U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(MARK ONE)
|X| Quarterly Report Pursuant to Section 13 or 15(d) of Securities Exchange Act
of 1934
For the quarterly period ended JUNE 30, 2004
|_| Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the transition period from _______ to _______.
Commission File No. 0-09358
LIMELIGHT MEDIA GROUP, INC
(Name of Small Business Issuer in Its Charter)
NEVADA 88-0441338
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
8000 CENTERVIEW PARKWAY, SUITE 115, MEMPHIS, TENNESSEE 38018
- ------------------------------------------------------ -----
(Address of Principal Executive Offices) (Zip Code)
(901) 757-0195
(Issuer's Telephone Number, Including Area Code)
SHOWINTEL NETWORKS, INC.
(Issuer's Former Name)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months, and (2) has
been subject to such filing requirements for the past 90 days. Yes |X| No |_|
There were 54,361,937 shares of Common Stock outstanding as of August 11,
2004.
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LIMELIGHT MEDIA GROUP, INC.
(FORMERLY SHOWINTEL NETWORKS, INC.)
(A DEVELOPMENT STAGE COMPANY)
CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2004
(UNAUDITED)
ASSETS
Current assets
Cash $ --
Accounts receivable 1,777
Other current assets 1,240
-----------
Total current assets 3,017
Fixed assets, net 124,425
-----------
Total assets $ 127,442
-----------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Bank overdraft $ 1,033
Accounts payable and accrued expenses 436,304
Due to stockholder 325,984
Convertible loan payable - related party 10,000
Loans payable 29,500
Convertible loans payable 40,183
Other liabilities 180,699
-----------
Total current liabilities 1,023,703
Long-term liabilities
Convertible debentures 500,000
Convertible fee debenture 340,000
-----------
840,000
Total liabilities 1,863,703
Commitments and contingencies --
Stockholders' deficit
Common stock - $.001 par value,
100,000,000 shares authorized,
53,242,706 shares issued and outstanding 53,243
Additional paid-in capital 5,841,180
Loan fees related to standby equity
distribution agreement (340,000)
Accumulated deficit (7,290,684)
-----------
Total stockholders' deficit (1,736,261)
-----------
Total liabilities and stockholders' deficit $ 127,442
===========
2
LIMELIGHT MEDIA GROUP, INC.
(FORMERLY SHOWINTEL NETWORKS, INC.)
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR
THE PERIOD
FROM APRIL
19, 2001
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS (INCEPTION)
ENDED ENDED ENDED ENDED THROUGH
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2004 2003 2004 2003 2004
------------ ------------ ------------ ------------ ------------
Revenue $ 1,677 $ 41,840 $ 1,808 $ 87,165 $ 123,602
Cost of revenue -- 33,117 -- 47,112 71,243
------------ ------------ ------------ ------------ ------------
Gross profit 1,677 8,723 1,808 40,053 52,359
General and administrative expenses
Bad debt -- -- -- -- 16,863
Consulting fees 221,194 16,979 1,503,060 137,318 4,425,740
Depreciation 9,478 6,778 16,779 13,556 70,692
Other general and administrative
expenses 336,658 364,450 918,035 407,370 2,067,475
------------ ------------ ------------ ------------ ------------
Total general and administrative 567,330 388,207 2,437,874 558,244 6,580,770
expenses ------------ ------------ ------------ ------------ ------------
Loss from operations (565,653) (379,484) (2,436,066) (518,191) (6,528,411)
Other income (expense)
Interest income -- -- -- -- 4,960
Gain on sale of fixed asset -- 191 -- 191 1,123
Loss related to rescission of
UniGuest acquisition -- -- -- -- (24,669)
Bad debt related to note receivable -- -- -- -- (91,269)
Bad debt related to due from
UniGuest -- -- -- -- (25,000)
Loss related to settlements and
judgments (170,388) -- (170,388) -- (170,388)
Interest expense (12,302) (2,381) (383,034) (3,686) (457,030)
------------ ------------ ------------ ------------ ------------
Loss before provision for income (748,343) (381,674) (2,989,488) (521,686) (7,290,684)
taxes
Income tax provisions -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Net loss $ (748,343) $ (381,674) $ (2,989,488) $ (521,686) $ (7,290,684)
============ ============ ============ ============ ============
Basic and diluted loss per common share $ (0.01) $ (0.01) $ (0.06) $ (0.02) $ (0.27)
============ ============ ============ ============ ============
Basic and diluted weighted average
common shares outstanding 53,029,808 30,313,748 50,380,747 29,714,310 26,833,543
------------ ------------ ------------ ------------ ------------
3
LIMELIGHT MEDIA GROUP, INC.
(FORMERLY SHOWINTEL NETWORKS, INC.)
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF STOCKHOLDERS' DEFICIT
LOAN FEES
RELATED TO
COMMON STOCK STANDBY
---------------------- ADDITIONAL EQUITY TOTAL
NUMBER PAID-IN DISTRIBUTION ACCUMULATED STOCKHOLDERS'
OF SHARES AMOUNT CAPITAL AGREEMENT DEFICIT DEFICIT
---------- ---------- ---------- ---------- ----------- ------------
Balance, 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 -- -- 214,500
Issuance of common stock
for services, weighted average
$0.36 per share 3,265,938 3,266 1,200,660 -- -- 1,203,926
Issuance of common stock to
officer for services, weighted
average $0.31 per share 300,000 300 92,700 -- -- 93,000
Issuance of common stock to
director for services, $0.11 200,000 200 21,800 -- -- 22,000
Issuance of common stock in
satisfaction of other
liabilities, $0.03 per share 2,548,893 2,549 78,399 -- -- 80,948
Beneficial conversion feature
of loans payable and debentures -- -- 74,842 -- -- 174,842
Warrants granted for services -- -- 35,899 -- -- 35,899
Issuance of common stock
for interest $0.47 per share 400,000 400 187,600 -- -- 188,000
Issuance of common stock
related to settlement agreement 300,000 300 59,700 -- -- 60,000
Issuance of common stock in
satisfaction of convertible loans
payable - related parties
(including accrued interest of
$1,969) 320,566 321 44,148 -- -- 44,469
Issuance of common stock in
satisfaction of convertible loans
payable 414,313 414 34,803 -- -- 35,217
Cancellation of common stock (55,000) (55) 55 -- -- --
Loan fees related to standby equity
distribution agreement -- -- -- (340,000) -- (340,000)
Net loss -- -- -- -- (2,989,488) (2,989,48)
---------- ---------- ---------- ---------- ----------- ------------
Balance, June 30, 2004 (UNAUDITED) 53,242,706 $ 53,243 $5,841,180 $ (340,00) $(7,290,684) $ (1,736,26)
========== ========== ========== ========== =========== ============
4
LIMELIGHT MEDIA GROUP, INC.
