| LIMELIGHT MEDIA GROUP, INC. | |
| STATEMENTS OF CASH FLOWS (CONTINUED) | |
| (UNAUDITED) | |
| | | | | | |
| | | For the Six Months Ended June 30, 2005 | | For the Six Months Ended June 30, 2004 | |
| Schedule of non-cash operating, investing and financing activities: | | | | | | | |
| Issuance of common stock for acquisition of Impart, Inc. and for acquisition of Ipoint Networks, LLC's assets | | | | | | | |
| Limelight Media Group, Inc. net assets | | | | | | | |
| Inventory | | $ | 1,240 | | $ | -- | |
| Fixed assets | | | 88,961 | | | -- | |
| Other assets | | | 13,700 | | | -- | |
| Cash equivalent credit paid in common stock | | | 125,000 | | | -- | |
| Accounts payable | | | (359,770 | ) | | -- | |
| Accrued liabilities | | | (750 | ) | | -- | |
| Due to related parties | | | (464,705 | ) | | -- | |
| Notes payable | | | (25,000 | ) | | -- | |
| Convertible loan payable | | | (10,000 | ) | | -- | |
| Other liabilities | | | (30,699 | ) | | -- | |
| Total non-cash consideration related to Limelight | | $ | (662,023 | ) | $ | -- | |
| | | | | | | | |
| Ipoint Networks, LLC assets | | | | | | | |
| Fixed assets | | $ | 732,899 | | $ | -- | |
| Total non-cash consideration related to Ipoint | | $ | 732,899 | | $ | -- | |
See Accompanying Notes to Financial Statements
LIMELIGHT MEDIA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
| 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”) sells dynamic media solutions consisting of monitors, computers, mounting systems, and associated technological hardware. Sales are made throughout the United States. While customers are in various industries, a significant portion of customers are in banking and retail.
Limelight has also developed a digital out-of-home media network. The network is centrally managed and is applicable over the growing digital signage industry in any location where a message needs real time display. The Company focuses on two general markets: point of decisions and captive audience. The Company is currently developing digital networks in multiple vertical markets. By diversifying the markets the Company may realize revenue from multiple sources.
Limelight has developed a system to digitally distribute advertisements, marketing messages and entertainment video content via broadband connection for viewing in public locations such as financial institutions, government buildings, mass transit locations and in retail locations such as grocery stores. The content management system facilitates digital video content to be transmitted in digital files, replacing the soon-to-be antiquated utilization of photographic slides, VCR tape and DVDs. Limelight has two types of clients, the “location partner,” and the advertiser who wishes to reach the patrons that visit the location partners’ venues. A location partner can be a government agency, financial institution, theater owner, retail storeowner or whoever is charged with the marketing and management of a physical facility. Revenue may be derived from advertising sales, sponsorships, subscription agreements, equipment sales, maintenance and installation fees and content development fees. For the six months ended June 30, 2005 and 2004, the Company’s primary source of revenue was derived from equipment sales.
Limelight provides a turn-key solution for businesses desiring digital signage systems for information display. Limelight contacts high traffic businesses such as banks, mass transit, governmental buildings, movie theaters, malls, restaurants and retail stores to determine if a digitally managed captive audience network is desired. Limelight installs all necessary servers and displays for its customers. Depending on the agreement, Limelight may provide the equipment at no cost to the location partner and share in the revenue or the partner may purchase the equipment and pay a monthly fee to Limelight for sales and administration. The system is connected via a telephone line or broadband internet to Limelight’s video and content management servers. Limelight may provide the programming and marketing of the network space to potential advertisers. Advertising revenues may be used to offset the cost of installation and administration of the network and programming. The location partner may receive a portion of the revenue generated from advertising sales on a negotiated basis depending on their level of involvement in the payment of the system.
The content is presented on single or multiple screens installed by the company at the location. The displays are located in ideal locations to attract the attention of patrons who are entering and leaving the location.
