**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-QSB**





**x QUARTERLY
      REPORT
      PURSUANT TO SECTION 13 OR 15(D) OF THE**


**SECURITIES
      EXCHANGE ACT OF 1934**





For
      the
      Quarterly Period ended: June 30, 2006





OR





**o TRANSITION
      REPORT
      PURSUANT TO SECTION 13 OR 15(D) OF THE**


**SECURITIES
      EXCHANGE ACT OF 1934**





For
      the
      transition period from ________ to ________








Commission
      File No.: 000-51285








**a21,
      INC.**


(Name
      of
      Small Business Issuer in its Charter)





DELAWARE
            74-2896910(State
                or Other Jurisdiction of
            (I.R.S.
                EmployerIncorporation
                or Organization)
            Identification
                Number)







**7660
      CENTURION PARKWAY, JACKSONVILLE, FLORIDA 32256**


(Principal
      Executive Office)





Issuer's
      telephone number, including area code: (904) 565-0066





**SECURITIES
      REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE**





**SECURITIES
      REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: Common stock, par value $0.001
      per share**





Check
      whether the Issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Securities Exchange Act of 1934


during
      the past 12 months (or for such shorter period that the registrant was required
      to file such reports),


and
      (2)
      has been subject to such filing requirements for the past 90 days. Yes [X]
      No [
      ]





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes [ ] No [X]





There
      were 83,305,846 shares of a21's common stock outstanding on August 17,
      2006.





Transitional
      Small Business Disclosure Format (check one): Yes [ ] No [X]












**TABLE
                OF CONTENTS**PagePART
                I - FINANCIAL INFORMATIONITEM
                1. FINANCIAL STATEMENTS (unaudited)Condensed
                Consolidated Balance Sheets at June 30, 2006 andDecember
                31, 2005
            
            1Condensed
                Consolidated Statements of Operations for the three and six months
                ended
                June 30, 2006 and 2005
            
            2Condensed
                Consolidated Statements of Changes in Stockholders Equity and
                Comprehensive Income for the six months ended June 30,
                2006
            
            3Condensed
                Consolidated Statements of Cash Flows for the six months endedJune
                30, 2006 and 2005
            
            4Notes
                to Condensed Consolidated Financial Statements
            
            5ITEM
                2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS
                OF OPERATIONS (MD&A)
            
            7ITEM
                3. CONTROLS AND PROCEDURES
            
            37PART
                II - OTHER INFORMATIONITEM
                1. LEGAL PROCEEDINGS
            
            38ITEM
                2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
                PROCEEDS
            
            38ITEM
                3. DEFAULTS UPON SENIOR SECURITIES
            
            38ITEM
                4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
            
            38ITEM
                5. OTHER INFORMATION
            
            38ITEM
                6. EXHIBITS
            
            39











**a21,
                Inc. and Subsidiaries****CONDENSED
                CONSOLIDATED BALANCE SHEETS****($
                in thousands, except per share amounts)**
                **(unaudited)**




**June
                30,**
            
            **December
                31,****2006**
            
            **2005**ASSETSCURRENT
                ASSETSCash
                and cash equivalents
            
            $
            7,018
            
            $
            1,194Accounts
                receivable, net allowance for doubtful accounts of $66 and
                $57
            
            
            2,831
            
            
            1,840Inventory
            
            
            852
            
            
            156Prepaid
                expenses and other current assets
            
            
            708
            
            
            277Total
                current assets
            
            
            11,409
            
            
            3,467Property,
                plant and equipment, net
            
            
            8,135
            
            
            7,602Photo
                collection, net
            
            
            1,655
            
            
            1,715Goodwill
            
            
            7,478
            
            
            2,263Contracts
                with photographers, net
            
            
            824
            
            
            929Deferred
                rent receivable
            
            
            553
            
            
            541Intangible
                assets, net
            
            
            9,416
            
            
            3,882Restricted
                cash
            
            
            750
            
            
            ---Other
            
            
            110
            
            
            115Total
                assets
            
            $
            40,330
            
            $
            20,514LIABILITIES
                AND STOCKHOLDERS' EQUITYCURRENT
                LIABILITIESNotes
                payable, unsecured
            
            $
            ---
            
            $
            1,050Accounts
                payable
            
            
            1,717
            
            
            850Accrued
                compensation
            
            
            540
            
            
            154Accrued
                expenses
            
            
            1,008
            
            
            569Royalties
                payable
            
            
            1,356
            
            
            1,180Warrant
                obligation
            
            
            63
            
            
            187Deferred
                revenue
            
            
            237
            
            
            151Other
            
            
            112
            
            
            272Total
                current liabilities
            
            
            5,033
            
            
            4,413LONG-TERM
                LIABILITIESSenior
                secured convertible notes payable, net - related party
            
            
            15,500
            
            
            ---Senior
                secured notes payable, net - related party
            
            
            2,368
            
            
            ---Loan
                payable from sale-leaseback of building, less current
                portion
            
            
            7,425
            
            
            7,438Senior
                secured notes payable, net - related party
            
            
            ---
            
            
            2,316Other
            
            
            119
            
            
            126Total
                liabilities
            
            
            30,345
            
            
            14,293


1





**a21,
                Inc. and Subsidiaries****CONDENSED
                CONSOLIDATED BALANCE SHEETS (continued)****($
                in thousands, except per share amounts)**
                **(unaudited)**




**June
                30,**
            
            **December
                31,****2006**
            
            **2005**COMMITMENTS
                AND CONTINGENCIESMINORITY
                INTEREST
            
            
            2,590
            
            
            2,800CONVERTIBLE
                PREFERRED STOCK, $.001 par value; 3,150 shares issued and
                outstanding
            
            
            4,830
            
            
            ---STOCKHOLDERS'
                EQUITYPreferred
                stock; $.001 par value; 100,000 shares authorized; no shares and
                14,480
                shares issued and outstanding at June 30, 2006 and December 31, 2005,
                respectively
            
            
            ---
            
            
            ---Common
                stock; $.001 par value; 100,000,000 shares authorized; 81,735,620
                and
                74,115,012 shares issued at June 30, 2006 and December 31, 2005,
                respectively and 78,055,845 and 70,435,237 shares outstanding at
                June 30,
                2006 and December 31, 2005, respectively
            
            
            82
            
            
            74Treasury
                stock (at cost, 3,679,775 shares)
            
            
            ---
            
            
            ---Additional
                paid-in capital
            
            
            20,913
            
            
            17,583Deferred
                compensation
            
            
            ---
            
            
            (115
            )Accumulated
                deficit
            
            
            (18,871
            )
            
            (14,185
            )Accumulated
                comprehensive income
            
            
            341
            
            
            64Total
                stockholders' equity
            
            
            2,465
            
            
            3,421Total
                liabilities and stockholders' equity
            
            $
            40,330
            
            $
            20,514




The
                accompanying notes are an integral part of these Condensed Consolidated
                Financial Statements.




2





**a21,
                Inc. and Subsidiaries****CONDENSED
                CONSOLIDATED STATEMENTS OF OPERATIONS****($
                in thousands except per share amounts)****(unaudited)**




**Three
                  Months Ended****June
                30,**
            
            **Six
                Months Ended**
              **June
                30,****2006**
            
            **2005**
            
            **2006**
            
            **2005**Revenue
            
            $
            4,511
            
            $
            2,327
            
            $
            7,446
            
            $
            4,639COSTS
                AND EXPENSESCost
                of revenue (excludes related amortization for three months of $383
                and
                $174, six months of $766 and $348)
            
            
            1,701
            
            
            716
            
            
            2,604
            
            
            1,428Selling,
                general and administrative
            
            
            3,800
            
            
            1,954
            
            
            6,986
            
            
            3,520Depreciation
                and amortization
            
            
            830
            
            
            359
            
            
            1,433
            
            
            712TOTAL
                OPERATING EXPENSES
            
            
            6,331
            
            
            3,029
            
            
            11,023
            
            
            5,660OPERATING
                LOSS
            
            
            (1,820
            )
            
            (702
            )
            
            (3,577
            )
            
            (1,021
            )Interest
                expense
            
            
            (447
            )
            
            (332
            )
            
            (800
            )
            
            (729
            )Warrant
                expense
            
            
            118
            
            
            ---
            
            
            (147
            )
            
            ---Other
                (expense) income, net
            
            
            (77
            )
            
            49
            
            
            (91
            )
            
            (217
            )NET
                LOSS BEFORE INCOME TAX EXPENSE
            
            
            (2,226
            )
            
            (985
            )
            
            (4,615
            )
            
            (1,967
            )Income
                tax expense
            
            
            (44
            )
            
            ---
            
            
            (71
            )
            
            ---NET
                LOSS
            
            
            (2,270
            )
            
            (985
            )
            
            (4,686
            )
            
            (1,967
            )Disproportionate
                deemed dividends
            
            
            ---
            
            
            ---
            
            
            (157
            )
            
            ---NET
                LOSS ATTRIBUTED TO COMMON STOCKHOLDERS
            
            $
            (2,270
            )
            $
            (985
            )
            $
            (4,843
            )
            $
            (1,967
            )NET
                LOSS ATTRIBUTED TO COMMON STOCKHOLDERS PER SHARE, BASIC AND
                DILUTED
            
            $
            (0.03
            )
            $
            (0.02
            )
            $
            (0.06
            )
            $
            (0.05
            )WEIGHTED
                AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, BASIC AND
                DILUTED
            
            
            77,671,527
            
            
            40,112,391
            
            
            77,569,680
            
            
            39,129,773




The
                accompanying notes are an integral part of these Condensed Consolidated
                Financial Statements.


3





**a21,
                Inc. and Subsidiaries****CONDENSED
                CONSOLIDATED STATEMENTS OF CHANGES IN****STOCKHOLDERS'
                EQUITY AND COMPREHENSIVE INCOME****(in
                thousands)**




**(unaudited)**
            
            PREFERRED
                STOCK
            
            COMMON
                STOCK
            
            TREASURY
                STOCKNUMBER
                      OFSHARES
            
            AMOUNT
            
            NUMBER
                  OFSHARES
            
            AMOUNT
            
            NUMBER
                OF  SHARES
            
            AMOUNT
            
            ADDITIONAL
                  PAID-IN CAPITAL
            
            DEFERRED
                    COMPEN-SATION
            
            ACCUMU-
              LATED
                DEFICIT
            
            ACCUMULATED
                OTHER COMPREHENSIVE INCOME
            
            TOTALBalance
                at December 31, 2005
            
            
            14
            
            $
            --
            
            
            74,115
            
            $
            74
            
            
            (3,680
            )
            $
            ---
            
            $
            17,583
            
            $
            (115
            )
            $
            (14,185
            )
            $
            64
            
            $
            3,421Stock
                options exercised
            
            
            ---
            
            
            ---
            
            
            678
            
            
            1
            
            
            ---
            
            
            ---
            
            
            100
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            101Stock
                warrants exercised
            
            
            ---
            
            
            ---
            
            
            4,000
            
            
            4
            
            
            ---
            
            
            ---
            
            
            1,196
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            1,200Issuance
                of common stock upon the conversion of preferred stock issued as
                part of
                the purchase price of Ingram Publishing Limited
            
            
            (14
            )
            
            ---
            
            
            2,523
            
            
            3
            
            
            ---
            
            
            ---
            
            
            (3
            )
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---Stock
                options compensation expense
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            1,310
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            1,310Stock
                issuance for brokers’ cost in connection with issuance of Senior Secured
                Convertible Issuance
            
            
            ---
            
            
            ---
            
            
            107
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            62
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            62Warrants
                cancelled in connection with issuance of Senior Secured Convertible
                Issuance
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            56
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            56Warrants
                issued in connection with ArtSelect acquisition
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            375
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            375Issuance
                of common stock upon the conversion of SuperStock seller preferred
                stock
            
            
            ---
            
            
            ---
            
            
            375
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            210
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            210Amortization
                of deferred compensation
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            (108
            )
            
            108
            
            
            ---
            
            
            ---
            
            
            ---Cancellation
                of restricted stock due to executive separation
            
            
            ---
            
            
            ---
            
            
            (62
            )
            
            ---
            
            
            ---
            
            
            ---
            
            
            (7
            )
            
            7
            
            
            ---
            
            
            ---
            
            
            ---Shares
                payable settlement costs
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            139
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            139Net
                loss
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            (4,686
            )
            
            ---
            
            
            (4,686
            )Foreign
                currency translation adjustment
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            277
            
            
            277Comprehensive
                loss
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            (4,409
            )Balance
                at June 30, 2006
            
            
            ---
            
            $
            ---
            
            
            81,736
            
            $
            82
            
            
            (3,680
            )
            $
            ---
            
            $
            20,913
            
            $
            ---
            
            $
            (18,871
            )
            $
            341
            
            $
            2,465






The
                  accompanying notes are an integral part of these Condensed Consolidated
                  Financial Statements.
 4


**a21,
                Inc. and Subsidiaries****CONDENSED
                CONSOLIDATED STATEMENTS OF CASH FLOW****($
                in thousands)****(unaudited)**




**FOR
                THE SIX MONTHS ENDED JUNE 30,**
            
            **2006**
            
            **2005**CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                loss
            
            $
            (4,686
            )
            $
            (1,967
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Depreciation
                and amortization
            
