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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended June 30, 2008.

or



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | -----------------------------------------------------------------------------------------

For the transition period from  to

Commission
File Number: 000-51702

SENDTEC, INC.

(Exact name of registrant as specified in its charter)



|                                                              |  |                                    
|------------------------------------------------------------- |  | -----------------------------------
|Delaware                                                      |  | 43-2053462                         
|(State or other jurisdiction of incorporation ororganization) |  | (I.R.S. EmployerIdentification No.)

877 Executive Center Drive W., Suite 300

St. Petersburg, Florida 33702

(Address of principal executive offices)

(727) 576-6630

(Registrants telephone number, including area code)





(Former name, former address and
former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days.

x  Yes     ̈  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the
definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.



|                          |  |                     |  |                                               |  |                            
|------------------------- |  | ------------------- |  | --------------------------------------------- |  | ---------------------------
|Large accelerated filer  ̈ |  | Accelerated filer  ̈ |  | Non-accelerated filer  ̈                       |  | Smaller reporting company x
|                          |  |                     |  | (Do not check if a smaller reporting company) |  |                            

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

 ̈  Yes    x  No

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be
filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.     ̈  Yes     ̈  No

APPLICABLE ONLY TO
CORPORATE ISSUERS:

The number of shares outstanding of each of the issuers classes of common stock as of August 12, 2008, was:



|                                         |  |                   
|---------------------------------------- |  | ------------------
|Class                                    |  | Outstanding shares
|Common stock, par value $0.001 per share |  | 78,358,449        









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SENDTEC, INC. AND SUBSIDIARIES

FORM 10-Q

QUARTERLY PERIOD ENDED JUNE 30, 2008

INDEX



|                                                                                                                       |  |     
|---------------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                                       |  | Page
|PART I  FINANCIAL INFORMATION                                                                                         |  |     
|                                                                                                                       | 
|Item 1  Condensed Consolidated Financial Statements (Unaudited)                                                       |  |     
|                                                                                                                       | 
|Condensed Consolidated Balance Sheets As of June 30, 2008 (Unaudited) and December 31, 2007                            |  | 3   
|                                                                                                                       | 
|Condensed Consolidated Statements of Operations (Unaudited) For the Three and Six Months Ended June 
30, 2008 and 2007 |  | 4   
|                                                                                                                       | 
|Condensed Consolidated Statement of Stockholders Equity (Unaudited) For the Six Months Ended June 30, 2008            |  | 5   
|                                                                                                                       | 
|Condensed Consolidated Statements of Cash Flows (Unaudited) For the Six Months Ended June 30, 2008 and
2007            |  | 6   
|                                                                                                                       | 
|Notes to Unaudited Condensed Consolidated Financial Statements                                                         |  | 7   
|                                                                                                                       | 
|Item 2  Managements Discussion and Analysis of Financial Condition and Results of
Operations                         |  | 27  
|                                                                                                                       | 
|Item 3  Quantitative and Qualitative Disclosures About Market Risk                                                    |  | 35  
|                                                                                                                       | 
|Item 4  Controls and Procedures                                                                                       |  | 36  
|                                                                                                                       | 
|PART II  OTHER INFORMATION                                                                                            |  |     
|                                                                                                                       | 
|Item 1  Legal Proceedings                                                                                             |  | 36  
|                                                                                                                       | 
|Item 1A  Risk Factors                                                                                                 |  | 39  
|                                                                                                                       | 
|Item 2  Unregistered Sales of Equity Securities and Use of Proceeds                                                   |  | 39  
|                                                                                                                       | 
|Item 3  Defaults Upon Senior Securities                                                                               |  | 39  
|                                                                                                                       | 
|Item 4  Submission of Matters to a Vote of Security Holders                                                           |  | 39  
|                                                                                                                       | 
|Item 5  Other Information                                                                                             |  | 40  
|                                                                                                                       | 
|Item 6  Exhibits                                                                                                      |  | 40  



2



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SENDTEC, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS



|                                                                                                                                     |  |              |             |   |                  |   |             |  
|------------------------------------------------------------------------------------------------------------------------------------ |  | ------------ | ----------- | - | ---------------- | - | ----------- | -
|                                                                                                                                     |  | June 30,2008 |             |   | December 31,2007 |  
|                                                                                                                                     |  | (Unaudited)  |             |   |                  |  
|ASSETS                                                                                                                               |  |              |             |   |                  |   |             |  
|Current assets                                                                                                                       |  |              |             |   |                  |   |             |  
|Cash                                                                                                                                 |  | $            | 2,846,783   |   |                  | $ | 4,408,969   |  
|Accounts receivable, less allowance for doubtful accounts of approximately $369,000 and $326,000, respectively                       |  |              | 8,738,835   |   |                  |   | 10,319,977  |  
|Prepaid expenses                                                                                                                     |  |              | 365,984     |   |                  |   | 219,704     |  
|                                                                                                                                     |  |              |             |   |                  |   |             |  
|Total current assets                                                                                                                 |  |              | 11,951,602  |   |                  |   | 14,948,650  |  
|Property and equipment, net                                                                                                          |  |              | 906,636     |   |                  |   | 1,082,462   |  
|Intangible assets, net                                                                                                               |  |              | 6,247,225   |   |                  |   | 6,760,696   |  
|Goodwill                                                                                                                             |  |              | 22,863,827  |   |                  |   | 22,863,827  |  
|Deferred financing and restructuring fees                                                                                            |  |              |            |   |                  |   | 306,969     |  
|Other assets                                                                                                                         |  |              | 20,329      |   |                  |   | 20,329      |  
|                                                                                                                                     |  |              |             |   |                  |   |             |  
|Total assets                                                                                                                         |  | $            | 41,989,619  |   |                  | $ | 45,982,933  |  
|                                                                                                                                     |  |              |             |   |                  |   |             |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                 |  |              |             |   |                  |   |             |  
|Current liabilities                                                                                                                  |  |              |             |   |                  |   |             |  
|Accounts payable                                                                                                                     |  | $            | 8,450,250   |   |                  | $ | 8,723,727   |  
|Accrued expenses                                                                                                                     |  |              | 1,699,449   |   |                  |   | 4,524,025   |  
|Accrued compensation                                                                                                                 |  |              | 252,399     |   |                  |   | 321,031     |  
|Current portion of capital lease obligations                                                                                         |  |              | 37,754      |   |                  |   | 55,409      |  
|Deferred revenue                                                                                                                     |  |              | 1,435,758   |   |                  |   | 2,087,087   |  
|                                                                                                                                     |  |              |             |   |                  |   |             |  
|Total current liabilities                                                                                                            |  |              | 11,875,610  |   |                  |   | 15,711,279  |  
|Debentures payable, net of debt discount of $0 and $2,595,232, respectively                                                          |  |              | 14,368,300  |   |                  |   | 30,134,768  |  
|Capital lease obligations, net of current portion                                                                                    |  |              | 66,520      |   |                  |   | 16,404      |  
|Deferred rent                                                                                                                        |  |              | 82,621      |   |                  |   | 101,934     |  
|                                                                                                                                     |  |              |             |   |                  |   |             |  
|Total liabilities                                                                                                                    |  |              | 26,393,051  |   |                  |   | 45,964,385  |  
|Commitments and contingencies                                                                                                        |  |              |             |   |                  |   |             |  
|Stockholders equity                                                                                                                 |  |              |             |   |                  |   |             |  
|Preferred stock  $.001 par value; 10,000,000 shares authorized                                                                      |  |              |             |   |                  |   |             |  
|Series B preferred convertible  30,000 shares designated; 9,429 shares issued and outstanding at June 30, 2008                      |  |              | 9           |   |                  |   |            |  
|Common stock  $.001 par value; 500,000,000 shares authorized; 76,854,331 and 53,101,189 shares issued and outstanding,
respectively |  |              | 76,854      |   |                  |   | 53,101      |  
|Additional paid in capital                                                                                                           |  |              | 95,634,638  |   |                  |   | 82,918,691  |  
|Accumulated deficit                                                                                                                  |  |              | (80,114,933 | ) |                  |   | (82,953,244 | )
|                                                                                                                                     |  |              |             |   |                  |   |             |  
|Total stockholders equity                                                                                                           |  |              | 15,596,568  |   |                  |   | 18,548      |  
|                                                                                                                                     |  |              |             |   |                  |   |             |  
|Total liabilities and stockholders equity                                                                                           |  | $            | 41,989,619  |   |                  | $ | 45,982,933  |  
|                                                                                                                                     |  |              |             |   |                  |   |             |  

See notes to unaudited condensed consolidated financial statements.



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SENDTEC, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



|                                                                             |  |                                    |            |   |                                  |   |            |      |  |   |            |   |  |   |            |  
|---------------------------------------------------------------------------- |  | ---------------------------------- | ---------- | - | -------------------------------- | - | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                                                             |  | For the Three Months EndedJune 30, |            |   | For the Six Months EndedJune 30, |  
|                                                                             |  | 2008                               |            |   | 2007                             |   |            | 2008 |  |   | 2007       |  
|Revenues                                                                     |  | $                                  | 5,659,382  |   |                                  | $ | 7,938,021  |      |  | $ | 11,262,438 |   |  | $ | 17,130,095 |  
|Cost of revenues                                                             |  |                                    | 2,165,698  |   |                                  |   | 4,408,762  |      |  |   | 4,195,677  |   |  |   | 9,020,759  |  
|                                                                             |  |                                    |            |   |                                  |   |            |      |  |   |            |   |  |   |            |  
|Gross profit                                                                 |  |                                    | 3,493,684  |   |                                  |   | 3,529,259  |      |  |   | 7,066,761  |   |  |   | 8,109,336  |  
|                                                                             |  |                                    |            |   |                                  |   |            |      |  |   |            |   |  |   |            |  
|Operating expenses                                                           |  |                                    |            |   |                                  |   |            |      |  |   |            |   |  |   |            |  
|Salaries, wages and benefits                                                 |  |                                    | 2,542,387  |   |                                  |   | 2,833,432  |      |  |   | 5,301,056  |   |  |   | 5,834,029  |  
|Professional fees                                                            |  |                                    | 104,835    |   |                                  |   | 124,568    |      |  |   | 287,816    |   |  |   | 743,731    |  
|Restructuring charges                                                        |  |                                    |           |   |                                  |   | 491,237    |      |  |   |           |   |  |   | 491,237    |  
|Other general and administrative                                             |  |                                    | 1,139,785  |   |                                  |   | 1,596,790  |      |  |   | 2,351,006  |   |  |   | 3,128,807  |  
|                                                                             |  |                                    |            |   |                                  |   |            |      |  |   |            |   |  |   |            |  
|Total operating expenses                                                     |  |                                    | 3,787,007  |   |                                  |   | 5,046,027  |      |  |   | 7,939,878  |   |  |   | 10,197,804 |  
|                                                                             |  |                                    |            |   |                                  |   |            |      |  |   |            |   |  |   |            |  
|Loss from operations                                                         |  |                                    | (293,323   | ) |                                  |   | (1,516,768 | )    |  |   | (873,117   | ) |  |   | (2,088,468 | )
|Other income (expense)                                                       |  |                                    |            |   |                                  |   |            |      |  |   |            |   |  |   |            |  
|Gain from troubled debt restructuring                                        |  |                                    |           |   |                                  |   |           |      |  |   | 6,661,990  |   |  |   |           |  
|Registration rights penalty                                                  |  |                                    | 15,200     |   |                                  |   |           |      |  |   | (26,800    | ) |  |   |           |  
|Interest income                                                              |  |                                    | 9,674      |   |                                  |   | 44,462     |      |  |   | 29,564     |   |  |   | 80,422     |  
|Interest expense                                                             |  |                                    | (28,119    | ) |                                  |   | (3,849,328 | )    |  |   | (2,953,326 | ) |  |   | (7,097,082 | )
|                                                                             |  |                                    |            |   |                                  |   |            |      |  |   |            |   |  |   |            |  
|Total other income (expense)                                                 |  |                                    | (3,245     | ) |                                  |   | (3,804,866 | )    |  |   | 3,711,428  |   |  |   | (7,016,660 | )
|                                                                             |  |                                    |            |   |                                  |   |            |      |  |   |            |   |  |   |            |  
|Net income (loss) before cumulative effect of change in accounting principle |  |                                    | (296,568   | ) |                                  |   | (5,321,634 | )    |  |   | 2,838,311  |   |  |   | (9,105,128 | )
|Cumulative effect of change in accounting principle                          |  |                                    |           |   |                                  |   |           |      |  |   |           |   |  |   | 88,500     |  
|                                                                             |  |                                    |            |   |                                  |   |            |      |  |   |            |   |  |   |            |  
|Net income (loss)                                                            |  | $                                  | (296,568   | ) |                                  | $ | (5,321,634 | )    |  | $ | 2,838,311  |   |  | $ | (9,016,628 | )
|                                                                             |  |                                    |            |   |                                  |   |            |      |  |   |            |   |  |   |            |  
|Net income (loss) per common share, basic and diluted:                       |  |                                    |            |   |                                  |   |            |      |  |   |            |   |  |   |            |  
|-Before cumulative effect of change in accounting principle                  |  | $                                  |           |   |                                  | $ | (0.10      | )    |  | $ | 0.04       |   |  | $ | (0.17      | )
|-Cumulative effect of change in accounting principle                         |  | $                                  |           |   |                                  | $ |           |      |  | $ |           |   |  | $ |           |  
|                                                                             |  |                                    |            |   |                                  |   |            |      |  |   |            |   |  |   |            |  
|-Total                                                                       |  | $                                  |           |   |                                  | $ | (0.10      | )    |  | $ | 0.04       |   |  | $ | (0.17      | )
|                                                                             |  |                                    |            |   |                                  |   |            |      |  |   |            |   |  |   |            |  
|Weighted average number of common shares outstanding  basic and diluted     |  |                                    | 79,218,848 |   |                                  |   | 54,182,533 |      |  |   | 68,115,863 |   |  |   | 53,017,670 |  
|                                                                             |  |                                    |            |   |                                  |   |            |      |  |   |            |   |  |   |            |  

See notes to unaudited condensed consolidated financial statements.



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SENDTEC, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2008

(Unaudited)



|                                                                                         |  |                 |   |  |              |    |                          |                 |            |                    |   |        |                     |   |            |   |  |   |             |   |  |   |           
|---------------------------------------------------------------------------------------- |  | --------------- | - |  | ------------ | -- | ------------------------ | --------------- | ---------- | ------------------ | - | ------ | ------------------- | - | ---------- | - |  | - | ----------- | - |  | - | ----------
|                                                                                         |  | Preferred Stock |   |  | Common Stock |    | AdditionalPaid-InCapital |                 |            | AccumulatedDeficit |   |        | StockholdersEquity
|                                                                                         |  | Numberof Shares |   |  | Amount       |    |                          | Numberof Shares |            | Amount             |   |        |                    
|Balance  January 1, 2008                                                                |  |                |   |  | $            |   |                          |                 | 53,101,189 |                    | $ | 53,101 |                     | $ | 82,918,691 |   |  | $ | (82,953,244 | ) |  | $ | 18,548    
|Common stock issued in concurrent offering, net of costs of $38,205                      |  |                |   |  |              |   |                          |                 | 10,036,670 |                    |   | 10,037 |                     |   | 1,156,158  |   |  |   |            |   |  |   | 1,166,195 
|Series B Preferred stock issued in troubled debt restructuring, net of costs of $582,465 |  | 10,801          |   |  |              | 11 |                          |                 |           |                    |   |       |                     |   | 11,298,624 |   |  |   |            |   |  |   | 11,298,635
|Conversions of Series B Preferred stock into Common stock                                |  | (1,372          | ) |  |              | (2 | )                        |                 | 13,716,472 |                    |   | 13,716 |                     |   | (13,714    | ) |  |   |            |   |  |   |          
|Amortization of stock based compensation                                                 |  |                |   |  |              |   |                          |                 |           |                    |   |       |                     |   | 274,879    |   |  |   |            |   |  |   | 274,879   
|Net income                                                                               |  |                |   |  |              |   |                          |                 |           |                    |   |       |                     |   |           |   |  |   | 2,838,311   |   |  |   | 2,838,311 
|                                                                                         |  |                 |   |  |              |    |                          |                 |            |                    |   |        |                     |   |            |   |  |   |             |   |  |   |           
|Balance  June 30, 2008                                                                  |  | 9,429           |   |  | $            | 9  |                          |                 | 76,854,331 |                    | $ | 76,854 |                     | $ | 95,634,638 |   |  | $ | (80,114,933 | ) |  | $ | 15,596,568
|                                                                                         |  |                 |   |  |              |    |                          |                 |            |                    |   |        |                     |   |            |   |  |   |             |   |  |   |           

See notes to unaudited condensed consolidated financial statements.



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SENDTEC, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007

(Unaudited)



|                                                                                                              |  |      |            |   |      |   |            |  
|------------------------------------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                                                                                              |  | 2008 |            |   | 2007 |  
|CASH FLOWS FROM OPERATING ACTIVITIES                                                                          |  |      |            |   |      |   |            |  
|Net income (loss) before cumulative effect of change in accounting principle                                  |  | $    | 2,838,311  |   |      | $ | (9,105,128 | )
|Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:            |  |      |            |   |      |   |            |  
|Gain from troubled debt restructuring                                                                         |  |      | (6,661,990 | ) |      |   |           |  
|Depreciation and amortization                                                                                 |  |      | 790,982    |   |      |   | 839,643    |  
|Stock-based compensation                                                                                      |  |      | 274,879    |   |      |   | 369,830    |  
|Non-cash interest                                                                                             |  |      | 2,451,053  |   |      |   | 6,059,547  |  
|Non-cash restructuring charge                                                                                 |  |      |           |   |      |   | 51,818     |  
|Provision for bad debt                                                                                        |  |      | 80,000     |   |      |   | 133,520    |  
|Registration rights penalty                                                                                   |  |      | 26,800     |   |      |   |           |  
|Changes in assets and liabilities:                                                                            |  |      |            |   |      |   |            |  
|Accounts receivable                                                                                           |  |      | 1,501,142  |   |      |   | 783,936    |  
|Prepaid expenses and other assets                                                                             |  |      | (146,280   | ) |      |   | (149,112   | )
|Deferred financing and restructuring fees                                                                     |  |      | (306,969   | ) |      |   |           |  
|Accounts payable                                                                                              |  |      | (273,477   | ) |      |   | (1,092,333 | )
|Accrued expenses                                                                                              |  |      | (2,532,539 | ) |      |   | 943,167    |  
|Accrued compensation                                                                                          |  |      | (68,632    | ) |      |   | 22,859     |  
|Deferred rent                                                                                                 |  |      | (19,313    | ) |      |   | (13,777    | )
|Deferred revenue                                                                                              |  |      | (651,329   | ) |      |   | 1,255,056  |  
|                                                                                                              |  |      |            |   |      |   |            |  
|Total adjustments                                                                                             |  |      | (5,535,673 | ) |      |   | 9,204,154  |  
|                                                                                                              |  |      |            |   |      |   |            |  
|Net cash (used in) provided by operating activities                                                           |  |      | (2,697,362 | ) |      |   | 99,026     |  
|                                                                                                              |  |      |            |   |      |   |            |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                                                          |  |      |            |   |      |   |            |  
|Purchase of property and equipment                                                                            |  |      | (11,803    | ) |      |   | (138,908   | )
|                                                                                                              |  |      |            |   |      |   |            |  
|Net cash used in investing activities                                                                         |  |      | (11,803    | ) |      |   | (138,908   | )
|                                                                                                              |  |      |            |   |      |   |            |  
|CASH FLOWS FROM FINANCING ACTIVITIES                                                                          |  |      |            |   |      |   |            |  
|Proceeds from sales of common stock                                                                           |  |      | 1,204,400  |   |      |   |           |  
|Repurchase and retirement of commons stock subject to redemption                                              |  |      |           |   |      |   | (99,667    | )
|Principal payments on capital lease obligations                                                               |  |      | (57,421    | ) |      |   | (60,666    | )
|                                                                                                              |  |      |            |   |      |   |            |  
|Net cash provided by (used in) financing activities                                                           |  |      | 1,146,979  |   |      |   | (160,333   | )
|                                                                                                              |  |      |            |   |      |   |            |  
|Net decrease in cash                                                                                          |  |      | (1,562,186 | ) |      |   | (200,215   | )
|Cash  beginning of period                                                                                    |  |      | 4,408,969  |   |      |   | 6,118,788  |  
|                                                                                                              |  |      |            |   |      |   |            |  
|Cash  end of period                                                                                          |  | $    | 2,846,783  |   |      | $ | 5,918,573  |  
|                                                                                                              |  |      |            |   |      |   |            |  
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION                                                              |  |      |            |   |      |   |            |  
|Cash paid during the periods for:                                                                             |  |      |            |   |      |   |            |  
|Interest                                                                                                      |  | $    | 620,508    |   |      | $ | 758,683    |  
|Income taxes                                                                                                  |  | $    | 3,210      |   |      | $ | 11,675     |  
|Non-cash investing and financing activities                                                                   |  |      |            |   |      |   |            |  
|Issuance of Series B preferred stock in exchange of debenture principal in connection with debt restructuring |  | $    | 11,881,100 |   |      | $ |           |  
|Issuance of common stock in connection with partial payments of interest                                      |  | $    |           |   |      | $ | 341,497    |  
|Conversion of Debentures Principal into common stock                                                          |  | $    |           |   |      | $ | 1,850,000  |  
|New capital lease obligation                                                                                  |  | $    | 89,883     |   |      | $ | 36,925     |  

See notes to unaudited condensed consolidated financial statements.



