UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
10-Q




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




For
the quarterly period ended June 30, 2009





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: 000-53733




ADEX
MEDIA, INC.


(Exact
name of registrant as specified in its charter)




Delaware
            
            20-8755674(State
      or other jurisdiction of
              incorporation
      or organization)
            
            (I.R.S
      Employer Identification No.)883
      N. Shoreline Blvd. Suite A-200, Mountain View, CA 94043(Address
      of principal executive offices)





(650) 967-3040


(Registrant’s
telephone number, including area code)







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




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
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
            
             ̈  (Do
      not check if a smaller reporting company)
            
            Smaller reporting company
            
            x




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




At August
10, 2009, 31,720,747 shares of Common Stock, par value $0.0001, of the
registrant were outstanding.








EXPLANATORY
NOTE





The
Company filed a Registration Statement on Form 8-A with the Securities and
Exchange Commission on July 20, 2009 (“Registration Statement”). As a result,
the Company became subject to the reporting requirements under the Securities
Exchange Act of 1934 on July 20, 2009.  Prior to the filing of the
Registration Statement, the Company was a voluntary filer that had 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 as if it was a “subject” to such
requirement.  Accordingly, the Company 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 but has not been subject to such filing requirements for
the past 90 days.








Table of Contents











ADEX
MEDIA, INC.





QUARTERLY
REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2009





TABLE OF CONTENTS







PagePart
      I.     Financial InformationItem
      1.
              Financial Statements (Unaudited)Condensed Consolidated Balance Sheets as of June 30, 2009 and
      December 31, 2008
              3Condensed Consolidated Statements of Operations for the Three
      and Six Months Ended June 30, 2009 and 2008
              4Condensed Consolidated Statements of Cash Flows for the Six
      Months Ended June 30, 2009 and 2008
              5Notes to Condensed Consolidated Financial
      Statements
              6Item 2.
              Management’s Discussion and Analysis of Financial Condition and
      Results of Operations
              28Item
      3.
              Quantitative and Qualitative Disclosures about Market
      Risk
              39Item
      4T.
              Controls and Procedures
              39Part
      II.     Other InformationItem
      1.
              Legal Proceedings
              40Item 1A.
              Risk Factors
              40Item
      2.
              Unregistered Sales of Equity Securities and Use of
      Proceeds
              54Item
      3.
              Defaults Upon Senior Securities
              54Item
      4.
              Submission of Matters to a Vote of Security
      Holders
              54Item
      5.
              Other Information
              54Item
      6.
              Exhibits
              55Signatures
              56








2
 Table of Contents







PART I.
              FINANCIAL
      INFORMATIONITEM 1.
              FINANCIAL
      STATEMENTS





ADEX
MEDIA, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS


(Unaudited)


June
      30,
                                              
                                              
                                              December
      31,2009
                                              
                                              
                                              2008ASSETSCurrent
      assets:Cash
      and cash equivalents
                                              
                                              $
                                              2,567,287
                                              
                                              
                                              $
                                              683,576Restricted
      cash
                                              
                                              
                                              100,000
                                              
                                              
                                              
                                              -Short-term
      investments
                                              
                                              
                                              569,280
                                              
                                              
                                              
                                              2,502,670Accounts
      receivable, net of allowance for doubtful accounts of $90,430and
      $19,737
                                              
                                              
                                              1,179,546
                                              
                                              
                                              
                                              521,004Credit
      card processor holdbacks, net of reserves of $595,640 and
      $167,363
                                              
                                              
                                              604,771
                                              
                                              
                                              
                                              300,493Inventory
                                              
                                              
                                              231,892
                                              
                                              
                                              
                                              57,087Prepaid
      expenses and other current assets
                                              
                                              
                                              340,863
                                              
                                              
                                              
                                              97,878Total current
      assets
                                              
                                              
                                              5,593,639
                                              
                                              
                                              
                                              4,162,708Property and
      equipment, net
                                              
                                              
                                              114,758
                                              
                                              
                                              
                                              43,606Intangible assets,
      net
                                              
                                              
                                              232,222
                                              
                                              
                                              
                                              1,367,330Goodwill
                                              
                                              
                                              8,448,789
                                              
                                              
                                              
                                              8,448,789Total
      assets
                                              
                                              $
                                              14,389,408
                                              
                                              
                                              $
                                              14,022,433LIABILITITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilities:Accounts
      payable
                                              
                                              $
                                              2,027,999
                                              
                                              
                                              $
                                              929,807Accrued
      liabilities
                                              
                                              
                                              1,171,007
                                              
                                              
                                              
                                              593,907Warrant  liability
                                              
                                              
                                              186,353
                                              
                                              
                                              
                                              -Deferred
      revenue
                                              
                                              
                                              119,641
                                              
                                              
                                              
                                              25,709Promissory
      notes
                                              
                                              
                                              253,778
                                              
                                              
                                              
                                              401,806Total
      current liabilities
                                              
                                              
                                              3,758,778
                                              
                                              
                                              
                                              1,951,229Promissory
      notes
                                              
                                              
                                              -
                                              
                                              
                                              
                                              150,000Deferred tax
      liability
                                              
                                              
                                              5,053
                                              
                                              
                                              
                                              404,817Total
      liabilities
                                              
                                              
                                              3,763,831
                                              
                                              
                                              
                                              2,506,046Commitments
      and Contingencies (Note 15)Stockholders'
      Equity:Preferred
      stock; $0.0001 par value; 10,000,000 shares authorized;
                                              
                                              
                                              195
                                              
                                              
                                              
                                              -1,951,337
      shares issued and outstanding at June 30, 2009 forseries
      A preferred stock and zero at December 31, 2008Common
      stock, $0.0001 par value; 150,000,000 shares authorized,
      31,756,245
                                              
                                              
                                              3,166
                                              
                                              
                                              
                                              3,120and
      31,202,347 shares issued and outstanding at June 30, 2009
    andDecember 31,
      2008, respectivelyAdditional paid-in
      capital
                                              
                                              
                                              17,282,774
                                              
                                              
                                              
                                              13,808,966Accumulated
      deficit
                                              
                                              
                                              (6,660,558
                                              )
                                              
                                              
                                              (2,295,699
                                              )Total stockholders'
      equity
                                              
                                              
                                              10,625,577
                                              
                                              
                                              
                                              11,516,387Total liabilities
      and stockholders' equity
                                              
                                              $
                                              14,389,408
                                              
                                              
                                              $
                                              14,022,433







The
accompanying notes are an integral part of these condensed consolidated
financial statements.




3
 Table of Contents






ADEX
      MEDIA, INC. AND SUBSIDIARIESCONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited)






For
      The Three Months Ended
                          
                          
                          For
      The Six Months EndedJune
      30,
                          
                          
                          June
      30,
                          
                          
                          June
      30,
                          
                          
                          June
      30,2009
                          
                          
                          2008
                          
                          
                          2009
                          
                          
                          2008Revenues:Marketing
      platform services - external offers
                          
                          $
                          2,825,000
                          
                          
                          $
                          718,776
                          
                          
                          $
                          5,337,500
                          
                          
                          $
                          1,409,329Marketing
      platform services - internal offers
                          
                          
                          5,334,289
                          
                          
                          
                          -
                          
                          
                          
                          6,315,685
                          
                          
                          
                          -Total
      revenues
                          
                          
                          8,159,289
                          
                          
                          
                          718,776
                          
                          
                          
                          11,653,185
                          
                          
                          
                          1,409,329Cost
      of revenues:Marketing
      platform services - external offers
                          
                          
                          2,216,407
                          
                          
                          
                          536,244
                          
                          
                          
                          4,320,300
                          
                          
                          
                          1,079,904Marketing
      platform services - internal offers
                          
                          
                          1,506,669
                          
                          
                          
                          -
                          
                          
                          
                          1,907,325
                          
                          
                          
                          -Amortization
      of acquired product licenses
                          
                          
                          23,333
                          
                          
                          
                          -
                          
                          
                          
                          58,333
                          
                          
                          
                          -Total
      cost of revenues
                          
                          
                          3,746,409
                          
                          
                          
                          536,244
                          
                          
                          
                          6,285,958
                          
                          
                          
                          1,079,904Gross
      profit
                          
                          
                          4,412,880
                          
                          
                          
                          182,532
                          
                          
                          
                          5,367,227
                          
                          
                          
                          329,425Operating
      expenses:Product
      development
                          
                          
                          -
                          
                          
                          
                          35,250
                          
                          
                          
                          -
                          
                          
                          
                          35,250Sales
      and marketing
                          
                          
                          4,726,346
                          
                          
                          
                          295,982
                          
                          
                          
                          6,712,082
                          
                          
                          
                          328,473General
      and administrative
                          
                          
                          697,400
                          
                          
                          
                          542,713
                          
                          
                          
                          1,376,537
                          
                          
                          
                          551,208Amortization
      of intangible assets
                          
                          
                          39,892
                          
                          
                          
                          -
                          
                          
                          
                          86,941
                          
                          
                          
                          -Impairment charges on intangible assets
                          
                          
                          989,834
                          
                          
                          
                          -
                          
                          
                          
                          989,834
                          
                          
                          
                          -Total
      operating expenses
                          
                          
                          6,453,472
                          
                          
                          
                          873,945
                          
                          
                          
                          9,165,394
                          
                          
                          
                          914,931Operating
      loss
                          
                          
                          (2,040,592
                          )
                          
                          
                          (691,413
                          )
                          
                          
                          (3,798,167
                          )
                          
                          
                          (585,506
                          )Other
      income and expense:Interest
      and other (expense) income, net
                          
                          
                          (14,576
                          )
                          
                          
                          29,536
                          
                          
                          
                          432
                          
                          
                          
                          32,093Mark-to-market
      loss on warrant liability
                          
                          
                          (18,538
                          )
                          
                          
                          -
                          
                          
                          
                          (18,538
                          )
                          
                          
                          -Loss
      before (benefit) provision for income taxes
                          
                          
                          (2,073,706
                          )
                          
                          
                          (661,877
                          )
                          
                          
                          (3,816,273
                          )
                          
                          
                          (553,413
                          )(Benefit)
      provision for income tax
                          
                          
                          (381,278
                          )
                          
                          
                          -
                          
                          
                          
                          (399,764
                          )
                          
                          
                          800Net
      loss
                          
                          $
                          (1,692,428
                          )
                          
                          $
                          (661,877
                          )
                          
                          $
                          (3,416,509
                          )
                          
                          $
                          (554,213
                          )Deemed
      dividend to series A preferred stockholders
                          
                          
                          (948,350
                          )
                          
                          
                          -
                          
                          
                          
                          (948,350
                          )
                          
                          
                          -Net
      loss attributable to common stockholders
                          
                          $
                          (2,640,778
                          )
                          
                          $
                          (661,877
                          )
                          
                          $
                          (4,364,859
                          )
                          
                          $
                          (554,213
                          )Loss
      per common share, basic and diluted
                          
                          $
                          (0.08
                          )
                          
                          $
                          (0.04
                          )
                          
                          $
                          (0.14
                          )
                          
                          $
                          (0.07
                          )Weighted
      average common shares used in computingbasic
      and diluted loss per common share
                          
                          
                          31,640,212
                          
                          
                          
                          15,212,600
                          
                          
                          
                          31,534,267
                          
                          
                          
                          7,689,967





The
accompanying notes are an integral part of these condensed consolidated
financial statements.




4
 Table of Contents










ADEX
MEDIA, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS





(Unaudited)


For
      The Six Months EndedJune
      30,
                              
                              
                              June
      30,2009
                              
                              
                              2008Cash
      flows from operating activities:Net
      loss
                              
                              $
                              (3,416,509
                              )
                              
                              $
                              (554,213
                              )Reconciliation
      of net loss to net cash used in operating activities:Depreciation
                              
                              
                              23,074
                              
                              
                              
                              2,863Amortization
      of intangibles
                              
                              
                              145,274
                              
                              
                              
                              555Share-based
      compensation
                              
                              
                              496,410
                              
                              
                              
                              56,053Mark-to-market
      loss on warrant  liability
                              
                              
                              18,538
                              
                              
                              
                              -Impairment
      charges on intangible assets
                              
                              
                              989,834
                              
                              
                              
                              -Interest
      from accretion of promissory notes
                              
                              
                              (528
                              )
                              
                              
                              -Deferred
      income tax adjustment
                              
                              
                              (399,764
                              )
                              
                              
                              -Inventory
      provision for obsolescence
                              
                              
                              21,479
                              
                              
                              
                              -Bad
      debt expense
                              
                              
                              70,693
                              
                              
                              
                              -Allowance
      for charge backs
                              
                              
                              428,277
                              
                              
                              
                              -Changes
      in current assets and liabilities:Accounts
      receivable
                              
                              
                              (729,235
                              )
                              
                              
                              30,078Other
      receivables
                              
                              
                              -
                              
                              
                              
                              (209,186
                              )Inventory
                              
                              
                              (196,284
                              )
                              
                              
                              -Prepaid
      expenses and other current assets
                              
                              
                              (242,985
                              )
                              
                              
                              (89,065
                              )Credit
      card processor holdbacks
                              
                              
                              (732,555
                              )
                              
                              
                              -Accounts
      payable
                              
                              
                              1,098,192
                              
                              
                              
                              293,061Accrued
      liabilities
                              
                              
                              577,100
                              
                              
                              
                              185,519Deferred
      revenue
                              
                              
                              93,932
                              
                              
                              
                              -Net
      cash used in operating activities
                              
                              
                              (1,755,057
                              )
                              
                              
                              (284,335
                              )Cash
      flows from investing activities:Purchase
      of short-term investments
                              
                              
                              (1,964,777
                              )
                              
                              
                              (4,137,205
                              )Proceeds
      from sale of short-term investments
                              
                              
                              3,898,167
                              
                              
                              
                              -Change
      in restricted cash
                              
                              
                              (100,000
                              )
                              
                              
                              -Purchase
      of intangible assets
                              
                              
                              -
                              
                              
                              
                              (10,000
                              )Purchase
      of property, plant and equipment
                              
                              
                              (94,226
                              )
                              
                              
                              (24,793
                              )Net
      cash provided by (used in) investing activities
                              
                              
                              1,739,164
                              
                              
                              
                              (4,171,998
                              )Cash
      flows from financing activities:Gross
      proceeds from private placement of common stock
                              
                              
                              -
                              
                              
                              
                              5,758,148Costs
      of private placement of common stock
                              
                              
                              -
                              
                              
                              
                              (104,920
                              )Gross
      proceeds from private placement of series A preferred
stock
                              
                              
                              2,341,604
                              
                              
                              
                              -Costs
      of private placement of Series A preferred stock
                              
                              
                              (144,500
                              )
                              
                              
                              -Cash
      dividend paid
                              
                              
                              -
                              
                              
                              
                              (491,431
                              )Repayment
      of promissory notes
                              
                              
                              (297,500
                              )
                              
                              
                              -Net
      cash provided by financing activities
                              
                              
                              1,899,604
                              
                              
                              
                              5,161,797Net
      increase in cash and cash equivalents
                              
                              
                              1,883,711
                              
                              
                              
                              705,464Cash
      and cash equivalents at beginning of period
                              
                              
                              683,576
                              
                              
                              
                              5,379Cash
      and cash equivalents at end of period
                              
                              $
                              2,567,287
                              
                              
                              $
                              710,843Non-cash
      financing transactions:Deemed
      dividend to series A preferred stockholders
                              
                              $
                              948,350
                              
                              
                              $
                              -





The accompanying notes are an
integral part of these condensed consolidated financial
statements.






5
 Table of Contents






ADEX
MEDIA, INC


NOTES
TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS


(UNAUDITED)




NOTE
1.        ORGANIZATION AND BASIS OF
PRESENTATION




Description
of Business





Adex
Media, Inc. (“we”, “us”, “our”, the “Company” or “Adex”) is the parent company
of Abundantad, Inc. (“Abundantad”).  Adex was incorporated under the
laws of Delaware in April 2008.  It was formed as a subsidiary of
SupportSpan, Inc., a public reporting Nevada corporation (“SupportSpan”). On
April 25, 2008, SupportSpan was consolidated into Adex for the purposes of
changing its name to Adex and its place of incorporation to Delaware (the
“Merger”).





Abundantad
was formed on February 4, 2008 for the purpose of creating, operating and/or
acquiring publishers of Internet content whose properties are deemed desirable
to generate paid-for dissemination of internal or third-party direct advertising
and revenues derived from agency and advertising network-directed advertising on
the Internet. Abundantad creates, acquires, owns and operates content websites
which may include promotions, sweepstakes, mobile offers, and other Internet
websites in furtherance of its purposes. On May 14, 2008, Abundantad
acquired substantially all the assets and liabilities of Kim and Lim, LLC, d/b/a
Pieces Media (“Pieces”). Also on May 14, 2008, Abundantad, via a reverse merger,
became a wholly-owned subsidiary of Adex.





Adex is
an early-stage integrated internet marketing publisher with a focus on
offering third party advertising customers and promoting its own offers through
a multi-channel internet advertising platform. Adex’s marketing platform
provides a range of services including (i) search and contextual based
marketing; (ii) display marketing; (iii) lead generation; and (iv) affiliate
marketing. Adex currently actively markets the following of its own internal
offers: (i) EasyWhite Labs – a teeth whitening kit; (ii) Acai Alive – a
dietary supplement; (iii) RezQ – a dietary supplement; and (iv) TriCleanse – a
digestive cleansing system.




Basis
of Presentation and Use of Management Estimates





As stated
above, Adex acquired Abundantad and Abundantad simultaneously purchased the
assets and liabilities of Pieces, Pieces was deemed the acquirer for accounting
purposes and Adex is deemed the acquired company.  Accordingly,
Pieces’ historical financial statements for periods prior to the acquisition
become those of Adex retroactively restated for, and giving effect to, the
number of shares received in the merger with Abundantad.  The
historical retained earnings of Pieces are carried forward after the
acquisition.





The
December 31, 2008 condensed consolidated balance sheet was derived from the
audited financial statements at that date, but does not include all disclosures
required by GAAP. Earnings per share prior to the merger with Abundantad are
restated to reflect the equivalent number of shares received by Pieces. The
results of operations presented for the period ended June 30, 2008 included
three and six month results of operations for Pieces, Abundantad and Adex. The
results of operations presented for the period ended June 30, 2009 included the
three and six month results of Pieces, Abundantad, Adex and Digital Instructor.
The condensed consolidated financial statements include the accounts as
described above as well as the Company’s additional subsidiaries, all of
which are wholly owned. All significant inter-company balances and transactions
have been eliminated in consolidation.





The
financial statements include management’s estimates and assumptions that affect
the reported amounts of assets and liabilities as of the date of the financial
statements and the reported amounts of sales and expenses during the reporting
periods. Actual results could differ from those estimates, and material effects
on operating results and financial position may result. These condensed
consolidated financial statements should be read in conjunction with our audited
consolidated financial statements for the fiscal year ended December 31, 2008
included in our Annual Report on Form 10-K, as amended by Amendment
No. 1 on Form 10-K/A, Amendment No. 2 on Form 10-K/A, and our
Quarterly Report on Form 10-Q for the quarter ended March 31, 2009, each as
filed with the Securities and Exchange Commission (“SEC”). The results of
operations for the three and six months ended June 30, 2009 are not necessarily
indicative of the results to be expected for any future period.





Certain
amounts in prior period’s financial statements have been reclassified to conform
to the current period’s presentation.




NOTE
2.        SIGNIFICANT ACCOUNTING
POLICIES





Revenue
Recognition





The
Company’s revenues consist of services to promote both third party offers as
well as its own internal offers. The Company evaluates revenue recognition using
the following basic criteria and recognizes revenue when all four criteria are
met:






6
 Table of Contents










(i)
              Evidence
      of an arrangement: Evidence of an arrangement with the customer that
      reflects the terms and conditions for delivery of services must be present
      in order to recognize revenue;(ii)
              Delivery:
      Delivery is considered to occur when the service is performed and the risk
      of loss and reward has been transferred to the
  customer;


(iii)
            Fixed
      or determinable fee: If a portion of the arrangement fee is not fixed or
      determinable, we recognize that amount as revenue when the amount becomes
      fixed or determinable; and


(iv)
            Collection
      is deemed probable: We conduct a credit review of each customer involved
      in a significant transaction to determine the creditworthiness of the
      customer. Collection is deemed probable if we expect the customer to be
      able to pay amounts under the arrangement as those amounts become due. If
      we determine that collection is not probable, we recognize revenue when
      collection becomes probable (generally upon cash
    collection).





The
Company’s marketing platform service revenue –external offers to third
parties consists mostly of revenue derived world-wide from direct advertisers,
affiliate networks, ad networks, and list managers. The Company’s marketing
platform service – internal offers consists mostly of revenue derived
from on-line consumers in the United States and Canada.




The
Company’s marketing platform service revenue to third parties is mostly derived
on a cost-per-action (“CPA”) basis, also known as pay-per-action (“PPA”) basis.
Under this pricing model, advertisers, affiliate networks, ad networks, and list
managers pay the Company when a specified action (a purchase, a form submission,
or other action linked to the advertisement) has been completed.





The
Company markets its internal offers on a free trial subscription basis. Title to
all internal product offers shipped pass to the consumer upon receipt by the
consumer. Upon receipt by the consumer, the Company records non-refundable
shipping and handling revenue. The consumer has 7 to 11 days from when the
internal product offer was received during which they can notify the company of
their intent to return the product shipped in which case the consumer’s credit
card will not be billed for the product sales price. If the customer chooses to
keep the product beyond the free trial period, the customer’s credit card will
be billed and the customer’s subscription will begin automatically once the free
trial period has expired. Accordingly, the Company does not record revenue until
acceptance occurs which is deemed to be after the free trial period has expired
without notification of rejection of the product.





The
Company’s revenues are subject to material seasonal fluctuations. In particular,
revenues in the fourth fiscal quarter will ordinarily be significantly higher
than other fiscal quarters. Revenues recorded in the current quarter are
not necessarily indicative of what reported revenues will be for an entire
fiscal year.





Classification
of Affiliates Cost





Payments
made or accrued to our sales and marketing affiliates or payments made for
direct media buys that relate to promoting our internal product offers are
recorded as sales and marketing expenses. Payments made or accrued to our sales
and marketing affiliates of direct media buys that relate to services performed
for third-party offers are recorded as cost of revenues.




NOTE
3.        RESTRICTED CASH





During
the second quarter of 2009, we classified $100,000 of cash as restricted cash.
This cash is collateralized as part of securing commercial card accounts with
one major credit card company. The collateral is held in a ninety-day
certificate of deposit (“CD”) at which time it matures. The CD will
automatically renew for subsequent ninety-day terms unless terminated. The
credit card company has security interest in the CD and the company is
prohibited from pledging or assigning the CD.




NOTE
4.        FAIR VALUE
MEASUREMENT




The
fair-value hierarchy established by the Statement of Financial Accounting
Standards (“SFAS”) No. 157,Fair ValueMeasurements (“FAS 157”)
prioritizes the inputs used in valuation techniques into three levels as
follows:




Level-1
            Observable
      inputs – quoted prices in active markets for identical assets and
      liabilities;Level-2
            Observable
      inputs other than the quoted prices in active markets for identical assets
      and liabilities – such as quoted prices for similar instruments, quoted
      prices for identical or similar instruments in inactive markets, or other
      inputs that are observable or can be corroborated by observable market
      data;Level-3
            Unobservable
      inputs – includes amounts derived from valuation models where one or more
      significant inputs are unobservable and require us to develop relevant
      assumptions.






7
 Table of Contents





The
Company used Level 1 inputs in measuring the fair value of its short-term
investments at June 30, 2009. The Company’s Level 3 liability consists of
the convertible preferred stock warrants held by the preferred
shareholders.  The fair value of the warrant liability was
estimated using the Black-Scholes option pricing model with internal observable
and unobservable market input assumptions (see Note 16). The following
table summaries the assets and the liabilities that are measured at the fair
value on June 30, 2009.





Quoted Prices
                            in
      Active
                            Markets
      for
                            Identical
                            Instruments
                            Level
      1
                          
                          
                          Significant
                            Other
                            Observable
                            Inputs
                            Level
      2
                          
                          
                          Significant
                            Unobservable
                            Inputs
                            Level
      3
                          
                          
                          TotalAssetsShort-term
      investments
                          
                          $
                          569,280
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          569,280LiabilitiesWarrant
      liability
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          186,353
                          
                          
                          $
                          186,353




The
reconciliation of beginning and ending balances for warrant liability measured
at fair value using significant unobservable inputs (Level 3) are as
follows:







Warrant
      LiabilityFair
      value at issuance date on June 12, 2009
                        
                        $
                        167,815Mark-to-market
      loss
                        
                        
                        18,538Warrant
      liability at fair value on June 30, 2009
                        
                        $
                        186,353




The fair
value of cash and cash equivalents, accounts receivable and accounts payable for
all periods presented approximates their respective carrying amounts because of
the short maturity of these financial instruments.