History - The Company was incorporated as “Multinet International Corporation, Inc.” 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”). At the time of 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.
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 Multinet divested itself of Nikky D. Corporation. Multinet International Corporation, Inc. accounted for this divestiture as a spin-off in accordance with Accounting Principles Board Statement No. 29. As a result of this divestiture, the Multinet became a non-operational public company.
LIMELIGHT MEDIA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
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.
On June 30, 2005, the Company formed a wholly owned subsidiary, Limelight Merger II Corp., a Washington corporation.
On June 30, 2005, through its wholly owned subsidiary, Limelight Merger II Corp., Limelight Media Group, Inc. consummated an agreement to acquire all of the outstanding capital stock of Impart, Inc. (“Impart”) a Washington corporation, (“Impart Transaction”). Also, on June 30, 2005, concurrently with the Impart Transaction, Impart entered into an Agreement with Ipoint Networks, LLC, a Washington limited liability company (“Ipoint”) whereby Impart purchased the assets of Ipoint (“Ipoint Transaction”). The total consideration for these transactions was 162,500,000 shares (“Merger Consideration”) of Limelight’s common stock and a promissory note of $250,000.
As Limelight Media Group, Inc. did not have a sufficient number of duly authorized shares on the date of the acquisition, the parties agreed to holdback 57,500,000 shares (“Holdback Shares”) of the 162,500,000 to be issued to owners of Impart and Ipoint not later than ten days following the later of (i) the effective date of a merger by Limelight with and into a Delaware corporation to be formed by the Limelight or (ii) Limelight’s receipt of audited financial statements of Impart. Prior to the Impart Transaction, Limelight was a public company with nominal operations, that had $105,868 in assets (including cash totaling $1,968); liabilities totaling $890,924, a cash equivalent credit valued at $125,000 previously purchased through the issuance of common stock and 141,628,494 shares of common stock issued and outstanding. Impart was a privately held company that sells dynamic media solutions consisting of monitors, computers, mounting systems, and associated technological hardware. The following table reflects the stock issued in relation to the Impart Transaction and Ipoint Transaction:
| | | Impart Transaction (1) | | Ipoint Transaction (2) | | Total | |
| Total consideration | | | 153,125,000 | | | 9,375,000 | | | 162,500,000 | |
| Holdback shares | | | (54,182,692 | ) | | (3,317,308 | ) | | (57,500,000 | ) |
| Total Common Stock issuance | | | 98,942,308 | | | 6,057,692 | | | 105,000,000 | |
(1) The Impart Transaction is considered to be a capital transaction in substance, rather than a business combination. Inasmuch, the Impart Transaction is equivalent to the issuance of stock by a private company (Impart) for the net monetary assets of a public shell company (Limelight), accompanied by a recapitalization. Thus, the 98,942,308 shares (net of Holdback Shares) of common stock issued to the shareholders of Impart are retroactively applied. The accounting for the Impart Transaction is identical to that resulting from a reverse acquisition, except that neither goodwill nor other intangible assets will be recorded. Accordingly, these financial statements are the historical financial statements of Impart. Impart was incorporated on June 19, 1984 in the State ofWashington.
(2) The Ipoint Transaction resulted in the acquisition of certain assets including fixed assets in exchange for 6,057,692 shares (net of Holdback Shares) and a promissory note totaling $250,000. The note is unsecured, bearing interest at 8% per annum and is payable on the earlier of June 30, 2006 or the closing of a PIPE financing transaction by the Company.
On June 30, 2005, Impart entered into an Agreement with Media Sidestreet Support Corporation (“Media Sidestreet”) whereby Impart purchased the assets of Media Sidestreet in exchange for the issuance of notes in the aggregate principal amount of $1,027,965 to the owners of Media Sidestreet (“Media Sidestreet Asset Acquisition”). The notes are unsecured, with interest ranging from 6% to 10% (two notes include variable interest rates), and are payable on the earlier of June 30, 2006 or the closing of a PIPE financing transaction by the Company. Prior to the Impart Transaction, the majority owners of Impart were also owners in Media Sidestreet, thus a related party transaction.