(FORMERLY SHOWINTEL NETWORKS, INC.)
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR
THE PERIOD
FROM APRIL
19, 2001
SIX MONTHS SIX MONTHS (INCEPTION)
MONTHS ENDED MONTHS ENDED THROUGH
JUNE 30, JUNE 30, MARCH 31,
2004 2003 2004
----------- ----------- -----------
Cash flows from operating activities:
Net loss $(2,989,488) $ (521,686) $(7,290,684)
Adjustments to reconcile net loss to
net cash used by operating activities:
Stock based compensation 1,542,825 260,558 4,096,699
Depreciation 16,779 13,556 70,692
Beneficial conversion feature of loans payable and
debenture 174,842 -- 174,842
Bad debt related to note and related interest
receivable -- -- 91,269
Bad debt related to due from UniGuest -- -- 25,000
Loss related rescission of UniGuest acquisition -- -- 24,669
Loss related to settlement paid in common stock 60,000 -- 60,000
Amortization of loan fees paid in common stock -- -- 114,220
Gain on sale of fixed assets -- -- (1,123)
Changes in operating assets and liabilities:
Change in accounts receivable (1,777) (31,701) (37,479)
Change in other current asset (1,240) -- (1,240)
Change in interest receivable -- -- (4,769)
Change in bank overdraft 1,033 -- 1,033
Change in accounts payable and accrued expenses 330,752 44,889 458,130
Change in other liabilities 150,000 -- 261,647
----------- ----------- -----------
Net cash used by operating activities (716,274) (234,384) (1,957,094)
Cash flows from investing activities:
Loan made related to note receivable -- -- (66,500)
Sale of fixed assets -- -- 3,950
Decrease in cash due to rescission of
acquisition -- -- (15,432)
Purchase of fixed assets (51,081) -- (201,936)
----------- ----------- -----------
Net cash used by investing activities (51,081) -- (279,918)
Cash flows from financing activities:
Change in due to stockholder 42,489 155,794 764,787
Advance from convertible loans payable -
related parties -- -- 52,500
Proceeds from loans payable -- 85,000 185,000
Principal payments on loans payable (5,000) -- (20,500)
Advance from convertible loans payable -- -- 10,000
Proceeds from convertible debentures 500,000 -- 500,000
Proceeds from issuance of common stock 214,500 3,000 745,225
----------- ----------- -----------
Net cash provided by financing activities 751,989 243,794 2,237,012
----------- ----------- -----------
Net change in cash (15,366) 9,410 --
Cash, beginning of period 15,366 2,120 --
----------- ----------- -----------
5
LIMELIGHT MEDIA GROUP, INC.
(FORMERLY SHOWINTEL NETWORKS, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The interim financial statements present the balance sheet, statements
of operations, stockholders' equity and cash flows of Limelight Media
Group, Inc.
The interim financial information is unaudited. In the opinion of
management, all adjustments necessary to present fairly the financial
position as of June 30, 2004 and the results of operations and cash
flows presented herein have been included in the financial statements.
Interim results are not necessarily indicative of results of operations
for the full year.
The accompanying financial statements have been prepared in accordance
with Securities and Exchange Commission requirements for interim
financial statements. Therefore, they do not include all of the
information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. The
financial statements should be read in conjunction with the Form 10-KSB
for the year ended December 31, 2003 of the Company.
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 revenues and expenses during the reporting period. Actual
results could differ from those estimates.
NOTE 2 - GOING CONCERN
The Company incurred a net loss of approximately $7,291,000 for the
period from April 19, 2001 (Date of Inception) through June 30, 2004.
The Company's current liabilities exceed its current assets by
approximately $1,021,000 as of June 30, 2004. The Company's net cash
used by operating activities approximated $1,957,000 for the period
from April 19, 2001 (Date of Inception for Showintel Networks, Inc.)
through June 30, 2004. These factors create 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 intends to 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.
6
LIMELIGHT MEDIA GROUP, INC.
(FORMERLY SHOWINTEL NETWORKS, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 - DUE TO STOCKHOLDER
Due to Company's President and majority stockholder totaling $306,166
as of June 30, 2004 consisted of the following:
Unreimbursed expenses to the Company's
President and majority stockholder $ 63,496
Loan from the Company's President
and majority stockholder 173,988
Accrued wages for the Company's
President and majority stockholder 88,500
----------
$ 325,984
==========
NOTE 4 - CONVERTIBLE LOANS PAYABLE - RELATED PARTIES
In April 2004, various employees 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 June 30, 2004
convertible loans payable - related party totals $10,000.
NOTE 5 - 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 to interest
expense.
During April 2004, the holder of the $54,500 convertible loan converted
$35,217 of principal into 414,313 shares of the Company's common stock.
As of June 30, 2004, the balance totals $19,283.
In August 2003, the Company borrowed funds from an individual totaling
$10,000, maturing in August 2004, unsecured, and bearing interest at
12%. 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. As of June 30, 2004 the
outstanding principal balance totaled $10,000.
7
LIMELIGHT MEDIA GROUP, INC.
(FORMERLY SHOWINTEL NETWORKS, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 6 - STANDBY EQUITY DISTRIBUTION AGREEMENT
In February 2004, the Company entered into a Standby Equity
Distribution Agreement ("Distribution Agreement") with Cornell Capital
Partners, LP ("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, expiring February 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 7.
Furthermore, the Company was required to file a registration statement
on Form SB-2 with the Securities and Exchange Commission for the
registration of common stock for future issuance related to the
Distribution Agreement. The United States Securities and Exchange
Commission declared the registration statement effective on August 16,
2004.
NOTE 7 - CONVERTIBLE DEBENTURE
In February 2004, the Company issued a Convertible 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.
NOTE 8 - SECURED CONVERTIBLE DEBENTURES
In February 2004, the Company issued a Secured Convertible Debenture to
Cornell secured by all of the Company's 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 ($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.
NOTE 9 - CONSULTING AGREEMENTS
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 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 six months ended
June 30, 2004.
8
LIMELIGHT MEDIA GROUP, INC.
(FORMERLY SHOWINTEL NETWORKS, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 9 - CONSULTING AGREEMENTS (CONTINUED)
In February 2004, the Company entered into a Common Stock Purchase
Agreement with an entity to purchase 175,000 shares of the Company's
common stock in exchange for $25,000 in cash and an additional 175,000
shares in exchange for 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 an effective
registration, 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.
