Inc.("AMC") in consideration for AMC's grant of media credits
having an aggregate value of $1,500,000. T he
fair market value of the shares issued to AMC was $125,000, or $0.025 per share. Accordingly,
we recorded a cash equivalent credit totaling $125,000, which is a separate
component of stockholders' deficit on our balance sheet. The
issuance was made pursuant to the transactions that we previously reported in
our Quarterly Report on Form 10-QSB for the period ended September 30, 2004. The
shares were issued to AMC in reliance on the exemption from registration
provided by Section 4(2) of the Securities Act on the basis that the issuance
did not involve a public offering, since (a) the issuance was made to a
substantially limited number of persons; (b) AMC represented that it was taking
the shares as an investment for its own account and not with a view to
distribution; (c) AMC had access to information equivalent to that which would
be included in a registration statement; and (d) AMC represented to us that it
had knowledge and experience in business and financial matters to understand the
merits and risk of the investment.
 
 
 **ITEM
6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION**
 
 
 **Critical
Accounting Policies**
 
 
 **Research
And Development Costs**
 
 Research
and development costs are charged to expense when incurred. Costs incurred to
internally develop software, including costs incurred during all phases of
development, are charged to expense as incurred.
 
 **Stock-Based
Compensation**
 
 We apply
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees, and Related Interpretations", in accounting for stock options
issued to employees. Under APB No. 25, employee compensation cost is recognized
when estimated fair value of the underlying stock on date of the grant exceeds
exercise price of the stock option. For stock options and warrants issued to
non-employees, we apply Statements of Financial Accounting Standards ("SFAS")
No. 123, "Accounting for Stock-Based Compensation", which requires the
recognition of compensation cost based upon the fair value of stock options at
the grant date using a fair value based method whereby cost is measured at the
grant date based on the value of the award and is recognized over the service
period, which is usually the vesting period. We use the Black-Scholes option
pricing model to calculate the fair value of options and warrants issued to
non-employees. Stock issued for compensation is valued using the market price of
the stock on the date of issuance, which date, in the case of stock issued
pursuant to our consulting agreements and certain other agreements, is the date
we enter into such agreements, unless the agreement provides for a later
issuance of the stock.
 
 15
  We did
not grant any warrants or options to employees for compensation during the years
ended 2004 and 2003, or during the period from April 19, 2001 (the date of our
inception for accounting purposes) through December 31, 2004. All stock issued
for compensation was recorded at the fair market value of the stock on the date
of issuance.
 
 Our
stock-based compensation policy has had a material effect upon our results of
operations in the years ended December 31, 2004 and 2003. In the years ended
December 31, 2004 and 2003, we incurred stock-based compensation expense of
approximately $1.7 million and $0.7 million, respectively, which significantly
contributed to the net losses we incurred during such periods.
 
 **Going
Concern**
 
 Our
independent auditor has added an explanatory paragraph in its report relating to
our financial statements for the year ended December 31, 2004, which states that
we are in the development stage and have incurred a net loss of approximately
$8,774,000 during the period from April 19, 2001 (the date we commenced our
current line of business) through December 31, 2004. The report further states
that our current liabilities exceed our current assets. These conditions give
rise to substantial doubt about our ability to continue as a going concern. Our
ability to fully commence operations and generate revenues and our ability to
obtain additional funding will determine our ability to continue as a going
concern. Our financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
 
 **General**
 
 The
following discussion and analysis of the financial condition and results of
operations should be read in conjunction with our financial statements and notes
appearing elsewhere in this Report.
 
 **Results
of Operations**
 
 ***Revenue.***  For the year ended December 31, 2004, we had revenue of $19,000 as compared to
$89,000 for the year ended December 31, 2003, a decrease of $70,000, or 79%. We derive
our revenues from the sale of advertising time on our network of video displays
that are located within supermarkets and other retail venues that license their
space to us (called ‘location hosts'). Advertisers pay us a negotiated fee for
our services and we pay a percentage of such fee as a license fee to the
location hosts that agree to house our video network equipment. In
2004, we conducted limited operations as we sought funding opportunities to
allow us to fully commence operations and implement our business strategy. The
decrease in our revenues was primarily due to the loss of revenue from the
operations of UniGuest of Tennessee, Inc. ("Uniguest"), a former subsidiary of
our company that we acquired in September 2002 in a stock acquisition
transaction that was rescinded in October 2003. The revenue we derived from
Uniguest's operations in 2003 accounted for $87,000 of our total revenues of
$89,000. In addition, in 2004 we were unable to obtain sufficient funding to
maintain our existing business, which resulted in the loss of certain
advertising contracts and licensing arrangements with location hosts.
 
 16
 
 Management
believes our long-term success will be dependent in large part on our ability to
add new location hosts to enable us to attract more advertisers and increase our
sales of advertising time on our network. However, we believe our ability to add
additional new location hosts is dependent on our ability to obtain additional
capital to fund new business development, purchase equipment and increase our
sales and marketing staff. We are currently in discussions with a number of
supermarket chains and other retailers in an effort to reach agreements under
which we can license space for the installation of our video display network.
While there can be no assurance that we will do so, we believe we will be
successful in negotiating agreements with a number of such chains and other
retailers.
 
 ***Cost
of Revenue.*** For the year ended December 31, 2004, we had cost of revenue of $9,000 as
compared to $47,000 for the year ended December 31, 2003, a decrease of $38,000,
or 81%. This decrease was primarily attributable to the decrease in expenses
relating to the operations of our former Uniguest subsidiary and our limited
operations in 2004 due to the funding shortages we experienced, as described
above.
 
 ***General
and Administrative Expenses.*** For the year ended December 31, 2004, we incurred general and administrative
expenses of $3.9 million as compared to $1.6 million for year ended December 31,
2003, an increase of $2.3 million, or 141%. This increase was primarily
attributable to an increase of $1.5 million, or 184%, in the amount of
consulting fees we paid, to $2.3 million for the year ended December 31, 2004
from $0.8 million for the year ended December 31, 2003. Additionally, our other
general and administrative expenses increased to $1.4 million for the year ended
December 31, 2004 from $0.6 million for the year ended December 31, 2003, an
increase of $0.8 million, or 133%. Such increased expenses resulted primarily
from the costs we incurred in 2004 relating to the issuance and sale of
convertible securities to Cornell Capital Partners, LLP and its affiliates, the
preparation of a registration statement under the Securities Act of 1933
relating to the shares issuable upon conversion of such convertible securities.
 
 ***Net
Income (Loss).*** Primarily as a result of the reduced revenues and increased consulting fees
discussed above, we incurred a net loss of $4.5 million for the year ended
December 31, 2004 as compared to a net loss of $1.7 million for the year ended
December 31, 2003.
 
 **Liquidity
and Capital Resources**
 
 At
December 31, 2004, we had a cash balance of $273. Issuances of convertible debt
and equity securities have been our principal source of liquidity since the
inception of our current line of business in April 2001.
 We
are still in the early stages of executing our business strategy. Our
current cash levels, together with the cash flows we generate from operating
activities, are not sufficient to enable us to execute our business strategy. As
a result, we intend to seek additional capital through the sale of shares of our
common stock to institutional investors or other ‘accredited investors' in
private placements. If we are unsuccessful in our efforts to raise additional
capital, our operations would likely continue at their current level, which do
not generate sufficient revenue to meet our expenses. In such event, we may be
forced to liquidate our company.
  17
 
 We are
currently in preliminary discussions with an institutional lender to obtain a
bridge loan in the amount of $1 million. We anticipate that the closing of such
financing will be contingent upon, among other conditions, our execution of
definitive agreements to acquire one or more companies engaged in digital
signage or a related business. There can be no assurance that we will be able to
consummate the proposed financing transaction or any such acquisitions, or that
any such transaction or acquisitions will be consummated on terms favorable to
us. Even if we successfully obtain such bridge financing, any net proceeds will
likely provide us with sufficient working capital to sustain operations for a
period of only nine to 12 months. We will still require additional capital to
effectuate our business strategy of expanding our digital video network by
increasing the number of our location hosts, of which there can be no assurance.
 
 As we
seek and negotiate new financing and acquisition transactions, we anticipate
that our level of operations will be continue to be nominal. In the interim, we
continue to explore new licensing opportunities with potential location hosts in
anticipation of receiving additional capital.
 
 At
December 31, 2004, we had liquid assets of $619, consisting of cash and accounts
receivable derived from operations. Long term assets of $0.2 million consisted
primarily of computer servers and video display equipment used in operations.
 
 Current
liabilities of $2.1 million at December 31, 2004 consisted primarily of $1.8
million of accounts payable and accrued expenses, including related party
amounts.
 
 Our
working capital deficit was $2.1 million as of December 31, 2004 for the reasons
described above.
 
 During
the year ended December 31, 2004, we used cash of $1.1 million in operating
activities, primarily as a result of the net loss we incurred during this
period.
 
 During
the year ended December 31, 2004, we used net cash of $0.2 million in investing
activities, primarily for capital expenditures.
 
 Financing
activities, consisting primarily of proceeds from the sale and issuance of
convertible notes and shares of our common stock, provided net cash of $1.3
million during the year ended December 31, 2004. Pursuant to a Standby
Equity Distribution Agreement with CCP and two Secured Convertible Debentures
issued to CCP, we borrowed approximately $615,000 during the first two quarters
of 2004. The terms of such instruments required
us to register under the Securities Act of 1933 the shares our common stock
issuable upon conversion of such instruments. In August 2004, $540,000 aggregate principal amount of such convertible debt
instruments was converted into approximately 30 million shares of our common
stock, which shares were registered under the Securities Act of 1933. In January
2005, the remaining $75,000 aggregate principal amount of such debt was
converted into approximately 3.5 million shares of our common stock. Our
agreements with CCP have been terminated and no further borrowings are available
to us thereunder. We are pursuing the return of 870,000 shares of our common
stock that were placed in escrow in connection with such
transactions.
  18
  **ITEM
7.   FINANCIAL STATEMENTS**
 
 The
reports of our independent auditors and our financial statements and associated
notes are included in Part III, Item 13. of this Report beginning on page F-1.
 
 
 **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 and
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 Securities Exchange Act of 1934, as amended (the "Exchange
Act")) as of the end of the period covered by this Report. Based on such
evaluation, our chief executive officer and chief financial officer has
concluded that, as of the end of such period, our disclosure controls and
procedures are effective in recording, processing, summarizing and reporting, on
a timely basis, information required to be disclosed by our company in the
reports that we file or submit under the Exchange Act.
 
 *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 Exchange Act)
during the fourth quarter of 2004 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
 
 **ITEM
8B.   OTHER INFORMATION**
 
 On
January 6, 2005, we filed with the Secretary of State of the State of Nevada a
Certificate of Amendment to our Articles of Incorporation. The amendment, which
was effective immediately upon filing, increased the total number of authorized
shares of common stock that we may issue from 100 million shares to 250 million
shares. A copy of the amendment is filed herewith as an exhibit to this
Report.
 
 On
December 12, 2004, Peter Kertes resigned from his position as a director of our
company. There was no known disagreement on any matter relating to our
operations, policies or practices.
 
 On
February 29, 2004, we filed with the Secretary of State of the State of Nevada a
Certificate of Amendment to our Articles of Incorporation. The amendment, which
was effective immediately upon filing, increased the total number of authorized
shares of common stock that we may issue from 25 million shares to 100 million
shares. A copy of the amendment is filed herewith as an exhibit to this
Report.
 
 19
 
 **PART
III**
 
 **ITEM
9.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT**
 
 **Management
And Board Of Directors**
 
 The
following sets forth the name, age and position of each director and executive
officer of our company as of April 8, 2005:
 
 **Name**
    **Age**
    **Position(s)**David
      V. Lott
    48
    President,
      Chief Executive Officer and Chairman of the Board of
    DirectorsPhil
      A Worack
    48
    DirectorKirk
      Krajewski
    48
    Director
 
 All
directors serve for one year and until their successors are elected and
qualified. All officers serve at the pleasure of the board of directors. There
are no family relationships among any of the officers and directors.
 
 Biographical
information concerning our executive officers and directors is set forth below.
 
 **David
Lott**
 
 Mr. Lott
was the founder of our predecessor company, Limelight Media Group, Inc.
(formerly known as Showintel Networks, Inc.), and served as its sole director
and Chief Executive Officer until our acquisition of such company in September
2001. Since September 2001, he has served as our President and Chief Executive
Officer and one of our directors. Mr. Lott has 20 years experience in business
development and management, including the founding of Daody Management, Inc., a
warehousing and storage management company, for whom he served as President from
1992 until the sale of the company in 1998. Mr. Lott has a bachelor's degree in
natural resource management from the University of Tennessee at
Martin.
 
 **Kirk
Krajewski**
 
 Mr.
Krajewski has served as a director of our company since February 2005. He is a
26-year veteran of the transportation and distribution industry with a specialty
in wholesale foods. For the past five years, he has served as the Vice President
and General Manager of SYGMA Network in Orlando, Florida, a wholesale food
distributor which is wholly-owned by SYSCO Foods, Inc. Mr. Krajewski holds a
bachelor's degree in Business Administration from North Central College in
Naperville, Illinois.
 
 **Philip
Worack**
 
 Mr.
Worack has served as a director of our company since October 2004. Since 2000,
Mr. Worack has served a director, and, since April 2005, Mr. Worack has served
as President and Chief Executive Officer of CARDXX, Inc., a company that
manufactures smart cards and other secure encapsulation products. From June 2001
until January 2003, Mr. Worack also served as President and Chief Executive
Officer of CARDXX, Inc. Mr. Worack is the founder and principal stockholder of
LKS Corporation, which provides consulting services to emerging growth
companies, and currently serves as its President. Mr. Worack has a bachelor's
degree in finance from Northern Illinois University.
 
 20
 
 **Section
16(a) Beneficial Ownership Reporting Compliance**
 
 Section
16(a) of the Securities Exchange Act of 1934 requires our officers and
directors, and persons who beneficially own more than ten percent(10%)of a
registered class of our equity securities, to file reports of ownership and
changes in ownership with the Securities and Exchange Commission. 
Officers, directors and greater than 10 percent shareholders are required by the
Securities and Exchange Commission to furnish us with copies of all Section
16(a) forms they file.
 
 Based
solely upon our review of the copies of such forms furnished to us during the
year ended December 31, 2004, and representations made by certain persons
subject to the Section 16(a) reporting obligations that such filings were not
required to be made, we believe that for the year ended December 31, 2004 all
Section 16(a) filing requirements applicable to our officers, directors and
greater than 10 percent shareholders were complied with, except for the
following filings that were not made in a timely manner:
 
 A
Statement of Change in Beneficial Ownership on Form 4 filed by John Fraier, our
former Chief Financial Officer, with respect to two acquisitions of shares in
the fourth quarter of 2003 and an acquisition of shares in the second quarter of
2004.
 