LIMELIGHT MEDIA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
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. During February 2004, a Certificate of Amendment to the Articles of Incorporation increased the authorized shares of common stock from 25,000,000 to 100,000,000. During January 2005, a Certificate of Amendment to the Articles of Incorporation increased the authorized shares of common stock from 100,000,000 to 250,000,000.
Going concern - The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred a net loss of approximately $161,000 and $299,000 for the six months ended June 30, 2005 and 2004, respectively. The Company's current liabilities exceed its current assets by approximately $2,128,000 as of June 30, 2005. The Company’s net cash used from operating activities approximated $35,000 during the six months ended June 30, 2005.
These conditions give rise to substantial doubt about the Company's ability to continue as a going concern. The Company's management plan to obtain additional financing through a combination of equity and debt financing.
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.
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.
Inventory - Inventory is stated at the lower of cost or market. Cost is principally determined by using the average cost method. Inventory consists of raw materials as well as finished goods held for sale. The Company's management monitors the inventory for excess and obsolete items and makes necessary valuation adjustments when required.
Fixed assets - Fixed assets are stated at cost less accumulated depreciation. Depreciation is provided principally on the straight-line method over the estimated useful lives of the assets, which are generally 3 to 10 years. The cost of repairs and maintenance is charged to 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.
Fixed assets acquired through the Ipoint Asset Acquisition and the Media Sidestreet Asset Acquisition were recorded at a pro-rata reduction of their estimated fair value to the extent of the consideration given at the time of acquisition less accumulated depreciation from the time of acquisition.
LIMELIGHT MEDIA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
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.
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 June 30, 2005, the Company has available net operating loss carryforwards that will expire in various periods through 2025. 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. As of June 30, 2005, the Company operates under one segment as of June 30, 2005.
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 were $695 and $1,247 for the three months ended June 30, 2005 and 2004, 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.
LIMELIGHT MEDIA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
The Company granted warrants to purchase an aggregate of 3,000,000 shares of the Company’s common stock to two directors of Limelight for services rendered prior to the Impart Transaction. As these financial statements are the historical financial statements of Impart, Inc., no valuation has been included. The Company granted no other warrants or options to employees for compensation for the six months ended June 30, 2005 and 2004.
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.
Revenue recognition - Revenue from product sales are generally recognized when the Company’s products are shipped and/or the revenue is fully earned and ownership has passed to the customer. Revenue from design and installation contracts are recognized using the completed-contract method.
New accounting pronouncements - 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.
As of June 30, 2005 accounts receivable, consists of trade receivables related to equipment sales and total $546,031, which is net of allowance for doubtful accounts of $35,294.
Inventory totaling $526,228 consists of finished goods as of June 30, 2005.
LIMELIGHT MEDIA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
Fixed assets consist of the following as of June 30, 2005:
| Computer and other equipment | | $ | 498,116 | |
| Furniture and fixtures | | | 81,890 | |
| Software | | | 1,867,542 | |
| Leasehold equipment | | | 3,661 | |
| | | | 2,451,209 | |
| Less: accumulated depreciation | | | 114,501 | |
| | | | | |
| Fixed assets, net | | $ | 2,336,708 | |
Due to related parties totaling $464,705 as of June 30, 2005 consist of the following:
| Loan payable to the Company’s CEO, secured by the Company’s assets bearing interest at 9% per annum, payable in monthly installments of interest only, due on demand | | $ | 386,807 | |
| | | | | |
| Unreimbursed expenses to the CEO, unsecured, bearing no interest and due on demand | | | 42,891 | |
| | | | | |
| Unreimbursed expenses to various stockholders, unsecured, bearing no interest and due on demand | | | 10,600 | |
| | | | | |
| Accrued interest on related party loans | | | 24,407 | |
| | | | | |
| | | $ | 464,705 | |
| As of June 30, 2005, lines of credit consist of the following: | | | |
| | | | |
| A bank line of credit for borrowing up to $200,000, secured by the Company’s assets, bearing interest at 11% per annum payable in monthly installments of interest only, matures December 2006 | | $ | 119,284 | |
| | | | | |
| An American Express business capital line for borrowing up to $54,000, unsecured, bearing a variable interest rate (28.24% at June 30, 2005) payable in monthly installments of interest only | | | 17,927 | |
| | | | | |
| | | $ | 137,211 | |
| 7. | CONVERTIBLE LOANS PAYABLE |
In August 2003, the Company borrowed $10,000, unsecured and bearing interest at 12% from an individual that matured during August 2004. As of June 30, 2005, 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.