NOTE 10 - COMMON STOCK
In January 2004, the Company issued 2,548,893 restricted shares in
satisfaction of other liabilities at $0.03 per share.
In January 2004, the Company issued 150,000 restricted shares of common
stock to the President and majority stockholder for services at $0.15
per share.
In January 2004, the Company issued 2,362,221 restricted shares of its
common stock for cash at $0.03 per share.
In January 2004, the Company issued 500,000 restricted shares of its
common stock for services at $0.17 per share.
In January 2004, the Company issued 1,500,000 restricted shares of its
common stock for services at $0.30 per share.
In January 2004, the Company issued 1,000,000 restricted shares of its
common stock for services at $0.49 per share.
In February 2004, the Company issued 400,000 restricted shares of its
common stock for interest at $0.47 per share.
In February 2004, the Company issued 187,000 restricted shares of its
common stock for services at $0.30 per share.
In February 2004, the Company issued 150,000 restricted shares of
common stock to the President and majority stockholder for services at
$0.47 per share.
In February 2004, the Company issued 3,012,777 restricted 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 share. The warrants vested
immediately, expire in April 2005 and are valued at $35,899 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 restricted shares of its
common stock for services at $0.37 per share.
In April 2004, the Company issued 200,000 restricted shares of its
common stock to a director for services at $0.11 per share.
In April 2004, the Company issued 52,338 restricted shares of its
common stock for services at $0.19 per share.
9
LIMELIGHT MEDIA GROUP, INC.
(FORMERLY SHOWINTEL NETWORKS, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 11 - SETTLEMENT AND JUDGMENT
Settlement - During July 2001, See/Saw Communications, LLC ("See/Saw")
and the Company entered into a 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.
Judgment - During February 2002, a company 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 has accrued
approximately $110,000, recorded as part of accounts payable and
accrued expenses totaling $436,304. On June 7, 2004, a Notice of
Garnishment from the State of Tennessee was delivered to First
Tennessee Bank with respect to the $93,345.00 judgment, $16,274.94 in
interest and $345.00 in costs.
NOTE 12 - SUBSEQUENT EVENTS
On August 16, 2004, the United States Securities and Exchange
Commission declared the Company's registration statement on Form SB-2
(File No. 333-115158) effective registering 58,211,160 shares the
Company's common stock on behalf of certain selling shareholders.
During July 2004, the Company issued 1,269,231 shares of common stock
for services at $0.11 per share.
During July 2004, the Company borrowed $115,000 from Cornell. The
note is guaranteed by the Company's president, secured by his personal
shares, bears interest at 12% and matures in September 2004.
During July 2004, the Company received $100,000 from an entity that
had exercised warrants to purchase 500, 000 shares of the Company's
common stock. The original exercise price of the warrants was $1.50.
As an incentive to the entity to purchase and exercise the warrants,
the Company repriced the exercise price to $0.20. The impact on the
financial statements of this repricing has not been determined. The
Company has not issued the stock.
During August 2004, the Company received and cancelled 150,000 shares
of common stock from the Company's President.
10
ITEM 2. MANAGEMENT'S PLAN OF OPERATION AND DISCUSSION AND ANALYSIS
INTRODUCTORY STATEMENTS
FORWARD-LOOKING STATEMENTS
Information included or incorporated by reference in this filing may
contain forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. This information may involve
known and unknown risks, uncertainties and other factors which may cause our
actual results, performance or achievements to be materially different from the
future results, performance or achievements expressed or implied by any
forward-looking statements. Forward-looking statements, which involve
assumptions and describe our future plans, strategies and expectations, are
generally identifiable by use of the words "may," "will," "should," "expect,"
"anticipate," "estimate," "believe," "intend" or "project" or the negative of
these words or other variations on these words or comparable terminology.
This filing contains forward-looking statements, including statements
regarding, among other things, (a) our Company's projected sales and
profitability, (b) our Company's business plan and growth strategies (c) our
Company's future financing plans and (d) our Company's anticipated needs for
working capital. These statements may be found under "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business."
Actual events or results may differ materially from those discussed in
forward-looking statements as a result of various factors, including, without
limitation, the risks outlined under "Risk Factors" and matters described in
this filing generally. In light of these risks and uncertainties, there can be
no assurance that the forward-looking statements contained in this filing will
in fact occur.
OVERVIEW
Limelight Media Group was incorporated on May 17, 1996, in the State of
Nevada as Multinet International Corporation. On September 26, 2001, Multinet
consummated an agreement to acquire all of the then outstanding capital stock of
Limelight Media Group, Inc., formerly Showintel Networks, Inc., a Nevada
corporation, in exchange for 18,000,000 shares of Multinet's common stock. Prior
to the acquisition of all of the outstanding capital stock of Limelight,
Multinet was a public company with no operations or assets and 2,431,000 shares
of common stock issued and outstanding. Limelight was a privately held company
with assets being used for the development of video-streaming technology.
Limelight became a wholly-owned subsidiary as of the date of closing. The
existing officers and directors of Multinet, prior to resigning, appointed David
V. Lott as a director of Multinet effective as of the closing of the
transaction. On September 1, 2002, Multinet purchased all of the outstanding
capital of Uniguest of Tennessee, Inc., a Tennessee corporation, in
consideration of 500,000 shares of Multinet's common stock. Uniguest installed
and operated public internet access terminals in hotels throughout the United
States. Limelight divested itself of its ownership in Uniguest effective October
6, 2003. On October 3, 2003, Multinet amended its Articles of Incorporation to
change its name to Limelight Media Group, Inc.
BUSINESS OVERVIEW OF LIMELIGHT MEDIA GROUP, INC.
Limelight is a Tennessee-based, publicly traded company (LMMG.OB) that
has developed a proprietary 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. Historically, the
Company has emphasized a captive audience network in movie theater lobbies. In
2004, the Company began developing other markets. The Company is currently
developing a mall-based captive audience network utilizing sponsor driven themed
soft zones. By diversifying its potential markets, the Company hopes to realize
revenue from multiple sources.
Limelight developed the Content Management System, a system to
distribute digitally advertisements, marketing messages and entertainment video
content via broadband connection for viewing in public locations, such as movie
theater lobbies, on theater screens and in retail locations, including,
convenience stores, grocery stores and malls. 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.