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SENDTEC, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1  BASIS OF PRESENTATION AND BUSINESS ORGANIZATION

Basis of presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with Generally Accepted Accounting Principles (GAAP)
for interim financial information and with the instructions to Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC). Accordingly, the unaudited condensed consolidated financial statements do
not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and such adjustments are of a normal
recurring nature. These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements for the year ended December 31, 2007, and notes thereto of SendTec, Inc., (the Company or
SendTec) included in the Annual Report on Form 10-KSB and Form 10-KSB/A (Amendment no. 1) for the fiscal year ended December 31, 2007. The results of operations for the three and six months ended June 30, 2008 are not
necessarily indicative of the results for the full fiscal year ending December 31, 2008.

The unaudited condensed consolidated financial statements
include SendTec, Inc. and its wholly owned subsidiaries SendTec Acquisition Corp. (STAC), RelationServe Access, Inc. (Access) and Freindsand.com, Inc. (Friendsand). All material intercompany balances and
transactions have been eliminated in the accompanying unaudited condensed consolidated financial statements.

Organization and description of business

The Company was originally formed as Chubasco Resources Corp. (Chubasco) in the State of Nevada as an exploration stage company engaged in
the business of mineral exploration. On June 13, 2005, Chubasco completed a reverse merger with RelationServe, Inc., (RelationServe), which was accounted for as a recapitalization transaction. Relationserve was a Delaware
corporation formed in March 2005 that operated a marketing business it acquired in a reverse acquisition in May 2005. RelationServe, through its wholly-owned subsidiary, RelationServe Access, Inc. (Access) purchased certain assets and
assumed certain liabilities of Omni Point Marketing LLC (Omni Point), and through its wholly-owned subsidiary, Friendsand.com Inc. (Friendsand), acquired Friendsand LLC (Friendsand LLC). Chubasco changed its name
to RelationServe Media, Inc., a Nevada corporation, following its merger with Relationserve, a Delaware corporation. On August 29, 2005, the Company completed a reincorporation merger in which RelationServe Media, Inc. survived such merger as a
Delaware corporation. Effective February 3, 2006, the Company completed its acquisition of the net assets and business of STAC. On July 17, 2006, the Company changed its name from RelationServe Media, Inc. to SendTec, Inc.

The primary business of the Company is direct response marketing services and technology that provides customers a wide range of direct marketing products
and services to help market their products and services on the Internet and through traditional media channels such as television, radio, and print advertising.

NOTE 2  LIQUIDITY, FINANCIAL CONDITION, GOING CONCERN AND LEGAL MATTERS

The Company reported net income of approximately $2,838,000
for the six months ended June 30, 2008, including a non-cash gain from troubled debt restructuring of $6,662,000. Therefore, the Company incurred a net loss before non-cash gains of $3,824,000 which includes an aggregate of approximately
$3,624,000 in non-cash charges which principally includes:



|                              |  |   |          
|----------------------------- |  | - | ---------
|Non-cash interest             |  | $ | 2,451,000
|Depreciation and amortization |  |   | 791,000  
|Stock based compensation      |  |   | 275,000  
|Provision for bad debts       |  |   | 80,000   
|Registration rights penalty   |  |   | 27,000   
|                              |  |   |          
|Total non-cash charges        |  | $ | 3,624,000
|                              |  |   |          



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On March 26, 2008, the Company and current debenture holders (the Holders) entered into a
recapitalization agreement (the Recapitalization Agreement) which provided, among other things, that the Holders exchange the Senior Secured Convertible Debentures due March 31, 2008 (the Debentures) with a then
outstanding principal amount of $32,730,000 into shares of the Companys Series B Convertible Preferred Stock (the Series B Preferred) and certain amended and restated Debentures (the Amended Debentures), and extended
the due date of the Debentures for up to three years (see Note 7). This transaction has been accounted for as a troubled debt restructuring pursuant to SFAS No. 15, Accounting by Debtors and Creditors for Troubled Debt
Restructurings (SFAS No. 15), resulting in a non-cash gain of approximately $6,662,000. As a result of the new agreement, the Debentures have been reflected as a long term liability in the accompanying unaudited condensed
consolidated balance sheet.

The Company believes that its current capital resources combined with revenues it expects to generate during the next twelve
months will enable it to fund its operating activities through June 30, 2009. The Company may seek to raise additional capital to fund the growth of its business and believes it has access to capital resources; however, the Company has not
secured any commitments for new financing at this time and cannot provide any assurance that it will be successful in its efforts to raise additional capital if considered necessary. The Company is currently restricted from incurring additional
indebtedness other than certain permitted indebtedness specified under the terms of the Amended Debentures.

Legal Proceedings

The Company is involved in certain claims and legal actions arising in the ordinary course of business. There can be no assurances that these matters will be resolved on
terms acceptable to the Company. In the opinion of management, based upon advice of counsel and consideration of all facts available at this time, the ultimate disposition of these matters are not expected to have a material adverse effect on the
financial position, results of operations or liquidity of the Company.

On April 5, 2006, Ohad Jehassi (Jehassi), the Companys
former Chief Operating Officer, filed an action against the Company in the Circuit Court for the 17th Judicial Circuit in Broward County, Florida. Jehassi alleged that the Company breached an employment agreement and owes him salary and other
benefits in connection with such alleged breach. On June 21, 2006, Jehassi filed an Amended Complaint adding a claim for an alleged violation of Floridas Whistleblower Act, and on August 14, 2006, filed a Third Amended Complaint
adding a claim for unpaid wages under a Florida statute. Jehassi seeks damages of approximately $500,000 plus attorneys fees, costs and expenses and shares of the Companys stock he alleges he is entitled to. The Company has filed an
answer to the Third Amended Complaint denying that Jehassi is entitled to any relief and has asserted a counterclaim against Jehassi. In February 2007, Mr. Jehassi filed a Fourth Amended Complaint (substantially similar to the Third Amended
Complaint). The case is now in the discovery phase. The Company believes this action is without merit, and intends to vigorously defend itself with respect to this matter; however, its outcome or range of possible loss, if any, cannot be predicted
at this time. The Company cannot provide any assurance that the outcome of this matter will not have a material adverse effect on its financial position or results of operations.

On February 3, 2006, InfoLink Communications Services, Inc, (InfoLink) filed a complaint against the Company and Omni Point Marketing LLC in the Circuit Court of Miami Dade County, Florida, asserting
violation of the federal CAN SPAM ACT of 2003, 15 U.S.C. ss. 7701, and breach of an alleged licensing agreement between Omni Point Marketing LLC and InfoLink. InfoLink seeks actual damages in an amount of approximately $100,000 and approximately
$1,500,000 in statutory damages. The Company does not believe that InfoLink has sufficiently pled any factual basis to support its claim. The Company filed a motion asking the Court to enter sanctions against InfoLink, including, but not limited to,
dismissal of the case with prejudice for InfoLinks failure to comply with a court order to produce discovery materials. The Company intends to vigorously defend itself with respect to this matter; however, its outcome or range of possible
loss, if any, cannot be predicted at this time. The Company cannot provide any assurance that the outcome of this matter will not have a material adverse effect on its financial position or results of operations.

On or about June 15, 2006, R&R Investors Ltd. (R&R) commenced an action in the Supreme Court of the State of New York, County of New York,
against the Company and Come & Stay S.A. asserting a claim for breach of contract related to a purported agreement concerning the sale of RelationServe Access, Inc. and Friendsand, Inc. R&R initially sought an injunction enjoining the
transfer of RelationServe Access, Inc. and Friendsand, Inc. stock. The Court denied R&Rs motion. R&R effectuated service of the complaint on the Company in August 2006. The Company has served an answer to R&Rs complaint
denying that R&R is entitled to any relief. This action is now in the discovery phase. The Company intends to vigorously defend itself with respect to this matter; however, its outcome or range of possible loss, if any, cannot be predicted at
this time. The Company cannot provide any assurance that the outcome of this matter will not have a material adverse effect on its financial position or results of operations.



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On or about April 28, 2006, LeadClick Media, Inc. (LeadClick) commenced an action against the Company in
the Superior Court for the State of California, County of San Francisco, alleging breach of contract seeking to recover $379,146, plus interest. During August 2007, the Company reached an agreement settling this matter for $260,000 to be paid to
LeadClick Media in three installments and executed a mutual release with LeadClick. During the year ended December 31, 2007, the Company paid $200,000 with respect to this settlement, and paid the remaining $60,000 in January 2008. The case has
been dismissed with prejudice.

Pursuant to an Asset Purchase Agreement, dated as of June 6, 2006, relating to certain discontinued operations of the
Company, the Company believes the purchaser (Come & Stay, S.A.) is required to assume certain liabilities with respect to this matter, however, the purchaser has contested this fact. As a result, the Company commenced an arbitration
proceeding before the International Chamber of Commerce seeking to have the purchaser assume liability for amounts that were paid by the Company to Leadclick, as mentioned in the preceding paragraph. During June 2008, the Company settled this action
and received $110,000 which is included in other general and administrative expenses in the accompanying unaudited condensed statement of operations for the three and six months ended June 30, 2008.

On or about August 31, 2006, an action was commenced in the United States District Court for the Southern District of Florida (Case No. 06-61327) by Richard F.
Thompson, as the putative class representative, against the Company and certain of the Companys former officers and directors alleging securities laws violations in connection with the purchase of the Companys stock during the period of
May 24, 2005 to August 2006. The named plaintiff in the case previously filed suit against the Company, as an individual, in State Court in Indiana, which action was dismissed in July 2006. The Florida District Court permitted the plaintiff to
file an amended complaint and on November 13, 2006, plaintiff filed a First Amended Class Action Complaint (the First Amended Complaint) adding an additional plaintiff, L. Alan Jacoby, who purportedly purchased 10,000
shares of the Companys Common Stock in the open market, and naming additional former and present officers and directors of the Company and others as defendants. The First Amended Complaint, styled as a class action, alleges violations of
Section 11 and Section 12(2) of the Securities Act and Section 10(b) of the Securities Exchange Act, and Rule 10b-5 promulgated thereunder. Plaintiffs claim, among other things, violations of the various acts: (a) by selling
securities through persons who were not registered as agents and/or broker dealers with the Securities Exchange Commission or the States of Florida or Indiana and were not affiliated as an agent or representative of any broker/dealer; (b) by
failing to disclose to purchasers of RelationServe Media, Inc. stock that they were selling securities of RelationServe stock through unregistered agents and broker/dealers was in violation of state and federal securities laws which caused a
substantial contingent liability for claims of rescission by investors and exposing RelationServe to substantial legal fees, criminal and civil liability which would have a material adverse impact to the RelationServes financial condition;
(c) by failing to disclose that in July 2005 RelationServes Chief Executive Officer and Chief Operating Officer received evidence of accusations of employee theft of data and employee kickbacks had been made and the matter was so material
that CEO hired an outside attorney to investigate the matter; (d) failing to disclose that a former director has previously been sued by stockholders of two other corporations; and (e) by failing to disclose that financial statements
beginning the third quarter of 2005 were false and misleading as senior officer of the Company, Richard Hill, had directed that finance recognize income in the third quarter in violation of Sarbanes-Oxley Act of 2002. The invoices directed to be
recorded either did not exist or were otherwise untraceable, cancelled, or were never shipped, with the exception of just a few (adjustments to income that would be required as a result of the allegations, if any, relate to certain discontinued
operations). In addition to the claims of securities law violations, plaintiffs claim violation of Section 20(a) of the Exchange Act as to controlling persons of the Company, violations of the Florida Securities Act, violations of the Indiana
Securities Act, sales of unregistered, non-exempt securities, violation of anti-fraud provisions under Indiana law, deception under Indiana law, and fraud. Plaintiffs seek rescission, damages, treble damages, punitive damages, compensatory damages,
interest, costs, and attorneys fees.

The First Amended Complaint repeats and re-alleges various claims made by Ohad Jehassi, our former Chief
Operating Officer in a matter pending before the Circuit Court of the 17th Judicial Circuit, Broward County, Florida (Case No. 06-004597), Ohad Jehassi v. RelationServe Media, Inc., a Florida corporation, and Relationserve Media, Inc., d/b/a
Sendtec Acquisition Corp., a Florida corporation (the Jehassi Complaint). The initial complaint filed by Jehassi on or about April 5, 2006, alleged, among other things, that we breached our employment agreement with Jehassi and owe
him salary and other benefits in connection with such alleged breach. On June 21, 2006, Jehassi filed an amended complaint adding a claim for an alleged violation of Floridas Whistleblowers Act, and on August 14,
2006, filed a third amended complaint adding a claim for unpaid wages under Florida statutes. Mr. Jehassi seeks damages of approximately $500,000 plus attorneys fees, costs, and expenses and shares of our stock he alleges he is entitled
to. We have asserted that Mr. Jehassi was removed



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from his position with us for cause and is therefore not entitled to any of the relief he seeks and has asserted a counterclaim against Mr. Jehassi
related to the shares of our common stock Jehassi claims he is entitled to. The substance of Mr. Jehassis whistleblower claims have been adapted in the First Amended Complaint filed by Thompson as the basis for asserting that we filed
false and misleading financial statements and that we violated the Sarbanes-Oxley Act of 2002. The court dismissed the First Amended Complaint on March 6, 2007. By the terms of the courts order, the plaintiffs were given leave to refile a
new complaint on or before March 19, 2007, and on March 19, 2007, plaintiffs filed a second amended complaint.

By decision dated June 12,
2007, the District Court dismissed the Second Amended Complaint, with prejudice, and state law claims without prejudice. Plaintiffs have noted their appeal of the June 12, 2007 dismissal of the Second Amended Complaint.

On September 19, 2007, the parties attended court ordered mediation but were unable to reach a compromise. Briefing on the appeal has been completed and the parties
are awaiting a ruling from the Court of Appeals. Although the Company is vigorously contesting the appeal, its outcome or range of possible loss, if any, cannot be predicted at this time. The Company cannot provide any assurance that the outcome of
this matter will not have a material adverse effect on its financial position or results of operations.

On July 25, 2007, Richard F. Thompson, along
with new plaintiffs, Parabolic Investment Fund, Ltd and Gregory Thompson filed a Class Action Complaint in the Circuit Court for the Seventeenth Judicial Circuit in and for Broward County, Florida, on behalf of themselves, and others similarly
situated naming the Company, and certain former officers and directors of the Company, as defendants. The plaintiffs claim violations of certain state laws regarding the sale of securities by unregistered broker/dealers and failure to report such
violations. The Court dismissed the class action complaint, and plaintiffs subsequently filed a First Amended Class Action Complaint raising the same allegations. The Company filed a motion to dismiss the amended class action complaint and a hearing
on the motion was heard on January 16, 2008. On March 27, 2008, the Companys motion to dismiss was granted and the plantiffs amended complaint was dismissed.

On September 28, 2006, Wedbush Morgan Securities, Inc. (Wedbush) commenced arbitration against the Company seeking $500,000 in damages, plus interest and attorneys fees, as a result of an
alleged breach of contract. On October 29, 2007 the arbitrator awarded Wedbush $694,197, which the Company recorded during the year ended December 31, 2007. In December 2007, the Company filed a motion to vacate the arbitrators award
in the United States District Court for the Central District of California, and the motion was denied. In April 2008 the Company filed an appeal of the final arbitrators award. On June 4, 2008, the Company and Wedbush entered into an
agreement of forbearance in the amount of $724,381, including interest of $24,381. During the three months ended June 30, 2008 the Company paid $562,036, and paid the remaining $162,345 during August 2008.

On or about September 26, 2006, the Company received copies of three consumer complaints filed by Chirag Chaman, Chief Operating Officer of MX Interactive, LLC.
These complaints were submitted to the SEC, the New York Attorney General, and the Florida Attorney General, and assert various claims with respect to the failure to issue to MX Interactive LLC 45,454 shares of stock which claimant alleges the
Company agreed to transfer pursuant to a written assignment agreement. Claimant asserts that, in July 2005, a third party agreed to transfer rights to receive shares of Company stock to claimant and failed to do so, and that the Company is under an
obligation to transfer such shares and satisfy the obligation under the assignment agreement. The Company believes these claims to be substantially without merit and intends to vigorously defend itself with respect to this matter, however its
outcome or range of possible loss, if any, cannot be predicted at this time. The Company cannot provide any assurance that the outcome of this matter will not have a material adverse effect on its financial position or results of operations.

The Company received a letter dated August 11, 2006 from counsel to Sunrise Equity Partners, L.P. (Sunrise), demanding return of its
$750,000 investment, with interest. Subsequently, counsel to Sunrise Equity Partners, L.P. has made demands for issuance of additional shares of Common Stock on the same basis as the amendment to the Companys Debentures. On July 31, 2008,
Sunrise commenced an action in the US District Court Southern District of New York, which was received by the Company on August 12, 2008. The action alleges, among other things, breach of contract and violation of security laws and seeks
compensatory damages, reasonable costs and expenses including attorneys fees, and punitive damages. The Company believes these claims to be substantially without merit and intends to vigorously defend itself with respect to this matter,
however its outcome or range of possible loss, if any, cannot be predicted at this time. The Company cannot provide any assurance that the outcome of this matter will not have a material adverse effect on its financial position or results of
operations.

