UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

(Mark One)

or

Commission file number: 001-33508

LIMELIGHT NETWORKS, INC.

2220 W. 14^th Street
Tempe, AZ 85281
(Address of principal executive offices, including Zip Code)

(602) 850-5000
(Address of principal executive offices, including Zip Code)

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

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

     Large accelerated filer o       Accelerated filer o       Non-accelerated filer þ

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

     Yes o No þ

The number of shares outstanding of the registrant’s common stock as of August 6, 2007: 82,043,189 shares.

 

     On October 9, 2007, Management and the Audit Committee of the Board of Directors of Limelight Networks, Inc. (the “Company”) concluded that it was necessary to restate the Company’s previously issued consolidated financial statements for the year ended December 31, 2006 and the three months ended March 31, 2007 contained in the Company’s Registration Statement on Form S-1 and the prospectus contained therein dated June 7, 2007, as well as the Company’s consolidated financial statements for the three and six months ended June 30, 2006 and 2007 contained in the Quarterly Report on Form 10-Q filed on August 14, 2007, which financial statements should no longer be relied upon, to correct errors in such financial statements based on guidance provided by Financial Accounting Standards Board Statement No. 154.

     See Note 1, “Restatement of Previously Issued Financial Statement,” included in Part I of this Amendment to its Quarterly Report on Form 10-Q for the quarter ended June 30, 2007 (this “Form 10-Q/A”) for a detailed discussion of the errors and effects of the restatement.

     The Company is filing this Form 10-Q/A to reflect the restatement of the Company’s condensed consolidated financial statements for the three and six months ended June 30, 2006 and 2007, and related financial information originally filed with the Securities and Exchange Commission in the Company’s Quarterly Report on Form 10-Q on August 14, 2007 (the “Original Filing”). This Form 10-Q/A amends and restates Items 1, 2 and 4 of Part I of the Original Filing. These Items have been amended to reflect the effects of the restatement and unless otherwise indicated have not been updated to reflect other events occurring after the date of the Original Filing.

     The Company has concurrently herewith filed a Current Report on Form 8-K to reflect the restatement of the Company’s consolidated financial statements for the years ended December 31, 2006, 2005 and 2004 and the three month periods ended March 31, 2007 and 2006, and related financial information, contained in the Company’s Registration Statement on Form S-1 and the prospectus contained therein dated June 7, 2007.

Item 1. Financial Statements

     Subsequent to the issuance of the Company’s unaudited condensed consolidated financial statements as of and for the period ended June 30, 2007, the Company’s management identified certain errors in those financial statements. The Company conducted an internal review and discovered that one customer had been under-billed for CDN services for a 15-month period extending back to July 2006. The amended billings to this customer, which have since been billed and collected, resulted in increased revenue of approximately $0.2 million and $0.7 million for the three and six month periods ended June 30, 2007, respectively.

     During the course of implementing a stock option administration system, the Company determined it had incorrectly valued and accounted for certain stock option and restricted stock grants. The result of this error was to increase aggregate stock compensation expense by approximately $0.4 million and to change the periods in which the related expense will be recognized. Correcting these errors resulted in reducing previously reported stock based compensation expense by $0.4 million and $0.9 million for the three and six month periods ended June 30, 2007, respectively.

      The Company also became aware that it had previously reported net income allocable to common stockholders incorrectly. The Company had not computed the net income allocable to common stockholders in accordance with EITF Issue No. 03-6, Participating Securities and the Two-Class Method under FASB Statement 128. The Company made an error related to the computation of the preference dividend, which error favorably impacted the net income allocable to common stockholders. Further, an error in the computation of the hypothetical dividend adversely impacted the net income allocable to common stockholders. The result of these errors was a decrease of net income allocable to stockholders of $305,000 and $512,000 for the three and six month periods ended March 31, 2006 and June 30, 2006, respectively. There was no impact on the three and six month periods ended June 30, 2007 given that this treatment is antidilutive in overall loss periods.

     The Company has also made an adjustment to interest expense as it relates to the amortization of a debt discount relating to warrants issued to a bank under the Company’s Equipment Facility. The adjustment resulted in decreasing previously reported interest expense by $34,000 and $46,000 respectively, for the three and six month periods ended June 30, 2007.

     The tax effect of these adjustments, to the extent they had an income tax impact, was based upon the effective tax rate calculation performed using the estimated operating results at that time for the entire year adjusted for the impact of the restatement on the projection for the year. The Company also determined that its deferred tax assets related to stock compensation that existed at the beginning of the year no longer met the “more likely than not” recoverability criteria during the three months ended June 30, 2007 which resulted in an additional charge to income tax expense of approximately $0.5 million.

     The Company has herein restated its previously issued unaudited condensed consolidated financial statements as of and for the periods ended June 30, 2007, to reflect these adjustments. The effect of the above restatement impacted the Company’s consolidated financial statements for the year ended December 31, 2006, and the three month period ended March 31, 2007, which were restated in the Current Report on Form 8-K filed with the Securities and Exchange Commission on October 29, 2007.

     The following table presents the impact of the adjustments on the previously-reported unaudited condensed consolidated balance sheet for the three and six-month period ended June 30, 2007 (in thousands):

Condensed Consolidated Balance Sheet

     The following table presents the impact of the adjustments on the previously-reported unaudited condensed consolidated statements of operations for the three and six-month period ended June 30, 2007 (in thousands, except per share data):

     For the three and six month periods ended June 30, 2006, respectively, the effects of the Company restating net income allocable to common shareholders in accordance with EITF Issue No. 03-6, Participating Securities and the Two-Class Method under FASB Statement 128, is presented below (in thousands, except per share data).

     The following table presents the impact of the adjustments on the previously-reported unaudited condensed consolidated statements of cash flows for the six months ended June 30, 2007 (in thousands):

     The following table presents the impact of the adjustments on the previously-reported consolidated balance sheet for the year ended December 31, 2006 (in thousands):

Organization

     Limelight Networks, Inc (the “Company”) is a provider of high-performance content delivery network services. The Company delivers content for traditional and emerging media companies, or content providers, including businesses operating in the television, music, radio, newspaper, magazine, movie, videogame and software industries. The Company was formed in June 2001 as an Arizona limited liability company, Limelight Networks, LLC, and converted into a Delaware corporation, Limelight Networks, Inc. in August 2003. The Company has operated in the Phoenix metropolitan area since 2001 and elsewhere throughout the United States since 2003. The Company began international operations in 2004.