The previous focus of deployment for Limelight's technology has been movie
theaters. However, during 2003 Limelight pursued opportunities to expand to the
retail industry. Limelight has two types of clients, the "location partner," and
the advertiser who wishes to reach patrons that visit the location partner's
venues. A location partner can be a theater owner, retail storeowner or any one
charged with the marketing and management of a physical facility. Revenue is
derived from advertising sales, sponsorships, subscription agreements, equipment
sales, maintenance and installation fees and content development fees.
11
Limelight provides a turn-key solution for businesses desiring digital
signage systems for information display. Limelight contacts high traffic
businesses such a movie theaters, malls, restaurants and retail stores to
determine if a digitally managed captive audience networks 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 generally provides the programming and
markets the network space to potential advertisers. The Company believes that
the future advertising revenues pay for 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.
Advertising is presented on single or multiple screens installed by the Company
at the location. The displays are typically located above the concession stands,
register checkout lanes or main corridors, which are considered to be the ideal
locations to attract the attention of patrons who are entering and leaving the
location.
On June 16, 2004, the Company entered into a Resale Agreement with
Champ Car World Series. Pursuant to the Resale Agreement, Champ Car granted to
the Company a license to use the images, logo and name of Champ Car and its
sponsors in the development and promotion of the Champ Car Themed Soft Zones.
The Champ Car Themed Soft Zones provide media space, which may be sold to third
parties. The term of the Resale Agreement is thirty-six months and will renew
automatically for additional one-year terms unless either party provides written
notice of its intent not to renew. The Champ Car Themed Soft Zone is a seating
area placed in mall concourses that contains plasma screens and interactive
touch-screens and is an extension of the Company's vision to expand it captive
audience network into high traffic retail locations. The plasma screens will be
airing content and advertising. The programming displayed on the screens is
Champ Car World Series related. The interactive touch-screens provide
information and promotional material to interest parties.
The initial Themed Soft Zone will debut in the Flat Iron Crossing Mall
located in Broomfield, CO on August 1, 2004 in conjunction with the Champ Car
World Series race in Denver on August 15.
Subsequently, on August 2, 2004, the Company entered into an agreement
with Woodland Associates to provide content management and advertising sales for
the Woodland AEM system. Woodland sublicenses its system from DVD Play. This
system is placed in convenience stores, grocery stores, military bases and
universities and provides an automated DVD rental system. The Company intends to
install large screens on the system to market the products of the system or the
location partner.
EMPLOYEES
As of June 30, 2004, Limelight had six (6) employees. Limelight intends
to hire additional employees upon securing the necessary operational and
equipment financing. All of our employees are located at the Company's
headquarters in Tennessee. None of the Company's employees are subject to any
collective bargaining agreement.
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
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 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 the Black-Scholes option
pricing model.
The Company did not grant any warrants or options to employees for
compensation for the years ended 2003 and 2002, and for the period from April
19, 2001 (Date of Inception of Limelight Media Group, Inc.) through June 30,
2004. All stock issued for compensation was recorded at the fair market value of
the stock. In December 2002, the Financing Accounting Standards Board ("FASB")
issued SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and
Disclosure." SFAS No. 148 amends the transition and disclosure provisions of
SFAS No. 123. The Company is currently evaluating SFAS No. 148 to determine if
it will adopt SFAS No. 123 to account for employee stock options using the fair
value method and, if so, when to begin transition to that method.
12
None of these policies had any material or substantial effect upon our
operations.
GOING CONCERN
Our independent auditors have added an explanatory paragraph in
connection with the December 31, 2003 financial statements, which states that
our Company is in the development stage and has incurred a net loss of
approximately $7,290,684 from the period from April 19, 2001 through December
31, 2003. Our current liabilities exceed our current assets and as of June 30,
2004 we had a working capital deficiency of $1,020,686. These conditions give
rise to substantial debt about our Company's ability to continue as a going
concern. Our Company's ability to fully commence its operation and generate
revenues or its ability to obtain additional funding will determine its ability
to continue as a going concern. Our financial statements do not include any
adjustments that might result form the outcome of this uncertainty.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2004, AS COMPARED TO
THE THREE MONTH ENDED JUNE 30, 2003
REVENUE. Revenue for the three months ended June 30, 2004 was $1,677,
as compared with $41,840 for the three months ended June 30, 2003 a decrease of
$40,163 or 96.0%. This decrease was the result of the rescission of the Uniguest
purchase in October 2003.
COST OF REVENUE. Cost of Revenue for the three months ended June 30,
2004 was $0, as compared with $33,117 for the three month ended June 30, 2003 a
decrease of $33,117. This decrease of was the result of the rescission of the
Uniguest purchase in October 2003.
GROSS PROFIT. Gross profit was $1,677 for the three months ended June
30, 2004, as compared with $8,723 for the three months ended June 30, 2003 a
decrease of $7,046 or 80.8%. This decrease was the result of the rescission of
the Uniguest purchase in October 2003.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were
$567,330 for the three months ended June 30, 2004, as compared to $388,207 for
the three months ended June 30, 2003, an increase of $179,123 or 46%. This
increase resulted primarily from increased compensation paid to consultants
retained by the Company and the expensing of expenses related to the transaction
with Cornell Capital.
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NET LOSS. The net loss for the three months ended June 30, 2004 was
$748,343, as compared to $381,674 for the three months ended June 30, 2003, an
increase of $366,669 or 96%. This increase was primarily the result of increases
in general and administrative expenses and reduced revenues as a result of the
rescission of the Uniguest purchase.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2004, AS COMPARED TO THE
SIX MONTH ENDED JUNE 30, 2003
REVENUE. Revenue for the six months ended June 30, 2004 was $1,808, as
compared with $87,165 for the six months ended June 30, 2003 a decrease of
$85,357 or 97.9%. This decrease of was the result of the rescission of the
Uniguest purchase in October 2003.
COST OF REVENUE. Cost of Revenue for the six months ended June 30, 2004
was $0, as compared with $47,112 for the six months ended June 30, 2003 a
decrease of $47,112. This decrease of was the result of the rescission of the
Uniguest purchase in October 2003.
GROSS PROFIT. Gross profit was $1,808 for the six months ended June 30,
2004, as compared with $40,053 for the six months ended June 30, 2003 a decrease
of $38,245 or 95.5%. This decrease was the result of the rescission of the
Uniguest purchase in October 2003.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were
$2,437,874 for the six months ended June 30, 2004 as compared to $558,244 for
the six months ended June 30, 2003, an increase of $1,879,630 or 337%. This
increase resulted primarily from increased compensation paid to consultants
retained by the Company and the expensing of expenses related to a Standby
Equity Distribution transaction with Cornell Capital Partners, L.P.