On September 14, 2007, the Company filed a breach of contract and collection of trade receivables action against a former customer,
Cosmetique, Inc. The Company is seeking recovery of at least $2.4 million, as of December 31, 2007. This amount includes invoiced advertising services, as well as other commissions estimated at approximately $0.2 million, as of
December 31, 2007. The action is in the initial stage. While it is impossible to predict the outcome of any litigation with certainty, the Company believes it has valid claims and intends to



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pursue them vigorously. The amounts have been reflected as accounts receivable in the accompanying consolidated balance sheet as of December 31, 2007.
In March 2008, Cosmetique filed a counterclaim alleging, among other things, breach of contract, negligent misrepresentation, fraud in the inducement, and violation of the Illinois Consumer Fraud and Deceptive Trade Practices Act. In making these
claims Cosmetique alleges that Sendtec made false statements, either intentionally or negligently, in the negotiation and/or performance of the parties contracts and that Sendtec failed to comply with the terms of those contracts. Sendtec
strenuously denies these allegations and intends to vigorously defend these counter-claims.

Cosmetiques failure to pay its obligations to the
Company has caused the Company to delay certain payments for costs the Company incurred in connection with its work for Cosmetique. On May 5, 2008, Web Clients, Inc. d/b/a/ Webclients.net (a subsidiary of ValueClick, Inc.), a vendor of the
Company, filed a complaint against the Company in the Superior court of the State of California seeking $592,033.75 for alleged breach of contract. The complaint was received by the Company on June 16, 2008 and seeks payment of certain costs
incurred by the Company in connection with our work for Cosmetique. On July 22, 2008 the Company settled this matter with Web Clients, Inc. for six monthly payments of $20,000 beginning in July 2008, which is included in accounts payable in the
accompanying unaudited condensed consolidated balance sheet at June 30, 2008. The Company is not aware of any other vendor lawsuits that have been filed.

In December 2007, the Company filed an amended complaint for the collection of trade receivables against a former customer, Crystal Care International, Inc. The Company is seeking recovery of at least $282,000, as of December 31, 2007.
In January 2008, Crystal Care filed a counterclaim alleging, among other things, negligence and unfair trade practices. The action is in the initial stage. While it is impossible to predict the outcome of any litigation with certainty, the Company
believes it has valid claims and intends to pursue them vigorously. The amounts have been reflected as accounts receivable in the accompanying condensed consolidated balance sheets as of June 30, 2008 (unaudited) and December 31, 2007.

NOTE 3  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The unaudited condensed consolidated financial statements include the accounts of SendTec, Inc. and its wholly owned
subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation.

Revenue Recognition

The Company follows the guidance of the SECs Staff Accounting Bulletin (SAB) 104 for revenue recognition. In general, the Company records revenue
when persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred, the selling price to the customer is fixed or determinable, and collectibility is reasonably assured. The Company, in accordance
with Emerging Issues Task Force (EITF) Issue 99-19 Reporting Revenue Gross as a Principal vs. Net as an Agent, reports revenues for transactions in which it is the primary obligor on a gross basis and revenues in which it acts as
an agent on and earns a fixed percentage of the sale on a net basis, net of related costs. Credits or refunds are recognized when they are determinable and estimable. The following policies reflect specific criteria for the various revenue streams
of the Company:

Internet advertising: Revenue from the distribution of Internet advertising, which principally includes the
placement of banner ads and e-mail transmission services, is recognized when Internet users visit and complete actions at an advertisers website. Revenue consists of the gross value of billings to clients, including the recovery of costs
incurred to acquire online media required to execute client campaigns. The Company reports these revenues gross because it is responsible for fulfillment of the service, has substantial latitude in setting price and assumes the credit risk for the
entire amount of the sale, and it is responsible for the payment of all obligations incurred with media providers.

Online search:
Revenue derived from search engine marketing services, such as search engine keyword buying, is recognized on a net basis in the period when the associated keyword search media is clicked on by a consumer. The Company typically earns a media
commission equal to a percentage of the keyword search media purchased for its clients. In many cases, the amount the Company bills to clients significantly exceeds the amount of revenue that is earned due to the existence of various pass-through
charges such as the cost of the search engine keyword media. Amounts received in advance of search engine keyword media purchases are deferred and included in deferred revenue in the accompanying balance sheet. The Company reports these revenues on
a net basis since amounts earned are based on a fixed percentage of the selling price.

Direct response media: Revenue derived from
the purchase and tracking of direct response media, such as television and radio commercials, is recognized on a net basis when the associated media is aired. In many cases, the amount the Company bills to clients significantly exceeds the amount of
revenue that is earned due



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to the existence of various pass-through charges such as the cost of the television and radio media. Amounts received in advance of media airings are
deferred and included in deferred revenue in the accompanying balance sheet. The Company reports these revenues on a net basis since amounts earned are based on a fixed percentage of the selling price.

Advertising programs: Revenue generated from the production of direct response advertising programs, such as infomercials, is recognized on the
completed contract method when such programs are complete and available for airing. Production activities generally take 8 to 12 weeks and the Company usually collects amounts in advance and at various points throughout the production process.
Amounts received from customers prior to completion of commercials are included in deferred revenue and direct costs associated with the production of commercials in process are also deferred and included in prepaid expenses. The Company reports
these revenues gross because it is responsible for the fulfillment of the service.

Revenues by revenue stream are as follows:



|                      |  |                                    |           |      |                                  |           |      |  |      |            |  |   |           
|--------------------- |  | ---------------------------------- | --------- | ---- | -------------------------------- | --------- | ---- |  | ---- | ---------- |  | - | ----------
|                      |  | For the three months endedJune 30, |           |      | For the six months endedJune 30,
|                      |  | 2008                               |           | 2007 |                                  |           | 2008 |  | 2007
|Internet advertising  |  | $                                  | 3,104,969 |      | $                                | 5,221,532 |      |  | $    | 5,894,047  |  | $ | 11,415,776
|Online search         |  |                                    | 1,263,118 |      |                                  | 1,011,082 |      |  |      | 2,846,417  |  |   | 2,202,230 
|Direct response media |  |                                    | 502,844   |      |                                  | 632,142   |      |  |      | 1,030,794  |  |   | 1,230,851 
|Advertising programs  |  |                                    | 788,451   |      |                                  | 1,102,165 |      |  |      | 1,491,180  |  |   | 2,158,209 
|Other                 |  |                                    |          |      |                                  | (28,900   | )    |  |      |           |  |   | 123,029   
|                      |  |                                    |           |      |                                  |           |      |  |      |            |  |   |           
|                      |  | $                                  | 5,659,382 |      | $                                | 7,938,021 |      |  | $    | 11,262,438 |  | $ | 17,130,095
|                      |  |                                    |           |      |                                  |           |      |  |      |            |  |   |           

Cost of Revenues

Cost of revenues principally include the costs incurred to acquire online media required to execute internet advertising campaigns and direct production costs related to producing advertising programs. Cost of revenues does not include any
allocation of operating expenses such as salaries, wages and benefits or other general and administrative expenses. There is no cost of revenues from online search, and direct response media, since those revenue streams are reported as revenue net
of related costs.

Cash and Cash Equivalents

Cash and cash
equivalents consist of highly liquid investments with original maturities of three months or less.

Accounts Receivable

Accounts receivable are generally due 30 days from the invoice date. The Company has a policy of reserving for uncollectible accounts based on its best estimate of the
amount of probable credit losses in its existing accounts receivable. The Company periodically reviews its accounts receivable to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may
indicate that the realization of an account may be in doubt. Accounts are deemed past due when they are not paid in accordance with contractual terms. Account balances deemed to be uncollectible are charged to the allowance after all means of
collection have been exhausted and the potential for recovery is considered remote. At June 30, 2008 and December 31, 2007, the Company established, based on a review of its outstanding balances, an allowance for doubtful accounts in the
amount of approximately $369,000 and $326,000, respectively.

Property and Equipment

Property and equipment are carried at cost. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and
accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in results of operations in the year of disposition. Leasehold improvements are amortized over the shorter of the life of the lease or the
estimated useful life. Depreciation and amortization are computed by the straight-line method over the following estimated useful lives:



|                                         |  |      
|---------------------------------------- |  | -----
|                                         |  | Years
|Computer equipment                       |  | 3 - 5
|Furniture, fixtures and office equipment |  | 5 - 7
|Software                                 |  | 3    



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Goodwill and Intangible Assets

The Company accounts for goodwill and intangible assets in accordance with Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 requires that goodwill and other
intangibles with indefinite lives should be tested for impairment annually or on an interim basis if events or circumstances indicate that the fair value of an asset has decreased below its carrying value. Goodwill represents the excess of the
purchase price over the fair value of net assets acquired in business combinations. SFAS 142 requires that goodwill be tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis
and between annual tests when circumstances indicate that the recoverability of the carrying amount of goodwill may be in doubt. Application of the goodwill impairment test requires judgment, including the identification of reporting units,
assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value. The Company operates a single reporting unit. Significant judgments required to estimate the fair value of reporting units
include estimating future cash flows, determining appropriate discount rates and other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value and/or goodwill impairment.

The Companys amortizable intangible assets are comprised of customer relationships. These costs are being amortized using the straight-line method over their
estimated useful lives of 8.5 years. During 2007, non-compete agreements were amortized over the underlying non-compete periods of between 3 to 5 years, until they were determined to be impaired in December 2007, at which time the Company wrote off
the remaining unamortized value of the non-compete agreements.

In accordance with SFAS 144 The Impairment or Disposal of Long-Lived Assets,
the Company reviews the carrying value of intangibles and other long-lived assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Recoverability of long-lived assets is measured by comparison of its carrying amount to the undiscounted cash flows that the asset or asset group is expected to
generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the property, if any, exceeds its fair market value.

Use of Estimates

The preparation of financial statements in conformity with
generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Significant
estimates in 2008 and 2007 include the allowance for doubtful accounts, stock-based compensation, the useful life of property and equipment and intangible assets, impairment of intangible assets and goodwill, troubled debt restructuring accounting,
income taxes, and loss contingencies.

Fair Value of Financial Instruments

The carrying amounts reported in the balance sheet for cash, accounts receivable, accounts payable and accrued expenses approximate fair value based on the short-term maturity of these instruments.

Debentures

The Company accounts for debenture modifications in accordance
with EITF 02-4, Determining Whether a Debtors Modification or Exchange of Debt Instruments Is Within the Scope of FASB Statement No. 15, Accounting by Debtors and Creditors for Troubled Debt Restructurings
(SFAS No. 15). EITF 02-4 specifies that if the debtor is experiencing financial difficulty, and the creditor has granted a concession, the restructuring is within the scope of SFAS No. 15. Otherwise the accounting for the
restructuring falls under EITF 96-19, Debtors Accounting for a Modification of Exchange of Debt Instruments.

For debentures which do not
fall under the provisions of SFAS No. 15, the Company accounts for conversion options embedded in convertible notes in accordance with SFAS No. 133 Accounting for Derivative Instruments and Hedging Activities (SFAS
133) and EITF 00-19 Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Companys Own Stock (EITF 00-19). SFAS 133 generally requires companies to bifurcate conversion options
embedded in convertible notes from their host instruments and to



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account for them as free standing derivative financial instruments in accordance with EITF 00-19. SFAS 133 provides for an exception to this rule when
convertible notes, as host instruments, are deemed to be conventional as that term is described in the implementation guidance under Appendix A to SFAS 133 and further clarified in EITF 05-2 The Meaning of Conventional Convertible Debt
Instrument in Issue No. 00-19 and when conversion options are considered equity.

For debentures which do not fall under the provisions of SFAS
No. 15, the Company accounts for convertible notes (deemed conventional) in accordance with the provisions of EITF (EITF) 98-5 Accounting for Convertible Securities with Beneficial Conversion Features, (EITF
98-5), and EITF 00-27 Application of EITF 98-5 to Certain Convertible Instruments. Accordingly, the Company records, as a discount to convertible notes, the intrinsic value of such conversion options based upon the differences
between the fair value of the underlying Common Stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to
their earliest date of redemption.

Common Stock Purchase Warrants and Other Derivative Financial Instruments

The Company accounts for the issuance of Common Stock purchase warrants and other freestanding derivative financial instruments in accordance with the provisions of EITF
00-19. Based on the provisions of EITF 00-19, the Company classifies as equity any contracts that (i) require physical settlement or net-share settlement or (ii) gives the Company a choice of net-cash settlement or settlement in its own
shares (physical settlement or net-share settlement). The Company classifies as assets or liabilities any contracts that (i) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that
event is outside the control of the Company) or (ii) give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement).

Registration Rights Agreements

During the year ended December 31, 2006, the Company accounted for registration rights
agreements in accordance with View C of EITF 05-4 Effect of a Liquidated Damages Clause on a Freestanding Financial Instrument Subject to EITF 00-19 (EITF 05-4). Accordingly, the Company classifies as liability instruments,
the fair value of registration rights agreements when such agreements (i) require it to file, and cause to be declared effective under the Securities Act, a registration statement with the SEC within contractually fixed time periods, and
(ii) provide for the payment of liquidating damages in the event of its failure to comply with such agreements. Under View C of EITF 05-4, (i) registration rights with these characteristics are accounted for as derivative financial
instruments at fair value and (ii) contracts that are (a) indexed to and potentially settled in an issuers own stock and (b) permit gross physical or net share settlement with no net cash settlement alternative are classified as
equity instruments.

Effective January 1, 2007, the Company adopted FSP EITF 00-19-2, Accounting for Registration Payment Arrangements. FSP
EITF 00-19-2 addresses an issuers accounting for registration payment arrangements. This pronouncement specifies that the contingent obligation to make future payments or otherwise transfer consideration under a registration payment
arrangement, whether issued as a separate agreement or included as a provision of a financial instrument, should be separately recognized and accounted for as a contingency in accordance with SFAS 5 Accounting for Contingencies. As
a result of the adoption of this pronouncement on January 1, 2007, the Company reduced the carrying amount of its liability for estimated penalties by approximately $89,000. The reduction in the carrying amount of the registration rights
liability upon the adoption of FSP EITF 00-19-2 is presented as a cumulative effect of a change in accounting principle in the accompanying statement of operations for the six months ended June 30, 2007.

The Company is currently obligated under a registration rights agreement requiring it to maintain the effectiveness of a registration statement covering the resale of
shares underlying previous placements of preferred stock and convertible debt with warrants until all shares have been sold by the selling stockholders in these registrations.

Additionally, on March 26, 2008, under the terms of the Recapitalization Agreement, the Company issued shares of its Series B Preferred Stock convertible to shares of common stock that are also subject to a
registration rights agreement. The Company is required to file a registration statement within 90 days from March 26, 2008 (which has been completed) and have it declared effective within 150 days from March 26, 2008 (or August 23,
2008). The amount of Debenture principal subject to this registration rights agreement is currently approximately $21.6 million. The penalty for not having the registration statement declared effective by August 23, 2008 would be determined on
a pro rata basis as follows: (i) 1.5% of the debenture principal subject to the registration rights agreement, with respect to which there is not an effective registration statement in place, for the first thirty day period that the
registration statement has not been declared effective; and (ii) 1% per month of such amount for each subsequent month that the registration statement is not declared effective. The maximum penalty that may be incurred will not exceed 18% of
such amount or approximately $3.9 million.

At June 30, 2008, the Company has recorded a registration rights penalty liability of $42,000 which is included
in accrued expense in the accompanying unaudited condensed consolidated balance sheet.



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Net Income (Loss) Per Share

In accordance with SFAS No. 128 Earnings Per Share, Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of Common Stock outstanding during the period. Diluted
net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of Common Stock, Common Stock equivalents and potentially dilutive securities outstanding during each period. Diluted income (loss) per
common share is not presented because it is anti-dilutive. The Companys Common Stock equivalents at June 30, 2008 and 2007, include the following:



|                                     |  |             |  |           
|------------------------------------ |  | ----------- |  | ----------
|                                     |  | 2008        |  | 2007      
|Options                              |  | 5,997,164   |  | 6,598,000 
|Warrants                             |  | 7,360,730   |  | 8,697,487 
|Convertible Series B Preferred stock |  | 94,293,528  |  |          
|Convertible Debentures               |  | 84,519,412  |  | 65,460,000
|                                     |  |             |  |           
|Total Common Stock equivalents       |  | 192,170,834 |  | 80,755,487
|                                     |  |             |  |           

The Company included 3,230,730 Common Stock purchase warrants exercisable at $0.01 per share, in the table above
in its determination of basic and diluted loss per share for the three and six months ended June 30, 2008 and 2007, because the warrants are exercisable for nominal consideration.

Income Taxes

The Companys accounts for income taxes in accordance SFAS 109, Accounting for Income
Taxes. This approach requires recognition of income tax currently payable, as well as deferred tax assets and liabilities resulting from temporary differences by applying enacted statutory tax rates applicable to future years to differences
between the financial statement carrying amounts and the tax bases of assets and liabilities. SFAS 109 requires that companies assess whether valuation allowances should be established based on the consideration of all available evidence using
a more likely than not standard. The Company assesses its deferred tax assets quarterly to determine if valuation allowances are required. See Note 11 for further discussion of the valuation allowances recorded in 2007 and 2008.

Effective January 1, 2007, we adopted FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement No. 109. FIN 48 defines the methodology for recognizing the benefits of tax return positions as well as guidance regarding the measurement of the resulting tax benefits. FIN 48 requires an enterprise
to recognize the financial statement effects of a tax position when it is more likely than not (defined as a likelihood of more than 50%), based on the technical merits, that the position will be sustained upon examination. In addition, FIN 48
provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The evaluation of whether a tax position meets the more-likely-than-not recognition threshold requires a
substantial degree of judgment by management based on the individual facts and circumstances. Actual results could differ from these estimates.

The
Company has not recognized any income tax expense (benefit) in the accompanying unaudited condensed consolidated financial statements for the three and six months ended June 30, 2008 and 2007. Deferred tax assets, which principally arise from
net operating losses, are fully reserved due to managements assessment that it is more likely than not that the benefit of these assets will not be realized in future periods after consideration of utilization of a portion of the deferred tax
assets realized as a result of the gain from troubled debt restructuring.

Stock-Based Compensation

Effective January 1, 2006, the Company adopted SFAS No. 123R Share Based Payments. This statement is a revision of SFAS No. 123, and
supersedes APB Opinion No. 25, and its related implementation guidance. SFAS 123R addresses all forms of share based payment (SBP) awards including shares issued under employee stock purchase plans, stock options, restricted stock
and stock appreciation rights. Under SFAS 123R, SBP awards result in a cost that is measured at fair value on the awards grant date, based on the estimated number of awards that are expected to vest.

Advertising

The Company expenses the cost of advertising, which includes
print advertising and online advertising, in accordance with the AICPA Accounting Standards Executive Committees Statement of Position (SOP) 93-7, Reporting on Advertising Costs (SOP 93-7). Advertising costs
are expensed the first time the advertisement runs. Online marketing fees and print media placement costs are expensed in the month the advertising appears.