NOTE
5.        CREDIT CARD PROCESSOR
HOLDBACKS





Credit
card processor holdbacks are reserves maintained by the credit card processors
or independent sales organizations that we contract through for any potential
charge-backs or fines levied by the card associations related to the Company’s
on-line sales of its internal product offers.  As of June 30, 2009 and
December 31, 2008, the balance of credit card processor holdbacks, net of
reserves, was $604,771 and $300,493, respectively.  The Company
maintains a separate accrual for credit card processor charge-backs and customer
return refunds which are both netted against the balance in credit card
processor holdbacks.  The balance of this accrual at June 30, 2009 and
December 31, 2008 was $572,317 and $144,040, respectively. The Company also
maintains an allowance for uncollectible credit card processor
holdbacks.  The balance for this accrual at both June 30, 2009
and December 31, 2008 was $23,323.




NOTE
6.        INVENTORY





Inventories
consist of finished goods purchased from third parties and freight-in.
Inventories are stated at the lower of cost or market, using the first-in,
first-out method.  The Company performs periodic assessments to
determine the existence of obsolete, slow moving and non-saleable inventories,
and records necessary provisions to reduce such inventories to net realizable
value.  At June 30, 2009 and December 31, 2008, the balance in the
provision for obsolete slow moving and non-saleable inventory was $45,833 and
$24,354, respectively. All inventories are produced by third-party
manufacturers, and all inventories are located at the Company’s facility in
Boulder, Colorado.






8
 Table of Contents










NOTE
7.        PREPAID EXPENSES AND OTHER
CURRENT ASSETS





Prepaid
expenses and other current assets consist primarily of prepaid insurance
premiums, prepaid media buys and leads, and prepaid deposits on the Company’s
inventory and operating leases. At June 30, 2009 and December 31, 2008, the
balance was $340,863 and $97,878, respectively.




NOTE
8.        PROPERTY AND EQUIPMENT,
NET





Property
and equipment as of June 30, 2009 and December 31, 2008 are comprised of the
following:






June
      30,
                        
                        
                        December
      31,2009
                        
                        
                        2008Computers
      and other office equipment
                        
                        $
                        115,216
                        
                        
                        $
                        75,721Office
      furniture
                        
                        
                        49,666
                        
                        
                        
                        44,544Software
      licences
                        
                        
                        52,139
                        
                        
                        
                        2,530Total
      property and equipment, net
                        
                        
                        217,021
                        
                        
                        
                        122,795Accumulated
      depreciaton
                        
                        
                        (102,263
                        )
                        
                        
                        (79,189
                        )Property
      and equipment, net
                        
                        $
                        114,758
                        
                        
                        $
                        43,606




The
Company depreciates its property and equipment using the straight line method
over useful lives ranging from two to five years. For software developed
for internal use, we follow American Institute of Certified Public Accountants
(“AICPA”) issued Statement of Position (“SOP”) 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use.During the second
quarter of 2009, we capitalized $49,609 of such costs.





For the
three months and six months ended June 30, 2009, we recorded $11,907 and
$23,074, respectively, in depreciation expense, and recorded $2,517 and $2,863,
respectively, in depreciation expense for the three and six months ended June
30, 2008.




NOTE
9.        ACQUISITIONS




Acquisition
of the Assets of Vibrantads, LLC





On July
21, 2008, the Company entered into an Asset Purchase Agreement, pursuant to
which the Company acquired substantially all the assets of Vibrantads, LLC
(“Vibrantads”), and a California limited liability company. Vibrantads was
engaged in on-line promotions and affiliate network marketing.




The
aggregate purchase price was $706,805 which included the following:






AmountsCash
      paid at closing
                          
                          $
                          70,000Promissory
      note issued net of discount on closing date 1
                          
                          
                          55,844Restricted
      shares of common stock issued
                          
                          
                          531,563Cash
      paid for closing costs
                          
                          
                          27,398Accrued
      closing costs
                          
                          
                          22,000Total
                          
                          $
                          706,805(1)
      The principal amount of the promissory note is $60,000. The discount is
      being
      accreted over a period of twelve months.






9
 Table of Contents










The
allocation of the purchase price was based upon management’s estimates and
assumptions:






AmountsIntangible
      assets
                          
                          $
                          310,000Goodwill
                          
                          
                          396,805Total
      assets acquired
                          
                          $
                          706,805




During
the year ended December 31, 2008, the Company determined that the intangible
assets acquired from Vibrantads were impaired and had no remaining terminal
value to the Company. Accordingly, an impairment charge of $310,000 was taken on
these intangible assets.




The
following pro forma financial information was based on the respective historical
financial statements of Adex and Vibrantads. The pro forma financial information
reflected the consolidated results of operations as if the merger of Vibrantads
occurred at the beginning of the period and included the amortization of the
resulting identifiable acquired intangible assets and share-based compensation
expenses. The pro forma financial data is provided for illustrative purposes
only and is not necessarily indicative of the consolidated results of operations
for future periods or that actually would have been realized had Adex and
Vibrantads been a consolidated entity during the period presented:




For
      Three Months Ended
                            
                            
                            For
      Six Months EndedJune
      30, 2008
                            
                            
                            June
      30, 2008Pro
      forma revenues
                            
                            $
                            857,934
                            
                            
                            $
                            1,687,646Pro
      forma net loss
                            
                            $
                            (687,531
                            )
                            
                            $
                            (596,582
                            )Pro
      forma loss  per share, basic and diluted
                            
                            $
                            (0.05
                            )
                            
                            $
                            (0.08
                            )






Acquisition
of Digital Instructor, LLC





On August
12, 2008, the Company entered into a Membership Interest Purchase Agreement (the
“MIPA”) with the members of Digital Instructor, LLC (“Digital Instructor”),
pursuant to which the Company purchased all outstanding membership interests of
Digital Instructor.





Pursuant
to the MIPA, the Company issued the following payments as part of the Purchase
Price:





(i)
            $1,000,000
      in cash at the closing;(ii)
            a
      Senior Secured Promissory Note (the “Note”) in the principal amount of
      $500,000 payable to Digital Equity Partners, LLC, a Colorado limited
      liability company wholly owned by the selling members of Digital
      Instructor and formed for the purpose of holding the Note (“DEP”), on
      February 12, 2009 (subsequently amended to March 9, 2009);
    and(iii)
            1,200,000
      restricted shares of the Company’s common stock.





In
addition, the Company agreed to pay an additional amount up to $500,000 payable
within a certain period of time following August 12, 2009, subject to Digital
Instructor achieving certain gross revenue performance milestones (the “Earn
Out”) as part of the Purchase Price.





On March
6, 2009, the Company, DEP and the former members of Digital Instructor entered
into an Agreement (the “Agreement”) pursuant to which:





(i)
            DEP
      surrendered the Note and the Company issued to DEP in exchange for the
      Note (a) a new note payable to DEP in the principal amount of $255,000
      (the “New Note”) and (b) a cash payment of $245,000 on the Effective Date
      (the “Cash Payment”) of the Agreement;(ii)
            the
      Security Agreement under the Note was amended to reflect DEP’s amended
      security interest in the principal amount of $255,000 under the New Note;
      and(iii)
            certain
      provisions of the MIPA including without limitation, the Earn Out and the
      Earn Out Period, were amended by the Company and the former
      Members.







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 Table of Contents






Pursuant
to the New Note, the Company has agreed to pay DEP the following amounts on the
following dates:





(i)
            $52,500
      on the earlier of (i) ninety days from February 12, 2009 and (ii) when
      such amount is declared due and payable by the holder upon or after the
      occurrence of an Acceleration Event;(ii)
            $52,500
      on the earlier of (i) one hundred eighty days from February 12, 2009 and
      (ii) when such amount is declared due and payable by the holder upon or
      after the occurrence of an Acceleration Event; and(iii)
            $150,000
      on the earlier of (i) February 12, 2010, (ii) when such amount is declared
      due and payable by the holder upon or after the occurrence of an
      Acceleration Event and (iii) when such amount is declared due and payable
      by holder upon or after the occurrence of the Company’s termination of the
      managing member’s employment other than for Cause (as defined in the
      Agreement) prior to February 12,
2010.





The New
Note contains customary events of default that entitle the holder thereof to
accelerate the maturity date of the unpaid principal amount.





The
Security Agreement, which was entered into for the purposes of collateralizing
the Note and gave DEP a first priority security interest in the Membership
Interests purchased by the Company was amended to reflect DEP’s amended security
interest in the principal amount of $255,000 under the New Note.





Under the
Agreement, the Company, DEP and the former Members agreed to a mutual release of
claims arising out of the MIPA prior to the Effective Date of the
Agreement.





Under the
MIPA, the Earn Out provision was amended with respect to one of the Members’ pro
rata portion of the Earn Out, which is equal to an amount up to
$150,000.  Such amendment extends the Earn Out Period to include the
period commencing on February 12, 2009 and ending on February 12,
2010.




The
aggregate purchase price was $7,746,990 which included the
following:






AmountsCash
      paid at closing
                        
                        $
                        1,000,000Promissory
      note issued net of discount issued at closing date (1)
                        
                        
                        482,372Restricted
      shares of common stock issued to selling members
                        
                        
                        5,616,000Cash
      paid for closing costs and finders’ fees
                        
                        
                        139,614Restricted
      shares issued as finders’ fees
                        
                        
                        27,004Accrued
      closing costs
                        
                        
                        40,000Deferred
      tax liability
                        
                        
                        442,000Total
                        
                        $
                        7,746,990(1) The
      principal amount of the promissory note is $500,000.








11
 Table of Contents







The
allocation of the purchase price was based upon management’s estimates and
assumptions:






AmountsCurrent
      assets
                              
                              $
                              451,652Property
      plant and equipment, net
                              
                              
                              27,049Intangible
      assets
                              
                              
                              1,150,000Goodwill
                              
                              
                              6,503,423Total
      assets acquired
                              
                              
                              8,132,124Current
      liabilities
                              
                              
                              385,134Total
      liabilities assumed
                              
                              
                              385,134Net
      assets acquired
                              
                              $
                              7,746,990




During
the second quarter of 2009, we recorded an impairment charge of approximately
$1.0 million, of which $587,968 in product license agreements, $251,986 in
product trade names and $58,661 in customer database were related to Digital
Instructor’s intangible assets (see Note 10).




The
following pro forma financial information was based on the respective historical
financial statements of Adex and Digital Instructor. The pro forma financial
information reflected the consolidated results of operations as if the merger of
Digital Instructor occurred at the beginning of the period and included the
amortization of the resulting identifiable acquired intangible assets and
share-based compensation expenses. The pro forma financial data is provided for
illustrative purposes only and is not necessarily indicative of the consolidated
results of operations for future periods or that actually would have been
realized had Adex and Digital Instructor been a consolidated entity during the
period presented:





For
      Three Months Ended
                            
                            
                            For
      Six Months EndedJune
      30, 2008
                            
                            
                            June
      30, 2008Pro
      forma revenues
                            
                            $
                            1,685,754
                            
                            
                            $
                            3,346,666Pro
      forma net loss
                            
                            $
                            (749,433
                            )
                            
                            $
                            (631,421
                            )Pro
      forma loss  per share, basic and diluted
                            
                            $
                            (0.05
                            )
                            
                            $
                            (0.08
                            )




Acquisition
of Bay Harbor Marketing, LLC





On August
29, 2008, the Company entered into an asset purchase agreement, pursuant to
which the Company acquired substantially all the assets of Bay Harbor Marketing,
LLC (“Bay Harbor”), a California limited liability company. The asset purchase
was completed on August 29, 2008. Bay Harbor is engaged in providing
marketing solutions, focusing exclusively on the financial services
market.







12
 Table of Contents







The
aggregate purchase price was $1,878,562 which included the
following:






AmountsCash
      paid at closing
                        
                        $
                        50,000Restricted
      shares of common stock issued to seller
                        
                        
                        239,850Restricted
      shares of common stock issued to managing member of seller
                        
                        
                        729,868Restricted
      shares of common stock issued to creditor of seller
                        
                        
                        706,469Restricted
      shares issued as finders’ fees
                        
                        
                        47,943Cash
      paid for closing costs
                        
                        
                        36,432Accrued
      closing costs
                        
                        
                        68,000Total
                        
                        $
                        1,878,562




The
following table summarizes the estimated fair values of the assets acquired. The
allocation of the purchase price was based upon management’s estimates and
assumptions:




AmountsIntangible
      assets
                          
                          $
                          330,000Goodwill
                          
                          
                          1,548,562Total
      assets acquired
                          
                          $
                          1,878,562


The
acquisition of the assets was accounted for as a business combination and the
operations of Bay Harbor were included in the Company’s results of operations
beginning on August 29, 2008, the acquisition date. The factors resulting in
goodwill were Bay Harbor’s name, reputation, and established key personnel. The
full amount of the aforementioned goodwill is deductible for tax purposes over a
period of 15 years.





During
the second quarter of 2009, we recorded an impairment charge of approximately
$1.0 million, of which $80,640 in trade name and $10,579 to marketing collateral
were related to Bay Harbor’s intangible assets (see Note 10).




The
following pro forma financial information was based on the respective historical
financial statements of Adex and Bay Harbor. The pro forma financial information
reflected the consolidated results of operations as if the merger of Bay Harbor
occurred at the beginning of the period and included the amortization of the
resulting identifiable acquired intangible assets and share-based compensation
expenses. The pro forma financial data is provided for illustrative purposes
only and is not necessarily indicative of the consolidated results of operations
for future periods or that actually would have been realized had Adex and Bay
Harbor been a consolidated entity during the period presented:




For
      Three Months Ended
                            
                            
                            For
      Six Months EndedJune
      30, 2008
                            
                            
                            June
      30, 2008Pro
      forma revenues
                            
                            $
                            840,471
                            
                            
                            $
                            1,598,857Pro
      forma net loss
                            
                            $
                            (693,883
                            )
                            
                            $
                            (710,062
                            )Pro
      forma loss  per share, basic and diluted
                            
                            $
                            (0.05
                            )
                            
                            $
                            (0.09
                            )




Consolidated
Pro Forma




The
following pro forma financial information was based on the respective historical
financial statements of Adex, Vibrantads, Digital Instructor and Bay Harbor. The
pro forma financial information reflected the consolidated results of operations
as if the merger of Vibrantads, Digital Instructor and Bay Harbor occurred at
the beginning of the period and included the amortization of the resulting
identifiable acquired intangible assets and share-based compensation expenses.
The pro forma financial data is provided for illustrative purposes only and is
not necessarily indicative of the consolidated results of operations for future
periods or that actually would have been realized had Adex, Vibrantads, Digital
Instructor and Bay Harbor been a consolidated entity during the period
presented:








13
 Table of Contents











For
      Three Months Ended
                              
                              
                              For
      Six Months EndedJune
      30, 2008
                              
                              
                              June
      30, 2008Pro
      forma revenues
                              
                              $
                              1,946,607
                              
                              
                              $
                              3,814,511Pro
      forma net loss
                              
                              $
                              (807,093
                              )
                              
                              $
                              (829,640
                              )Pro
      forma loss  per share, basic and diluted
                              
                              $
                              (0.05
                              )
                              
                              $
                              (0.11
                              )




NOTE
10.      GOODWILL AND INTANGIBLE
ASSETS




Goodwill





Goodwill
represents the excess of the purchase price over the fair value of the net
tangible and identifiable intangible assets acquired in a business combination.
We follow the provisions of SFAS No. 142, Goodwill and Other Intangible
Assets (“FAS 142”), under which we evaluate goodwill for impairment on an
annual basis or whenever events and changes in circumstances suggest that the
carrying amount may not be recoverable. We conduct our annual impairment
analysis in the fourth quarter of each fiscal year. Impairment of goodwill is
tested at the reporting unit level by comparing the reporting unit’s carrying
amount, including goodwill, to the fair value of the reporting unit. The fair
values of the reporting units are estimated using a combination of the income
approach that uses discounted cash flows and the market approach that utilizes
comparable companies’ data. If the carrying amount of the reporting unit exceeds
its fair value, goodwill is considered impaired and a second step is performed
to measure the amount of impairment loss. Because we have two reporting units
under SFAS 131, Disclosure
about Segments about an Enterprises and Related Information (“FAS
131”), the impairment test is performed at the reporting unit.





In
connection with the impairment test of our intangible assets during the second
quarter of 2009, we performed an interim impairment test on our goodwill
balances. The test performed compared the implied fair value of goodwill to the
carrying amount of goodwill on our balance sheet. Our estimate of the implied
fair value of the goodwill was based on the quoted market price of our common
stock and shares outstanding on June 1, 2009. Accordingly, each reporting unit
was assigned an implied fair value by using an income based approach. Our
goodwill impairment test indicated that no goodwill impairment was required
reflecting the implied fair value of each of our reporting units exceeded the
carrying amount. A second step to measure the amount of impairment loss was
accordingly not required.





As of
June 30, 2009, the balance in goodwill was $8,448,789, of which $1,945,366 is
attributable to the marketing platform services – external offering segment and
$6,503,423 is attributable to the marketing platform services – internal
offering segment.








14
 Table of Contents







Intangible
Assets




Our
purchased intangible assets as of June 30, 2009 and December 31, 2008 are
summarized as follows:






June
      30, 2009
                            
                            
                            December
      31, 2008New
                            
                            
                            
                            
                            
                            
                            
                            
                            Net
                            
                            
                            Gross
                            
                            
                            
                            
                            
                            
                            
                            
                            NetCarrying
                            
                            
                            Accumulated
                            
                            
                            Impairment
                            
                            
                            Carrying
                            
                            
                            Carrying
                            
                            
                            Accumulated
                            
                            
                            Impairment
                            
                            
                            CarryingAmount*
                            
                            
                            Amortization
                            
                            
                            Charges
                            
                            
                            Amount
                            
                            
                            Amount
                            
                            
                            Amortization
                            
                            
                            Charges
                            
                            
                            AmountDomain
      Names
                            
                            $
                            10,000
                            
                            
                            $
                            (3,889
                            )
                            
                            $
                            -
                            
                            
                            $
                            6,111
                            
                            
                            $
                            10,000
                            
                            
                            $
                            (2,222
                            )
                            
                            $
                            -
                            
                            
                            $
                            7,778Product
      License Agreements
                            
                            
                            700,000
                            
                            
                            
                            (112,032
                            )
                            
                            
                            (587,968
                            )
                            
                            
                            -
                            
                            
                            
                            700,000
                            
                            
                            
                            (53,699
                            )
                            
                            
                            -
                            
                            
                            
                            646,301Product
      Trade Names
                            
                            
                            300,000
                            
                            
                            
                            (48,014
                            )
                            
                            
                            (251,986
                            )
                            
                            
                            -
                            
                            
                            
                            300,000
                            
                            
                            
                            (23,014
                            )
                            
                            
                            -
                            
                            
                            
                            276,986Customer
      Database
                            
                            
                            130,000
                            
                            
                            
                            (42,263
                            )
                            
                            
                            (58,661
                            )
                            
                            
                            29,076
                            
                            
                            
                            280,000
                            
                            
                            
                            (18,652
                            )
                            
                            
                            (150,000
                            )
                            
                            
                            111,348Internal
      Use Software
                            
                            
                            200,000
                            
                            
                            
                            (34,131
                            )
                            
                            
                            -
                            
                            
                            
                            165,869
                            
                            
                            
                            200,000
                            
                            
                            
                            (14,131
                            )
                            
                            
                            -
                            
                            
                            
                            185,869Company
      Trade Name
                            
                            
                            100,000
                            
                            
                            
                            (15,694
                            )
                            
                            
                            (80,640
                            )
                            
                            
                            3,666
                            
                            
                            
                            200,000
                            
                            
                            
                            (6,740
                            )
                            
                            
                            (100,000
                            )
                            
                            
                            93,260Marketing
      Collateral
                            
                            
                            50,000
                            
                            
                            
                            (11,921
                            )
                            
                            
                            (10,579
                            )
                            
                            
                            27,500
                            
                            
                            
                            50,000
                            
                            
                            
                            (4,212
                            )
                            
                            
                            -
                            
                            
                            
                            45,788Affiliate  and
      Incentive Platform
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            60,000
                            
                            
                            
                            -
                            
                            
                            
                            (60,000
                            )
                            
                            
                            -Total
                            
                            $
                            1,490,000
                            
                            
                            $
                            (267,944
                            )
                            
                            $
                            (989,834
                            )
                            
                            $
                            232,222
                            
                            
                            $
                            1,800,000
                            
                            
                            $
                            (122,670
                            )
                            
                            $
                            (310,000
                            )
                            
                            $
                            1,367,330*
      The new carrying amount is net of intangible asset impairment charges of
      $310,000 taken during the fourth quarter of 2008.




Our
long-lived assets include equipment, furniture and fixtures and intangible
assets. Long-lived assets are evaluated for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. We evaluate the recoverability of our long-lived assets in
accordance with SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (“FAS 144”). We compare the carrying value
of long-lived assets to our projection of future undiscounted cash flows
attributable to such assets and, in the event that the carrying value exceeds
the future undiscounted cash flows, we record an impairment charge against
income equal to the excess of the carrying value over the asset’s fair
value.





During
the second quarter of 2009, the Company made certain changes to the Bay Harbor
business model whereby the company has discontinued its lead generation services
for financial advisors. The Company has redeployed the underlying technology
engine which was previously being used in the Bay Harbor business for marketing
its internal product offers to consumers. Management has forecasted reduced
revenues and cash flows from the Bay Harbor business services to financial
advisors in the future.





During
the second quarter of 2009, the Company shifted its focus and deployment of
capital away from the acquired educational product offers that were being
marketed through Digital Instructor in place of new health and beauty based
internal offers. The Company believes health and beauty based internal offers
will provide the Company with a longer lifetime value per consumer and higher
profit margins.




Given the
impairment indicators of the acquired intangible assets discussed above, we
performed a test of purchased intangible assets for recoverability. The
assessment of recoverability is based upon the assumptions and future usefulness
of the assets.




The
analysis determined that the carrying amount of the intangible assets exceeded
the implied fair value under the test for impairment per FAS 144 and the
difference was allocated to the intangible assets of the impacted asset group on
a pro-rata basis using the relative carrying amounts of the assets. We recorded
an impairment charge of approximately $1.0 million, of which $587,968 related to
product licensing agreements (Digital Instructor), $251,986 to product trade
names (Digital Instructor), $58,661 to customer database (Digital Instructor),
$80,640 to company trade name (Bay Harbor) and $10,579 to marketing collateral
(Bay Harbor). In addition, the remaining lives of marketing collateral and
company trade names were shortened from 38 months to 12 months and from 48
months to 12 months, respectively.




If our
assumptions regarding projected revenue or gross margin rates are not achieved,
we may be required to record additional intangible asset impairment charges in
future periods, if any such change or other factor constitutes a triggering
event. It is not possible at this time to determine if any such future
impairment charge would result or, if it does, whether such charge would be
material.








15
 Table of Contents







The
aggregate amortization expenses for our purchased intangible assets are
summarized for the periods presented below:







Weighted
                              
                              
                              Three
      Months Ended
                              
                              
                              Six
      Months EndedAverage
      Lives
                              
                              
                              June
      30,
                              
                              
                              June
      30,
                              
                              
                              June
      30,
                              
                              
                              June
      30,in
      Months*
                              
                              
                              2009
                              
                              
                              2008
                              
                              
                              2009
                              
                              
                              2008Domain
      Names
                              
                              
                              36
                              
                              
                              $
                              833
                              
                              
                              $
                              -
                              
                              
                              $
                              1,667
                              
                              
                              $
                              -Product
      License Agreements
                              
                              
                              60
                              
                              
                              
                              23,333
                              
                              
                              
                              -
                              
                              
                              
                              58,333
                              
                              
                              
                              -Product
      Trade Names
                              
                              
                              60
                              
                              
                              
                              10,000
                              
                              
                              
                              -
                              
                              
                              
                              25,000
                              
                              
                              
                              -Customer
      Database
                              
                              
                              24
                              
                              
                              
                              10,694
                              
                              
                              
                              -
                              
                              
                              
                              23,612
                              
                              
                              
                              -Internal
      Use Software
                              
                              
                              60
                              
                              
                              
                              10,000
                              
                              
                              
                              -
                              
                              
                              
                              20,000
                              
                              
                              
                              -Company
      Trade Name
                              
                              
                              60
                              
                              
                              
                              3,782
                              
                              
                              
                              -
                              
                              
                              
                              8,954
                              
                              
                              
                              -Marketing
      Collateral
                              
                              
                              48
                              
                              
                              
                              4,583
                              
                              
                              
                              -
                              
                              
                              
                              7,708
                              
                              
                              
                              -Total
                              
                              
                              
                              
                              
                              $
                              63,225
                              
                              
                              $
                              -
                              
                              
                              $
                              145,274
                              
                              
                              $
                              -Note:
      The weighted average lives were calculated according to the lives of the
      intangible assets before the impairmentcharges
      were taken in the second quarter of 2009.