NET LOSS. The net loss for the six months ended June 30, 2004 was
$2,989,488, as compared to $521,686 for the six months ended June 30, 2003, an
increase of $2,467,802 or 473%. This increase was primarily attributable to
increases in general and administrative expenses and reduced revenues as a
result of the rescission of the Uniguest purchase.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2004, we had cash and other current assets totaling
$3,017, as compared to $67,300 as of June 30, 2003. The significant decrease in
our current asset position is attributable to the net loss from operating
activities and the rescission of the Uniguest purchase agreement. As of June 30,
2004, we had approximately $124,425 in fixed assets, net, as compared to
$100,114 as of June 30, 2003. As of June 30, 2004, our total current liabilities
were $1,023,703, consisting primarily of $325,984 due to stockholders and
$436,304 of accounts payable
On February 17, 2004, we entered into a Standby Equity Distribution
Agreement with Cornell Capital Partners. Pursuant to the Standby Equity
Distribution Agreement, we may, at our discretion, periodically issue and sell
shares of our common stock for a total purchase price of $12 million. If we
request advances under the Standby Equity Distribution Agreement, Cornell
Capital partners will purchase shares of common stock of Limelight for 97% of
the lowest closing bid price on the Over-the-Counter Bulletin Board or other
principal market on which our common stock is traded for the 5 days immediately
following the advance notice date. Cornell Capital Partners will retain 5% of
each advance under the Standby Equity Distribution Agreement. We may not request
advances in excess of a total of $12 million. The maximum of each advance is
equal to $170,000 and the maximum amount of advances is any thirty-day period
cannot exceed $510,000.
As of February 17, 2004, we entered into a Securities Purchase
Agreement for the issuance of Secured Convertible Debentures to Cornell Capital
Partners in the principal amount of $500,000. The convertible debenture is
secured by all of our assets and is convertible into shares of our common stock
as a price per share that is equal to the lesser of: (i) an amount equal to 120%
of the closing bid price of our common stock as of the date of the convertible
debenture or (ii) an amount equal to 80% of the average of the lowest daily
volume weighted average price of our common stock for the five trading days
immediately preceding the conversion date. The convertible debenture accrues
interest at a rate of 5% per year and is convertible at the holder's option. The
convertible debenture has a term of 3 years. At Limelight's option, the
convertible debenture may be paid in cash or converted into shares of our common
stock unless converted earlier by the holder. Except after an event of default,
as set forth in the Secured Convertible Debenture Cornell Capital Partners
cannot convert such debenture for a number of shares of common stock of
Limelight in excess of that number of shares which, upon giving effect to such
conversion, would cause the aggregate number of shares of common stock
beneficially held by such holder and its affiliates to exceed 4.99% of the
outstanding shares of common stock of Limelight.
In the absence of outside financing, we believe that we do not have
sufficient cash to operate.
CERTAIN BUSINESS RISK FACTORS
WE HAVE HISTORICALLY LOST MONEY AND LOSSES MAY CONTINUE IN THE FUTURE
We have a history of losses. We have incurred an operating loss since
inception and had an accumulated deficit of $4,301,196 as of December 31, 2003.
For the years ended December 31, 2003 and 2002, we incurred a net loss of
$1,620,765 and $1,981,664, respectively. For the three months ended June 30,
2004, we incurred a net loss of $748,343 and for the six months ended June 30,
2004 we incurred a net loss of $2,989,488. We anticipate that we will in all
likelihood, have to rely on external financing for all of our capital
requirements. Future losses are likely to continue unless we successfully
implement our business plan, which calls for us to expand deployment locations
and to sell advertising time. Our ability to continue as a going concern will be
dependent upon our ability to draw down on the Standby Equity Distribution
Agreement which we have entered into with Cornell Capital Partners. If we incur
any problems in drawing down the Standby Equity Distribution Agreement, we may
experience significant liquidity and cash flow problems. If we are not
successful in reaching and maintaining profitable operations we may not be able
to attract sufficient capital to continue our operations. Our inability to
obtain adequate financing will result in the need to curtail business operations
and will likely result in a lower stock price.
14
WE HAVE BEEN SUBJECT TO A GOING CONCERN OPINION FROM OUR INDEPENDENT
AUDITORS
Our independent auditors have added an explanatory paragraph to their
audit opinion issued in connection with the financial statements for the years
ended December 31, 2003 and December 31, 2002, relative to our ability to
continue as a going concern. Our ability to obtain additional funding will
determine our ability to continue as a going concern. Accordingly, there is
substantial doubt about 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.
THERE IS SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING
CONCERN DUE TO INSUFFICIENT REVENUES TO COVER OUR OPERATING COSTS,
WHICH MEANS THAT WE MAY NOT BE ABLE TO CONTINUE OPERATIONS UNLESS WE
OBTAIN ADDITIONAL FUNDING
There is substantial doubt about our ability to continue as a going
concern due to our Company's losses from operations and current liabilities
exceed current assets. We anticipate that we will incur net losses for the
immediate future. We expect our operating expenses to increase significantly,
and, as a result, we will need to generate monthly revenue if we are to continue
as a going concern. To the extent that we do not generate revenue at anticipated
rates, we do not obtain additional funding, or that increases in our operating
expenses precede or are not subsequently followed by commensurate increases in
revenue, or that we are unable to adjust operating expense levels accordingly,
we may not have the ability to continue on as a going concern. Our financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
WE HAVE A WORKING CAPITAL DEFICIT; WE MAY NEED TO RAISE ADDITIONAL
CAPITAL TO FINANCE OPERATIONS
We have relied on significant external financing to fund our
operations. As of June 30, 2004, we had no cash on hand and our total current
assets were $3,017. As of June 30, 2004, our current liabilities were
$1,023,703. We will need to raise additional capital to fund our anticipated
operating expenses and future expansion. Among other things, external financing
may be required to cover our operating costs. Unless we obtain profitable
operations, it is unlikely that we will be able to secure additional financing
from external sources. If we are unable to secure additional financing or we
cannot draw down on the Standby Equity Distribution Agreement, we believe that
we have sufficient funds to continue operations for approximately one month. We
estimate that we will require $3 million to fund our anticipated operating
expenses for the next twelve months. The sale of our common stock to raise
capital may cause dilution to our existing shareholders. Our inability to obtain
adequate financing will result in the need to curtail business operations. Any
of these events would be materially harmful to our business and may result in a
lower stock price. Our inability to obtain adequate financing will result in the
need to curtail business operations and you could lose your entire investment.