            
            1,433
            
            
            712Amortization
                of finance costs
            
            
            11
            
            
            130Loss
                on disposal of equipment
            
            
            76
            
            
            16Change
                in fair value of warrant obligation
            
            
            (124
            )
            
            ---Stock
                option compensation
            
            
            1,310
            
            
            369Deferred
                compensation
            
            
            ---
            
            
            (249
            )Issuance
                of common stock for financing costs
            
            
            62
            
            
            ---Loss
                on extinguishment of debt
            
            
            ---
            
            
            371Stock
                issued for settlement
            
            
            139
            
            
            ---Other
            
            
            7
            
            
            20Changes
                in assets and liabilities:Accounts
                receivable
            
            
            (418
            )
            
            (349
            )Prepaid
                expenses and other current assets
            
            
            (483
            )
            
            ---Inventory
            
            
            60
            
            
            (35
            )Accounts
                payable and accrued expenses
            
            
            852
            
            
            (181
            )Deferred
                revenue
            
            
            87
            
            
            ---Foreign
                income tax payable
            
            
            (170
            )
            
            ---Other
            
            
            6
            
            
            (36
            )NET
                CASH USED IN OPERATING ACTIVITIES
            
            
            (1,838
            )
            
            (1,199
            )




5





**a21,
                Inc. and Subsidiaries****CONDENSED
                CONSOLIDATED STATEMENTS OF CASH FLOW
                (continued)****($
                in thousands)**




**(unaudited)****FOR
                THE SIX MONTHS ENDED JUNE 30,**
            
            **2006**
            
            **2005**CASH
                FLOWS FROM INVESTING ACTIVITIES:Acquisition
                of ArtSelect
            
            
            (4,476
            )
            
            ---Investment
                in property, plant and equipment
            
            
            (284
            )
            
            (261
            )SuperStock
                earnout
            
            
            (206
            )
            
            ---Investment
                in photo collection
            
            
            (195
            )
            
            (9
            )Restricted
                cash for lease deposit
            
            
            (750
            )
            
            ---Other
            
            
            (9
            )
            
            ---NET
                CASH USED IN INVESTING ACTIVITIES
            
            
            (5,920
            )
            
            (270
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Proceeds
                from senior secured convertible notes payable - related
                party
            
            
            15,500
            
            
            ---Payment
                of senior secured notes payable - related party
            
            
            (2,250
            )
            
            2,250Payment
                of convertible subordinated notes payable
            
            
            ---
            
            
            (1,250
            )Payment
                of unsecured notes payable
            
            
            (1,050
            )
            
            ---Net
                proceeds from the exercise of stock options
            
            
            100
            
            
            ---Net
                proceeds from the exercise of stock warrants
            
            
            1,200
            
            
            ---Redeemed
                financing warrants
            
            
            56
            
            
            ---Payment
                of promissory note payable
            
            
            (33
            )
            
            (33
            )Other
            
            
            37
            
            
            3NET
                CASH PROVIDED BY FINANCING ACTIVITIES
            
            
            13,560
            
            
            970EFFECT
                OF EXCHANGE RATES ON CASH AND CASH EQUIVALANTS
            
            
            22
            
            
            96NET
                INCREASE IN CASH
            
            
            5,824
            
            
            (403
            )CASH
                AT BEGINNING OF PERIOD
            
            
            1,194
            
            
            717CASH
                AT END OF PERIOD
            
            $
            7,018
            
            $
            314






SUPPLEMENTAL
                DISCLOSURE OF CASH FLOW INFORMATION:Foreign
                income taxes paid
            
            $
            178
            
            $
            ---Interest
                paid
            
            
            635
            
            
            405




SUPPLEMENTAL
                DISCLOSURE OF NON-CASH FINANCING AND INVESTING ACTIVITIES:Issuance
                of convertible preferred stock as part of ArtSelect
                acquisition
            
            
            4,830
            
            $
            ---Issuance
                of senior secured note payable as part of ArtSelect
                acquisition
            
            
            2,368
            
            
            ---Issuance
                of warrants as part of ArtSelect acquisition
            
            
            375
            
            
            ---Deferred
                compensation
            
            
            ---
            
            
            369




The
                accompanying notes are an integral part of these Condensed Consolidated
                Financial Statements.


6


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





**NOTE
      A - FINANCIAL STATEMENT PRESENTATION AND THE DESCRIPTION OF
      BUSINESS**





The
      unaudited condensed consolidated financial statements of a21, Inc. (“a21”, “the
      Company”, “we”) herein have been prepared pursuant to the rules and regulations
      of the Securities and Exchange Commission (“SEC”) and, in the opinion of
      management, reflect all adjustments (consisting only of normal recurring
      accruals) necessary to present fairly the financial position at June 30, 2006,
      and the results of operations for the interim periods presented. Certain
      information and footnote disclosures normally included in financial statements
      prepared in accordance with accounting principles generally accepted in the
      United States of America have been condensed or omitted pursuant to such SEC
      rules and regulations. Results of operations for interim periods are not
      necessarily indicative of those to be achieved for full fiscal years. These
      condensed consolidated financial statements should be read in conjunction with
      our audited financial statements included in our amended annual report on Form
      10-KSB/A for the year ended December 31, 2005 filed with the SEC.





a21,
      Inc.
      was incorporated in the State of Texas in October 1998, under the name Saratoga
      Holdings I, Inc. In February 2004, we completed the acquisition of all of the
      voting common stock, representing 83% of the outstanding equity, of SuperStock,
      Inc. In October 2005, we completed the acquisition of all of the outstanding
      stock of Ingram Publishing Limited, and in May 2006, we completed the
      acquisition of ArtSelect, Inc. through the merger of a wholly owned subsidiary
      into ArtSelect. On July 31, 2006, we changed our state of incorporation from
      Texas to Delaware (See Note N).





Through
      our subsidiary SuperStock, we aggregate visual content from photographers,
      photography agencies, archives, libraries and private collections and license
      the visual content to our customer base consisting of four major groups:
      creative (advertising and design agencies), editorial (publishing and media
      entities), corporate (in-house communications departments and outside corporate
      communications firms) and consumers (the general public). SuperStock products
      are sold directly and through a global network of distributors.





Our
      subsidiary ArtSelect supplies home and office framed and unframed wall décor to
      retailers, catalogers, membership organizations and consumers through both
      online and traditional retail and wholesale distribution channels in the United
      States.


7





**NOTE
      B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**





[1]
      Basis
      of presentation / Going Concern:





The
      accompanying condensed consolidated financial statements have been prepared
      assuming that we will continue as a going concern. We have sustained significant
      recurring losses and at June 30, 2006 had an accumulated deficit of $18.9
      million that raise substantial doubt about our ability to continue as a going
      concern. Our independent registered public accounting firm included a going
      concern explanatory paragraph in their report in connection with their audit
      of
      our consolidated financial statements for the year ended December 31, 2005.
      We
      will need to raise cash from equity and debt financings to fund any additional
      acquisitions, and may need to raise cash in such manner to fund our operations.
      If we are unable to secure the required funding, we may not be able to implement
      our business plan and may not be able to conduct business as a going concern.
      See Note J describing recent $15.5 million financing. At June 30, 2006, we
      had
      cash of $7.0 million and working capital of $6.4 million.





The
      condensed consolidated financial statements do not include any adjustments
      relating to the recoverability and classification of recorded asset amounts
      or
      the amounts or classification of liabilities that might be necessary should
      we
      be unable to continue as a going concern. Our continuation as a going concern
      is
      dependent upon our ability to generate sufficient cash flows to meet our
      obligations on a timely basis, to obtain additional financing as may be required
      and ultimately to attain profitable operations and positive cash flows. Our
      future plans include the development of our distribution channel, the leveraging
      of owned and licensed image content, and the production and acquisition of
      new
      in-demand image content to be made available to both direct and distribution
      customers. Additionally, we are in discussions with several potential
      acquisition targets that, if successful, could result in an enhanced market
      position and incremental cash flow from operations. However, there can be no
      assurance that these efforts will be successful. We also continue to incur
      operating expenses to enhance our market position and expand our product
      offering by producing or acquiring newer, in-demand image content for our
      customers. We may have to seek additional funding sooner than expected. There
      can be no assurance that sufficient additional capital needed to sustain
      operations will be obtained by us or that our operations will become
      profitable.





[2]
      Principles of consolidation:





The
      condensed consolidated financial statements include all of our accounts
      including our primary operating subsidiaries, SuperStock (U.S.), ArtSelect
      (U.S.) (acquired on May 15, 2006), and SuperStock Limited (UK), which includes
      Ingram Publishing(acquired during October 2005). The minority interest in the
      consolidated balance sheet at June 30, 2006 and December 31, 2005 represents
      the
      interest of the holders of preferred shares of SuperStock (“SuperStock Seller
      Preferred”), which are exchangeable into common shares of a21, Inc. All
      significant intercompany balances and transactions have been eliminated.


8




[3]
      Revenue recognition:





Revenue
      is recognized when the following criteria are met: evidence of an arrangement
      exists, the price is fixed or determinable, collectibility is reasonably assured
      and delivery has occurred or services have been rendered.





SuperStock
      revenue is recorded at invoiced amounts except in the case of licensing rights
      through distributors, where revenue is recorded at our share of invoiced
      amounts. Distributors typically earn and retain a percentage of the license
      fee
      according to their contract, and we record the remaining license fee as revenue.
      We also sell subscriptions of certain images for terms ranging from one to
      twelve months. Subscription revenue is recognized over the respective term
      of
      the subscription agreement and, accordingly, $237,000 and $151,000 is recorded
      as deferred revenue as of June 30, 2006 and December 31, 2005,
      respectively.





ArtSelect
      revenue is recognized when the product is shipped and title is transferred
      to
      the customer. Revenue sold via ArtSelect’s website and/or related sub-domains is
      recognized on a gross basis. ArtSelect revenue sold through customers’
distribution channels is recognized net of related costs. ArtSelect bases its
      estimates for sales returns on historical experience.





[4]
      Cost
      of revenue:





SuperStock
      cost of revenue reflects royalties on revenue generated from images licensed
      under contracts with photographers. Royalties are expensed in the period that
      they are incurred. Cost of revenue excludes amortization of revenue generating
      assets. ArtSelect cost of revenue reflects payments made to suppliers of art
      content, framing materials, and shipment and handling costs.





[5]
      Use
      of estimates:





The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities and disclosure of contingent assets and liabilities at the date
      of
      the financial statements and the reported amounts of revenue and expenses during
      the reporting period. Actual results could differ from those estimates. The
      recoverability of the carrying values of long-lived assets, including goodwill
      and identifiable intangible assets represents sensitive estimates subject to
      change.





[6]
      Fair
      value of financial instruments:





Our
      financial instruments consist primarily of cash and cash equivalents, accounts
      receivable, accounts payable, accrued expenses, and short-term debt, which
      approximate fair value because of their short maturities. The carrying amount
      of
      long-term debt approximates fair value due to the market rate of interest
      incurred by us. The fair value of our notes payable to stockholders and an
      affiliated company are not reasonably determinable based on the related party
      nature of the transactions.


9




[7]
      Cash
      and cash equivalents:





We
      consider all highly liquid debt instruments purchased with an original maturity
      of three months or less to be cash equivalents. At June 30, 2006 and December
      31, 2005, we had no investments with maturities greater than three months.
      We
      are required to maintain a security deposit in accordance with our lease
      agreement for the SuperStock facility. Cash as of June 30, 2006 and December
      31,
      2005 excludes the certificate of deposits pledged as security deposit. This
      consists of restricted cash funded by us to secure a letter of credit in the
      amount of $750,000 at June 30, 2006 and $690,000 pledged by stockholders at
      December 31, 2005.





[8]
      Accounts Receivable and Allowance for Doubtful Accounts:





Accounts
      receivable are trade receivables, net of allowances for doubtful accounts.
      We
      estimate our allowance for doubtful accounts based on historical loss ratios,
      existing economic conditions, and specific account analysis of high-risk
      accounts. Concentration of credit risk is limited due to the dispersion of
      customers. No single customer represents more than 10% of the total accounts
      receivable.





[9]
      Inventories:





Inventories
      are valued at the lower of cost or market and are determined on the first-in,
      first-out (FIFO) basis. For ArtSelect, inventories include raw materials and
      finished goods. Raw materials include prints, mats, frames, molding, and
      packaging material. Finished goods consist of preframed art. For SuperStock,
      inventories include the costs of compact disk products produced for resale
      categorized as finished goods. The requirements for any provisions of estimated
      losses for obsolete, excess, or slow-moving inventories are reviewed
      periodically. At June 30, 2006, our reserve for inventories was $104,000
      including a provision of slow moving SuperStock compact disk products of $89,000
      recorded during the three months ended June 30, 2006, classified as a cost
      of
      sales in the consolidated statement of operations.





[10]
      Deferred Rent Receivable





During
      2004, we entered into an agreement to sublease a significant portion of our
      headquarters and SuperStock facility for a term of six years with an option
      to
      renew for an additional two-year term. SFAS 13, “Accounting for Leases”,
      requires rental income from an operating lease be recognized on a straight-line
      basis over the non-cancelable lease term. Accordingly, we recognize total
      contractual minimum lease payments, including scheduled rent increases, as
      rental income evenly over the lease term. Accrued revenues from contractually
      scheduled rent increases in excess of amounts currently due are reported as
      a
      long-term receivable. We monitor this asset for collection risk and will
      establish reserves for any amounts deemed not collectible. However, amounts
      collected in future periods may vary from our expectations.