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Advertising and promotional expenses are net of amounts reimbursed to the Company by its partners. Advertising costs were
approximately $78,000 and $213,000 for the three months ended June 30, 2008 and 2007, respectively, and $123,000 and $266,000 for the six months ended June 30, 2008 and 2007, respectively, and are included in other general and
administrative expenses in the unaudited condensed consolidated statements of operations.

Concentration of Credit Risk

The Company maintains its cash in bank deposit accounts, which, at times, exceed federally insured limits. At June 30, 2008 and December 31, 2007, the Company
had approximately $2,847,000 and $4,409,000, respectively, in United States bank deposits, which exceed federally insured limits. The Company has not experienced any losses in such accounts through June 30, 2008.

Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS
157 Fair Value Measurements (SFAS 157), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The provisions of SFAS 157 are effective for the first
fiscal year beginning after November 2007. The adoption of SFAS 157 did not impact the Companys financial statements.

In February 2007, the FASB
issued SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159). SFAS 159 provides companies with an option to report selected financial assets and liabilities at fair value and
establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 is effective for fiscal years beginning
after November 15, 2007. The adoption of this statement did not impact the Companys financial statements.

In December 2007, the FASB issued
SFAS 141(R), Business Combinations (SFAS 141(R)). This statement amends SFAS 141, and provides revised guidance for recognizing and measuring identifiable assets and goodwill acquired, liabilities assumed, and any
non-controlling interest in the acquiree. It also provides disclosure requirements to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The provisions of SFAS 141(R) are effective
for business combinations occurring on or after January 1, 2009. There are no impacts to the Companys current financial statements. The potential impacts of the adoption of SFAS 141(R) will be evaluated in the instance of future
acquisitions.

In March 2008, the FASB issued SFAS 161, Disclosures about Derivative Instruments and Hedging Activitiesan amendment of
FASB Statement No. 133 (SFAS 161). SFAS 161 requires entities that utilize derivative instruments to provide qualitative disclosures about their objectives and strategies for using such instruments, as well as any details
of credit-risk-related contingent features contained within derivatives. SFAS 161 also requires entities to disclose additional information about the amounts and location of derivatives located within the financial statements, how the
provisions of SFAS 133 have been applied, and the impact that hedges have on an entitys financial position, financial performance, and cash flows. SFAS 161 is effective for fiscal years and interim periods beginning after
November 15, 2008, with early application encouraged. We do not expect this standard to have a significant impact on our financial statements.

In
April 2008, the FASB issued FSP 142-3, Determination of the Useful Life of Intangible Assets, (FSP 142-3). FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under SFAS 142, Goodwill and Other Intangible Assets. FSP 142-3 is effective for fiscal years beginning after December 15, 2008. The Company is currently assessing the
impact of FSP 142-3, if any, on its financial statements.

In May 2008, the FASB issued SFAS 162, The Hierarchy of Generally Accepted Accounting
Principles (SFAS 162). SFAS 162 is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in
conformity with U.S. generally accepted accounting principles. The guidance in SFAS 162 replaces that prescribed in Statement on Auditing Standards No. 69, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting
Principles, and becomes effective 60 days following the SECs approval of the Public Company Accounting Oversight Boards auditing amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally
Accepted Accounting Principles. The adoption of SFAS 162 will not have an impact on the Companys financial statements.



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In May 2008, the FASB issued FASB Staff Position (FSP) APB 14-1, Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) This FSP clarifies that convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) are not addressed
by paragraph 12 of APB Opinion No. 14, Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants. Additionally, this FSP specifies that issuers of such instruments should separately account for the liability and
equity components in a manner that will reflect the entitys nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. This FSP is effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal years. The Company is in the process of determining the impact FSP APB 14-1 will have on its financial statements.

In June 2008, the FASB issued FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities (EITF 03-6-1). This FSP addresses
whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing earnings per share (EPS) under the two-class method
described in paragraphs 60 and 61 of FASB Statement No. 128, Earnings per Share. FSP EITF 03-6-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those
years. The Company is in the process of determining the impact FSP EITF 03-6-1 will have on its financial statements.

Other accounting standards that have
been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption.

NOTE 4  PROPERTY AND EQUIPMENT

Property and equipment consist
of the following:



|                              |  |              |            |   |                  |   |           |  
|----------------------------- |  | ------------ | ---------- | - | ---------------- | - | --------- | -
|                              |  | June 30,2008 |            |   | December 31,2007 |  
|Equipment                     |  | $            | 1,071,263  |   |                  | $ | 969,578   |  
|Furniture and fixtures        |  |              | 255,838    |   |                  |   | 255,838   |  
|Leasehold improvements        |  |              | 31,394     |   |                  |   | 31,394    |  
|Software                      |  |              | 679,275    |   |                  |   | 679,274   |  
|                              |  |              |            |   |                  |   |           |  
|Property and equipment        |  |              | 2,037,770  |   |                  |   | 1,936,084 |  
|Less accumulated depreciation |  |              | (1,131,134 | ) |                  |   | (853,622  | )
|                              |  |              |            |   |                  |   |           |  
|Property and equipment, net   |  | $            | 906,636    |   |                  | $ | 1,082,462 |  
|                              |  |              |            |   |                  |   |           |  

Depreciation expense was approximately $147,000 and $122,000 for the three months ended June 30, 2008 and
2007, respectively, and approximately $278,000 and $241,000 for the six months ended June 30, 2008 and 2007, respectively.

Fixed assets include
$368,300 and $278,400 of equipment purchases that were financed under capital lease obligations as of June 30, 2008 and December 31 2007, respectively, of which $89,900 and $278,400 were purchased during 2008 and 2007, respectively. The
accumulated depreciation on these assets amounted to $197,500 and $142,400 as of June 30, 2008 and December 31, 2007, respectively.

NOTE 5
 GOODWILL AND AMORTIZABLE INTANGIBLE ASSETS

Goodwill and other intangible assets consist of the following:



|                               |  |              |            |   |                  |   |            |  
|------------------------------ |  | ------------ | ---------- | - | ---------------- | - | ---------- | -
|                               |  | June 30,2008 |            |   | December 31,2007 |  
|Goodwill                       |  | $            | 22,863,827 |   |                  | $ | 22,863,827 |  
|                               |  |              |            |   |                  |   |            |  
|Amortizable Intangible Assets: |  |              |            |   |                  |   |            |  
|Customer relationships         |  | $            | 8,729,000  |   |                  | $ | 8,729,000  |  
|Less accumulated amortization  |  |              | (2,481,775 | ) |                  |   | (1,968,304 | )
|                               |  |              |            |   |                  |   |            |  
|Intangible assets, net         |  | $            | 6,247,225  |   |                  | $ | 6,760,696  |  
|                               |  |              |            |   |                  |   |            |  



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The Company, as of June 30, 2008, evaluated the carrying amount of its goodwill in accordance with SFAS 142 to
determine whether circumstances indicate that the carrying amount of the goodwill exceeds its net realizable value. The Company also evaluated the carrying amounts of its amortizable intangible assets in accordance with SFAS 144 to determine whether
such carrying amounts exceed net realizable value. The Company does not believe that any material events or changes in its circumstances that occurred during the six months ended June 30, 2008, would indicate that the carrying amount of its
goodwill or amortizable intangibles exceed their fair value.

During 2007, non-compete agreements were amortized over the underlying non-compete periods of
between 3 to 5 years, until they were determined to be impaired in December 2007, at which time the Company wrote off the remaining unamortized value of the non-compete agreements.

Making estimates about the carrying values of intangible assets requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect on the financial statements of a
condition, situation, or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate could change in the near term due to one or more future confirming events. Accordingly, the
actual results regarding estimates of the carrying value of these intangibles could differ materially from the Companys estimates.

Amortization
expense with respect to the customer relationships amounted to approximately $257,000 and $513,000 for the three and six months ended June 30, 2008, respectively. Amortization expense with respect to the customer relationships and non-compete
agreements amounted to approximately $302,000 and $598,900 for the three and six months ended June 30, 2007, respectively. Amortization expense subsequent to June 30, 2008 is as follows:



|                                                   |  |   |          
|-------------------------------------------------- |  | - | ---------
|Period from July 1, 2008 through December 31, 2008 |  | $ | 513,471  
|Years ending December 31:                          |  |   |          
|2009                                               |  |   | 1,026,941
|2010                                               |  |   | 1,026,941
|2011                                               |  |   | 1,026,941
|2012                                               |  |   | 1,026,941
|2013                                               |  |   | 1,026,941
|2014                                               |  |   | 599,049  
|                                                   |  |   |          
|                                                   |  | $ | 6,247,225
|                                                   |  |   |          

NOTE 6  ACCRUED EXPENSES

Accrued expenses are comprised of the following:



|                              |  |              |           |                  |   |          
|----------------------------- |  | ------------ | --------- | ---------------- | - | ---------
|                              |  | June 30,2008 |           | December 31,2007
|Legal contingencies liability |  | $            | 212,346   |                  | $ | 885,000  
|Media costs                   |  |              | 738,241   |                  |   | 2,441,905
|Debt restructuring fees       |  |              | 350,000   |                  |   |         
|Interest                      |  |              |          |                  |   | 901,367  
|Other                         |  |              | 398,862   |                  |   | 295,753  
|                              |  |              |           |                  |   |          
|Total accrued expenses        |  | $            | 1,699,449 |                  | $ | 4,524,025
|                              |  |              |           |                  |   |          

NOTE 7  DEBENTURES

In February 2006, STAC financed its purchase of SendTec, in part, by issuing the Senior Secured Convertible Debentures (the Debentures) in the original principal amount of $34,950,000 with an original
maturity date of October 31, 2009. The terms of the Debentures are pursuant to a Securities Purchase Agreement (the Securities Purchase Agreement). The Debentures were amended on November 10, 2006, to provide for a
(i) reduction in the conversion price from $1.50 per share to $.50 per share and (ii) change the maturity date from October 31, 2009 to March 31, 2008, in exchange for a release of previous instances of non-compliance with
certain financial covenants. The modification of the Debentures resulted in a constructive extinguishment of this instrument under its terms prior to the date of the modification.



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On March 26, 2008, the Company and current debenture holders (the Holders) entered into a
recapitalization agreement (the Recapitalization Agreement) which provided, among other things, that the Holders exchange the Debentures due March 31, 2008 (the Debentures) with a then outstanding principal amount of
$32,730,000 into shares of the Companys Series B Convertible Preferred Stock (the Series B Preferred) and certain amended and restated Debentures (the Amended Debentures). The Series B Preferred has a stated value equal
to the principal value of the Debentures exchanged ($1,700 per share of Series B Preferred). Each share of Series B Preferred is convertible into 10,000 common shares. The Series B Preferred will not earn any dividends, has a liquidation preference
equal to its stated value, has common stock voting rights on an as converted basis subject to certain limitations, is protected for certain anti-dilution provisions, and is covered by a registration rights agreement, which provides for certain
liquidated damages in the event the Company is not successful in registering shares underlying potential conversions of the Series B Preferred into common shares of the Company. The exchange of Debentures into Series B Preferred occurred in two
separate closings. The first closing (the First Closing) occurred on March 26, 2008 (the First Closing Date). The second closing (the Second Closing) occurred on July 31, 2008 (see Note 15), which
required the satisfaction of certain conditions, including shareholder approval to amend the Companys certificate of incorporation to increase the authorized common shares of the Company to 500,000,000. The increase in the Companys
authorized shares was approved by the Companys shareholders on June 11, 2008.

At the First Closing, the Holders exchanged $18,361,700 aggregate
principal amount of the Debentures (on a pro rata basis) into 10,801 shares of Series B Preferred. The Series B Preferred issued at the First Closing is convertible into a number of shares of Common Stock such that the aggregate number of shares of
Common Stock of the Company outstanding (on an as converted basis) after the First Closing equaled approximately 190,000,000 inclusive of (i) 108,000,000 shares of Common Stock issuable upon conversion of the Series B Preferred,
(ii) approximately 57,000,000 shares of Common Stock then outstanding, and (iii) up to 25,000,000 shares of Common Stock that may be issued in connection with the Concurrent Offering (as defined below) prior to the Second Closing. Amended
Debentures with an aggregate principal amount of $14,368,300 remained outstanding after the First Closing. The Amended Debentures are non-interest bearing.

At the Second Closing on July 31, 2008 (see Note 15), the remaining Amended Debentures were exchanged for a combination of 1,978 shares of Series B Preferred, a cash settlement for fractional shares in the aggregate amount of $5,704,
and debentures due July 31, 2011 (the Residual Debentures) in the aggregate amount of $11 million with no interest either payable or to be accrued and with no principal payments due prior to maturity. In addition, the remaining $11
million of Residual Debentures shall: (i) convert into Common Stock at a price of $0.17 per share; (ii) contain no financial covenants; (iii) be a senior and secured obligation of the Company; (iv) have pari-passu anti-dilution
protection to the Series B Preferred; and (v) automatically convert into Series B Preferred when and if the Company raises $5 million in aggregate gross proceeds by July 31, 2009 in connection with the Concurrent Offering (as defined
below).

Pursuant to the Recapitalization Agreement, the Company is required to complete a private placement of Common Stock or Series B Preferred (the
Concurrent Offering) with select institutional and accredited investors with gross proceeds to the Company of up to $7.0 million at a price per share equal to $0.12, if Common Stock, or on such equivalent terms as are called for by the
Recapitalization Agreement, if Series B Preferred. The Concurrent Offering will terminate July 31, 2009. Furthermore, three (3) months after the date of the Second Closing sales of Common Stock made in connection with the Concurrent
Offering shall be made at the greater of $0.12 per share or that price equal to a 35% discount to the market (i.e., the 5-Day volume weighted average price as reported by Bloomberg immediately preceding the date of issuance).

Subject to an effective registration statement covering the common stock underlying the Series B Preferred and certain other restrictions, (i) 50% of the
outstanding shares of Series B Preferred shall automatically convert into Common Stock if the Common Stock maintains a minimum closing bid price equal to or greater than $0.30 for fifteen (15) out of twenty (20) consecutive trading
days; and (ii) the remaining 50% of the outstanding shares of Series B Preferred shall automatically convert into Common Stock if the Common Stock maintains a minimum closing bid price equal to or greater than $0.40 for fifteen
(15) out of twenty (20) consecutive trading days.

In the event that the value of the average daily trading volume is less than $1.0 million,
conversion shall be limited to $1.0 million of the Series B Preferred for each 20-day period that the minimum closing bid price equals or exceeds the threshold for a minimum of 15 days. In the event that the value of the average daily trading volume
exceeds $1.0 million but is less than $2.0 million, conversion shall be limited to $2.0 million of the Series B Preferred for each 20-day period that the minimum closing bid price equals or exceeds the threshold for a minimum of 15 days. In the
event that the value of the average daily trading volume exceeds $2.0 million, all such conversion restrictions shall terminate.



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At the First Closing, the Company was required to pay the Holders in cash an amount equal to the interest payment due
under the outstanding principal amount of Debentures as of November 1, 2007 plus interest accrued on such Debentures from November 1, 2007 to November 16, 2007 . Interest on the principal amount of Debentures remaining after
November 16, 2007 ceased to accrue or be payable after such date.

Interest expense related to the Debentures is as follows:



|                      |  |                                    |   |                                  |   |           |  |      |           |  |   |          
|--------------------- |  | ---------------------------------- | - | -------------------------------- | - | --------- |  | ---- | --------- |  | - | ---------
|                      |  | For the three months endedJune 30, |   | For the six months endedJune 30,
|                      |  | 2008                               |   | 2007                             |   | 2008      |  | 2007
|Discount amortization |  | $                                  |  |                                  | $ | 3,337,612 |  | $    | 2,451,053 |  | $ | 6,059,547
|Contractual interest  |  |                                    |  |                                  |   | 505,769   |  |      | 469,131   |  |   | 1,023,731
|                      |  |                                    |   |                                  |   |           |  |      |           |  |   |          
|Debenture interest    |  | $                                  |  |                                  | $ | 3,843,381 |  | $    | 2,920,184 |  | $ | 7,083,278
|                      |  |                                    |   |                                  |   |           |  |      |           |  |   |          

Debt Restructuring Accounting

The Company accounted for the Recapitalization Agreement pursuant to SFAS No. 15, Accounting by Debtors and Creditors for Troubled Debt Restructurings (SFAS No. 15), which required the Company to reduce the
carrying amount of the old debt by the fair value of the shares of Series B Preferred stock granted, determine whether the carrying value of the remaining debt exceeded the future cash payments of the new debt, and if so, record a gain on the excess
of the carrying of the remaining debt over the future cash payments of the new debt. As a result of the application of SFAS No. 15, the Company recorded a gain of approximately $6.7 million, which is reflected in the unaudited condensed
consolidated statement of operations for the six months ended June 30, 2008.

SFAS No. 15 also requires that the new debt be recorded as the
total of future cash payments specified by the Recapitalization Agreement, and no interest expense shall be recognized for any period between the restructuring and the maturity date of March 31, 2011. At June 30, 2008, the future cash
payments of the Debentures were $14,368,300, and are reflected in the accompanying unaudited condensed consolidated balance sheet.

NOTE 8 
CAPITAL LEASE OBLIGATIONS

During March 2008, June 2007, and April 2006, the Company entered into various capital leases with an aggregate present
value of $89,900, $36,900 and $241,500, respectively. In accordance with SFAS 13, Accounting for Leases (SFAS 13), the present value of the minimum lease payments was calculated using discount rates ranging from 11% to 17%.
Lease payments, including amounts representing interest, amounted to $22,787 and $61,830 for the three and six months ended June 30, 2008, respectively. The leases require monthly payments of approximately $14,200, including interest at
discount rates ranging from 11% to 17% and are due at various times through April 2011.

Minimum lease payments due subsequent to June 30, 2008 are as
follows:



|                                                   |  |   |         |  
|-------------------------------------------------- |  | - | ------- | -
|Period from July 1, 2008 through December 31, 2008 |  | $ | 24,160  |  
|Year ending December 31, 2009                      |  |   | 48,320  |  
|Year ending December 31, 2010                      |  |   | 40,955  |  
|Year ending December 31, 2011                      |  |   | 8,955   |  
|                                                   |  |   |         |  
|Total minimum lease payments                       |  |   | 122,390 |  
|Less amounts representing interest                 |  |   | (18,116 | )
|                                                   |  |   |         |  
|Present value of minimum lease payments            |  |   | 104,274 |  
|Less current portion                               |  |   | (37,754 | )
|                                                   |  |   |         |  
|Long-term portion                                  |  | $ | 66,520  |  
|                                                   |  |   |         |  

NOTE 9  SIGNIFICANT CUSTOMERS

A significant portion of the Companys revenue is attributable to a small number of customers.



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During the three months ended June 30, 2008, one customers revenue represented approximately 32.5% of the
Companys net revenue.

During the six months ended June 30, 2008, one customers revenue represented approximately 25.1% of the
Companys net revenue.

Two customers represented approximately 25.4% and 22.4%, respectively of total accounts receivable at June 30, 2008.

During the three months ended June 30, 2007, two customers revenues represented approximately 29.3% (Cosmetique, Inc.) and 10.9%, respectively,
of the Companys net revenue.

During the six months ended June 30, 2007, one customers revenue (Cosmetique, Inc.) represented
approximately 28.2% of the Companys net revenue.