Our financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
OUR COMMON STOCK MAY BE AFFECTED BY LIMITED TRADING VOLUME AND MAY
FLUCTUATE SIGNIFICANTLY
Our common stock is currently traded on the Over-the-Counter Bulletin
Board. During most of 2003, our common stock was traded on the "Pink Sheets".
Prior to this offering, there has been a limited public market for our common
stock and there can be no assurance that an active trading market for our common
stock will develop. As a result, this could adversely affect our shareholders'
ability to sell our common stock in short time periods, or possibly at all. Our
common stock is thinly traded compared to larger, more widely known companies in
our industry. Thinly traded common stock can be more volatile than common stock
traded in an active public market. The high and low bid price of our common
stock for the last two years has been $0.78 and $0.05, respectively. Our common
stock has experienced, and is likely to experience in the future, significant
price and volume fluctuations, which could adversely affect the market price of
our common stock without regard to our operating performance. In addition, we
believe that factors such as quarterly fluctuations in our financial results and
changes in the overall economy or the condition of the financial markets could
cause the price of our common stock to fluctuate substantially.
WE MAY NOT BE ABLE TO ACCESS SUFFICIENT FUNDS WHEN NEEDED UNDER THE
STANDBY EQUITY DISTRIBUTION AGREEMENT AND THE PRICE OF OUR COMMON STOCK
WILL AFFECT OUR ABILITY TO DRAW DOWN ON THE STANDBY EQUITY DISTRIBUTION
AGREEMENT
Currently, we are dependent upon external financing to fund our
operations. Our financing needs are expected to be provided, in large part, by
our Standby Equity Distribution Agreement. The amount of each advance under the
Standby Equity Distribution Agreement is subject to a maximum amount equal to
$170,000. Because of this maximum advance restriction, we may not be able to
access sufficient funds when needed. If the market price of our shares of common
stock declines, we would be required to issue more shares of common stock in
order to draw down the same dollar amount of an advance than if our stock price
15
were higher. Our Articles of Incorporation currently authorize Limelight Media
to issue 100 million shares. In the event that we do not obtain shareholder
approval to amend our Articles of Incorporation and increase our authorized
common stock, we will obtain lower net proceeds from the Standby Equity
Distribution if the price of our common stock declines.
In addition, there is an inverse relationship between the price of our
common stock and the number of shares of common stock, which will be issued
under the Standby Equity Distribution Agreement. Based on our recent stock price
of $0.18, we would have to issue to Cornell Capital Partners 68,728,522 shares
of our common stock in order to draw down the entire $12 million available to us
under the Standby Equity Distribution Agreement. We registered 16,729,664 shares
of our common stock under the Standby Equity Distribution Agreement in
registration statement on Form SB-2, which was declared effective by the
Securities and Exchange Commission on August 16, 2004. Based on our recent stock
price of $0.18 and that we registered 16,729,664 shares of our common stock
under the Standby Equity Distribution Agreement in accompanying registration
statement, we could only draw down $2,920,999 under the Standby Equity
Distribution Agreement. Our Articles of Incorporation currently authorize
Limelight Media to issue 100 million shares and, as of August 11, 2004, we had
54,361,937 shares of common stock issued and outstanding. In the event we desire
to draw down any available amounts remaining under the Standby Equity
Distribution Agreement after we have issued the 16,729,664 shares registered in
the registration statement on Form SB-2, we will have to file a new registration
statement to cover such additional shares that we would issue for additional
draw downs on the Standby Equity Distribution Agreement. Unless we obtain
profitable operations, it is unlikely that we will be able to secure additional
financing from external sources other than our Standby Equity Distribution
Agreement. Therefore, if we are unable to draw down on our Standby Equity
Distribution Agreement, we may be forced to curtail or cease our business
operations.
In addition, pursuant to the terms of Standby Equity Distribution
Agreement, Cornell Capital Partners may not own more than 9.9% of our
outstanding shares of common stock. In the event Cornell Capital Partners is
unable to sell the shares of our common stock that are issued after we receive
an advance in order to keep them below 9.9% beneficial ownership, we might not
be able to draw down additional funds when needed under the Standby Equity
Distribution Agreement. Therefore, if we are unable to draw down on our Standby
Equity Distribution Agreement, we may be forced to curtail or cease our business
operations.
OUR COMMON STOCK IS DEEMED TO BE "PENNY STOCK," WHICH MAY MAKE IT MORE
DIFFICULT FOR INVESTORS TO SELL THEIR SHARES DUE TO SUITABILITY
REQUIREMENTS
Our common stock is deemed to be "penny stock" as that term is defined
in Rule 3a51-1 promulgated under the Securities Exchange Act of 1934. Penny
stocks are stock:
o With a price of less than $5.00 per share;
o That are not traded on a "recognized" national exchange;
o Whose prices are not quoted on the Nasdaq automated quotation
system (Nasdaq listed stock must still have a price of not less
than $5.00 per share); or
o In issuers with net tangible assets less than $2.0 million (if
the issuer has been in continuous operation for at least three
years) or $5.0 million (if in continuous operation for less than
three years), or with average revenues of less than $6.0 million
for the last three years.
Broker/dealers dealing in penny stocks are required to provide
potential investors with a document disclosing the risks of penny stocks.
Moreover, broker/dealers are required to determine whether an investment in a
penny stock is a suitable investment for a prospective investor. These
requirements may reduce the potential market for our common stock by reducing
the number of potential investors. This may make it more difficult for investors
in our common stock to sell shares to third parties or to otherwise dispose of
them. This could cause our stock price to decline.
WE COULD FAIL TO ATTRACT OR RETAIN KEY PERSONNEL
Our success largely depends on the efforts and abilities of David Lott,
our President and a member of the Board of Directors. Mr. Lott has been
instrumental in securing our existing financing arrangements. Mr. Lott is also
primarily responsible for the strategic direction and policy determination of
Limelight. The loss of the services of Mr. Lott could materially harm our
business because of the cost and time necessary to recruit and train a
replacement. Such a loss would also divert management attention away from
operational issues. We do not presently maintain a key-man life insurance policy
on Mr. Lott.
16
In addition, in order to implement our business strategy, we believe
that we will need to attract and retain additional administrative support staff
as Limelight grows.
WE MAY BE UNABLE TO MANAGE GROWTH
Successful implementation of our business strategy requires us to
manage our growth. Growth could place an increasing strain on our management and
financial resources. To manage growth effectively, we will need to: o Establish
definitive business strategies, goals and objectives.
o Maintain a system of management controls.
o Attract and retain qualified personnel, as well as, develop,
train and manage management-level and other employees.