LIMELIGHT MEDIA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
As discussed in Note 16, 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.
As discussed in Note 1, On June 30, 2005, concurrently with the Impart Transaction, Impart entered into an Agreement with Ipoint whereby Impart purchased the assets of Ipoint in exchange for the issuance of a promissory note of $250,000 and 9,375,000 shares of the Company’s common stock valued at $750,000. Impart allocated 6,057,692 shares of the Company’s common stock from the Merger Consideration to the sole member of Ipoint on June 30, 2005, with the remaining 3,317,308 shares to be allocated from the Holdback Shares in accordance with the Impart Transaction. The note is unsecured, bearing interest at 8% per annum and is payable on the earlier of June 30, 2006 or the closing of a PIPE financing transaction by the Company.
During June 2005, the Company entered into a promissory note with an entity totaling $20,000. The note is unsecured, bearing interest at 8.5% per annum and payable in June 2006.
During June 2005, the Company entered into a promissory note with an individual totaling $50,000. The note is unsecured, bearing interest at 8% per annum and payable in June 2006.
During November 2004, the Company entered into a promissory note with a lending institution. The note is secured by the Company’s assets and bears interest at 8.5% per annum. The note requires 24 monthly principal and interest payments of $6,000 beginning December 2004, with a final payment of $484,249 to be made in December 2006. As of June 30, 2005, the current portion on the note from July 1, 2005 through June 30, 2006 totals $30,327 and the long-term portion totals $493,204.
| 9. | NOTES PAYABLE - RELATED PARTIES |
As discussed in Note 1, on June 30, 2005, concurrently with the Impart Transaction, Impart entered into an Agreement with Media Sidestreet whereby Impart purchased the assets of Media Sidestreet in exchange for the issuance of a promissory note in the aggregate principal amount of $1,027,965 to the owners of Media Sidestreet. The notes are unsecured, with interest ranging from 6% to 10% (two notes include variable interest rates), and are payable on the earlier of June 30, 2006 or the closing of a PIPE financing transaction by the Company. Prior to the Impart Transaction, the majority owners of Impart were also owners in Media Sidestreet, thus a related party transaction.
During April 2005, Limelight issued promissory notes to two Impart stockholders (prior to the Impart Transaction) whereby the Impart stockholders loaned Limelight $16,000 and $20,000 to pay for equipment purchased by Limelight from Impart. The notes are unsecured, bearing interest at 20% and 8.5% per annum, respectively, and are payable on maturity during April 2006. The two stockholders became officers of the Company concurrently with the Impart Transaction. As of June 30, 2005, the remaining balance of the two notes remain at $36,000.
LIMELIGHT MEDIA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
| 10. | CASH EQUIVALENT CREDIT PAID IN COMMON STOCK |
Effective December 10, 2004, the Limelight 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.
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 a three-year employment agreement with this same individual, whereby the Company agreed to employ the individual as an operations manager for the term of three years. The individual was entitled to compensation of $15,000 per month with the option to receive payment in shares of the Company’s common stock. Such shares were to be equal to the closing bid price on the last day of the month preceding the date the salary was due. The Company, at its option has the right to terminate the agreement upon payment of 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 three-year 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.