Two customers accounts receivable balances represented approximately 21.5% and 14.7%,
respectively, of total accounts receivable at December 31, 2007.

As more fully described in Note 2, as of December 31, 2007, Cosmetique, Inc.
ended their advertising campaigns, and such revenue will not recur subsequent to December 31, 2007. The Company has commenced an action to collect all amounts outstanding from Cosmetique.

NOTE 10  RELATED PARTY TRANSACTIONS

The CEO and Chairman of
the Board of Directors of the Company also serves on the board of directors of a company that is a customer of the Company. There were no revenues from this customer during the three and six months ended June 30, 2008 and 2007, and there was no
accounts receivable from this customer as of June 30, 2008. Accounts receivable from this customer amounted to $3,750 as of December 31, 2007.

The Company pays fees and commissions to a company whose management includes someone who is a member of the Companys Board of Directors. For the three months ended June 30, 2008 and 2007, the Company incurred $43,179 and $42,065,
respectively, in fees and commissions. For the six months ended June 30, 2008 and 2007, the Company incurred $113,735 and $74,237, respectively, in fees and commissions. At June 30, 2008, $10,800 of such fees and commissions were included
in accrued expenses and $16,755 of such fees were included in accounts payable in the accompanying unaudited condensed consolidated balance sheet. At December 31, 2007, $23,674 of such fees and commissions were included in accounts payable and
$20,792 of such fees and commissions were included in accrued expenses in the accompanying balance sheet.

The Company pays fees in connection with the
Debenture refinancing to a company whose principal shareholder is a member of the Companys Board of Directors. For the three and six months ended June 30, 2008, the Company incurred $2,622 and $37,095, respectively, in fees and expense
reimbursements in connection with the Debenture refinancing. At June 30, 2008, $37,095 of such fees and expenses were included in accounts payable in the accompanying unaudited condensed consolidated balance sheet. At December 31, 2007,
there were no such fees and expenses that were unpaid. There were no fees incurred during the three and six months ended June 30, 2007.

NOTE 11
 INCOME TAXES

As describe in Note 3, the Company adopted FIN 48 effective January 1, 2007. FIN 48 requires companies to recognize in their
financial statements, the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. FIN 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, and disclosure.

The Company and its subsidiaries have filed consolidated federal and various state income tax returns for the years ended December 31, 2006 and 2005.
These income tax returns have not been examined by the applicable Federal and State tax authorities.

Management does not believe that the Company has any
material uncertain tax positions requiring recognition or measurement in accordance with the provisions of FIN 48. Accordingly, the adoption of FIN 48 did not have a material effect on the Companys financial statements. The Companys
policy, is to classify penalties and interest associated with uncertain tax positions, if required as a component of its income tax provision.



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The Company, as a result of having evaluated all available evidence as required under SFAS 109, fully reserved for its
remaining net deferred tax assets at June 30, 2008 and December 31, 2007, after consideration of utilization of a portion of these deferred tax assets realized as a result of the gain from the troubled debt restructuring.

NOTE 12  COMMITMENTS AND CONTINGENCIES

Legal matters

The Company is involved in various matters that are described in Note 2.

Employment agreements

As part of the SendTec acquisition transaction, certain executives of SendTec entered into new
employment agreements with the Company. The employment agreements each have a term of five years and automatically renew for an additional year at expiration unless either party provides a notice of non-renewal. The agreements also contain certain
non-compete provisions for periods specified by the agreements.

Effective February 3, 2006, the Company entered into an employment agreement with
Paul Soltoff, its Chief Executive Officer for an initial five-year term, which will be renewed for additional one-year terms thereafter, unless written notice of intent not to renew is provided by either party. The agreement provides for an annual
base salary of no less than $400,000, as well as such incentive compensation and bonuses as the Board of Directors may determine and to which he may become entitled to pursuant to an incentive compensation or bonus program.

On March 26, 2008, the Company entered into an Amended and Restated Employment Agreement with Paul Soltoff. The agreement provides for an initial term of five
years, which may be renewed for successive one-year terms. Pursuant to the terms of the agreement, Mr. Soltoff shall receive base annual salary of no less than $400,000, as well as incentive and bonus compensation at the discretion of the
Companys Board of Directors.

Pursuant to the terms of the amended agreement, the Company may terminate Mr. Soltoffs employment for good
cause, as defined in the agreement. If Mr. Soltoffs employment is terminated by reason of his death or disability or other than for good cause, or if Mr. Soltoff terminates his employment for good reason, as defined in the agreement,
the Company will pay his base salary through the date of termination and will pay Mr. Soltoff severance in the amount of two times his then current base salary. The Company determined that the actuarial present value of the death benefit was
approximately $18,700 at June 30, 2008, and has reflected this amount in the caption accrued compensation in the accompanying unaudited condensed consolidated balance sheet. In addition, the Company will pay Mr. Soltoff for all
accrued but unused vacation time through the date of termination, and will reimburse him for all reasonable business expenses incurred prior to termination, but not reimbursed as of the termination date.

Effective February 3, 2006, the Company entered into an employment agreement with its Chief Financial Officer for an initial five-year term, which will be renewed
for additional one-year terms thereafter, unless written notice is provided by either party. The agreement provides for an annual base salary of no less than $225,000, as well as such incentive compensation and bonuses as the Board of Directors may
determine and to which he may become entitled to pursuant to an incentive compensation or bonus program.

In addition, the Company has employment contracts
with four of its executives for initial terms between three and five years, which will be renewed for additional one-year terms thereafter, unless written notice of intent not to renew is provided by the respective party. The agreements provide for
annual aggregate base salaries totaling $781,000, as well as incentive compensation and bonuses as the Board of Directors may determine and to which they may become entitled to pursuant to an incentive compensation or bonus program.

Operating leases

The Company leases its office facilities under two
non-cancelable leases expiring in February 2010 and December 2009, respectively. Minimum annual lease payments due subsequent to June 30, 2008 are approximately as follows:



|                                                   |  |   |        
|-------------------------------------------------- |  | - | -------
|Period from July 1, 2008 through December 31, 2008 |  | $ | 209,000
|Years ending December 31:                          |  |   |        
|2009                                               |  |   | 426,900
|2010                                               |  |   | 60,100 
|                                                   |  |   |        
|Total minimum lease payments                       |  | $ | 696,000
|                                                   |  |   |        



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Rent expense for the three months ended June 30, 2008 and 2007 was approximately $117,100 and $134,600,
respectively, including $23,500 and $41,100, respectively, for a share of operating expenses. Rent expense for the six months ended June 30, 2008 and 2007 was approximately $230,800 and $231,900, respectively, including $43,700 and $44,800,
respectively, for a share of operating expenses. Rent expense is being recorded on the straight line basis over the term of the lease in accordance with SFAS No. 13, Accounting for Leases.

NOTE 13  STOCKHOLDERS EQUITY

Authorized shares

On November 10, 2006, the Companys stockholders approved an increase in the authorized shares of the Companys Common Stock to 190,000,000
shares. On April 12, 2007, a registration statement covering 128,940,395 shares of the Companys Common Stock, including shares underlying the Debentures, was declared effective by the Securities and Exchange Commission.

On March 26, 2008, in connection with the Recapitalization Agreement, the Board of Directors of the Company designated 30,000 shares of Series B Preferred of the
Companys previously authorized preferred stock, with a par value of $0.001 per share. Each share of Series B Preferred has a face value of $1,700 (the Stated Value), and a perpetual term. Each share of Series B Preferred is
convertible into 10,000 common shares. The Series B Preferred will not earn any dividends, has a liquidation preference equal to its stated value, has common stock voting rights on an as converted basis subject to certain limitations, is protected
for certain anti-dilution provisions, and is covered by a registration rights agreement, which provides for certain liquidated damages in the event the Company is not successful in registering shares underlying potential conversions of the Series B
Preferred into common shares of the Company.

On June 11, 2008, the Companys stockholders approved an increase in the authorized shares of the
Companys Common Stock to 500,000,000 shares.

Series B Preferred Stock

On March 26, 2008, Debenture holders exchanged $18,361,700 of Debenture principal for 10,801 shares of the Companys Series B Preferred stock, pursuant to the First Closing.

On March 31, 2008, a holder of Series B Preferred Stock exercised conversion rights on 594 shares of Series B Preferred, and the Company issued 5,940,000 shares of
its Common Stock.

On April 1, 2008, a holder of Series B Preferred Stock exercised conversion rights on 173 shares of Series B Preferred, and the
Company issued 1,730,000 shares of its Common Stock.

On April 3, 2008, holders of Series B Preferred Stock exercised conversion rights on 60.8236
shares of Series B Preferred, and the Company issued 608,236 shares of its Common Stock.

On April 8, 2008, a holder of Series B Preferred Stock
exercised conversion rights on 485 shares of Series B Preferred, and the Company issued 4,850,000 shares of its Common Stock.

On May 22, 2008, a
holder of Series B Preferred Stock exercised conversion rights on 29.4118 shares of Series B Preferred, and the Company issued 294,118 shares of its Common Stock.

On June 11, 2008, a holder of Series B Preferred Stock exercised conversion rights on 29.4118 shares of Series B Preferred, and the Company issued 294,118 shares of its Common Stock.

Common Stock Purchase Warrants

The Company, upon its Consolidation
with STAC, issued to the Debentures investors, seven year Warrants to purchase an aggregate of 10,081,607 shares of the Companys Common Stock exercisable at $0.01 per share in amounts proportionate to the face amount of the Debentures. The
Warrants are exercisable through October 30, 2012. The Warrants feature a cashless exercise provision, which provides (a) the holder with the right, any time after one year from their date of issuance through their date of termination (and
only in the event that there is not an effective registration or prospectus covering the resale of the underlying stock), to exercise such Warrants



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using the cashless exercise feature and/or (b) for an automatic cashless exercise on the date of termination. The Company can consent to a cashless
exercise of the Warrants at the request of the holder at anytime. A cashless exercise will result in a net share settlement of the Warrants based on a formula in which the net shares issuable is based upon the then fair value of the Companys
common stock. The Company evaluated the classification of these Warrants at the date of consolidation in accordance with EITF 00-19 and determined that they are equity instruments because (a) net share settlement is within the Companys
control and (b) the cashless exercise feature does not potentially result in the issuance of an indeterminate number of shares.

As described below,
Debenture Holders to date have elected to exercise an aggregate of 6,850,877 of their common stock purchase warrants resulting in the issuance of an aggregate of 6,821,460 of common stock, including the effects of having net-share settled certain of
the warrants through the holders use of the cashless exercise feature. At June 30, 2008, 3,230,730 warrants remained outstanding with respect to this financing transaction.

On September 27, 2006 the Company issued five year warrants to purchase an aggregate of 250,000 shares of the Companys Common Stock exercisable at $0.60 per share with an aggregate fair value of $57,500.
The Company estimated the fair value of the Warrants using the Black Scholes pricing model with the following assumptions: Fair Value of Common Stock $0.36, Risk Free Interest Rate 4.56%, Volatility 90%, Term 5 years. The warrants are exercisable
from September 27, 2006 through September 26, 2011, either through a cash exercise or by use of a cashless exercise provision. The warrants were issued to a consultant for corporate financial advisory services. On March 26, 2008, as a
result of the Recapitalization Agreement, the Company reduced the exercise price of the warrants from $0.60 to $0.20 per share. The change did not affect the fair value of the warrants.

At December 31, 2007, the Company had 8,697,487 outstanding Common Stock purchase warrants with a weighted average exercise price of $0.53 per share.

A summary of the Companys outstanding common stock purchase warrants granted through June 30, 2008 and changes during the period is as follows:



|                               |  |                   |   |  |                               |     
|------------------------------ |  | ----------------- | - |  | ----------------------------- | ----
|                               |  | Number ofwarrants |   |  | Weightedaverageexercise price
|Outstanding at January 1, 2008 |  | 8,697,487         |   |  | $                             | 0.52
|Granted                        |  |                  |   |  |                               |    
|Exercised                      |  |                  |   |  |                               |    
|Forfeited                      |  | (1,336,757        | ) |  |                               | 2.59
|                               |  |                   |   |  |                               |     
|Outstanding at June 30, 2008   |  | 7,360,730         |   |  | $                             | 0.14
|                               |  |                   |   |  |                               |     

Common Stock

On March 26, 2008, the Company issued 10,036,670 shares of its Common Stock, in connection with the Concurrent Offering, for an aggregate price of $1,204,400 ($0.12 per share).

In addition, various holders of Series B Preferred Stock exercised conversion rights on a number of Series B Preferred into Common Stock as described in the caption
Series B Preferred Stock above.

NOTE 14  SHARE BASED PAYMENTS

The Company, since its inception, has granted non-qualified stock options to various employees and non-employees at the discretion of the Board of Directors.
Substantially all options granted to date have exercise prices equal to the fair value of underlying stock at the date of grant and terms of ten years. Vesting periods range from fully vested at the date of grant to three years.

A description of each the Companys plans that are in effect during the reporting period, including the number of shares reserved for issuance and shares that
remain available for grant as of June 30, 2008 is as follows:

2005 Incentive Stock Plan

On June 21, 2005, the Company adopted the 2005 Incentive Stock Plan (the 2005 Plan), which was approved by its stockholders on August 9, 2005. The
2005 Plan provides for the grant of options and the issuance of restricted shares. An aggregate of 3,300,000 shares of common stock is reserved for issuance under the 2005 Plan. Both incentive and nonqualified stock options may be granted under the
2005 Plan. The 2005 Plan terminates on June 21, 2015.



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The exercise price of options granted pursuant to this plan may not be less than 100% of the fair market value of the Companys common stock on the date
of grant and the term of options granted under this plan may not exceed 10 years. For holders of 10% or more of the combined voting power of all classes of the Companys stock, options may not be granted at less than 110% of the fair value of
the Companys common stock on the date of grant and the term of such options may not exceed 5 years. As of June 30, 2008, an aggregate of 2,792,832 shares and options have been granted under the plan, leaving an aggregate of 507,168 shares
available for future issuance. As of December 31, 2007, an aggregate of 3,008,500 shares and options have been granted under the plan.

2005
Directors Plan

On August 9, 2005, by written consent, a majority of the Companys stockholders approved the Companys 2005 Non-Employee
Directors Stock Option Plan (the 2005 Directors Plan). The 2005 Directors Plan provides for the grant of up to 2,000,000 non-qualified stock options to non-employee directors of the Company. The plan also provides for (a) each newly
elected or appointed director (other than the Chairman) to be granted options to purchase 50,000 shares of common stock, of which 50% would become exercisable on the date which is one year from the date of grant and the remaining 50% would become
exercisable on the date which is two years from the date of grant, and (b) for each such director to be an granted an additional option to purchase 50,000 shares of common stock on the second anniversary of their initial election or appointment
of which 50% would become exercisable on the date which is one year from the date of grant and the remaining 50% would become exercisable on the date which is two years from the date of grant. All options granted under the 2005 Directors Plan have a
maximum term of ten years, subject to accelerated vesting in the event of a change in control of the Company. As of June 30, 2008, an aggregate of 1,100,000 options have been granted under the plan, leaving an aggregate of 900,000 shares
available for future issuance. As of December 31, 2007, an aggregate of 1,200,000 shares and options have been granted under the plan.

2006
Incentive Stock Plan

The 2006 Incentive Plan was adopted by the Board of Directors on March 3, 2006 (the 2006 Plan) and received
stockholder approval on July 10, 2006. An aggregate of 2,700,000 shares of Common Stock have been reserved for issuance under the 2006 Plan. Under the 2006 Plan, the Company is authorized to issue incentive stock options intended to qualify
under Section 422 of the Code, non-qualified stock options and restricted stock. The 2006 Plan is currently administered by the Compensation Committee of the Board of Directors. As of June 30, 2008, an aggregate of 2,067,332 shares and
options have been granted under the plan, leaving an aggregate of 632,668 shares available for future issuance. As of December 31, 2007, an aggregate of 2,566,000 shares and options have been granted under the plan.

2007 Incentive Stock Plans

The Companys Board of Directors
adopted the 2007 Incentive Stock Plan A and the 2007 Incentive Stock Plan B on November 15, 2006, (the 2007 Plans). An aggregate of 3,000,000 shares of Common Stock have been reserved for issuance under each of the 2007 Plans. Under
the 2007 Plans, the Company is authorized to issue incentive stock options intended to qualify under Section 422 of the Code, non-qualified stock options and restricted stock. The 2007 Plans are currently administered by the Compensation
Committee of the Board of Directors. The Company has not made any grants under such plans. On April 28, 2008, the Board of Directors approved an increase in the number of shares of Common Stock reserved for issuance under each of the 2007 Plans
to 5,000,000 shares. These amendments to the 2007 Plans were approved by the stockholders in June 2008. As of June 30, 2008, an aggregate of 100,000 shares and options have been granted under the 2007 Incentive Stock Plan A, leaving an
aggregate of 2,900,000 shares available for future issuance. There were no shares and options granted under the 2007 Incentive Stock Plan B.

A summary of
the status of the Companys outstanding stock options as of June 30, 2008 and changes during the six months ended June 30, 2008 are as follows:



|                                     |  |                  |   |  |                              |      |                                                    |     
|------------------------------------ |  | ---------------- | - |  | ---------------------------- | ---- | -------------------------------------------------- | ----
|                                     |  | Number ofoptions |   |  | Weightedaverageexerciseprice |      | Weightedaverageremainingcontractualterm (in years)
|Outstanding at January 1, 2008       |  | 6,774,500        |   |  | $                            | 1.13 |                                                    |     
|Granted                              |  |                 |   |  |                              |     |                                                    |     
|Exercised                            |  |                 |   |  |                              |     |                                                    |     
|Forfeited or Expired                 |  | (877,336         | ) |  | $                            | 0.64 |                                                    |     
|                                     |  |                  |   |  |                              |      |                                                    |     
|Outstanding at June 30, 2008         |  | 5,897,164        |   |  | $                            | 1.20 |                                                    | 7.51
|                                     |  |                  |   |  |                              |      |                                                    |     
|Options exercisable at June 30, 2008 |  | 3,215,615        |   |  | $                            | 1.77 |                                                    | 6.60
|                                     |  |                  |   |  |                              |      |                                                    |     



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At June 30, 2008, there was no intrinsic value of options outstanding based on the June 30, 2008 closing price
of the Company common stock ($0.04 per share).

NOTE 15  SUBSEQUENT EVENTS

Debentures

On July 31, 2008, in connection with the Recapitalization Agreement (see Note 7), the Company
completed the Second Closing and exchanged the remaining Amended Debentures, with a principal balance of $14,368,300, for a combination of 1,978 shares of Series B Preferred Stock, a cash settlement for fractional shares in the aggregate amount of
$5,704, and Residual Debentures due July 31, 2011 in the aggregate amount of $11,000,000.

Issuance of Securities

On July 25, 2008, a holder of Series B Preferred Stock exercised conversion rights on 29 shares of Series B Preferred, and the Company issued 294,118 shares of its
Common Stock.

On August 1, 2008, a holder of Series B Preferred Stock exercised conversion rights on 65 shares of Series B Preferred, and the Company
issued 650,000 shares of its Common Stock.

On August 7, 2008, a holder of Series B Preferred Stock exercised conversion rights on 65 shares of Series
B Preferred, and the Company issued 560,000 shares of its Common Stock.