If we fail to manage our growth effectively, our business, financial
condition or operating results could be materially harmed, and our stock price
may decline.
WE EXPECT INTENSE COMPETITION IN OUR INDUSTRY
Many of our competitors have significantly greater name recognition and
financial and other resources. If we are unable to compete effectively against
our competitors, we will be forced to curtail or cease our business operations.
Our main competitors are National Cinema Network, Regal Entertainment and Screen
Vision. In addition, any delays in our ability to access sufficient financing
when needed could allow our competitors to increase their market share and make
it more difficult for Limelight to obtain profitable operations.
FUTURE ACQUISITIONS MAY DISRUPT OUR BUSINESS AND DEPLETE OUR FINANCIAL
RESOURCES
Any future acquisitions we make could disrupt our business and
seriously harm our financial condition. We intend to consider investments in
complementary companies, products and technologies. At this time, we have no
agreements to acquire any complementary companies, products or technologies. In
the event of any future acquisitions, we may:
o Increase our authorized capital stock and issue stock that would
dilute our current stockholders' percentage ownership;
o incur debt;
o assume liabilities;
o incur amortization expenses related to goodwill and other
intangible assets; or
o incur large and immediate write-offs.
The use of debt or leverage to finance our future acquisitions could
allow us to make acquisitions with an amount of cash in excess of what may be
currently available to us. If we use debt to leverage up our assets, we may not
be able to meet our debt obligations if our internal projections are incorrect
or if there is a market downturn. This may result in a default and the loss in
foreclosure proceedings of the acquired business or the possible bankruptcy of
our business.
Our operation of any acquired business will also involve numerous
risks, including:
o integration of the operations of the acquired business and its
technologies or products;
o unanticipated costs;
17
o diversion of management's attention from our core business;
o adverse effects on existing business relationships with suppliers
and customers;
o risks associated with entering markets in which we have limited
prior experience; and
o potential loss of key employees, particularly those of the
purchased organizations.
THE STANDBY EQUITY DISTRIBUTION AGREEMENT COULD HAVE AN ADVERSE EFFECT
ON OUR ABILITY TO MAKE ACQUISITIONS WITH OUR COMMON STOCK
We cannot predict the actual number of shares of common stock that will
be issued pursuant to the Standby Equity Distribution Agreement, in part,
because the purchase price of the shares will fluctuate based on prevailing
market conditions and we have not determined the total amount of advances we
intend to draw. It may be necessary for our shareholders to approve an increase
in our authorized common stock for us to register additional shares of common
stock in order to have sufficient authorized shares available to make
acquisitions using our common stock. As we issue shares of common stock pursuant
to the Standby Equity Distribution Agreement, we may not have sufficient shares
of our common stock available to successfully attract and consummate future
acquisitions.
OUR BUSINESS REVENUE GENERATION MODEL IS UNPROVEN AND COULD FAIL
Our revenue model is new and evolving, and we cannot be certain that it
will be successful. Our ability to generate revenue depends, among other things,
on our ability to leverage Limelight's technology in the media advertising
market. The potential profitability of this business model is unproven.
Accordingly, we cannot assure you that our business model will be successful or
that we can sustain revenue growth or achieve or sustain profitability. If our
business model is not successful we could be forced to curtail our operations.
MANAGEMENT OF LIMELIGHT CONTROLS APPROXIMATELY 29% OF OUR COMMON STOCK
ON A FULLY DILUTED BASIS AND SUCH CONCENTRATION OF OWNERSHIP MAY HAVE
THE EFFECT OF DELAYING OR PREVENTING A CHANGE OF CONTROL OF OUR COMPANY
David Lott, our President and a Director, beneficially owns
approximately __% of Limelight's outstanding common stock on a fully-diluted
basis. As a result, Mr. Lott will have significant influence in matters
requiring stockholder approval, including the election and removal of directors,
the approval of significant corporate transactions, such as any merger,
consolidation or sale of all or substantially all of Limelight's assets, and the
control of the management and affairs of Limelight. Accordingly, such
concentration of ownership may have the effect of delaying, deferring or
preventing a change in control of Limelight, impeding a merger, consolidation,
takeover or other business combination involving Limelight or discouraging a
potential acquirer from attempting to obtain control of Limelight.
IF WE ARE UNABLE TO SUCCESSFULLY DEVELOP THE TECHNOLOGY NECESSARY FOR
OUR SERVICES, WE WILL NOT BE ABLE TO BRING OUR SERVICES TO MARKET AND
MAY BE FORCED TO REDUCE OR CEASE OPERATIONS
Our ability to commercialize our services is dependent on the
advancement of existing technology. In order to obtain and maintain market share
we will continually be required to keep up with advances in technology. We
cannot assure you that our efforts will result in our services being upgraded
with any advances in technology. We cannot assure you that we will not encounter
unanticipated technological obstacles, which either delay or prevent us from
completing the development of our services. Any such failures could cause us to
reduce or cease our operations.
WE MAY NOT BE ABLE TO KEEP UP WITH RAPID TECHNOLOGICAL CHANGES, WHICH
COULD RENDER OUR PRODUCTS AND PROCESSES OBSOLETE
Our industry is characterized by rapid technological change, changes in
customer requirements and preferences, frequent introduction of services
embodying new technologies and the emergence of new industry standards and
practices that could render our existing technology and systems obsolete. Our
future success will depend on our ability to enhance and improve the
functionality, accessibility and features of our services. We expect that our
marketplace will require extensive technological upgrades and enhancements to
accommodate new services that we anticipate will be added to our marketplace. We
cannot assure you that we will be able to expand and upgrade our technology and
systems, or successfully integrate new technologies or systems we develop in the
future, to accommodate such increases in a timely manner.
18
Currently, the software platform utilized by Limelight is provided by a
single source. We cannot assure you that the provider will continually upgrade
and improve the software platform for us to compete in the marketplace. Any
failures or deficiencies in our software platform could cause us to reduce or
cease our operations.
CHANGE IN TECHNOLOGY ENVIRONMENT AND ACCESS
Limelight is utilizing existing technology, which we license, for our
operations. Limelight has developed software and systems to compliment existing
technology and provide flexibility if existing technology changes. There is no
assurance that the existing technology will perform in a standard sufficient for
Limelight to maintain competitiveness or be available at the time the Company
anticipates a need.