 A
Statement of Change in Beneficial Ownership on Form 4 filed by David Lott, our
Chairman, Chief Executive Officer and President, with respect to an acquisition
of shares in the first quarter of 2003, two acquisitions of shares in the fourth
quarter of 2003 and a disposition in the fourth quarter of 2003.
 
 A
Statement of Change in Beneficial Ownership on Form 4 filed by David Lott with
respect to an acquisition of shares in the second quarter of 2003 and a
disposition in the second quarter of 2004.
 
 A
Statement of Change in Beneficial Ownership on Form 4 filed by David Lott with
respect to a disposition in the third quarter of 2004 by the David V. Lott
Living Trust, a beneficial owner of more than 10% of our common stock, for which
Mr. Lott serves as trustee.
 
 A
Statement of Change in Beneficial Ownership on Form 4 filed by Ronald Ricciardi,
a former director of our company, with respect to a transaction acquisition in
the fourth quarter of 2003.
 
 An
Statement of Change in Beneficial Ownership on Initial Statement of Beneficial
Ownership on Form 3 filed by Peter Kertes, a former director of our company,
with respect to an acquisition of shares in the first quarter of
2004.
 
 An
Initial Statement of Beneficial Ownership on Form 4 filed by John Fraier, our
former Chief Financial Officer, with respect to an acquisition of shares in the
first quarter of 2004.
 
 21
  An
Initial Statement of Beneficial Ownership on Form 3 filed by Phil Worack, one of
our directors, with respect to an acquisition of shares and warrants in the
fourth quarter of 2004.
 
 Except as
disclosed, we are not aware of any transactions in our outstanding securities by
or on behalf of any director, executive officer or 10 percent shareholder that
would require the filing of any report pursuant to Section 16(a) during the year
ended December 31, 2004 that has not been filed with the Securities and Exchange
Commission.
 
 **Code
Of Ethics**
 
 We have
adopted a formal code of ethics that applies to our principal executive officer
and principal accounting officer, and all other officers, directors and
employees. Our code of ethics is filed herewith as an exhibit to this
Report.
 
 **Item
10.   Executive Compensation**
 
 The
following Summary Compensation Table sets forth certain information concerning
the compensation of our Chief Executive Officer and our most highly compensated
executive officers, other than the Chief Executive Officer (collectively, the
"Named Executed Officers"), for each of the years ended December 31, 2004, 2003
and 2002:
 
 Long
      TermCompensationAwardsAnnual
      Compensation
    
    Awards
    
    PayoutsFiscal
      Year
    
    Salary
      ($)
    
    Bonus($)
    
    Other
      Annual
      Compensation
      ($)
    
    Restricted
      Stock
      Award(s)
      ($)
    
    Securities
      Underlying
      Options/
      SARs
      (#)
    
    LTIP
      Payouts
      ($)
    
    All
      Other
      Compensation
      ($)David
      V. Lott, President
    
    
    2004
    
    $
    87,500
    (1)
    $
    -0-
    
    $
    -0-
    
    $
    -0-
    
    
    -0-
    
    $
    -0-
    
    $
    93,000
    (2)and
      Chief Executive Officer
    
    
    2003
    
    $
    84,000
    (3)
    $
    -0-
    
    $
    -0-
    
    $
    -0-
    
    
    -0-
    
    $
    -0-
    
    $
    214,373
    (4)2002
    
    $
    -0-
    (5)
    $
    -0-
    
    $
    -0-
    
    $
    -0-
    
    
    -0-
    
    $
    -0-
    
    $
    -0-John
      Fraier
    
    
    2004
    
    $
    63,000
    
    $
    -0-
    
    $
    -0-
    
    $
    -0-
    
    
    -0-
    
    $
    -0-
    
    $
    10,500
    (7)Chief
      Financial Officer (6)
    
    
    2003
    
    $
    7,000
    
    $
    -0-
    
    $
    -0-
    
    $
    -0-
    
    
    -0-
    
    $
    -0-
    
    $
    19,375
    (8)2002
    
    $
    -0-
    
    $
    -0-
    
    $
    -0-
    
    $
    -0-
    
    
    -0-
    
    $
    -0-
    
    $
    -0-
 _________________
 
 1.
    Of
      such amount, $52,500 represents accrued but unpaid salary for services
      rendered as our President and Chief Executive Officer from August 2004
      through December 2004. In January 2005, we issued to Mr. Lott 2 million
      shares of our common stock in satisfaction of the $52,500 debt we owed to
      Mr. Lott for such accrued but unpaid
salary.
 
 2.
    Represents
      the value of 300,000 shares of our common stock issued to Mr. Lott for
      services rendered in January and February of
2004.
 
 3.
    All
      of such amount represents accrued but unpaid salary for services rendered
      in 2003. On August 31, 2004, we issued a promissory note to Mr. Lott in
      the principal amount of $385,306.78, of which $84,000 represented the
      amount of accrued but unpaid salary for 2003.
 
 22
 
 4.
    Represents
      the value of 2,813,555 shares of our common stock issued to Mr. Lott as
      additional compensation for services rendered in 2003. At the time of
      issuance, the stock had a market value of
$214,373.
 
 5.
    Mr.
      Lott served as our President and Chief Executive Officer in 2002 without
      compensation for his services.
 
 6.
    Mr.
      Fraier served as a consultant to our company from May 2003 through October
      2003 and as our Chief Financial Officer from November 2003 through October
      2004.
 
 7.
    Represents
      the value of 291,667 shares of our common stock issued to Mr. Fraier in
      January 2005 for accrued but unpaid salary for services rendered as Chief
      Financial Officer from July 2004 through October 2004. Mr. Fraier resigned
      from our company on October 25, 2004.
 
 8.
    Represents
      the value of 155,000 shares of our common stock issued to Mr. Fraier in
      November 2003 for accrued but unpaid consulting fees for consulting
      services rendered from May 2003 through October 2003 plus the value of
      40,000 shares of common stock issued to Mr. Fraier in November 2003 in
      respect of accrued but unpaid salary for services rendered as Chief
      Financial Officer from May 2003 through October 2003.
  23
 ****
 **Compensation
of Directors**
 
 Non-employee
directors receive no annual fee for their services, but are paid $500 for each
meeting of the board they attend, plus reimbursement for reasonable
out-of-pocket expenses incurred in attending meetings. Employee directors are
not additionally compensated for board services.
 
 **Employment
Agreements**
 
 Currently,
we do not have a written employment agreement with any of our employees.
However, on February 2, 2004, our board of directors approved a $15,000 per
month salary arrangement for David Lott, our President and Chief Executive
Officer. We are currently in discussions with Mr. Lott regarding execution of a
formal written employment agreement.
 
 **ITEM
11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND** **RELATED
STOCKHOLDER MATTERS**
 
 The
following table sets forth information as of April 8, 2005 regarding beneficial
stock ownership of (i) all persons known to us to be beneficial owners of more
than 5% of our outstanding common stock; (ii) each director of our company and
our executive officers whose compensation is required to be reported in Item 10
of this Report, and (iii) all of our officers and directors as a group. Each of
the persons in the table below has sole voting power and sole dispositive power
as to all of the shares shown as beneficially owned by them, except as otherwise
indicated.
 
 Name
    Address
    Number
      of
      Shares
      Beneficially
      Owned(1)
    Percent
      of
      Outstanding
      Shares(1)David
      V. Lott (2)
    1701
      Tall Forrest Lane
    19,704,991
    14.9%Collierville,
      TN 38017Philip
      A. Worack (3)
    5245
      South Danube
    1,238,721
    *Centennial,
      CO 80015Kirk
      Krajewski
    12842
      Magnolia Pointe Blvd
    2,708,135
    2.0%Clairmont,
      FL 34711Shai
      Stern (4)
    150
      West 46th Street
    7,700,000
    5.8%New
      York, NY 10036Seth
      Farbman (4)
    150
      West 46th Street
    7,700,000
    5.8%New
      York, NY 10036All
      directors and executive officers as a group (three
persons)
    23,641,847
    17.7%
 ___________________
 
 *
Constitutes less than 1%
 
 24
 
 1.
    For
      purposes of this table, information as to the beneficial ownership of
      shares of our common stock is determined in accordance with the rules of
      the Securities and Exchange Commission and includes general voting power
      and/or investment power with respect to securities. Except as otherwise
      indicated, all shares of our common stock are beneficially owned, and sole
      investment and voting power is held, by the person named. The percentages
      in this table are based upon a total of 132,631,944 shares outstanding as
      of April 8, 2005. For purposes of this table, a person or group of persons
      is deemed to have "beneficial ownership" of any shares of our common stock
      that such person has the right to acquire within 60 days after April 8,
      2005. For purposes of computing the percentage of outstanding shares of
      our common stock held by each person or group of persons named above, any
      shares which such person or persons has the right to acquire within 60
      days after April 8, 2005 is deemed to be outstanding but is not deemed to
      be outstanding for the purpose of computing the percentage ownership of
      any other person. The inclusion herein of such shares listed beneficially
      owned does not constitute an admission of beneficial
      ownership.
 
 2.
    All
      such shares areowned
      of record by The David V. Lott Living Trust, of which Mr. Lott serves as
      trustee with sole voting and investment
power.
 
 3.
    Includes
      938,721 shares owned of record by Mr. Worack and 300,000 shares issuable
      upon the exercise of warrants held by Mr. Worack.
 
 4.
    As
      reported on, and solely in reliance upon, Schedule 13D filed by Vintage
      Filings, LLC on February 25, 2005. Such shares include 5,500,000 owned of
      record by Vintage Filings, LLC, of which Messrs. Stern and Farbman are the
      principal owners. Messrs. Stern and Farbman have shared voting and
      dispositive power with respect to the shares owned by Vintage Filings,
      LLC.
 
 
 **ITEM
12.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**
 
 On April
16, 2003, we issued 580,000 shares of our common stock to David V. Lott, our
Chairman, Chief Executive Officer and President, in consideration of a $58,000
reduction of a debt due to him. On the date of issuance, the market price of the
common stock was $0.10 per share.
 
 In May
2003, Mr. Lott, borrowed $40,000 from a third party lender using 296,000 shares
of his personal common stock of our company as collateral and loaned the $40,000
to us. In August 2003, the lender sold the stock in consideration of interest on
the loan totaling $9,700.
 
 On June
11, 2003, we issued 880,000 shares of our common stock to David V. Lott, our
Chairman, Chief Executive Officer, and President, for services at $0.11 per
share. On the date of issuance, the market price of the common stock was
$0.11.
 
 On August
25, 2003, we issued 1,383,555 shares of our common stock to Mr. Lott for
services rendered, which shares were valued at $0.04 per share. On the date of
issuance, the market price of the common stock was $0.04 per share.
 
 On
October 26, 2003, we issued 250,000 shares of our common stock to Mr. Lott for
services rendered which shares were valued at $0.11 per share. On the date of
issuance, the market price of the common stock was $0.11 per share.
 
 On
December 12, 2003, we issued 150,000 restricted shares of our common stock to
Mr. Lott, for services rendered to us at $0.08 per share. On the date of
issuance, the market price of the common stock was $0.08 per share.
 
 On
December 12, 2003, we issued 296,000 shares of common stock to Mr. Lott to
replace the shares of common stock that we borrowed from Mr. Lott that were sold
by our lender in August 2003 as described above. On the date of issuance, the
market price of the common stock was $0.08 per share. We recorded the issuance
as interest expense totaling $23,680. Further, Mr. Lott paid the loan in
December 2003 along with an additional $17,238 in interest. As the proceeds from
the loan were used to pay expenses on our behalf, we increased the loan from Mr.
Lott and recorded interest expense totaling $17,238.
 
 25
 
 On
January 13, 2004, we issued 150,000 restricted shares of our common stock to Mr.
Lott, for services rendered to us at $0.15 per share. On the date of issuance,
the market price of the common stock was $0.15 per share.
 
 On
February 24, 2004, we issued 150,000 restricted shares of our common stock to
Mr. Lott, for services rendered to us at $0.47 per share. On the date of
issuance, the market price of the common stock was $0.47 per share.
 
 On August
31, 2004, we issued a 9% Secured Subordinated Note, having a principal amount of
$385,306.78, to Mr. Lott, in consideration for his personal payment of company
debt in the amount of $301,306.78 and for Mr. Lott's accrued but unpaid salary
in 2003 of $84,000. Pursuant to the terms of the note, Mr. Lott received a
security interest in all of our assets. The note provides for the monthly
payment of accrued interest with all outstanding principal and interest due on
August 31, 2006. At April 8, 2005, the total principal amount of the note was
outstanding.
 
 In
January 2005, we issued 2 million shares of common stock to Mr. Lott, at $0.265
per share. On the date of issuance, the market price of the common stock was
$0.265 per share. Such shares were issued in satisfaction of a debt we owed to
Mr. Lott in the amount of $52,500, representing the amount of accrued but unpaid
salary for his services rendered from August 2004 through December
2004.
 
 **ITEM
13. EXHIBITS AND REPORTS ON FORM 8-K**
 
 **(A)**
    **(1) 
      FINANCIAL STATEMENTS**:
 
 PageReports
      of Independent Public Accountants
    F-1Balance
      Sheet as of December 31, 2004
    F-2Statements
      of Operations for the years ended December 31, 2004 and
    2003
    F-3Statements
      of Stockholders' Equity (Deficiency) for the years ended December 31, 2004
      and 2003
    F-4Statements
      of Cash Flows for the years ended December 31, 2004 and
    2003
    F-7Notes
      to Financial Statements
    F-10
 
 **(A)**
    **(2) 
      EXHIBITS:**
 
 The
exhibits required by this item are set forth on the Exhibit Index attached
hereto.
 
 26
 
 **(B)
Reports on Form 8-K:**
 
 A Current
Reports on Form 8-K during the fourth quarter of 2004:
 
 A Current
Report on Form 8-K, dated October 4, 2004, reporting the election of Phil A.
Worack to our board of directors.
 
 A Current
Report on Form 8-K, dated December 1, 2004, reporting the resignation of John
Fraier as our Chief Financial Officer and the re-appointment of David V. Lott as
our President.
 
 A Current
Report on Form 8-K, dated December 2, 2004, reporting the status of our attempts
to resolve two potential legal disputes involving our company.
 
 A Current
Report on Form 8-K, dated December 8, 2004, reporting the status of our attempts
to resolve a dispute with Cornell Capital Partners, L.P.
 