     The condensed restated consolidated financial statements include accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated. The accompanying condensed restated consolidated

financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) and pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). The accompanying interim condensed restated consolidated balance sheet as of June 30, 2007, the condensed consolidated statements of operations for the three months and six months ended June 30, 2007 (as restated) and 2006, and the condensed consolidated statements of cash flows for the six months ended June 30, 2007 (as restated) and 2006, are unaudited. The condensed consolidated balance sheet information as of December 31, 2006, is derived from the restated audited consolidated financial statements included in the Company’s Current Report on Form 8-K filed on October 29, 2007. The consolidated financial information contained on this Quarterly Report on Form 10-Q/A should be read in conjunction with the restated audited consolidated financial statements and related notes contained in the Current Report on Form 8-K dated October 29, 2007.

     The results of operations presented in this Quarterly Report on Form 10-Q/A are not necessarily indicative of the results that may be expected for future periods. In the opinion of management, these unaudited condensed consolidated financial statements include all adjustments of a normal recurring nature that, are necessary in the opinion of management, to present fairly the results of all interim periods reported herein.

     The Company recognizes service revenues in accordance with the Securities and Exchange Commission’s Staff Accounting Bulletin No. 104, Revenue Recognition , and the Financial Accounting Standards Board’s (FASB) Emerging Issues Task Force Issue No. 00-21, Revenue Arrangements with Multiple Deliverables. Revenue is recognized when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed and collectibility of the resulting receivable is reasonably assured.

     At the inception of a customer contract for service, the Company makes an assessment as to that customer’s ability to pay for the services provided. If the Company subsequently determines that collection from the customer is not reasonably assured, the Company records an allowance for doubtful accounts and bad debt expense for all of that customer’s unpaid invoices and ceases recognizing revenue for continued services provided until cash is received.

     The Company primarily derives revenue from the sale of content delivery services to customers executing contracts having terms of one year or longer. These contracts generally commit the customer to a minimum monthly level of usage on a calendar month basis and provide the rate at which the customer must pay for actual usage above the monthly minimum. For these services, the Company recognizes the monthly minimum as revenue each month provided that an enforceable contract has been signed by both parties, the service has been delivered to the customer, the fee for the service is fixed or determinable and collection is reasonably assured. Should a customer’s usage of the Company’s services exceed the monthly minimum, the Company recognizes revenue for such excess in the period of the usage. The Company typically charges the customer an installation fee when the services are first activated. The installation fees are recorded as deferred revenue and recognized as revenue ratably over the estimated life of the customer arrangement. The Company also derives revenue from services sold as discrete, non-recurring events or based solely on usage. For these services, the Company recognizes revenue after an enforceable contract has been signed by both parties, the fee is fixed or determinable, the event or usage has occurred and collection is reasonably assured.

     The Company periodically enters into multi-element arrangements. When the Company enters into such arrangements, each element is accounted for separately over its respective service period or at the time of delivery, provided that there is objective evidence of fair value for the separate elements. Objective evidence of fair value includes the price charged for the element when sold separately. If the fair value of each element cannot be objectively determined, the total value of the arrangement is recognized ratably over the entire service period to the extent that all services have begun to be provided, and other revenue recognition criteria has been satisfied.

     The Company has entered a multi-element arrangement which includes a significant software component. In accounting for such an arrangement the Company applies the provisions of Statement of Position, 97-2, (“SOP 97-2”) Software Revenue Recognition, as amended by SOP 98-9, Modifications of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions. The Company recognizes software license revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable and collection of the receivable is probable. If a software license contains an undelivered element, the vendor-specific objective evidence (“VSOE”) of fair value of the undelivered element is deferred and the revenue recognized once the element is delivered. The undelivered elements are primarily software support and professional services. VSOE of fair value of software support and professional services is based upon hourly rates or fixed fees charged when those services are sold separately. If VSOE cannot be established for all elements to be delivered, the Company defers all amounts received under the arrangement and does not begin to recognize revenue until the delivery of the last element of the contract has started. Subsequent to commencement of delivery of the last element, the Company commences revenue recognition. Amounts to be received under the contract are then included in the amortizable base and then recognized as revenue ratably over the remaining term of the arrangement until the Company has delivered all elements and has no additional performance obligations.

     The Company recently entered into a multi-element arrangement to provide consulting services related to the development of a Custom CDN solution, the cross-license of certain technologies, including certain components of the Company’s CDN software and technology, and post-contract customer support (PCS) for both the custom CDN-solution and the software component (the “Multi-

Element Arrangement”). The agreement also contains a commitment by the customer to transmit a certain amount of traffic over the Company’s network during a 5 year period from commencement of the agreement or be subject to penalty payments.

     The Company does not have VSOE of fair value to allocate the fee to the separate elements of the Multi-Element Arrangement as it has not sold the intellectual property and software components, nor PCS separately. Accordingly the Company will recognize the revenues related to the professional services, license and PCS ratably over the four-year period over which the PCS has been contracted as allowed for by paragraph 12 of SOP 97-2. Because delivery of the license and PCS elements of this arrangement had not occurred at June 30, 2007, revenue on all services provided to this customer during the three months ended June 30, 2007, including the on-going content delivery services, and the direct incremental costs incurred associated with these revenues, have been deferred until such time as delivery occurs and PCS has commenced. For the quarter ended June 30, 2007, the Company deferred $0.8 million in custom CDN consulting services revenue and related direct costs of $0.3 million. The $0.8 million of deferred consulting services revenue and related costs will be amortized over the remaining 44 months of the contractual term.

     Concurrently, with the signing of the Multi-Element Arrangement, the Company also extended and amended a content delivery contract entered into originally in 2005. The arrangement for transmitting content is not a required element of the new software and node development project commencing under the Multi-Element Arrangement. The Company will continue to receive payments on a usage basis under the content delivery contract. Given that the services are priced at market rates and subject to regular adjustments and are cancelable with 30 days notice, the amount of revenue and pricing is considered variable and contingent until services are delivered. As such, the Company has attributed revenue for the service as one that is contingent and becomes measurable as the services are delivered under the terms of the content delivery contract. Accordingly, the Company will record revenue on a monthly basis in an amount based upon usage. Since the content delivery agreement was amended concurrently with the Multi-Element Arrangement the Company has deferred revenue recognition until commencement of delivery of the last element of the Multi-Element Arrangement which has been determined to be July 27, 2007. For the quarter ended June 30, 2007, $2.6 million in revenue and $0.9 million in related costs have been deferred and will be recognized entirely in the third quarter of 2007 as customer acceptance occurred on July 27, 2007 related to the content delivered to the this customer under this agreement.