LACK OF MARKET FOR MEDIA PLACEMENT
Limelight has no assurance that the advertising opportunities for media
buyers will be accepted. If the advertising revenue is not realized, then we
will not be able to maintain operations for a sufficient period of time for the
other revenue sources to provide enough revenue for the Company to operate. If
we fail to recognize advertising revenue, we could be forced to reduced or
curtail our operations.
SALE OF SHARES ELIGIBLE FOR FUTURE SALE COULD ADVERSELY AFFECT THE MARKET PRICE
All of the approximate 19,000,000 shares of common stock which are
currently held, directly or indirectly, by management have been issued in
reliance on the private placement exemption under the Securities Act of 1933.
Such shares will not be available for sale in the open market without separate
registration except in reliance upon Rule 144 under the Securities Act of 1933.
In general, under Rule 144 a person, or persons whose shares are aggregated, who
has beneficially owned shares acquired in a non-public transaction for at least
one year, including persons who may be deemed affiliates of Limelight, as
defined, would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of 1% of the then outstanding shares of
common stock, or the average weekly reported trading volume during the four
calendar weeks preceding such sale, provided that current public information is
then available. If a substantial number of the shares owned by these
shareholders were sold under Rule 144 or a registered offering, the market price
of the common stock could be adversely affected.
ITEM 3. CONTROLS AND PROCEDURES
(A) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
As of the end of the period covered by this report, the Company carried
out an evaluation, under the supervision and with the participation of the
Company's Principal Executive Officer and Principal Financial Officer, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures. The Company's disclosure controls and procedures are designed to
provide a reasonable level of assurance of achieving the Company's disclosure
control objectives. The Company's Principal Executive Officer and Principal
Accounting Officer have concluded that the Company's disclosure controls and
procedures are, in fact, effective at this reasonable assurance level as of the
of period covered.
(B) CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
In connection with the evaluation of the Company's internal controls
during the Company's last fiscal quarter, the Company's Principal Executive
Officer and Principal Financial Officer have determined that there are no
changes to the Company's internal controls over financial reporting that has
materially affected, or is reasonably likely to materially effect, the Company's
internal controls over financial reporting.
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PART II
OTHER INFORMATION
ITEM 1. 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. is alleging it entered into a loan agreement with the
Company in February of 2002 for fifty-four thousand dollars ($54,000.00) which
has not been repaid. The Company is defending on the basis that it issued D & D
Management, Inc. a total of 89,000 shares in lieu 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 The Company is
pursuing settlement negotiations and has recognized as a potential liability of
approximately twenty-five thousand dollars ($25,000.00). No known motions are
outstanding and the matter remains pending.
There is litigation threatened regarding Clickplay, Inc. Clickplay,
Inc. has alleged claims against the Company 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 deposits totaling ninety-three
thousand dollars ($93,000.00) remain due. Clickplay, Inc. filed suit 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 Limelight, Inc., on April 23, 2004. On June 7, 2004, a Notice of
Garnishment from the State of Tennessee was delivered to First Tennessee Bank
with respect to the $93,345.00 judgment, $16,274.94 in interest and $345.00 in
costs.
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, 2003. Mr. Lall, et. al., is alleging
breach of contract against the defendants and seeks (1) an order declaring that
the plaintiffs are not in breach of a stock purchase agreement to purchase
5,000,000 shares of common stock, (2) that the plaintiffs have lawfully
exercised their rights under the stock purchase agreement to withhold the
balance of their investment at this time, (3) that the plaintiffs are entitled
to the 5,000,000 shares of common stock and an additional 1,000,000 shares of
common stock pursuant to a consulting agreement, (4) that Mr. Lall holds the
proxy to vote 17,000,000 shares of common stock held by David V. Lott and/or the
David V. Lott Living Trust and (50 payment under an employment agreement for the
sum of $15,000 per month plus benefits. According to the complaint, Mr. Lall
entered into a stock purchase agreement, employment agreement and consultant
agreement with the Company on October 27, 2003. According to the agreements, Mr.
Lall entered an agreement to purchase shares in the Company for an investment of
$150,000 with a right for further investments. Additionally, Mr. Lall contends
that he was entitled to an employment and consulting agreement. Mr. Lall attests
that he performed according to the contracts. Limelight is challenging the
lawsuit and intends to vigorously defend against the lawsuit. The Company denies
receiving the funds despite delivering the stock to Mr. Lall according to the
stock purchase agreement. Limelight has filed a defense and counterclaim against
Mr. Lall for damages and failure to perform. The counterclaim seeks damages in
excess of $9,000,000.00.
On Dec 31, 2004, Mr. David V. Lott, President and CEO of the Company,
filed for protection under US Bankruptcy Code Chapter 13, in the United States
Bankruptcy Court, Western District of Tennessee, Western Division. On May 17,
2004, the Chapter 13 filing by Mr. Lott was dismissed.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) None.
(b) None.
(c) In April 2004, various employees and 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 June 30, 2004 convertible loans
payable- related party totals $10,000.
During April 2004 the holder of the $54,500
convertible loan converted $35,217 of principal into
414,313 shares of the Company's common stock. As of
June 30, 2004, the balance totals $19, 283.
In April 2004, the Company issued 200,000 restricted
shares of its common stock to a director for services
at $0.11 per share.
In April 2004, the Company issued 52,338 restricted
shares of its common stock for services at $0.19 per
share.
In March 200, the Company entered into a settlement
agreement with See/Saw Communications whereby in
April, 2004 the Company issued 300,000 restricted
shares of its common stock valued at $60,000
In April 2004, the Company issued 177,778 restricted
shares of its common stock for cash at $0.03 per share
in completion of a stock purchase agreement.
(d) None.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
EXHIBIT
NO. DESCRIPTION LOCATION
- --------- --------------------------------------------- -----------------
10.14 Resale Agreement, dated June 16, 2004, by and Provided herewith
between Limelight Group and Champ Car World
Series
10.15 Master Agreement, dated August 2, 2004, by and Provided herewith
between Limelight media and Woodland AEM, LLC
31.1 Officer's Certificate Pursuant to Section 302 Provided herewith
31.2 Officer's Certificate Pursuant to Section 302 Provided herewith
32.1 Certification Pursuant to 18 U.S.C. Section Provided herewith
1350 as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32.2 Certification Pursuant to 18 U.S.C. Section Provided herewith
1350 as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
(b) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed during the quarterly period ended
June 30, 2004.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: August 18, 2004 LIMELIGHT MEDIA GROUP, INC.
By:/s/ David V. Lott
--------------------------
David V. Lott
Chief Executive Officer,
President and Director
By:/s/ John Fraier
--------------------------
John Fraier
Chief Financial Officer
and Principal Accounting
Officer
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