 A Current
Report on Form 8-K, dated December 23, 2004, reporting the issuance of a press
release announcing the execution of our agreement with American Marketing
Complex, Inc.
 
 
 **ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES**
 
 **Audit
Fees**
 
 The firm
of L. L. Bradford & Company, LLC served as our independent public
accountants during the fiscal years ended December 31, 2004 and 2003. The
aggregate fees billed by L. L. Bradford & Company, LLC for the audits of our
financial statements included in our annual report on Form 10-KSB and for the
review of our financial statements included in our quarterly reports on Form
10-QSB for the fiscal year ended December 31, 2004 was $35,236. The aggregate
fees billed by L. L. Bradford & Company, LLC for the fiscal year ended
December 31, 2003, totaled $21,266.
 
 **Audit-Related
Fees**
 
 The
aggregate fees billed in each of fiscal 2004 and 2003 for assurance and related
services by the accounting firms that are reasonably related to the audit or
review of our financial statements and that were not covered in the Audit Fees
disclosure above, was $1,600.
 
 27
 
 **Tax
Fees**
 
 The
aggregate fees billed in each of fiscal 2004 and 2003 for professional services
rendered by the accounting firms for tax compliance, tax advice or tax planning
was $0 and $0, respectively.
 
 **All
Other Fees**
 
 There
were no fees billed in fiscal 2004 or 2003 for professional services rendered by
the accounting firms except as disclosed above.
 
 **Board
Of Directors Pre-Approval**
 
 In
accordance with paragraph (c)(7)(i) of Rule 2-01 of Regulation S-X, our board of
directors formally adopted resolutions pre-approving our engagement of L. L.
Bradford & Company, LLC to act as our independent auditor for our last
fiscal year ended December 31, 2004. L. L. Bradford & Company, LLC performed
all work described above with its full-time, permanent employees.
 
 28
  **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 14,
    2005
    Limelight Media Group,
      Inc.By:/s/ David V. LottDavid V. LottPresident
  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/ David V. Lott
      
      David V. Lott
      April 14, 2005
    
    Chief Executive Officer (principal executive officer),
      Chief Financial Officer (principalaccounting
      officer), Chairman of the Board of Directors/s/ Kirk Krajewski
      
      Kirk Krajewski
      April 14, 2005
    
    Director/s/Philip A. Worack
      
      Philip A. Worack
      April 14, 2005
    
    Director
  
  LIMELIGHT
MEDIA GROUP, INC.
 (A
DEVELOPMENT STAGE COMPANY)
 
 FINANCIAL
STATEMENTS
 
 DECEMBER
31, 2004
 
 (With
Report of Independent Registered Public Accounting Firm Thereon)
  
    *L.L.
Bradford & Company, LLC*
 *Certified
Public Accountants & Consultants*
  TABLE OF CONTENTS
  
 PAGE
      NO.Reports
      of Independent Public Accountants
    F-1Financial
      StatementsBalance
      Sheet as of December 31, 2004
    F-2Statements
      of Operations for the years ended December 31, 2004 and
      2003
    F-3Statements
      of Stockholders' Equity (Deficiency) for the years ended December 31, 2004
      and 2003
    F-4Statements
      of Cash Flows for the years ended December 31, 2004 and
      2003
    F-7Notes
      to Financial Statements
    F-10
  
 
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
 
 To
the Board of Directors and Stockholders
 Limelight
Media Group, Inc.
 (A
Development Stage Company)
 Cordova,
Tennessee
 
 
 We
have audited the accompanying balance sheet of Limelight Media Group, Inc. (A
Development Stage Company) as of December 31, 2004, and the related statements
of operations, stockholders’ deficit, and cash flows for the years ended
December 31, 2004 and 2003 and for the period from April 19, 2001 (Date of
Inception of Limelight Media Group, Inc.) through December 31, 2004. These
financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
 
 We
conducted our audit 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 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 audit provides a reasonable basis for our opinion.
  In
our opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Limelight Media Group, Inc. (A
Development Stage Company) as of December 31, 2004, and the results of its
activities and cash flows for the years ended December 31, 2004 and 2003 and for
the period from April 19, 2001 (Date of Inception of Limelight Media Group,
Inc.) through December 31, 2004 in conformity with accounting principles
generally accepted in the United States of America.
 
 The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company has suffered losses from operations and current
liabilities exceed current assets, all of which raise substantial doubt about
its ability to continue as a going concern. Management’s plans in regards to
these matters are also described in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
 
  
 /s/
 L.L. Bradford & Company, LLC
 March
4, 2005
 (Except
for note 19, as to which the date is March 11, 2005)
 Las
Vegas, Nevada




F-1


LIMELIGHT
      MEDIA GROUP, INC.(A
      DEVELOPMENT STAGE COMPANY)BALANCE SHEETDECEMBER
      31, 2004ASSETS


Current
      assetsCash
    
    $
    273Accounts
      receivable
    
    
    346Total
      current assets
    
    
    619Fixed
      assets, net
    
    
    186,271Other
      assets
    
    
    3,320Total
      assets
    
    $
    190,210LIABILITIES
      AND STOCKHOLDERS' DEFICITCurrent
      liabilitiesAccounts
      payable and accrued expenses
    
    $
    348,857Due
      to related parties
    
    
    1,472,726Convertible
      loan payable - related party
    
    
    10,000Convertible
      loan payable
    
    
    10,000Loans
      payable
    
    
    29,500Other
      liabilities
    
    
    283,087Total
      current liabilities
    
    
    2,154,170Long-term
      liabilitiesConvertible
      debentures
    
    
    75,000Convertible
      fee debenture
    
    
    340,000415,000Total
      liabilities
    
    
    2,569,170Commitments
      and contingencies
    
    
    --Stockholders'
      deficitCommon
      stock - $.001 par value, 100,000,000 sharesauthorized,
      96,379,100 shares issued and 89,137,200shares
      outstanding
    
    
    89,136Additional
      paid-in capital
    
    
    6,706,872Loan
      fees related to standby equity distribution
agreement
    
    
    (276,192
    )Cash
      equivalent credit paid in common stock
    
    
    (125,000
    )Accumulated
      deficit
    
    
    (8,773,776
    )Total
      stockholders' deficit
    
    
    (2,378,960
    )Total
      liabilities and stockholders' deficit
    
    $
    190,210
  See
Accompanying Notes to Financial Statements
 F-2




LIMELIGHT
      MEDIA GROUP, INC.(A
      DEVELOPMENT STAGE COMPANY)STATEMENTS OF OPERATIONS


For
      the yearEnded
      December
      31, 2004
    
    For
      the yearEnded
      December
      31, 2003
    
    For
      the PeriodFrom April 19, 2001(Inception)
      throughDecember 31, 2004Revenue
    
    $
    18,672
    
    $
    88,927
    
    $
    140,466Cost
      of revenue
    
    
    8,842
    
    
    47,112
    
    
    80,085Gross
      profit
    
    
    9,830
    
    
    41,815
    
    
    60,381General
      and administrative expensesBad
      debt
    
    
    --
    
    
    16,863
    
    
    16,863Consulting
      fees
    
    
    2,343,874
    
    
    824,956
    
    
    5,266,554Depreciation
    
    
    52,601
    
    
    27,797
    
    
    106,514Loss
      related to rescission of UniGuest acquisition
    
    
    --
    
    
    24,669
    
    
    24,669Bad
      debt related to note receivable
    
    
    77,761
    
    
    91,269
    
    
    169,030Bad
      debt related to due from UniGuest
    
    
    --
    
    
    25,000
    
    
    25,000Other
      general and administrative expenses
    
    
    1,414,633
    
    
    606,003
    
    
    2,564,073Total
      general and administrative expenses
    
    
    3,888,869
    
    
    1,616,557
    
    
    8,172,703Loss
      from operations
    
    
    (3,879,039
    )
    
    (1,574,742
    )
    
    (8,112,322
    )Other
      income (expense)Interest
      income
    
    
    --
    
    
    191
    
    
    4,960Gain
      on sale of fixed asset
    
    
    --
    
    
    --
    
    
    1,123Loss
      related to settlements and judgments
    
    
    (170,388
    )
    
    --
    
    
    (170,388
    )Interest
      expense
    
    
    (423,153
    )
    
    (46,214
    )
    
    (497,149
    )Loss
      before provision for income taxes
    
    
    (4,472,580
    )
    
    (1,620,765
    )
    
    (8,773,776
    )Income
      tax provisions
    
    
    --
    
    
    --
    
    
    --Net
      loss
    
    $
    (4,472,580
    )
    $
    (1,620,765
    )
    $
    (8,773,776
    )Basic
      and diluted loss per common share
    
    $
    (0.08
    )
    $
    (0.05
    )
    $
    (0.25
    )Basic
      and diluted weighted averagecommon
      shares outstanding
    
    
    57,012,063
    
    
    32,007,270
    
    
    35,504,296
  See Accompanying Notes to Financial
Statements
 F-3




LIMELIGHT
      MEDIA GROUP, INC.(A
      DEVELOPMENT STAGE COMPANY)STATEMENT OF STOCKHOLDERS' DEFICIT
 Common
      stockNumber
      of
      Shares
    
    Amount
    
    Additional
      Paid-in
      capital
    
    Prepaid
      Consulting
      Services
    
    Loan
      FeesRelated toStandby EquityDistributionAgreement
    
    Cash
      Equivalent
      Credit
      Paid inCommon Stock
    
    Accumulated
      Deficit
    
    Total
      Stockholders'
      DeficitBalance,
      April 19, 2001 (Date of Inception of Limelight Media Group,
      Inc.)
    
    
    --
    
    $
    --
    
    $
    --
    
    $
    --
    
    $
    --
    
    $
    --
    
    $
    --
    
    $
    --Common
      stock issued to a founder for cash, $0.0165 per share
    
    
    15,000,000
    
    
    15,000
    
    
    232,725
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    247,725Common
      stock issued in April 2001 to a founder for services, $0.0165 per
      share
    
    
    3,000,000
    
    
    3,000
    
    
    46,500
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    49,500Common
      stock issued in September 2001 for the acquisition of Multinet
      International Corporation, Inc., $.001 per share
    
    
    2,431,000
    
    
    2,431
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    2,431Issuance
      of warrants in November 2001 for 1,000,000 shares of common stock to a
      consultant with a weighted average exercise price of $1.00
    
    
    --
    
    
    --
    
    
    350,000
    
    
    (291,666
    )
    
    --
    
    
    --
    
    
    --
    
    
    58,334Net
      loss
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    (698,767
    )
    
    (698,767
    )Balance,
      December 31, 2001
    
    
    20,431,000
    
    
    20,431
    
    
    629,225
    
    
    (291,666
    )
    
    --
    
    
    --
    
    
    (698,767
    )
    
    (340,777
    )Issuance
      of common stock to related party for prepaid consulting services at $0.65
      per share
    
    
    760,000
    
    
    760
    
    
    493,240
    
    
    (494,000
    )
    
    --
    
    
    --
    
    
    --
    
    
    --Issuances
      of common stock to various consultants with a weighted average exercise
      price of $0.08 per share
    
    
    1,100,000
    
    
    1,100
    
    
    83,900
    
    
    (85,000
    )
    
    --
    
    
    --
    
    
    --
    
    
    --600,000
      shares of common stock given to various consultants by the
      President/stockholder to satisfy consulting agreements, valued at $0.65
      per share in exchange for stock payable
    
    
    --
    
    
    --
    
    
    --
    
    
    (535,950
    )
    
    --
    
    
    --
    
    
    --
    
    
    (535,950
    )Issuance
      of common stock for services, weighted average $0.35 per
    share
    
    
    905,000
    
    
    905
    
    
    315,845
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    316,750Issuance
      of warrants for 500,000 shares of common stock to various consultants with
      a weighted average exercise price of $0.65
    
    
    --
    
    
    --
    
    
    25,000
    
    
    (25,000
    )
    
    --
    
    
    --
    
    
    --
    
    
    --Expensed
      portion of prepaid consulting services
    
    
    --
    
    
    --
    
    
    --
    
    
    1,396,598
    
    
    --
    
    
    --
    
    
    --
    
    
    1,396,598Issuance
      of common stock related to exercise of warrants at $0.50 per
      share
    
    
    10,000
    
    
    10
    
    
    4,990
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    5,000Issuance
      of common stock for cash, weighted average $0.10 per share
    
    
    2,150,000
    
    
    2,150
    
    
    192,850
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    195,000Issuance
      of common stock for promissory note receivable, $0.10 per
      share
    
    
    200,000
    
    
    200
    
    
    19,800
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    20,000Issuance
      of common stock for acquisition of UniGuest
    
    
    500,000
    
    
    500
    
    
    32,000
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    32,500Issuance
      of common stock in satisfaction of due to stockholder
    
    
    2,600,000
    
    
    2,600
    
    
    856,653
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    859,253Issuance
      of common stock in satisfaction of loan payable
    
    
    600,000
    
    
    600
    
    
    74,400
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    75,000Cancellation
      of common stock
    
    
    (362,000
    )
    
    (362
    )
    
    362
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --Net
      loss
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    (1,981,664
    )
    
    (1,981,664
    )Balance,
      December 31, 2002
    
    
    28,894,000
    
    
    28,894
    
    
    2,728,265
    
    
    (35,018
    )
    
    --
    
    
    --
    
    
    (2,680,431
    )
    
    41,710
  See Accompanying Notes to Financial
Statements
 F-4


LIMELIGHT
      MEDIA GROUP, INC.(A
      DEVELOPMENT STAGE COMPANY)STATEMENT
      OF STOCKHOLDERS' DEFICIT (CONTINUED)


Common
      stockNumberof Shares
    
    Amount
    
    AdditionalPaid-in capital
    
    PrepaidConsultingServices
    
    Loan
      FeesRelated toStandby EquityDistributionAgreement
    
    Cash
      EquivalentCredit Paid inCommon Stock
    
    AccumulatedDeficit
    
    TotalStockholders'
      DeficitBalance
      December 31, 2002
    
    
    28,894,000
    
    
    28,894
    
    
    2,728,265
    
    
    (35,018
    )
    
    --
    
    
    --
    
    
    (2,680,431
    )
    
    41,710Issuance
      of common stock for cash, weighted average $0.03 per share
    
    
    2,580,331
    
    
    2,580
    
    
    80,420
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    83,000Issuance
      of common stock for services, weighted average $0.11 per
    share
    
    
    1,727,000
    
    
    1,727
    
    
    193,743
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    195,470Issuance
      of common stock to employees for services, weighted average $0.12 per
      share
    