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FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2008 contains forward-looking statements. Generally, the words believes, anticipates,
may, will, should, expect, intend, estimate, continue, and similar expressions or
the negative thereof or comparable terminology are intended to identify forward-looking statements which include, but are not limited to, statements concerning the Companys expectations regarding its working capital requirements, financing
requirements, business prospects, and other statements of expectations, beliefs, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts. Such statements are subject to
certain risks and uncertainties, including the matters set forth in this Quarterly Report, the Annual Report on Form 10-KSB for the fiscal year ended December 31, 2007, or other reports or documents the Company files with the SEC from time to
time, which could cause actual results or outcomes to differ materially from those projected. Undue reliance should not be placed on these forward-looking statements which speak only as of the date hereof. The Company undertakes no obligation to
update these forward-looking statements. In addition, the forward-looking statements in this Quarterly Report on Form 10-Q involve known and unknown risks, uncertainties and other factors that could cause the actual results, performance or
achievements of the Company to differ materially from those expressed in or implied by the forward-looking statements contained herein.



|ITEM 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

Overview

We are a holding company organized for the purpose of acquiring, owning, and managing various marketing and
advertising businesses, primarily involving the Internet. Since February 2006 the SendTec direct response marketing services business of our wholly-owned subsidiary, SendTec Acquisition Corp. (STAC), has been our sole line of business.
On March 17, 2006, our Board of Directors authorized us to change our name to SendTec, Inc. and on July 10, 2006 our stockholders approved the name change. Our results of operations for the three and six months ended June 30, 2008
consist of STAC and the Company.

Results of Operations

Three months ended June 30, 2008 compared to three months ended June 30, 2007

Revenues were approximately $5.7 million for the
three months ended June 30, 2008, as compared to revenues of $7.9 million for the three months ended June 30, 2007, a decrease of $2.2 million or 28.7%. A summary of the components of our revenue are as follows:



|                      |  |                                    |           |      |                     |           |        |  |   |            |   |  |                  |    |  |       |   
|--------------------- |  | ---------------------------------- | --------- | ---- | ------------------- | --------- | ------ |  | - | ---------- | - |  | ---------------- | -- |  | ----- | --
|                      |  | For the three months endedJune 30, |           |      | Increase (Decrease) |          
|                      |  | 2008                               |           | 2007 |                     |           | Amount |  |   | %          |   |  | % oftotalrevenue |   
|Internet advertising  |  | $                                  | 3,104,969 |      | $                   | 5,221,532 |        |  | $ | (2,116,563 | ) |  | (40.5            | )% |  | (26.7 | )%
|Online search         |  |                                    | 1,263,118 |      |                     | 1,011,082 |        |  |   | 252,036    |   |  | 24.9             | %  |  | 3.2   | % 
|Direct response media |  |                                    | 502,844   |      |                     | 632,142   |        |  |   | (129,298   | ) |  | (20.5            | )% |  | (1.6  | )%
|Advertising programs  |  |                                    | 788,451   |      |                     | 1,102,165 |        |  |   | (313,714   | ) |  | (28.5            | )% |  | (4.0  | )%
|Other                 |  |                                    |          |      |                     | (28,900   | )      |  |   | 28,900     |   |  | 100.0            | %  |  | 0.4   | % 
|                      |  |                                    |           |      |                     |           |        |  |   |            |   |  |                  |    |  |       |   
|Revenues              |  | $                                  | 5,659,382 |      | $                   | 7,938,021 |        |  | $ | (2,278,639 | ) |  | (28.7            | )% |  | (28.7 | )%
|                      |  |                                    |           |      |                     |           |        |  |   |            |   |  |                  |    |  |       |   



| |  |  | Our internet advertising revenues decreased because one of our largest clients in 2007 ended their advertising campaign in September 2007. Accordingly, this revenue
did not recur in 2008. For the three months ended June 30, 2007 this revenue totaled $2.3 million, and we do not expect this revenue to recur in subsequent periods.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our online search revenues increased 24.9% from the prior year, principally from the addition of new clients.
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | Our direct response media revenues decreased from a reduction in media spending from existing clients.
| | - |  | ------------------------------------------------------------------------------------------------------



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| |  |  | Our advertising program revenues decreased due to fewer projects being completed during the three months ended June 30, 2008 as compared to the prior year
period.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

Costs of revenues were approximately $2.2 million for the three months ended June 30, 2008. Costs of revenues principally
include the costs of media providers and direct production costs. The cost of revenues of our internet advertising was $2.1 million, and $0.1 million was from our offline advertising programs. There are no costs of revenues from online search,
direct response media, and branded media, since those revenue streams are reported as revenue net of related costs. Costs of revenues were approximately $4.4 million for the three months ended June 30, 2007. The cost of revenues of our internet
advertising was $3.9 million, and $0.5 million was from our offline advertising programs.

Gross profit decreased approximately $36,000 to $3.5 million for
the three months ended June 30, 2008 from gross profit of $3.5 million for the comparable prior year period. Gross profit was approximately $3.5 million for the three months ended June 30, 2008, or 61.7% of revenues. The decrease in gross
profit is due in part to the decrease in revenue and in part due to the change in the mix of components of our revenues. Gross profit from our internet advertising business was $1.0 million, or 32.0% of our internet advertising revenues for the
three months ended June 30, 2008, while our gross profit from offline advertising programs was $0.7 million, or 93.3% of offline advertising program revenue. Gross profit from our other revenue sources was $1.3 million for online search, and
$0.5 million for direct response media. Gross profit was approximately $3.5 million for the three months ended June 30, 2007, or 44.5% of revenues. Gross profit from our internet advertising business was $1.3 million, or 25.5% of our internet
advertising revenues for the three months ended June 30, 2007, while our gross profit from offline advertising programs was $0.6 million, or 52.7% of offline advertising program revenue. Gross profit from our other revenue sources was $1.0
million for online search, and $0.6 million for direct response media.

Salaries, wages and benefits expenses were approximately $2.5 million for the three
months ended June 30, 2008, as compared to $2.8 million for the comparable prior year period, a decrease of $0.3 million, or 10.3%. The decrease is primarily due to the decrease in staff in the areas of sales, account management, operations,
and information technology. As a percentage of net revenues, salaries, wages and benefits increased to 44.9% of revenues for the three months ended June 30, 2008 from 35.7% of revenues for the comparable prior year period.

Professional fees remained approximately unchanged at $0.1 million for the three months ended June 30, 2008 as compared to $0.1 million for the comparable prior
year period.

There were no restructuring charges for the three months ended June 30, 2008, as compared to restructuring charges of $0.5 million for
the three months ended June 30, 2007. As a result of the loss of our sole contract in the branded media line of business in April 2007, we restructured operations and incurred $0.5 million in costs related to severance arrangements and the
redeployment of personnel for the three months ended June 30, 2007.

Other, general and administrative expenses decreased approximately $0.5 million
to $1.1 million for the three months ended June 30, 2008, as compared to $1.6 million for the comparable prior year period. Our other general and administrative expenses as a percentage of revenues were 20.1% for the three months ended
June 30, 2008, as compared to 20.1% of revenues for the comparable prior year period.

The components of other general and administrative expenses
were as follows:



|                                                |  |                                    |           |      |   |          
|----------------------------------------------- |  | ---------------------------------- | --------- | ---- | - | ---------
|                                                |  | For the three months endedJune 30,
|                                                |  | 2008                               |           | 2007
|Depreciation and amortization                   |  | $                                  | 403,458   |      | $ | 418,598  
|Travel                                          |  |                                    | 85,982    |      |   | 221,401  
|Marketing expenses                              |  |                                    | 78,447    |      |   | 212,593  
|Rent                                            |  |                                    | 117,091   |      |   | 134,627  
|Internet bandwidth                              |  |                                    | 83,649    |      |   | 85,730   
|Commissions                                     |  |                                    | 85,799    |      |   | 208,224  
|Bad debts expense                               |  |                                    | 40,000    |      |   | 103,520  
|Other                                           |  |                                    | 245,359   |      |   | 212,097  
|                                                |  |                                    |           |      |   |          
|Total other general and administrative expenses |  | $                                  | 1,139,785 |      | $ | 1,596,790
|                                                |  |                                    |           |      |   |          

Operating losses decreased approximately $1.2 million to an operating loss of $0.3 million for the three months
ended June 30, 2008, from $1.5 million for the three months ended June 30, 2007. The decrease in the operating loss is the result of the decrease in our gross profit of $36,000, the decrease in our salaries wages and benefits of $0.3
million, the decrease in our restructuring charges of $0.5 million, and the decrease in our other, general and administrative expenses of $0.5 million.



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Other income (expense) decreased $3.8 million to other income of $3,000 for the three months ended June 30, 2008
from other expense of $3.8 million for the comparable prior year period. It is comprised of the following:



| |  |  | Interest income  we earned approximately $10,000 in interest on bank deposits for the three months ended June 30, 2008, as compared to $44,000 for the
three months ended June 30, 2007.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Interest expense  interest expense decreased $3.8 million to $28,000 for the three months ended June 30, 2008 from $3.8 million for the comparable prior
year period. The decrease is substantially due to the decrease in Debenture interest. In March 2008, we restructured our Debentures, and as a result, we did not incur any interest on the Debentures during the three months ended June 30, 2008.
We incurred total interest expense on the Debentures of approximately $3.8 million for the three months ended June 30, 2007. Included in interest expense is $0.5 million of interest that was paid to our Debenture holders and a non-cash interest
charge of $3.3 million to amortize the debt discount.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Registration rights penalty  we entered into an agreement to register the resale of the shares of Common Stock held by our Debenture holders, and preferred
stockholders, as well as those shares that would be issuable if our Debenture holders converted our Debentures and exercised warrants that they hold into shares of our Common Stock. The agreement stipulated that if the registration statement was not
filed and declared effective within certain contractual timeframes we would be subject to a registration rights penalty. The registration statement for the shares was declared effective on July 14, 2006. A new registration statement for the
additional shares of Common Stock issuable upon conversion of our Debentures as a result of the restructuring, effective November 10, 2006, was declared effective on April 12, 2007. In addition, shares issued pursuant to the
Recapitalization Agreement on March 26, 2008 are subject to the registration rights agreement. During the three months ended June 30, 2008, management believes the probability of such penalty is minimal and has estimated the amount of the
penalty for all stock issues to have decreased by $15,200. There was no change in the registration rights penalty for the three months ended June 30, 2007.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our provision for income taxes (benefits) is zero in both periods. For the three months ended June 30, 2008 and 2007, a provision for income taxes was not made because after evaluating all available evidence, we
believe that a valuation allowance is necessary to offset against any potential deferred tax assets.

We reported a net loss of approximately $0.3 million
for the three months ended June 30, 2008, compared to a net loss of approximately $5.3 million for the three months ended June 30, 2007. Included in the loss for the three months ended June 30, 2008 are non-cash expenses totaling $0.6
million. Included in the net loss for the three months ended June 30, 2007 are non-cash expenses totaling $3.7 million.

Six months ended
June 30, 2008 compared to six months ended June 30, 2007

Revenues were approximately $11.3 million for the six months ended June 30,
2008, as compared to revenues of $17.1 million for the six months ended June 30, 2007, a decrease of $5.8 million or 34.3%. A summary of the components of our revenue are as follows:



|                      |  |                                  |            |                     |   |            |  |   |            |   |  |                  |    |  |       |   
|--------------------- |  | -------------------------------- | ---------- | ------------------- | - | ---------- |  | - | ---------- | - |  | ---------------- | -- |  | ----- | --
|                      |  | For the six months endedJune 30, |            | Increase (Decrease) |  
|                      |  | 2008                             |            | 2007                |   | Amount     |  |   | %          |   |  | % oftotalrevenue |   
|Internet advertising  |  | $                                | 5,894,047  |                     | $ | 11,415,776 |  | $ | (5,521,729 | ) |  | (48.4            | )% |  | (32.3 | )%
|Online search         |  |                                  | 2,846,417  |                     |   | 2,202,230  |  |   | 644,187    |   |  | 29.3             | %  |  | 3.8   | % 
|Direct response media |  |                                  | 1,030,794  |                     |   | 1,230,851  |  |   | (200,057   | ) |  | (16.3            | )% |  | (1.2  | )%
|Advertising programs  |  |                                  | 1,491,180  |                     |   | 2,158,209  |  |   | (667,029   | ) |  | (30.9            | )% |  | (3.9  | )%
|Other                 |  |                                  |           |                     |   | 123,029    |  |   | (123,029   | ) |  | (100.0           | )% |  | (0.7  | )%
|                      |  |                                  |            |                     |   |            |  |   |            |   |  |                  |    |  |       |   
|Revenues              |  | $                                | 11,262,438 |                     | $ | 17,130,095 |  | $ | (5,867,657 | ) |  | (34.3            | )% |  | (34.3 | )%
|                      |  |                                  |            |                     |   |            |  |   |            |   |  |                  |    |  |       |   



| |  |  | Our internet advertising revenues decreased because one of our largest clients in 2007 ended their advertising campaign in September 2007. Accordingly, this revenue
did not recur in 2008. For the six months ended June 30, 2007 this revenue totaled $4.8 million, and we do not expect this revenue to recur in subsequent periods.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | Our online search revenues increased 29.3% from the prior year, principally from the addition of new clients.
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | Our direct response media revenues decreased from a reduction in media spending from existing clients.
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | Our advertising program revenues decreased due to fewer projects being completed during the six months ended June 30, 2008 as compared to the prior year
period.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our other revenue decreased as a result of the loss of our sole contract in April 2007. Such revenue did not recur during 2008.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------

Costs of revenues were approximately $4.2 million for the six months ended June 30, 2008. Costs of revenues principally include the costs of media providers and
direct production costs. The cost of revenues of our internet advertising was $4.1 million, and $0.1 million was from our offline advertising programs. There are no costs of revenues from online search, direct response media, and branded media,
since those revenue streams are reported as revenue net of related costs. Costs of revenues were approximately $9.0 million for the six months ended June 30, 2007. The cost of revenues of our internet advertising was $8.2 million, and $0.8
million was from our offline advertising programs.

Gross profit decreased approximately $1.0 million to $7.1 million for the six months ended
June 30, 2008 from gross profit of $8.1 million for the comparable prior year period. Gross profit was approximately $7.1 million for the six months ended June 30, 2008, or 62.7% of revenues. The decrease in gross profit is due in part to
the decrease in revenue and in part due to the change in the mix of components of our revenues. Gross profit from our internet advertising business was $1.8 million, or 30.6% of our internet advertising revenues for the six months ended
June 30, 2008, while our gross profit from offline advertising programs was $1.4 million, or 92.9% of offline advertising program revenue. Gross profit from our other revenue sources was $2.9 million for online search, and $1.0 million for
direct response media. Gross profit was approximately $8.1 million for the six months ended June 30, 2007, or 47.3% of revenues. Gross profit from our internet advertising business was $3.2 million, or 27.9% of our internet advertising revenues
for the six months ended June 30, 2007, while our gross profit from offline advertising programs was $1.4 million, or 63.6% of offline advertising program revenue. Gross profit from our other revenue sources was $2.2 million for online search,
$1.2 million for direct response media, and $0.1 million from other sources.

Salaries, wages and benefits expenses were approximately $5.3 million for the
six months ended June 30, 2008, as compared to $5.8 million for the comparable prior year period, a decrease of $0.5 million, or 9.1%. The decrease is primarily due to the decrease in staff in the areas of sales, account management, operations,
and information technology. As a percentage of net revenues, salaries, wages and benefits increased to 47.1% of revenues for the six months ended June 30, 2008 from 34.1% of revenues for the comparable prior year period.

Professional fees decreased approximately $0.4 million to $0.3 million for the six months ended June 30, 2008 as compared to $0.7 million for the comparable prior
year period. The decrease is primarily due to lower professional fees related to litigation costs.

There were no restructuring charges for the six months
ended June 30, 2008, as compared to restructuring charges of $0.5 million for the six months ended June 30, 2007. As a result of the loss of our sole contract in the branded media line of business in April 2007, we restructured operations
and incurred $0.5 million in costs related to severance arrangements and the redeployment of personnel for the six months ended June 30, 2007.

Other,
general and administrative expenses decreased approximately $0.7 million to $2.4 million for the six months ended June 30, 2008, as compared to $3.1 million for the comparable prior year period. Our other general and administrative expenses as
a percentage of revenues were 20.9% for the six months ended June 30, 2008, as compared to 18.3% of revenues for the comparable prior year period.

The components of other general and administrative expenses were as follows:



|                                                |  |                                  |           |      |   |          
|----------------------------------------------- |  | -------------------------------- | --------- | ---- | - | ---------
|                                                |  | For the six months endedJune 30,
|                                                |  | 2008                             |           | 2007
|Depreciation and amortization                   |  | $                                | 790,982   |      | $ | 839,644  
|Travel                                          |  |                                  | 178,879   |      |   | 330,177  
|Marketing expenses                              |  |                                  | 123,395   |      |   | 266,086  
|Rent                                            |  |                                  | 230,817   |      |   | 231,876  
|Internet bandwidth                              |  |                                  | 167,417   |      |   | 219,146  
|Commissions                                     |  |                                  | 243,149   |      |   | 357,899  
|Bad debts expense                               |  |                                  | 80,000    |      |   | 133,520  
|Other                                           |  |                                  | 536,367   |      |   | 750,459  
|                                                |  |                                  |           |      |   |          
|Total other general and administrative expenses |  | $                                | 2,351,006 |      | $ | 3,128,807
|                                                |  |                                  |           |      |   |          



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Operating losses decreased approximately $1.1 million to an operating loss of $0.9 million for the six months ended
June 30, 2008, from $2.0 million for the six months ended June 30, 2007. The decrease in the operating loss is the result of the decrease in our gross profit of $1.0 million, the decrease in our salaries wages and benefits of $0.5 million,
the decrease in our professional fees of $0.4 million, the decrease in our restructuring charges of $0.5, and the decrease in our other, general and administrative expenses of $0.7 million.