     The Company also sells services through a reseller channel. Assuming all other revenue recognition criteria are met, revenue from reseller arrangements is recognized over the term of the contract, based on the reseller’s contracted non-refundable minimum purchase commitments plus amounts sold by the reseller to its customers in excess of the minimum commitments. These excess commitments are recognized as revenue in the period in which the service is provided. The Company records revenue under these agreements on a net or gross basis depending upon the terms of the arrangement in accordance with EITF 99-19 Recording Revenue Gross as a Principal Versus Net as an Agent. The Company typically records revenue gross when it has risk of loss, latitude in establishing price, credit risk and is the primary obligor in the arrangement.

     From time to time, the Company enters into contracts to sell services to unrelated companies at or about the same time the Company enters into contracts to purchase products or services from the same companies. If the Company concludes that these contracts were negotiated concurrently, the Company records as revenue only the net cash received from the vendor. For certain non-cash arrangements whereby the Company provides rack space and bandwidth services to several companies in exchange for advertising the Company records barter revenue and expense if the services are objectively measurable. The various types of advertising include radio, Website, print and signage. The Company recorded barter revenue and expense of approximately $230,000 and $180,000, for the three month period ended June 30, 2007 and 2006, and approximately $452,000, and $292,000 for the six month period ended June 30, 2007, and 2006, respectively.

     The Company may from time to time resell licenses or services of third parties. Revenue for these transactions is recorded when the Company has risk of loss related to the amounts purchased from the third party and the Company adds value to the license or service, such as by providing maintenance or support for such license or service. If these conditions are present, the Company recognizes revenue when all other revenue recognition criteria are satisfied.

     The Company holds its cash and cash equivalents in checking, money market, and investment accounts with high credit quality financial instruments. The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents.

     The Company accounts for its investments in equity securities under FASB’s Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities. Management determines the appropriate classification of such securities at the time of purchase and reevaluates such classification as of each balance sheet date. Realized gains and losses and declines in value judged to be other than temporary are determined based on the specific identification method and would be reported in the statements of operations; there have been no such realized losses.

     The Company has classified its investments in equity and debt securities as available-for-sale. Available-for-sale investments are

initially recorded at cost and periodically adjusted to fair value through comprehensive income. The Company periodically reviews its investments for other-than-temporary declines in fair value based on the specific identification method and writes down investments to their fair value when an other-than-temporary decline has occurred.

     The following is a summary of available-for-sale securities at June 30, 2007 (in thousands):

     Expected maturities can differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties, and the Company views its available-for-sale securities as available for current operations.

     The amortized cost and estimated fair value of the available-for-sale debt securities at June 30, 2007, by maturity, are shown below (in thousands).

During the three and six month periods ended June 30, 2007, the Company did not have any gross realized gains or losses on sales of available-for-sale securities.

     Other current liabilities consist of the following (in thousands)

     On June 8, 2007, the Company completed an initial public offering of its common stock in which the Company sold and issued 14,900,000 shares of its common stock and selling stockholders sold 3,500,000 shares of the Company’s common stock, in each case at a price to the public of $15.00 per share. The common shares began trading on the NASDAQ Global Market on June 8, 2007. The Company raised a total of $223.5 million in gross proceeds from the IPO, or approximately $204.5 million in net proceeds after deducting underwriting discounts and commissions of approximately $15.6 million and other offering costs of approximately $3.4 million. On June 14, 2007, approximately, $23.8 million of the net proceeds were used to repay in full the outstanding balance of the Company’s equipment financing facility.

     The Company follows EITF Issue No. 03-6, Participating Securities and the Two-Class Method under FASB Statement 128, which established standards regarding the computation of earnings per share (“EPS”) by companies that have issued securities other than common stock that contractually entitle the holder to participate in dividends and earnings of the company. EITF Issue No. 03-6 requires earnings available to common stockholders for the period, after deduction of preferred stock dividends, to be allocated between the common and preferred shareholders based on their respective rights to receive dividends. Loss years are not impacted by this accounting requirement. Basic net income per share is then calculated by dividing income allocable to common stockholders (including the reduction for any undeclared, preferred stock dividends assuming current income for the period had been distributed) by the weighted-average number of common shares outstanding, net of shares subject to repurchase by the Company, during the period. EITF Issue No. 03-6 does not require the presentation of basic and diluted net income per share for securities other than common stock; therefore, the following net income (loss) per share amounts only pertain to the Company’s common stock. The Company calculates diluted net income per share under the if-converted method unless the conversion of the preferred stock is anti-dilutive to basic net income per share. To the extent preferred stock is anti-dilutive, the Company calculates diluted net income per share under the two-class method. Potential common shares include restricted common stock and incremental shares of common stock issuable upon the exercise of stock options and warrants using the treasury stock method.

     The following table sets forth the components used in the computation of basic and diluted net income (loss) per share for the periods indicated (in thousands, except per share data):

     At June 30, 2007 and 2006, approximately 8.9 million (restated) and 1.3 million, respectively, options to purchase common stock were excluded from the computation of diluted net income (loss) per common share for the periods presented because including them would have had an antidilutive effect.

The following table presents the calculation of comprehensive income and its components (in thousands):

For the periods presented, accumulated other comprehensive income consisted of (in thousands):

Stock Split

     On May 14, 2007, the Company affected a 3-for-2 forward stock split of its outstanding capital stock. All share and per-share data have been restated to reflect this stock split.

     On June 7, 2007, and upon the closing of the Company’s IPO, all outstanding shares of the Company’s Series A and Series B Convertible Preferred Stock automatically converted into 44,940,261 shares of common stock on a 1-for-1 share basis.

     The Board of Directors has authorized 150,000,000 and 120,150,000 shares, respectively, of $0.001 par value Common Stock at June 30, 2007 and December 31, 2006.

     On June 13, 2007, the Company amended the articles of incorporation authorizing the issuance of up to 7,500,000 shares of preferred stock. The preferred stock may be issued in one or more series pursuant to a resolution or resolutions providing for such issuance duly adopted by the Board of Directors. As of August 13, 2007, the Board of Directors had not adopted any resolutions for the issuance of preferred stock.

     The following table summarizes the components of share-based compensation expense included in the Company’s condensed consolidated statement of operations for the three and six month periods ended June 30, 2007 and 2006 in accordance with SFAS No. 123R (in thousands):

     During the six months ended June 30, 2006 the company purchased $6.9 million of equipment from a supplier owned by one of its founders. As of December 31, 2006, the Company was informed by its founders that there was no longer an ownership interest in this entity. Revenue derived from related parties was less than 1% for the three and six month periods ended June 30, 2006 and June 30, 2007. Management believes that all of the Company’s related party transactions reflected arm’s length terms.