    
    2,026,000
    
    
    2,026
    
    
    241,094
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    243,120Issuance
      of common stock to officers for services,
    
    
    2,968,555
    
    
    2,969
    
    
    230,004
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    232,973Issuance
      of common stock for reduction in due to stockholder, $0.10 per
      share
    
    
    580,000
    
    
    580
    
    
    57,420
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    58,000Issuance
      of common stock related to loan fees, $0.09 per share
    
    
    1,250,000
    
    
    1,250
    
    
    97,970
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    99,220Issuance
      of common stock to officer for interest, $0.08 per share
    
    
    296,000
    
    
    296
    
    
    23,384
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    23,680Issuance
      of common stock to an officer and various employees in satisfaction of
      accounts payable and accrued liabilities, $0.10 per share
    
    
    90,000
    
    
    90
    
    
    8,910
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    9,000Issuance
      of warrants for 300,000 shares of common stock related to loan
      fees
    
    
    --
    
    
    --
    
    
    15,000
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    15,000Expensed
      portion of prepaid consulting services
    
    
    --
    
    
    --
    
    
    --
    
    
    35,018
    
    
    --
    
    
    --
    
    
    --
    
    
    35,018Payment
      of due to stockholder by consultant through purchase of stockholder's
      warrants
    
    
    --
    
    
    --
    
    
    57,500
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    57,500Cancellation
      of common stock in relation to rescission of UniGuest
      acquisition
    
    
    (500,000
    )
    
    (500
    )
    
    (32,000
    )
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    (32,500
    )Net
      loss
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    (1,620,765
    )
    
    (1,620,765
    )Balance
      December 31, 2003
    
    
    39,911,886
    
    
    39,912
    
    
    3,701,710
    
    
    --
    
    
    --
    
    
    --
    
    
    (4,301,196
    )
    
    (559,574
    )
  See Accompanying Notes to Financial
Statements
 F-5




LIMELIGHT
      MEDIA GROUP, INC.(A
      DEVELOPMENT STAGE COMPANY)STATEMENT
      OF STOCKHOLDERS' DEFICIT (CONTINUED)


Common
      stockNumberof Shares
    
    Amount
    
    AdditionalPaid-in capital
    
    PrepaidConsultingServices
    
    Loan
      Fees
      Related
      to
      Standby
      Equity
      DistributionAgreement
    
    Cash
      Equivalent
      Credit
      Paid in
      Common
      Stock
    
    Accumulated
      Deficit
    
    Total
      Stockholders'DeficitBalance,
      December 31, 2003
    
    
    39,911,886
    
    
    39,912
    
    
    3,701,710
    
    
    --
    
    
    --
    
    
    --
    
    
    (4,301,196
    )
    
    (559,574
    )Issuance
      of common stock for cash, weighted average $0.04 per share
    
    
    5,636,110
    
    
    5,636
    
    
    208,864
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    214,500Issuance
      of common stock for services, weighted average $0.30 per
    share
    
    
    4,539,194
    
    
    4,539
    
    
    1,379,164
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    1,383,703Issuance
      of common stock to officer for services, weighted average $0.31 per
      share
    
    
    300,000
    
    
    300
    
    
    92,700
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    93,000Issuance
      of common stock to director for consulting services, $0.11
    
    
    200,000
    
    
    200
    
    
    21,800
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    22,000Issuance
      of common stock in satisfaction of other liabilities, $0.03 per
      share
    
    
    2,548,893
    
    
    2,549
    
    
    78,399
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    80,948Beneficial
      conversion feature of loans payable and debentures
    
    
    --
    
    
    --
    
    
    174,842
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    174,842Warrants
      granted for services
    
    
    --
    
    
    --
    
    
    47,832
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    47,832Issuance
      of common stock for interest, $0.47 per share
    
    
    400,000
    
    
    400
    
    
    187,600
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    188,000Issuance
      of common stock related to settlement agreement
    
    
    300,000
    
    
    300
    
    
    59,700
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    60,000Issuance
      of common stock for cash related to standby equity distribution
      agreement
    
    
    7,386,886
    
    
    7,387
    
    
    186,113
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    193,500Issuance
      of common stock in satisfaction of convertible loans payable - related
      parties (including accrued interest of $1,969)
    
    
    320,566
    
    
    320
    
    
    44,149
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    44,469Issuance
      of common stock in satisfaction of convertible loans
    payable
    
    
    759,388
    
    
    759
    
    
    64,641
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    65,400Issuance
      of common stock in satisfaction of convertible debenture
    
    
    22,039,277
    
    
    22,039
    
    
    402,961
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    425,000Cancellation
      of common stock
    
    
    (205,000
    )
    
    (205
    )
    
    205
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --Loan
      fees related to standby equity distribution agreement
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    (340,000
    )
    
    --
    
    
    --
    
    
    (340,000
    )Current
      period amortization of loan fees
    
    
    --
    
    
    --
    
    
    (63,808
    )
    
    --
    
    
    63,808
    
    
    --
    
    
    --
    
    
    --Issuance
      of common stock for cash equivalent credit
    
    
    5,000,000
    
    
    5,000
    
    
    120,000
    
    
    
    
    
    
    
    
    (125,000
    )
    
    
    
    
    --Net
      loss
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    (4,472,580
    )
    
    (4,472,580
    )Balance,
      December 31, 2004
    
    
    89,137,200
    
    $
    89,136
    
    $
    6,706,872
    
    $
    --
    
    $
    (276,192
    )
    $
    (125,000
    )
    $
    (8,773,776
    )
    $
    (2,378,960
    )
  See Accompanying Notes to Financial
Statements
 F-6




LIMELIGHT
      MEDIA GROUP, INC.(A
      DEVELOPMENT STAGE COMPANY)STATEMENTS OF CASH FLOWS


For
      the YearEndedDecember 31, 2004
    
    For
      the YearEndedDecember 31, 2003
    
    For
      the PeriodFrom April 19, 2001(Inception)
      throughDecember 31, 2004Cash
      flows from operating activities:Net
      loss
    
    $
    (4,472,580
    )
    $
    (1,620,765
    )
    $
    (8,773,776
    )Adjustments
      to reconcile net loss tonet
      cash used by operating activities:Stock
      based compensation
    
    
    1,546,535
    
    
    706,581
    
    
    4,076,729Stock
      based compensation related to interest
    
    
    188,000
    
    
    23,680
    
    
    211,680Depreciation
    
    
    52,601
    
    
    27,797
    
    
    106,514Beneficial
      conversion feature of loans payable anddebenture
    
    
    174,842
    
    
    --
    
    
    174,842Bad
      debt related to note and related interestreceivable
    
    
    77,761
    
    
    91,269
    
    
    169,030Bad
      debt related to due from UniGuest
    
    
    --
    
    
    25,000
    
    
    25,000Loss
      related rescission of UniGuest acquisition
    
    
    --
    
    
    24,669
    
    
    24,669Loss
      related to settlement paid in common stock
    
    
    60,000
    
    
    **--**
    
    
    60,000Amortization
      of loan fees paid in common stock
    
    
    --
    
    
    114,220
    
    
    114,220Gain
      on sale of fixed assets
    
    
    --
    
    
    --
    
    
    (1,123
    )Accrual
      of due to related parties
    
    
    779,382
    
    
    --
    
    
    779,382Changes
      in operating assets and liabilities:Change
      in accounts receivable
    
    
    (346
    )
    
    (16,402
    )
    
    (36,048
    )Change
      in interest receivable
    
    
    --
    
    
    --
    
    
    (4,769
    )Change
      in other assets
    
    
    (3,320
    )
    
    --
    
    
    (3,320
    )Change
      in accounts payable and accrued expenses
    
    
    243,305
    
    
    (21,151
    )
    
    370,683Change
      in other liabilities
    
    
    252,388
    
    
    111,647
    
    
    364,035Net
      cash used by operating activities
    
    
    (1,101,432
    )
    
    (533,455
    )
    
    (2,342,252
    )Cash
      flows from investing activities:Loan
      made related to note receivable
    
    
    (77,761
    )
    
    --
    
    
    (144,261
    )Sale
      of fixed assets
    
    
    --
    
    
    --
    
    
    3,950Decrease
      in cash due to rescission of acquisition
    
    
    --
    
    
    (15,432
    )
    
    (15,432
    )Purchase
      of fixed assets
    
    
    (148,749
    )
    
    (9,307
    )
    
    (299,604
    )Net
      cash used by investing activities
    
    
    (226,510
    )
    
    (24,739
    )
    
    (455,347
    )Cash
      flows from financing activities:Change
      in due to stockholders
    
    
    409,849
    
    
    356,440
    
    
    1,132,147Advance
      from convertible loans payable - related parties
    
    
    --
    
    
    52,500
    
    
    52,500Proceeds
      from loans payable
    
    
    115,000
    
    
    85,000
    
    
    300,000Principal
      payments on loans payable
    
    
    (120,000
    )
    
    (15,500
    )
    
    (135,500
    )Advance
      from convertible loans payable
    
    
    --
    
    
    10,000
    
    
    10,000Proceeds
      from convertible debentures
    
    
    500,000
    
    
    --
    
    
    500,000Proceeds
      from issuance of common stock
    
    
    408,000
    
    
    83,000
    
    
    938,725Net
      cash provided by financing activities
    
    
    1,312,849
    
    
    571,440
    
    
    2,797,872Net
      change in cash
    
    
    (15,093
    )
    
    13,246
    
    
    273Cash,
      beginning of period
    
    
    15,366
    
    
    2,120
    
    
    --Cash,
      end of period
    
    $
    273
    
    $
    15,366
    
    $
    273Supplementary
      cash flow information:Cash
      payments for income taxes
    
    $
    --
    
    $
    --
    
    $
    --Cash
      payments for interest
    
    $
    6,386
    
    $
    --
    
    $
    --
  See Accompanying Notes to Financial
Statements
 F-7
  LIMELIGHT
      MEDIA GROUP, INC.(A
      DEVELOPMENT STAGE COMPANY)STATEMENTS
      OF CASH FLOWS (CONTINUED)
 For
      the YearEndedDecember 31, 2004
    
    For
      the YearEndedDecember 31, 2003
    
    For
      the PeriodFrom April 19, 2001(Inception)
      throughDecember 31, 2004Non-cash
      financing activities:Prepaid
      portion of consulting agreement related to issuanceof warrants for
      1,000,000 shares of common stock
    
    $
    --
    
    $
    --
    
    $
    291,666Issuance
      of 4,431,000 shares of common stock for the acquisition of Multinet
      International Corporation, Inc.
    
    $
    --
    
    $
    --
    
    $
    4,431Prepaid
      portion of consulting agreement related to issuance of 760,000 shares of
      common stock
    
    $
    --
    
    $
    --
    
    $
    494,000Prepaid
      portion of consulting agreement related to 600,000 shares of common stock
      given by President/shareholder to satisfy consulting agreement in exchange
      for stock payable
    
    $
    --
    
    $
    --
    
    $
    535,950Prepaid
      portion of consulting agreement related to issuance of 1,100,000 shares of
      common stock
    
    $
    --
    
    $
    --
    
    $
    85,000Prepaid
      portion of consulting agreement related to issuance of warrants for
      500,000 shares of common stock to consultant
    
    $
    --
    
    $
    --
    
    $
    25,000Issuance
      of 200,000 shares of common stock for promissory note
      receivable
    
    $
    --
    
    $
    --
    
    $
    20,000Issuance
      of 500,000 shares of common stock for acquisition of
    UniGuest
    
    $
    --
    
    $
    --
    
    $
    32,500Issuance
      of 600,000 shares of common stock in satisfaction of stock payable -
      related party
    
    $
    --
    
    $
    --
    
    $
    535,950Issuance
      of 2,000,000 shares of common stock in satisfaction of due to
      stockholder
    
    $
    --
    
    $
    --
    
    $
    323,303Issuance
      of 600,000 shares of common stock in satisfaction of loan
      payable
    
    $
    --
    
    $
    --
    
    $
    75,000Issuance
      of 580,000 common stock for reduction in due to
stockholder
    
    $
    --
    
    $
    58,000
    
    $
    58,000Issuance
      of 90,000 shares of common stock to an an officer and various employees in
      satisfaction of accounts payable and accrued liabilities
    
    $
    --
    
    $
    9,000
    
    $
    9,000Payment
      of due to stockholder by consultant through purchase of stockholder's
      warrants
    
    $
    --
    
    $
    41,800
    
    $
    41,800
  See Accompanying Notes to Financial
Statements
 F-8




LIMELIGHT
      MEDIA GROUP, INC.(A
      DEVELOPMENT STAGE COMPANY)STATEMENTS
      OF CASH FLOWS (CONTINUED)




For
      the YearEndedDecember 31, 2004
    
    For
      the Year
      EndedDecember 31, 2003
    
    For
      the PeriodFrom April 19, 2001(Inception) through
      December
      31, 2004Non-cash
      financing activities:Issuance
      of 2,548,893 shares of common stock in satisfaction of other
      liabilities
    
    $
    80,948
    
    $
    --
    
    $
    80,948Issuance
      of 320,566 shares of common stock in satisfaction of convertible loans
      payable - related party ( including accrued interest of
      $1,969)
    
    $
    44,469
    
    $
    --
    
    $
    44,469Issuance
      of 759,388 shares of common stock in satisfaction of convertible loans
      payable
    
    $
    65,400
    
    $
    --
    
    $
    65,400Issuance
      of 22,039,277 shares of common stock in satisfaction of convertible
      debenture
    
    $
    425,000
    
    $
    --
    
    $
    425,000Amortization
      of loan fees related to standby equity distribution
    agreement
    
    $
    63,808
    
    $
    --
    
    $
    63,808Issuance
      of 5,000,000 shares of common stock for cash equivalent
    credit
    
    $
    125,000
    
    
    
    
    $
    125,000Loan
      fees related to standby equity distribution agreement
    
    $
    340,000
    
    $
    --
    
    $
    340,000
  See Accompanying Notes to Financial
Statements
 F-9


LIMELIGHT
      MEDIA GROUP, INC.
      (A
      DEVELOPMENT STAGE COMPANY)
      NOTES
      TO FINANCIAL STATEMENTS




1.
    DESCRIPTION OF BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT
      POLICIES
 
 Description
of business -
Limelight Media Group, Inc. (hereinafter referred to as the “Company” or
“Limelight”) is a development stage company that plans to provide
video-streaming technology to consumers and the entertainment industry. It is
the Company’s intention to develop the necessary infrastructure to deliver the
video-streaming technology for profitable commercialization through internal
development and licensing agreements with other companies to market and deploy
products and services resulting from the Company’s technology applications.
 