The
estimated future amortization expenses for our purchased intangible assets are
summarized below:




Amortization
      Expense(by
      fiscal year)Remainder
      of 2009
                          
                          $
                          51,1682010
                          
                          
                          74,0752011
                          
                          
                          41,1112012
                          
                          
                          40,0002013
                          
                          
                          25,868Total
                          
                          $
                          232,222




NOTE
11.      ACCRUED LIABILITIES




Accrued
liabilities as of June 30, 2009 and December 31, 2008 are comprised of as
follows:




June
      30,
                          
                          
                          Deember
      31,2009
                          
                          
                          2008Accrued
      accounts payable
                          
                          $
                          201,229
                          
                          
                          $
                          -Accrued
      payroll and payroll  related expenses
                          
                          
                          302,906
                          
                          
                          
                          259,358Accrued
      professional fees
                          
                          
                          162,001
                          
                          
                          
                          130,001Accrued
      dividends to Pieces Media 1
                          
                          
                          100,000
                          
                          
                          
                          100,000Accrued
      payment to affiliates
                          
                          
                          86,211
                          
                          
                          
                          -Accrued
      credit card charge-back fees
                          
                          
                          134,036
                          
                          
                          
                          57,280Accrued
      bonus payment to Pieces Media 1
                          
                          
                          100,000
                          
                          
                          
                          -Other
                          
                          
                          84,624
                          
                          
                          
                          47,268Total
                          
                          $
                          1,171,007
                          
                          
                          $
                          593,907(1)
      Payments due to former members of Pieces Media.




16
 Table of Contents




NOTE
12.     PROMISSORY NOTES





Our
promissory notes as of June 30, 2009 and December 31, 2008 are comprised of the
following:






June
      30,
                                
                                
                                December
      31,2009
                                
                                
                                
                                2008
      1$60,000
      promissory note; non-interest bearing, dueJuly
      21, 2009; shown net of imputed interest of
                                  $335
      and $2,388, respectively 2
                                
                                $
                                59,665
                                
                                
                                $
                                57,612$255,000
      promissory note; non-interest bearing,$52,500
      due May 12, 2009; $52,500 due August 12, 2009;
                                  $150,000
      due February 12, 2010; shown net of imputedinterest
      of $8,387 and $5,806, respectively 3
                                
                                
                                194,113
                                
                                
                                
                                494,194Total
      promissory notes
                                
                                $
                                253,778
                                
                                
                                $
                                551,806(1) At
      June 30, 2009, both promissory notes were classified as short-term
      liabilities; At December 31, 2008,$401,806
      was classified as short-term liabilities and $150,000 was classified as
      long-term liabilities.(2)
      The principal amount of $60,000 was fully paid on July 21,
      2009;(3)
      Of the total promissory note, $52,500 was paid on May 12,
      2009.




In
connection with the Company’s acquisition of the assets of Vibrantads, LLC, on
July 21, 2008, the Company entered into a promissory note with the sole selling
member of Vibrantads in the principal amount of $60,000. The principal amount of
the promissory note bears no interest and it contains customary events of
default that entitle the holder to accelerate the due date of the unpaid
principal amount of the promissory note. The present value of the promissory
note at June 30 2009 and December 31, 2008 was $59,665 and $57,612,
respectively. The promissory note was accreted to the value of its principal
amount over a period of twelve months. The promissory note was paid in full
balance on July 21, 2009.





In
connection with the Company’s acquisition of the membership interests of Digital
Instructor, LLC, on August 12, 2008, the Company issued a senior secured
promissory note in the principal amount of five hundred thousand dollars
($500,000) which was payable on February 12, 2009 (subsequently amended as set
forth below). The note was issued to Digital Equity Partners, LLC, a Colorado
limited liability company and wholly-owned by the selling members of Digital
Instructor, which was formed for the purpose of holding the promissory note. The
principal amount of the promissory note bears no interest and contains customary
events of default that entitle the holder thereof to accelerate the maturity
date of the unpaid principal amount. As part of the transaction, the Company
entered into a security agreement with Digital Equity Partners, LLC for purposes
of collateralizing the note. Under the security agreement, Digital Equity
Partners, LLC was given a first priority security interest in the membership
interests purchased by the Company.





On March
6, 2009, the Company, Digital Equity Partners, and the Members entered into an
Agreement (the “Agreement”) pursuant to which:





(i)
            Digital
      Equity Partners surrendered the $500,000 note and the Company issued to
      Digital Equity Partners in exchange for such note (a) a new note payable
      to Digital Equity Partners in the principal amount of $255,000 (the “New
      Note”) and (b) a cash payment of $245,000 on the Effective Date (the “Cash
      Payment”) of the Agreement; and(ii)
            the
      Security Agreement under the $500,000 note was amended to reflect Digital
      Equity Partners’ amended security interest in the principal amount of
      $255,000 under the New Note.





Pursuant
to the New Note, the Company agreed to pay Digital Equity Partners the following
amounts on the following dates:






17
 Table of Contents







(i)
            $52,500
      on the earlier of (i) ninety days from February 12, 2009 and (ii) when
      such amount is declared due and payable by the holder upon or after the
      occurrence of an Acceleration Event (as defined in the New
      Note);(ii)
            $52,500
      on the earlier of (i) one hundred eighty days from February 12, 2009 and
      (ii) when such amount is declared due and payable by the holder upon or
      after the occurrence of an Acceleration Event (as defined in the New
      Note); and(iii)
            $150,000
      on the earlier of (i) February 12, 2010, (ii) when such amount is declared
      due and payable by the holder upon or after the occurrence of an
      Acceleration Event and (iii) when such amount is declared due and payable
      by holder upon or after the occurrence of the Company’s termination of the
      managing member of Digital Instructor’s employment other than for Cause
      (as defined in the Agreement) prior to February 12,
  2010.




During
the second quarter of 2009, the Company made $52,500 principal payment to the
note holder. The present value of the promissory note at June 30, 2009 and
December 31, 2008 was $194,113 and $494,194, respectively. The promissory note
is being accreted to the value of its principal amount over a period of three to
twelve months





During
the three and six months ended June 30 2009, we recorded $4,285 in interest
expense related the accretion of the promissory notes and recovered a net of
$4,813 of imputed interest expense due to the amendment on the payment term of
the promissory note, respectively. We had no such interest expense in the three
and six months ended June 30, 2008.




NOTE
13.      EARNING (LOSS) PER SHARE




Basic
earnings (loss) per share excludes dilution and is computed by dividing net
income (loss) by the weighted average number of common shares outstanding for
the periods in accordance with SFAS No. 128,“Earnings Per Share” (“SFAS
128”). Diluted earnings per share (“EPS”) reflects the potential dilution that
would occur if outstanding stock options or warrants to issue common stock, or
preferred stocks, were exercised or converted for common stock, and the common
stock underlying restricted stock were issued by using the treasury stock
method. Potentially dilutive securities are excluded from the computation if
their effect is anti-dilutive.




The
following tables summarize the weighted average shares outstanding and earnings
(loss) per common share for the three and six months ended June 30, 2009 and
2008:




Three
      Months Ended
                          
                          
                          Six
      Months EndedJune
      30,
                          
                          
                          June
      30,
                          
                          
                          June
      30,
                          
                          
                          June
      30,2009
                          
                          
                          2008
                          
                          
                          2009
                          
                          
                          2008Net
      loss
                          
                          $
                          (1,692,428
                          )
                          
                          $
                          (661,877
                          )
                          
                          $
                          (3,416,509
                          )
                          
                          $
                          (554,213
                          )Deemed
      dividend to series A preferred stockholders
                          
                          
                          (948,350
                          )
                          
                          
                          -
                          
                          
                          
                          (948,350
                          )
                          
                          
                          -Net
      loss attributable to common stockholders
                          
                          $
                          (2,640,778
                          )
                          
                          $
                          (661,877
                          )
                          
                          $
                          (4,364,859
                          )
                          
                          $
                          (554,213
                          )Shares
      used in computation:Weighted
      average shares of common stock outstanding used in computation of basis
      loss per share
                          
                          
                          31,640,212
                          
                          
                          
                          15,212,600
                          
                          
                          
                          31,534,267
                          
                          
                          
                          7,689,967Dilutive
      effect of stock options and restricted stocks
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Shares
      used in computation of diluted loss per common share
                          
                          
                          31,640,212
                          
                          
                          
                          15,212,600
                          
                          
                          
                          31,534,267
                          
                          
                          
                          7,689,967Loss
      per common share, basic and diluted
                          
                          $
                          (0.08
                          )
                          
                          $
                          (0.04
                          )
                          
                          $
                          (0.14
                          )
                          
                          $
                          (0.07
                          )




During
the three and six months ended June 30, 2009, as the Company incurred a net
loss, the weighted average number of common shares outstanding equaled the
weighted average number of common shares and share equivalent assuming dilution.
During the three and six months ended June 30, 2008, the Company had no
potentially dilutive common shares equivalents assuming dilution, as such, the
basic and diluted weighted average shares were the same.




At June
30, 2009, options to purchase 4,625,313 shares of common stock, respectively, at
exercise prices ranging from $0.75 to $5.55, were outstanding but were not
included in the computation of diluted loss per share because they were
anti-dilutive under the treasury stock method. Warrants to purchase
approximately 75,000 shares of common stock with an exercise price of $2.0 to
$3.0 were also excluded from the computation of diluted loss per share because
they were anti-dilutive under the treasury stock method. Unvested RSUs
corresponding to approximately 127,938 shares of our common stock with a grant
date fair value from $1.75 to $5.80 were outstanding at June 30, 2009 and
were not included in the computation of diluted net loss per share because they
were anti-dilutive under the treasury stock method.






18
 Table of Contents





During
the second quarter of 2009, we issued $1,951,337 shares of series A convertible
preferred stocks and 975,668 warrants to purchase common stocks at exercise
price of $1.56. Accordingly, the company recorded $948,350 deemed dividend to
the preferred stockholders at the issuance date (see Note 16). The deemed
dividend was included in the calculation of loss per common share. The preferred
stocks and warrants were not included in the computation of diluted net loss per
share because they were anti-dilutive under the treasury stock
method.





In
connection with the Company’s acquisitions of the assets of Pieces and
Vibrantads, and the membership interests of Digital Instructor, under share
reset provisions in each of the respective acquisition agreements, a potential
maximum number of shares issuable to each of the above are 250,000, 262,500, and
1,400,000, respectively. On July 21, 2009, the Company issued 63,298 shares
of common stocks, respectively to Vibrantads as a result of the reset provisions
(See Part II, Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds). Under the
reset provision, no shares were issued to Pieces.





In
connection with the Company’s acquisition of the assets of Bay Harbor, 150,000
shares are currently held in escrow and are subject to release based upon Bay
Harbor’s achieving of certain revenue and profit milestones during the earn-out
period from August 30, 2008 to August 29, 2009.




NOTE
14.      COMPREHENSIVE (LOSS) INCOME





We report
comprehensive loss in accordance with SFAS No. 130,Reporting Comprehensive
Income (“FAS 130”), which established the standard for reporting and
displaying other comprehensive (loss) income and its components within
financial statements.For
the three and six months ended June 30, 2009 and 2008, the Company’s
comprehensive loss was the same as net loss.




NOTE
15.      COMMITMENT AND CONTINGENCIES





Lease
Commitments





The
Company leases 2,825 square feet for its corporate office headquarters in
Mountain View, California under an 18-month lease agreement. This lease expires
on October 31, 2009 with a monthly base rental of $6,780 per month through April
2009 and then increasing to $7,119 until the end of the
lease term.





In
connection with the acquisition of Digital Instructor, LLC on August 12, 2008,
the Company assumed an additional two leases representing an aggregate of 7,746
square feet expiring on June 30, 2012 in Boulder, Colorado. Monthly aggregate
base rentals of these two leases are $6,397 to June 2009, increasing to $6,623
to June 2010, increasing to $6,855 to June 2011, and increasing to $7,101 to
June 2012.





During
the second quarter of 2009, we entered into a six-month lease for a small office
in New Jersey. The monthly lease payment is $1,250 and ends December 31,
2009.





Total
rent expense for the three and six months ended June 30, 2009 was $41,137 and
$81,024, respectively; and was $22,600 for both the three and six months ended
June 30, 2008.




We
believe that if we lost any of the foregoing leases, we could promptly relocate
within ten miles of each lease on similar terms.




Approximate
future minimum lease payments under non-cancelable office lease agreements are
as follows:






Years
                      
                      AmountRemainder
      of 2009
                      
                      $
                      76,5462010
                      
                      
                      80,9672011
                      
                      
                      83,8382012
                      
                      
                      42,603Total
                      
                      $
                      283,954


Contingencies





From time
to time, we might be involved in various claims, legal actions and complaints
arising in the normal course of business. As of June 30, 2009, there are no
material pending legal proceedings involving the Company or its
property







19
 Table of Contents







NOTE
16.      CONVERTIBLE PREFERRED STOCKS AND
WARRANTS




Terms
and Conditions





On June
12, 2009, the Company entered into a Series A Convertible Preferred Stock and
Warrant Purchase Agreement (the “Purchase Agreement”), with a limited number of
accredited investors (the “Purchasers”). The Company closed the sale to the
Purchasers of 1,951,337 shares of the Company’s Series A Preferred Stock,
$0.0001 par value (the “preferred stock”), at a price per share equal to $1.20
(the “Original Issue Price”) and warrants (the “warrants”) to purchase up to
975,668 shares of the Company’s common stock, par value $0.0001 (the “common
stock”), at an exercise price of $1.56 per share (the “Warrant Exercise Price”).
The Company has raised aggregate proceeds of $2,341,604 in the financing
transaction (the “Financing”). The purchase price for the preferred stock and
warrants was payable in cash.





At the
option of the holder at any time, shares of the preferred stock are convertible
into shares of the Company’s common stock at a conversion price equal to $1.20
per share (the “conversion price”). The conversion price is subject to
adjustment for stock splits, stock dividends and recapitalizations. In addition,
for so long as any shares of preferred stock remain outstanding and the shares
of common stock underlying such shares of preferred stock are not eligible to be
sold pursuant to Rule 144 under the Securities Act of 1933, as amended (the
“Securities Act”), if the Company issues any securities, other than certain
permitted issuances, at a per share price (or equivalent for convertible
securities) which is less than the then current conversion price, the Company
shall reduce the conversion price according to a weighted-average-anti-dilution
formula (the “preferred stock down-round provision”). The Company analyzed the
conversion provision and determined it did not meet the criteria
bifurcation.





The
warrant exercise period ends five years after the date of issuance of the
warrants. The holder of the warrants may exercise the Warrants at any time
(subject to the restrictions on exercise and conversion) before the expiration
of the warrants.  At the option of the Company, all warrants shall
automatically be deemed to have been exercised fifteen trading days after
delivery to the Purchasers of written notice of such deemed exercise, provided
that the volume-weighted average closing price of the Company’s common stock
over the ten trading days immediately preceding the date of such notice is at
least $2.50 per share. The exercise price of the warrants and the number of
shares of common stock issuable upon exercise of the warrants are subject to
adjustment for stock splits, stock dividends and recapitalizations. In addition,
if at any time during the period beginning on the date of issuance of the
warrants and ending six months thereafter, the Company issues securities, other
than certain permitted issuances, at a per share price (or equivalent for
convertible securities) which is less than the then current exercise price of
the warrants, the Company shall reduce the exercise price and the number of
shares issuable upon exercise of the warrants according to a weighted-average
anti-dilution formula (the “warrant down-round provision”).





Valuation
of Convertible Preferred Stocks, Warrants and Embedded Conversion
Feature




On
January 1, 2009, the Company adopted Emergency Issues Task Force (“EITF”) 07-5,
Determining Whether an
Instrument (or embedded Feature) is Indexed to an Entity’s Own Stock(“EITF 07-5”), issued by the Financial Accounting Standards Board
(“FASB”) in June 2008. EITF 07-5 requires entities to evaluate whether an
equity-linked financial instrument (or embedded feature) is indexed to its own
stock by assessing the instrument’s contingent exercise provisions and
settlement provisions. Instruments not indexed to their own stock fail to meet
the scope exception of SFAS No. 133 (“FAS 133”), Accounting for Derivative
Instruments and Hedging Activities, paragraph 11(a), and should be
classified as a liability and marked-to-market.





Under
EITF 07-5, the warrants we issued, as described above, were not considered to be
indexed to our stock and have fixed settlement amount based on the terms of the
down-round provision. Accordingly, the warrants do not meet the criteria for
equity classification and are therefore classified as derivative liabilities and
carried at fair value.





A
Black-Scholes option-pricing model was used to obtain the fair value of the
warrants using the assumptions on June 12, 2009, the date we issued the
preferred stocks and warrants:





Stock
price:                            $1.60


Exercise
price:                        $1.56


Risk free
interest
rate:           2.81%


Volatility:                                100%


Expected
term:                        2.5
years


Dividends:                              none




20
 Table of Contents







The
effect of the forced exercise provision reduced the value of the warrants by an
amount equal to the Black-Scholes value of an option with an exercise price of
$2.50 (with all other inputs the same as described above). The fair value of the
warrants down-round provisions was valued using a probability weighted outcome
model.  Based on the sum of the individual components, the fair value
of the warrants was estimated to be $167,815 at inception. This warrant
liability will be marked to market through current earnings and once the
down-round provisions expire, this instrument will be reclassified as components
of stockholders’ equity.




After the
$167,815 allocation of proceeds to the warrants, the remaining gross proceeds of
$2,173,594 were used to compute the effective conversion price and beneficial
conversion feature.  The calculated fair value of the embedded conversion
feature was the intrinsic value of the computed effective conversion price and
the stock price of the common shares on the issuance date. As a result, 
$948,350 as a deemed dividend to the preferred stockholders.





The
closing costs of $144,500 that were related to the preferred shares issued have
been recorded as a reduction to additional paid-in-capital.




Marking-to-Market





FAS 133
requires that the fair value of the aforementioned liabilities be re-measured at
the end of every reporting period with the change in value reported in the
statement of operations.





On June
30, 2009, as a result of the mark-to-market of the warrant liability, we
recorded an $18,538 loss which was recorded in Other income and Expense line
item in our condensed consolidated statement of operations




NOTE
17.      STOCK OPTIONS, RESTRICTED STOCK, WARRANTS
AND SHARE-BASED COMPENSATION EXPENSES





We
currently have one equity compensation plan, the Adex Media, Inc. Employee Stock
Option Plan (the “Plan”), as amended in June 2009, which permits the Board
of Directors to grant to officers, directors, employees and third parties
incentive stock options (“ISOs”), non-qualified stock options, and restricted
stocks.





Under the
Plan, as emended, options for 10,000,000 shares of common stock are reserved for
issuance.  At June 30, 2009, 5,320,000 options were available for
grant.








21
 Table of Contents







Stock
Options





Option
activity under the Plan was as follows for the six months ended June 30,
2009:






Weighted
                          
                          
                          WeightedAverage
                          
                          
                          AverageExercise
                          
                          
                          Remaining
                          
                          
                          AggregatePrice
      per
                          
                          
                          Contractual
                          
                          
                          IntrinsicOutstanding
                          
                          
                          Share
                          
                          
                          Life
      (in Years)
                          
                          
                          ValueOutstanding
      at December 31, 2008
                          
                          
                          4,680,000
                          
                          
                          $
                          1.62
                          
                          
                          
                          9.41
                          
                          
                          $
                          5,159,900Forfeited
      or expired
                          
                          
                          (54,687
                          )
                          
                          
                          0.75
                          
                          
                          
                          -
                          
                          
                          
                          -Outstanding
      at June 30, 2009
                          
                          
                          4,625,313
                          
                          
                          $
                          1.63
                          
                          
                          
                          8.92
                          
                          
                          $
                          3,868,510Vested
      and exercisable at June 30, 2009
                          
                          
                          1,019,688
                          
                          
                          $
                          0.75
                          
                          
                          
                          8.64
                          
                          
                          $
                          1,171,366




The
aggregate intrinsic value in the table above represented the total pre-tax
intrinsic value, which was based on the closing price of our common stock at the
end of the periods. These were the value which would have been received by
option holders if all option holders exercised their options on that
date.





The fair
value of options granted is recognized as an expense over the requisite service
period.  As of June 30, 2009, the fair value of options issued by the
Company was $4,069,726 of which $17,623 has been forfeited. The unamortized cost
of stock options issued remaining at June 30, 2009 was $3,054,115 with a
weighted average expected term for recognition of 2.89 years. At the time of
grant, the estimated fair values per option were from $0.24 to
$4.46.





During
the first quarter of 2009, an aggregate of 500,000 options to purchase common
stocks held by two employees were repriced. The repricing of the underwater
options was accounted for under SFAS No. 123 (revised 2004),Share-Based Payment (“FAS 123R”)
as modification. The modification resulted in an incremental compensation cost
of $88,033, of which, $6,398 and $7,945, respectively, were recognized in
the three and six months ended June 30, 2009. The remaining unrecognized
incremental cost will be recognized over the remaining service
period.




Restricted
Stock





The fair
value of restricted stock granted is recognized as an expense over the requisite
service period.  As of June 30, 2009, the fair value of restricted
stock issued by the Company was $312,209. The unamortized cost of restricted
stock issued remaining at June 30, 2009 was $208,463 with a weighted average
expected term for recognition of 3.06 years. At the time of grant, the fair
values per share were from $1.75 to $5.80. Total outstanding restricted stocks
were 153,000 shares at June 30, 2009, of which 127,938 was
unvested.





We
accounted for non-employee shares of restricted stocks in accordance with EITF
Abstract No. 96-18,Accountingfor Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods orServices (“EITF 96-18”).  Under the provisions
of EITF 96-18, because none of our agreements has a disincentive for
nonperformance, we record a charge for the fair value of the portion of the
restrict stocks earned from the point in time when vesting of the restricted
stock becomes probable. Final determination of fair value of the restricted
stock occurs upon actual vesting. As such, non-employees’ shares were revalued
and marked-to-market at the stock price on June 30, 2009.





During
the first quarter of 2009, we modified one terminated employee’s original grant.
Of the 50,000 shares of restricted stock that such employee was originally
granted, 40,000 shares were canceled and the remaining 10,000 shares were
accelerated as part of the separation agreement. Under FAS 123R, the change in
the vesting term of the restricted stock is considered as modification. As such,
we reversed $22,134 compensation expense related to the original grant and
recorded $16,000 compensation expense based on the fair value of the 10,000
shares on the modification date.




Warrants





We
accounted for warrants issued to third-party service providers in accordance to
EITF 96-18, because none of our agreements has a disincentive for
nonperformance, we record a charge for the fair value of the portion of the
warrants earned from the point in time when vesting of the warrants becomes
probable. Final determination of fair value of the warrants occurs upon actual
vesting. As such, the warrants were revalued and marked-to-market at June 30,
2009. During the first six months ended June 30, 2009, there was no issuance or
cancellation of warrants.We
recorded $16,513 and $34,823, respectively, in warrants expense for the three
and six months ended June 30, 2009.