     For the three and six month periods ended June 30, 2007, the Company had no major customers for which revenue exceeded 10% of total revenue. For the three and six month periods ended June 30, 2006, the Company had one major customer for which revenue exceeded 10% of total revenue.

     Revenue from non-U.S. sources aggregated approximately $3.1 million and $1.2 million respectively, for the three month period ended June 30, 2007 and 2006, respectively. Revenue from non-U.S. sources aggregated approximately $6.2 million and $1.8 million, respectively, for the six month period ended June 30, 2007 and 2006, respectively.

     In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination. If the tax position is deemed more-likely-than-not to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50 percent likelihood of being realized upon ultimate settlement.

     The Company adopted the provisions of FIN 48 on January 1, 2007. The adoption of FIN 48 did not result in the recognition of an adjustment for the cumulative effect of adoption of a new accounting principle. As of January 1, 2007, the Company had approximately $428,000 of total unrecognized tax benefits. Of this total, approximately $131,000 represents the amount of unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate. The unrecognized tax benefit increased by $179,000 from December 31, 2006 to $607,000 as of June 30, 2007. The Company anticipates its unrecognized tax benefits will decrease within 12 months of the reporting date, as a result of settling potential tax liabilities in certain foreign jurisdictions.

     The Company recognizes interest and penalties related to unrecognized tax benefits in its tax provision. As of January 1, 2007, the Company had recorded a liability of $131,000 for the payment of interest and penalties. The liability for the payment of interest and penalties did not materially change as of June 30, 2007.

     During the three months ended June 30, 2007, the Company performed its assessment of the recoverability of deferred tax assets and determined that, in light of increased operating loss levels, its deferred tax assets relating to stock compensation no longer meet the “more likely than not” criteria. In accordance with SFAS No. 109, a charge to expense of approximately $0.5 million was recorded to fully reserve those deferred tax assets existing at December 31, 2006. In preparing its effective income tax rate for 2007, no benefit is being provided for temporary differences that increase deferred tax assets relating to stock-based compensation. Other deferred tax assets remain unreserved, as management believes they are likely to be recovered, given the existence of loss carryback refund availability and the effect of existing deferred tax liabilities.

     The Company conducts business in various jurisdictions in the United States and in foreign countries and is subject to examination by tax authorities. As of June 30, 2007 (unaudited) and December 31, 2006, the Company is not under examination. The tax years 2002 to 2006 remain open to examination by United States and certain state and foreign taxing jurisdictions, respectively.

     The Company operates in one industry segment—content delivery network services. The Company operates in three geographic areas— the United States, Europe and Asia Pacific.

     SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is its Chief Executive Officer. The Company’s Chief Executive Officer reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. The Company has one business activity and there are no segment managers who are held accountable for operations, operating results and plans for products or components below the consolidated unit level. Accordingly, the Company reports as a single operating segment.

     Revenue by geography is based on the location of the server which delivered the service. The following table sets forth revenue by geographic area (in thousands).

     The following table sets forth long-lived assets by geographic area (in thousands).

     The Company is involved in litigation with Akamai Technologies, Inc. and the Massachusetts Institute of Technology relating to a claim of patent infringement. The action was filed in June 2006. The trial date for the case has recently been set for February 11, 2008. While the outcome of this claim cannot be predicted with certainty, management does not believe the outcome of this matter will have a material adverse effect on the Company’s business. However an unfavorable outcome could seriously impact the Company’s ability to conduct business which, in turn, would have a material adverse impact on the Company’s results of operations and financial position

     Beginning in August 2007, the Company, certain of its officers and directors, and the firms that served as the lead underwriters in its initial public offering have been named as defendants in several purported class action lawsuits filed in the U. S. District Courts for the District of Arizona and the Southern District of New York. The complaints assert causes of action under Sections 11, 12 and 15 of the Securities Act of 1933, as amended, and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder, on behalf of a professed class consisting of all those who were allegedly damaged as a result of acquiring the Company’s common stock between June 8, 2007 and August 8, 2007. The complaints allege, among other things, that the Company omitted and/or misstated certain facts concerning the seasonality of its business and the degree to which the Company offers discounted services to its customers. Although the Company believes the individual defendants have meritorious defenses to the claims made in these complaints and intends to contest the lawsuits vigorously, an adverse resolution of the lawsuits may have a material adverse effect on the Company’s financial position and results of operations in the period in which the lawsuits are resolved. The Company is not able at this time to estimate the range of potential loss nor does it believe that a loss is probable. Therefore, there is no provision for these lawsuits in the Company’s financial statements.

     The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q/A and the restated audited consolidated financial statements and notes thereto for the year ended December 31, 2006, which were restated in a Current Report on Form 8-K filed with the Securities and Exchange Commission, or SEC, on October 29, 2007. This Quarterly Report on Form 10-Q/A contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements as to industry trends and future expectations of ours and other matters that do not relate strictly to historical facts. These statements are often identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “estimate,” or “continue,” and similar expressions or variations. These statements are based on the beliefs and assumptions of our management based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” set forth in Part II, Item 1A of the Quarterly Report on Form 10-Q filed on August 14, 2007 and in our other SEC filings. We undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

     We were founded in 2001 as a provider of content delivery network, or CDN, services to deliver digital content over the Internet. We began development of our infrastructure in 2001 and began generating meaningful revenue in 2002. As of June 2007, we had approximately 876 customers worldwide. We primarily derive income from the sale of services to customers executing contracts with terms of one year or longer, which we refer to as recurring revenue contracts or long-term contracts. These contracts generally commit the customer to a minimum monthly level of usage with additional charges applicable for actual usage above the monthly minimum. Recently however, we have entered into an increasing number of customer contracts that have minimum usage commitments that are based on twelve-month or longer periods. We believe that having a consistent and predictable base level of revenue is important to our financial success. Accordingly, to be successful, we must maintain our base of recurring revenue contracts by eliminating or reducing any customer cancellations or terminations and build on that base by adding new customers and increasing the number of services, features and functionalities our existing customers purchase. At the same time, we must ensure that our expenses do not increase faster than, or at the same rate as, our revenues. Accomplishing these goals requires that we compete effectively in the marketplace on the basis of price, quality and the attractiveness of our services and technology.

     We primarily derive revenue from the sale of CDN services to our customers. These services include delivery of digital media, including video, music, games, software and social media. We generate revenue by charging customers on a per-gigabyte basis or on a variable basis based on peak delivery rate for a fixed period of time, as our services are used. We also derive some business from the sale of custom CDN services. These are generally limited to modifying our network to accommodate non standard content player software or to establish dedicated customer network components that reside both within our network or that operate within our customers’ networks.