 History -
Multinet International Corporation, Inc. was incorporated on May 17, 1996 in the
State of Nevada. On September 26, 2001, the Company consummated an agreement to
acquire all of the outstanding capital stock of Limelight Media Group, Inc., a
Nevada Corporation, in exchange for 18,000,000 shares of Multinet’s common stock
(“Limelight Transaction”). Prior to the Limelight Transaction, Multinet was a
non-operating public company with no operations or assets; and 2,431,000 shares
of common stock issued and outstanding; and Limelight Media Group, Inc. was a
privately held company with assets being used for the development of its
video-streaming technology. The Limelight Transaction is considered to be a
capital transaction in substance, rather than a business combination. Inasmuch,
the Limelight Transaction is equivalent to the issuance of stock by a private
company (Limelight Media Group, Inc.) for the net monetary assets of a
non-operational public company (Multinet), accompanied by a recapitalization.
The accounting for the Limelight Transaction is identical to that resulting from
a reverse acquisition, except goodwill or other intangible assets will not be
recorded. Accordingly, these financial statements are the historical financial
statements of Limelight Media Group, Inc. Limelight Media Group, Inc. was
incorporated on April 19, 2001. Therefore, these financial statements reflect
activities from April 19, 2001 (Date of Inception for Limelight Media Group,
Inc.) and forward.
 
 Prior
to the Limelight Transaction, Multinet International Corporation, Inc. operated
a convenience store through Nikky D Corporation, a wholly owned subsidiary. In
September 2001, the Company divested itself of Nikky D. Corporation. Multinet
International Corporation, Inc. has accounted for this divestiture as a spin-off
in accordance with Accounting Principles Board Statement No. 29. As a result of
this divestiture, the Company became a non-operational public company.
 
 During
September 2002, the Company purchased all outstanding capital of Uniguest of
Tennessee, Inc. (“UGT”), a Tennessee Corporation, in consideration of 500,000
shares of the Company’s common stock. UGT installs and operates Public Internet
Access Terminals primarily in hotels throughout the country. In October 2003,
the Company rescinded the purchase agreement. (See Note 2).
 
 Amended
Articles of Incorporation -
In October 2003, a Certificate of Amendment to the Articles of Incorporation
changed the name of the Company to Limelight Media Group, Inc.
 
 Going
concern -
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company is in the development
stage and has incurred a net loss of approximately $8,774,000 for the period
from April 19, 2001 (Date of Inception of Limelight Media Group, Inc.) through
December 31, 2004. The Company's current liabilities exceed its current assets
by approximately $2,154,000 as of December 31, 2004. The Company’s net cash used
from operating activities approximated $1,101,400 during the year ended December
31, 2004.
 
 These
conditions give rise to substantial doubt about the Company's ability to
continue as a going concern. The Company's management plans to complete the
development of the infrastructure necessary to deliver the video-streaming
technology in order to fully commence its operations and therewith generate
future revenues. The Company will also seek additional sources of capital
through the issuance of debt and equity financing, but there can be no assurance
that the Company will be successful in accomplishing its objectives.
 
 The
ability of the Company to continue as a going concern is dependent on additional
sources of capital and the success of the Company's plan. The financial
statements do not include any adjustments that might be necessary if the Company
is unable to continue as a going concern.
  F-10
 LIMELIGHT
MEDIA GROUP, INC.
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO FINANCIAL STATEMENTS
 Business
acquisition -
The Uniguest business acquisition has been accounted for under the purchase
method of accounting, therefore the Company includes the results of operations
of the acquired business from the date of acquisition. Net assets of the company
acquired are recorded at fair value as of the date of acquisition. The excess of
the acquired business’ purchase price over the fair value of its tangible and
identifiable intangible assets is then included in goodwill in the accompanying
balance sheet.
 
 As
discussed in Note 2, the Company rescinded the Agreement related to the purchase
of Uniquest in October 2003. The Company retroactively applied the rescission to
June 30, 2003. Accordingly, the results of operations of the acquired business
were included from the date of acquisition through June 30, 2003. All assets of
the acquired company were removed and the appropriate losses have been
recorded.
 
 Use
of estimates -
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
 
 Fixed
assets -
Fixed assets are stated at cost less accumulated depreciation. Depreciation is
provided principally on the straight-line method over the estimated useful lives
of the assets, which are generally 3 to 7 years. The cost of repairs and
maintenance is charged to expense as incurred. Expenditures for property
betterments and renewals are capitalized. Upon sale or other disposition of a
depreciable asset, cost and accumulated depreciation are removed from the
accounts and any gain or loss is reflected in other income
(expense).
 
 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 their
recoverability.
 
 Goodwill
and intangible assets - Beginning
January 1, 2002, the Company adopted Statement of Financial Accounting Standards
(“SFAS”) No. 142, “Goodwill and Other Intangible Assets”. According to this
statement, goodwill and intangible assets with indefinite lives are no longer
subject to amortization, but rather an annual assessment of impairment by
applying a fair-value based test. Fair value for goodwill is based on discounted
cash flows, market multiples and/or appraised values as appropriate. Under SFAS
No. 142, the carrying value of assets are calculated at the lowest level for
which there are identifiable cash flows, which include ATM
network and processing operations.
 
 SFAS
142 requires the Company to compare the fair value of the reporting unit to its
carrying amount on an annual basis to determine if there is potential
impairment. If the fair value of the reporting unit is less than its carrying
value, an impairment loss is recorded to the extent that the fair value of the
goodwill within the reporting unit is less than its carrying value. Upon
adoption and during 2002, the Company completed an impairment review and did not
recognize any impairment of goodwill and other intangible assets already
included in the financial statements. During 2003, goodwill was removed due to
the rescission of the acquisition of UniGuest as discussed in Note 2.
 
 Fair
value of financial instruments -
The carrying amounts and estimated fair values of the Company’s financial
instruments approximate their fair value due to the short-term
nature.
 
 Earnings
(loss) per share -
Basic earnings (loss) per share exclude any dilutive effects of options,
warrants and convertible securities. Basic earnings (loss) per share are
computed using the weighted-average number of outstanding common shares during
the applicable period. Diluted earnings per share is computed using the weighted
average number of common and common stock equivalent shares outstanding during
the period. Common stock equivalent shares are excluded from the computation if
their effect is antidilutive.
 
 F-11
 LIMELIGHT
MEDIA GROUP, INC.
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO FINANCIAL STATEMENTS
 Income
taxes -
The Company accounts for its income taxes in accordance with Statement of
Financial Accounting Standards No. 109, which requires recognition of deferred
tax assets and liabilities for future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
 
 As
of December 31, 2004, the Company has available net operating loss carryforwards
that will expire in various periods through 2024. 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
Company has established a valuation allowance for the full tax benefit of the
operating loss carryovers due to the uncertainty regarding
realization.
 
 Comprehensive
loss -
The Company has no components of other comprehensive loss. Accordingly, net loss
equals comprehensive loss for all periods.
 
 Segment
information -
The Company discloses segment information in accordance with SFAS No. 131,
“Disclosures about Segments of an Enterprise and Related Information,” which
uses the Management approach to determine reportable segments. The Company
operates under one segment.
 
 Advertising
costs -
The Company recognizes advertising expenses in accordance with Statement of
Position 93-7 “Reporting on Advertising Costs.” Accordingly, the Company
expenses the costs of producing advertisements at the time production occurs,
and expenses the costs of communicating advertisements in the period in which
the advertising space or airtime is used. Advertising costs are charged to
expense as incurred. Advertising expenses was $24,296 and $4,218 for the years
ended December 31, 2004 and 2003,respectively.
 
 Research
and development costs -
Research and development costs are charged to expense when incurred. Costs
incurred to internally develop software, including costs incurred during all
phases of development, are charged to expense as incurred.
 
 Stock-based
compensation -
The Company applies Accounting Principles Board (“APB”) Opinion No. 25,
“Accounting for Stock Issued to Employees, and Related Interpretations”, in
accounting for stock options issued to employees. Under APB No. 25, employee
compensation cost is recognized when estimated fair value of the underlying
stock on date of the grant exceeds exercise price of the stock option. For stock
options and warrants issued to non-employees, the Company applies SFAS No. 123,
“Accounting for Stock-Based Compensation”. SFAS No 123 requires the recognition
of compensation cost using a fair value based method whereby compensation cost
is measured at the grant date based on the value of the award and is recognized
over the service period, which is usually the vesting period. The Company uses
the Black-Scholes pricing model to calculate the fair value of options and
warrants issued to non-employees. Stock issued for compensation is valued using
the market price of the stock on the date of the related agreement.
 
 The
Company granted no warrants or options to employees for compensation for the
years ended 2004 and 2003, and for the period from April 19, 2001 (Date of
Inception of Limelight Media Group, Inc.) through December 31, 2004. All stock
issued for compensation was recorded at the fair market value of the
stock.
 
 Expenses
of offering -
The Company accounts for specific incremental costs directly to a proposed or
actual offering of securities as a direct charge against the gross proceeds of
the offering.
  F-12
 LIMELIGHT
MEDIA GROUP, INC.
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO FINANCIAL STATEMENTS
 New
accounting pronouncements -
During December 2003, the Financial Accounting Standards Board issued
Interpretation 46(R), Consolidation of Variable Interest Entities ("FIN 46(R)").
FIN 46(R) clarified the application of existing accounting pronouncements to
certain entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from other parties. Effective March 31, 2004, we adopted FIN 46(R). The
implementation of Interpretation No. 46 did not have a material effect on the
Company’s financial statements.
 
 In
April 2003, the FASB issued SFAS No. 149, Amendment of SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities. SFAS No. 149 amends SFAS No.
133 for decisions made (1) as part of the Derivatives Implementation Group
process that effectively required amendments to SFAS No. 133, (2) in connection
with other Board projects dealing with financial instruments, and (3) in
connection with implementation issues raised in relation to the application of
the definition of a derivative. The Statement clarifies under what circumstances
a contract with an initial net investment meets the characteristics of a
derivative discussed in paragraph 6(b) of SFAS No. 133, clarifies when a
derivative contains a financing component, amends the definition of underlying
to conform it to language used in FASB Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others, and amends certain other existing
pronouncements. Those changes will result in more consistent reporting of
contracts as either derivatives or hybrid instruments. This statement is
effective for contracts entered into or modified after June 30, 2003 and for
hedging relationships designated after June 30, 2003. The implementation of SFAS
No. 149 did not have a material effect on the Company’s financial
statements.
 
 In
May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity. SFAS No. 150
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. In
addition, the statement requires an issuer to classify certain instruments with
specific characteristics described in it as liabilities. This statement is
effective for financial instruments entered into or modified after May 31, 2003,
and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. The implementation of SFAS No. 150 did not have a
material effect on the Company’s financial statements.
 
 In
December 2004, the FASB issued SFAS 153, Exchanges of Nonmonetary Assets, an
amendment of APB No. 29, Accounting for Nonmonetary Transactions. SFAS 153
requires exchanges of productive assets to be accounted for at fair value,
rather than at carryover basis, unless (1) neither the asset received nor the
asset surrendered has a fair value that is determinable within reasonable limits
or (2) the transactions lack commercial substance. SFAS 153 is effective for
nonmonetary asset exchanges occurring in fiscal periods beginning after June 15,
2005. The Company does not expect the adoption of this standard to have a
material effect on its financial position, results of operations or cash flows.
 
 In
December 2004, the FASB issued Statement 123 (revised 2004) which is a revision
of FASB Statement No. 123, Accounting for Stock-Based Compensation. This
Statement supersedes APB Opinion No. 25, Accounting for Stock Issued to
Employees, and its related implementation guidance. This Statement establishes
standards for the accounting for transactions in which an entity exchanges its
equity instruments for goods or services. It also addresses transactions in
which an entity incurs liabilities in exchange for goods or services that are
based on the fair value of the entity's equity instruments or that may be
settled by the issuance of those equity instruments. This Statement focuses
primarily on accounting for transactions in which an entity obtains employee
services in share-based payment transactions. This Statement requires a public
entity to measure the cost of employee services received in exchange for an
award of equity instruments based on the grant-date fair value of the award
(with limited exceptions). That cost will be recognized over the period during
which an employee is required to provide service in exchange for the award--the
requisite service period (usually the vesting period). The Company files as a
small business issuer and must meet the requirements of this Statement for
accounting periods after December 15, 2005. The Company is evaluating SFAS 123R
and believes it may have a material effect on the Company’s financial
statements.
 
 F-13
 LIMELIGHT
MEDIA GROUP, INC.
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO FINANCIAL STATEMENTS
 2.
    RESCISSION
      OF UNIGUEST ACQUISITION
 
 UniGuest
of Tennessee, Inc. -
In September 2002, the Company acquired 100% of the outstanding capital stock of
UniGuest of Tennessee, Inc. (“UGT Transaction”) in consideration of 500,000
shares of the Company’s common stock totaling $32,500.
 
 The
Company accounted for its 100% ownership interest in UGT using the purchase
method of accounting under APB No. 16. At the date of the acquisition, UGT had a
deficit equity balance totaling $4,065 therefore the purchase price amount in
excess of fair value of net assets was allocated to goodwill totaling
$36,565.
 
 Due
to differences between management of UniGuest and the Company, the UGT
Transaction was rescinded and the 500,000 shares of the Company’s common stock
that were issued in consideration for the UGT Transaction were cancelled during
October 2003. The Company removed approximately $15,400 in cash, $35,700 in
accounts receivable, $5,000 in fixed assets, net, $36,600 in goodwill and
$10,600 in accounts payable and accrued liabilities. $32,500 for the common
stock issued in consideration for the UGT Transaction. Further, the Company
recognized a loss related to rescission of UniGuest acquisition totaling $24,669
and bad debt related to due from UniGuest totaling $25,000.
 
 The
following unaudited pro forma condensed statements of operations are to present
the results of operations of the Company as though the original acquisition and
results of operation of UniGuest of Tennessee, Inc. had not occurred. The
unaudited pro forma results of operations are based upon assumptions that the
Company believes are reasonable and are based on the historical operations of
Limelight Media Group, Inc. and UniGuest of Tennessee, Inc.. The unaudited pro
forma statements of operations are presented for informational purposes
only.
 