22
 Table of Contents






Warrants
have been issued with exercise prices of between $2.00 and $3.00 per share as
follows:







WeightedWeighted
                        
                        
                        AverageAverage
                        
                        
                        Remaining
                        
                        
                        AggregateExercise
                        
                        
                        Contractual
                        
                        
                        IntrinsicShares
                        
                        
                        Price
                        
                        
                        Life
      (in Years)
                        
                        
                        ValueOutstanding
      at December 31, 2008
                        
                        
                        75,000
                        
                        
                        $
                        2.50
                        
                        
                        $
                        5.00
                        
                        
                        $
                        6,250Granted
                        
                        
                        -
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        -Exercised
                        
                        
                        -
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        -Forfeited
      or expired
                        
                        
                        -
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        -Outstanding
      at June 30, 2009
                        
                        
                        75,000
                        
                        
                        $
                        2.50
                        
                        
                        
                        4.51
                        
                        
                        $
                        -Exercisable
      at June 30, 2009
                        
                        
                        32,837
                        
                        
                        $
                        2.64
                        
                        
                        
                        4.51
                        
                        
                        $
                        -


Share-based
Compensation Expenses





We
recognize our share-based payment compensation cost under FAS 123R for
employees' shares and under EITF 96-18 for non-employees' shares. The following
table sets forth the total share-based compensation expense for the periods
indicated:






For
      The Three Months Ended
                          
                          
                          For
      The Six Months EndedJune
      30,
                          
                          
                          June
      30,
                          
                          
                          June
      30,
                          
                          
                          June
      30,2009
                          
                          
                          2008
                          
                          
                          2009
                          
                          
                          2008Sales
      and marketing - stock options to employees
                          
                          $
                          145,323
                          
                          
                          $
                          21,345
                          
                          
                          $
                          227,236
                          
                          
                          $
                          21,345Sales
      and marketing - restricted stocks to employees
                          
                          
                          3,622
                          
                          
                          
                          -
                          
                          
                          
                          5,469
                          
                          
                          
                          -General
      and administration - stock options to employees
                          
                          
                          114,733
                          
                          
                          
                          34,708
                          
                          
                          
                          177,034
                          
                          
                          
                          34,708General
      and administration - restricted stocks to employees
                          
                          
                          1,344
                          
                          
                          
                          -
                          
                          
                          
                          (9,011
                          )
                          
                          
                          -General
      and administration - restricted stocks to non-employees
                          
                          
                          36,519
                          
                          
                          
                          -
                          
                          
                          
                          60,859
                          
                          
                          
                          -General
      and administration - warrants to non-employees
                          
                          
                          16,513
                          
                          
                          
                          
                          
                          
                          
                          34,823Total
      share-based compensation expense
                          
                          $
                          318,054
                          
                          
                          $
                          56,053
                          
                          
                          $
                          496,410
                          
                          
                          $
                          56,053




NOTE
18.    SEGMENTS, GEOGRAPHIC INFORMATION AND SIGNIFICANT
CUSTOMERS




Segments
are defined by SFAS No. 131,Disclosures about Segments of an Enterprise and Related Information (“FAS
131”), as components of a company in which separate financial information is
available and is evaluated by the chief operating decision maker, or a decision
making group, in deciding how to allocate resources and in assessing
performance.





Until the
Company’s acquisition of Digital Instructor, LLC in August, 2008, the Company
was comprised of a single segment which was the marketing platform services
segment. As of August 12, 2008, in connection with the acquisition of Digital
Instructor, LLC, the Company added a second segment, which was the products
segment.





In the
second quarter of 2009, the Company changed its internal operating structure
which resulted in changes in the Company's reportable segments. Prior to the
second quarter of 2009, the Company’s product segment primarily operated as a
standalone segment; in particular, the segment contracted with its own marketing
affiliates to generate sales, sourced its own inventory, and performed its own
product branding, etc. During the second quarter of 2009, the company
restructured its operations by integrating its in house media buying and
affiliate network together to service the Company’s both internal and external
offers.






23
 Table of Contents






In
accordance with the above structural changes, the Company’s chief operating
decision maker has changed the performance measurement segments of the Company
to the following:




1.  Marketing
Platform Services – Internal Offers


2.  Marketing
Platform Services – External Offers






Marketing
Platform Services – Internal Offers




Primary
activities of this segment are performed to promote the Company’s internal
offers; the Company will source its own inventory from strategic partners, brand
or private label the inventory, perform all fulfillment and logistical support,
and bill the end consumer directly. The primary services used to promote the
Company’s internal offers include the following:




(i)
            search
      and contextual based advertising;


(ii)
            display
      based advertising; and


(iii)
            affiliate
      marketing.




The
revenue received by the Company from its internal product offers is a
combination of (i) revenue charged for shipping and handling of the product; and
(ii) revenue for the product subscription charged on a monthly basis until the
Customer cancels the subscription. The costs to the Company of marketing its
internal product offers include the costs of inventory and procurement, costs of
direct media buys, costs paid to marketing affiliates, and the costs of merchant
credit card processing.




Marketing
Platform Services – External Offers




Primary
activities of this segment include the following platform services for product
offers that are owned by independent third parties:




(i)  search
and contextual based advertising;


(ii)  display
based advertising; and


(iii)  affiliate
marketing.




The
revenue received by the Company in this segment is composed of a
click-per-action (“CPA”) commissioned based payment from the owner of the offer.
The costs to the Company include costs of direct media buys, and costs paid to
marketing affiliates.




Although
there were changes in the structure of our internal organization, there are no
changes in the composition of the reportable segments. Our previously reported
products segment became the marketing platform services – internal offer
segment; and the marketing platform services segment became the marketing
platform services – external offers segment. As such, there is no need to
restate the segment information disclosed in the prior periods.







24
 Table of Contents







The
following table presents information about reported segments along with the
items necessary to reconcile the segment information to the totals reported in
the accompanying condensed consolidated financial statements for the periods
indicated:






For
      The Three Months Ended
                                                          
                                                          Marketing
      Platform Services - External Offers
                                                          
                                                          
                                                          Marketing
      Platform Services - Internal Offers
                                                          
                                                          
                                                          Total
                                                          
                                                          For
      The Six Months Ended
                                                          
                                                          Marketing
      Platform Services - External Offers
                                                          
                                                          
                                                          Marketing
      Platform Services - Internal Offers
                                                          
                                                          
                                                          TotalJune
      30, 2009
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          June
      30, 2009Revenues
                                                          
                                                          $
                                                          2,825,000
                                                          
                                                          
                                                          $
                                                          5,334,289
                                                          
                                                          
                                                          $
                                                          8,159,289
                                                          
                                                          Revenues
                                                          
                                                          $
                                                          5,337,500
                                                          
                                                          
                                                          $
                                                          6,315,685
                                                          
                                                          
                                                          $
                                                          11,653,185Cost
      of revenues
                                                          
                                                          
                                                          2,216,407
                                                          
                                                          
                                                          
                                                          1,530,002
                                                          
                                                          
                                                          
                                                          3,746,409
                                                          
                                                          Cost
      of revenues
                                                          
                                                          
                                                          4,320,300
                                                          
                                                          
                                                          
                                                          1,965,658
                                                          
                                                          
                                                          
                                                          6,285,958Gross
      profit
                                                          
                                                          $
                                                          608,593
                                                          
                                                          
                                                          $
                                                          3,804,287
                                                          
                                                          
                                                          $
                                                          4,412,880
                                                          
                                                          Gross
      profit
                                                          
                                                          $
                                                          1,017,200
                                                          
                                                          
                                                          $
                                                          4,350,027
                                                          
                                                          
                                                          $
                                                          5,367,227Gross
      margin
                                                          
                                                          
                                                          21.5%
                                                          
                                                          
                                                          
                                                          71.3%
                                                          
                                                          
                                                          
                                                          54.1%
                                                          
                                                          Gross
      margin
                                                          
                                                          
                                                          19.1%
                                                          
                                                          
                                                          
                                                          68.9%
                                                          
                                                          
                                                          
                                                          46.1%Corporate
      expenses
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          $
                                                          5,105,695
                                                          
                                                          Corporate
      expenses
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          $
                                                          7,592,212Stock-based
      compensation
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          318,051
                                                          
                                                          Stock-based
      compensation
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          496,407Amortization
      of intangible assets
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          39,892
                                                          
                                                          Amortization
      of intangible assets
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          86,941Impairment
      of intangible assets
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          989,834
                                                          
                                                          Impairment
      of intangible assets
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          989,834Operating
      loss
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          $
                                                          (2,040,592
                                                          )
                                                          Operating
      loss
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          $
                                                          (3,798,167
                                                          )June
      30, 2008
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          June
      30, 2008Revenues
                                                          
                                                          $
                                                          718,776
                                                          
                                                          
                                                          $
                                                          -
                                                          
                                                          
                                                          $
                                                          718,776
                                                          
                                                          Revenues
                                                          
                                                          $
                                                          1,409,329
                                                          
                                                          
                                                          $
                                                          -
                                                          
                                                          
                                                          $
                                                          1,409,329Cost
      of revenues
                                                          
                                                          
                                                          536,244
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          536,244
                                                          
                                                          Cost
      of revenues
                                                          
                                                          
                                                          1,079,904
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          1,079,904Gross
      profit
                                                          
                                                          $
                                                          182,532
                                                          
                                                          
                                                          $
                                                          -
                                                          
                                                          
                                                          $
                                                          182,532
                                                          
                                                          Gross
      profit
                                                          
                                                          $
                                                          329,425
                                                          
                                                          
                                                          $
                                                          -
                                                          
                                                          
                                                          $
                                                          329,425Gross
      margin
                                                          
                                                          
                                                          25.4%
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          25.4%
                                                          
                                                          Gross
      margin
                                                          
                                                          
                                                          23.4%
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          23.4%Corporate
      expenses
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          $
                                                          817,892
                                                          
                                                          Corporate
      expenses
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          $
                                                          858,878Stock-based
      compensation
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          56,053
                                                          
                                                          Stock-based
      compensation
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          56,053Operating
      loss
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          $
                                                          (691,413
                                                          )
                                                          Operating
      loss
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          $
                                                          (585,506
                                                          )




Segment
operating income (loss) consists of the revenues generated by a segment, less
the direct costs of revenue and selling and general and administrative costs
that are incurred directly by the segment. Corporate costs include costs related
to administrative functions that are performed in a centralized manner that are
not attributable to a particular segment. These administrative function costs
include costs for corporate office support, all office facility costs, costs
relating to accounting and finance, human resources, legal, marketing,
information technology and Company-wide business development functions, as well
as costs related to overall corporate management.





We do not
charge intersegment revenue; instead an intercompany management fee is charged
for the sales and marketing services that our Marketing Platform Services
– External Offers segment provides to our Marketing Platform Services
– Internal Offers segment. These intercompany management fees are
eliminated at the consolidation.





Customer
Base





Major
customers are defined as those having revenues which exceed 10% of the Company’s
annual revenues.





For the
three and six months ended June 30, 2009, no single customer accounted for more
than 10% of our consolidated revenue. For the three and six months ended June
30, 2008, one customer accounted for 59% of our consolidated revenue and a
second customer accounted for 29% of our consolidated
revenue.





At June
30, 2009, there were four customers who each accounted for more than 10% of our
consolidated accounts receivable; the aggregated account receivables from these
four customers were 58% at June 30, 2009.





In the
year ended December 31, 2008, one customer accounted for 26% of consolidated
revenue, one customer accounted for 15% of consolidated revenue, and a third
customer accounted for 10% of consolidated revenue.  As of December
31, 2008, accounts receivable of $157,812 was due from these
customers.  As of December 31, 2008, three customers accounted for an
aggregate of 35% of consolidated accounts receivable.







25
 Table of Contents






The
Company does not require collateral or other security for accounts
receivable.  However, credit risk is mitigated by the Company’s
ongoing evaluations and the reasonably short collection
terms.  Accounts receivable are stated net of allowances for doubtful
accounts.  An allowance for doubtful accounts has been provided at
June 30, 2009 and December 31, 2008, based on historic trends and the Company’s
expectation of collectability.  Allowance for doubtful accounts at
June 30, 2009 and December 31, 2008 was $90,430 and $19,737,
respectively.





Vendor
Base





Major
vendors are defined as those vendors having expenditures made by the Company
which exceed 10% of the Company’s total expenditures.





During
the three months ended June 30, 2009, two vendors accounted for more than 10% of
our total expenditures. During the six months ended June 30, 2009, one vendor
accounted for more than 10% of our total expenditures. During the three and six
months ended June 30, 2008, no vendor accounted for more than 10% of our total
expenditures.




Operations
by Geographic Area





The
Company’s operations are domiciled in the United States. The Company does not
have international subsidiaries. Revenue is attributed to a geographic region
based upon the country from which the customer relationship is maintained. As of
June 30, 2009, all of our customer relationships were maintained from the United
States although our customers include advertising and affiliate networks which
are based both in the United States and internationally. In addition, the direct
advertiser who places offers through an advertising or affiliate network may be
located internationally as could be the end consumer who is ultimately
completing the final action which triggers the action for how the Company
generates revenue. However, because the customer relationships are maintained in
the United States, all revenue and income from operations is allocated to the
United States.




Location
of Assets





Our
tangible assets are located at our corporate offices in Mountain View,
California and our offices in Boulder, Colorado. Our servers for hosting our
platforms are located at third-party locations.




NOTE
19.      INCOME TAXES





During
the three and six months ended June 30, 2009, we recorded an income tax benefit
of $381,278 and $399,764, respectively. During the three and six months ended
June 30, 2008, we recorded zero and $800, respectively, in income tax
expense. The 2009 benefit primarily resulted from a deferred tax liability
adjustment related to the impairment charges of Digital Instructor
intangible assets we recorded during the three months ended June 30,
2009.





We file
income tax returns in the U.S. federal jurisdiction, California, and various
state jurisdictions in which we have a subsidiary or branch operation. The tax
years 2007 and 2008 remain open to examination by the U.S. and state tax
authorities.





Our
policy is that we recognize interest and penalties accrued on any unrecognized
tax benefits as a component of our provision for income taxes. We had no accrued
interest or penalties associated with unrecognized tax benefits at June 30, 2009
or December 31, 2008.




NOTE
20.      RECENT ACCOUNTING
PRONOUNCEMENTS




Effective
June 30, 2009, the Company adopted SFAS No. 165, Subsequent Events (“FAS
165”).  FAS 165 establishes general standards of accounting for and
disclosure of events that occur after the balance sheet date but before the date
the financial statements are issued or available to be issued.  FAS
165 requires companies to reflect in their financial statements the effects of
subsequent events that provide additional evidence about conditions at the
balance-sheet date. Subsequent events that provide evidence about conditions
that arose after the balance-sheet date should be disclosed if the financial
statements would otherwise be misleading. Disclosures should include the nature
of the event and either an estimate of its financial effect or a statement that
an estimate cannot be made.





In June
2009, the FASB issued Statement SFAS No.166, Accounting for Transfers of
Financial Assets an amendment of FASB Statement No. 140 (“FAS
166”).  Among other changes, FAS 166 eliminates the concept of a
"qualifying special-purpose entity," changes the requirements for derecognizing
financial assets, defines the term participating interest to establish specific
conditions for reporting a transfer of a portion of a financial asset as a sale
and requires additional disclosures. FAS 166 is effective as of the beginning of
a reporting entity's first annual reporting period that begins after November
15, 2009 (which for the company is January 1, 2010), for interim periods within
the first annual reporting period and for interim and annual reporting periods
thereafter. Earlier application is prohibited. The recognition and measurement
provisions of FAS 166 are effective for transfers occurring on or after the
effective date. We are currently evaluating the impact, if any, of the adoption
of FAS 166 on our financial position, results of operations and
liquidity.






26
 Table of Contents





In June
2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation
No. 46(R) (FAS 167).  FAS 167 changes how a company determines
when an entity that is insufficiently capitalized or is not controlled through
voting (or similar rights) should be consolidated. The determination of whether
a company is required to consolidate an entity is based on, among other things,
an entity's purpose and design and a company's ability to direct the activities
of the entity that most significantly impact the entity's economic performance.
FAS 167 is effective as of the beginning of a reporting entity's first annual
reporting period that begins after November 15, 2009 (which for the Company is
January 1, 2010), for interim periods within the first annual reporting period
and for interim and annual reporting periods thereafter. Earlier application is
prohibited. We are currently evaluating the impact, if any, of the adoption of
FAS 167 on our financial position, results of operations and
liquidity.





In June
2009, the FASB issued SFAS No. 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles, a
replacement of FASB Statement No. 162 (the Codification), which will be
effective for financial statements issued for interim and annual reporting
periods ending after September 15, 2009.  The Codification is not
expected to change U.S. generally accepted accounting principles but combines
all nongovernmental authoritative standards into a comprehensive, topically
organized online database. All other accounting literature excluded from the
Codification will be considered nonauthoritative. The company will adopt the use
of the Codification for the quarter ending September 30, 2009.  The
company is currently evaluating the effect on its financial statement
disclosures since all future references to authoritative accounting literature
will be references in accordance with the Codification.




NOTE
21.      SUBSEQUENT
EVENT





On July
27, 2009, the “Company entered into a Series A Convertible Preferred Stock and
Warrant Purchase Agreement (“Purchase Agreement”) with five accredited
investors, individually and not jointly, pursuant to which the Company agreed to
sell and issue an aggregate of 270,000 shares of Series A Convertible Preferred
Stock, par value $0.0001per share (“series A preferred stock”), and
warrants to purchase up to 135,000 shares of common stock at an initial exercise
price of $1.56 (the “warrants”), to such individual accredited investors
(“Investors”), for a purchase price of $1.20 per share or an aggregate of
$324,000 (the “Financing”).The Investors purchased the securities in cash
pursuant to the same terms and conditions as other investors who previously
purchased securities in the Company’s private placement of up to 4,000,000
shares of its series A preferred stock and warrants to purchase up to 2,000,000
shares of common stock (the “Offering”) as disclosed in Note 16.





At the
option of the Company, all outstanding series A preferred stock will
automatically be converted into shares of the Company’s common stock ten trading
days after delivery to the Investors of written notice of such conversion,
provided that the volume-weighted average closing price of the Company’s common
stock over the ten trading days immediately preceding the date of such notice is
at least $1.80 per share.





The
warrants exercise period ends five years after the date of issuance of the
warrants. The holder of the warrants may exercise the warrants at any time
(subject to the restrictions on exercise and conversion) before the expiration
of the warrants.  At the option of the Company, the warrants shall
automatically be deemed to have been exercised fifteen trading days after
delivery to the Investors of written notice of such deemed exercise, provided
that the volume-weighted average closing price of the Company’s common stock
over the ten trading days immediately preceding the date of such notice is at
least $2.50 per share. The exercise price of the warrants and the number of
shares of common stock issuable upon exercise of the warrants are subject to
adjustment for stock splits, stock dividends and recapitalizations. In addition,
if at any time during the period beginning on the date of issuance of the
warrants and ending six months thereafter, the Company issues securities, other
than certain permitted issuances, at a per share price (or equivalent for
convertible securities) which is less than the then current exercise price of
the warrants, the Company will reduce the exercise price and the number of
shares issuable upon exercise of the warrants according to a weighted-average
anti-dilution formula.





The
Company has evaluated the subsequent event through August 14, 2009, the
financial statements issuance date. The financial statements included
herein do not reflect the impact of this subsequent event.





27
 Table of Contents







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




Management’s
Discussion and Analysis of Financial Condition and Results of Operations contain
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended and Section 27A of the Securities Act of 1933,
as amended, that involve risks and uncertainties. When used in this report, the
words, “intend,”  anticipate,” “believe,” “estimate,” “plan,”
“expect,” “could,” “project,” “may,” “should,” “potential,” “continue” and
similar expressions as they relate to us are included to identify
forward-looking statements. These statements are based on our current beliefs,
expectations, and assumptions and are subject to a number of risks and
uncertainties, many of which are set forth in this Form 10-Q. Our actual results
and events could differ materially from those anticipated in these
forward-looking statements as a result of various factors. These forward-looking
statements are made as of the date of this Form 10-Q, and we assume no
obligation to explain the reason why actual results may differ. In light of
these assumptions, risks, and uncertainties, the forward-looking events
discussed in this Form 10-Q might not occur. These statements are not guarantees
of future performance and involve certain risks and uncertainties that are
difficult to predict. Factors that could cause actual result and events to
differ materially from those state herein include, but not are not limited to
the information contained under the caption “Part I, Item 2 – Management’s
Discussion and Analysis of Financial Condition and Results of Operation” and
“Part II, Item 1A. Risk Factors.” We disclaim any obligation to update
information in any forward-looking statement. The information contained in this
Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009 is
not a complete description of the Company’s business or the risks associated
with an investment in the Company’s securities. Each reader should carefully
review and consider the various disclosures made by the Company in this
Quarterly Report on Form 10-Q and in the Company’s other filings with the
Securities and Exchange Commission.




The
following Management’s Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with the unaudited condensed
consolidated financial statements and notes thereto, included in this Quarterly
Report on Form 10-Q, and our audited consolidated financial statements for the
fiscal year ended December 31, 2008 included in our Annual Report on Form 10-K,
as amended by Amendment No. 1 on Form 10-K/A,  No. 2 on Form
10K/A and Form 10-Q for the period ending March 31, 2009 , each as filed
with the Securities and Exchange Commission (“SEC”). Our results of operations
for the three and six months ended June 30, 2009 are not necessarily indicative
of results to be expected for any future period.




COMPANY
OVERVIEW





Adex
Media, Inc. (“we”, “us”, “our”, the “Company” or “Adex”) is the parent company
of Abundantad, Inc. (“Abundantad”).  Adex was incorporated under the
laws of Delaware in April 2008.  It was formed as a subsidiary of
SupportSpan, Inc., a public reporting Nevada corporation (“SupportSpan”). On
April 25, 2008, SupportSpan was consolidated into Adex for the purposes of
changing its name to Adex and its place of incorporation to Delaware (the
“Merger”).





Abundantad
was formed on February 4, 2008 for the purpose of creating, operating and/or
acquiring publishers of Internet content whose properties are deemed desirable
to generate paid-for dissemination of internal or third-party direct advertising
and revenues derived from agency and advertising network-directed advertising on
the Internet. Abundantad creates, acquires, owns and operates content websites
which may include promotions, sweepstakes, mobile offers, and other Internet
websites in furtherance of its purposes. On May 14, 2008, Abundantad
acquired substantially all the assets and liabilities of Kim and Lim, LLC, d/b/a
Pieces Media (“Pieces”). Also on May 14, 2008, Abundantad, via a reverse merger,
became a wholly-owned subsidiary of Adex.





Adex is
an early-stage integrated Internet marketing publisher with a focus on
offering third party advertising customers or promoting its own offers through a
multi-channel Internet advertising platform. Adex’s marketing platform provides
a range of services including (i) search and contextual based marketing; (ii)
display marketing; (iii) lead generation; and (iv) affiliate marketing. Adex
currently actively markets the following of its own internal offers: (i)
EasyWhite Labs – a teeth whitening kit; (ii) Acai Alive – a dietary
supplement; (iii) RezQ – a dietary supplement; and (iv) TriCleanse – a digestive
cleansing system.




BUSINESS
SEGMENTS





In the
second quarter of 2009, we changed its internal operating structure which
resulted in changes in our reportable segments. Prior to the second quarter of
2009, our product segment primarily operated as a standalone segment; in
particular, the segment contracted with its own marketing affiliates to generate
sales, sourced its own inventory, and performed its own product branding, etc.
During the second quarter of 2009, we restructured its operations by integrating
its in house media buying and affiliate network together to service both
internal and external offers.






28
 Table of Contents




In
accordance with the above structural changes, our chief operating decision maker
has changed the performance measurement segments of the company to the
following:




1.  Marketing
Platform Services – Internal Offers


2.  Marketing
Platform Services – External Offers




Marketing
Platform Services – Internal Offers




Primary
activities of this segment are performed to promote our internal offers; we will
source our own inventory from strategic partners, brand or private label the
inventory, perform all fulfillment and logistical support, and bill the end
consumer directly. The primary services used to promote our internal offers
include the following:




(i)
            search
      and contextual based advertising;


(ii)
            display
      based advertising; and


(iii)
            affiliate
      marketing.




The
revenue received by us from our internal product offers is a combination of (i)
revenue charged for shipping and handling of the product; and (ii) revenue for
the product subscription charged on a monthly basis until the customer cancels
the subscription. The costs to the marketing of our internal product offers
include the costs of inventory and procurement, costs of direct media buys,
costs paid to marketing affiliates, and the costs of merchant credit card
processing.




Marketing
Platform Services – External Offers




Primary
activities of this segment include the following platform services for product
offers that are owned by independent third parties:




(i)
            search
      and contextual based advertising;


(ii)
            display
      based advertising; and


(iii)
            affiliate
      marketing.




The
revenue received by us in this segment is composed of a click-per-action (“CPA”)
commissioned based payment from the owner of the offer. The costs include costs
of direct media buys, and costs paid to marketing affiliates.




Although
there were changes in the structure of our internal organization, there are no
changes in the composition of the reportable segments. Our previously reported
products segment became the marketing platform services – internal offer
segment; and the marketing platform services segment became the marketing
platform services – external offers segment. As such, there is no need to
restate the segment information disclosed in the prior periods.