     On October 11, 2007, we announced that we had determined a need to restate our previously filed financial statements. The restatement is the result of certain errors discovered as follows. In connection with a customer inquiry, we conducted an internal review of monthly customer billings for delivered services and discovered that one customer had been under-billed for CDN services for a 15-month period extending back to July 2006. The amended billings to this customer, which have since been collected, resulted in increased revenue of approximately $0.9 million related to the year ended December 31, 2006 and $0.5 million and $0.2 million related to the three months ended March 31, 2007 and June 30, 2007, respectively. When we report our third-quarter 2007 revenue, it will include approximately $0.1 million associated with this billing correction.

     During the course of implementing a stock option administration system, we determined we had incorrectly valued and accounted for stock-based compensation for certain stock option and restricted stock grants. The result of this error was to increase aggregate stock compensation expense by approximately $0.4 million and to change the periods in which the related expense will be recognized. Correcting these errors resulted in reducing previously reported stock-based compensation expense by approximately $0.4 million and $0.9 million for the three and six month periods ended June 30, 2007, respectively.

     We also became aware that we had previously reported net income allocable to common stockholders incorrectly. We had not computed net income allocable to common stockholders in accordance with EITF Issue No. 03-6, Participating Securities and the Two-Class Method under FASB Statement 128. We made an error related to the computation of the preference dividend, which error favorably impacted the net income allocable to common stockholders. Further, an error in the computation of the hypothetical dividend adversely impacted the net income allocable to common stockholders. The result of these errors was a decrease of net income allocable to stockholders of $207,000 and $305,000 for the three month periods ended March 31, 2006 and June 30, 2006, respectively. Prior periods have been recomputed to reflect the two-class method, and future periods are not affected because all outstanding shares of preferred stock were converted to common stock on June 7, 2007 and are no longer outstanding.

     As a result of the errors in our previously filed financial statements, we determined that we had two material weaknesses in our internal controls. Specifically, the control environment in place was not sufficient to ensure that customer contract terms associated with contract amendments were correctly maintained within our customer billing system. Subsequently, we have modified our control environment to include reconciliation of monthly customer bookings to monthly revenue results along with a detailed review of monthly revenue by customer by senior management. We have also implemented periodic internal reviews of the customer billing system inputs. We feel that the combination of these enhancements along with existing internal controls concerning revenue recognition have strengthened our internal controls.

     In addition, our controls associated with the calculation of stock-based compensation expense under SFAS 123R were not sufficient to ensure that the calculations were accurate with respect to service and vesting periods. Previously, we were using a manual process to calculate stock-based compensation expense. During the third quarter of 2007, we engaged a third-party firm to administer our employee stock option plan. Associated with this change, we implemented the vendor’s automated stock administration system. We feel the implementation of this system coupled with the reconciliation of the input data to the original stock option and restricted stock agreements has improved the accuracy of the stock option and restricted stock data. Notwithstanding the initiation of these remediation actions, the identified material weaknesses in our internal control over financial reporting will not be considered remediated until the new controls are fully implemented and in operation for a sufficient period of time to be evaluated.

     We have also made an adjustment to interest expense as it relates to the amortization of a debt discount relating to warrants issued to a bank under our equipment facility. The adjustment resulted in increasing previously reported interest expense by $46,000 related to the year ended December 31, 2006 and decreasing interest expense by $12,000 and $34,000 respectively, related to the three month periods ended March 31, 2007 and June 30, 2007.

     The tax effect of these adjustments, to the extent they had an income tax impact, was based upon the effective tax rate calculation performed using the estimated operating results at that time for the entire year adjusted for the impact of the restatement on the projection for the year. We also determined that our deferred tax assets related to stock-based compensation that existed at the beginning of the year no longer met the “more likely than not” recoverability criteria during the three months ended June 30, 2007, which resulted in an additional charge to income tax expense of approximately $0.5 million.

     The following table sets forth our historical operating results, as a percentage of revenue for the periods indicated:

     We have observed a number of trends in our business that are likely to have an impact on our financial condition and results of operations in the foreseeable future. Traffic on our network has grown in the last three years. This traffic growth is the result of growth in the number of new contracts, as well as growth in the traffic delivered to existing customers. Our near-exclusive focus is on providing CDN services, which we consider to be our sole industry segment.

     Historically, we have derived a small portion of our revenue from outside of the United States. Our international revenue has grown recently, and we expect this trend to continue as we focus on our strategy of expanding our network and customer base internationally. For the three and six month periods ended June 30, 2007, revenue derived from customers outside the United States accounted for 14.5% and 13.9% respectively, of our total revenue, of which nearly all was derived from operations in Europe. We expect foreign revenue as a percentage of our total revenues to increase as a percentage of revenue for the remainder of 2007. Our international business is managed as a single geographic segment, and we report our financial results on this basis.

     During any given fiscal period, a relatively small number of customers typically account for a significant percentage of our revenue. For example, in 2006, revenue generated from sales to our top 10 customers, in terms of revenue, accounted for approximately 54% of our total revenue. One of these top 10 customers, CDN Consulting, which acted as a reseller of our services primarily to MySpace.com, represented approximately 21% of our total revenue for that period. At the end of 2006, MySpace became a direct customer of ours. During the six month period ended June 30, 2007, sales to the reseller CDN Consulting were less than 2% of revenue after this change. In the quarter ended June 30, 2007, sales to MySpace declined to approximately 2% of our revenue. For the three and six month periods ended June 30, 2007, our top 10 customers, in terms of revenue, accounted for approximately 39% and 45% respectively, of our total revenue. For the three and six month periods ended June 30, 2007, we did not have any major customer for which revenue on a GAAP basis exceeded 10% of total revenue. For the three and six month periods ended June 30, 2007, we had one major customer for which revenue alone did not exceed 10%, but when combined with billings that were deferred and recognized as revenue exceeded 10% of total revenue. For the quarter ended June 30, 2007, we had $3.4 million of deferred revenue associated with a multi-element arrangement from this customer. We will recognize $2.6 million of the deferred revenue during the quarter ending September 30, 2007. The remaining $0.8 million will be amortized ratably over a 44 month period starting in July 2007. Recognized and deferred revenue for the three and six month periods ended June 30, 2007 from this customer accounted for approximately 14% and 12%, respectively, for this Non-GAAP measure. We anticipate customer concentration levels will decline compared to prior years as our customer base continues to grow and diversify. In addition to selling to our direct customers, we maintain relationships with a number of resellers that purchase our services and charge a mark-up to their end customers. Revenue generated from sales to direct and reseller customers accounted for approximately 79% and 21% of our revenue in 2006 and approximately 99% and 1% respectively, during the six month periods ended June 30, 2007. This significant reduction in the percentage of reseller revenue to total revenue is primarily the result of MySpace becoming a direct customer of ours in 2007.