Other income (expense) increased $10.7 million to other income of $3.7 million for the six months ended June 30, 2008 from other expense of $7.0 million for the
comparable prior year period. It is comprised of the following:



| |  |  | Gain from troubled debt restructuring  we recorded a gain of approximately $6.7 million on the recapitalization agreement for the restructure of our
debentures during the six months ended June 30, 2008. The gain is non-cash in nature. We did not have any such transaction during the six months ended June 30, 2007.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Interest income  we earned approximately $30,000 in interest on bank deposits for the six months ended June 30, 2008, as compared to $80,000 for the six
months ended June 30, 2007.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Interest expense  interest expense decreased $4.1 million to $3.0 million for the six months ended June 30, 2008 from $7.1 million for the comparable
prior year period. The decrease is due in part to amortization of the debt discount as a result of the restructuring of our Debentures in March 2008, and in part to conversions during 2007 of Debentures into our Common Stock. We incurred total
interest expense on the debentures of approximately $2.9 million for the six months ended June 30, 2008. Included in interest expense is $0.5 million of interest that will require payment to our Debenture holders and a non-cash interest charge
of $2.5 million to amortize the debt discount. In March 2008, we restructured our Debentures, and as a result, we did not incur any interest on the Debentures subsequent to March 2008. We incurred total interest expense on the Debentures of
approximately $7.1 million for the six months ended June 30, 2007. Included in interest expense is $1.0 million of interest that will require payment to our Debenture holders and a non-cash interest charge of $6.1 million to amortize the debt
discount.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Registration rights penalty  we entered into an agreement to register the resale of the shares of Common Stock held by our Debenture holders, and preferred
stockholders, as well as those shares that would be issuable if our Debenture holders converted our Debentures and exercised warrants that they hold into shares of our Common Stock. The agreement stipulated that if the registration statement was not
filed and declared effective within certain contractual timeframes we would be subject to a registration rights penalty. The registration statement for the shares was declared effective on July 14, 2006. A new registration statement for the
additional shares of Common Stock issuable upon conversion of our Debentures as a result of the restructuring, effective November 10, 2006, was declared effective on April 12, 2007. In addition, shares issued pursuant to the
Recapitalization Agreement on March 26, 2008 are subject to the registration rights agreement. During the six months ended June 30, 2008, management believes the probability of such penalty is minimal and has estimated the amount of the
penalty for all stock issue to have increased by $26,800. The reduction in the registration rights penalty for the six months ended June 30, 2007 has been presented as a cumulative effect of a change in accounting principle in the accompanying
unaudited condensed consolidated statement of operations.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our provision for income taxes (benefits) is zero in both periods. For the six
months ended June 30, 2008 and 2007, a provision for income taxes was not made because any income would be offset by net operating loss carryforwards and after evaluating all available evidence, we believe that a valuation allowance is
necessary to offset against any potential deferred tax assets.

We reported net income of approximately $2.8 million for the six months ended June 30,
2008, compared to a net loss before cumulative effect of change in accounting principle of approximately $9.1 million for the six months ended June 30, 2007. Included in the net income for the six months ended June 30, 2008 is a non-cash
gain of $6.7 million and non-cash expenses totaling $3.7 million. Included in the net loss for the six months ended June 30, 2007 are non-cash expenses totaling $7.4 million.



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Effective January 1, 2006, we adopted FSP EITF 00-19-2, Accounting for Registration Payment
Arrangements. The adoption of this pronouncement did not have a material effect on our financial statements. As a result of the adoption, we recorded a reduction in the registration rights penalty of $88,500, which is presented as a cumulative
effect of change in accounting principle in the accompanying unaudited condensed consolidated statement of operations for the six months ended June 30, 2007.

We reported net income of approximately $2.8 million for the six months ended June 30, 2008, compared to a net loss of $9.0 million for the six months ended June 30, 2007. Included in the net income for the six months ended
June 30, 2008 is a non-cash gain of $6.7 million and non-cash expenses totaling $3.7 million. Included in the net loss for the six months ended June 30, 2007 are non-cash expenses totaling $7.4 million, and a cumulative effect of change in
accounting principle of $88,500.

Liquidity and Capital Resources

We generated approximately a $2.8 million income from operations for the six months ended June 30, 2008, which includes an aggregate of approximately $6.7 million of a non-cash gain and $3.7 million in non-cash
charges relating to non-cash interest of $2.5 million, depreciation and amortization of $0.8 million, stock based compensation of $0.3 million, a provision for doubtful accounts of $80 thousand, and a registration rights penalty of $27,000.

On March 26, 2008, the Company and our Debenture holders (the Holders) entered into a recapitalization agreement (the
Recapitalization Agreement) which provides for, among other things, the conversion of certain Debenture principal into our Preferred Shares, and extends the due date of the remaining Debenture principal for up to three years.

Pursuant to the Recapitalization Agreement, we and the Holders agreed to exchange the Debentures with a current outstanding principal amount of $32,730,000 into a
combination of shares of our newly created Series B Convertible Preferred Stock (the Series B Preferred) and certain amended and restated Debentures (the Amended Debentures). Our Series B Preferred has a stated value equal to
the principal value of the Debentures exchanged ($1,700 per share of Series B Preferred). Each share of Series B Preferred is convertible into 10,000 common shares at $0.17 per common share. The Series B Preferred will not earn any dividends, has a
liquidation preference equal to its stated value, has common stock voting rights on an as converted basis subject to certain limitations, is protected for certain anti-dilution provisions, and is covered by a registration rights agreement, which
provides for certain liquidated damages in the event we are not successful in registering shares underlying potential conversions of the Series B Preferred into our common shares. The exchange of Debentures into Series B Preferred occurred in two
separate closings. The first closing (the First Closing) occurred on March 26, 2008 (the First Closing Date). The second closing (the Second Closing) occurred on July 31, 2008 following the satisfaction
of certain conditions, including shareholder approval to amend our certificate of incorporation to increase the authorized number of our common shares to 500,000,000.

At the First Closing, the Holders exchanged, $18,361,700 aggregate principal amount of the Debentures (on a pro rata basis) into shares of Series B Preferred. The Series B Preferred issued at the First Closing is
convertible into a number of shares of Common Stock such that the aggregate number of shares of our Common Stock outstanding (on an as converted basis) after the First Closing equals approximately 190,000,000 inclusive of (i) 108,000,000 shares
of Common Stock issuable upon conversion of the Series B Preferred, (ii) approximately 57,000,000 shares of Common Stock outstanding prior to the issuance of the Series B Preferred, and (iii) up to 25,000,000 shares of Common Stock that
may be issued in connection with the Concurrent Offering (defined below) prior to the Second Closing. Amended Debentures with an aggregate principal amount of $14,368,300 remained outstanding after the First Closing. The Amended Debentures are
non-interest bearing.

During June 2008, our stockholders voted to increase our authorized Common Stock to 500,000,000 shares, which was a condition
required under the Recapitalization Agreement.

At the Second Closing on July 31, 2008 (see Note 15), the remaining Amended Debentures were exchanged
for a combination of 1,978 shares of Series B Preferred, a cash settlement for fractional shares in the aggregate amount of $5,704, and debentures due July 31, 2011 (the Residual Debentures) in the aggregate amount of $11 million
with no interest either payable of to be accrued and with no principal payments due prior to maturity. In addition, the remaining $11 million of Residual Debentures shall: (i) convert into Common Stock at a price of $0.17 per share;
(ii) contain no financial covenants; (iii) be a senior and secured obligation of the Company; (iv) have pari-passu anti-dilution protection to the Series B Preferred; and (v) automatically convert into Series B Preferred when and
if the Company raises $5 million in aggregate gross proceeds by July 31, 2009 in connection with the Concurrent Offering (as defined below).



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Pursuant to the Recapitalization Agreement, we are required to complete a private placement of Common Stock or Series B
Preferred (the Concurrent Offering) with select institutional and accredited investors with gross proceeds to the Company of up to $7.0 million at a price per share equal to $0.12, if Common Stock, or on such terms as are called for by
the Recapitalization Agreement, if Series B Preferred. The Concurrent Offering will terminate July 31, 2009. Furthermore, three (3) months after the date of the Second Closing sales of Common Stock made in connection with the Concurrent
Offering shall be made at the greater of $0.12 per share or that price equal to a 35% discount to the market (i.e., the 5-Day volume weighted average price as reported by Bloomberg immediately preceding the date of issuance).

Subject to an effective registration statement covering the Common Stock underlying the Series B Preferred and certain other restrictions, (i) 50% of the
outstanding shares of Series B Preferred shall automatically convert into our Common Stock if the Common Stock maintains a minimum closing bid price equal to or greater than $0.30 for fifteen (15) out of twenty (20) consecutive trading
days; and (ii) 50% of the outstanding shares of Series B Preferred shall automatically convert into Common Stock if the Common Stock maintains a minimum closing bid price equal to or greater than $0.40 for fifteen (15) out of twenty
(20) consecutive trading days.

In the event that the value of the average daily trading volume is less than $1.0 million, conversion shall be limited
to $1.0 million of the Series B Preferred for each 20-day period that the minimum second closing bid price equals or exceeds the threshold for a minimum of 15 days. In the event that the value of the average daily trading volume exceeds $1.0 million
but is less than $2.0 million, conversion shall be limited to $2.0 million of the Series B Preferred for each 20-day period that the minimum closing bid price equals or exceeds the threshold for a minimum of 15 days. In the event that the value of
the average daily trading volume exceeds $2.0 million, all such conversion restrictions shall terminate.

At the First Closing, we were required to pay the
Holders in cash on amount equal to the interest payment due under the outstanding principal amount of Debentures as of November 1, 2007 plus interest accrued on such Debentures from November 1, 2007 to November 16, 2007. Interest on
the principal amount of Debentures remaining after November 16, 2007 ceased to accrue or be payable after such date.

We believe that our current
capital resources will enable us to sustain operations through June 30, 2009. We may look to raise additional capital to fund the expansion of our business and believe we have access to capital resources; however, we have not secured any
commitments for new financing at this time and we cannot provide any assurance that we will be successful in our efforts to raise additional capital if considered necessary. We are restricted from incurring additional indebtedness, other than
certain permitted indebtedness, as long as our Debentures remain outstanding.

In July 2006 and April 2007, we successfully completed registrations for
resale of certain shares of Common Stock, as required pursuant to our agreements with our Debenture holders and holders of our Series A Preferred Stock. We are required to maintain the effectiveness of these registration statements until such time
that all of the registered shares have been sold by the selling stockholders. We are required to successfully complete registration of our Common Stock issued or issuable to our Debenture holders in connection with the Recapitalization Agreement and
we are also required to maintain the effectiveness of the registration statement covering those shares through March 2011.

Net cash flows used in
operating activities for the six months ended June 30, 2008 were $2.7 million as compared to net cash provided by operating activities of $0.1 million for the six months ended June 30, 2007. For the six months ended June 30, 2008, our
net income from operations of approximately $2.8 million, adjusted for a non-cash gain of $6.7 million and non-cash charges totaling $3.6 million, used $0.3 million in cash. Changes in assets and liabilities used $2.4 million in cash. For the six
months ended June 30, 2007, our net loss from continuing operations of approximately $9.1 million, adjusted for non-cash items totaling $7.5 million, used $1.6 million in cash. Changes in assets and liabilities provided $1.7 million in cash.

Net cash flows used in investing activities for the six months ended June 30, 2008 were $12,000 as compared to net cash used in investing activities
of $0.1 million for the six months ended June 30, 2007. For the six months ended June 30, 2008 we used cash to purchase $12,000 of property and equipment. For the six months ended June 30, 2007 we used cash to purchase property and
equipment of $0.1 million.

Net cash flows provided by financing activities for the six months ended June 30, 2008 were $1.1 million as compared to
net cash used in financing activities of $0.2 million for the six months ended June 30, 2007. For the six months ended June 30, 2008, we received proceeds from the sale of our common stock of $1.2 million, and we made principal payments on
capital lease obligations of $0.1 million. For the six months ended June 30, 2007, we repurchased and retired common stock that was subject to redemption of $0.1 million, and we made principal payments on capital lease obligations of $0.1
million.



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We reported a net decrease in cash for the six months ended June 30, 2008 of $1.6 million as compared to a net
decrease in cash of $0.2 million for the six months ended June 30, 2007. At June 30, 2008 we had cash on hand of $2.8 million.

Critical
Accounting Policies

Our consolidated financial statements and accompanying notes are prepared in accordance with GAAP, which requires management to
exercise its judgment. We exercise considerable judgment with respect to establishing sound accounting policies and in making estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and disclosure of
commitments and contingencies at the date of the financial statements.

The preparation of financial statements in conformity with GAAP requires us to make
estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Significant estimates in the three and six months ended June 30, 2008 and 2007 include the allowance
for doubtful accounts, stock-based compensation, the useful life of property and equipment and intangible assets, impairment of intangible assets and goodwill, troubled debt restructuring, income taxes, and loss contingencies. We have also adopted
certain policies with respect to our recognition of revenue that we believe are consistent with the guidance provided under Securities and Exchange Commission (SEC) Staff Accounting Bulletin No. 104.

We base our estimates and judgments on a variety of factors, including our historical experience, knowledge of the business and industry, current and expected economic
conditions, the attributes of our products and services, regulatory environment, and in certain cases, the results of outside appraisals. We periodically re-evaluate our estimates and assumptions with respect to these judgments and modify our
approach when circumstances indicate that modifications are necessary.

While we believe that the factors we evaluate provide us with a meaningful basis
for establishing and applying sound accounting policies, we cannot guarantee that the results will always be accurate. Since the determination of these estimates requires the exercise of judgment, actual results could differ from such estimates.

A description of significant accounting policies that require us to make estimates and assumptions in the preparation of our consolidated financial
statements is as follows:

Revenue Recognition  We follow the guidance of the SECs Staff Accounting Bulletin 104 for revenue recognition. In
general, we record revenue when persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred, the sales price to the customer is fixed or determinable, and collectibility is reasonably assured. Certain
of our revenue is reported on a gross basis, while certain other revenue is reported on a net basis, net of related costs. Credits or refunds are recognized when they are determinable and estimable. The following policies reflect specific criteria
for our various revenues streams:

Internet advertising: Revenue from the distribution of Internet advertising, which
principally includes the placement of banner ads and e-mail transmission of services, is recognized when Internet users visit and complete actions at an advertisers website. Revenue consists of the gross value of billings to clients, including
the recovery of costs incurred to acquire online media required to execute client campaigns. We report these revenues gross because we are responsible for fulfillment of the service, have substantial latitude in setting price and assume the credit
risk for the entire amount of the sale, and we are responsible for the payment of all obligations incurred with media providers.

Online
search: Revenue derived from search engine marketing services, such as search engine keyword buying, is recognized on a net basis in the period when the associated keyword search media is clicked on by a consumer. We typically earn a media
commission equal to a percentage of the keyword search media purchased for our clients. In many cases, the amount we bill to clients significantly exceeds the amount of revenue that is earned due to the existence of various pass-through charges such
as the cost of the search engine keyword media. Amounts received in advance of search engine keyword media purchases are deferred and included in deferred revenue in the accompanying balance sheet. We report these revenues on a net basis since
amounts earned are based on a fixed percentage of the selling price.

Direct response media: Revenue derived from the purchase
and tracking of direct response media, such as television and radio commercials, is recognized on a net basis when the associated media is aired. In many cases, the amount we bill to clients significantly exceeds the amount of revenue that is earned
due to the existence of various pass-through charges such as the cost of the television and radio media. Amounts received in advance of media airings are deferred and included in deferred revenue in the accompanying balance sheet. We report these
revenues on a net basis since amounts earned are based on a fixed percentage of the selling price.



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Advertising programs: Revenue generated from the production of direct response advertising
programs, such as infomercials, is recognized on the completed contract method when such programs are complete and available for airing. Production activities generally take eight to 12 weeks and we usually collect amounts in advance and at various
points throughout the production process. Amounts received from customers prior to completion of commercials are included in deferred revenue and direct costs associated with the production of commercials in process are deferred and included within
other current assets in the accompanying balance sheet. In addition, revenues from creative services, third party research, retainer fees, and strategic consulting are included in this category. We report these revenues gross because we are
responsible for the fulfillment of the service.

Intangible assets consist of customer relationships, and deferred finance fees. Deferred finance fees are
amortized over the lives of the underlying Debentures using the interest method. We review the carrying value of intangibles and other long-lived assets for impairment at least annually or whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. With respect to the valuation of our goodwill, we considered a variety of factors including our market capitalization adjusted for a control premium and a discounted cash flow forecast to
determine the enterprise value of our business using the income approach. Recoverability of long-lived assets is measured by comparison of its carrying amount to the undiscounted cash flows that the asset or asset group is expected to generate. If
such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the property, if any, exceeds its fair market value.

Stock Based Compensation  Effective January 1, 2006, we adopted FASB Statement of Financial Accounting Standard (SFAS) No. 123R Share Based Payment. This statement is a revision
of SFAS Statement No. 123, and supersedes APB Opinion No. 25, and its related implementation guidance. SFAS 123R addresses all forms of share based payment (SBP) awards, including shares issued under employee stock purchase
plans, stock options, restricted stock and stock appreciation rights. Under SFAS 123R, SBP awards result in a cost that will be measured at fair value on the awards grant date, based on the estimated number of awards that are expected to vest
that will result in a charge to operations.

The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards
No. 109, Accounting for Income Taxes (SFAS No. 109). SFAS No. 109 requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statements and
tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carry forwards. SFAS No. 109 additionally requires the establishment of a valuation allowance to reflect the likelihood of
realization of deferred tax assets.

The Company has not recognized any income tax expense (benefit) in the accompanying financial statements for the three
and six months ended June 30, 2008 and 2007. Deferred tax assets, which principally arise from net operating losses, are fully reserved due to managements assessment that it is more likely than not that the benefit of these assets will
not be realized in future periods after consideration of utilization of a portion of the deferred tax assets realized as a result of the gain from troubled debt restructuring.

Off-Balance Sheet Arrangements

We have no significant off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.



|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------

Interest Rate Risk

The primary objective of our investing activities is to preserve capital while at the same time maximizing yields
without significantly increasing risk. Our interest income is sensitive to changes in the general level of U.S. interest rates.We invest our excess cash in U.S. government insured overnight securities in order to protect and preserve our
invested funds. We have not used derivative financial instruments. Investing in U.S. government securities may produce less income than investing in other marketable securities, but minimize our risk to market value fluctuations.



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|ITEM 4T. | CONTROLS AND PROCEDURES
|-------- | -----------------------

We maintain disclosure controls and
procedures that are designed to ensure that information required to be disclosed in our reports filed pursuant to the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms,
and that such information is accumulated and communicated to our management, including our principal executive officer and principal accounting officer, as appropriate, to allow timely decisions regarding required disclosure.

We carry out a variety of on-going procedures, under the supervision and with the participation of management, including our principal executive officer and principal
financial officer, to evaluate the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our principal executive officer and principal financial officer concluded that our disclosure controls
and procedures were effective as of June 30, 2008.

There have been no significant changes in our internal control over financial reporting during our
most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Sarbanes-Oxley Implementation

During 2007 the management of SendTec, Inc. has completed an evaluation and assessment of the Companys system
of Internal Control Over Financial Reporting (ICOFR). This review was conducted in accordance with the PCAOB pronouncement titled AS5 utilizing a top-down, risk based approach. Management selected the COSO small company internal control framework as
the basis and bench mark for the internal control review. Management is responsible for establishing and maintaining an adequate system of ICOFR.

Management has identified a comprehensive list of risks and has specifically focused on risks related to financial reporting and disclosure. Management also reviewed the existence and effectiveness of controls at the entity and transaction
level. Based on their evaluation and assessment, management believes that the Companys system of ICOFR is effective as of June 30, 2008.

PART II OTHER INFORMATION



|ITEM 1. | LEGAL PROCEEDINGS
|------- | -----------------

We are involved in certain claims and legal
actions arising in the ordinary course of business. There can be no assurances that these matters will be resolved on terms acceptable us. In the opinion of our management, based upon advice of counsel and consideration of all facts available at
this time, the ultimate disposition of these matters are not expected to have a material adverse effect on our financial position, results of operations or liquidity.