29
 Table of Contents







The
following table presents information about reported segments along with the
items necessary to reconcile the segment information to the totals reported in
the accompanying condensed consolidated financial statements for the periods
indicated:




For
      The Three Months Ended
                                                            
                                                            Marketing
      Platform Services - External Offers
                                                            
                                                            
                                                            Marketing
      Platform Services - Internal Offers
                                                            
                                                            
                                                            Total
                                                            
                                                            For
      The Six Months Ended
                                                            
                                                            Marketing
      Platform Services - External Offers
                                                            
                                                            
                                                            Marketing
      Platform Services - Internal Offers
                                                            
                                                            
                                                            TotalJune
      30, 2009
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            June
      30, 2009Revenues
                                                            
                                                            $
                                                            2,825,000
                                                            
                                                            
                                                            $
                                                            5,334,289
                                                            
                                                            
                                                            $
                                                            8,159,289
                                                            
                                                            Revenues
                                                            
                                                            $
                                                            5,337,500
                                                            
                                                            
                                                            $
                                                            6,315,685
                                                            
                                                            
                                                            $
                                                            11,653,185Cost
      of revenues
                                                            
                                                            
                                                            2,216,407
                                                            
                                                            
                                                            
                                                            1,530,002
                                                            
                                                            
                                                            
                                                            3,746,409
                                                            
                                                            Cost
      of revenues
                                                            
                                                            
                                                            4,320,300
                                                            
                                                            
                                                            
                                                            1,965,658
                                                            
                                                            
                                                            
                                                            6,285,958Gross
      profit
                                                            
                                                            $
                                                            608,593
                                                            
                                                            
                                                            $
                                                            3,804,287
                                                            
                                                            
                                                            $
                                                            4,412,880
                                                            
                                                            Gross
      profit
                                                            
                                                            $
                                                            1,017,200
                                                            
                                                            
                                                            $
                                                            4,350,027
                                                            
                                                            
                                                            $
                                                            5,367,227Gross
      margin
                                                            
                                                            
                                                            21.5%
                                                            
                                                            
                                                            
                                                            71.3%
                                                            
                                                            
                                                            
                                                            54.1%
                                                            
                                                            Gross
      margin
                                                            
                                                            
                                                            19.1%
                                                            
                                                            
                                                            
                                                            68.9%
                                                            
                                                            
                                                            
                                                            46.1%Corporate
      expenses
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            $
                                                            5,105,695
                                                            
                                                            Corporate
      expenses
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            $
                                                            7,592,212Stock-based
      compensation
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            318,051
                                                            
                                                            Stock-based
      compensation
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            496,407Amortization
      of intangible assets
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            39,892
                                                            
                                                            Amortization
      of intangible assets
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            86,941Impairment
      of intangible assets
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            989,834
                                                            
                                                            Impairment
      of intangible assets
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            989,834Operating
      loss
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            $
                                                            (2,040,592
                                                            )
                                                            Operating
      loss
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            $
                                                            (3,798,167
                                                            )June
      30, 2008
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            June
      30, 2008Revenues
                                                            
                                                            $
                                                            718,776
                                                            
                                                            
                                                            $
                                                            -
                                                            
                                                            
                                                            $
                                                            718,776
                                                            
                                                            Revenues
                                                            
                                                            $
                                                            1,409,329
                                                            
                                                            
                                                            $
                                                            -
                                                            
                                                            
                                                            $
                                                            1,409,329Cost
      of revenues
                                                            
                                                            
                                                            536,244
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            536,244
                                                            
                                                            Cost
      of revenues
                                                            
                                                            
                                                            1,079,904
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            1,079,904Gross
      profit
                                                            
                                                            $
                                                            182,532
                                                            
                                                            
                                                            $
                                                            -
                                                            
                                                            
                                                            $
                                                            182,532
                                                            
                                                            Gross
      profit
                                                            
                                                            $
                                                            329,425
                                                            
                                                            
                                                            $
                                                            -
                                                            
                                                            
                                                            $
                                                            329,425Gross
      margin
                                                            
                                                            
                                                            25.4%
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            25.4%
                                                            
                                                            Gross
      margin
                                                            
                                                            
                                                            23.4%
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            23.4%Corporate
      expenses
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            $
                                                            817,892
                                                            
                                                            Corporate
      expenses
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            $
                                                            858,878Stock-based
      compensation
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            56,053
                                                            
                                                            Stock-based
      compensation
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            56,053Operating
      loss
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            $
                                                            (691,413
                                                            )
                                                            Operating
      loss
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            $
                                                            (585,506
                                                            )


Segment
operating income (loss) consists of the revenues generated by a segment, less
the direct costs of revenue and selling and general and administrative costs
that are incurred directly by the segment. Corporate costs include costs related
to administrative functions that are performed in a centralized manner that are
not attributable to a particular segment. These administrative function costs
include costs for corporate office support, all office facility costs, costs
relating to accounting and finance, human resources, legal, marketing,
information technology and company-wide business development functions, as well
as costs related to overall corporate management.





We do not
charge intersegment revenue; instead an intercompany management fee is charged
for the sales and marketing services that our Marketing Platform Services
– External Offers segment provides to our Marketing Platform Services
– Internal Offers segment. These intercompany management fees are
eliminated at the consolidation.




CRITICAL
ACCOUNTING POLICIES AND USE OF ESTIMATES




The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America (“GAAP”) requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities, and
reported amounts of revenues and expenses during the reporting
period.  The U.S. Securities and Exchange Commission (the “SEC”) has
defined a company’s critical accounting policies as policies that are most
important to the portrayal of a company’s financial condition and results of
operations, and which require a company to make its most difficult and
subjective judgments, often as a result of the need to make estimates of matters
that are inherently uncertain. Based on this definition, we have identified our
most critical accounting policies and estimates to be as follows: (i) provision
for doubtful accounts; (ii) accrued liabilities; (iii) estimates of when
internally developed software is deemed probable to be completed and ready for
intended use; (iv) assumptions on stock option forfeiture rates, expected terms,
and volatility rates of our underlying shares; (v) estimates of useful lives
underlying our depreciable and intangible assets; (vi) reserves for excess and
obsolete inventory; (vii) asset impairments; (viii) income taxes; and (iv)
reserve for credit card charge backs and returns.  Although we believe
that our estimates, assumptions and judgments are reasonable, they are based
upon information presently available. Actual results may differ significantly
from these estimates if the assumptions, judgments and conditions upon which
they are based turn out to be inaccurate. A further discussion can be found
inItem7, “Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” of our Annual Report on
Form 10-K for the fiscal year ended December 31, 2008, as amended by Amendment
No. 1 on Form 10-K/A, Amendment No.2 on Form 10-K/A and Form 10-Q for
period ending March 31, 2009, each as filed with the SEC.




Certain
amounts in prior period’s financial statements have been reclassified to conform
to the current period’s presentation.





30
 Table of Contents





SIGNIFICANT
ACCOUNTING POLICIES




Revenue
Recognition





Our
revenues consist of services to promote both third party offers as well as our
own internal offers. We evaluate revenue recognition using the following basic
criteria and recognize revenue when all four criteria are met:








(i)
              Evidence
      of an arrangement: Evidence of an arrangement with the customer that
      reflects the terms and conditions for delivery of services must be present
      in order to recognize revenue;(ii)
              Delivery:
      Delivery is considered to occur when the service is performed and the
      risk of loss and reward has been transferred to the
    customer;


(iii)
            Fixed
      or determinable fee: If a portion of the arrangement fee is not fixed or
      determinable, we recognize that amount as revenue when the amount becomes
      fixed or determinable; and


(iv)
            Collection
      is deemed probable: We conduct a credit review of each customer involved
      in a significant transaction to determine the creditworthiness of the
      customer. Collection is deemed probable if we expect the customer to be
      able to pay amounts under the arrangement as those amounts become due. If
      we determine that collection is not probable, we recognize revenue when
      collection becomes probable (generally upon cash
    collection).





Our
marketing platform service revenue –external offers to third parties consists
mostly of revenue derived world-wide from direct advertisers, affiliate
networks, ad networks, and list managers. Our marketing platform service –
internal offers to promote our internal offers consists mostly of revenue
derived from on-line consumers in the United States and Canada.




Our
marketing platform service revenue to third parties is mostly derived on a
cost-per-action (“CPA”) basis, also known as pay-per-action (“PPA”) basis. Under
this pricing model, advertisers, affiliate networks, ad networks, and list
managers pay us when a specified action (a purchase, a form submission, or other
action linked to the advertisement) has been completed.





We market
its internal offers on a free trial subscription basis. Title to all internal
product offers shipped pass to the consumer upon receipt by the consumer. Upon
receipt by the consumer, we record non-refundable shipping and handling revenue.
The consumer has 7 to 11 days from when the internal product offer was
received during which they can notify the company of their intent to return the
product shipped in which case the consumer’s credit card will not be billed for
the product sales price. If the customer chooses to keep the product beyond the
free trial period, the customer’s credit card will be billed and the customer’s
subscription will begin automatically once the free trial period has expired.
Accordingly, we do not record revenue until acceptance occurs which is deemed to
be after the free trial period has expired without notification of rejection of
the product.





Our
revenues are subject to material seasonal fluctuations. In particular, revenues
in the fourth fiscal quarter will ordinarily be significantly higher than other
fiscal quarters. Revenues recorded in the current quarter are not
necessarily indicative of what reported revenues will be for an entire fiscal
year.





Classification
of Affiliates Cost





Payments
made or accrued to our sales and marketing affiliates or payments made for
direct media buys that relate to promoting our internal product offers are
recorded as sales and marketing expenses. Payments made or accrued to our sales
and marketing affiliates of direct media buys that relate to services performed
for third-party offers are recorded as cost of revenues.








31
 Table of Contents







RESULTS
OF OPERATIONS





The
results of operations that follow should be read in conjunction with our
critical accounting policies and estimates summarized above as well as our
condensed consolidated financial statements and notes thereto contained in Item 1 of this report. The
following table sets forth certain consolidated statements of operations data as
a percentage of net revenues for the periods indicated.





For
      The Three Months Ended*
                                          
                                          
                                          
                                          
                                          
                                          For
      The Six Months Ended*June
      30,
                                          
                                          
                                          June
      30,
                                          
                                          
                                          Change
                                          
                                          
                                          June
      30,
                                          
                                          
                                          June
      30,
                                          
                                          
                                          Change2009
                                          
                                          
                                          2008
                                          
                                          
                                          in
      %
                                          
                                          
                                          2009
                                          
                                          
                                          2008
                                          
                                          
                                          in
      %Revenues:Marketing
      platform services - external offers
                                          
                                          $
                                          2,825,000
                                          
                                          
                                          $
                                          718,776
                                          
                                          
                                          
                                          293.0
                                          %
                                          
                                          $
                                          5,337,500
                                          
                                          
                                          $
                                          1,409,329
                                          
                                          
                                          
                                          278.7
                                          %Percentage
      of net revenues
                                          
                                          
                                          34.6
                                          %
                                          
                                          
                                          100.0
                                          %
                                          
                                          
                                          
                                          
                                          
                                          
                                          45.8
                                          %
                                          
                                          
                                          100.0
                                          %Marketing
      platform services - internal offers
                                          
                                          
                                          5,334,289
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          n/a
                                          
                                          
                                          
                                          6,315,685
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          n/aPercentage
      of net revenues
                                          
                                          
                                          65.4
                                          %
                                          
                                          
                                          -
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          54.2
                                          %
                                          
                                          
                                          -Total
      revenues:
                                          
                                          
                                          8,159,289
                                          
                                          
                                          
                                          718,776
                                          
                                          
                                          
                                          1035.2
                                          %
                                          
                                          
                                          11,653,185
                                          
                                          
                                          
                                          1,409,329
                                          
                                          
                                          
                                          726.9
                                          %Cost
      of revenues:Marketing
      platform services - external offers
                                          
                                          
                                          2,216,407
                                          
                                          
                                          
                                          536,244
                                          
                                          
                                          
                                          313.3
                                          %
                                          
                                          
                                          4,320,300
                                          
                                          
                                          
                                          1,079,904
                                          
                                          
                                          
                                          300.1
                                          %Percentage
      of net revenues
                                          
                                          
                                          27.2
                                          %
                                          
                                          
                                          74.6
                                          %
                                          
                                          
                                          
                                          
                                          
                                          
                                          37.1
                                          %
                                          
                                          
                                          76.6
                                          %Marketing
      platform services - internal offers
                                          
                                          
                                          1,506,669
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          n/a
                                          
                                          
                                          
                                          1,907,325
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          n/aPercentage
      of net revenues
                                          
                                          
                                          18.5
                                          %
                                          
                                          
                                          -
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          16.4
                                          %
                                          
                                          
                                          -Amortization
      of acquired product licenses
                                          
                                          
                                          23,333
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          n/a
                                          
                                          
                                          
                                          58,333
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          n/aTotal
      cost of revenues:
                                          
                                          
                                          3,746,409
                                          
                                          
                                          
                                          536,244
                                          
                                          
                                          
                                          598.6
                                          %
                                          
                                          
                                          6,285,958
                                          
                                          
                                          
                                          1,079,904
                                          
                                          
                                          
                                          482.1
                                          %Percentage
      of net revenues
                                          
                                          
                                          45.9
                                          %
                                          
                                          
                                          74.6
                                          %
                                          
                                          
                                          
                                          
                                          
                                          
                                          53.9
                                          %
                                          
                                          
                                          76.6
                                          %Gross
      profit
                                          
                                          
                                          4,412,880
                                          
                                          
                                          
                                          182,532
                                          
                                          
                                          
                                          2317.6
                                          %
                                          
                                          
                                          5,367,227
                                          
                                          
                                          
                                          329,425
                                          
                                          
                                          
                                          1529.3
                                          %Percentage
      of net revenues
                                          
                                          
                                          54.1
                                          %
                                          
                                          
                                          25.4
                                          %
                                          
                                          
                                          
                                          
                                          
                                          
                                          46.1
                                          %
                                          
                                          
                                          23.4
                                          %Operating
      expenses:Product
      development
                                          
                                          
                                          -
                                          
                                          
                                          
                                          35,250
                                          
                                          
                                          
                                          n/a
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          35,250
                                          
                                          
                                          
                                          n/aPercentage
      of net revenues
                                          
                                          
                                          n/a
                                          
                                          
                                          
                                          4.9
                                          %
                                          
                                          
                                          
                                          
                                          
                                          
                                          n/a
                                          
                                          
                                          
                                          2.5
                                          %Sales
      and marketing
                                          
                                          
                                          4,726,346
                                          
                                          
                                          
                                          295,982
                                          
                                          
                                          
                                          1496.8
                                          %
                                          
                                          
                                          6,712,082
                                          
                                          
                                          
                                          328,473
                                          
                                          
                                          
                                          1943.4
                                          %Percentage
      of net revenues
                                          
                                          
                                          57.9
                                          %
                                          
                                          
                                          41.2
                                          %
                                          
                                          
                                          
                                          
                                          
                                          
                                          57.6
                                          %
                                          
                                          
                                          23.3
                                          %General
      and administrative
                                          
                                          
                                          697,400
                                          
                                          
                                          
                                          542,713
                                          
                                          
                                          
                                          28.5
                                          %
                                          
                                          
                                          1,376,537
                                          
                                          
                                          
                                          551,208
                                          
                                          
                                          
                                          149.7
                                          %Percentage
      of net revenues
                                          
                                          
                                          8.5
                                          %
                                          
                                          
                                          75.5
                                          %
                                          
                                          
                                          
                                          
                                          
                                          
                                          11.8
                                          %
                                          
                                          
                                          39.1
                                          %Amortization
      of intangible assets
                                          
                                          
                                          39,892
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          n/a
                                          
                                          
                                          
                                          86,941
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          n/aImpairment
      of intangible assets
                                          
                                          
                                          989,834
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          n/a
                                          
                                          
                                          
                                          989,834
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          n/aTotal
      operating expenses
                                          
                                          
                                          6,453,472
                                          
                                          
                                          
                                          873,945
                                          
                                          
                                          
                                          638.4
                                          %
                                          
                                          
                                          9,165,394
                                          
                                          
                                          
                                          914,931
                                          
                                          
                                          
                                          901.8
                                          %(2,040,592
                                          )
                                          
                                          
                                          (691,413
                                          )
                                          
                                          
                                          -195.1
                                          %
                                          
                                          
                                          (3,798,167
                                          )
                                          
                                          
                                          (585,506
                                          )
                                          
                                          
                                          -548.7
                                          %Operating
      lossInterest
      and other income, net
                                          
                                          
                                          (14,576
                                          )
                                          
                                          
                                          29,536
                                          
                                          
                                          
                                          -149.3
                                          %
                                          
                                          
                                          432
                                          
                                          
                                          
                                          32,093
                                          
                                          
                                          
                                          -98.7
                                          %Percentage
      of net revenues
                                          
                                          
                                          -0.2
                                          %
                                          
                                          
                                          4.1
                                          %
                                          
                                          
                                          
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          2.3
                                          %Mark-to-market
      loss on warrant liability
                                          
                                          
                                          (18,538
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          n/a
                                          
                                          
                                          
                                          (18,538
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          n/aLoss
      before provision for income taxes
                                          
                                          
                                          (2,073,706
                                          )
                                          
                                          
                                          (661,877
                                          )
                                          
                                          
                                          -213.3
                                          %
                                          
                                          
                                          (3,816,273
                                          )
                                          
                                          
                                          (553,413
                                          )
                                          
                                          
                                          -589.6
                                          %(Benefit)
      provision for income tax
                                          
                                          
                                          (381,278
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          n/a
                                          
                                          
                                          
                                          (399,764
                                          )
                                          
                                          
                                          800
                                          
                                          
                                          
                                          -50070.5
                                          %$
                                          (1,692,428
                                          )
                                          
                                          $
                                          (661,877
                                          )
                                          
                                          
                                          -155.7
                                          %
                                          
                                          $
                                          (3,416,509
                                          )
                                          
                                          $
                                          (554,213
                                          )
                                          
                                          
                                          -516.5
                                          %Net
      loss*
      Numbers and percentages might not foot due to rounding.


Revenues





Net
revenues for the three and six months ended June 30, 2009 increased by $7.4
million or 1,035.2% and $10.2 million or 726.9%, respectively, compared to the
same period a year ago. Growth in the net revenues in the marketing platform
services – external offers segment was primarily due to the expansion of our
affiliate network and in-house media buying teams that promoted these third
party offers.






32
 Table of Contents






Our
revenues are impacted by the mix of advertising offers or products we market,
changes in consumer demand for these offers and products, and changes in our
customer base. Changes in consumer demand and increased competitors in the space
could cause revenue from these types of offers to change
significantly.





Revenue
from our internal product offers for the three and six months ended June 30,
2009 primarily reflected strong sales of our EasyWhite labs teeth whitening
offer.


Cost
of Revenues





Marketing
Platform Services – External Offers





Our cost
of revenues for marketing platform services – external offers is summarized as
follows for the three and six months ended June 30, 2009 and 2008:





For
      The Three Months Ended
                        
                        
                        
                        
                        
                        For
      The Six Months EndedJune
      30,
                        
                        
                        June
      30,
                        
                        
                        Change
                        
                        
                        June
      30,
                        
                        
                        June
      30,
                        
                        
                        Change2009
                        
                        
                        2008
                        
                        
                        in
      %
                        
                        
                        2009
                        
                        
                        2008
                        
                        
                        in
      %Media
      buys
                        
                        $
                        1,459,900
                        
                        
                        $
                        453,502
                        
                        
                        
                        221.9
                        %
                        
                        $
                        3,026,722
                        
                        
                        $
                        708,783
                        
                        
                        
                        327.0
                        %Affiliates
      payments
                        
                        
                        744,379
                        
                        
                        
                        74,012
                        
                        
                        
                        905.8
                        %
                        
                        
                        1,257,563
                        
                        
                        
                        357,554
                        
                        
                        
                        251.7
                        %Affiliate
      network software
                        
                        
                        2,800
                        
                        
                        
                        2,300
                        
                        
                        
                        21.7
                        %
                        
                        
                        8,330
                        
                        
                        
                        2,300
                        
                        
                        
                        262.2
                        %Web
      site development and hosting
                        
                        
                        2,800
                        
                        
                        
                        2,930
                        
                        
                        
                        -4.4
                        %
                        
                        
                        10,382
                        
                        
                        
                        7,767
                        
                        
                        
                        33.7
                        %Merchant
      service fees
                        
                        
                        3,782
                        
                        
                        
                        -
                        
                        
                        
                        n/a
                        
                        
                        
                        7,801
                        
                        
                        
                        -
                        
                        
                        
                        n/aShipping
      and handling
                        
                        
                        1,846
                        
                        
                        
                        -
                        
                        
                        
                        n/a
                        
                        
                        
                        5,059
                        
                        
                        
                        -
                        
                        
                        
                        n/aOthers
                        
                        
                        900
                        
                        
                        
                        3,500
                        
                        
                        
                        -74.3
                        %
                        
                        
                        4,443
                        
                        
                        
                        3,500
                        
                        
                        
                        26.9
                        %Total
                        
                        $
                        2,216,407
                        
                        
                        $
                        536,244
                        
                        
                        
                        313.3
                        %
                        
                        $
                        4,320,300
                        
                        
                        $
                        1,079,904
                        
                        
                        
                        300.1
                        %




The cost
of revenues in the external offers increased by 313.3% and 300.1%, respectively
in the three and six months ended June 30, 2009, compared to the same periods a
year ago. The increase was primarily due to increased costs of media buys and
payments to marketing affiliates needed to generate the increased revenue
for the periods.





Marketing
Platform Services –Internal Offers





Our cost
of revenues for marketing platform services – internal offers is summarized as
follows for the three and six months ended June 30, 2009 and 2008:





For
      The Three Months Ended
                      
                      
                      
                      
                      
                      For
      The Six Months EndedJune
      30,
                      
                      
                      June
      30,
                      
                      
                      Change
                      
                      
                      June
      30,
                      
                      
                      June
      30,
                      
                      
                      Change2009
                      
                      
                      2008
                      
                      
                      in
      %
                      
                      
                      2009
                      
                      
                      2008
                      
                      
                      in
      %Inventory
      sold, manufacturing and distribution costs
                      
                      $
                      439,264
                      
                      
                      $
                      -
                      
                      
                      
                      n/a
                      
                      
                      $
                      494,877
                      
                      
                      $
                      -
                      
                      
                      
                      n/aInventory
      write-downs & adjustments
                      
                      
                      5,787
                      
                      
                      
                      -
                      
                      
                      
                      n/a
                      
                      
                      
                      31,712
                      
                      
                      
                      -
                      
                      
                      
                      n/aMerchant
      service fees
                      
                      
                      542,216
                      
                      
                      
                      -
                      
                      
                      
                      n/a
                      
                      
                      
                      706,090
                      
                      
                      
                      -
                      
                      
                      
                      n/aShipping
      and handling fees
                      
                      
                      425,214
                      
                      
                      
                      -
                      
                      
                      
                      n/a
                      
                      
                      
                      530,053
                      
                      
                      
                      -
                      
                      
                      
                      n/aLicense
      fees
                      
                      
                      31,667
                      
                      
                      
                      -
                      
                      
                      
                      n/a
                      
                      
                      
                      75,000
                      
                      
                      
                      -
                      
                      
                      
                      n/aSalaries
      and benefits
                      
                      
                      54,459
                      
                      
                      
                      -
                      
                      
                      
                      n/a
                      
                      
                      
                      72,501
                      
                      
                      
                      -
                      
                      
                      
                      n/aOthers
                      
                      
                      31,395
                      
                      
                      
                      
                      
                      
                      
                      n/a
                      
                      
                      
                      55,425
                      
                      
                      
                      
                      
                      
                      
                      n/aTotal
                      
                      $
                      1,530,002
                      
                      
                      $
                      -
                      
                      
                      
                      n/a
                      
                      
                      $
                      1,965,658
                      
                      
                      $
                      -
                      
                      
                      
                      n/a




During
the three and six months ended June 30, 2009, we incurred $23,333 and $58,333,
respectively, in amortization of acquired product licenses that were included in
costs of revenues. This amount represented the amortization of acquired product
license agreements in connection with our acquisition of Digital Instructor. The
value assigned to the acquired product license agreements was $700,000 at the
date of the acquisition and was completely impaired during the second quarter of
2009.







33
 Table of Contents







Gross
profit





For the
three months ended June 30, 2009, the gross profit in our marketing platform
services – external offers segment was 21.5% compared to 25.4% for the same
period a year ago. For the six months ended June 30, 2009, the gross profit for
this segment was 19.1% compared to 23.4% for the same period a year
ago. This decrease in gross profit percentage was the result of increased
cost of media buys and affiliate payments to support our growth in revenue in
this segment.





For our
marketing platform services – internal offers segment, the gross profit was
71.3% and 68.9% for the three and six months ended June 30, 2009. We did not
have revenue from this segment during the same periods in 2008.




We
anticipate that gross profit will continue to be impacted by fluctuations in the
volume and mix of our revenue from each of our operating segments, and offers
marketed within each of the segments.




Operating
expenses


Sales and marketing
expenses





Sales and
marketing expenses increased by $4,430,364 or 1,496.8% during the three months
ended June 30, 2009 compared to the same period a year ago; it increased by
$6,383,609 or 1,943.4% during the six months ended June 30, 2009, compared to
the same period a year ago. Both increases reflect the increased costs of direct
media buys and payments made to marketing affiliates to promote our internal
product offers.