[11]
      Defined Contribution Employee Benefit Plan





We
      maintain defined contribution retirement plans pursuant to Section 401(k) of
      the
      Internal Revenue Code (the Plan), in which U.S. employees at least 21 years
      of
      age may participate after completing six months of service. Eligible employees
      may contribute up to a certain percentage of their annual compensation to the
      Plan, subject to the annual IRS limitations. The Company may match employee
      contributions on a discretionary basis.


10





[12]
      Foreign Currency:





We
      translate assets and liabilities of foreign subsidiaries, whose functional
      currency is the local currency, at exchange rates in effect as of the balance
      sheet date. We translate revenue and expenses at the monthly average rates
      of
      exchange prevailing during the year. We include the adjustment resulting from
      translating the financial statements of such foreign subsidiaries in accumulated
      other comprehensive income, which is reflected as a separate component of
      stockholders’ equity. Gains and losses, which are denominated in currency other
      than a subsidiary’s local currency and remeasured in the subsidiary’s local
      currency, are recognized in the condensed consolidated statement of
      operations.





[13]
      Land
      and building and property and equipment and depreciation:





Land
      and
      building were sold and leased back in a SuperStock transaction accounted for
      as
      a financing transaction. The building is being depreciated over the twenty-year
      term of the related lease. Property and equipment consisting of furniture,
      fixtures and equipment, photography and computer equipment, and software are
      recorded at cost. Depreciation of property and equipment is computed by the
      straight-line method over the assets' estimated lives of furniture, fixtures,
      and equipment being 7 years, photography and computer equipment ranging from
      5
      to 7 years, and software ranging from 3 to 5 years.





Expenditures
      for major additions and improvements are capitalized. Maintenance and repairs
      are charged to operations as incurred. Upon sale or retirement of property
      and
      equipment, the related cost and accumulated depreciation are removed from the
      accounts and any gain or loss is reflected in operations.





[14]
      Photo collection and contracts with photographers:





Expenditures
      for additions and improvements to the photo collection are capitalized. The
      photo collection is categorized by type of imagery (fine art, vintage and
      contemporary). Depreciation of the photo collection is computed by the
      straight-line method over the assets’ estimated lives of forty years for fine
      art and vintage images and four years for contemporary images. Upon sale or
      retirement of any portion of the collection, the related cost and accumulated
      depreciation are removed from the accounts and any gain or loss is reflected
      in
      operations.




Contracts
      with photographers have an average life of five years and are automatically
      renewable. Amortization of the photographer’s contracts is based on projected
      revenues expected to be generated over the estimated ten-year life of the
      underlying images.


11





[15]
      Goodwill and intangible assets:





We
      performed our annual goodwill test as of October 1, 2005 and determined there
      was not impairment as of that date. (See Note F)





Intangible
      assets with definite lives are amortized over their estimated useful life and
      reviewed for impairment in accordance with SFAS 144. Intangible assets with
      definite lives are amortized using the straight-line method over their expected
      useful life. (See Note F)





[16]
      Long-lived assets:





We
      evaluate our long-lived assets in accordance with Statement of Financial
      Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or
      Disposal of Long-Lived Assets," pursuant to which an impairment loss is
      recognized if the carrying amount of a long-lived asset is not recoverable
      and
      exceeds its fair value. A long-lived asset is tested for recoverability whenever
      events or changes in circumstances indicate that its carrying amount may not
      be
      recoverable. Our consideration of SFAS 144 involves significant assumptions
      and
      estimates based on management’s best judgments of current and future
      circumstances, including currently enacted tax laws, the future weighted-average
      cost of capital, and our future financial performance. No impairment charges
      have been incurred for the three and six months ended June 30, 2006 and
      2005.





[17]
      Other (expense) income:





**($
                in thousands)**
            
            **Three
                months ended June 30,**
            
            **Six
                months ended June 30,****2006**
            
            **2005**
            
            **2006**
            
            **2005**Currency
                transaction (loss) gain
            
            $
            83
            
            $
            52
            
            $
            95
            
            $
            105Settlement
                of claims
            
            
            (139
            )
            
            ---
            
            
            (139
            )
            
            ---Loss
                on extinguishment of debt
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            (371
            )Other
            
            
            (21
            )
            
            (3
            )
            
            (47
            )
            
            49$
            (77
            )
            $
            49
            
            $
            (91
            )
            $
            (217
            )





12




[18]
      Income taxes:




We
      recognize deferred tax assets and liabilities for both the expected impact
      of
      differences between the financial statements and tax bases of assets and
      liabilities, and for the expected future tax benefit to be derived from
      offsetting the net operating loss against loss and tax credit carryforwards
      against taxable income, if any. We established a valuation allowance to reflect
      the likelihood of realization of deferred tax assets. Deferred
      tax assets are reduced by a valuation allowance if it is more likely than not
      that some portion or all of the deferred tax assets will not be realized. The
      difference in basis of the investment in foreign subsidiary relates to goodwill
      which is a permanent difference, and therefore, no deferred tax is
      recognized.






[19]
      Net
      loss attributed to common stockholders per share:




We
      calculate net loss attributed to common stockholders per share in accordance
      with the provisions of SFAS No. 128, "Earnings per Share”. SFAS No. 128 requires
      a dual presentation of "basic" and "diluted" income (loss) per share on the
      face
      of the condensed consolidated statements of operations. Basic income (loss)
      per
      share is computed by dividing the net loss attributed to common stockholders
      by
      the weighted average number of shares of common stock outstanding during each
      period. Diluted loss per share includes the effect, if any, from the potential
      exercise or conversion of securities, such as stock options and warrants, which
      would result in the issuance of incremental shares of common stock.





For
      the
      three and six months ended June 30, 2006 and 2005, the basic and diluted net
      loss attributed to common stockholders per share is the same since the effect
      from the potential exercise of 15,473,193 and 33,532,590 outstanding stock
      options and warrants as of June 30, 2006 and 2005, respectively, would have
      been
      antidilutive.





For
      the
      three and six months ended June 30, 2006, 4,625,139 shares of common stock
      issuable upon the conversion of the SuperStock Seller Preferred have been
      excluded. For the three and six months ended June 30, 2005, 5,000,151 shares
      of
      common stock issuable upon the conversion of the SuperStock Seller Preferred
      have been excluded.





[20]
      Reclassifications:





Certain
      reclassifications have been made to the comparable same prior year period
      financial statements to conform to current period presentation.





[21]
      Other Accumulated Comprehensive Income:





Other
      accumulated comprehensive income consists of net loss and net unrealized foreign
      currency translation adjustments and is presented in the condensed consolidated
      balance sheets as comprehensive income.


13





[22]
      Stock-based compensation:





On
      January 1, 2006, we adopted SFAS No. 123R, "Share-Based Payment”, ("SFAS
      123(R)") which requires the measurement and recognition of compensation expense
      for all share-based payment awards made to employees and directors based on
      estimated fair values. SFAS 123(R) supersedes our previous accounting under
      Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
      Employees" ("APB 25"). In March 2005, the Securities and Exchange Commission
      issued Staff Accounting Bulletin No. 107 ("SAB 107") relating to SFAS 123(R).
      We
      have applied the provisions of SAB 107 in its adoption of SFAS 123(R). Equity
      awards governed by SFAS 123(R) include those equity awards, invested at January
      1, 2006, and any such awards modified thereafter.





We
      adopted SFAS 123(R) using the modified prospective transition method, which
      requires the application of the accounting standard as of January 1, 2006,
      the
      first day of our fiscal year 2006. Our condensed consolidated financial
      statements as of and for the three and six months ended June 30, 2006 reflects
      the impact of SFAS 123(R). In accordance with the modified prospective
      transition method, our condensed consolidated financial statements for prior
      periods have not been restated to reflect, and do not include, the impact of
      SFAS 123(R).





SFAS
      123(R) requires companies to estimate the fair value of share-based payment
      awards on the date of grant using an option-pricing model. The value of the
      portion of the award that is ultimately expected to vest is recognized as
      expense over the requisite service periods in our condensed consolidated
      statement of operations. Prior to the adoption of SFAS 123(R), we accounted
      for
      share-based awards to employees and directors using the intrinsic value method
      in accordance with APB 25. Under the intrinsic value method, no stock-based
      compensation expense had been recognized in our condensed consolidated statement
      of operations, because the exercise price of our stock options granted to
      employees and directors equaled the fair market value of the underlying stock
      at
      the date of grant.





Share-based
      compensation expense recognized during the three and six months ended June
      30,
      2006 is based on the value of the portion of share-based payment awards that
      is
      ultimately expected to vest during the period. Share-based compensation expense
      recognized in our condensed consolidated statement of operations for the three
      and six months ended June 30, 2006 included compensation expense for share-based
      payment awards granted subsequent to December 31, 2005 based on the grant date
      fair value estimated in accordance with the provisions of SFAS 123(R). Because
      share-based compensation expense recognized in the condensed consolidated
      statement of operations for the three and six months ended June 30, 2006 is
      based on awards ultimately expected to vest, it has been reduced for estimated
      forfeitures. SFAS 123(R) requires forfeitures to be estimated at the time of
      grant and revised, if necessary, in subsequent periods if actual forfeitures
      differ from those
      estimates. In our pro forma information required under SFAS 123 for the periods
      prior to fiscal 2006, we accounted for forfeitures as they occurred. For the
      three and six months ended June 30, 2006, we applied estimated forfeitures
      of 5%
      at the time of the respective grants.





We
      use a
      Black-Scholes option-pricing model as our valuation method for share-based
      payment awards. Under the Black-Scholes model, the fair value of share-based
      payment awards on the date of grant using an option-pricing model is affected
      by
      a21’s common stock price as well as assumptions regarding a number of highly
      complex and subjective variables. These variables include, but are not limited
      to our expected stock price volatility over the term of the awards, and actual
      and projected employee stock option exercise behaviors.





As
      a
      result of the February 9, 2006 stockholder approval of our 2005 Stock Plan,
      although the exercise price of $0.30 was greater than the prevailing market
      price of the underlying common stock when originally granted during 2005, for
      GAAP purposes the accounting timing of the grant of 4,108,060 stock options
      valued at $1.0 million refers to the February 9, 2006 stockholder approval
      date,
      at which time the market price of the underlying common stock was
      $0.37.


14





**General
      Share Based Compensation Information**





The
      following summarizes our stock option activity:





**Stock
                Options****Shares**
            
            **Weighted
                Average Exercise Price**Balance,
                December 31, 2005
            
            
            4,547,623
            
            $
            0.32Granted
            
            
            4,783,060
            
            $
            0.34Exercised
            
            
            (802,850
            )
            $
            0.18Forfeited
            
            
            (424,772
            )
            $
            0.30Cancelled
            
            
            (66,668
            )
            $
            0.15Balance,
                June 30, 2006
            
            
            8,036,393
            
            $
            0.35Exercisable,
                December 31, 2005
            
            
            4,547,623
            
            $
            0.32Exercisable,
                June 30, 2006
            
            
            6,314,811
            
            $
            0.33




The
      following table summarizes information about stock options at June 30, 2006:





**Options
                Outstanding****Exercise
                Prices**
            
            **Number
                Outstanding**
            
            **Weighted
                Average Remaining Contractual Life**
            
            **Number
                Exercisable**$0.15
            
            54,167
            
            1
                year
            
            54,167$0.25
            
            1,256,500
            
            1
                year
            
            1,256,500$0.30
            
            5,650,726
            
            3.5
                years
            
            4,604,144$0.46
            
            400,000
            
            5
                years
            
            ---$0.50
            
            160,000
            
            1
                year
            
            160,000$0.80
            
            275,000
            
            5
                years
            
            ---$1.00
            
            120,000
            
            1
                year
            
            120,000$1.50
            
            120,000
            
            1
                year
            
            120,0008,036,393
            
            3
                years
            
            6,314,811





15




**Valuation
      and Expense Information under SFAS 123(R)**





The
      following table summarizes share-based compensation expense under SFAS 123(R)
      for the three and six months ended June 30, 2006:





**($
                in thousands)**
            
            **Three
                months**
            
            **Six
                months**Share-based
                compensation expense included in selling, general, and administrative
                expenses
            
            $
            259
            
            $
            1,310Tax
                benefit
            
            
            -
            
            
            -Share-based
                compensation expense, net tax
            
            $
            259
            
            $
            1,310





The
      fair
      value of each option is measured at the grant date using a Black-Scholes
      option-pricing model, which requires the use of a number of assumptions
      including volatility, risk-free interest rate, and expected dividends. The
      following weighted average assumptions were used for stock options granted
      during the three and six months ended June 30, 2006, respectively:  no
      annual dividends; expected volatility of 117%; risk free interest rate of 4.00%;
      expected life ranging from 3.75 to 4.15 years, and no annual dividends; expected
      volatility ranging from 80% to 117%; risk free interest rate ranging from 3.01%
      to 3.50%; expected life ranging from 3.06 to 5 years.