     In addition to these revenue-related business trends, our cost of revenue as a percentage of revenue has risen in 2007 when compared to 2006. This increase is primarily the result of increased cost of depreciation and co-location costs related to the increased investments to build out the capacity of our network and increased bandwidth costs to support increased traffic associate with our revenue growth. Operating expense has increased in absolute dollars each period as revenue has increased. Beginning in the second half of 2006 and in 2007, these increases accelerated due primarily to increased stock based compensation, cost of litigation and payroll and payroll-related costs associated with additional general administrative and sales and marketing resources to support our current and future growth.

     We make our capital investment decisions based upon careful evaluation of a number of variables, such as the amount of traffic we anticipate on our network, the cost of the physical infrastructure required to deliver that traffic, and the forecasted capacity utilization of our network. Our capital expenditures have increased substantially over time, in particular as we purchased servers and other computer equipment associated with our network build-out. For example, in 2004, 2005 and 2006, we made capital expenditures of $2.6 million, $10.9 million and $40.6 million, respectively. The substantial increase in capital expenditures in 2006, in particular, was related to a significant increase in our network capacity, needed to support current growth and to support our expectation for additional demand for our services in future period. For the six month period ended June 30, 2007, we made capital expenditures of $8.6 million. In the future, we expect these investments to be generally consistent in absolute dollars with our expenditures in 2006 and to decrease as a percentage of total revenue due to expected revenue growth.

     Capital expenditures prior to January 2007, involved related party transactions, in which we expended an aggregate of $2.1 million, $7.4 million and $29.9 million on server hardware in 2004, 2005 and 2006, respectively, from a supplier owned by one of our founders. As of December 31, 2006, we were informed by this founder that there is no longer an ownership interest in this entity. In

other transactions unrelated to this supplier relationship, we have also generated revenue from certain customers that are entities related to certain of our founders. The aggregate amounts of revenue derived from these related party transactions were $0.2 million, $0.2 million and $0.3 million in 2004, 2005 and 2006, respectively. Revenue derived from related parties was less than 1% for each of the six-month periods ended June 30, 2006 and June 30, 2007. We believe that all of our related party transactions reflected arm’s length terms.

     We are currently engaged in litigation with one of our principal competitors, Akamai Technologies, Inc., or Akamai, and its licensor, the Massachusetts Institute of Technology, or MIT, in which these parties have alleged that we are infringing three of their patents. The trial for the case has recently been set to begin February 11, 2008. Our legal and other expenses associated with this case have been significant to date, including aggregate expenditures of $3.1 million in 2006. For the six month period ended June 30, 2007, our legal and other expenses associated with this case have been $2.5 million. We have reflected the full amount of these litigation expenses in 2006 and 2007 in general and administrative expenses, as reported in our consolidated statement of operations. We expect that these expenses will continue to remain significant and may increase as a trial date approaches. We expect to offset one-half of the cash impact of these litigation expenses through the availability of an escrow fund established in connection with our Series B preferred stock financing. This escrow account was established with an initial balance of approximately $10.1 million to serve as security for the indemnification obligations of our stockholders tendering shares in that financing. In May 2007, we, the tendering stockholders and the Series B preferred stock investors agreed to distribute $3.7 million of the escrow account to the tendering stockholders upon the closing of our initial public offering. As of the closing of our initial public offering, approximately $3.7 million of the escrow was paid to the tendering stockholders and approximately $3.3 million remained in the escrow account at June 30, 2007. The escrow account will be drawn down as we incur Akamai-related litigation expenses. Any cash reimbursed from this escrow account will be recorded as additional paid-in capital. The cash offset from the litigation expense funded through the escrow account is recorded on our balance sheet as additional paid-in capital.

     We were profitable during the six month period ended June 30, 2006 and unprofitable for the six month period ended June 30, 2007; primarily due to an increase in our share-based compensation expense, which increased from $0.3 million for the six month period ended June 30, 2006, to $11.3 million (restated) for the six month period ended June 30, 2007. Also, litigation expenses increased to $2.5 million for the six month period ended June 30, 2007 compared to expenses of $0 for the six months ended June 30, 2006. Further the requirement to defer $3.4 million of revenue from a large customer during the quarter ended June 30, 2007 offset by the deferral of $0.9 million in related costs further impacted our profitability. The significant increase in share-based compensation expense and litigation expense reflects an increase in the level of option and restricted stock grants coupled with a significant increase in the fair market value per share at the date of grant and the cost of litigation which commenced in July 2006. The deferral of revenue and related costs from one large customer reflects the impact of the accounting for a multi-element arrangement.

Our future results will be affected by many factors identified in the section captioned “Risk Factors,” in our Quarterly Report on Form 10-Q filed on August 14, 2007, including our ability to:

As a result, we cannot assure you that we will achieve our expected financial objectives, including positive net income.

     Our management’s discussion and analysis of our financial condition and results of operations are based upon our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q/A, which have been prepared by us in accordance with accounting principles generally accepted in the United States of America for interim periods These principles require us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, cash flow and related disclosure of contingent assets and liabilities. Our estimates include those related to revenue recognition, accounts receivable reserves, income and other taxes, stock-based compensation and equipment and contingent obligations. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. To the extent that there are material differences between these estimates and our actual results, our future financial statements will be affected.

     We recognize service revenues in accordance with the Securities and Exchange Commission’s Staff Accounting Bulletin No. 104, Revenue Recognition, and the Financial Accounting Standards Board’s (FASB) Emerging Issues Task Force Issue No. 00-21, Revenue Arrangements with Multiple Deliverables. Revenue is recognized when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed and collectibility of the resulting receivable is reasonably assured.

     At the inception of a customer contract for service, we make an assessment as to that customer’s ability to pay for the services provided. If we subsequently determine that collection from the customer is not reasonably assured, we record an allowance for doubtful accounts and bad debt expense for all of that customer’s unpaid invoices and cease recognizing revenue for continued services provided until cash is received.