As of June 30, 2005, the individual paid the Company $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. The Company has recorded the $30,699 as an other liability totaling $30,699.
As discussed in Note 16, during August 2005, the Company settled this liability for 1,000,000 shares of common stock.
LIMELIGHT MEDIA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
Stock warrants - In connection with certain business transactions and debt or equity offerings, Limelight had granted various warrants to purchase common stock prior to the Impart Transaction. The following table summarizes activity relating to outstanding warrants from December 31, 2003 through June 30, 2005:
| | | Number of Shares | | Weighted Average Exercise Price | |
| Balance, December 31, 2003 | | | 1,570,000 | | | 0.69 | |
| Warrants granted and assumed | | | 100,000 | | | 0.50 | |
| Warrants expired | | | -- | | | -- | |
| Warrants canceled | | | -- | | | -- | |
| Warrants exercised | | | -- | | | -- | |
| Balance, December 31, 2004 | | | 1,670,000 | | | 0.68 | |
| Warrants granted and assumed | | | 3,990,000 | | | 0.04 | |
| Warrants expired | | | 100,000 | | | .08 | |
| Warrants canceled | | | -- | | | -- | |
| Warrants surrendered | | | 990,000 | | | 0.75 | |
| Warrants exercised | | | 990,000 | | | 0.00 | |
| Balance, June 30, 2005 | | | 3,580,000 | | $ | 0.14 | |
The following table summarizes information about warrants outstanding at June 30, 2005:
| Exercise Price | | Number Outstanding as of 12/31/04 | | Weighted Average Remaining Contractual Life | | Number Exercisable as of 12/31/04 | |
| $ | 0.05 | | | 3,000,000 | | | 3.00 years | | | 3,000,000 | |
| | 0.25 | | | 180,000 | | | 0.86 years | | | 180,000 | |
| | 0.50 | | | 200,000 | | | 0.42 years | | | 200,000 | |
| | 1.00 | | | 200,000 | | | 0.42 years | | | 200,000 | |
| | | | | | | | | | | | |
| $ | 0.14 | | | 3,580,000 | | | | | | 3,580,000 | |
The following table summarizes information about warrants granted during the six months ended June 30, 2005:
| Number of Warrants Granted During 2005 | | Exercise Price Equals, Exceeds or is Less Than Mkt. Price of Stock on Grant Date | | Weighted Average Exercise Price | | Weighted Range of Exercise Price | | Average Fair Value | |
| | -- | | | Equals | | $ | -- | | $ | -- | | $ | -- | |
| | -- | | | Exceeds | | $ | -- | | $ | -- | | $ | -- | |
| | 3,990,000 | | | Less Than | | $ | 0.04 | | $ | 0.00-0.05 | | $ | 0.05 | |
| | | | | | | | | | | | | | | |
| | 3,990,000 | | | | | $ | 0.04 | | $ | 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 2005; no dividend yield; expected volatility of 225.55%; risk free interest rates of 2.24%; and expected lives of 1.13 years. The warrants were granted by Limelight prior to the Impart Transaction. As these financial statements are the historical financial statements of Impart, Inc. as discussed in Note 1, no valuation has been included.
LIMELIGHT MEDIA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
| 13. | EMPLOYEMENT AGREEMENTS |
Pursuant to the Impart Transaction, the Company entered into the following Employment Agreements on June 30, 2005:
David V. Lott (Former President and Chief Financial Officer of Limelight) - David V. Lott was appointed as Chief Executive Officer for the term of three years from June 30, 2005, subject to termination provisions. Mr. Lott will receive an annual base salary totaling $120,000 plus benefits.
Laird Laabs (President of Impart) - Laird Laabs was appointed as President for the term of three years from June 30, 2005, subject to termination provisions. Mr. Laabs will receive an annual base salary totaling $120,000 plus benefits.