On April 5, 2006, Ohad Jehassi (Jehassi), our former Chief Operating Officer, filed an action against us in the Circuit Court for the 17th Judicial Circuit in Broward County, Florida. Jehassi alleged
that we breached an employment agreement and owe him salary and other benefits in connection with such alleged breach. On June 21, 2006, Jehassi filed an Amended Complaint adding a claim for an alleged violation of Floridas Whistleblower
Act, and on August 14, 2006, filed a Third Amended Complaint adding a claim for unpaid wages under a Florida statute. Jehassi seeks damages of approximately $500,000 plus attorneys fees, costs and expenses and shares of our stock he
alleges he is entitled to. We have filed an answer to the Third Amended Complaint denying that Jehassi is entitled to any relief and have asserted a counterclaim against Jehassi. In February 2007, Mr. Jehassi filed a Fourth Amended Complaint
(substantially similar to the Third Amended Complaint). The case is now in the discovery phase. We believe this action is without merit, and intend to vigorously contest this action; however, its outcome or range of possible loss, if any, cannot be
predicted at this time. We cannot provide any assurance that the outcome of this matter will not have a material adverse effect on our financial position or results of operations.

On February 3, 2006, InfoLink Communications Services, Inc, (InfoLink) filed a complaint against us and Omni Point Marketing LLC in the Circuit Court of Miami Dade County, Florida, asserting violation
of the Federal CAN SPAM ACT of 2003, 15 U.S.C. ss. 7701, and breach of an alleged licensing agreement between Omni Point Marketing LLC and InfoLink. InfoLink seeks actual damages in an amount of approximately $100,000 and approximately $1,500,000 in
statutory damages. We do not believe that InfoLink has sufficiently



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pled any factual basis to support its claim. We filed a motion asking the Court to enter sanctions against InfoLink, including, but not limited to, dismissal
of the case with prejudice for InfoLinks failure to comply with a court order to produce discovery materials. We intend to vigorously contest this action; however, its outcome or range of possible loss, if any, cannot be predicted at this
time. We cannot provide any assurance that the outcome of this matter will not have a material adverse effect on our financial position or results of operations.

On or about June 15, 2006, R&R Investors Ltd. (R&R) commenced an action in the Supreme Court of the State of New York, County of New York, against us and Come & Stay S.A. asserting a claim for breach of
contract related to a purported agreement concerning the sale of RelationServe Access, Inc. and Friendsand, Inc. R&R initially sought an injunction enjoining the transfer of RelationServe Access, Inc. and Friendsand, Inc. stock. The Court denied
R&Rs motion. R&R effectuated service of the complaint on us in August 2006. We served an answer to R&Rs complaint denying that R&R is entitled to any relief. This action is now in the discovery phase. We intend to
vigorously contest this action; however, its outcome or range of possible loss, if any, cannot be predicted at this time. We cannot provide any assurance that the outcome of this matter will not have a material adverse effect on our financial
position or results of operations.

On or about April 28, 2006, LeadClick Media, Inc. (LeadClick) commenced an action against us in the
Superior Court for the State of California, County of San Francisco, alleging breach of contract seeking to recover $379,146, plus interest. During August 2007, we reached an agreement settling this matter for $260,000 to be paid to LeadClick Media
in three installments, and executed a mutual release with LeadClick. During the year ended December 31, 2007, we paid $200,000 with respect to this settlement, and paid the remaining $60,000 in January 2008. The case has been dismissed with
prejudice.

Pursuant to an Asset Purchase Agreement, dated as of June 6, 2006, relating to certain of our discontinued operations, we believe the
purchaser, Come & Stay, S.A., is required to assume certain liabilities with respect to the LeadClick matter noted in the preceding paragraph; however, Come & Stay, S.A. has contested its liability. As a result, we commenced an
arbitration proceeding before the International Chamber of Commerce seeking to have Come & Stay, S.A. assume liability for amounts that we paid to LeadClick, as mentioned in the preceding paragraph.

On or about August 31, 2006, an action was commenced in the United States District Court for the Southern District of Florida (Case No. 06-61327) by Richard F.
Thompson, as the putative class representative, against us and certain of our former officers and directors alleging securities laws violations in connection with the purchase of our stock during the period from May 24, 2005 to August 2006. The
named plaintiff in the case previously filed suit against us, as an individual, in State Court in Indiana, which action was dismissed in July 2006. The Florida District Court permitted the plaintiff to file an amended complaint and on
November 13, 2006, plaintiff filed a First Amended Class Action Complaint (the First Amended Complaint) adding an additional plaintiff, L. Alan Jacoby, who purportedly purchased 10,000 shares of our Common Stock in the
open market, and naming additional former and present officers and directors of SendTec and others as defendants. The First Amended Complaint, styled as a class action, alleges violations of Section 11 and Section 12(2) of the Securities
Act of 1933, as amended (the "Securities Act") and Section 10(b) of the Securities Exchange Act of 1934, as amended (the Exchange Act"), and Rule 10b-5 promulgated thereunder. Plaintiffs claim, among other things, violations of the
various acts: (a) by selling securities through persons who were not registered as agents and/or broker dealers with the Securities Exchange Commission or the States of Florida or Indiana and were not affiliated as an agent or representative of
any broker/dealer; (b) by failing to disclose to purchasers of RelationServe Media, Inc. stock that they were selling securities of RelationServe stock through unregistered agents and broker/dealers was in violation of state and federal
securities laws which caused a substantial contingent liability for claims of rescission by investors and exposing RelationServe to substantial legal fees, criminal and civil liability which would have a material adverse impact to the
RelationServes financial condition; (c) by failing to disclose that in July 2005 RelationServes Chief Executive Officer and Chief Operating Officer received evidence of accusations of employee theft of data and employee kickbacks
had been made and the matter was so material that CEO hired an outside attorney to investigate the matter; (d) failing to disclose that a former director has previously been sued by stockholders of two other corporations; and (e) by
failing to disclose that financial statements beginning the third quarter of 2005 were false and misleading as a senior officer Richard Hill, had directed that finance recognize income in the third quarter in violation of the Sarbanes-Oxley Act of
2002. The invoices directed to be recorded either did not exist or were otherwise untraceable, cancelled, or were never shipped, with the exception of just a few (adjustments to income that would be required as a result of the allegations, if any,
relate to certain discontinued operations). In addition to the claims of securities law violations, plaintiffs claim violation of Section 20(a) of the Exchange Act as to controlling persons of SendTec, violations of the Florida Securities Act,
violations of the Indiana Securities Act, sales of unregistered, non-exempt securities, violation of anti-fraud provisions under Indiana law, deception under Indiana law, and fraud. Plaintiffs seek rescission, damages, treble damages, punitive
damages, compensatory damages, interest, costs, and attorneys fees.



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The First Amended Complaint repeats and re-alleges various claims made by Ohad Jehassi, our former Chief Operating
Officer in a matter pending before the Circuit Court of the 17th Judicial Circuit, Broward County, Florida (Case No. 06-004597), Ohad Jehassi v. RelationServe Media, Inc., a Florida corporation, and Relationserve Media, Inc., d/b/a Sendtec
Acquisition Corp., a Florida corporation (the Jehassi Complaint). The initial complaint filed by Jehassi on or about April 5, 2006, alleged, among other things, that we breached our employment agreement with Jehassi and owe him
salary and other benefits in connection with such alleged breach. On June 21, 2006, Jehassi filed an amended complaint adding a claim for an alleged violation of Floridas Whistleblowers Act, and on August 14, 2006,
filed a third amended complaint adding a claim for unpaid wages under Florida statutes. Mr. Jehassi seeks damages of approximately $500,000 plus attorneys fees, costs, and expenses and shares of our stock he alleges he is entitled to. We
have asserted that Mr. Jehassi was removed from his position with us for cause and is therefore not entitled to any of the relief he seeks and has asserted a counterclaim against Mr. Jehassi related to the shares of our common stock
Jehassi claims he is entitled to. The substance of Mr. Jehassis whistleblower claims have been adapted in the First Amended Complaint filed by Thompson as the basis for asserting that we filed false and misleading financial statements and
that we violated the Sarbanes-Oxley Act of 2002. The court dismissed the First Amended Complaint on March 6, 2007. By the terms of the courts order, the plaintiffs were given leave to refile a new complaint on or before March 19,
2007, and on March 19, 2007, plaintiffs filed a second amended complaint.

By decision dated June 12, 2007, the District Court dismissed the
Second Amended Complaint, with prejudice, and state law claims without prejudice. Plaintiffs have noted their appeal of the June 12, 2007 dismissal of the Second Amended Complaint.

On September 19, 2007, the parties attended court ordered mediation but were unable to reach a compromise. Briefing on the appeal has been completed and the parties are awaiting a ruling from the Court of
Appeals. Although we are vigorously contesting the appeal, its outcome or range of possible loss, if any, cannot be predicted at this time. We cannot provide any assurance that the outcome of this matter will not have a material adverse effect on
our financial position or results of operations.

On July 25, 2007, Richard F. Thompson, along with new plaintiffs, Parabolic Investment Fund, Ltd and
Gregory Thompson, filed a Class Action Complaint in the Circuit Court for the Seventeenth Judicial Circuit in and for Broward County, Florida, on behalf of themselves, and others similarly situated naming us, and certain of our former officers and
directors, as defendants. The plaintiffs claim violations of certain state laws regarding the sale of securities by unregistered broker/dealers and failure to report such violations. The Court dismissed the class action complaint, and plaintiffs
subsequently filed a First Amended Class Action Complaint raising the same allegations. We filed a motion to dismiss the amended class action complaint and a hearing on the motion was heard on January 16, 2008. On March 27, 2008 our motion
to dismiss was granted and the plaintiffs amended complaint was dismissed.

On September 28, 2006, Wedbush Morgan Securities, Inc.
(Wedbush) commenced arbitration against us seeking $500,000 in damages, plus interest and attorneys fees, as a result of an alleged breach of contract. On October 29, 2007, the arbitrator awarded Wedbush $694,197, which we
recorded during the year ended December 31, 2007. In December 2007, we filed a motion to vacate the arbitrators award in the United States District Court for the Central District of California, and the motion was denied. In April 2008 we
filed an appeal of the final arbitrators award. On June 4, 2008, we entered into an agreement of forbearance with Wedbush in the amount of $724,381, including interest of $24,381. During the three months ended June 30, 2008, we paid
$562,036, and paid the remaining $162,345 in August 2008.

On or about September 26, 2006, we received copies of three consumer complaints filed by
Chirag Chaman, Chief Operating Officer of MX Interactive, LLC. These complaints were submitted to the SEC, the New York Attorney General, and the Florida Attorney General, and assert various claims with respect to the failure to issue to MX
Interactive LLC 45,454 shares of stock which claimant alleges we agreed to transfer pursuant to a written assignment agreement. Claimant asserts that, in July 2005, a third party agreed to transfer rights to receive shares of our stock to claimant
and failed to do so, and that we are under an obligation to transfer such shares and satisfy the obligation under the assignment agreement. We believe these claims to be substantially without merit and intend to vigorously contest this action,
however its outcome or range of possible loss, if any, cannot be predicted at this time. We cannot provide any assurance that the outcome of this matter will not have a material adverse effect on our financial position or results of operations.

We received a letter dated August 11, 2006 from counsel to Sunrise Equity Partners, L.P. (Sunrise), demanding return of its $750,000
investment, with interest. Subsequently, counsel to Sunrise Equity Partners, L.P. has made demands for issuance of additional shares of Common Stock on the same basis as was provided in an amendment to our Debentures. On July 31, 2008, Sunrise
commenced an action in the US District Court Southern District of New York, which was received by us on August 12, 2008. The action alleges, among other things, breach of contract and violation of security laws and seeks compensatory damages,
reasonable costs and expenses including attorneys fees, and punitive damages. We believe these claims to be substantially without merit and intend to vigorously contest this action, however its outcome or range of possible loss, if any, cannot
be predicted at this time. We cannot provide any assurance that the outcome of this matter will not have a material adverse effect on our financial position or results of operations.



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On September 14, 2007, we filed a breach of contract and collection of trade receivables action against a former
customer, Cosmetique, Inc (Cosmetique). We are seeking recovery of at least $2.4 million of damages, as of December 31, 2007. This amount includes invoiced advertising services, as well as other commissions estimated at
approximately $0.2 million, as of December 31, 2007. The action is in the initial stage. While it is impossible to predict the outcome of any litigation with certainty, we believe we have valid claims and intend to pursue them vigorously. The
amounts have been reflected as accounts receivable in the accompanying consolidated balance sheets as of June 30, 2008 and December 31, 2007. In March 2008, Cosmetique filed a counterclaim alleging, among other things, breach of contract,
negligent misrepresentation, fraud in the inducement, and violation of the Illinois Consumer Fraud and Deceptive Trade Practices Act. In making these claims Cosmetique alleges that Sendtec made false statements, either intentionally or negligently,
in the negotiation and/or performance of the parties contracts and that Sendtec failed to comply with the terms of those contracts. Sendtec strenuously denies these allegations and intends to vigorously defend these counter-claims.

Cosmetiques failure to pay its obligations to us has caused us to delay certain payments for costs we incurred in connection with our work for Cosmetique. On
May 5, 2008, one of our vendors, Web Clients, Inc. d/b/a Webclients.net (a subsidiary of ValueClick, Inc.), filed a complaint against us in the Superior Court of the State of California seeking $592,033.75 for alleged breach of contract. The
complaint was received by us on June 16, 2008 and seeks payment of certain costs incurred by us in connection with our work for Cosmetique. On July 22, 2008 we settled this matter with Web clients, Inc. for six monthly payments of $20,000
beginning in July 2008, which is included in accounts payable in the accompanying unaudited condensed consolidated balance sheet at June 30, 2008. We are not aware of any vendor lawsuits that have been filed.

In December 2007, we filed an amended complaint for the collection of trade receivables against a former customer, Crystal Care International, Inc. We are seeking
recovery of at least $282,000 of damages, as of December 31, 2007. In January 2008, Crystal Care filed a counterclaim alleging, among other things, negligence and unfair trade practices. The action is in the initial stage. While it is
impossible to predict the outcome of any litigation with certainty, we believe we have valid claims and intend to pursue them vigorously. The amounts have been reflected as accounts receivable in the accompanying unaudited condensed consolidated
balance sheet as of June 30, 2008.



|ITEM 1A. | RISK FACTORS.
|-------- | -------------

There have been no material changes in our risk
factors from the information provided in our Risk Factors included in Item 6, Managements Discussion and Analysis or Plan of Operation in our Annual Report on Form 10-KSB and Form 10-KSB/A (Amendment No. 1)
for the fiscal year ended December 31, 2007.



|ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
|------- | ------------------------------------------------------------

None.



|ITEM 3. | DEFAULTS UPON SENIOR SECURITIES
|------- | -------------------------------

None.



|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
|------- | ----------------------------------------------------

Our Annual
Meeting of Stockholders was held on June 11, 2008. The following business was transacted during the meeting:



|1. | Election of Directors
|-- | ---------------------



|                  |  |         |  |  |  |  |  |            |  |  |  |  |  |               |  |  |  |  |  |  |  |  |  |  |  | 
|----------------- |  | ------- |  |  |  |  |  | ---------- |  |  |  |  |  | ------------- |  |  |  |  |  |  |  |  |  |  |  | 
|                  |  |         |  |  |  |  |  | Votes For  |  |  |  |  |  | VotesWithheld |  |  |  |  |  |  |  |  |  |  |  | 
|Paul Soltoff      |  | Elected |  |  |  |  |  | 54,252,256 |  |  |  |  |  | 5,238,446     |  |  |  |  |  |  |  |  |  |  |  | 
|Anthony Abate     |  | Elected |  |  |  |  |  | 54,252,256 |  |  |  |  |  | 5,238,446     |  |  |  |  |  |  |  |  |  |  |  | 
|Vincent Addonisio |  | Elected |  |  |  |  |  | 54,252,256 |  |  |  |  |  | 5,238,446     |  |  |  |  |  |  |  |  |  |  |  | 
|Stephen Marotta   |  | Elected |  |  |  |  |  | 54,252,256 |  |  |  |  |  | 5,238,446     |  |  |  |  |  |  |  |  |  |  |  | 
|Paul Dzera        |  | Elected |  |  |  |  |  | 54,252,256 |  |  |  |  |  | 5,238,446     |  |  |  |  |  |  |  |  |  |  |  | 



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|2. | The proposal to approve an amendment to our certificate of incorporation to increase our authorized common stock was approved. We received 57,615,849 votes for the proposal,
1,069,954 votes against the proposal, and 804,898 votes abstained from voting.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3. | The proposal to approve an amendment to our 2007 Incentive Stock Plan A was approved. We received 24,279,656 votes for the proposal, 5,889,725 votes against the proposal, 141,360
votes abstained from voting, and 29,179,961 votes were broker non-votes.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4. | The proposal to approve an amendment to our 2007 Incentive Stock Plan B was approved. We received 24,270,360 votes for the proposal, 5,898,021 against the proposal, 142,360 votes
abstained from voting and 29,179,961 were broker non-votes.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|5. | The proposal to ratify the appointment of Gregory, Sharer & Stuart, P.A. as the Companys independent registered public accounting firm for the year ending
December 31, 2008 was approved. We received 58,916,790 votes for the proposal, 533,851 votes against the proposal, and 40,060 votes abstained from voting.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|ITEM 5. | OTHER INFORMATION.
|------- | ------------------

None.



|ITEM 6. | EXHIBITS
|------- | --------

A. Exhibits



|     |  |                                                                                                                                                                                                  
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1  |  | Certificate of Amendment of the Amended and Restated Certificate of Incorporation of SendTec, Inc.*                                                                                              
|     | 
|10.1 |  | Separation Agreement between SendTec and Eric Obeck, dated April 16, 2008.*+                                                                                                                     
|     | 
|10.2 |  | Amended and Restated 2007 Incentive Stock Plan A, Effective April 28, 2008 (incorporated by reference to Appendix B to the Definitive Proxy Statement filed with the Commission on May 9, 2008).+
|     | 
|10.3 |  | Amended and Restated 2007 Incentive Stock Plan B, Effective April 28, 2008 (incorporated by reference to Appendix C to the Definitive Proxy Statement filed with the Commission on May 9, 2008).+
|     | 
|31.1 |  | Section 302 Certification of the Chief Executive Officer*                                                                                                                                        
|     | 
|31.2 |  | Section 302 Certification of the Chief Financial Officer*                                                                                                                                        
|     | 
|32.1 |  | Section 906 Certification of Chief Executive Officer*                                                                                                                                            
|     | 
|32.2 |  | Section 906 Certification of Chief Financial and Accounting Officer*                                                                                                                             



|* | Filed herewith
|- | --------------



|+ | Management contract or compensatory plan or arrangement.
|- | --------------------------------------------------------



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SIGNATURES

In
accordance with the requirements of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                |  |  |  |               |  |                  |  |                                                                 
|--------------- |  |  |  | ------------- |  | ---------------- |  | ----------------------------------------------------------------
|                |  |  |  | SendTec, Inc.
|                |  |  | 
|August 14, 2008 |  |  |  | By:           |  | /s/ Paul Soltoff
|                |  |  |  |               |  |                  |  | Paul SoltoffChief Executive Officer(Principal Executive Officer)



|                |  |  |  |     |  |                      |  |                                               
|--------------- |  |  |  | --- |  | -------------------- |  | ----------------------------------------------
|                |  |  | 
|August 14, 2008 |  |  |  | By: |  | /s/ Donald Gould, Jr
|                |  |  |  |     |  |                      |  | Donald Gould, Jr.(Principal Financial Officer)



41