     We primarily derive revenue from the sale of content delivery services to customers executing contracts having terms of one year or longer. These contracts generally commit the customer to a minimum monthly level of usage on a calendar month basis and provide the rate at which the customer must pay for actual usage above the monthly minimum. For these services, we recognize the monthly minimum as revenue each month provided that an enforceable contract has been signed by both parties, the service has been delivered to the customer, the fee for the service is fixed or determinable and collection is reasonably assured. Should a customer’s usage of our services exceed the monthly minimum, we recognize revenue for such excess in the period of the usage. We typically charge the customer an installation fee when the services are first activated. The installation fees are recorded as deferred revenue and recognized as revenue ratably over the estimated life of the customer arrangement. We also derive revenue from services sold as discrete, non-recurring events or based solely on usage. For these services, we recognize revenue after an enforceable contract has been signed by both parties, the fee is fixed or determinable, the event or usage has occurred and collection is reasonably assured.

     We periodically enter into multi-element arrangements. When we enter into such arrangements, each element is accounted for separately over its respective service period or at the time of delivery, provided that there is objective evidence of fair value for the separate elements. Objective evidence of fair value includes the price charged for the element when sold separately. If the fair value of each element cannot be objectively determined, the total value of the arrangement is recognized ratably over the entire service period to the extent that all services have begun to be provided, and other revenue recognition criteria has been satisfied.

     We have entered a multi-element arrangement which includes a significant software component. In accounting for such arrangement, we apply the provisions of Statement of Position, 97-2, (“SOP 97-2”) Software Revenue Recognition, as amended by SOP 98-9, Modifications of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions. We recognize software license revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable and collection of the receivable is probable. If a software license contains an undelivered element, the vendor-specific objective evidence (“VSOE”) of fair value of the undelivered element is deferred and the revenue recognized once the element is delivered. The undelivered elements are primarily software support and professional services. VSOE of fair value of software support and professional services is based upon hourly rates or fixed fees charged when those services are sold separately. If VSOE cannot be established for all elements to be delivered, we defer all amounts received under the arrangement and do not begin to recognize revenue until the delivery of the last element of the contract has started. Subsequent to commencement of delivery of the last element, we commence revenue recognition. Amounts to be received under the contract are then included in the amortizable base and then recognized as revenue ratably over the remaining term of the arrangement until we have delivered all elements and has no additional performance obligations.

     We recently entered into a multi-element arrangement to provide consulting services related to the development of a Custom CDN solution, the cross-license of certain technologies, including certain components of our CDN software and technology, and post-contract customer support (PCS) for both the custom CDN-solution and the software component (the “Multi-Element Arrangement”). The agreement also contains a commitment by the customer to transmit a certain amount of traffic over our network during a 5 year period from commencement of the agreement or be subject to penalty payments.

     We do not have VSOE of fair value to allocate the fee to the separate elements of the Multi-Element Arrangement as we have not sold the intellectual property and software components, nor PCS separately. Accordingly we will recognize the revenues related to the professional services, license and PCS ratably over the four-year period over which the PCS has been contracted as allowed for by paragraph 12 of SOP 97-2. Because delivery of the license and PCS elements of this arrangement had not occurred at June 30, 2007, revenue on all services provided to this customer during the three months ended June 30, 2007, including the on-going content delivery services, and the direct incremental costs incurred associated with these revenues, have been deferred until such time as delivery occurs and PCS has commenced. For the quarter ended June 30, 2007, we deferred $0.8 million in custom CDN consulting services revenue and related direct costs of $0.3 million. The $0.8 million of deferred consulting services revenue and related costs will be amortized over the remaining 44 months of the contractual term.

     Concurrently, with the signing of the Multi-Element Arrangement, we also extended and amended a content delivery contract entered into originally in 2005. The arrangement for transmitting content is not a required element of the new software and node

development project commencing under the Multi-Element Arrangement. We will continue to receive payments on a usage basis under the content delivery contract. Given that the services are priced at market rates and subject to regular adjustments and are cancelable with 30 days notice, the amount of revenue and pricing is considered variable and contingent until services are delivered. As such, we have attributed revenue for the service as one that is contingent and becomes measurable as the services are delivered under the terms of the content delivery contract. Accordingly, we will record revenue on a monthly basis in an amount based upon usage. Since the content delivery agreement was amended concurrently with the Multi-Element Arrangement we have deferred revenue recognition until commencement of delivery of the last element of the Multi-Element Arrangement which has been determined to be July 27, 2007. For the quarter ended June 30, 2007, $2.6 million in revenue and $0.9 million in related costs have been deferred and will be recognized entirely in the third quarter of 2007 as customer acceptance occurred on July 27, 2007 related to the content delivered to the customer under this agreement.

     We also sell services through a reseller channel. Assuming all other revenue recognition criteria are met, revenue from reseller arrangements is recognized over the term of the contract, based on the reseller’s contracted non-refundable minimum purchase commitments plus amounts sold by the reseller to its customers in excess of the minimum commitments. These excess commitments are recognized as revenue in the period in which the service is provided. We record revenue under these agreements on a net or gross basis depending upon the terms of the arrangement in accordance with EITF 99-19, Recording Revenue Gross as a Principal Versus Net as an Agent. We typically record revenue on a gross basis when we have risk of loss, latitude in establishing price and credit risk and when we are the primary obligor in the arrangement.

     From time to time, we enter into contracts to sell services to unrelated companies at or about the same time we enter into contracts to purchase products or services from the same companies. If we conclude that these contracts were negotiated concurrently, we record as revenue only the net cash received from the vendor. For certain non-cash arrangements whereby we provide rack space and bandwidth services to several companies in exchange for advertising we record barter revenue and expense if the services are objectively measurable. The various types of advertising include radio, Website, print and signage. We recorded barter revenue and expense of approximately $230,000 and $180,000, for the three month period ended June 30, 2007 and 2006, and approximately $452,000, and $292,000 for the six month period ended June 30, 2007, and 2006, respectively.

     We may from time to time resell licenses or services of third parties. Revenue for these transactions is recorded when we have risk of loss related to the amounts purchased from the third party and we add value to the license or service, such as by providing maintenance or support for such license or service. If these conditions are present, we recognize revenue when all other revenue recognition criteria are satisfied.

     We account for our share-based compensation pursuant to SFAS No. 123 (revised 2004) Share-Based Payment, or SFAS No. 123R. SFAS No. 123R requires measurement of all employee share-based payments awards using a fair-value method. The grant date fair value was determined using the Black-Scholes-Merton pricing model. The Black-Scholes-Merton valuation calculation requires us to make key assumptions such as future stock price volatility, expected terms, risk-free rates and dividend yield. The weighted-average expected term for stock options granted was calculated using the simplified method in accordance with the provisions of Staff Accounting Bulletin No. 107, Share-Based Payment. The simplified method defines the expected term as the average of the contractual term and the vesting period of the stock option. We have estimated the volatility rates used as inputs to the model based on an analysis of the most similar public companies for which we have data. We have used judgment in selecting these companies, as well as in evaluating the available historical volatility data for these companies.