The
      pro
      forma effect on our net loss and loss per share of applying the fair-value
      method of accounting would have been as follows for the three and six months
      ended June 30, 2005:





**$
                in thousands, except per share amounts**
            
            **Three
                months**
            
            **Six
                months**Net
                loss
            
            $
            (985
            )
            $
            (1,967
            )Stock
                based employee compensation included in net loss
            
            
            ---
            
            
            ---Less:
                Stock-based employee compensation using the fair value
                method
            
            
            (39
            )
            
            (61
            )Pro
                forma net loss
            
            $
            (1,024
            )
            $
            (2,028
            )Loss
                per share - basic and dilutedAs
                reported
            
            $
            (0.02
            )
            $
            (0.05
            )Pro
                forma
            
            $
            (0.03
            )
            $
            (0.05
            )





The
      fair
      value of each option is measured at the grant date using a Black-Scholes
      option-pricing model, which requires the use of a number of assumptions
      including volatility, risk-free interest rate, and expected dividends. The
      following weighted average assumptions were used for stock options granted
      during the six months ended June 30, 2005: no annual dividends; expected
      volatility of 80%; risk free interest rate of 3.00%, and expected life of 5
      years.


16





[23]
      Advertising





Advertising
      expenses were $218,000 and $252,000 for the three months ended June 30, 2006
      and
      2005, respectively. Advertising expenses of $393,000 and $354,000 were expensed
      for the six months ended June 30, 2006 and 2005, respectively. Advertising
      costs
      are charged to expense as incurred.





**NOTE
      C - ACQUISITION OF ARTSELECT**


****


On
      May
      16, 2006, we acquired ArtSelect, Inc. ArtSelect supplies home and office framed
      and unframed wall décor to retailers, catalogers, membership organizations, and
      consumers through both online and traditional retail and wholesale distribution
      channels.





In
      consideration, the stockholders of ArtSelect received $4.5 million of cash,
      $2.35 million in secured notes, and $3.15 million of a21 convertible preferred
      stock valued at $4.8 million. The selling stockholders of ArtSelect also
      received warrants to purchase 750,000 shares of a21’s common stock at $1.00 per
      share valued at $0.50 each or $375,000, exercisable for common stock. We have
      also incurred approximately $205,000 in related transaction costs, which has
      been recorded as purchase capital. Final adjustments will be made to the
      purchase price after finalization of ArtSelect's closing balance sheet expected
      to occur by September 30, 2006.





**($
                in thousands)**Cash
            
            $
            4,500Convertible
                preferred stock
            
            
            4,830Seller
                secured notes
            
            
            2,350Warrants
            
            
            375Capitalized
                transaction costs
            
            
            205$
            12,260





The
      seller notes bear interest at 6% per year and mature on the earlier to occur
      of
      a change of control or May 15, 2009. The first year of interest on the notes
      will be accrued and added to the principal of the notes. After the first year,
      interest will be payable quarterly, in arrears. The notes are secured by
      substantially all the assets of ArtSelect (provided that, with respect to up
      to
      $3.0 million of the assets of ArtSelect, the notes are junior to the
      previously issued $15.5 million Senior Notes).





The
      convertible preferred stock fair value was determined using a Black-Scholes
      model capturing the as-if converted value component of $2.7 million and the
      $2.1
      million value of the option feature. The following assumptions were applied
      in
      the Black-Scholes valuation of the Preferred Stock: risk-free interest rate ,
      4.9%;
      volatility, 129%; underlying stock price on April 28, 2006 [date prior to
      financing of acquisition announced to the public], $0.64; exercise price, $0.75;
      term, 4 years.





The
      convertible preferred stock has certain liquidation preferences and, pursuant
      to
      an exchange agreement entered into with each of the holders of preferred stock,
      after a21 increases the number of its authorized shares of common stock, is
      exchangeable for a21’s common stock at a minimum price per share of $0.75,
      subject to adjustment pursuant to weighted average anti-dilution provisions
      contained in the transaction documents.





On
      May
      16, 2006, the holders of convertible preferred stock elected to exchange all
      of
      the convertible preferred stock for an aggregate of 4,200,000 shares of a21’s
      common stock at a per share price of $0.75. Pursuant to the terms of the
      exchange agreement with such holders, the exchange stock was issued by a21
      in
      August 2006 after its July 31, 2006 reincorporation from Texas to Delaware,
      pursuant to which a21 increased the number of authorized shares of its common
      stock in part to accommodate such exchange.


17





The
      Warrants expire four years from the closing date of the acquisition. The fair
      value of the warrants has been determined using a Black-Scholes model by
      applying the following assumptions: risk-free interest rate, 4.9%; volatility,
      129%; underlying stock price, $0.64; exercise price, $1.00; term, 4
      years.





The
      aggregate purchase price was approximately $12.3 million. The following
      summarizes the preliminary fair values assigned to the assets acquired and
      liabilities assumed at the date of acquisition, which are subject to adjustment
      to reflect the final purchase price allocation.





**($
                in thousands)**Tangible
                assets
            
            $
            2,587Specifically
                identifiable intangible assets*
            
            
            6,000Goodwill
            
            
            4,938Liabilities
                assumed
            
            
            (1,265
            )$
            12,260





*
      -
      preliminary estimate; completion of formal valuation by independent expert
      and
      any purchase accounting adjustments are expected by September 30, 2006. We
      estimate the most significant ArtSelect intangible asset to be customer
      relationships.





**PROFORMA
      EFFECT OF ACQUISITION**





The
      results of operations of ArtSelect have been included in the consolidated
      financial statements of the Company since May 16, 2006. The unaudited proforma
      information below presents the results of operations as if the acquisition
      of
      ArtSelect had occurred on the first day of the periods presented. The unaudited
      proforma information is presented for informational purposes only and is not
      intended to represent or be indicative of the results of operations of the
      combined companies had these events occurred at the beginning of the period
      presented nor is it indicative of future results:




**($
                in thousands, except per share amounts)**
            
            Six
              monthsended
              June 30,2006
            
            2005Total
                revenue
            
            $
            12,040
            
            $
            10,509Net
                loss
            
            
            (4,980
            )
            
            (2,165
            )Net
                loss per share, basic and diluted
            
            $
            (0.06
            )
            $
            (0.06
            )Proforma
                weighted average number of common shares outstanding, basic and
                diluted
            
            
            77,569,680
            
            
            39,129,773





18


**NOTE
      D - INVENTORIES**





The
      major
      components of inventories are summarized as follows:





**($
                in thousands)**
            
            **June
                30, 2006**
            
            **December
                31, 2005**ArtSelect
                framed art materials
            
            
            575
            
            
            ---ArtSelect
                framed art finished product
            
            
            186
            
            
            ---SuperStock
                compact discs of images
            
            
            91
            
            
            156$
            852
            
            $
            156




**NOTE
      E - PROPERTY, PLANT AND EQUIPMENT**





Property,
      plant, and equipment are summarized as follows:





**($
                in thousands)**
            
            **June
                30, 2006**
            
            **December
                31, 2005**Land
                and building
            
            
            7,768
            
            
            7,768Office
                equipment and furnishings
            
            
            652
            
            
            375Technology
                equipment
            
            
            467
            
            
            430Software
            
            
            685
            
            
            147Less:
                Accumulated depreciation
            
            
            (1,437
            )
            
            (1,118
            )$
            8,135
            
            $
            7,602





Land
      and
      building were sold and leased back in a transaction accounted for as a financing
      transaction. The building is being depreciated over the twenty-year term of
      the
      related lease.





Depreciation
      expense was $187,000 and $166,000 for the three months ended June 30, 2006
      and
      2005, respectively . Depreciation
      expense was $327,000 and $334,000 for the six months ended June 30, 2006 and
      2005, respectively .





Software
      includes ArtSelect capitalized software development costs of $395,000 at June
      30, 2006. ArtSelect incurs such costs for modifications to its website and
      management information systems that result in additional functionality. Software
      development costs are amortized on a straight-line basis over three
      years.





**NOTE
      F - GOODWILL AND OTHER INTANGIBLE ASSETS**





Goodwill
      of $7.5 million at June 30, 2006 is comprised of $4.9 million of goodwill
      associated with the acquisition of ArtSelect, $1.3 million of goodwill
      associated with the acquisition of SuperStock, and $1.3 million of goodwill
      associated with the acquisition of Ingram.





**($
                in thousands)**Goodwill
                at December 31, 2005
            
            $
            2,263SuperStock
                earnout
            
            
            136Cumulative
                foreign currencytranslation
                of Ingram goodwill
            
            
            141ArtSelect
                goodwill
            
            
            4,938Goodwill
                at June 30, 2006
            
            $
            7,478




19


Identifiable
      intangible assets, net of amortization at June 30, 2006 are as
      follows:





**($
                in thousands)**
            
            **Cost**
            
            **Accumulated**
              **Amortization**
            
            **Foreign
                Currency Translation**
            
            **Net**
            
            **Average
                Useful Life (in months)**SuperStock
                non-compete covenants
            
            $
            116
            
            $
            (68
            )
            $
            ---
            
            $
            48
            
            
            48Ingram
                license agreements
            
            
            2,440
            
            
            (366
            )
            
            123
            
            
            2,197
            
            
            60Ingram
                non-compete agreements
            
            
            790
            
            
            (198
            )
            
            35
            
            
            627
            
            
            36Ingram
                customer relationships
            
            
            420
            
            
            (105
            )
            
            19
            
            
            334
            
            
            36Ingram
                distribution agreements
            
            
            270
            
            
            (68
            )
            
            12
            
            
            214
            
            
            36Ingram
                trademark
            
            
            220
            
            
            (82
            )
            
            8
            
            
            146
            
            
            24ArtSelect
                intangible assets*
            
            
            6,000
            
            
            (150
            )
            
            ---
            
            
            5,850
            
            
            60Intangible
                assets
            
            $
            10,256
            
            $
            (1,037
            )
            $
            197
            
            $
            9,416





*
      -
      preliminary estimate; completion of formal valuation by independent expert
      and
      any purchase accounting adjustments are expected by September 30, 2006. We
      estimate the most significant ArtSelect intangible asset to be customer
      relationships.





Amortization
      expense during the three months ended June 30, 2006 and 2005 totaled $431,000
      and $7,000, respectively. Amortization expense during the six months ended
      June
      30, 2006 and 2005 totaled $711,000 and $15,000, respectively.





Approximate
      remaining annual amortization expense is as follows for each of the following
      years: 2006: $1.4 million, 2007: $2.5 million, 2008: $2.3 million, 2009: $1.8
      million, and 2010: $1.6 million.





**($
                in thousands)**Intangible
                assets, net at December 31, 2005
            
            $
            3,882Cumulative
                foreign currency translation
            
            
            245ArtSelect
                intangible assets
            
            
            6,000Amortization
                expense
            
            
            (711
            )Intangible
                assets, net at June 30, 2006
            
            $
            9,416







**NOTE
      G - PHOTO COLLECTION AND CONTRACTS WITH PHOTOGRAPHERS**





The
      photo
      collection as of June 30, 2006 and December 31, 2005 was $2.8 million and $2.6
      million, respectively. The book value of the photo collection, net of
      accumulated amortization was $1.7 million at June 30, 2006 and December 31,
      2005, respectively. Amortization expense was $131,000 and $124,000 for the
      three
      months ended June 30, 2006 and 2005, respectively. Amortization expense was
      $255,000 and $246,000 for the six months ended June 30, 2006 and 2005,
      respectively. Approximate remaining annual amortization expense is as follows
      for each of the following years: 2006: $266,000, 2007: $542,000, 2008: $148,000,
      2009: $68,000, and 2010: $39,000.





Contracts
      with photographers as of June 30, 2006 and December 31, 2005, was $1.3 million.
      The book value of contracts with photographers, net of accumulated amortization
      was $824,000 and $929,000 as of June 30, 2006 and December 31, 2005,
      respectively. Amortization expense was $53,000 and $52,000 for the three months
      ended June 30, 2006 and 2005, respectively. Amortization expense was $105,000
      and $102,000 for the six months ended June 30, 2006 and 2005, respectively.
      Approximate remaining annual amortization expense is as follows for each of
      the
      following years: 2006: $104,000, 2007: $208,000, 2008: $169,000, 2009: $124,000,
      and 2010: $61,000.





20


**NOTE
      H - MINORITY INTEREST**





Minority
      interest represents 1,541,713 shares of SuperStock Seller Preferred held by
      the
      former owners of SuperStock at June 30, 2006, which is exchangeable for
      4,625,139 shares of a21’s common stock. The SuperStock Seller Preferred has no
      voting rights, pays no dividend, and, except for exchange rights into common
      stock, it has no other special rights except liquidation. In liquidation, it
      is
      senior to the common stock of SuperStock and has distribution rights to the
      greater of $3.93 million or 16% of the total liquidation distributions after
      creditors. The minority interest is valued as if it had been exchanged into
      a21’s common stock at the closing price on the day of the
      acquisition.





On
      June
      30, 2006, we issued 375,012 shares of a21 common stock upon the conversion
      of
      125,004 shares of the preferred stock of SuperStock, Inc.





Subsequent
      to June 30, 2006, on July 20, 2006, we issued 600,000 shares of a21 common
      stock
      upon the conversion of 200,000 shares of the preferred stock of SuperStock,
      Inc.