 Unaudited
Pro forma results for the year ended December 31, 2003:
 LimelightMedia
      Group, Inc.(Pro forma)
    
    UniGuest
      ofTennessee, Inc.(Pro Forma)
    
    Pro
      FormaAdjustments
    
    LimelightMedia
      Group, Inc.(as reported)Revenues
    
    $
    1,762
    
    $
    87,165
    
    $
    --
    
    $
    88,927Expenses
    
    
    1,463,596
    
    
    51,115
    
    
    --
    
    
    1,514,711Income
      (loss) from operations
    
    
    (1,461,834
    )
    
    36,050
    
    
    --
    
    
    (1,425,784
    )Other
      income (expense)
    
    
    (137,483
    )
    
    191
    
    
    (49,669
    )(a)
    
    (186,961
    )Income
      (loss) before provision for income taxes
    
    
    (1,599,317
    )
    
    36,241
    
    
    (49,669
    )
    
    (1,612,745
    )Income
      tax provisions
    
    
    --
    
    
    --
    
    
    --
    
    
    --Net
      income (loss)
    
    $
    (1,599,317
    )
    $
    36,241
    
    $
    (49,699
    )
    $
    (1,612,745
    )Basic
      and diluted loss per common share
    
    $
    (0.05
    )
    
    
    
    
    
    
    $
    (0.05
    )Basic
      and diluted weighted common shares outstanding
    
    
    31,592,202
    
    
    
    
    
    
    
    
    32,007,270
 (a)
    Loss
      related to rescission of UniGuest acquisition totaling $24,669 and bad
      debt related to due from UniGuest totaling
$25,000.
  F-14
  LIMELIGHT
MEDIA GROUP, INC.
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO FINANCIAL STATEMENTS
 
 3.
    FIXED
      ASSETS
 
 Fixed
assets consist of the following as of December 31, 2004:
 
 Equipment
    
    $
    269,002Furniture
      and fixtures
    
    
    16,358Leasehold
      equipment
    
    
    1,760287,120Less:
      accumulated depreciation
    
    
    100,849Fixed
      assets, net
    
    $
    186,271
 
 4.
    NOTE
      RECEIVABLE
 
 On
August 15, 2004, the Company entered into an employment agreement with James
Neumann, previously the President of Integrated Graphic Solutions, Inc. (“IGS”).
As a sign on bonus for the employment agreement, Mr. Neumann would receive
1,170,000 shares of Company’s common stock. The issuance of the employment
agreement and sign on bonus was conditional upon Mr. Neumann’s assignment of the
rights to various contracts and assets of IGS. Previous to the execution of the
employment agreement Mr. Neumann assigned the contract rights for digital
signage in the Dierbergs and ShopNSave Grocery stores in St. Louis, Missouri.
IGS has installed 39 grocery stores in the St., Louis area with 4 LCD screens.
The contracts provided for another 20 locations to have equipment installed.
Based on the contracts, the owners of the stores receive between ten and fifteen
percent of the revenue generated on the screens from advertising sales. The
Company will be responsible for providing the advertising sales.
 
 Mr.
Neumann was required to assign the rights to three parking garages in Chicago,
Illinois whereby large LCD screens were installed and IGS was selling
advertising space. The Company agreed to assume the responsibility for the
outstanding liabilities on all screens . At the time of the execution of the agreements, the indebtedness was about
$1.2 million for all the screens; however, the Company is negotiating with the
equipment provider to substantially reduce the indebtedness. The indebtedness
has not been included in the balance sheet for the equipment contract was not
assigned to the Company.
 
 Mr.
Neumann was also required to assign all rights to the name and trademark of
VuPlex. This name is recognized in the grocery industry for in store digital
signage systems.  Mr. Neumann was also required to assign the rights to an agreement between IGS
and the State of Missouri whereby IGS could sell 20% of the available time on
the digital signs in the grocery store to alcohol product providers. Mr. Neumann
did assign all items required under the employment agreement. The assignment of
all the items occurred on August 9, 2004, however, the assignments were not
delivered to the Company until September 17, 2004. David Lott, the President of
the Company, loaned the Company sufficient stock to issue to Mr. Neumann and the
stock for the sign-on bonus was issued.
 
 During
October 2004, the Company learned that Mr. Neumann had other interests in
another Company that promoted itself to provide digital signage services. The
Company issued a cease and desist order to Mr. Neumann. Mr. Neumann offered to
return the sign-on bonus shares, offered exclusive grocery digital signage and
resign if he would be allowed to keep the parking garage contracts and pursue
other digital opportunities. This was agreed and Mr. Neumann returned the shares
to the Company, however, at this time a formal document has not been executed.
Since no consideration has been given by the Company for the contracts,
customers, trademarks and agreements, the Company has not provided monetary or
non-monetary consideration for the assets and is not recording the contracts as
an asset. As of this filing, the liabilities for the installations the Company
agreed to assume have not been completed. The liabilities total approximately
$78,600 owed to ShopNSave Grocery for electrical work; $76,300 owed to Dierbergs
Grocery for electrical work; $62,200 owed to American Express for mounting
hardware and $985,000 to Barco Digital Media for 167 40” LCD screens. To
complete the transaction with IGS, Dierbergs and ShopNSave must agree to the
assignment of the contracts. They have not agreed to the assignment until the
Company resolved the outstanding electrical billings. Barco Digital Media and
the Company are negotiating a long-term payout on the indebtedness.
  F-15
 LIMELIGHT
MEDIA GROUP, INC.
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO FINANCIAL STATEMENTS
 As
of December 31, 2004, the Company is subject to pending litigation, whereby
Dierbergs alleges the Company and IGS breached a Lease Agreement entered into by
IGS on February 6, 2004, which did not allow for the assignment of the lease by
IGS. The total fines levied by the Dierbergs total $72,000. Management of the
Company is confident that Dierbergs has misidentified the materials in question
in relation to the Company. Therefore, until these matters are resolved the
Company has not recorded any assets or liabilities.
 
 In
addition to the above contracts, during August 2004, the Company entered into an
agreement with Mr. Neumann to acquire certain assets of IGS. Pursuant to the
agreement, the Company loaned funds to IGS to pay current operational needs and
capital improvements of IGS totaling $77,761. The Company and IGS entered into a
Secured Demand Note for the funds. The balance is secured by the assets of IGS,
bears interest at 12% per annum and is payable in October 2004. As the
collection of the note is uncertain, the Company has established an allowance
for doubtful accounts for the $77,761 as of December 31, 2004.
 
 5.
    
    DUE
      TO RELATED PARTIES
 
 Due
      to related parties totaling $1,472,726 as of December 31, 2004 consist of
      the following:Unreimbursed
      expenses for which the Company’s President and majority stockholder
      provided personal shares of common stock for consulting services, to be
      satisfied through the issuance of common stock. The amount is unsecured,
      bearing no interest and due on demand
    
    $
    475,382Loan
      payable to the Company’s President and majority stockholder, secured by
      the Company’s assets subject to the priority liens of Cornell Capital
      Partners, LLC (See Note 11) bearing interest at 9% per annum, payable in
      monthly installments of interest only, due on demand
    
    
    385,307Unreimbursed
      expenses to various stockholders to be satisfied through the issuance of
      common stock. The amount is unsecured, bearing no interest and due on
      demand
    
    
    304,000Accrued
      wages for various employees
    
    
    154,375Unreimbursed
      expenses to various employees
    
    
    30,562Unreimbursed
      expenses to the Company’s President and majority stockholder, unsecured,
      bearing no interest and due on demand
    
    
    68,078Unreimbursed
      expenses to various stockholders, unsecured, bearing no interest and due
      on demand
    
    
    39,429Accrued
      interest on related party loans and convertible debentures
    
    
    15,593$
    1,472,726
  6.
    CONVERTIBLE
      LOANS PAYABLE - RELATED PARTIES
 
 In
April 2004, various stockholders and an officer of the Company converted $42,500
in principal and $1,969 in accrued interest into 320,566 shares of the Company’s
common stock. As of December 31, 2004, the remaining balance of convertible
loans payable - related party totals $10,000, which is unsecured, bearing
interest at 9% per annum, due on demand, and payable to a stockholder of the
Company.
  F-16
 LIMELIGHT
MEDIA GROUP, INC.
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO FINANCIAL STATEMENTS
 7.
    CONVERTIBLE
      LOANS PAYABLE
 
 In
February 2004, the Company entered into two Convertible Loan Agreements to
satisfy outstanding loans payable of $54,500 (including accrued interest of
$4,500) and $10,900 (including accrued interest of $900). The convertible loans
mature in February 2005, are unsecured, and bear interest at 12% per annum,
which is payable in cash or shares of stock at the conversion rate outlined
below. The individuals are entitled to convert all or any portion of the
principal balances into shares of the Company’s common stock at a conversion
price of 75% of the average of the closing bid prices for the five trading days
immediately preceding the conversion date. The Company recorded the estimated
value of the conversion feature totaling $49,842 as interest expense.
 
 During
April and September 2004, the holders of the two Convertible Loan Agreements
converted the entire $65,400 balance into 759,388 shares of the Company’s common
stock.
 
 In
August 2003, the Company borrowed $10,000 from an individual which matured
during August 2004, unsecured, and bearing interest at 12%. As of December 31,
2004, the balance of $10,000 is in default and recorded as a current liability.
The individual is entitled to convert all or a portion of the principal balance
into shares of the Company’s common stock at a conversion price of $0.20 per
share. Further, the individual has the option of receiving payment of accrued
interest in cash or 50,000 shares of the Company’s common stock.
 
 8.
    LOANS
      PAYABLE
 
 During
February 2003, the Company borrowed funds from an individual totaling $15,000
maturing June 2004, unsecured, and bearing a simple interest rate of 9%. As of
December 31, 2004, the outstanding principal balance totaled $4,500 and the loan
is currently in default.
 
 Pending
in the State Court of Cherokee County, Georgia filed September 9, 2002, D&D
Management, Inc. is alleging it entered into a loan agreement with the Company
during February 2002 for $54,000 which has not been repaid. The Company is
defending on the basis that it issued D&D Management, Inc. 89,000 shares of
the Company’s common stock in consideration of repayment and for settlement.
D&D Management, Inc. is responding that the shares were issued for
consulting services. The Company denies services were rendered and is pursuing
settlement negotiations. The Company has recognized a liability of $25,000,
based on management’s estimate of negotiated terms.
 
 During
July 2004, the Company entered into a Promissory Note Agreement (the “Note”)
with Cornell whereby Cornell advanced the Company $115,000. The Note is secured
by the assets of the Company, bears interest at 12% per annum, and payable upon
maturity in January 2005. The Note is also guaranteed by the Company’s
President. All of remaining principal was paid in October 2004.
 
 9.
    STANDBY
      EQUITY DISTRIBUTION AGREEMENT
 
 During
February 2004, the Company entered into a Standby Equity Distribution Agreement
(“Distribution Agreement”) with Cornell. The Distribution Agreement entitles the
Company to draw funds up to $12,000,000 from issuance of its common stock for an
amount equal to 97% of the lowest closing bid price on the Over-the-Counter
Bulletin Board or other principal market 5 days immediately following the
advance notice date. The Distribution Agreement expires in August 2006, subject
to certain terms and conditions. Cornell Capital Partners will retain 5% of each
advance under the Distribution Agreement. Additionally, the Distribution
Agreement required the Company to pay Cornell a commitment fee in the amount of
$340,000 to be paid by the issuance of a Convertible Fee Debenture, as discussed
in Note 10. Furthermore, the Company was required to file a registration
statement on Form SB-2 with the Securities and Exchange Commission (“SEC”) for
the registration of common stock for future issuance related to the Distribution
Agreement. The SEC declared the registration statement effective on August 16,
2004.
 
 For
the year ended December 31, 2004, the Company drew funds totaling $193,500 and
consequently issued 7,386,886 shares of common stock.
 
 F-17
  LIMELIGHT
MEDIA GROUP, INC.
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO FINANCIAL STATEMENTS
 Subsequent,
to the effective date of the registration statement, Limelight Media has
requested several funding transactions pursuant to the Equity Line Distribution
Agreement. Cornell Capital Partners has declined funding several of the requests
pursuant to the Equity Line Distribution Agreement. However, 4,408,567 shares of
common stock have been placed in escrow and Cornell Capital has not responded to
demands to return the stock. These shares have been reported as issued and not
outstanding for financial reporting purposes.
 
 On
November 5, 2004, Limelight Media requested a meeting with Cornell Capital for
the purpose of redeeming the shares registered under debenture agreements
between Cornell Capital and Limelight Media Group. On November 12, 2004,
Limelight Media presented a formal notice to Cornell Capital under the terms of
the debenture agreements giving Limelight Media the right to redeem the
registered shares. On November 23, 2004, Limelight Media sent a second formal
notice under its rights to redeem the shares pursuant to the debenture
agreements. Cornell Capital has not responded to the notices. In the second
formal notice of November 23, 2004, Cornell Capital was informed that its rights
to conversion of the debentures would be denied given that Cornell Capital had
received several notices from Limelight since November 8, 2004 to redeem the
shares.
 
 As
discussed in Note 19, during January 2005, the Company terminated the
Distribution Agreement with Cornell Capital and is considering legal action to
obtain the return of the escrow shares.
 
 10.
    CONVERTIBLE
      FEE DEBENTURE
 
 In
February 2004, pursuant to the Distribution Agreement, as discussed in Note 9,
the Company issued a Convertible Fee Debenture (“Debenture”) to Cornell totaling
$340,000. The balance is unsecured, bears an interest rate of 5.0%, with
principal and interest to automatically convert into the Company’s common stock
in February 2007. Additionally, Cornell is entitled to convert all or part of
the principal and interest balance of the Debenture into the Company’s common
stock equal to the lowest closing bid price for the three trading days
immediately preceding the conversion date. The Company recorded the Debenture as
a component of equity as loan fees related to standby equity distribution
agreement to be amortized over the life of the Distribution Agreement. The
Company amortized $63,808 during the year ended December 31, 2004.
 
 11.
    SECURED
      CONVERTIBLE DEBENTURE
 
 In
February 2004, the Company issued a Secured Convertible Debenture to Cornell
secured by all Company assets. Upon closing, the Company received $250,000. The
balance bears an interest rate of 5.0%, with principal and interest
automatically converting to shares of the Company’s common stock in February
2007. Cornell has the option of converting this loan to common stock, at the
lower of a) fifty-two cents per share($0.52), or b) 80% of the lowest closing
bid price of the common stock for the five trading days immediately preceding
the conversion date. In May 2004, the Company issued a second Secured
Convertible Debenture to Cornell totaling $250,000 with the same terms as the
February 2004 Secured Convertible Debenture. The Company recorded the estimated
value of the conversion feature totaling $125,000 to interest
expense.
 
 During
September 2004, the Company converted $150,000 in principal on the convertible
debentures into 3,693,608 shares of the Company’s common stock.
 