     SFAS No. 123R requires us to develop an estimate of the number of share-based awards which will be forfeited due to employee turnover. Quarterly changes in the estimated forfeiture rate may have a significant effect on share-based payments expense, as the effect of adjusting the rate for all expense amortization after January 1, 2006 is recognized in the period the forfeiture estimate is changed. If the actual forfeiture rate is higher than the estimated forfeiture rate, then an adjustment is made to increase the estimated forfeiture rate, which will result in a decrease to the expense recognized in the financial statements. If the actual forfeiture rate is lower than the estimated forfeiture rate, then an adjustment is made to decrease the estimated forfeiture rate, which will result in an increase to the expense recognized in the financial statements. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant. We have never paid cash dividends, and do not currently intend to pay cash dividends, and thus have assumed a 0% dividend yield.

     We will continue to use judgment in evaluating the expected term, volatility and forfeiture rate related to our own stock-based awards on a prospective basis, and in incorporating these factors into the model. If our actual experience differs significantly from the assumptions used to compute our stock-based compensation cost, or if different assumptions had been used, we may have recorded too much or too little share-based compensation cost.

     We recognize expense using the straight-line attribution method. We recorded share-based compensation expense related to stock options and restricted stock under the fair value requirements of SFAS No. 123R during the three month period ended June 30, 2007 and 2006 of approximately $6.3 million (restated) and $0.2 million, respectively. For the six month period ended June 30, 2007 and

2006 we recorded share-based compensation expense related to stock options and restricted stock under the fair value requirements of SFAS No. 123R of approximately $11.3 million (restated) and $0.3 million, respectively. Unrecognized share-based compensation expense totaled $55.9 million at June 30, 2007, of which we expect to recognize over a weighted average period of 3.6 years (restated). We expect to amortize $8.4 million (restated) over the final two quarters of 2007, $15.9 million (restated) in 2008 and the remainder thereafter based upon the scheduled vesting of the options outstanding at that time. Of these charges, approximately $4.4 million in 2006 and $5.0 million in 2007 relate to options granted to our four founders in connection with our Series B preferred stock financing in July 2006. We expect our share-based payments expense to decrease in the remainder of 2007 and potentially to increase thereafter as we grant additional stock options and restricted stock awards.

Revenue

Revenue increased 44%, (restated) or $6.6 million (restated), to $21.4 million (restated) for the three months ended June 30, 2007 as compared to $14.8 million for the three months ended June 30, 2006. For the six months ended June 30, 2007, total revenues increased 74%, (restated) or $19.1 million, (restated) to $44.8 million (restated) as compared to $25.7 million for the six months ended June 30, 2006. The increase in revenue for the three months ended June 30, 2007 as compared to the same period in the prior year was primarily attributable to an increase in our recurring CDN service revenue of $6.5 million (restated). The increase in CDN service revenue was primarily attributable to an increase in the number of customers under recurring revenue contracts, as well as an increase in traffic and additional services sold to new and existing customers. The increase in revenue for the six months ended June 30, 2007 as compared to the same period in the prior year was primarily attributable to an increase in our recurring CDN service revenue of $19.0 million (restated). As of June 30, 2007, we had 876 customers under recurring CDN service revenue contracts as compared to 523 as of June 30, 2006. During the quarter ended June 30, 2007, we deferred ongoing CDN services to one customer totaling $2.6 million and custom CDN service revenue totaling $0.8 million, as the amounts where part of a multi-element arrangement for which customer acceptance of a software element of the arrangement did not occur until July 27, 2007. Entering into the multi-element arrange with this customer changed the way we accounted for revenue earned from this customer during the quarter ended June 30, 2007. The entire $2.6 million of ongoing CDN service revenue will be recognized during the quarter ending September 30, 2007. The custom CDN services revenue deferred will be amortized ratably over a 44 month period starting in July 2007.

     For the three months ended June 30, 2007 and 2006, 14.5% (restated) and 8%, respectively, of our CDN services revenues were derived from our operations located outside of the United States, primarily from Europe. For the six months ended June 30, 2007 and 2006, 13.9% (restated) and 7%, respectively, of our total revenues were derived from our operations located outside of the United States, primarily from Europe. No single country outside of the United States accounted for 10% or more of revenues during these periods.

Cost of revenue includes fees paid to network providers for bandwidth and co-location of our network equipment. Cost of revenue also includes payroll and related costs, depreciation of network equipment used to deliver our CDN services and equity-related compensation for network operations personnel.

     Cost of revenue increased 104%, or $7.6 million, to $14.8 million for the three months ended June 30, 2007 as compared to $7.3 million for the three months ended June 30, 2006. For the six months ended June 30, 2007, cost of revenues increased 134%, or $16.8 million, to $29.3 million as compared to $12.6 million for the six months ended June 30, 2006. These increases were primarily due to an increase in aggregate bandwidth and co-location fees of $4.0 million and $9.0 million, respectively, due to higher traffic levels, an increase in depreciation expense of network equipment of $3.0 million and $6.2 million, respectively, due to increased investment in our network, and an increase in payroll and related employee costs of $0.3 million and $0.9 million, respectively, associated with increased staff. During the quarter ended June 30, 2007, we deferred $0.9 million of costs associated with deferred revenue for one customer discussed above. For the quarter ended September 30, 2007, $0.6 million of these deferred costs will be

recognized. The remaining $0.3 million of deferred costs will be amortized ratably into cost of services over a 44 month period.

     Additionally, during the three and six months ended June 30, 2007, cost of revenue includes share-based compensation expense of approximately $0.4 million and $0.6 million, respectively, resulting from our application of SFAS No. 123R.

     Cost of revenue was composed of the following (in millions):

We have long-term purchase commitments for bandwidth usage and co-location with various network and Internet service providers. For the remainder of 2007 and for the years ending December 31, 2008, 2009, 2010 and 2011, the minimum commitments related to bandwidth usage and co-location services under agreements currently in effect are approximately $8.6 million, $10.4 million, $7.3 million, $2.7 million and $0.5 million, respectively.

     We expect that cost of revenues will increase during the remainder of 2007. We expect to deliver more traffic on our network, which would result in higher expenses associated with the increased traffic; additionally, we anticipate increases in depreciation expense related to our network equipment, along with payroll and related costs, as we expect to continue to make investments in our network to service our expanding customer base. The application of SFAS No. 123R will also result in additional expense associated with the amortization of share-based compensation.