**NOTE
      I - OPERATING SEGMENTS**





Effective
      with the ArtSelect acquisition during May 2006, we operate in the following
      segments: Corporate, SuperStock, and ArtSelect. No customer represented 10%
      or
      more of our total revenue in the periods presented.





80%
      and
      75% of our total revenues were based domestically in the U.S. for the three
      and
      six months ended June 30, 2006, respectively. 85% and 71% of our total assets
      were based domestically in the U.S. as of June 30, 2006 and December 31, 2005,
      respectively.





The
      following table presents information about our segment activity as of June
      30,
      2006 and 2005, and for the three months then ended.




**($
                in thousands)****Three
                months****June
                30, 2006**
            
            
            **Corporate**
            
            
            **SuperStock**
            
            
            **ArtSelect**
            
            
            **Total**Revenue
            
            $
            ---
            
            $
            3,023
            
            $
            1,488
            
            $
            4,511Segment
                operating loss
            
            
            (954
            )
            
            (801
            )
            
            (65
            )
            
            (1,820
            )Segment
                total assets
            
            
            498
            
            
            26,696
            
            
            13,136
            
            
            40,330Segment
                long-lived assets
            
            $
            ---
            
            
            16,091
            
            
            11,417
            
            
            27,508




**Six
                months****June
                30, 2006**
            
            
            **Corporate**
            
            
            **SuperStock**
            
            
            **ArtSelect**
            
            
            **Total**Revenue
            
            $
            ---
            
            $
            5,958
            
            $
            1,488
            
            $
            7,446Segment
                operating loss
            
            
            (2,313
            )
            
            (1,199
            )
            
            (65
            )
            
            (3,577
            )





Prior
      to
      the ArtSelect acquisition, we had operated domestically and internationally.
      No
      customer represented 10% or more of our total revenue in the periods presented.
      The following table presents information about our domestic and international
      activity as of the three and six months ended June 30, 2005.




21




**Three
                months****June
                30, 2005**
            
            
            **Domestic**
            
            
            **International**
            
            
            **Total**Revenue
            
            $
            1,977
            
            $
            350
            
            $
            2,327Segment
                operating loss
            
            
            (948
            )
            
            (37
            )
            
            (985
            )Segment
                total assets
            
            
            15,925
            
            
            428
            
            
            16,353







**Six
                  months****June
                  30, 2005**
              
              
              **Domestic**
              
              
              **International**
              
              
              **Total**Revenue
              
              $
              3,944
              
              $
              695
              
              $
              4,639Segment
                  operating loss
              
              
              (1,923
              )
              
              (44
              )
              
              (1,967
              )







The
      domestic segment information for the three and six months ended June 30, 2005,
      respectively, includes $417,000 and $900,000 of revenue and $292,000 of accounts
      receivable attributable to foreign distributors that are SuperStock customers.
      The international segment information reflects the operation of foreign
      subsidiaries.


22


**NOTE
      J - DEBT FINANCINGS**





**$15.5
      Million Senior Secured Convertible Notes**




On
      April
      27, 2006, we entered into a securities purchase agreement with certain
      purchasers and Queequeg Partners, LP, as agent (“Agent”), whereby we issued
      $15.5 million of 5% Senior Secured Convertible Notes (“Senior Convertible
      Notes”) in consideration for which we received net proceeds of $11.7 million in
      cash, after the repayment of certain outstanding debt of $3.3 million, payments
      of $215,000 to retire warrants to purchase 637,500 shares of a21’s common stock,
      interest due of $216,000, and the payment of a finder’s fee of $100,000.
      Queequeg Partners L.P. and Queequeg, Ltd. (each of which are affiliated with
      Ahab Capital Management, Inc., which was a 10% beneficial owner of a21’s common
      stock prior to April 27, 2006) (collectively “Ahab”), and StarVest Partners, LP
      (“StarVest”), which was a 10% beneficial owner of a21’s common stock prior to
      April 27, 2006, purchased a portion of the Notes sold in this transaction.
      As
      part of this transaction, we released $690,000 of certificate of deposits
      (“CDs”), which had been pledged by Ahab to secure the letter of credit issued by
      SuperStock in connection with its capital lease for our facility in
      Jacksonville, Florida and replaced the deposit with new CDs from the net
      proceeds of the financing.




The
      Senior Convertible Notes are secured by substantially all of our assets and,
      after we increase the number of shares of our authorized common stock, will
      be
      convertible into 23,846,154 of a21’s common stock at a minimum conversion price
      of $0.65 per share, subject to adjustment as provided in the Senior Convertible
      Notes. In addition, the conversion price of the Senior Convertible Notes may
      be
      adjusted based on a weighted average anti-dilution formula in the event of
      issuances of a21’s common stock at a price per share below $0.65. The minimum
      conversion price is set at $0.50 per share on a diluted basis. The interest
      on
      the Senior Convertible Notes is payable quarterly in arrears, and the principal
      will be due and payable on June 30, 2011. If the 45-day volume weighted average
      price of a21’s common stock equals or exceeds $1 per share, the Senior
      Convertible Notes will automatically be converted into a21’s common stock under
      certain conditions.




The
      Senior Convertible Notes include customary events of default, including the
      failure to pay any principal or interest when due, the breach of any covenant
      or
      term or condition of the Senior Convertible Notes, the breach of any
      representation or warranty in the Purchase Agreement, Senior Convertible Notes
      or other documents executed in connection with the transactions contemplated
      thereby, defaults in the performance of any other indebtedness of greater than
      $500,000, the insolvency or bankruptcy, and the SEC issuing a stop trade order
      or suspension of trading relating to a21’s common stock. Upon the occurrence of
      an event of default, each Note will become due and payable, either upon notice
      from the agent for the holders of Senior Convertible Notes at the direction
      of
      the holders of a majority of the outstanding principal amount of the Senior
      Convertible Notes or automatically, depending on the particular event of
      default.




Pursuant
      to the terms of the Purchase Agreement, for so long as StarVest beneficially
      owns at least 8,000,000 shares of a21’s common stock, StarVest’s designee will
      be on our Board of Directors. In addition, for so long as at least 40% of the
      aggregate principal amount of the Senior Convertible Notes is outstanding,
      we
      may not, without the prior written consent of the Agent, engage in certain
      activities or transactions, including, but not limited to, declaring dividends,
      liquidating, dissolving, effecting a reorganization or change of control, or
      incurring certain indebtedness. The Purchase Agreement also provides that the
      purchasers have a pro-rata “first right of refusal” to provide up to 25% of the
      amount of any additional financing the amount of which will be in excess of
      $2.0
      million.




We also
      entered into a Registration Rights Agreement dated April 27, 2006, between
      a21
      and the Agent, on its own behalf and on behalf of the holders of the Senior
      Convertible Notes. Pursuant to the Registration Rights Agreement, if the SEC
      has
      not declared effective a registration statement for the sale of the underlying
      shares of a21’s common stock by January 22, 2007, we will be obligated to pay
      the holder of the Senior Convertible Notes liquidated damages as provided in
      the
      Registration Rights Agreement.




23


In
      connection with the transactions described above, we repaid the $2.25 million
      12% Senior Secured Note, dated as of February 22, 2005; and the $1.05 million
      12% unsecured promissory notes dated February 29, 2004. The interest due under
      these notes of $184,000 was paid on April 27, 2006 by the issuance of Notes
      in
      the aggregate principal amount equal to the full amount of the principal and
      interest due.




In
      connection with the repayment of the indebtedness described above, the following
      common stock purchase warrant agreements have been terminated: Warrants,
      expiring on February 21, 2007, granting the right to purchase 300,000 shares
      of
      a21’s common stock, par value $0.001 per share, at an exercise price of $0.188
      per share, which was issued in connection with certain repaid Notes; and
      Warrants, expiring on February 21, 2007, granting the right to purchase 337,500
      shares of a21’s common stock, par value $0.001 per share, at an exercise price
      of $0.377 per share, which were also issued in connection with certain Notes.
      These Warrants were returned to us and canceled in consideration of us issuing
      Notes in the aggregate principal amount equal to $215,000 (which is equal to
      the
      product of (i) the difference between the closing market price of a21’s common
      stock on March 30, 2006 ($0.62) and the exercise price of the warrants, and
      (ii)
      the number of shares of a21’s common stock issuable upon exercise of the
      warrants).





**Senior
      Secured Notes - ArtSelect Sellers**





In
      partial consideration for the sale of ArtSelect to a21, the stockholders of
      ArtSelect received $2.35 million in secured notes. The seller notes bear
      interest at 6% per year and mature on the earlier to occur of a change of
      control or May 15, 2009. The first year of interest on the notes will be accrued
      and added to the principal of the notes. After the first year, interest will
      be
      payable quarterly, in arrears. The notes are secured by substantially all the
      assets of ArtSelect (provided that, with respect to up to $3.0 million of the
      assets of ArtSelect, the notes are junior to the previously issued $15.5
      million Senior Notes). The balance recorded on our balance sheet at June 30,
      2006 of $2.4 million includes accrued interest.





**Warrant
      Liability**





Pursuant
      to the provisions of Emerging Issues Task Force No. 00-19, “Accounting for
      Derivative Financial Instruments Indexed to, and Potentially Settled in, A
      Company’s Own Stock” (“EITF 00-19”), we recorded the value of certain warrants
      as a current liability, with subsequent changes in fair value to be reflected
      in
      the consolidated statement of operations. The classification of the warrants
      was
      determined based upon the terms of the warrants relative to respective
      registration rights agreement. As of June 30, 2006, March 31, 2006, and December
      31, 2005, the warrants were valued at $63,000, $452,000, and $187,000,
      respectively, and the change in valuation, net of related amounts from canceled
      warrants as part of financing, was recorded as non-operating warrant income
      (expense) of $118,000 and ($147,000) for the three and six months ended June
      30,
      2006.





**NOTE
      K - LOAN PAYABLE ON BUILDING**





During
      June 2004, we completed the sale and leaseback of the land and an approximately
      73,000 square foot building in which our headquarters is located in
      Jacksonville, Florida. The facility was sold for $7.7 million and resulted
      in
      net proceeds of $7.5 million, of which $4.0 million was used to repay a bank
      note that was secured by a first mortgage on the facility and $1.6 million
      was
      used to repay other indebtedness to the selling stockholders of SuperStock.
      The
      building was leased back for a term of twenty years. The lease provides us
      with
      two five-year renewal options at specified payments.





Based
      on
      the terms of the leasing arrangement, the transaction does not qualify for
      sale
      recognition and has been accounted for as a financing transaction pursuant
      to
      SFAS No. 98, "Accounting for Leases". Accordingly, the accompanying financial
      statements reflect the net proceeds from the sale of the land and building
      as a
      loan payable with an effective interest rate of 10.1%. The building is included
      in property and equipment and is being depreciated on a straight-line basis
      over
      the twenty-year term of the lease.





24




The
      following table summarizes our annual maturities under the loan payable on
      building:




**($
                in thousands)**2006
            
            $
            172007
            
            
            352008
            
            
            552009
            
            
            802010
            
            
            110Thereafter
            
            
            7,1587,455Less:
                Current Portion
            
            
            (17
            )Long
                Term Portion
            
            $
            7,438





The
      current portion of the loan payable is included in other current
      liabilities.





**NOTE
      L - CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY**





[1]
      Common and Preferred stock (See Note N):





We
      are
      authorized to issue 100,000,000 shares of a21 $.001 par value common
      stock.





We
      are authorized to issue 100,000 shares of its $.001 par value preferred stock at
      face value $100 per share, which has the rights, preferences, and privileges
      as
      determined by our Board of Directors.





See
      Note
      N describing our reincorporation from Texas to Delaware and the subsequent
      increase in our authorized common and preferred stock.


25


On
      March
      6, 2006, we received $1.2 million in connection with the exercise of warrants
      to
      purchase 4,000,000 shares of a21’s common stock held by a significant
      stockholder of ours. The stockholder previously acquired the warrants from
      another of our significant stockholders, through a prior transaction. In
      connection with the exercise of the warrants, we set the exercise price of
      the
      warrants to $0.30 per unregistered share, which is approximately 10% less than
      what the exercise price would have been pursuant to the original terms of the
      warrants, but higher than the minimum $0.25 per unregistered share as stated
      in
      the warrant modification agreement. This accommodation was granted by us in
      order to facilitate the transaction. As a result of the repricing of the
      warrants, we recorded a deemed dividend of $157,000, increasing the net loss
      attributed to common stockholders.





In
      partial consideration for the acquisition of the outstanding stock of Ingram,
      the stockholders also received 14,480 shares of a21’s preferred stock. On
      March
      14, 2006, we issued 2,522,648 shares of a21 common stock upon the conversion
      of
      the preferred stock by the holders thereof. The preferred shares were converted
      into a21 common stock at a price per share of the a21 common stock of $0.574,
      the average of the closing price of the a21’s common stock for the 20 trading
      day period ending on March 13, 2006. At June 30, 2006 and December 31, 2005,
      there were none and 14,480 shares of preferred stock issued and outstanding,
      respectively.