 During
October 2004, the Company converted $50,000 in principal on the convertible
debentures into 2,994,792 shares of the Company’s common stock.
 
 During
November 2004, the Company converted $75,000 in principal on the convertible
debentures into 5,208,333 shares of the Company’s common stock.
 
 During
December 2004, the Company converted $150,000 in principal on the convertible
debentures into 10,142,544 shares of the Company’s common stock.
 
 F-18
  LIMELIGHT
MEDIA GROUP, INC.
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO FINANCIAL STATEMENTS
 As
of December 31, 2004, the outstanding balance of the convertible debentures
totaled $75,000.
 
 12.
    CASH
      EQUIVALENT CREDIT PAID IN COMMON STOCK
 
 Effective
December 10, 2004, the Company completed the sale of 5,000,000 shares of its
common stock, which had a fair market value at that time of approximately
$125,000, to American Marketing Complex, Inc. (“AMC”). Payment for this purchase
by AMC was in the form of cash equivalent credits (“Credits”) with a face value
of $1,500,000, which the Company can use or sell to others for the purchase of
merchandise and services. The face value is not necessarily indicative of the
ultimate fair value or settlement value of the credits. The credits were valued
at the fair market value of the shares issued by the Company at $125,000 and
classified as cash equivalent credits paid in common stock, which is a separate
component of stockholders' deficiency in the accompanying balance sheet as of
December 31, 2004. The cash equivalent credits paid in common stock will be
offset as the trade credits are used.
 
 13.
    OTHER
      LIABILITIES
 
 Common
Stock Purchase Agreement -
During October 2003, the Company entered into a Common Stock Purchase Agreement
(“Purchase Agreement”) with an individual whereby the Company agreed to issue
5,000,000 shares of its common stock in exchange for cash totaling $150,000. The
Purchase Agreement also granted the individual an option to purchase an
additional 3,333,000 shares of the Company’s common stock at $0.03 per share.
 
 During
October 2003, the Company entered into an Employment Agreement with this same
individual, whereby the Company employed the individual as an operations manager
for the term of three years. The individual is entitled to compensation of
$15,000 per month with the option to receive payment in the Company’s common
stock. Such shares would be determined by the bid price on the last day of the
month preceding the date the salary was due. The Employment Agreement terminates
during October 2006. However, the Company at its option may terminate the
agreement but shall pay the individual’s accrued salary, unreimbursed expenses,
and all other compensation and benefits through the first six months or the
termination date, whichever is greater.
 
 Also
during October 2003, the Company entered into a Consulting Agreement with this
same individual whereby the individual would provide other services not set
forth in the Employment Agreement in exchange for 1,000,000 shares of the
Company’s common stock totaling $109,000. The Consulting Agreement terminates
during October 2006.
 
 As
of December 31, 2004, the individual paid $30,699 of the total $150,000 required
under the Purchase Agreement. The Company rescinded all agreements with the
individual as the individual did not pay the entire $150,000 as required by the
Purchase Agreement and attempted to return the $30,699. The individual refused
to accept the funds and filed a suit against the Company as discussed in Note
13. The Company has recorded the $30,699 has part of other liability totaling
$283,087.
 
 Eric
Nelson -
During the year ended December 31, 2003, the Company terminated their agreement
with Eric Nelson. Mr. Nelson sued and won a judgment for unpaid services
totaling $42,000. The Company settled with the former officer with the
assistance of a third party entity contracted to promote the Company's stock,
who agreed to purchase Mr. Nelson's outstanding warrants for the purchase of
500,000 shares of the Company's common stock in exchange for $18,000. In return,
Mr. Nelson agreed to forgive all remaining debts owed by the Company as of
December 31, 2003.
 
 F-19
  LIMELIGHT
MEDIA GROUP, INC.
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO FINANCIAL STATEMENTS
 During
July 2004, the Company received $100,000 from the third party entity who
attempted to exercise Mr. Nelson’s warrants. The original exercise price of the
warrants was $1.50; however as an incentive to the entity to purchase and
exercise the warrants, the Company repriced the exercise price to $0.20. The
third party entity was unable to complete the purchase of the warrants from Mr.
Nelson and the funds were delivered to the Company. As of September 30, 2004,
Mr. Nelson has demanded payment of his judgment totaling $42,000, as the terms
of the agreement to forgive the remaining debts owed were not followed.
Accordingly, the Company has recorded a liability for $42,000 and $100,000 as
part of other liabilities totaling $283,087.
 
 Other -
During February 2002, a consultant alleged claims against the Company for
non-payment related to a consulting services agreement. The Company was unable
to secure adequate financing to engage the consultant and no services were
rendered however the consultant claims payments totaling $93,000 remain due. A
default judgment was entered in favor of the consultant however execution of the
judgment had not occurred due to misidentification of the Company. During April
2004, execution of the judgment was made whereby the Company was held liable for
the $93,000 plus interest. As of December 31, 2004, the total amount owed of
$110,388 has been recorded as part of other liabilities totaling $283,087 and
loss related to settlements and judgments totaling $170,388.
 
 14.
    RELATED
      PARTY TRANSACTIONS
 
 In
April 2001, the Company issued 15,000,000 shares of its common stocks to its
founder and President for cash consideration totaling $247,725 or $0.0165 per
share.
 
 In
April 2001, the Company issued 3,000,000 shares of its common stocks to its
founder and President for services at $0.0165 per share.
 
 On
January 18, 2002, the Company entered into a management consulting agreement
with several officers of See/Saw Communications, Inc. The President of See/Saw
Communications, Inc. serves as an Advisory Board Member for the Company, see
Note 3. The agreement provides for strategic planning and general business
services for a period of one year in consideration of 760,000 shares of the
Company's common stock, to include 330,000 shares to the President of See/Saw
Communications, Inc. The Company has valued this transaction at $494,000 or
$0.65 per share which has been expensed during the year ended December 31, 2002.
In March and April 2002, the Company issued 760,000 shares of its common stock
to various individuals of the See/Saw Communications, Inc.
 
 During
the year ended December 31, 2002, the Company's President/stockholder had given
600,000 shares of the Company's common stock owned by him to various consultants
for payment on consulting agreements entered into during 2001. The value of the
shares at the consummation of these agreements was $0.65 per share which the
Company recorded a stock payable-related party totaling $535,950 for these
shares to be issued in the future to the Company's President/stockholder as
replacement. The Company has expensed $535,950 for the year ended December 31,
2002. During November 2002, the Company issued 600,000 shares of its common
stock to the President/stockholder of the Company in satisfaction of the stock
payable-related.
 
 In
November 2002, the Company issued 2,000,000 and 600,00 shares of its common
stock to the President and majority stockholder of the Company in satisfaction
of due to stockholder totaling 859,253.
 
 In
November 2002, the President and majority stockholder returned 362,000 shares of
common stock to the Company which the Company cancelled.
 
 In
April 2003, the Company issued 580,000 shares of its common stock to the
President and majority stockholder in satisfaction of a $58,000 reduction of due
to stockholder.
  F-20
 LIMELIGHT
MEDIA GROUP, INC.
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO FINANCIAL STATEMENTS
 In
May 2003, the President and majority stockholder borrowed $40,000 from a third
party lender using 296,000 shares of his personal common stock of the Company as
collateral and loaned the $40,000 to the Company. In August 2003, the lender
sold the stock in consideration of interest on the loan totaling $9,700. In
December 2003, the Company issued 296,000 shares of common stock to the
President to replace the stock sold by the lender . The Company recorded the
issuance as interest expense totaling $23,680. Further, the President paid the
loan in December 2003 along with an additional $17,238 in interest. As the
proceeds from the loan were used to pay expenses on behalf of the Company, the
Company increased the loan from the President and recorded interest expense
totaling $17,238.
 
 In
June 2003, the Company issued 880,000 shares of its common stock to the
President and majority stockholder for services at $0.11 per share.
 
 In
August 2003, the Company issued 1,383,555 shares of its common stock to the
President and majority stockholder for services at $0.04 per share.
 
 In
October 2003, the Company issued 250,000 shares of its common stock to the
President and majority stockholder for services at $0.11 per share.
 
 On
October 1, 2003, the Company entered into an Employment Agreement with Thadd
Brooks to act as Internet Technology Manager for a term of three years, whereby
he receives a base salary of $5,000 per month. Further, if funds are not
available to pay the salary, Mr. Brooks will be paid in shares of the Company’s
common stock equal to the salary divided by the bid price on the last day of the
month preceding the date the salary was due.
 
 On
October 1, 2003, the Company entered into an Employment Agreement with Richard
McCourt to act as Field Operations Manager for a term of three years, whereby he
receives a base salary of $5,000 per month. Further, if funds are not available
to pay the salary, Mr. McCourt will be paid in shares of the Company’s common
stock equal to the salary divided by the bid price on the last day of the month
preceding the date the salary was due.
 
 On
October 1, 2003, the Company entered into an Employment Agreement with John
Fraier to act as Chief Financial Officer for a term of three years, whereby he
receives a base salary of $7,000 per month. Further, if funds are not available
to pay the salary, Mr. Fraier will be paid in shares of the Company’s common
stock equal to the salary divided by the bid price on the last day of the month
preceding the date the salary was due. During November 2004, the Company
accepted the resignation of Mr. Fraier
 
 On
October 1, 2003, the Company entered into an Employment Agreement with Dorothy
Garrington to act as Executive Assistant for a term of three years, whereby she
receives a base salary of $4,000 per month. Further, if funds are not available
to pay the salary, Mrs. Garrington will be paid in shares of the Company’s
common stock equal to the salary divided by the bid price on the last day of the
month preceding the date the salary was due.
 
 In
November 2003, the Company issued 150,000 shares of its common stock to the
President and majority stockholder for services at $0.12 per share.
 
 In
November 2003, the Company issued 155,000 shares of its common stock to an
officer for services at $0.12 per share.
 
 In
November 2003, the Company issued 2,026,000 shares of its common stock to
various employees for services at $0.12 per share.
 
 In
December 2003, the Company issued 90,000 shares of its common stock to an
officer and various employees in satisfaction of accounts payable and accrued
expenses at $0.10 per share.
 
 In
December 2003, the Company issued 150,000 shares of its common stock to the
President and majority stockholder for services at $0.08 per share.
 
 F-21
  LIMELIGHT
MEDIA GROUP, INC.
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO FINANCIAL STATEMENTS
 During
the year ended 2003 the Company terminated their agreement with a former
officer. The officer sued and won judgment for unpaid services totaling $16,800
and $25,000, respectively. The Company settled with the former officer with the
assistance of a third party entity contracted to promote the Company’s stock,
who agreed to purchase the former officer’s outstanding warrants to purchase
990,000 shares of the Company’s common stock in exchange for $18,000. In return,
the former officer agreed to forgive all remaining debts owed by the Company.
Prior to the settlement, the Company had accrued $57,500 to the former officer.
The Company recorded the satisfaction of this liability as a $57,500
contribution to additional paid-in capital.
 
 In
January 2004, the Company issued 150,000 shares of common stock to the President
and majority stockholder for services at $0.15 per share.
 
 In
February 2004, the Company issued 150,000 shares of common stock to the
President and majority stockholder for services at $0.47 per share.
 
 In
April 2004, the Company issued 200,000 shares of its common stock to a director
for consulting services at $0.11 per share.
 
 15.
    CONSULTING
      SERVICES
 
 In
September 2002, the Company entered into a consulting agreement with a company
to provide investor relations for a period of twelve months in consideration of
300,000 shares of the Company's common stock and warrants to purchase 200,000
shares of common stock with an weighted average exercise price of $0.75. The
Company has valued this transaction at $25,000 under SFAS No. 123. The Company
has issued both the common stocks and warrants as of December 31, 2002. The
Company has recorded expenses for $17,709 and $7,291 for the years ended
December 31, 2003 and 2002, respectively.
 
 In
September 2002, the Company entered into a consulting agreement with a company
to provide consulting and public relations for a period of thirteen months in
consideration of 200,000 shares of the Company's common stock and warrants to
purchase 300,000 shares of common stock with an weighted average exercise price
of $0.75. The Company has valued this transaction at $25,000 under SFAS No. 123.
The Company has issued both the common stocks and warrants as of September 30,
2002. The Company has recorded expenses for $17,309 and $7,691 for the years
ended December 31, 2003 and 2002, respectively.
 
 In
January 2004, the Company entered into a Consulting Agreement with a company to
provide investor relation services for a period of twelve months in exchange for
500,000 shares of the Company’s common stock and a monthly fee of $1,000. The
Company issued the stock and recorded consulting fees totaling $150,000 in
January 2004.
 
 In
February 2004, the Company entered into an Agreement with an entity to produce
twelve programming episodes (one per month) for distribution to the Company’s
closed-circuit networks over the course of one year. The Company’s cost per
episode will not be less than $46,666, and is determined by a mutually
pre-approved budget. The Company has recorded expenses related to the agreement
of $113,332 for the year ended December 31, 2004.
 
 In
February 2004, the Company entered into a Common Stock Purchase Agreement with
an entity to sell 175,000 shares of the Company’s common stock for $25,000 in
cash and an additional 175,000 shares for consulting services totaling $153,500.
In addition, if the open market price on the closing bid is below fifty cents
for three consecutive days during the thirty days following the effective
registration of the Company’s common stock, the buyer is entitled to a pro-rata
adjustment to the number of shares equal to a 50% discount to the lowest bid
price of those three days.
 
 16.
    STOCKHOLDERS’
      DEFICIT
 
 Stock
issuances -
In September 2001 as discussed in Note 1, the Company issued 2,431,000 shares of
its common stock for the acquisition of all the outstanding capital stock of
Limelight Network, Inc. The Company recorded an expense of $2,431 during 2001 as
a result of this transaction.
 
 F-22
  LIMELIGHT
MEDIA GROUP, INC.
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO FINANCIAL STATEMENTS
 In
May 2002, the Company issued 905,000 shares of its common stock to various
consultants for consulting expense valued at $316,750.
 
 In
June 2002, the Company issued 10,000 shares of its common stock related to the
exercise of warrants at $0.50 per share.
 
 In
July 2002, the Company issued 150,000 shares of its common stock for cash at
$0.10 per share.
 
 In
July 2002, the Company issued 2,000,000 shares of its common stock for cash at
$0.10 per share, net of offering cost of $20,000, through a common stock
purchase agreement ("Stock Purchase Agreement").
 
 Pursuant
to the Stock Purchase Agreement, a provision provides for a put and call right.
The put right gives the purchaser the right to sell all or portion of the common
stock for a cash price of $0.19 per share during the period from April 3, 2003
through July 3, 2003. The call right gives the Company the right to purchase all
or portion of the common stock for a cash price of $0.20 during the period from
the date of the agreement through April 3, 2003.
 