Joseph Martinez - Joseph Martinez was appointed as Chairman and Chief Financial Officer for the term of three years from June 30, 2005, subject to termination provisions. Mr. Martinez will receive an annual base salary totaling $120,000 plus benefits.
Steven Corey - Steven Corey was appointed as Chief Strategy Officer for the term of three years from June 30, 2005, subject to termination provisions. Mr. Corey will receive an annual base salary totaling $120,000 plus benefits.
Thomas Muniz - Thomas Muniz was appointed as Chief Operating Officer and Chief Technology Officer for the term of three years from June 30, 2005, subject to termination provisions. Mr. Muniz will receive an annual base salary totaling $120,000 plus benefits.
Pursuant to the Impart Transaction, former Shareholders of Impart and David Lott of Limelight entered into a Lock-Up Agreement restricting the transfer, sale, assignment of Limelight shares of common stock from June 30, 2005 through June 30, 2006 (with limited exceptions).
| 15. | COMMITMENTS AND CONTINGENCIES |
Legal - As discussed in Note 8, 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 January 2005 Dierbergs Markets, Inc. (“Dierbergs”) filed a complaint against Interactive Graphic Solutions, LLC and Limelight Media Group, Inc. According to the complaint, Dierbergs entered into a license agreement with Interactive Graphic Solutions, LLC ("IGS") pursuant to which IGS granted Dierbergs 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 Dierbergs. In August 2004, Limelight acquired substantially all of the assets of IGS, including the license agreement with the Dierbergs. Dierbergs was 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, the Company filed a motion to dismiss on the basis that the Company was neither a party to the license agreement nor, as Dierbergs asserted in the complaint, a permitted assignee. Dierbergs dismissed the motion against Limelight during August 2005.
LIMELIGHT MEDIA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
During February 2002, Clickplay, Inc. filed suit on February 19, 2002 alleging claims against the Limelight for non-payment of deposits related to a consulting services agreement. The Company was 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. A default judgment was entered in favor of Clickplay, Inc. against the Company; however, execution of the judgment upon the Company has not occurred due to jurisdictional defects stemming from the misidentification of the Company as the defendant. Management believe the claims of Clickplay, Inc. are without merit and intend to aggressively defend against these claims. However, the Company is in negotiations with Clickplay with regard to a settlement of this matter.
Leased facilities - The Company operates from leased facilities under two noncancellable operating leases. The first lease (related to Limelight) calls for a base monthly rent of $3,237 increasing to $3,642 during June 2005 through May 2006. The second lease (related to Impart) calls for a base monthly rent of $15,000 through November 30, 2018. The facility is owned by certain stockholders.
Future minimum rental payments for the leased facilities as of June 30, 2005, are as follows:
| July 31, 2005 through December 31, 2005 | | $ | 111,852 | |
| 2005 | | | 198,210 | |
| 2006 | | | 180,000 | |
| 2007 | | | 180,000 | |
| 2008 | | | 180,000 | |
| 2009 | | | 180,000 | |
| Thereafter | | | 1,620,000 | |
| | | | | |
| | | $ | 2,650,062 | |
As discussed in Note 10, during August 2005, the Company settled an other liability totaling $30,699 for 1,000,000 shares of common stock.
During July 2005, the Company entered into a sale-leaseback transaction with a leasing Company whereby the Company sold approximately $150,000 in fixed assets which it subsequently leased back under a capital lease. Under the terms of the lease, the Company is required to pay 48 monthly installments of $2,198, with 2 payments paid in advance. During August 2005, the Company paid $80,000 toward this lease.
After June 30, 2005, certain officers and directors holding approximately $1.7 million aggregate principal amount of promissory notes have agreed, in principle, to cancel such notes in consideration of the issuance of options to purchases an aggregate of 16,766,820 shares of our commons stock having an exercise price of $0.10 per share.