In
      partial consideration for the sale of ArtSelect to a21, the stockholders of
      ArtSelect received $3.15 million of a21 convertible preferred stock valued
      at
      $4.8 million. Because of registration rights and shares authorization
      dependencies, the convertible preferred stock is classified as mezzanine outside
      of stockholders’ equity. The convertible preferred stock fair value was
      determined using a Black-Scholes model capturing the as-if converted value
      component of $2.7 million and the $2.1 million value of the option feature.
      The
      following assumptions were applied in the Black-Scholes valuation of the
      Preferred Stock: risk-free interest rate, 4.9%; volatility, 129%; underlying
      stock price on April 28, 2006 [date prior to financing of acquisition announced
      to the public], $0.64; exercise price, $0.75; term, 4 years. The convertible
      preferred stock has certain liquidation preferences and, pursuant to an exchange
      agreement entered into with each of the holders of preferred stock, after a21
      increases the number of its authorized shares of common stock, is exchangeable
      for a21’s common stock at a minimum price per share of $0.75, subject to
      adjustment pursuant to weighted average anti-dilution provisions contained
      in
      the transaction documents. On May 16, 2006, the holders of convertible preferred
      stock elected to exchange all of the convertible preferred stock for an
      aggregate of 4,200,000 shares of a21’s common stock at a per share price of
      $0.75. Pursuant to the terms of the exchange agreement with such holders, the
      exchange stock was issued by a21 after July 31, 2006 when it reincorporated
      from
      Texas to Delaware, and, in connection therewith, increased the number of
      authorized shares of its common stock, in part, to accommodate such
      exchange.





On
      June
      30, 2006, we issued 375,012 shares of a21 common stock upon the conversion
      of
      125,004 shares of SuperStock Seller Preferred with a respective adjustment
      to
      equity of $210,000 representing the allocable, original fair value of the
      SuperStock Seller Preferred as if it had been exchanged into a21’s common stock
      at the closing price on the day of the acquisition.





In
      connection with the settlement of certain claims made by a stockholder and
      three
      of his affiliates against the Company, we agreed to issue 450,000 shares of
      our
      common stock in exchange for a general release of all claims such persons may
      have had against us. We have recognized the related fair value of such shares
      of
      $139,000 as a charge to equity payable and general expense during the three
      months ended June 30, 2006. The fair value was determined based upon the
      prevailing common stock trading market price per share at the time the agreement
      was reached.


26




[2]
      Stock
      options and warrants:





Stock
      options and warrants have been granted to officers, directors and employees
      based upon employment agreements and other grants at the discretion of the
      Board
      of Directors. Warrants have been granted through other financing and investment
      agreements with certain of our investors.





As
      discussed above, on March 6, 2006, we received $1.2 million in connection with
      the exercise of common stock warrants.





In
      connection with the warrants canceled as part of the consideration paid to
      us in
      the $15.5 Million Senior Secured Convertible Note financing, a net adjustment
      to
      additional paid in capital of $56,000 was made to reflect the change in warrant
      liability resulting from the cancellation of such warrants.





In
      partial consideration of the acquisition of ArtSelect by a21, the stockholders
      of ArtSelect received warrants to purchase 750,000 shares of a21’s common stock
      at $1.00 per share valued at $0.50 each or $375,000, exercisable for common
      stock.





On
      February 16, 2006, an information statement was mailed or furnished to our
      stockholders in connection with the authorization and approval by a majority
      of
      the Board of Directors of the Stock Plan at a meeting held on March 10, 2005
      and
      the subsequent adoption of such corporate action by written consent on February
      9, 2006 of a majority of our stockholders. Such adoption constitutes the
      approval and consent of the action. The Stock Plan provides for the grant of
      options, stock appreciation rights (“SARs”), performance share awards,
      restricted stock, and unrestricted stock of up to an aggregate of 6,000,000
      shares of common stock to officers, employees, and independent contractors
      of
      ours or our affiliates. If any award expires, is cancelled, or terminates
      unexercised or is forfeited, the number of shares subject thereto is again
      available for grant under the Stock Plan. Stock options issued under the 2005
      Plan typically have a five-year term and vest pro-rata over that
      term.  The
      exercise price shall be no less than the fair market value of a share of a21’s
      common stock on the date of grant of the options. See Note B [22].





Pursuant
      to our 2002 Directors, Officers And Consultants Stock Option, Stock Warrant
      And
      Stock Award Plan, as amended (the "2002 Plan"), 3,000,000 shares of a21 common
      stock are reserved for issuance. The 2002 Plan authorizes our board of directors
      to issue warrants, options, restricted or unrestricted common stock, and other
      awards to our employees, consultants and directors and our affiliates. Certain
      options and warrants to be granted under the 2002 Plan are intended to qualify
      as Incentive Stock Options (“ISOs”) pursuant to Section 422 of the Internal
      Revenue Code of 1986, as amended, while other options and warrants granted
      under
      the 2002 Plan will be nonqualified options or warrants which are not intended
      to
      qualify as ISOs. A committee selected by our Board of Directors has the
      authority to approve option grants and the terms, which include the option
      price
      and the vesting terms. Options granted under the 2002 Plan expire after a
      ten-year period and are subject to acceleration upon the occurrence of certain
      events. As of June 30, 2006 and December 31, 2005 there were 496,264 shares
      available for grant under the Stock Plan.





[3]
      Deferred Compensation:





Certain
      grants to directors and officers totaling 3,190,000 shares, valued at fair
      value
      per the respective market trading prices at the time of the grants, resulted
      in
      unamortized deferred compensation of $115,000 included in the consolidated
      statements of changes in stockholder’s equity and comprehensive income as of
      December 31, 2005. In
      accordance with the adoption of SFAS 123R, we have adjusted deferred
      compensation within stockholders’ equity during the six months ended June 30,
      2006 to recognize the unamortized
      deferred compensation of $115,000.


27




**NOTE
      M - COMMITMENTS AND OTHER MATTERS**





[1]
      Employment agreements:





On
      July
      20, 2006, our Board of Directors increased the base salary of our Chairman
      and
      Chief Executive Officer to $175,000 per year. He was also granted an option
      to
      purchase 650,000 shares of our common stock at a purchase price of $0.65 per
      share. These options
      will be accounted for under the fair value method under SFAS 123R with a charge
      to the consolidated statement of operations .
      The
      strike price of such options was above the market trading value at the time
      of
      the grant. The options are exercisable as to 25% of the total shares represented
      thereby on each of October 31, 2006, April 30, 2007, October 31, 2007, and
      April
      30, 2008. The stock options granted shall vest immediately upon a change in
      control as defined.





On
      July
      20, 2006, our Board of Directors increased the base salary of our Vice President
      and Chief Financial Officer to $135,000 per year. He was also granted an option
      to purchase 200,000 shares of our common stock at a purchase price of $0.65
      per
      share. These options
      issued will be accounted for under the fair value method under SFAS 123R with
      a
      charge to the consolidated statement of operations .
      The
      strike price of such options was above the market trading value at the time
      of
      the grant. The options are exercisable as to 25% of the total shares represented
      thereby on each of December 31, 2006, June 30, 2007, December 31, 2007, and
      June
      30, 2008. The stock options granted shall vest immediately upon a change in
      control as defined.





We
      appointed an interim President and Chief Operating Officer whom is also a member
      of our Board of Directors. We
      entered into an employment agreement with him pursuant to which, effective
      June
      19, 2006, he will receive a salary of $20,000 per month and a one-time bonus
      of
      $30,000. He was granted options to purchase 400,000 shares of a21’s common
      stock, exercisable at $0.46 per share, all of which will vest on December 31,
      2006 and expire on June 19, 2011. Theseoptions
      issued were accounted for under the fair value method under SFAS 123R with
      a
      charge to the consolidated statement of operations totaling $124,000 during the
      three and six months ended June 30, 2006.
      The
      strike price of such options was above the market trading value at the time
      of
      the grant. The employment agreement has a term of six months and may be
      terminated by either party without cause on 30 days written notice to the other
      party. In addition, we may terminate the employment agreement immediately for
      cause, as defined in the employment agreement.





The
      Company terminated its employment of its then President on June 19, 2006.
      Pursuant to the terms of a termination agreement between the Company and its
      then President, dated June 29, 2006, he resigned from the a21 and SuperStock
      Board of Directors and from any other positions he held with our subsidiaries.
      Pursuant to the termination agreement, we will pay him severance of
      approximately $53,000, in installments over approximately five months in
      accordance with our normal bi-monthly payroll cycle. In addition, we accelerated
      the vesting of 100,000 of his unvested stock options. We also agreed that all
      of
      his vested and unexercised stock options could be exercised on a cashless basis.
      Pursuant to the agreement he may not sell any shares of a21’s common stock until
      June 19, 2007, except that he may sell up to 350,000 shares in a private
      transaction with a third party. The resignation from our Board of Directors
      did
      not result from a disagreement with the Company on any matter relating to our
      operations, policies, or practices.


28





The
      Company terminated its employment of its then Chief Creative Officer on May
      25,
      2006. Pursuant to the terms of an agreement between the Company and its then
      Chief Creative Officer, dated June 12, 2006, he agreed that his
      employment with the Company terminated as of May 25, 2006 and he also resigned
      from the a21 and SuperStock Board of Directors and from any other positions
      he
      held with our subsidiaries. Pursuant to the agreement, we will pay him severance
      of $120,000, in installments in accordance with our normal payroll practices.
      In
      addition, we accelerated the vesting of 62,500 of his unvested shares of
      restricted stock and 100,000 of his unvested stock options. We agreed that
      he
      may exercise all of his vested stock options until the earlier of (i) the date
      such vested stock options would otherwise have expired by their terms, or (ii)
      May 25, 2007. In addition, he acknowledged and agreed that all right, title
      and
      interest in and to the approximately 1,205 images he photographed while an
      employee of SuperStock are the sole and exclusive property of the SuperStock.
      The resignation from our Board of Directors did not result from a disagreement
      with the Company on any matter relating to our operations, policies, or
      practices.





[2]
      Lease
      commitments




In
      September 2004, we entered into an agreement to sublease a significant portion
      of its facility for a term of six years with an option to renew for an
      additional two-year term. The sublease requires monthly rent payments to us
      beginning in November 2004 with annual increases through the term of the
      sublease. The total lease payments in accordance with the terms of the agreement
      are $3.5 million. Rental income is recognized on a straight-line basis over
      the
      term of the sublease, and the excess of rental income recognized over rental
      payments received is recorded as a deferred receivable of $553,000 and $541,000
      at June 30, 2006 and December 31, 2005, respectively.





In
      a
      lease agreement for SuperStock Limited in the UK, we sublet the entire facility
      to a third party as of June 2002, until the expiration of the lease in 2014.
      In
      accordance with the lease agreement, our UK subsidiary would be liable for
      approximately $90,000 per year under the covenants in the lease in the event
      the
      lessee who has sublet the facility is unable to perform under such
      terms.





[3]
      Lease
      Deposit Arrangement





A
      security deposit is required under the capital lease agreement for our facility
      in Florida. On April 27, 2006, as part of the financing transaction (see Note
      J), we also released the $690,000 certificates of deposit (“CDs”), which had
      been pledged by Ahab to secure the letter of credit issued by SuperStock in
      connection with its capital lease.  Upon
      release of the Ahab CDs, we established replacement CDs held in our name and
      funded by the proceeds of the $15.5 million financing transaction.





The
      lease
      deposits of $750,000 are shown as restricted cash non-current assets as of
      June
      30, 2006.





[4]
      Settlement:





In
      connection with the settlement of certain claims made by a stockholder and
      three
      of his affiliates against the Company, we agreed to issue 450,000 shares of
      its
      common stock in exchange for a general release of all claims such persons may
      have had against the Company. We have recognized the related value of such
      shares of $139,000 as a charge to equity payable and other non-operating expense
      during the three months ended June 30, 2006.





[5]
      Legal:





We
      are
      involved in various claims and lawsuits in the ordinary course of business.
      Management believes that there are no such matters outstanding that would have
      a
      material adverse effect on our results of operations and financial position.


29




**NOTE
      N - SUBSEQUENT EVENTS**





**[1]
      Reincorporation from Texas to Delaware and Increase in Authorized Common Stock**





On
      June
      19, 2006, a21’s Board of Directors approved a merger agreement pursuant to
      which, among other things, the Company would merge with and into its wholly
      owned subsidiary, a21,Inc., a Delaware corporation. On June 23, 2006, we
      obtained the approval of the terms of the merger agreement by a majority of
      our
      outstanding shares of common stock. The reincorporation became effective on
      July
      31, 2006.





Our
      reincorporation in Delaware has not resulted in any change to our business
      operations or the location of our principal executive offices. The financial
      condition and results of operations of the surviving corporation immediately
      after the consummation of the merger were identical to the Company’s immediately
      prior to the consummation of the merger. In addition, the board of directors
      of
      the surviving corporation consists of those persons who were the Company’s
      directors immediately prior to the merger and individuals serving as executive
      officers of the Company immediately prior to the merger continue to serve as
      executive officers of the surviving corporation after the merger.





Pursuant
      to the reincorporation, the number of the Company’s authorized shares of common
      stock was increased to 200,000,000 shares of common stock.





**[2]
      Conversion and stock issuance**


On
      July
      20, 2006, we issued 600,000 shares of a21 common stock upon the conversion
      of
      200,000 shares of SuperStock Seller Preferred.