Share-based
compensation expense included in sales and marketing expenses were $148,945 and
$232,705, respectively, for the three and six months ended June 30, 2009; stock
based compensation expense was $21,345 for both the three and six months ended
June 30, 2008.





General and administrative
expenses





General
and administration expenses increased by $154,687 or 28.5% during the three
months ended June 30, 2009 compared to the same period a year ago; it increased
by $825,329 or 149.7% during the six months ended June 30, 2009 compared to the
same period a year ago. As a result of becoming a publicly-traded company, we
incurred more personnel costs, share-based compensation costs, legal,
accounting, auditing, insurance, facility costs, and tax planning and compliance
fees in the three and six months ended June 30, 2009 compared to the periods a
year ago. We expect general and administrative costs to increase in order to
support our expected growth in revenues.





Share-based
compensation expense included in general and administrative was $169,109 and
$263,705, respectively, for the three and six months ended June 30, 2009;
share-based compensation expense was $34,708 for both the three and six months
ended June 30, 2008.





GOODWILL





In
connection with the impairment test of our intangible assets during the second
quarter of 2009, we performed an interim impairment test on our goodwill
balances. The test performed compared the implied fair value of goodwill to the
carrying amount of goodwill on our balance sheet. Our estimate of the implied
fair value of the goodwill was based on the quoted market price of our common
stock and shares outstanding on June 1, 2009. Accordingly, each reporting unit
was assigned an implied fair value by using an income based approach. Our
goodwill impairment test indicated that no goodwill impairment was required
reflecting the implied fair value of each our reporting unit exceeded the
carrying amount. A second step to measure the amount of impairment loss was
accordingly not required.





As of
June 30, 2009, the balance in goodwill was $8,448,789, of which $1,945,366 is
attributable to the marketing platform services – external offering segment and
$6,503,423 is attributable to the marketing platform services – internal
offering segment.








34
 Table of Contents











INTANGIBLE
ASSETS





During
the second quarter of 2009, we made certain changes to the Bay Harbor business
model whereby we discontinued the lead generation services for financial
advisors. We have redeployed the underlying technology engine which was
previously being used in the Bay Harbor business for marketing its internal
product offers to consumers. Management has forecasted reduced revenues and cash
flows from the Bay Harbor business services to financial advisors in the
future.





During
the second quarter of 2009, we shifted its focus and deployment of capital away
from the acquired educational product offers that were being marketed through
Digital Instructor in place of new health and beauty based internal offers. We
believe health and beauty based internal offers will provide us with a longer
lifetime value per consumer and higher profit margins.




Given the
impairment indicators of the acquired intangible assets discussed above, we
performed a test of purchased intangible assets for recoverability. The
assessment of recoverability is based upon the assumptions and future usefulness
of the assets.




The
analysis determined that the carrying amount of the intangible assets exceeded
the implied fair value under the test for impairment per Statement of Financial
Accounting Standards (“SFAS”) No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (“FAS 144”). FAS 144 and the difference was
allocated to the intangible assets of the impacted asset group on a pro-rata
basis using the relative carrying amounts of the assets. We recorded an
impairment charge of approximately $1.0 million, of which $587,968 related to
product licensing agreements (Digital Instructor), $251,986 to product trade
names (Digital Instructor), $58,661 to customer database (Digital Instructor),
$80,640 to company trade name (Bay Harbor) and $10,579 to marketing collateral
(Bay Harbor). In addition, the remaining lives of marketing collateral and
company trade names were shortened from 38 months to 12 months and from 48
months to 12 months, respectively.




If our
assumptions regarding projected revenue or gross margin rates are not achieved,
we may be required to record additional intangible asset impairment charges in
future periods, if any such change or other factor constitutes a triggering
event. It is not possible at this time to determine if any such future
impairment charge would result or, if it does, whether such charge would be
material.





The
estimated future amortization expenses for our purchased intangible assets are
summarized below:




Amortization
      Expense(by
      fiscal year)Remainder
      of 2009
                        
                        $
                        51,1682010
                        
                        
                        74,0752011
                        
                        
                        41,1112012
                        
                        
                        40,0002013
                        
                        
                        25,868Total
                        
                        $
                        232,222





CONVERTIBLE
PREFERRED STOCKS AND WARRANTS





Terms
and Conditions





On June
12, 2009, we entered into a Series A Convertible Preferred Stock and Warrant
Purchase Agreement (the “Purchase Agreement”), with a limited number of
accredited investors (the “Purchasers”). We closed the sale to the Purchasers of
1,951,337 shares of our Series A Preferred Stock, $0.0001 par value (the
“preferred stock”), at a price per share equal to $1.20 (the “Original Issue
Price”) and warrants (the “warrants”) to purchase up to 975,668 shares of our
common stock, par value $0.0001 (the “common stock”), at an exercise price of
$1.56 per share (the “Warrant Exercise Price”). We have raised aggregate
proceeds of $2,341,604 in the financing transaction (the “Financing”). The
purchase price for the preferred stock and warrants was payable in
cash.





At the
option of the holder at any time, shares of the preferred stock are convertible
into shares of our common stock at a conversion price equal to $1.20 per share
(the “conversion price”). The conversion price is subject to adjustment for
stock splits, stock dividends and recapitalizations. In addition, for so long as
any shares of preferred stock remain outstanding and the shares of common stock
underlying such shares of preferred stock are not eligible to be sold pursuant
to Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”),
if we issue any securities, other than certain permitted issuances, at a per
share price (or equivalent for convertible securities) which is less than the
then current conversion price, we shall reduce the conversion price according to
a weighted-average-anti-dilution formula (the “preferred stock down-round
provision”). The Company analyzed the converson provision and determined it did
not meet the criteria for bifurcation.







35
 Table of Contents




The
warrant exercise period ends five years after the date of issuance of the
warrants. The holder of the warrants may exercise the warrants at any time
(subject to the restrictions on exercise and conversion) before the expiration
of the warrants.  At the option of us, all warrants shall
automatically be deemed to have been exercised fifteen trading days after
delivery to the Purchasers of written notice of such deemed exercise, provided
that the volume-weighted average closing price of our common stock over the ten
trading days immediately preceding the date of such notice is at least $2.50 per
share. The exercise price of the warrants and the number of shares of common
stock issuable upon exercise of the warrants are subject to adjustment for stock
splits, stock dividends and recapitalizations. In addition, if at any time
during the period beginning on the date of issuance of the warrants and ending
six months thereafter, we issue securities, other than certain permitted
issuances, at a per share price (or equivalent for convertible securities) which
is less than the then current exercise price of the warrants, we shall reduce
the exercise price and the number of shares issuable upon exercise of the
warrants according to a weighted-average anti-dilution formula (the “warrant
down-round provision”).





Valuation
of Convertible Preferred Stocks, Warrants and Embedded Conversion
Feature




On
January 1, 2009, we adopted Emergency Issues Task Force (“EITF”) 07-5, Determining Whether an Instrument
(or embedded Feature) is Indexed to an Entity’s Own Stock(“EITF 07-5”),
issued by the FASB in June 2008. EITF 07-5 requires entities to evaluate whether
an equity-linked financial instrument (or embedded feature) is indexed to its
own stock by assessing the instrument’s contingent exercise provisions and
settlement provisions. Instruments not indexed to their own stock fail to meet
the scope exception of SFAS No. 133 (“FAS 133”), Accounting for Derivative
Instruments and Hedging Activities, paragraph 11(a), and should be
classified as a liability and marked-to-market.





Under
EITF 07-5, the warrants we issued, as described above, were not considered to be
indexed to our stock and have fixed settlement amount based on the terms of the
down-round provision. Accordingly, the warrants do not meet the criteria for
equity classification and are therefore classified as derivative liabilities and
carried at fair value.





A
Black-Scholes option-pricing model was used to obtain the fair value of the
warrants using the assumptions on June 12, 2009, the date we issued the
preferred stocks and warrants:





Stock
price:                           $1.60


Exercise
price:                       $1.56


Risk free
interest
rate:          2.81%


Volatility:                               100%


Expected
term:                       2.5
years


Dividends:                             none





The
effect of the forced exercise provision reduced the value of the warrants by an
amount equal to the Black-Scholes value of an option with an exercise price of
$2.50 (with all other inputs the same as described above).  The fair
value of the warrants down-round provisions was valued using a probability
weighted outcome model.  Based on the sum of the individual
components, the fair value of the warrants was estimated to be $167,815 at
inception. This warrant liability will be marked to market through current
earnings and once the down-round provisions expire, this instrument will be
reclassified as components of stockholders’ equity.




After the
$167,815 allocation of proceeds to the warrants, the remaining gross proceeds of
$2,173,594 were used to compute the effective conversion price and beneficial
conversion feature. The calculated fair value of the embedded conversion feature
was the intrinsic value of the computed effective conversion price and the stock
price of the common shares on the issuance date. As a result, $948,350 as a
deemed dividend to the preferred stockholders.





The
closing costs of $144,500 that were related to the preferred shares issued have
been recorded as a reduction to additional paid-in-capital.








36
 Table of Contents





Marking-to-Market





FAS 133
requires that the fair value of the aforementioned liabilities be re-measured at
the end of every reporting period with the change in value reported in the
statement of operations.





On June
30, 2009, as a result of the mark-to-market of the warrant liability, we
recorded an $18,538 loss which was recorded in Other income and Expense line
item in our condensed consolidated statement of operations





Interest
and other income (expense), net





Interest
and other income (expense), net primarily consist of:





·
            Interest
      income;


·
            Interest
      expense;


·
            Foreign
      exchange gains or losses; and


·
            Finance
      charges;




Interest
and other income (expense) during the three months ended June 30, 2009 decreased
to a net expense of $14,576 from a net income of $29,536 from the same period a
year ago; for the six months ended June 30, 2009, the net income decreased to
$432 from $32,093 compared to the same period a year ago. The reduction in
interest and other income (expense) was primarily due to the reduced interest
income from our lower balance kept in interest bearing short-term investments,
non-cash interest expense related to accretion on our promissory notes, and
fluctuation in foreign exchange rates.





As a
portion of our revenues from out marketing platform services – external offer
segment are denominated in the Euro and British Pounds, we are therefore subject
to foreign currency exchange rate exposure. Although we have not experienced
significant foreign exchange rate gains or losses to date, we may in the future,
especially to the extent that we do not engage in hedging. We do not enter into
currency derivative financial instruments for trading or speculative
purposes.




(Benefit)
Provision for income tax





During
the three and six months ended June 30, 2009, we recorded an income tax benefit
of $381,278 and $399,764, respectively. During the three and six months ended
June 30, 2008, we recorded zero and $800, respectively, in income tax
expense. The 2009 benefit primarily resulted from a deferred tax liability
adjustment related to the impairment charge of Digital Instructor intangible
assets we recorded during the three months ended June 30, 2009.





We file
income tax returns in the U.S. federal jurisdiction, California, and various
state jurisdictions in which we have a subsidiary or branch operation. The tax
years 2007 and 2008 remain open to examination by the U.S. and state tax
authorities.





Our
policy is that we recognize interest and penalties accrued on any unrecognized
tax benefits as a component of our provision for income taxes. We had no accrued
interest or penalties associated with unrecognized tax benefits at June 30, 2009
or December 31, 2008.




LIQUIDITY
AND CAPITAL RESOURCES




As of
June 30, 2009, we had unrestricted cash, cash equivalents and short-term
investments of approximately $3.1 million compared to $3.2 million as of
December 31, 2008. The cash and short-term investments balances include the $2.3
million proceeds from issuing series A preferred stocks in the second quarter of
2009, offsetting by the cash we used in operations, and the repayment of
$297,500 in promissory notes during the first six months of 2009.





During
the second quarter of 2009, we classified $100,000 of cash as restricted cash.
This cash is collateralized as part of securing commercial card accounts with
one major credit card company. The collateral is held in a ninety-day
certificate of deposit (“CD”) at which time it matures. The CD will
automatically renew for subsequent ninety-day terms unless terminated. The
credit card company has security interest in the CD and the company is
prohibited from pledging or assigning the CD.





A summary
of our cash flow activities for the six months ended June 30, 2009 and 2008 are
summarized below:







37
 Table of Contents




June
      30,
                        
                        
                        June
      30,2009
                        
                        
                        2008Cash
      flows used in  operating activities
                        
                        $
                        (1,755,057
                        )
                        
                        $
                        (284,335
                        )Cash
      flows provided by (used in) investing activities
                        
                        
                        1,739,164
                        
                        
                        
                        (4,171,998
                        )Cash
      flows provided by financing activities
                        
                        
                        1,899,604
                        
                        
                        
                        5,161,797Net
      increase in cash and cash equivalents
                        
                        
                        1,883,711
                        
                        
                        
                        705,464Cash
      and cash equivalents at beginning of period
                        
                        
                        683,576
                        
                        
                        
                        5,379Cash
      and cash equivalents at end of period
                        
                        $
                        2,567,287
                        
                        
                        $
                        710,843





Significant
non-cash charges for the first six months of 2009 included:





·
            deprecation
      and amortization expenses of $23,074 and $145,274,
      respectively;


·
            share-based
      compensation expenses of $496,410;


·
            mark-to-market
      loss on warrants liability of
$18,538;


·
            impairment
      charges on intangible assets of
$989,834;


·
            allowance
      for chargebacks of $428,277; and


·
            bad
      debt expense of $70,693.




Our
working capital was approximately $1.8 million at June 30, 2009 compared to $2.2
million at December 31, 2008. Working
capital changes included:





·
            an
      increase of $729,235 in accounts receivable primarily due to increased
      receivables from our marketing platform services – external offers
      segment;


·
            an
      increase of $196,284 in inventory primarily due to increased inventory
      level associated with our new products launched in the second quarter of
      2009;


·
            an
      increase of $242,985 in prepaid expense and other current assets primarily
      due to increased payments made for prepayments of
    inventory;


·
            an
      increase of $732,555 in credit card processor holdbacks reflecting
      increased merchant processing activity from our internal offers
      segment;


·
            an
      increase of $1,098,192 in accounts payable due to timing of payment to our
      vendors and increased business activity;
and


·
            an
      increase of $577,100 in accrued liabilities primarily due to accrued
      payments to Pieces Media, accrued payroll and benefits related expenses,
      accrued chargebacks and credit card
fees.




Our
primary source of liquidity is cash, cash equivalents, short term investments,
and credit card processor holdbacks. We intend to continue to assess our
cost structure in relationship to our revenue levels and to make appropriate
adjustments to expense levels as required.





On July
27, 2009, the Company raised an additional $324,000 through the sale of its
Series A Preferred Stock and warrants. We believe that our existing cash and
cash equivalents, short-term investments, credit card processor holdbacks, plus
our expected cash flows from operating and financing activities will be
sufficient to fund operating activities and capital expenditures, and provide
adequate working capital through the remainder of fiscal year 2009 and into
fiscal 2010.





In order
for us to execute on our business plan for the remainder of fiscal year 2009, we
may need to raise additional funds through public or private debt or equity
financings or reduce our cost structure.  For example, depending on
payment terms with our marketing affiliates, we may be required to pay our
marketing affiliates commissions on leads generated for our internal product
offers before we collect the corresponding funds from the credit card processor.
To the extent we are required to pay our marketing affiliates in advance of when
we receive payments from our processors, this will negatively impact the amount
of cash we have on hand to grow our operations. In addition, we are often
required to pay our marketing affiliates on total leads delivered which include
leads related to our internal product offers where the consumer has cancelled or
declined the offer within the free trial period. Our cash flow balances rely
significantly on our ability to ensure that cash generated from sales of our
internal product offers exceed the cash paid out to our marketing affiliates. To
the extent we realize high volume of end consumers who early cancel our internal
offers within the free trial period, we will still be required to pay our
marketing affiliates a commission and this could have a significant impact on
our cash position and liquidity.






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The sale
of equity or debt securities would likely result in additional dilution to our
stockholders, could require us to pledge our assets to secure the financing, and
could impose restrictive covenants on us.  We cannot be certain that
additional financing will be available in amounts or on terms acceptable or
favorable to us, or at all.  If we are unable to obtain this
additional financing, we would be required to reduce the scope of our planned
expansion and sales and marketing efforts, which would harm our business,
financial condition and operating results, and/or cause us to sell assets or
otherwise restructure our business to remain viable.




Recent
Accounting Pronouncements




Please
refer to “Part I, Item 1.
Financial Statements” and “Notes to UnauditedCondensed Consolidated Financial Statements,
Note20–Recent AccountingPronouncements.”


Contractual
Obligation and Commitments





Not
applicable.





Off-Balance
Sheet Arrangements




We have
not entered into any other material off-balance sheet arrangements or
transactions as of June 30, 2009.





Item 3.      
Quantitative and Qualitative Disclosures about Market Risk





Not
applicable.




Item 4T.
            Controls
      and Procedures





(a)
Evaluation of disclosure controls and procedures.





We
maintain disclosure controls and procedures designed to ensure that information
required to be disclosed in our reports filed under the Securities Exchange Act
of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized,
and reported within the required time periods and that such information is
accumulated and communicated to our management, including our Chief Executive
Officer and our Chief Financial Officer (our Principal Accounting Officer), as
appropriate, to allow for timely decisions regarding required disclosure. In
designing and evaluating the disclosure controls and procedures, management
recognizes that any controls and procedures, no matter how well designed and
operated, can only provide reasonable assurance of achieving the desired control
objective, and management is required to exercise its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.





Management,
under the supervision and with the participation of our Chief Executive Officer
and Chief Financial Officer, has carried out an evaluation of the effectiveness
of the design and operation of our disclosure controls and procedures pursuant
to Exchange Act Rule 13a-15.  Based upon that evaluation and as of
June 30, 2009, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures were effective as of June 30,
2009.





We do
not, however, expect that our disclosure controls or internal controls over
financial reporting will prevent all errors or all instances of fraud. A control
system, no matter how well designed and operated, can provide only reasonable,
not absolute, assurance that the control system's objectives will be met.
Further, the design of a control system must reflect the fact that there are
resource constraints, and the benefits of controls must be considered relative
to their costs. Management is required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures. Because of the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within our company have been detected. These inherent limitations include
the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. Because of the inherent
limitation of a cost-effective control system, misstatements due to error or
fraud may occur and not be detected. Additionally, controls can be circumvented
by the individual acts of some persons, by collusion of two or more people or by
management override of a control. A design of a control system is also based
upon certain assumptions about potential future conditions; over time,
controls may become inadequate because of changes in conditions, or the degree
of compliance with the policies or procedures may deteriorate. Because of the
inherent limitations in a cost-effective control system, misstatements due to
error or fraud may occur and may not be detected.




(b)
Changes in Internal Control over Financial Reporting





There
have been no changes in the Company’s internal controls over financial reporting
identified in connection with the evaluation of disclosure controls and
procedures discussed above that occurred during the quarter ended June 30, 2009
or subsequent to that date that have materially affected, or are reasonably
likely to materially affect, the Company’s internal control over financial
reporting.






39
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PART
      II.
            OTHER
      INFORMATION




Item 1.  Legal Proceedings




There are no material pending legalproceedings involving the
Company or its property.





Item 1A. Risk Factors




There
are numerous and varied risks, known and unknown, that may prevent us from
achieving our goals.  If any of these risks actually occur, our
business, financial condition or results of operation may be materially
adversely affected.  In such case, the trading price of our common
stock could decline and investors could lose all or part of their investment.
Our business involves a high degree of risk. Therefore, in evaluating us and our
business you should carefully consider the risks set forth below.





Risks
Relating to the Company




Our
limited operating history makes evaluation of our business
difficult.




Abundantad
acquired the assets of Kim and Lim, LLC d/b/a Pieces Media (“Pieces”), which had
been operating since November 2005. Abundantad was incorporated in February,
2008 and Adex was incorporated in April 2008.  Pursuant to the
Abundantad merger, Abundantad has been in business with Adex as the parent
company since May, 2008. We therefore have limited historical financial
data upon which to base planned operating expenses or forecast accurately future
operating results.  Further, our limited operating history will make
it difficult for investors and securities analysts to evaluate our business and
prospects.  You must consider our prospects in light of the risks,
expenses and difficulties we face as an early-stage company with a limited
operating history.  We are completely reliant upon new management
for our future operations and success.





Deterioration
of economic conditions could harm our business.





Current
uncertainty in global economic conditions poses a risk to our business as
consumers may defer discretionary purchases, such as our internal product
offers, in response to tighter credit and negative financial news, which could
negatively affect demand for and sales of our internal product offers as well as
our external product offers. Weak economic conditions in our target
markets, or a reduction in consumer spending even if economic conditions
improve, would likely adversely impact both our business segments, operating
results, and financial condition in a number of ways.




We
will likely need additional funding to support our expanding operations and
capital expenditures which may not be available to us and which lack of
availability could adversely affect our business.




We have
no committed sources of additional capital.  Prior to the Abundantad
Merger, Abundantad raised gross proceeds of approximately $5.8 million (net
proceeds of approximately $5.7 million) in equity from private investors during
March and April 2008.  In June 2009, we raised approximately $2.3
million (net proceeds of approximately $2.2 million) in private placement. We
will likely need additional funds to support our growth, fund future
acquisitions, pursue business opportunities, react to unforeseen difficulties,
or to respond to competitive pressures.  There can be no assurance
that any financing arrangements will be available in amounts or on terms
acceptable to us, if at all.  Furthermore, the sale of additional
equity or convertible debt securities may result in further dilution to existing
stockholders.




If we
raise additional funds through the issuance of debt, we will be required to
service that debt and are likely to become subject to restrictive covenants and
other restrictions contained in the instruments governing that debt, which may
limit our operational flexibility.  If adequate additional funds are
not available, we may be required to delay, reduce the scope of or
eliminate material parts of the implementation of our business strategy,
including the possibility of additional acquisitions or internally developed
businesses.





In the
event that we are unable to execute on our business plan and are unable to
secure additional financing for growth, we will be required to scale back
operations significantly including but not limited to restructuring our work
force.




We
have incurred net losses in our 2008 fiscal year and the six months of 2009 and
may not become profitable.




During
the year ended December 31, 2008, we incurred a net loss of $2.4 million. During
the first six months of 2009, we incurred a net loss of $3.4 million. Our
ability to generate revenues and to become profitable depends on many factors,
including without limitation, the market acceptance of our products and
services, our ability to control costs and our ability to implement our business
strategy. There can be no assurance that we will become or remain
profitable.






40
 Table of Contents






Five customers
accounted for approximately 62% of our consolidated revenue
during 2008 and 26% of our
consolidatedrevenue during
the first six monthsof 2009; loss of
either of these customers would have a material adverse effect on our
business.




For the
six months ended June 30, 2009, 26% of our revenue was generated from five
customers. Two of the same customers accounted for 35% of our June 30, 2009
accounts receivable.





For the
year ended December 31, 2008, one customer accounted for 26% of our consolidated
revenue and another customer accounted for 15% of our consolidated
revenue.





The loss
of either of these customers would have a material adverse impact on our
business.




Mergers
and acquisitions could divert our management’s attention and be difficult to
integrate, and could cause ownership dilution to our stockholders.




Our
business strategy is focused, in part, on the identification, structuring,
completion and integration of mergers and acquisitions that are complementary to
our business model.  For example, during fiscal 2008, we merged with
Abundantad, we purchased all the membership interests in Digital Instructor,
LLC, the assets of Vibrantads, LLC, and the assets of Bay Harbor Marketing,
LLC.  Future growth and profitability depend, in part, on the success
of such mergers and acquisitions.  Acquisitions, strategic
relationships and investments in the technology and Internet sectors involve a
high degree of risk.





We may be
unable to find a sufficient number of attractive opportunities, if any, to meet
our objectives.  Although many technology and Internet companies have
grown in terms of revenue, relatively few companies are profitable or have
competitive market share.  Our potential acquisitions, relationships
or investment targets and partners may have histories of net losses and may
expect net losses for the foreseeable future.




Merger
and/or acquisition transactions are accompanied by a number of risks that could
harm us and our business, operating results, and financial
condition:




·
            we
      could experience a substantial strain on our resources, including time and
      money, and we may not be  successful in completing the
      acquisitions;·
            our
      management’s attention may be diverted from our ongoing business
      concerns;·
            while
      integrating new companies, we may lose key executives or other
      employees;·
            we
      could experience customer dissatisfaction or performance problems with an
      acquired company or technology;·
            we
      may become subject to unknown or underestimated liabilities of an acquired
      entity; or incur unexpected expenses or losses from such acquisitions;
      and·
            We
      may incur impairment charges related to goodwill or other intangible
      assets or other unanticipated events or circumstances, any of which could
      harm our business.