 The
Company's President and majority shareholder has personally guaranteed the
provisions of the put right within the agreement in the event the Company's
stock value is less than the required purchase price.
 
 In
August and September 2002, the Company issued 1,100,000 shares of its common
stock to various consultants for prepaid consulting services valued at
$85,000.
 
 In
September 2002, the Company issued 200,000 shares of its common stock for a note
receivable totaling $20,000. The Company determined that the note was
uncollectible and wrote off the entire balance for the year ended December 31,
2002.
 
 In
November 2002, the Company issued 500,000 shares of its common stock for the
acquisitions of UniGuest of Tennessee, Inc. These shares were cancelled in
October 2003 as discussed in Note 2.
 
 In
November 2002, the Company issued 600,000 shares of its common stock in
satisfaction of a loan payable valued at $75,000.
 
 In
February 2003, the Company issued 177,000 shares of its common stock for
services at $0.11 per share.
 
 In
February 2003, the Company issued 300,000 shares of its common stock for
services at $0.10 per share.
 
 In
March 2003, the Company issued 200,000 shares of its common stock for services
at $0.10 per share.
 
 In
March 2003, the Company issued 30,000 shares of its common stock for cash at
$0.10 per share.
 
 In
November 2003, the Company issued 1,717,000 shares of its common stock for cash
at $0.03 per share.
 
 In
November 2003, the Company issued 1,050,000 shares of its common stock for
services at $0.12 per share.
 
 In
December 2003, the Company issued 833,331 shares of its common stock for cash at
$0.03 per share.
 
 In
January 2004, the Company issued 2,548,893 in satisfaction of other liabilities
at $0.03 per share.
 
 In
January 2004, the Company issued 2,362,221 shares of its common stock for cash
at $0.03 per share.
 
 In
January 2004, the Company issued 500,000 shares of its common stock for services
at $0.17 per share.
 
 In
January 2004, the Company issued 1,500,000 shares of its common stock for
services at $0.30 per share.
 
 F-23
  LIMELIGHT
MEDIA GROUP, INC.
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO FINANCIAL STATEMENTS
 In
January 2004, the Company issued 1,000,000 shares of its common stock for
services at $0.49 per share.
 
 In
February 2004, the Company issued 400,000 shares of its common stock for
interest at $0.47 per share.
 
 In
February 2004, the Company issued 187,000 shares of its common stock for
services at $0.85 per share.
 
 In
February 2004, the Company issued 3,012,777 shares of its common stock for cash
at $0.05 per share.
 
 In
February 2004, the Company granted warrants to purchase 100,000 shares of common
stock at $0.25 per shares. The warrants vest immediately, expire in April 2005
and are valued at $47,832 using the Black Scholes method.
 
 In
March 2004, the Company cancelled 55,000 shares of its common
stock.
 
 In
March 2004, the Company issued 26,600 shares of its common stock for services at
$0.37 per share.
 
 In
April 2004, the Company issued 52,338 shares of its common stock for services at
$0.19 per share.
 
 In
April 2004, the Company issued 172,223 shares of its common stock for cash at
$0.02 per share.
 
 In
April 2004, the Company issued 88,889 shares of its common stock for cash at
$0.03 per share.
 
 In
July 2004, the Company issued 1,269,231 shares of its common stock for services
at $0.14 per share.
 
 In
August 2004, the Company cancelled 150,000 shares of its common
stock.
 
 In
September 2004, the Company issued 4,025 shares of common stock at $0.04 per
share.
 
 In
December 2004, the Company issued 5,000,000 shares of common stock for cash
equivalent credit valued at $125,000.
 
 Stock
warrants -
In connection with certain business transactions and debt or equity offerings,
the Company has granted various warrants to purchase common stock. The following
table summarizes activity relating to outstanding warrants from April 19, 2001
(date of inception of Limelight Media Group, Inc.) through December 31,
2004:
 Number
    
    Weightedof
    
    AverageShares
    
    Exercise
      PriceBalance,
      April 19, 2001(Date of Inception)
    
    
    --
    
    $
    --Warrants
      granted and assumed
    
    
    1,000,000
    
    
    0.75Warrants
      expired
    
    
    --
    
    
    --Warrants
      canceled
    
    
    --
    
    
    --Warrants
      exercised
    
    
    --
    
    
    --Balance,
      December 31, 2001
    
    
    1,000,000
    
    
    0.75Warrants
      granted and assumed
    
    
    500,000
    
    
    0.65Warrants
      expired
    
    
    --
    
    
    --Warrants
      canceled
    
    
    --
    
    
    --Warrants
      exercised
    
    
    10,000
    
    
    1.00Balance,
      December 31, 2002
    
    
    1,490,000
    
    
    0.71Warrants
      granted and assumed
    
    
    380,000
    
    
    0.17Warrants
      expired
    
    
    300,000
    
    
    0.15Warrants
      canceled
    
    
    --
    
    
    --Warrants
      exercised
    
    
    --
    
    
    --
 F-24
 LIMELIGHT
MEDIA GROUP, INC.
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO FINANCIAL STATEMENTS
 Balance,
      December 31, 2003
    
    
    1,570,000
    
    
    0.69Warrants
      granted and assumed
    
    
    100,000
    
    
    0.50Warrants
      expired
    
    
    --
    
    
    --Warrants
      canceled
    
    
    --
    
    
    --Warrants
      exercised
    
    
    --
    
    
    --Balance,
      December 31, 2004
    
    
    1,670,000
    
    $
    0.68
 
 
 The
following table summarizes information about warrants outstanding at December
31, 2004:
 WeightedNumber
    
    Average
    
    NumberOutstanding
    
    Remaining
    
    ExercisableExercise
    
    as
      of
    
    Contractual
    
    as
      ofPrice
    
    12/31/04
    
    Life
    
    12/31/04$
    0.25
    
    
    180,000
    
    
    1.36
      years
    
    
    180,0000.50
    
    
    790,000
    
    
    0.86
      years
    
    
    790,0001.00
    
    
    700,000
    
    
    0.98
      years
    
    
    700,000$
    0.71
    
    
    1,670,000
    
    
    
    
    
    1,670,000
 
 The
following table summarizes information about warrants granted during the year
ended December 31, 2004:
 
 Exercise
      PriceEquals,
      Exceeds orNumber
      of
    
    is
      Less Than Mkt.
    
    Weighted
    
    
    
    WeightedWarrants
      Granted
    
    Price
      of Stock
    
    Average
    
    Range
      of
    
    AverageDuring
      2004
    
    on
      Grant Date
    
    Exercise
      Price
    
    Exercise
      Price
    
    Fair
      Value--
    
    
    Equals
    
    $
    --
    
    $
    --
    
    $
    ----
    
    
    Exceeds
    
    $
    --
    
    $
    --
    
    $
    --100,000
    
    
    Less
      Than
    
    $
    0.24
    
    $
    0.24
    
    $
    0.48100,000
    
    
    
    
    $
    0.15
    
    $
    0.15
    
    $
    0.05
 
 
 The
Company estimates the fair value of warrants at the grant date by using the
Black-Scholes option pricing-model with the following weighted-average
assumptions used for grants in 2004 and 2003; no dividend yield; expected
volatility of 335.73% and 221.59%; risk free interest rates of 1.27% and 4%; and
expected lives of 1.0 and 0.5 years. The Company valued the consulting services
under SFAS No. 123 relating to the warrants that became exercisable upon grant
in 2004 and 2003 for $48,000 and $15,000, respectively.
 
 17.
    COMMITMENTS
      AND CONTINGENCIES
 
 Legal -
During September 2002, a company alleged it entered into a loan agreement with
the Company during February 2002 totaling $54,000. The Company is defending on
the basis the Company issued 89,000 shares of common stock in consideration of
this balance. The Company is negotiating this balance and has recognized a
liability of $25,000 as loan payable as discussed in Note 8.
 
 As
discussed in Note 13, the Company is subject to pending litigation, whereby
Dierbergs alleges the Company and IGS breached a Lease Agreement entered into by
IGS on February 6, 2004, which did not allow for the assignment of the lease by
IGS. The total fines levied by the Dierbergs total $72,000. Management of the
Company is confident that Dierbergs has misidentified the materials in question
in relation to the Company.
 
 F-25
 LIMELIGHT
MEDIA GROUP, INC.
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO FINANCIAL STATEMENTS
 Leased
facility -
The Company operates from a leased facility under a noncancellable operating
lease. The lease calls for a base monthly rent of $3,237 increasing to $3,642
during June 2005. As of December 31, 2004 and 2003, total rent expense for the
leased facility approximated $43,300 and $19,600, respectively.
 
 Future
minimum rental payments required under the operating lease for the office
facility as of December 31, 2004, are as follows:
 
 2005
    $
    41,6792006
    
    18,210$
    59,889
 
 18.
    OTHER
      LEGAL MATTERS
 
 During
July 2001, See/Saw Communications, LLC (“See/Saw”) and the Company entered into
a certain loan agreement and other agreements related to the loan agreement.
Pursuant to the loan agreement, the Company advanced funds to See/Saw. See/Saw
alleges that the Company breached the loan agreement while the Company alleges
it is owed money by See/Saw. In March 2004, the Company entered into a
settlement agreement with See/Saw whereby the Company issued 300,000 shares of
its common stock to See/Saw valued at $60,000, which the Company recorded as
part of loss related to settlements and judgments totaling
$170,388.
 
 19.
    SUBSEQUENT
      EVENTS
 
 During
January 2005, the Company issued 7,192,272 shares of the Company’s common stock
to the President and majority stockholder in satisfaction of accrued wages and a
convertible loan payable - related party totaling $154,375 and $10,000,
respectively.
 
 During
January 2005, the Company issued 838,721 shares of its common stock to a
director and stockholder in satisfaction of due to related parties totaling
$30,193.
 
 During
January 2005, the Company issued 777,777 shares of its common stock for accounts
payable totaling $25,000.
 
 During
January 2005, the Company issued 9,847,475 shares of its common stock in
satisfaction of due to related parties totaling $779,382.
 
 During
January 2005, the Company converted $75,000 in principal and $18,497 in accrued
interest on the convertible debentures into 3,541,537 shares of the Company’s
common stock.
 
 During
January 2005, as discussed in Note 9, the Company terminated the Distribution
Agreement with Cornell Capital.
 
 During
February 2005, the Company issued 145,000 shares of its common stock for
services at $0.04 per share.
 
 During
February 2005, the Company issued 3,666,387 shares of its common stock for
accounts payable and accrued liabilities totaling $74,124.
 
 During
February 2005, the Company entered into a settlement agreement with Erik Nelson
whereby the Company agreed to pay $30,000 of the $42,000 liability (see Note 13)
in exchange for a general release of all amounts owed to Mr. Nelson. In addition
during February 2005, the Company and Mr. Nelson entered into a General Release
whereby Mr. Nelson surrendered 490,000 Class A warrants and 500,000 Class B
warrants to the Company.
 
 F-26
  LIMELIGHT
MEDIA GROUP, INC.
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO FINANCIAL STATEMENTS
 During
February 2005, the Company and Lion Partners, LTD (“Lion Partners”) entered into
a promissory note whereby Lion Partners loaned the Company $60,000. The
promissory note is unsecured, bearing an interest rate of 10% per annum, and due
on August 15, 2005. The Company used $30,000 of the proceeds to pay Erik Nelson
as discussed in the above paragraph. Additionally, the Company repriced the
Class A Warrants and Class B Warrants previously held by Mr. Nelson to $0.00,
and exchanged the repriced Class A Warrants and Class B Warrants with
 
 the
promissory note issued to Lion Partners in full satisfaction of all obligations
of the Company under the promissory note.
 
 During
February 2005, the Company entered into a Letter of Intent to purchase a
majority interest in OTR Media, Inc. (“OTR Media”). OTR Media is a privately
held company based in Kentucky that provides outdoor advertising services
primarily through the placement of mobile billboards on tractor
trailers.
 
 During
February 2005, the Company entered into a Secured 8% Promissory Note with an
entity whereby the Company would receive up to $100,000. Upon execution of the
Note, the Company received $40,000 to be set aside for operations of OTR Media,
Inc. (see below) with a conditional obligation by the entity to fund an
additional $10,000 per month beginning July 2005 for six months if OTR Media
does not have sufficient cash to cover operation expenses. The note is secured
by assets of OTR Media.
 
 During
March 2005, the Company issued 1,250,000 shares of its common stock to various
consultants for services at $0.04 per share.
 
 During
March 2005, the Company completed the acquisition of 51% of OTR Media in
exchange for 10,200,000 shares of the Company’s common stock. The Company will
assume financial and operational control and responsibility of OTR from and
after April 15, 2005.
 
 During
March 2005, the Company issued 650,000 shares of its common stock to a
stockholder of the Company in satisfaction of due to related parties totaling
$14,000.




F-27
 **




**EXHIBIT
INDEX**
 
 **Exhibit****Number**
    **Exhibit Title**2.1
    Stock
      Purchase Agreement, dated March 11, 2005, among the Company, OTR Media,
      Inc. and certain stockholders of OTR Media, Inc. (incorporated by
      reference to Exhibit 2.1 to the Company's Current Report on Form 8-K dated
      March 11, 2005 and filed with the Commission on March 17,
      2005).3.1
    Articles
      of Incorporation dated as of May 17, 1996 (Incorporated by reference to
      the Company's Current Report on Form 8-K as filed on October 27,
      2000).3.2
    Certificate
      of Amendment to Articles of Incorporation dated as of October 3, 2002
      (Incorporated by reference to the Company's Current Report on Form 8-K as
      filed on October 7, 2002).3.3
    Certificate
      of Amendment to Articles of Incorporation dated as of February 29, 2004.3.4
    Certificate
      of Amendment to Articles of Incorporation dated as of January 6, 2005.3.5
    By-laws
      (Incorporated by reference to Exhibit 3.4 to Company's Registration
      Statement on Form 8-K as filed on July 21, 2000).10.1
    Letter
      Agreement, dated December 30, 2004, between the Company and the Division
      of Alcohol and Tobacco Control of the State of
Missouri.10.2
    9%
      Secured Promissory Note, dated August 31, 2004, issued by the Company to
      David V. Lott in the principal amount of $385,306.78.10.3
    Reseller
      Agreement, dated June 16, 2004, between the Company and Champ Car World
      Series.10.4
    Agreement,
      dated December 19, 2004, between the Company and American Marketing
      Complex, Inc.14.1
    Limelight
      Media Group, Inc. Code of Ethics.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.