30




**ITEM
      2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS**





*The
      following discussion should be read in conjunction with the information
      contained in our condensed consolidated financial statements and the notes
      thereto appearing elsewhere herein and in conjunction with the Management’s
      Discussion and Analysis set forth in our Annual Report on Form 10-KSB/A for
      the
      year ended December 31, 2005.*





**PRELIMINARY
      NOTE REGARDING FORWARD-LOOKING STATEMENTS**





The
      statements contained in this Form 10-QSB that are not purely historical are
      forward-looking statements within the meaning of Section 27A of the Securities
      Act of 1933, as amended, and Section 21E of the Securities Exchange Act of
      1934,
      as amended. These include statements about our expectations, beliefs, intentions
      or strategies for the future, which are indicated by words or phrases such
      as
“anticipate,” “expect,” “intend,” “plan,” “will,” “we believe,” “management
      believes” and similar words or phrases. The forward-looking statements are based
      on our current expectations and are subject to certain risks, uncertainties,
      and
      assumptions. Our actual results could differ materially from results anticipated
      in these forward-looking statements. All forward-looking statements included
      in
      this document are based on information available to us on the date hereof,
      and
      we assume no obligation to update any such forward-looking
      statements.





**OVERVIEW**




Through
      our subsidiary SuperStock, we aggregate visual content from photographers,
      photography agencies, archives, libraries, and private collections and license
      the visual content to our customers. SuperStock’s customer base consists of four
      major groups: creative (advertising and design agencies), editorial (publishing
      and media entities), corporate (in-house communications departments and outside
      corporate communications firms) and consumers (the general public). SuperStock’s
      products are sold directly and through a global network of distributors in
      over
      100 countries. SuperStock’s subsidiary Ingram is a UK-based provider of subscription, CD-ROM
      and individual royalty free images as well as vector graphics and fonts, vehicle
      online templates, and print price guides for the worldwide graphics design,
      printing, sign making, advertising and publishing communities. Our subsidiary
      ArtSelect supplies home and office framed and unframed wall décor to retailers,
      catalogers, membership organizations and consumers through both online and
      traditional retail and wholesale distribution channels. We are headquartered
      in
      Jacksonville, Florida, with other operating and sales offices in Iowa, New
      York
      City, and London.





**RECENT
      EVENTS**





**Convertible
      Debt Financing**




On
      April
      27, 2006, we issued $15.5 million of 5% Senior Secured Convertible Notes to
      certain investors in consideration for which we received net proceeds of $11.7
      million in cash, after the repayment of certain outstanding debt of $3.3
      million, payments of $215,000 to retire warrants to purchase 637,500 shares
      of
      a21’s common stock, interest due of $216,000, and the payment of a broker’s fee
      of $100,000. As part of this transaction, we released $690,000 of certificates
      of deposit (“CDs”), which had been pledged by Ahab to secure the letter of
      credit issued by SuperStock in connection with its capital lease for our
      facility in Jacksonville, Florida and replaced the deposit with new CDs from
      the
      net proceeds of the financing.




Please
      refer to our Current Report on Form 8-K dated May 3, 2006 for additional
      information relating to our Convertible Debt Financing and related
      transactions.


31





**Acquisition
      of ArtSelect**




On
      May
      16, 2006, we acquired ArtSelect, Inc. ArtSelect supplies home and office framed
      and unframed wall décor to retailers, catalogers, membership organizations, and
      consumers through both online and traditional retail and wholesale distribution
      channels. In consideration, the stockholders of ArtSelect received $4.5 million
      of cash, $2.35 million in secured notes, and $3.15 million of Preferred Stock.
      The stockholders of ArtSelect also received warrants to purchase 750,000 shares
      of a21’s common stock at $1.00 per share (the “Warrants”). Final adjustments
      will be made to the purchase price after finalization of ArtSelect's closing
      balance sheet, which is expected to occur by September 30, 2006. The Notes
      bear
      interest at 6% per year and mature on the earlier to occur of a change of
      control and May 15, 2009. The first year of interest on the principal balance
      of
      the Notes will be accrued and added to the principal of the Notes. After the
      first year, interest will be payable quarterly, in arrears. The Notes are
      secured by substantially all the assets of ArtSelect (provided that, with
      respect to up to $3.0 million of the assets of ArtSelect, the Notes are
      junior to the previously issued Senior Notes). The Warrants expire four years
      from the closing date of the merger.




Pursuant
      to an exchange agreement entered into with each of the holders of Preferred
      Stock, after a21 increased the number of its authorized shares of common stock
      on July 31, 2006, the Preferred Stock was exchanged for an aggregate of
      4,200,000 a21’s common stock at the minimum price per share of
      $0.75.




Please
      refer to our Current Report on Form 8-K dated May 19, 2006 for additional
      information relating to our ArtSelect acquisition and related
      transactions.





**Other
      Matters**




As
      of May
      25, 2006, the employment of Haim Ariav, our former
      Chief Creative Officer and the Chief Creative Officer and President of
      SuperStock was terminated. On June 12, 2006, Mr. Ariav resigned as a member
      of
      our Board of Directors.




As
      of
      June 19, 2006, the employment of Thomas V. Butta, our former President and
      the
      Chief Executive Officer of SuperStock, was terminated. On June 29, 2006, Mr.
      Butta resigned as a member of our Board of Directors.




On
      June
      19, 2006, we appointed Philip N. Garfinkle as our interim President and Chief
      Operating Officer and SuperStock appointed Mr. Garfinkle its interim President
      and Chief Operating Officer. Mr. Garfinkle is already a member of our Board
      of
      Directors.




On
      July
      31, 2006, we reincorporated, pursuant to which we changed our state of
      incorporation from Texas to Delaware and increased the number of shares of
      our
      authorized capital stock.




32




**CRITICAL
      ACCOUNTING POLICIES AND ESTIMATES**





This
      discussion and analysis of our financial condition and results of operations
      are
      based on our financial statements that have been prepared under accounting
      principles generally accepted in the United States of America (“GAAP”). The
      preparation of financial statements in conformity with GAAP requires our
      management to make estimates and assumptions that affect the reported amounts
      of
      assets and liabilities and the disclosure of contingent assets and liabilities
      at the date of the financial statements and the reported amounts of revenue
      and
      expenses during the reporting period. Actual results could materially differ
      from those estimates. We have summarized significant accounting policies in
      Note
      B to the unaudited condensed consolidated financial statements included in
      this
      quarterly report on Form 10-QSB.





**RESULTS
      OF OPERATIONS**





**THREE
      MONTHS ENDED JUNE 30, 2006 COMPARED TO THREE MONTHS ENDED JUNE 30,
      2005**




REVENUES.
      Revenues were $4.5 million for the three months ended June 30, 2006 compared
      to
      $2.3 million for the same prior year period. Approximately 70% of the increase
      was attributable to the ArtSelect acquisition, which occurred on May 15, 2006,
      approximately 20% of the increase, was attributable to the Ingram acquisition,
      which occurred during October 2005, with the balance of the increase attributed
      to SuperStock.




COST
      OF
      REVENUES. Cost of revenues was $1.7 million for the three months ended June
      30,
      2006 compared to $716,000 the same prior year period. Approximately 70% of
      the
      increase was attributable to the ArtSelect acquisition, approximately 10% of
      the
      increase was attributable to the Ingram acquisition, with the balance of the
      increase attributed to SuperStock.




As
      a
      percentage of revenues, cost of sales was 38% and 31% for the three months
      ended
      June 30, 2006 and 2005, respectively. The increase in cost of sales percentage
      reflects the weighted impact of higher variable cost for ArtSelect’s
      r aw
      materials including prints, mats, frames, molding, and packaging material as
      well as shipping and handling costs. Cost of
      sales as a percentage of revenues may also vary in any period depending on
      SuperStock’s relative mix of stock photography distributed that is either
      licensed from third parties or owned by us.




SELLING,
      GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses were $3.8 million for the
      three months ended June 30, 2006 compared to $2.0 million for the same prior
      year period.




Approximately
      45% of the increase was attributable to the ArtSelect acquisition, approximately
      15% of the increase was attributable to the Ingram acquisition, approximately
      10% of the increase was attributable to the adoption of SFAS 123(R), with the
      balance of the increase attributed to higher corporate costs including legal
      and
      audit incurred to support our corporate governance and regulatory compliance
      requirements.




We
      adopted SFAS 123(R) using the modified prospective transition method, which
      requires the application of the accounting standard as of January 1, 2006,
      the
      first day of our fiscal year 2006. Share-based compensation expense recognized
      under SFAS 123(R) for the three months ended June 30, 2006 was $283,000. In
      accordance with the modified prospective transition method, our condensed
      consolidated statement of operations for the three months ended June 30, 2005
      have not been restated to reflect, and do not include, the impact of SFAS
      123(R).




DEPRECIATION
      AND AMORTIZATION. Depreciation and amortization was $830,000 for the three
      months ended June 30, 2006 compared to $359,000 for the same prior year period.
      The increase was primarily attributable to incremental depreciation and
      amortization expense during the three months ended June 30, 2006 resulting
      from
      the ArtSelect and Ingram acquisitions.




33


INTEREST
      EXPENSE. Interest expense was was $447,000 for the three months ended June
      30,
      2006 compared to $332,000 for the same prior year period reflecting higher
      outstanding debt during the three months ended June 30, 2006 compared to the
      same prior year period.




WARRANT
      INCOME. Pursuant to the provisions of Emerging Issues Task Force No. 00-19,
      “Accounting for Derivative Financial Instruments Indexed to, and Potentially
      Settled in, A Company’s Own Stock” (“EITF 00-19”), during 2005, we recorded the
      value of certain February 2005 warrants as a current liability, with subsequent
      changes in fair value to be reflected in the condensed consolidated statement
      of
      operations. The classification of the warrants was determined based upon the
      terms of the warrants relative to registration rights and because the terms
      did
      not include a liquidated damages provision. The decrease in valuation, net
      of
      amounts related to the warrants canceled as part of the $15.5 million financing,
      was $118,000 for the three months ended June 30, 2006 and was recorded as
      non-operating warrant income.




OTHER
      (EXPENSE) INCOME, NET. Other expense, net was ($77,000) for the three months
      ended June 30, 2006 compared to other income, net of $49,000 for the same prior
      year period. In connection with the settlement of certain claims made by a
      stockholder and three of his affiliates, we have recognized $139,000 as other
      expense during the three months ended June 30, 2006.




NET
      LOSS
      ATTRIBUTED TO COMMON STOCKHOLDERS. Net loss attributed to common stockholders
      was $2.3 million or $0.03 per share, for the three months ended June 30, 2006
      compared to net loss of $985,000, or $0.02 per share, for the same prior year
      period.





**SIX
      MONTHS ENDED JUNE 30, 2006 COMPARED TO SIX MONTHS ENDED JUNE 30,
      2005**




REVENUES.
      Revenues were $7.4 million for the six months ended June 30, 2006 compared
      to
      $4.6 million for the same prior year period. Approximately 55% of the increase
      was attributable to the ArtSelect acquisition, approximately 35% of the increase
      was attributable to the Ingram acquisition, with the balance of the increase
      attributed to SuperStock.




COST
      OF
      REVENUES. Cost of revenues was $2.6 million for the six months ended June 30,
      2006 compared to $1.4 million for the same prior year period. Approximately
      60%
      of the increase was attributable to the ArtSelect acquisition, approximately
      20%
      of the increase was attributable to the Ingram acquisition, with the balance
      of
      the increase attributed to SuperStock.




As
      a
      percentage of revenues, cost of sales was 35% and 31% for the six months ended
      June 30, 2006 and 2005, respectively. The increase in cost of sales percentage
      reflects the weighted impact of higher variable cost for ArtSelect’s
      r aw
      materials and shipping costs.




SELLING,
      GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses were $7.0 million for the
      six months ended June 30, 2006 compared to $3.5 million for the same prior
      year
      period.




Approximately
      35% of the increase was attributable to the adoption of SFAS 123(R),
      approximately 25% of the increase was attributable to the ArtSelect acquisition,
      approximately 15% of the increase was attributable to the Ingram acquisition,
      with the balance of the increase attributed to higher corporate costs including
      legal and audit.




Share-based
      compensation expense recognized under SFAS 123(R) for the six months ended
      June
      30, 2006 was $1.3 million. In accordance with the modified prospective
      transition method, our condensed consolidated statement of operations for the
      six months ended June 30, 2005 have not been restated to reflect, and do not
      include, the impact of SFAS 123(R).




DEPRECIATION
      AND AMORTIZATION. Depreciation and amortization was $1.4 million for the six
      months ended June 30, 2006 compared to $712,000 for the same prior year period.
      The increase was primarily attributable to incremental depreciation and
      amortization expense (primarily of intangible assets) during the six months
      ended June 30, 2006 resulting from the ArtSelect and Ingram
      acquisitions.




34


INTEREST
      EXPENSE. Interest expense was $800,000 for the six months ended June 30, 2006
      compared to $729,000 for the same prior year period. Interest expense for the
      six months ended June 30, 2006 reflects higher outstanding debt during the
      three
      months ended June 30, 2006 compared to the same prior year period. Interest
      expense for the six months ended June 30, 2005 included incremental amortization
      of finance costs.