Consequently,
we might not be successful in integrating any acquired businesses, products or
technologies, and might not achieve anticipated revenue and cost
benefits.




We
may be unable to effect a merger or acquisition or we may incorrectly ascertain
the merits or risks of an acquired company.




To the
extent we complete a merger or acquisition; we may be affected by numerous risks
inherent in the business operations of the acquired entity.  Although
our management will endeavor to evaluate the risks inherent in the target
entity’s business or industry, we cannot assure you that we will properly
ascertain or assess all of the significant risk factors.




We
may be unable to attract and retain key employees.




We
presently employ a limited number of persons with Internet, public-company or
consumer products experience.  Failure to attract and retain necessary
technical personnel and skilled management could adversely affect our
business.  The success and growth of our business will depend on the
contributions of our Chief Executive Officer, Scott Rewick, our Chief Operating
Officer, Brian Carrozzi, and our ability to attract, retain and motivate highly
skilled and qualified personnel.  If we fail to attract, train and
retain sufficient numbers of these highly qualified people, our prospects,
business, financial condition and results of operations will be materially and
adversely affected.  Our success will depend on the skills, experience
and performance of key members of our management team.  The loss of
any key employee could have an adverse effect on our prospects, business,
financial condition, and results of operations.  Although we intend to
issue stock options or other equity-based compensation to attract and retain
employees, such incentives may not be sufficient to attract and retain key
personnel.






41
 Table of Contents






Although
we have an experienced senior management team, the lack of depth of our
management team could put us at a competitive disadvantage.  Not all
members of our management team will possess public-company experience, which
could impair our ability to comply with legal and regulatory requirements such
as those imposed by the Sarbanes-Oxley Act of 2002. Such responsibilities
include complying with federal securities laws and making required disclosures
on a timely basis.  We cannot assure you that our management will be
able to implement programs and policies in an effective and timely manner that
adequately responds to such increased legal, regulatory compliance and reporting
requirements.  Our failure to do so could lead to the imposition of
fines and penalties and result in the deterioration of our
business.




We
may be unable to effectively manage our growth.




Our
strategy envisions growing our business.  If we fail to effectively
manage our growth, our financial results could be adversely
affected.  Growth may place a strain on our management systems and
resources.  We must continue to refine and expand our business
development capabilities, our systems and processes and our access to financing
sources.  As we grow, we must continue to hire, train, supervise and
manage new employees.  We cannot assure you that we will be able
to:




·
            meet
      our capital needs;·
            expand
      our systems effectively or efficiently or in a timely
    manner;·
            allocate
      our human resources optimally;·
            identify
      and hire qualified employees or retain valued employees;
  or·
            incorporate
      effectively the components of any business that we may acquire in our
      effort to achieve growth.





If we are
unable to manage our growth, our operations and financial results could be
adversely affected.




The
loss of our management could harm our current and future operations and
prospects.




We are
heavily dependent on the continued services of the management and employees of
acquired businesses.  We do not expect to have employment agreements
that provide a fixed term of employment with all of the members of senior
management, and members of management will have the right, in certain
circumstances, to terminate their employment.  Each of those
individuals without employment agreements may voluntarily terminate their
employment at any time.  In certain cases, our senior members of
management may be entitled to severance payments for termination by the Company
or their own voluntary termination of their employment.




If
we are unable to obtain adequate insurance, our financial condition could be
adversely affected in the event of uninsured or inadequately insured loss or
damage.  Our ability to effectively recruit and retain qualified
officers and directors could also be adversely affected if we experience
difficulty in obtaining adequate directors’ and officers’ liability
insurance.




We may
not be able to obtain insurance policies on terms affordable to us that would
adequately insure our business, internal product offers, and property against
damage, loss or claims by third parties. To the extent our business or property
suffers any damages, losses or claims by third parties, which are not covered or
adequately covered by insurance, the financial condition of the Company may
be materially adversely affected.




We may be
unable to maintain sufficient insurance as a public company to cover liability
claims made against our officers and directors.  If we are unable to
adequately insure our officers and directors, we may not be able to retain or
recruit qualified officers and directors to manage the Company.




Our
founders may have interests that are different than other shareholders and may
influence certain actions.




Our
founders currently own and may continue to own a majority of the shares of our
common stock and will control a significant amount of shares following further
acquisitions.  Therefore, our founders and directors may be able to
influence the outcome of various actions that require stockholder approval
including the election of our directors; delaying, preventing or approving a
transaction in which stockholders might receive a premium over the prevailing
market price for their shares; and preventing or causing changes in control or
management.  In addition, certain of our founders own interests in or
participate in the management of other businesses, some of which may tend to
compete with us, and there are no restrictions on such activities or affairs of
such persons.






42
 Table of Contents









Risks
Relating to Our Business




If
we do not maintain and grow a critical mass of advertisers, our operating
results could be adversely affected.




Our
success depends, in part, on maintenance and growth of a critical mass of
third-party advertisers and a continued interest in performance-based and other
advertising services.  If, alone or through any business acquired by
us, we are unable to achieve a growing base of third-party advertisers, we may
not successfully develop or market technologies, products or services that are
competitive or accepted by merchant advertisers.  Any decline in the
number of merchant advertisers could adversely affect our operating results
generally.





We
depend on several of the major search engines and social networking sites to
continue to provide us traffic that advertisers deem to be of value, and if they
do not, it could have a material adverse effect on the value of our
services.




We depend
on several of the major Internet search engines, namely Google, Yahoo!, MSN and
AOL, and social media Web sites, namely Facebook, to provide traffic
to those merchant advertisers deem to be of value.  We monitor
the traffic delivered to our merchant advertisers in an attempt to optimize the
quality of traffic we will deliver.  We review factors such as
non-human processes, including robots, spiders, scripts (or other software),
mechanical automation of clicking and other sources and causes of low-quality
traffic, including, but not limited to, other non-human clicking
agents.  Even with such monitoring in place, there is a risk that a
certain amount of low-quality traffic will be provided to our merchant
advertisers, which, if not contained, may be detrimental to those
relationships.  Low-quality traffic (or traffic that is deemed to be
less valuable by our merchant advertisers) may prevent us from growing our base
of merchant advertisers and cause us to lose relationships with
existing merchant advertisers.





With
respect to our internal offers segment, we rely on payments made by credit card
from end-users. Failure to maintain or increase our merchant processing lines of
credit, or loss of our credit card acceptance privileges would seriously hamper
our ability to process the sale of our internal products offers.




The
payment by end-users for the purchase of our internal product offers is made
online by credit card. As a result, we must rely on banks or payment processors
to extend us merchant processing lines of credit to process these transactions,
and we must pay a fee for this service. From time to time, credit card
associations may increase the interchange fees that they charge for each
transaction using one of their cards. Any such increased fees will increase our
operating costs and reduce our profit margins. Our ability to increase our
revenues relies heavily on our ability to increase our merchant processor lines
of credit. There is no assurance we will be successful in maintaining or
increasing our merchant processing lines of credits which would prevent us from
billing consumers of our internal offers.





We also
are required by our processors to comply with credit card association operating
rules, and we have agreed to reimburse our processors for any fines they are
assessed by credit card associations as a result of processing payments for us.
For example, credit card association rules impose a limit on the maximum number
of credit card chargebacks permitted per month. The credit card associations and
their member banks set and interpret the credit card rules. Visa, MasterCard,
American Express, Discover, or other card associations could adopt new operating
rules or re-interpret existing rules that we or our processors might find
difficult to follow. Any disputes or problems associated with our payment
processors could impair our ability to give customers the option of using credit
cards to fund their payments. If we were unable to accept credit cards, our
business would be seriously damaged. We also are subject to fines or increased
fees from MasterCard and Visa if we fail to detect that merchants are engaging
in activities that are illegal or activities that are considered “high risk,”
primarily the sale of certain types of product. We may be required to expend
significant capital and other resources to monitor these
activities.




Credit
card processors set certain fees for the use of their services.  These fees
may be increased in the future, which would result in additional expense and
lower profitability on credit card transactions handled by these credit card
processors.  Many credit card processors or the independent sales
organizations that represent them hold an amount in reserve (typically a six
month rolling reserve in the amount of 10% - 20% of revenue), which is held to
protect the credit card processor from any losses sustained if we cease
operations while consumer credits and fees continue.









43
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There
is a risk that we may experience a significant reduction in, the imposition of
limits on, or loss of our credit card processing capacity.




In
connection with our marketing and sale of certain products, we often experience
a significant number of fraudulent credit card charges, declines, and
charge-backs on credit cards used by end consumers.  VISA and MasterCard
set certain criteria, including but not limited to charge-back ratios, to which
we must adhere.  We use third-party services in order to manage and
minimize charge-back transactions during the normal course of business. 
However, if we maintain ratios above the limits set by VISA and MasterCard, our
credit card processing accounts may be limited or terminated and we may have
difficulties finding merchant processors to handle our transactions.  In
addition, the processors could also set maximum processing limits per month on
the volume of transactions they will process.  This could result in a
severe reduction in revenue and hamper our growth potential. As of June 30,
2009 and December 31, 2008, the balance of credit card holdbacks, net of
reserves, was $604,771 and $300,493, respectively.  The Company
maintains a separate accrual for credit card processor charge-backs and customer
return refunds which are both netted against the balance in credit card
processor holdbacks.  The balance of this accrual at June 30, 2009 and
December 31, 2008 was $572,317 and $144,040, respectively. The Company also
maintains an allowance for uncollectible credit card processor
holdbacks.  The balance for this accrual at both June 30, 2009 and
December 31, 2008 was $23,323.





To the
extent our charge-back ratios increase, our gross and operating margins will
likely decrease.  To the extent our processors terminate our lines of
credit, we will be unable to bill consumers and therefore unable to continue
shipping product. If we are unable to comply with the card association rules, in
particular to stay within the allowed chargeback thresholds, our corporate
profile will be placed in a terminated merchant match file and we will likely
not be able to process billings through credit cards any longer, which will
materially adversely affect our ability to bill our on-line
customers.




Our
internal offers segment operates in a continuity or negative option
model.





Our
internal offers segment operates under a free trial period in which the consumer
has the right to cancel the order within a certain amount of time without the
consumer’s credit card being charged. In addition, the consumer typically has
thirty days to return a portion of the product for full or partial
credit.  Changes in consumer spending and general economic conditions
may increase the instance of consumer cancellations during the trial period
resulting in lower revenue.





In
addition, to the extent we use affiliates to market our internal product offers,
we are required to pay our affiliates for all leads delivered to us including
leads that have been cancelled by the consumer within the free trial period. If
the internal offers revenue generated from leads not resulting in early
cancellations during the free trial period does not exceed payments made to
affiliates for all leads delivered, we may experience negative operating
margins.





We
may be subject to litigation for infringing the intellectual property rights of
others.




Our
success will depend, in part, on our ability to protect our intellectual
property and to operate without infringing on the intellectual property rights
of others.  We currently do not have any pending patent applications
or issued patents for the intellectual property embodied in the products sold
through our internal offers.  Thus, we cannot guarantee that any of
our intellectual property will be adequately safeguarded, or that our
intellectual property will not be challenged by third parties.  We may
be subject to patent infringement claims or other intellectual property
infringement claims that would be costly to defend and could limit our ability
to use certain critical technologies.




If we
were to acquire or develop a product or business model that a third party
construes as infringing on a patent, then  the owner of the patent
could demand that we license the patented technology, re-engineer our product(s)
or revise our business model according to terms that may be extremely expensive
and/or unreasonable.




Any
patent litigation could negatively impact our business by diverting resources
and management attention from other aspects of the business and adding
uncertainty as to the ownership of technology and services that we view as
proprietary and essential to our business.  In addition, a successful
claim of patent infringement against us and our failure or inability to license
the infringed or similar technology on reasonable terms, or at all, could
have a material adverse effect on our business.




We
may be involved in lawsuits to protect or enforce any patents that we may be
granted, which could be expensive and time consuming.




If we
acquire patent rights in the future, we may initiate patent litigation to
protect or enforce our patent rights or others may sue us to invalidate patents
on which we rely.  We may also become subject to interference
proceedings conducted in the patent and trademark offices of various
countries to determine the priority of inventions.  The defense and
prosecution, if necessary, of intellectual property suits, interference
proceedings and related legal and administrative proceedings is costly and
may divert our technical and management personnel from their normal
responsibilities.  We may not prevail in any of these
suits.  An adverse determination of any litigation or defense
proceedings could put our patents at risk of being invalidated or interpreted
narrowly and could put our patent applications at risk of not being
issued.






44
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Furthermore,
because of the substantial amount of discovery required in connection with
intellectual property litigation, there is a risk that some of our confidential
information could be compromised by disclosure during this type of
litigation.  In addition, during the course of this kind of
litigation, there could be public announcements of the results of hearings,
motions or other interim proceedings or developments in the
litigation.  If securities analysts or investors perceive these
results to be negative, it could have an adverse effect on the trading price of
our common stock.




It
may become more difficult or expensive for us to license intellectual property,
thereby causing us to market fewer internal offers.




Our
ability to compete and successfully market our internal offers depends in part
on our acquiring and controlling proprietary intellectual property. Our internal
offers embody trademarks, trade names, logos, or copyrights that may be licensed
from third parties. If we cannot maintain the licenses that we currently have,
or obtain additional licenses for offers that we plan to market, we will market
fewer internal offers and our business will suffer. We cannot assure that our
licenses will be extended on reasonable terms or at all, or that we will be
successful in acquiring or renewing licenses to property rights with significant
commercial value.





Compliance
with new and existing governmental regulations could increase our costs
significantly and adversely affect our results of operations.





Government
regulations may prevent or delay the sale of our products, or require their
reformulation, either of which could result in lost revenues and increased costs
to us.  For instance, the FDA regulates the formulation, labeling,
manufacture, marketing, promotion and distribution of dietary supplements such
as our Acai Alive, RezQ, and TriCleanse products and cosmetics, such as our
EasyWhite Labs product. The FDA may determine that either of these products or
one of their ingredients presents an unacceptable health risk, and may determine
that a particular claim or statement that we use is an impermissible drug claim,
is not substantiated, or is an unauthorized version of a “health
claim.”  Any of these actions could prevent us from marketing such
products or making certain claims or statements of nutritional support or
efficacy regarding the products. The FDA could also require us to remove such
products from the market. Any recall or removal would result in additional costs
to us, including lost revenues from any products that we are required to remove
from the market, which could be material. Any product recall or removal could
also lead to liability, substantial costs, and reduced growth
prospects.





Additional
or more stringent regulations of cosmetics and dietary supplements have been
considered from time to time and may be enacted in the future. These
developments could require reformulation of products to meet new standards,
recalls or discontinuance of products not able to be reformulated, additional
record-keeping requirements, increased documentation of product properties,
additional or different labeling, scientific substantiation, adverse event
reporting, or other new requirements. Any of these developments could increase
our costs significantly and negatively impact our business. Additionally, our
third-party suppliers or vendors may not be able to comply with such new rules
without incurring substantial expenses.





Product
liability lawsuits against us could cause us to incur substantial liabilities
and to limit commercialization of any products that we may market and
distribute.





As a
marketer and distributor, we face an inherent risk of product liability exposure
related to the sale of our internal offers. If we cannot successfully defend
against claims that our product offers or product offer candidates caused
injuries, we could incur substantial liabilities. Regardless of merit or
eventual outcome, liability claims may result in:




•
            decreased
      demand for our offers or any products that we may
  develop;•
            injury
      to our reputation;•
            the
      withdrawal of a product offer from the market;•
            costs
      to defend the related litigation;•
            diversion
      of management time and attention;•
            loss
      of revenue; and•
            inability
      to commercialize the product offers that we may
  develop.




Some of
our contracts with wholesalers and other customers require us to carry product
liability insurance.




We have
product liability insurance coverage with a $4,000,000 million annual aggregate
limit and a $2,000,000 million individual claim limit, and which is subject
to a per-claim deductible and a policy aggregate deductible. The annual cost of
the products liability insurance is based on our level of sales and our
policy coverage.  The amount of insurance that we currently hold may
not be adequate to cover all liabilities that we may incur. Insurance coverage
is increasingly expensive. We may not be able to maintain insurance coverage at
a reasonable cost and may not be able to obtain insurance coverage that will be
adequate to satisfy any liability that may arise. In addition, our carriers have
the ability to discontinue our liability coverage at any point in time and we
may be unable to obtain alternative coverage.







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We
rely on contract manufacturers to produce all of the EasyWhite Labs, Acai Alive,
RezQ and TriCleanse branded products we sell. Disruptions in our contract
manufacturers’ systems or losses of manufacturing certifications could adversely
affect our sales and customer relationships.





Our
contract manufacturers produce 100% of our EasyWhite Labs, Acai Alive, RezQ, and
TriCleanse branded products. Any significant disruption in those operations for
any reason, such as regulatory requirements and loss of certifications, power
interruptions, fires, hurricanes, war or threats of terrorism could adversely
affect our sales and customer relationships.




Our
business is subject to economic, political, and other risks associated with
international operations.




Because
many of the offers we market are offered in foreign countries, our business is
subject to risks associated with doing business internationally.




Accordingly,
our future results could be harmed by a variety of factors, including less
effective protection of intellectual property, more stringent regulation by food
and health regulatory agencies, changes in foreign currency exchange rates,
changes in political or economic conditions, trade-protection measures and
import or export licensing requirements. Furthermore, there can be no assurance
that our business will not suffer from any of these other risks associated with
doing business in a foreign country.




Our
corporate compliance and corporate governance programs cannot guarantee that we
are in compliance with all potentially applicable regulations.





The
development, manufacturing, pricing, marketing, sales and reimbursement of our
products and product candidates, together with our general operations, are
subject to extensive regulation by federal, state and other authorities within
the United States. We are a relatively small company and had approximately 59
employees as of June 30, 2009. We rely heavily on third parties to conduct many
important functions and we cannot guarantee that we are in compliance with all
potentially applicable federal and state regulations. If we fail to comply with
any of these regulations, we may be subject to a range of enforcement actions,
including significant fines, litigation or other sanctions. Any action against
us for a violation of these regulations, even if we successfully defend against
such actions, could cause us to incur significant legal expenses, divert our
management’s attention and harm our reputation.





Risks
Relating to Our Industry




If
we are unable to compete in the highly competitive performance-based advertising
and marketing industries, we may experience reduced demand in both our operating
segments.




We expect
to operate in a highly competitive environment.  We will compete with
other companies in the following areas:




·
            
            sales
      to third party merchant advertisers of performance-based and other
      advertising;·
            
            services
      that allow merchants to manage their advertising campaigns across multiple
      networks and monitor the success of these campaigns;
and·
            
            sales
      to consumers of free trial continuity product
  offers.




Although
we expect to pursue a strategy that allows us to potentially partner with all
relevant companies in the industry, there are certain companies in the industry
that may not wish to partner with us.




We expect
competition to intensify in the future because current and new competitors can
enter our market with little difficulty.  The barriers to entering our
market are relatively low.  In fact, many current Internet and media
companies presently have the technical capabilities and advertiser bases to
enter the industry.  Further, if the consolidation
trend continues among the larger media companies with greater brand
recognition, the share of the market remaining for us and other smaller
providers could decrease, even though the number of smaller providers could
continue to increase.  These factors could adversely affect our
competitive position in the search marketing services industry.






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Some of
our competitors, as well as potential entrants into our market, may be better
positioned to succeed in this market.  They may have:




·
            
            longer
      operating histories;·
            
            more
      management experience;·
            
            an
      employee base with more extensive experience;·
            
            a
      better ability to service customers in multiple cities in the United
      States and internationally by virtue of the location of sales
      offices;·
            
            larger
      customer bases;·
            
            greater
      brand recognition; and·
            
            significantly
      greater financial, marketing and other
  resources.




In
addition, many current and potential competitors can devote substantially
greater resources than we can to promotion, Web site development and systems
development.  Furthermore, there are many established and
well-financed competitors that could acquire or create competing companies or
joint ventures in market segments or countries of interest to us, which could
increase competition and reduce the demand for any of our services.




Regulation
of continuity or negative option businesses may adversely affect our
operations.





Companies
operating continuity or negative option models operate under guidelines mandated
by state and federal regulatory agencies, including the Federal Trade Commission
(“FTC”) and the offices of various state Attorneys General.  These
guidelines may be changed or amended by the FTC at any time, requiring us to
make changes in our operations which could severely impact revenue and
profitability.





In
addition, the FTC, state agencies and consumer advocacy groups typically monitor
companies like ours to ensure compliance with these guidelines and may challenge
our compliance at any time.  This could lead to increased legal fees
and possible changes to or termination of our continuity programs, all of which
would have a negative impact on our revenues and profitability.





We
are susceptible to general economic conditions, and a downturn in advertising
and marketing spending by merchants could adversely affect our operating
results.




Our
operating results will be subject to fluctuations based on general economic
conditions, in particular those conditions that impact merchant-consumer
transactions.  If there were to be a general economic downturn that
affected consumer activity in particular, however slight, then we would expect
that business entities, including our merchant advertisers and potential
merchant advertisers, could substantially and immediately reduce their
advertising and marketing budgets.  We believe that during periods of
lower consumer activity, merchant spending on advertising and marketing is more
likely to be reduced, and more quickly, than many other types of business
expenses.  These factors could cause a material adverse effect on our
operating results.




If
we are unable to respond to the rapid technological change characteristic of our
industry, our products and services may not be competitive.




The
market for our services is characterized by rapid change in business models and
technological infrastructure, and we will need to constantly adapt to changing
markets and technologies to provide competitive services.  We believe
that our success will depend, in part, on our ability to develop our services
for both our target market and for applications in new
markets.  However, we may not be successful and our competitors may
develop innovations that render our products and services obsolete or
uncompetitive.




Our
technical systems will be vulnerable to interruption and damage that may be
costly and time-consuming to resolve and may harm our business and
reputation.




A natural
or man-made disaster or other cause could interrupt our services indefinitely
and severely damage our business, prospects, financial condition and results of
operations.  Our systems and operations will be vulnerable to damage
or interruption from fire, floods, network failure, hardware failure, software
failure, power loss, telecommunications failures, break-ins, terrorism, war or
sabotage, computer viruses, denial of service attacks, penetration of our
network by unauthorized computer users and “hackers,” and other similar
events.






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We
presently may not possess and may not have developed or implemented adequate
protections or safeguards to overcome any of these events.  We also
may not have anticipated or addressed many of the potential events that could
threaten or undermine our technology network.  Any of these
occurrences could cause material interruptions or delays in our business, result
in the loss of data, render us unable to provide services to our customers,
expose us to material risk of loss or litigation and liability, materially
damage our reputation and our visitor traffic may decrease as a
result.  In addition, if a person is able to circumvent our security
measures, he or she could destroy or misappropriate valuable information or
disrupt our operations which could cause irreparable damage to our reputation or
business.  Similar industry-wide concerns or events could also
damage our reputation or business.  Our insurance, if obtained,
may not be adequate to compensate us for all losses that may occur as a result
of a catastrophic system failure or other loss, and our insurers may not be able
or may decline to do so for a variety of reasons.




If we
fail to address these issues in a timely manner, we may lose the confidence of
our merchant advertisers, our revenue may decline and our business could
suffer.





We
rely on third-party co-location providers, and a failure of service by these
providers could adversely affect our business and reputation.




We rely
on third-party co-location providers to host our main servers.  If
these providers experience any interruption in operations or cease operations
for any reason or if we are unable to agree on satisfactory terms for continued
hosting relationships, we would be forced to enter into a relationship with
other service providers or assume hosting responsibilities
ourselves.  If we are forced to switch hosting facilities, we
may not be successful in finding an alternative service provider on
acceptable terms or in hosting the computer servers ourselves.  We may
also be limited in our remedies against these providers in the event of a
failure of service.  In the past, short-term outages have occurred in
the service maintained by co-location providers which could recur.  We
also may rely on third-party providers for components of our technology
platform, such as hardware and software providers, credit card processors and
domain name registrars.  A failure or limitation of service or
available capacity by any of these third-party providers could adversely affect
our business and reputation.




Our
quarterly results of operations might fluctuate due to changes in the search
engine-based algorithms, which could adversely affect our revenue and in turn
the market price of our common stock.




Our
revenue is heavily dependent on how search engines treat our content in their
indexes.  If search engines determine that our content is not high
quality, they may not rank our content as highly in their indexes resulting in a
reduction in our traffic, which may cause lower than expected
revenues.  We are greatly dependent on a small number of major search
engines, namely Google, Yahoo!, MSN, and AOL.  Search engines tend to
adjust their algorithms periodically and each adjustment tends to have an impact
on how our content ranks in their indexes.  These constant
fluctuations could make it difficult for us to predict future
revenues.