WARRANT
      EXPENSE. Pursuant to the provisions of Emerging Issues Task Force No. 00-19,
      “Accounting for Derivative Financial Instruments Indexed to, and Potentially
      Settled in, A Company’s Own Stock” (“EITF 00-19”), during 2005, we recorded the
      value of certain February 2005 warrants as a current liability, with subsequent
      changes in fair value to be reflected in the condensed consolidated statement
      of
      operations. The classification of the warrants was determined based upon the
      terms of the warrants relative to registration rights and because the terms
      did
      not include a liquidated damages provision. The decrease in valuation, net
      of
      amounts related to the warrants canceled as part of the $15.5 million financing,
      was $147,000 for the six months ended June 30, 2006 and was recorded as
      non-operating warrant expense.




OTHER
      EXPENSE, NET. Other expense, net was $91,000 for the six months ended June
      30,
      2006 compared to other expense, net of $217,000 for the same prior year period.
      In connection with the settlement of certain claims made by a stockholder and
      three of his affiliates, we have recognized $139,000 as other expense during
      the
      six months ended June 30, 2006. The other expense, net for the six months ended
      June 30, 2005 includes a $371,000 loss on the extinguishment of the convertible
      subordinated notes payable.





DEEMED
      DIVIDEND. On March 6, 2006, we received $1.2 million in connection with the
      exercise of warrants to purchase 4,000,000 shares of a21’s common stock. In
      connection with the exercise of the warrants, we set the exercise price of
      the
      warrants to $0.30 per unregistered share, which is approximately 10% less than
      what the exercise price would have been pursuant to the original terms of the
      warrants, but higher than the minimum $0.25 per unregistered share as stated
      in
      the warrant modification agreement. This accommodation was granted by us in
      order to facilitate the transaction. As a result of the repricing of the
      warrants, we recorded a deemed dividend of $157,000, increasing the net loss
      attributed to common stockholders.




NET
      LOSS
      ATTRIBUTED TO COMMON STOCKHOLDERS. Net loss attributed to common stockholders
      was $4.8 million or $0.06 per share, for the six months ended June 30, 2006
      compared to net loss of $2.0 million, or $0.05 per share, for the same prior
      year period.






**LIQUIDITY
      AND CAPITAL RESOURCES**




As
      of
      June 30, 2006, we had $7.0 million of cash and cash equivalents and working
      capital of $6.4 million, compared to $1.2 million in cash and cash equivalents
      and working capital deficit of $946,000 at December 31, 2005. The increase
      in
      cash is primarily due to the net proceeds from Convertible Debt Financing offset
      by the cash used to acquire ArtSelect and cash used in operations during the
      six
      months ended June 30, 2006.




Net
      cash
      used in operating activities for the six months ended June 30, 2006 was $1.8
      million, compared to net cash used in operating activities of $1.2 million
      for
      six months ended June 30, 2005. The net cash used in operating activities during
      the six months ended June 30, 2006 was due primarily to the net loss of $4.7
      million adjusted for $1.3 million of stock compensation, $1.4 million for
      depreciation and amortization, and an increase in accounts payable and accrued
      expenses of $852,000 offset by an increase of accounts receivable of $418,000
      and increase in prepaid expenses and other current assets of $483,000. Net
      cash
      used in operating activities in the six months ended June 30, 2005 was due
      primarily to the net loss of $2.0 million and the increase of accounts
      receivable of $349,000 adjusted for $712,000 of depreciation and amortization,
      $371,000 for loss on extinguishment of debt and $369,000 compensation for the
      issuance of restricted stock.




35


Net
      cash
      used in investing activities for the six months ended June 30, 2006 was $5.9
      million, compared to net cash used in investing activities the six months ended
      June 30, 2005 of $270,000. Net cash used in investing activities for the six
      months ended June 30, 2006 was primarily due to $4.5 million used as partial
      consideration of the ArtSelect acquisition and $750,000 used to secure a lease
      security deposit. Net cash used in investing activities in the six months ended
      June 30, 2005 was primarily due to investments in building, property, and
      equipment.




Net
      cash
      provided by financing activities for the six months ended June 30, 2006 was
      $13.6 million, compared to net cash provided by financing activities of $970,000
      for the same prior year period. Net cash provided by financing activities for
      the six months ended June 30, 2006 resulted substantially from the $15.5 million
      Senior Convertible debt financing offset by repayments of $3.3 million of
      outstanding debt. In addition, we realized proceeds of $1.2 million during
      the
      six months ended June 30, 2006 upon the exercise of stock warrants. Net cash
      provided by financing activities in the six months ended June 30, 2005 was
      mainly due to the new $2.3 million senior secured notes payable offset by the
      retirement of the $1.3 million convertible subordinated notes
      payable.




We
      have
      sustained significant recurring losses and at June 30, 2006 had an accumulated
      deficit of $18.8 million that raise substantial doubt about our ability to
      continue as a going concern and as such caused our independent registered public
      accounting firm to included a going concern explanatory paragraph in their
      report in connection with their audit of our consolidated financial statements
      for the year ended December 31, 2005. In addition to cash that we need to fund
      operations in 2006, we will need to raise cash from equity and debt financings
      to fund any additional acquisitions. If we are unable to secure the required
      funding, we may not be able to implement our business plan and may not be able
      to conduct business as a going concern.





On
      April
      27, 2006, we issued $15.5 million of 5% Senior Secured Convertible Notes to
      certain investors in consideration for which we received net proceeds of $11.7
      million in cash, after the repayment of certain outstanding debt of $3.3
      million, related interest due of $216,000, payments of $215,000 to retire
      warrants to purchase 637,500 shares of a21’s common stock, and the payment of a
      finder’s fee of $100,000. As part of this transaction, we released $690,000 of
      certificate of deposits (“CDs”), which had been pledged by an investor to secure
      the letter of credit issued by SuperStock in connection with its capital lease
      for our headquarters in Jacksonville, Florida and replaced the deposit with
      new
      CDs from the net proceeds of the financing.




On
      May
      16, 2006, we acquired ArtSelect, Inc. The stockholders of ArtSelect received
      consideration including $4.5 million of cash and $2.35 million in secured notes.
      The Notes bear interest at 6% per year and mature on the earlier to occur of
      a
      change of control and May 15, 2009. The first year of interest on the principal
      balance of the Notes will be accrued and added to the principal of the Notes.
      After the first year, interest will be payable quarterly, in arrears.







**OFF
      BALANCE SHEET ARRANGEMENTS**





We
      have
      not entered into any off balance sheet arrangements as of June 30,
      2006.





36




**ITEM
      3. CONTROLS AND PROCEDURES**





**EVALUATION
      OF DISCLOSURE CONTROLS AND PROCEDURES**





Under
      the
      supervision and with the participation of our management, including our
      principal executive officer and the principal financial officer, we conducted
      an
      evaluation of the effectiveness of the design and operation of its disclosure
      controls and procedures as of the end of the period covered by this report
      (the
“Evaluation Date”). Based on this evaluation, our principal executive officer
      and principal financial officer concluded as of the Evaluation Date that our
      disclosure controls and procedures were effective at ensuring that the material
      information required to be disclosed in the Exchange Act reports is recorded,
      processed, summarized and reported as required in applicable SEC rules and
      forms.





During
      2006, we have had a deficiency in our internal controls over financial reporting
      which constitutes a material weakness in the design or operation of internal
      controls that could adversely affect our ability to record, process, summarize,
      and report interim financial data. The material weakness identified pertains
      specifically to the recording of complex accounting for certain
      warrants.




Because
      of the ArtSelect acquisition, we have assumed the respective integration of
      financial controls and reporting requirements of that subsidiary. We have
      further enhanced our internal resources and processes around our internal
      control over financial reporting by adding key staff and documenting financial
      close and reporting plan process during the period ending June 30, 2006. There
      were no other changes in our internal control over financial reporting that
      have
      materially affected, or are reasonably likely to materially affect, our internal
      control over financial reporting.





37




**PART
      II - OTHER INFORMATION ITEM**





**ITEM
      1. LEGAL PROCEEDINGS**





We
      are
      involved in various claims and lawsuits in the ordinary course of business.
      Management believes that there are no such matters outstanding that would have
      a
      material adverse effect on our results of operations and financial position.





**ITEM
      2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
      PROCEEDS**





None





**ITEM
      3. DEFAULTS UPON SENIOR SECURITIES**





None
      that
      have not been previously reported.





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





**Change
      in State of Organization from Texas to Delaware**


On
      June
      19, 2006, a21’s Board of Directors approved a merger agreement pursuant to
      which, among other things, the Company would merge with and into its wholly
      owned subsidiary, a21,Inc., a Delaware corporation. On June 23, 2006, we
      obtained the approval of the terms of the merger agreement by the unanimous
      written consent of the holders of 40,658,362 shares (or 52.38%) of our
      outstanding common stock and the reincorporation became effective on July 31,
      2006.





Our
      reincorporation in Delaware has not resulted in any change to our business
      operations or the location of our principal executive offices. The financial
      condition and results of operations of the surviving corporation immediately
      after the consummation of the merger were identical to the Company’s immediately
      prior to the consummation of the merger. In addition, the board of directors
      of
      the surviving corporation consists of those persons who were the Company’s
      directors immediately prior to the merger and individuals serving as executive
      officers of the Company immediately prior to the merger continue to serve as
      executive officers of the surviving corporation after the merger.





**Corporate
      Name and Trading Symbol**


Following
      the merger, we have retained our corporate name “a21, Inc.” Accordingly, our
      shares continue to trade on the OTC Bulletin Board under the symbol “ATWO”.





**Increase
      in Authorized Capitalization**


The
      Board
      of Directors has determined that it was in the best interests of the Company
      and
      its stockholders to increase the Company’s authorized capitalization.
      Accordingly, the certificate of incorporation of the surviving corporation
      provides for an authorized capitalization of 200,000,000 shares of common stock
      and 100,000 shares of preferred stock.




**ITEM
      5. OTHER INFORMATION**





None


38





**ITEM
      6. EXHIBITS**





The
      following exhibits are filed as part of this report:





**EXHIBIT**NUMBER
            
            **DESCRIPTION**4.1
                (1)
            
            Form
                of Secured Convertible Term Note dated April 27, 2006 by and among
                a21,
                SuperStock and each of the persons listed on the Appendix to the
                Exhibits4.2
                (1)
            
            Registration
                Rights Agreement dated April 27, 2006 between a21 and Queequeg Partners,
                LP, as agent4.3
                (2)
            
            Form
                of Promissory Note dated May 15, 2006 by and among a21, ASI and each
                of
                the persons listed on Exhibit I to the Merger Agreement4.4
                (2)
            
            Form
                of Warrant dated May 15, 2006 between a21 and each of the persons
                listed
                on Exhibit I to the Merger Agreement10.1
                (1)
            
            Securities
                Purchase Agreement dated April 27, 2006 by and among a21, SuperStock,
                Queequeg Partners, LP and the purchasers named therein10.2
                (1)
            
            Master
                Security Agreement dated April 27, 2006 by and among a21, SuperStock
                and
                Queequeg Partners, LP, as agent10.3
                (2)
            
            Merger
                Agreement dated May 15, 2006, by and among a21, Inc., AE Acquisition
                Corp., ArtSelect, Inc., and the common and preferred stockholders
                of
                ArtSelect listed on Schedule I thereto and Udi Toledano as stockholder
                representative10.4
                (2)
            
            Guaranty
                of a21 in favor of the holders of the Promissory Notes dated May
                15,
                200610.5
                (3)
            
            Employment
                Agreement between a21, Inc. and Philip N. Garfinkle, dated June 27,
                200631.1
            
            Certification
                Of Chief Executive Officer Pursuant To Rule 13A-14[A] Of The Securities
                Exchange Act Of 1934, As Adopted Pursuant To Section 302 Of The
                Sarbanes-Oxley Act Of 200231.2
            
            Certification
                Of Chief Financial Officer Pursuant To Rule 13A-14[A] Of The Securities
                Exchange Act Of 1934, As Adopted Pursuant To Section 302 Of The
                Sarbanes-Oxley Act Of 200232.1
            
            Certification
                Of Principal Executive Officer And Principal Financial Officer Pursuant
                To
                18 U.S.C.1350, As Adopted Pursuant To Section 906 Of The Sarbanes-Oxley
                Act Of 2002




(1)
      Incorporated by reference to our Annual Report on Form 8-K dated April 27,
      2006.


(2)
      Incorporated by reference to our Annual Report on Form 8-K dated May 15,
      2006.


(3)
      Incorporated by reference to our Annual Report on Form 8-K dated June 27,
      2006.





39




**SIGNATURES**





Pursuant
      to the requirements of the Securities Exchange Act of 1934, as amended, the
      registrant has duly caused this report to be signed on its behalf by the
      undersigned, thereunto duly authorized.





**a21,
                Inc.**Date:
                August 21, 2006
            By:
                /s/ ALBERT H. PLEUSAlbert
                H. Pleus
              Chairman
                and Chief Executive Officer
              (Principal
                Executive Officer)Date:
                August 21, 2006
            By:
                /s/ THOMAS COSTANZAThomas
                Costanza
              Vice
                President and Chief Financial Officer
              (Principal
                Financial Officer)





40