We
depend on the growth of the Internet and Internet infrastructure for our future
growth and any decrease or less-than-anticipated growth in Internet usage could
adversely affect our business prospects.




Our
future revenue and profits, if any, depend on the continued widespread use of
the Internet as an effective commercial and business medium.  Factors
which could reduce the widespread use of the Internet include:





·
            possible
      disruptions or other damage to the Internet or telecommunications
      infrastructure;·
            failure
      of the individual networking infrastructures of our merchant advertisers
      and distribution partners to alleviate potential overloading and delayed
      response times;·
            a
      decision by merchant advertisers to spend more of their marketing dollars
      in offline areas;·
            increased
      governmental regulation and taxation; and·
            actual
      or perceived lack of security or privacy
  protection.





In
particular, concerns over the security of transactions conducted on the Internet
and the privacy of users may inhibit the growth of the Internet and other online
services, especially online commerce.  In order for the online
commerce market to develop successfully, we, and other market participants, must
be able to transmit confidential information, including credit card information,
securely over public networks.  Any decrease or less than anticipated
growth in Internet usage could have a material adverse effect on our business
prospects.




Government
regulations and legal uncertainties relating to the Internet and on-line
commerce may adversely affect our business and operating results.




Companies
engaging in on-line search, commerce and related businesses face uncertainty
related to future government regulation of the Internet.  Due to the
rapid growth and widespread use of the Internet, legislatures at the federal and
state levels are enacting and considering various laws and regulations relating
to the Internet.  Furthermore, applicability to the Internet of
existing laws governing issues such as property ownership, copyrights and other
intellectual property issues, libel, obscenity and personal privacy is
uncertain.  Lawmakers adopted the majority of those laws prior to the
advent of the Internet and related technologies and, as a result, the laws do
not expressly contemplate or address the unique issues presented by the Internet
and related technologies.  Such existing and new laws may negatively
affect our business and operating results, expose us to substantial compliance
costs and liabilities, and impede the growth in use of the
Internet.




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The
following existing and proposed federal laws could negatively impact our
business:




·
            the
      Digital Millennium Copyright Act and its related safe harbors, which are
      intended to reduce the liability of online service providers for listing
      or linking to third-party Web sites that include materials that infringe
      copyrights or other rights of others;·
            the
      Federal Trade Commission Act, which requires, among other things, that all
      disclosures in connection with online offers and promotions be “clear and
      conspicuous”;·
            the
      CAN-SPAM Act of 2003 and certain similar state laws, which are intended to
      regulate interstate commerce by imposing limitations and penalties on the
      transmission of unsolicited commercial electronic mail via the Internet;
      and·
            pending
      and adopted consumer protection and privacy
  legislation.




Courts
may apply these laws in unintended and unexpected ways.  As a company
that provides services over the Internet, we may be subject to an action brought
under any of these or future laws governing online services.  Many of
the services of the Internet are automated and companies such as ours may be
unknowing conduits for illegal or prohibited materials.  We cannot
predict how courts will rule in many circumstances; for example, it
is possible that some courts could find strict liability or impose “know
your customer” standards of conduct in certain circumstances.




In 1998,
the Internet Tax Freedom Act was enacted, which generally placed a three-year
moratorium on state and local taxes on Internet access and on multiple or
discriminatory state and local taxes on electronic commerce.  This
moratorium was recently extended.  We cannot predict whether this
moratorium will be extended in the future or whether future legislation will
alter the nature of the moratorium.  If this moratorium is not
extended in its current form, state and local governments could impose
additional taxes on Internet-based transactions, and these taxes could decrease
our ability to compete with traditional retailers and could have a material
adverse effect on our business, financial condition, results of operations and
cash flow.




We may
also be subject to costs and liabilities with respect to privacy
issues.  Several Internet companies have incurred costs and paid
penalties for violating their privacy policies.  Further, federal and
state governments may adopt new legislation with respect to user
privacy.  Foreign governments may also pass laws which could
negatively impact our business or may prosecute us for our products and services
based on existing laws.  The restrictions imposed by, and costs of
complying with, current and possible future laws and regulations related to our
business could harm our business and operating results.  In addition,
our failure to comply with applicable laws and regulations could result in
fines, sanctions and other penalties and additional restrictions on our
collection, transfer or use of personal data.  These developments
could materially and adversely affect our business, results of operations and
financial condition.





The
increasing use of the Internet and the resulting burden on the
telecommunications infrastructure has prompted telephone carriers to request
that the Federal Communications Commission (“FCC”) regulate Internet service
providers and impose access fees on those providers.  If the FCC
imposes access fees, the costs of using the Internet could increase
dramatically.  This could result in the reduced use of the Internet as
a medium for commerce, which could have a material adverse effect on our
Internet business operations.





We will
also be subject to regulation not specifically related to the Internet,
including laws affecting direct marketing, advertising, and sweepstakes and
other contests.  If courts and regulators interpret current laws
unfavorably, or if additional legislative or regulatory restrictions develop, we
may be forced to revise our business strategy.  We cannot predict
whether alternative strategies would yield favorable results, and our failure to
develop successful alternative strategies could materially and adversely affect
our results of operations and financial condition.




Future
regulation of search engines may adversely affect the commercial utility of our
search marketing services.





The
Federal Trade Commission (“FTC”) has recently reviewed the way in which search
engines disclose paid placements or paid inclusion practices to Internet
users.  In 2002, the FTC issued guidance recommending that all search
engine companies ensure that all paid search results are clearly
distinguished from non-paid results, that the use of paid inclusion is clearly
and conspicuously explained and disclosed and that other disclosures are made to
avoid misleading users about the possible effects of paid placement or paid
inclusion listings on search results.  Such disclosures if ultimately
mandated by the FTC or voluntarily made by us may reduce the desirability of any
paid placement and paid inclusion services that we offer.  We believe
that some users may conclude that paid search results are not subject to the
same relevancy requirements as non-paid search results, and will view paid
search results less favorably.  If such FTC disclosure reduces the
desirability of paid placement and paid inclusion services, and “click-throughs”
of paid search results decrease, the commercial utility of our search
marketing services could be adversely affected.






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We
may incur liabilities for the activities of users of our services, which could
adversely affect our service offerings.




The law
relating to the liability of providers of online services for activities of
their users and for the content of their merchant advertiser listings is
currently unsettled and could damage our business, financial condition and
operating results.  Our insurance policies may not provide coverage
for liability arising out of activities of our users or merchant advertisers for
the content of our listings.  Furthermore, we may not be able to
obtain or maintain adequate insurance coverage to reduce or limit the
liabilities associated with our businesses.  We may not
successfully avoid civil or criminal liability for unlawful activities
carried out by consumers of our services or for the content of our
listings.  Our potential liability for unlawful activities of users of
our services or for the content of our listings could require us to implement
measures to reduce our exposure to such liability, which may require us, among
other things, to spend substantial resources or to discontinue certain service
offerings.




Our
ability to grow will depend on effectively competing against Google and other
competitors that are competing in or about to enter the pay-for-performance
business.




Our
business plans depend in part on our ability to effectively offer an alternative
pay-for-performance solution to advertisers relative to Google and other
competitive offerings.  If enough advertisers in this new, evolving
business model choose to spend a significant portion of their
pay-for-performance advertising budgets with competitors such as Google, our
ability to grow our revenues will be limited.




We offer
advertising on Web sites other than our own.  The Web sites that will
list their unsold advertising space with us to include in our offerings are not
bound by contracts that ensure us a consistent supply of advertising
space-inventory. In addition, publishers can change the amount of inventory they
make available to us at any time. If a Web site publisher decides not to make
advertising space from its Web sites available to us, we may not be able to
replace this advertising space with advertising space from other Web sites that
have comparable traffic patterns and user demographics quickly enough to fulfill
our advertisers’ requests. This could result in lost revenues.




Our
growth depends on our ability to maintain a predictable inventory of advertising
space on our own and third-party Web sites. To attract new advertising
customers, we must maintain a consistent supply of attractive advertising space.
We intend to expand our advertising inventory by selectively adding to our owned
published content new publishers that offer attractive demographics, innovative
and quality content and growing user traffic.




The
market for Internet advertising and related services is intensely competitive.
We expect this competition to continue to increase because there are no
significant barriers to entry. Increased competition may result in price
reductions for advertising space, reduced margins and loss of our market share.
We will compete with the following types of companies:





·
            Internet
      advertising networks that focus on a CPA model, such as Value Click Media
      and CPX Interactive;·
            Internet
      affiliate networks using a performance-based model, such as Media
      Breakaway/CPA Empire, Hydra Media and Media Whiz
  Holdings;·
            e-mail
      publishers and Data/List Management firms that use performance based
      models such as Datran;·
            Internet
      navigational and Web search engine companies moving into the
      pay-for-performance space such as Google; and·
            traditional
      advertising and direct marketing media, such as radio, cable, television,
      print and direct marketing.





We also
compete with traditional advertising media, such as direct mail, television,
radio, cable and print, for a share of advertisers’ total advertising
budgets.  Many of our current and potential competitors enjoy
competitive advantages over us, such as longer operating histories, greater name
recognition, larger customer bases, greater access to advertising space on
high-traffic Web sites, and significantly greater financial, technical and
marketing resources. We may not be able to compete successfully, and
competitive pressures may materially and adversely affect our business, results
of operations and financial condition.







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Risks
Relating to the Common Stock




The
market price of our common stock is likely to be highly volatile and subject to
wide fluctuations.




The
market price of our common stock is likely to be highly volatile and could be
subject to wide fluctuations in response to a number of factors, many of which
are beyond our control, including:




·
              announcements of new products or services by our
    competitors;·
              fluctuations in revenue attributable to changes in the search engine-based
      algorithms that  rank the relevance ofour
      content;·
              quarterly
      variations in our revenues and operating expenses;·
              announcements
      of technological innovations or new products or services by
      us;·
              sales
      of common stock by our founders and directors or other selling
      stockholders;·
              competitive
      pricing pressures;·
              our
      ability to obtain working capital financing;·
              additions
      or departures of key personnel;·
              the
      limited number of people who hold our common stock;·
              sales
      of large blocks of our common stock when restricted shares become freely
      tradable;·
              our
      ability to execute our business plan;·
              operating
      results that fall below expectations;·
              loss
      of any strategic relationship;·
              regulatory
      developments;·
              period-to-period
      fluctuations in our financial results;·
              the
      potential absence of securities-analyst coverage;·
              conditions
      or trends in the industry; and·
              general
      market conditions.




In
addition, the securities markets have from time to time experienced significant
price and volume fluctuations that are unrelated to the operating performance of
particular companies.  These market fluctuations may also materially
and adversely affect the market price of our common stock.





Our
operating results may fluctuate significantly, and these fluctuations may cause
the price of our common stock to fall.




Our
operating results will likely vary in the future primarily as the result of
fluctuations in our revenues and operating expenses.  If our results
of operations do not meet the expectations of current or potential investors,
the price of our common stock may decline.





Our
common stock is controlled by insiders.





Following
the Abundantad merger, the founders and investors of Abundantad now beneficially
own a majority of the outstanding shares of our common stock.  Such
concentrated control of the Company may adversely affect the price of our common
stock.  Our principal security holders may be able to control matters
requiring approval by our security holders, including the election of
directors.  Such concentrated control may also make it difficult for
our stockholders to receive a premium for their shares of our common stock if we
merge with a third party or enter into different transactions which require
stockholder approval.  In addition, certain provisions of Delaware law
could have the effect of making it more difficult or more expensive for a third
party to acquire, or of discouraging a third party from attempting to acquire,
control of us.  Accordingly, these former Abundantad shareholders will
have the power to control the election of all of our directors and the approval
of actions for which the approval of our stockholders is required.  If
you acquire common stock, you may have no effective voice in the management of
the Company.




Anti-takeover
provisions may limit the ability of another party to acquire us, which could
cause our stock price to decline.




We are
subject to the Delaware General Corporate Law, which provides, subject to
enumerated exceptions, that if a person acquires 15% or more of our voting
stock, the person is an “interested stockholder” and may not engage in “business
combinations” with us for a period of three years from the time the person
acquired 15% or more of our voting stock.





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We
are subject to the reporting requirements of federal securities laws, which can
be expensive and may divert resources from other projects, thus impairing its
ability to grow.




We are a
public reporting and trading company and, accordingly, subject to the
information and reporting requirements of the Exchange Act and other federal
securities laws, including compliance with the Sarbanes-Oxley Act of 2002
(the “Sarbanes-Oxley Act”).  We expect to incur significant costs of
preparing and filing annual and quarterly reports, proxy statements
and other information with the SEC and furnishing audited reports to
stockholders.




It
may be time consuming, difficult and costly for us to develop and implement the
internal controls and reporting procedures required by the Sarbanes-Oxley
Act.  We may need to hire additional financial reporting, internal
controls and other finance personnel in order to develop and implement
appropriate internal controls and reporting procedures.  If we are
unable to comply with the internal controls requirements of the Sarbanes-Oxley
Act, then we may not be able to obtain the independent accountant certifications
required by such act, which may preclude us from keeping our filings with the
SEC current.




Because
we became public by means of a reverse merger with Abundantad into a
wholly-owned subsidiary of Adex, we may not be able to attract the attention of
major brokerage firms.




There may
be risks associated with Abundantad becoming public through a “reverse
merger.”  Securities analysts of major brokerage firms may not provide
coverage of us since there is no incentive to brokerage firms to recommend the
purchase of our common stock.  We can give no assurance that brokerage
firms will, in the future, want to conduct any secondary offerings on behalf of
our Company.




If
we fail to establish and maintain an effective system of internal controls, we
may not be able to report our financial results accurately or prevent
fraud.  Any inability to report and file our financial results
accurately and timely could harm our reputation and adversely impact the trading
price of our common stock.




Effective
internal controls are necessary for us to provide reliable financial reports and
prevent fraud.  If we cannot provide reliable financial reports or
prevent fraud, we may not be able to manage our business as effectively as we
would if an effective control environment existed, and our business and
reputation with investors may be harmed.  As a result, our small size
and any current internal control deficiencies may adversely affect our financial
condition, results of operation and access to capital.  We have not
performed an in-depth analysis to determine if historical undiscovered failures
of internal controls exist, and may in the future discover areas of our internal
controls that need improvement.




Public-company
compliance may make it more difficult for us to attract and retain officers and
directors.





As a
public company, the rules and regulations of the Exchange Act and Sarbanes-Oxley
Act may make it more difficult and expensive for us to obtain director and
officer liability insurance in the future and we may be required to accept
reduced policy limits and coverage or incur substantially higher costs to
obtain the same or similar coverage.  As a result, it may be more
difficult for us to attract and retain qualified persons to serve on our
board of directors or as executive officers.





Persons
associated with securities offerings, including consultants, may be deemed to be
broker-dealers, which may expose us to claims for rescission or
damages.




If any
person associated with any of our securities offerings is deemed to be a
broker-dealer and is not registered with the SEC, we may face claims for
rescission and other remedies.  We may become engaged in costly
litigation to defend these claims, which would lead to increased expenditures
for legal fees and divert managements’ attention from operating the
business.  If we could not successfully defend these claims, we may be
required to return proceeds of any affected offering to investors, which would
harm our financial condition.




We
do not expect to pay dividends in the future.  Any return on
investment may be limited to the value of our common stock.




Aside
from the accounting treatment of the consideration we paid to Kim and Lim, LLC
for the acquisition of the assets, and the beneficial conversion feature on the
series A preferred share financing we completed in June 2009, both of which were
treated as dividend paid, we have never paid cash dividends on our common stock
and do not anticipate doing so in the foreseeable future.  The
payment of dividends on our common stock will depend on earnings, financial
condition and other business and economic factors affecting us at such time as
our board of directors may consider relevant.  If we do not pay
dividends, our common stock may be less valuable because a return on your
investment will only occur if our stock price appreciates.






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There
is currently no liquid trading market for our common stock and we cannot ensure
that one will ever develop or be sustained.




To date
there has been no liquid trading market for our common stock.  We
cannot predict how liquid the market for our common stock might
become.  As soon as is practicable, we anticipate applying for listing
of our common stock on the NASDAQ Capital Market or other national securities
exchange, assuming that we can satisfy the initial listing standards for such
exchange.  We currently do not satisfy the initial listing standards,
and cannot ensure that we will be able to satisfy such listing standards or that
our common stock will be accepted for listing on any such
exchange.  Should we fail to satisfy the initial listing standards of
such exchanges, or our common stock is otherwise rejected for listing and
remains quoted on the OTC Bulletin Board or is suspended from the OTC
Bulletin Board, the trading price of our common stock could suffer and the
trading market for our common stock may be less liquid and our common stock
price may be subject to increased volatility.





Furthermore,
for companies whose securities are quoted on the OTC Bulletin Board, it is more
difficult to obtain (1) accurate quotations, (2) coverage for significant news
events because major wire services generally do not publish press releases about
such companies, and (3) needed capital.




Our
common stock may be deemed a “penny stock,” which would make it more difficult
for our investors to sell their shares.




Our
common stock may be subject to the “penny stock” rules adopted under Section
15(g) of the Exchange Act.  The penny stock rules generally apply to
companies whose stock is not listed on a national securities exchange and trades
at less than $5.00 per share, other than companies that have had average revenue
of at least $6,000,000 for the last three years or that have tangible net worth
of at least $5,000,000 ($2,000,000 if the company has been operating for three
or more years).  These rules require, among other things, that brokers
who trade penny stock to persons other than “established customers” complete
certain documentation, make suitability inquiries of investors and provide
investors with certain information concerning trading in the security, including
a risk disclosure document and quote information under certain
circumstances.  Many brokers have decided not to trade penny stocks
because of the requirements of the penny stock rules and, as a result, the
number of broker-dealers willing to act as market makers in such securities is
limited.  If we remain subject to the penny stock rules for any
significant period, it could have an adverse effect on the market, if any, for
our securities.  If our securities are subject to the penny stock
rules, investors will find it more difficult to dispose of our
securities.




Offers
or availability for sale of a substantial number of shares of our common stock
may cause the price of our common stock to decline.




If our
stockholders sell substantial amounts of our common stock in the public market,
it could create a circumstance commonly referred to as an “overhang” and in
anticipation of which the market price of our common stock could
fall.  The existence of an overhang, whether or not sales have
occurred or are occurring, also could make more difficult our ability to raise
additional financing through the sale of equity or equity-related securities in
the future at a time and price that we deem reasonable or
appropriate.  The shares of our common stock issued to certain of the
former stockholders of Abundantad in the Abundantad merger are subject to a
lock-up agreement prohibiting sales of such shares for a period of 15
months following the Abundantad merger.  Following such date, all of
those shares will become freely tradable, subject to securities laws and SEC
regulations regarding sales by insiders.    We note that
recent revisions to Rule 144 may result in certain shares of our common
stock becoming eligible for resale into the public market without registration
in as little as six months after their issuance.




Because
our directors and executive officers are among our largest stockholders, they
can exert significant control over our business and affairs and have actual or
potential interests that may depart from those of our other
stockholders.





Our
directors and executive officers own or control a significant percentage of our
common stock. Additionally, such persons may hold exercise rights under options
or warrants they may hold now or in the future. The interests of such persons
may differ from the interests of our other stockholders. As a result, in
addition to their board seats and offices, such persons will have significant
influence and control over corporate actions requiring stockholder approval,
irrespective of how the Company’s other stockholders may vote, including the
following actions:




·
            to
      elect or defeat the election of our directors;·
            to
      amend or prevent amendment of our Certificate of Incorporation or
      By-laws;·
            to
      effect or prevent a merger, sale of assets or other corporate transaction;
      and·
            to
      control the outcome of any other matter submitted to our stockholders for
      vote.





Such
persons’ stock ownership may discourage a potential acquirer from making a
tender offer or otherwise attempting to obtain control of the company, which in
turn could reduce our stock price or prevent our stockholders from realizing a
premium over our stock price.






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Item 2.  Unregistered Sales of Equity Securities and Use
of Proceeds





In
connection with the Company’s acquisition of Vibrantads, LLC, under the six
month share reset provision, we determined the VWAP was $1.60 and accordingly,
63,298 additional shares of common stock were issued to the former member of
Vibrantads, LLC on July 21, 2009. In connection with this issuance, the Company
has relied on the exemption from registration under the Securities Act of 1933,
as amended (“Securities Act”) pursuant to Section 4(2) thereof.  Such
shares of common stock are restricted shares, and the holders thereof may not
sell, transfer or otherwise dispose of such shares without registration under
the Securities Act  an exemption therefrom.





In
connection the vesting schedule of the restricted stocks, 20,313 shares to a
non-employee and 4,750 shares to two full time employees were vested during the
second quarter of 2009.  The Company has relied on the exemption from
registration under the Securities Act pursuant to Section 4(2)
thereof.  Such shares of common stock are restricted shares, and the
holders thereof may not sell, transfer or otherwise dispose of such shares
without registration under the Securities Act or an exempt
therefrom.


As
previously disclosed on the Company’s Form 8-K filed with the SEC on June 15,
2009, on June 12, 2009, the company issued 1,951,337 shares of the Company’s
series A preferred stock, $0.0001 par value (the “preferred stock”), at a price
per share equal to $1.20 (the “Original Issue Price”) and warrants (the
“warrants”) to purchase up to 975,668 shares of the Company’s common stock, par
value $0.0001 (the “common stock”), at an exercise price of $1.56 per share (the
“Warrant Exercise Price”). The Company has raised aggregate proceeds of
$2,341,604 in the financing transaction (the “Financing”). The purchase price
for the preferred stock and warrants was payable in cash. The Company intended
to use the cash raised in the financing to expand its business operation. The
Company has relied on the exemption from registration under the Securities Act
pursuant to Section 4(2) thereof.  Such shares of common stock are
restricted shares, and the holders thereof may not sell, transfer or otherwise
dispose of such shares without registration under the Securities Act or an
exempt therefrom.




Item 3. Defaults Upon Senior Securities





None




Item 4. Submission of Matters to a Vote of Security
Holders





As
previously reported on Form 8-K filed with the Securities and Exchange
Commission on June 15, 2009, on June 12, 2009, the holders representing
approximately 50.16% of the Company’s common stock approved the following
matters pursuant to a written consent.





·
            the
      re-election of the incumbent directors until their respective successors
      are duly elected and qualified;


·
            the
      approval and adoption of the First Amended and Restated Adex Media Inc.,
      Employee Stock Option Plan;


·
            the
      approval and adoption of the Company’s First Amended and Restated Bylaws;
      and


·
            the
      ratification of the appointment of Burr, Pilger and Mayer, LLP as the
      Company’s independent registered public accounting firm for the year
      ending December 31, 2009.




The
Company did not solicit proxies and the related information provided in the Form
8-K filed with the SEC on June 15, 2009 is incorporated herein by
reference.


Item 5.Other Information





None




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Item 6.Exhibits





Exhibit
      No.
            Description3.1
            Certificate
      of Incorporation (1)3.2
            Bylaws
      (1)3.3
            First
      Amended and Restated Adex Media, Inc. Employee Stock Option
      Plan (3)3.4
            First
      Amended and Restated Certificate of Incorporation of Adex Media, Inc.
      (3)3.5
            First
      Amended and Restated Bylaws (3)3.6
            Certificate
      of Designations, Preferences and Rights of Series A Convertible Preferred
      Stock of Adex Media, Inc. (3)10.1
            Amendment
      to Asset Purchase Agreement among Abundantad Incorporated, a Nevada
      corporation, Kim and Lim, LLC, a California limited liability company,
      James Kim and Dennis Hom (2)10.2
            Form
      of Series A Convertible Preferred Stock and Warrant Purchase
      Agreement*10.3
            Form
      of Warrant*31.1
            Certification
      of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002 *31.2
            Certification
      of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002 *32.1
            Certification
      of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
      Act of 2002 *32.2
            Certificate
      of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
      Act of 2002*


______________


* Filed
herewith





(1)
            Incorporated
      by reference herein to the Company’s Current Report on Form 8-K filed with
      the Securities and Exchange Commission on May 16, 2008.(2)
            Incorporated
      by reference herein to the Company’s Current Report on Form 8-K filed with
      the Securities and Exchange Commission on May 15, 2009.(3)
            Incorporated
      by reference herein to the Company’s Current Report on Form 8-K filed with
      the Securities and Exchange Commission on June 15,
  2009.








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SIGNATURES




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




ADEX MEDIA,
      INC.Date:
      August 14, 2009
            By:
            /s/
      Scott RewickScott
      RewickChief
      Executive Officer(Principal
      Executive Officer)ADEX
      MEDIA, INC.Date:
      August 14, 2009
            By:
            /s/
      Ben ZadikBen
      ZadikChief
      Financial Officer(Principal
      Financial and Accounting Officer)